SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

(Mark  One)
[X]     ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE  ACT  OF  1934
For  the  fiscal  year  ended  December  31,  2002
                                       OR

[  ]     TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d) OF THE
SECURITIES  EXCHANGE  ACT  OF    1934  [NO  FEE  REQUIRED]
For  the  transition  period  ________  to  ________

                     Commission File Number 1-12368

                        THE LEATHER FACTORY, INC.
          (Exact name of registrant as specified in its charter)

              Delaware                               75-2543540
  (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER
   INCORPORATION  OR  ORGANIZATION)            IDENTIFICATION NUMBER)

     3847 East Loop 820 South
         Fort Worth, Texas                           76119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)           (ZIP CODE)

  REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (817) 496-4414

    SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

 TITLE  OF  EACH  CLASS       NAME OF EACH EXCHANGE ON WHICH REGISTERED
 ----------------------       -----------------------------------------
Common Stock, par value $.0024       American Stock Exchange

     SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                  NONE

      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  [  ]

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [  ]

     The  aggregate  market  value of the common stock held by non-affiliates of
the  registrant  was  approximately  $9,793,833  at March 11, 2003. At that date
there  were  10,197,961  shares  of  Common  Stock  outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain  portions  of  the  Registrant's definitive Proxy Statement for the
Annual  Meeting  of Stockholders to be held on May 15, 2003, are incorporated by
reference  in  Part  III  of  this  report.

                                        1
<PAGE>

                                     PART I

ITEM  1.  BUSINESS
------------------

     As  used  in this Report, the terms "we," "us," "our," "TLF," "management,"
and  the  "Company"  mean The Leather Factory, Inc. and its subsidiaries (unless
the  context  indicates  a  different  meaning).

GENERAL

     The  Leather  Factory,  Inc.  is  a Delaware corporation whose common stock
trades  on  the  American Stock Exchange under the symbol "TLF." The Company was
first  incorporated  under  the  laws  of  the  State  of  Colorado  in 1984 and
reincorporated  under  the  laws  of  the  State  of  Delaware  in  June  1994.

     We  are a wholesale distributor and retailer of a broad line of leather and
related  products,  including  leather,  leatherworking  tools,  buckles  and
adornments  for  belts, leather dyes and finishes, saddle and tack hardware, and
do-it-yourself  kits.  We  also manufacture leather lacing and kits. The Company
sells  its  products  worldwide  through  27 Leather Factory stores and 19 Tandy
Leather  stores  (as  of  March  31,  2003),  located throughout the U.S., three
combination  Leather Factory/Tandy Leather stores located in Canada, and through
its  websites  (www.leatherfactory.com)  and  (www.tandyleather.com).  Our
subsidiary,  Roberts,  Cushman  &  Co., designs and manufactures fancy hat trims
directly  to  hat  manufacturers.

     The  Company  is  managed on a business entity basis, with those businesses
being The Leather Factory ("Leather Factory"), Tandy Leather Company ("Tandy" or
"Tandy Leather"), and Roberts, Cushman & Company, Inc. ("Cushman").  See Note 12
to the Consolidated Financial Statements, Segment Information, for financial and
additional information concerning the Company's segments, as well as its foreign
operations.

     We  frequently  introduce new products either through our own manufacturing
capability or by purchasing from vendors. The Company holds a substantial number
of  copyrights  for its designs. These designs have been incorporated throughout
the  Company's  product line as a means of increasing its competitive advantage.

     In  2002,  the  Company began opening retail stores under the Tandy Leather
name  and  had  fourteen  stores  opened  as  of the end of the year.  The Tandy
Leather  retail store concept differs from that of a traditional Leather Factory
store.  Tandy stores are designed to attract walk-in retail customers primarily,
while Leather Factory stores, although they can and do service retail customers,
generally  tend  to  target  wholesale  customers  including  manufacturers  and
resellers.

     The  Company  has  made numerous acquisitions in prior years, including the
purchase  of  the  six original Leather Factory stores from Brown Group, Inc. in
1985.  In 1995, the Company purchased Cushman. In 1996, the Company acquired its
Canadian  distributor, The Leather Factory of Canada, Ltd. In November 2000, the
Company  acquired  the operating assets of two subsidiaries of Tandycrafts, Inc.
to  form  the Tandy Leather Company subsidiary. In 2002, Tandy Leather purchased
four  independent  leathercraft  retail  stores.

     No  single  customer's  purchases  represent more than 10% of the Company's
total  sales  in  2002.  Approximately 5.6% of our 2002 sales were export sales.

     The  Company's  principal  offices are located at 3847 East Loop 820 South,
Fort  Worth,  Texas  76119,  and  its  phone  number  is  (817)  496-4414.
                                        2
<PAGE>


LEATHER  FACTORY  OPERATIONS

     The  Leather  Factory  distributes  its  broad  product line of leather and
leathercraft-related  products  in  the  United  States and internationally.  We
manufacture  some  of our products, while the majority of products are purchased
from  manufacturers.  Leather Factory operations accounted for 76.3%, 77.0%, and
89.9%  of  the  total  consolidated net sales of the Company for 2002, 2001, and
2000,  respectively.

     BUSINESS  STRATEGY.     We  distribute  Leather Factory products through 27
U.S.-based  stores,  three  Canadian-based  stores,  and  through  our  web site
(www.leatherfactory.com).  The  location  of the stores is selected based on the
location  of  customers,  so  that  delivery  time to customers is minimized.  A
two-day  maximum  delivery  time  is  the  Company's goal.  The type of premises
utilized  for the store locations is generally light industrial office/warehouse
space  in  proximity to a major freeway or with other similar access.  This kind
of  location typically offers lower rents compared to other more retail-oriented
locations.

     Leather Factory stores offer a "one-stop shopping" concept for both leather
and  leathercraft  materials.  Our  strategy is that a customer can purchase the
leather  and  related accessories and supplies necessary to complete his project
from  one  place.  The size and configuration of the stores are planned to allow
large quantities of product to be displayed in an easily accessible and visually
appealing manner.  Leather is displayed by the pallet where the customer can see
and  touch  it,  assessing  first-hand  the  numerous  sizes, styles, and grades
offered.

     Leather  Factory  stores  serve  customers  through various means including
walk-in  traffic,  phone  and  mail  order.  Both wholesale and retail customers
purchase  from  the  stores.

     We  staff  Leather  Factory  stores  with  experienced  managers  whose
compensation is tied to the operating profit of their store. Sales are generated
by  the selling efforts of the store personnel themselves, the aggressive use of
direct  mail  advertising, participation by the Company at trade shows and, on a
limited  basis,  the  use  of  sales  representative  organizations.

     Our  primary  advertising efforts are through direct mail advertising aimed
at  specific market groups. Like most direct mail marketers, our mailing list is
one  of  our  most  important assets. Over the years, we have spent considerable
time  and  money  maintaining  and  updating  this  list.  As  a result, we have
developed  what we consider to be the purest, most up-to-date, unique collection
of  leathercraft customers' names and purchase information found anywhere in the
world.  Our  mailing  list  has  been  the key to our sales in the past and will
continue  to be the key in the future. We estimate that in 2003, we will produce
and  mail  35-40  different  direct  mail  pieces  from a simple black and white
postcard  to  our  140-page  full  color  catalog.

     CUSTOMERS.  Leather  Factory's  customer  base is comprised of individuals,
wholesale  distributors,  tack  and  saddle  shops,  institutions  (prisons  and
prisoners,  schools,  hospitals),  western  stores, craft stores and craft store
chains,  other  large  volume purchasers, manufacturers, and retailers dispersed
geographically throughout the world. Wholesale sales make up the majority of our
Leather  Factory  business, although retail sales have increased somewhat during
the  last  several years. Generally speaking, Leather Factory's sales mix is 80%
wholesale  and 20% retail. We are continuing efforts to attract retail customers
to  Leather Factory; however, the strongest market for Leather Factory continues
to  be  the  wholesale  customer. Leather Factory sales generally do not reflect
significant  seasonal  patterns.  Orders  are  filled  as  received, and Leather
Factory  does  not  have  any backlogs. We maintain inventory at a level that we
believe  will  fill  most  customer  orders.

     Leather  Factory's Authorized Sales Center ("ASC") program was developed to
generate  sales  in  geographical  areas  where we currently do not have a store
without  the  capital  investment  needed  to  open  one.  An  unrelated  person
operating  an  existing  business  who  desires to become an ASC must apply with
Leather  Factory  and  upon  approval, place a minimum initial order.  There are
also minimum annual purchase amounts set that the ASC must adhere to in order to
maintain ASC status.  In exchange, the ASC gets free advertising in certain sale
flyers,  price breaks on many products, advance notice of new products, priority
shipping and handling on all orders, as well as various other benefits.  Leather
Factory  stores  service  approximately  110 ASC's located throughout the United
States.

     EXPANSION.  We  opened four new Leather Factory stores in 1999, and two new
stores  in  each  of the years 2000 and 2001. While we do not believe there is a
significant and immediate opportunity for expansion of the Leather Factory store
system  in  terms of opening additional stores, we do believe expansion could be
achieved by acquiring companies in related areas/markets which offer synergistic
aspects  based  on  the  locations  and/or  product  lines  of  the  businesses.
                                        3
<PAGE>

TANDY  LEATHER  OPERATIONS

     Tandy  Leather Company bears the name of the oldest and best-known supplier
of  leather  and related supplies used in the leathercraft industry. Established
in 1919, originally as Hinkley-Tandy Leather Company, Tandy Leather has been the
primary  resource  for over five generations of leathercrafters. This subsidiary
offers  a product line of quality tools, leather, accessories, kits and teaching
materials.

     As  noted  above,  we  acquired  the Tandy Leather assets in November 2000.
Tandy  Leather accounted for 18.6%, 17.7% and 1.9% of the total consolidated net
sales  of  the  Company  for  2002,  2001,  and  2000,  respectively.

     BUSINESS  STRATEGY.  Tandy  Leather  did not own any retail stores when its
assets  were  acquired  by  the  Company  and  was  operating  as a catalog/mail
order/Internet  fulfillment house.  At one time, however, Tandy Leather operated
approximately 350 retail stores located throughout the United States and Canada.
Believing  that  Tandy  Leather stores are a viable vehicle for growth, we began
opening  Tandy  Leather  retail  stores in 2002.  As of December 31, 2002, there
were  14  retail stores located in the United States. More information about the
growth  and  expansion  of  the  Tandy  retail  store  chain is explained below.

     The  retail  stores  serve  walk-in,  mail  and  phone order customers from
convenient  locations  in  established  retail areas as well as orders generated
from  its  website,  www.tandyleather.com.  The  Tandy  stores  also  service
approximately 120 authorized dealers located throughout the United States. Tandy
Leather  stores  are staffed by knowledgeable sales people whose compensation is
based,  in part, upon the profitability of their store. Our products are sold in
Canada  through  the  three  Leather  Factory  stores located there. These three
stores  support  approximately  40  Tandy  Leather  authorized  dealers  located
throughout  the  Canadian  provinces.

     Sales  by  Tandy Leather are driven through the efforts of the store staff,
trade  shows,  our 132-page catalog and a direct marketing program that includes
35-40 different sales flyers produced annually and e-mail announcements. Tandy's
mailing  list  is  similar  to  that  of The Leather Factory in that maintaining
detailed  customer  history allows us to target certain customer segments in our
mailings.  This provides significant opportunity for sales retention and growth.

     Tandy  Leather has long been the entry point for new customers getting into
leathercraft.  We  continue to broaden our customer base by working with various
youth  organizations  and  institutions  where  people  are  introduced  to
leathercraft,  as  well  as  hosting  classes  in  the  retail  stores.

     CUSTOMERS.  Tandy's  customer  base  is  comprised  mostly  of  individual
hobbyists  but  also  includes  a  number  of  resellers,  small  manufacturers,
institutions  and  dealers. Individual retail customers are our largest customer
group,  representing  more  than  65%  of  Tandy  Leather sales. Youth camps and
schools,  Authorized  Dealers  (similar  to  Leather  Factory's Authorized Sales
Centers)  and  our  wholesale customers complete our customer base. Like Leather
Factory, Tandy fills orders as they are received, and there is no order backlog.
Tandy  maintains  reasonable  amounts  of  inventory  to  meet  these  orders.

     Tandy's  sales,  when  operating  strictly  as  an  order fulfillment house
(phone,  fax,  mail,  and  Internet orders), are generally consistent quarter to
quarter  (25%  per  quarter).  Its retail store operations historically generate
slightly more sales in the 4th quarter of each year (approximately 30%) and less
in  the  2nd  quarter  (approximately 20%) while the 1st and 3rd quarters remain
steady  at  25%.

     EXPANSION.  In  December 2001, The Leather Factory, Inc. announced plans to
expand  the  Tandy  Leather  operation through the introduction of Tandy Leather
retail  stores.  We  opened  fourteen  retail stores in 2002 - four by acquiring
existing  leathercraft stores, nine by opening new stores, and one by converting
a  Leather  Factory store. Management expects to open a similar number of retail
stores  in  2003.
                                        4
<PAGE>

ROBERTS,  CUSHMAN  SUBSIDIARY

     Cushman  is  located  in  Long  Island  City,  N.Y., and produces and sells
headwear adornments (decorations that adorn the outside of a hat), manufacturing
made-to-order  trimmings  for  the headwear industry for over 140 years. Cushman
accounted  for  5.1%,  5.3%, and 8.2% of the total consolidated net sales of the
Company  for  2002,  2001,  and  2000,  respectively.

     BUSINESS  STRATEGY.  Cushman has long been considered one of the leaders in
the field of headwear trimmings. It designs and manufactures exclusive trimmings
for all type of hats. Trims are sold to hat manufacturers directly. Cushman does
not  employ  an  outside sales force. Instead, customers visit the facilities in
New York and, with a Cushman designer, incorporate their ideas into a customized
product.  The  customer is provided samples or photographs of each design before
they  leave  the  premises who can then use the sample as a sales tool to obtain
hat  orders from their customers. This "design-on-site" process is unique in the
industry.

     CUSTOMERS.  Currently,  there  are  approximately  90  to  100  headwear
manufacturers  worldwide.  Cushman designs and manufactures trims for over 75 of
those  manufacturers,  supplying  customized  trims,  as well as ribbons, buckle
sets,  name  pins,  feathers,  etc.  Our  success  in developing and maintaining
long-standing  relationships  with our customers is due primarily to our ability
to  deliver  quality products in a timely manner. Generally, our delivery target
is  three  weeks or less. Cushman's backlog of in-house orders from customers as
of March 14, 2003 was $180,000, which approximates one month of sales. Cushman's
sales  generally  do  not  reflect  significant  seasonal  patterns.

     EXPANSION.  Cushman  has  been successful providing a very specific product
line directly to headwear manufacturers. Given the current conditions, we do not
believe  that  there  is  much room for expansion in the industry, other than to
capture additional market share. We have considered the possibility of expanding
production  to  other  leather  products.  However,  even  though  the potential
products  would  be  made from leather and therefore could be considered somehow
related,  we  have  decided  that Cushman's expansion into other products is not
feasible  at  this  time.
                                        5
<PAGE>

ADDITIONAL  INFORMATION

     PRODUCTS.  Our  core  business  consists  of  manufacturing,  importing and
distributing  leather,  traditional leathercraft materials (do-it-yourself kits,
stamping  sets,  and  leatherworking  tools), craft-related items (leather lace,
beads,  and wearable art accessories), hardware, metal garment accessories (belt
buckles, belt buckle designs, and conchos), and leather finishes.  We attempt to
maintain  the  optimum  number  of  stock-keeping  units ("SKUs") in the Leather
Factory and Tandy Leather lines to balance proper stock maintenance and minimize
out-of-stock  situations  against carrying costs involved with such an inventory
level.  We  try  to  maintain  higher  inventories  of certain imported items to
ensure  a  continuous  supply.

     The  number  of SKUs has been refined over the years by the introduction of
new  products  and  the  discontinuing of selected products. The Company carries
approximately  3,400  items  in the current lines of leather and leather-related
merchandise  -  800  of  which  are  exclusively  Leather  Factory products, 800
exclusively  Tandy  Leather and 1,800 carried by both Leather Factory and Tandy.

     The  products manufactured by the Company generally involve cutting leather
into  various  shapes  and  patterns using metal dies ("clicking"), fabrication,
assembly,  and  packaging/repackaging  tasks.  Items  made  in  Fort  Worth  are
primarily  distributed  under  the  TejasTM  brand  name  through  our  stores.

     Cushman's  hat  bands  are  generally  made  from leather, ribbon, or woven
fabrics,  depending on the style of hat. They are made by cutting leather and/or
other  materials into strips, and enhancing the trim by attaching conchos and/or
three-piece  buckle  sets,  braiding  with other materials, finishing the end or
borders  by  stitching  or  by  lacing  with leather lace. Cushman also supplies
custom-designed  buckles and conchos separate from the bands, feathers for dress
hats,  and  name  pins.

     PATENTS,  COPYRIGHTS.  We  presently  own  496  copyrights  covering  605
registered  works,  twenty  trademarks  covering  twenty  names, and two patents
covering  three  products.  Registered  trademarks  include  federal  trade name
registrations  on  "The  Leather  Factory"  and  "Tandy  Leather  Company".  The
trademarks  expire at various times starting in 2005 and ending in 2012, but can
be  renewed  indefinitely.  Most  copyrights  granted  or  pending  are on metal
products,  such  as  conchos,  belt  buckles,  instruction  books, and kits. The
expiration  period  for  the  copyrights  begins  in  2062 and ends in 2072. The
Company  has  patents  on two belt buckles and certain leather-working equipment
known  as  the  "Speedy Embosser." The patents expire in 2011. We consider these
intangibles  to  be  valuable  assets  and  defend  them  as  necessary.

     Cushman's  products  are generally not copyrighted initially as hundreds of
new trim designs are continually in process.  Once a trim has been selected by a
customer  for  production, has been completed for a line of hats, and has been a
strong  seller  for  the  season,  selected  components  in  the  trim are often
transferred  to  Leather Factory, adapted to fit Leather Factory's product line,
and  copyrighted.  Given  that the apparel market designs and produces styles at
least  six  months  in  advance of a particular season, Cushman's product design
contributes  to  Leather Factory's development of new products as we get insight
into  what  styles  are  expected  to  be  popular  in  the  near  future.

     SUPPLIERS.  We  currently  purchase  merchandise  and  raw  materials  from
approximately  200  vendors  dispersed  throughout the United States and in more
than  20  foreign  countries.  In  2002,  the  ten largest vendors accounted for
approximately  75%  of Leather Factory's and Tandy Leather's combined purchases.
Because  leather is sold internationally, market conditions abroad are likely to
affect  the  price  of  leather  in the United States.  Outbreaks of mad cow and
hoof-and-mouth disease (or foot-and-mouth disease) in certain parts of the world
can  influence the price of leather used in our products.  As such an occurrence
is  beyond the control of the Company, we cannot predict when and to what extent
we  could  be  affected  in the future.  Aside from increasing purchases when we
anticipate  price  increases (or possibly delaying purchases if we foresee price
declines),  we  do  not  attempt  to  hedge  our  inventory  costs.

     Cushman purchases components from over 25 vendors, located predominately in
the  United  States.  In  2002, Cushman's top ten vendors (in dollars purchased)
represented  approximately  40%  of  its  total  purchases.

     Overall, we believe that our relationships with suppliers are strong and do
not  anticipate  any  material  changes  in  these supplier relationships in the
future.  Due  to the number of alternative sources of supply, the loss of any of
these  principal  suppliers  would not have a material impact on our operations.

     COMPETITION.  We  sell  our  leather  and  leathercraft-related products in
three  highly fragmented markets - leathercraft, leather accessories, and retail
craft.  We encounter competition in connection with certain product lines and in
certain areas from different companies, but have no direct competition affecting
the  entire product line.  We compete on price, availability of merchandise, and
speed  of  delivery.  Our  size  relative  to  most  of  our competitors creates
competitive  advantage  in our ability to stock a full range of products as well
as  in  buying  merchandise.  We  are  able  to  purchase  in  bulk  and have an
international network of suppliers that can provide quality merchandise at lower
costs.  Most  of  our competitors do not have the multiple sources of supply and
cannot  purchase  sufficient  quantities  to  compete  along  a  broad  range of
products.  In fact, some of our competitors are also customers, relying on us as
a  supplier.

     Our Cushman line encounters some competition.  However, we are not aware of
any  single  company  whose  primary  product  line  is  the  same as Cushman's.
Cushman's market share has grown over the years because of its reputation in the
industry  to  deliver  product  timely.
                                        6
<PAGE>

COMPLIANCE  WITH  ENVIRONMENTAL  LAWS

     Compliance  by  the  Company  with  federal,  state and local environmental
protection laws has not had, and is not expected to have, a material effect upon
capital  expenditures,  earnings  or  the  competitive  position of the Company.

EMPLOYEES

     As  of  December  31,  2002, the Company employed 340 people, with 323 on a
full-time  basis.  The  Company  is  not  a  party  to any collective bargaining
agreement.  Overall, management believes that relations with employees are good.

     Eligible  employees  participate  in  The  Leather Factory, Inc. Employees'
Stock  Ownership Plan and Trust ("ESOP"). As of December 31, 2002, 232 employees
and  former  employees  were  participants  in or beneficiaries of the ESOP. The
Company  has  the  option  of  contributing  up  to  25%  of eligible employees'
compensation  into  the  ESOP.  Net  contributions for 2002, 2001, and 2000 were
5.8%,  5.2%,  and  5.9%,  respectively,  of  eligible  compensation.  These
contributions  are  used  to  purchase  shares  of  the  Company's Common Stock.
Generally,  contributions  to  the  ESOP  follow  a  similar  pattern as overall
profitability.

EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

The  following  table  sets  forth  certain information concerning the executive
officers  of  the  Company.
<TABLE>
<CAPTION>

                          POSITION AND BUSINESS EXPERIENCE
       NAME AND AGE            DURING PAST FIVE YEARS                   SERVED AS OFFICER SINCE
       ------------       --------------------------------              -----------------------
<S>                       <C>                                           <C>

J. Wray Thompson, 71       Chief Executive Officer since June 1993.
                           President from June 1993 to January 2001.     1993

Ronald C.Morgan, 55        President since January 2001.
                           Chief Operating Officer since June 1993.      1993

Robin L. Morgan, 52        Vice President of Administration
                           since June 1993.                              1993

Shannon L. Greene, 37      Chief Financial Officer since May 2000.
                           Controller from January 1998 to May 2000.
                           Assistant Controller from September 1997 to
                           January  1998.                                2000
</TABLE>

Mr. and Mrs. Morgan are married.  All officers are elected annually by the Board
of  Directors  to  serve  for  the  ensuing  year.

                                        7
<PAGE>

ITEM  2.   PROPERTIES.
----------------------

     The Company leases all of its premises.  Detailed below are the lease terms
for  the  Company's  locations.  The  general  character  of the Leather Factory
("LF")  store  locations  is  light  industrial  office/warehouse  space.  Tandy
Leather  ("TAN")  store  locations  are generally found in retail strip centers.
The  Company  believes  that  all  of  its  properties are adequately covered by
insurance.  The  Cushman  facility ("RCC") is its manufacturing facility in Long
Island  City,  New  York.

     The  Company's  Fort Worth location includes the Fort Worth Leather Factory
store,  the  Company's  central  warehouse  and  manufacturing facility, and the
sales,  advertising,  administrative,  and  executive offices.  The Company also
leases  a 284 square-foot showroom in the Denver Merchandise Mart for $5,372 per
year.  This  lease  will  expire  in  October  2005.

<TABLE>
<CAPTION>


Location                    Total Square Feet  Minimum Annual Rent *   Lease Expiration  Lessee
<S>                         <C>                <C>                     <C>               <C>
Chattanooga, TN                         9,040  $               42,739  May 2004          LF
Denver, CO                              5,879                  30,000  September 2004    LF
Harrisburg, PA                          6,850                  40,417  March 2007        LF
Fort Worth, TX                        115,000                 410,958  March 2008        LF
Fresno, CA                              5,600                  44,456  March 2007        LF
Des Moines, IA                          4,000                  30,718  April 2004        LF
Phoenix, AZ                             4,500                  27,053  March 2006        LF
Springfield, MO                         6,000                  24,000  July 2003         LF
Spokane, WA                             5,400                  21,360  February 2004     LF
Albuquerque, NM                         5,000                  31,200  October 2003      LF
Salt Lake City, UT                      3,485                  21,600  July 2004         LF
Baldwin Park, CA                        7,800                  53,400  March 2005        LF
Tampa, FL                               5,238                  38,429  August 2008       LF
San Antonio, TX                         5,600                  42,256  October 2006      LF
Columbus, OH                            6,000                  38,461  October 2006      LF
El Paso, TX                             5,000                  28,252  August 2003       LF
Oakland, CA                             8,000                  54,000  December 2003     LF
Grand Rapids, MI                        8,000                  42,968  March 2004        LF
Wichita, KS                             5,150                  21,360  April 2004        LF
New Orleans, LA                         5,130                  22,200  September 2003    LF
Portland, OR                            5,232                  34,008  April 2004        LF
Charlotte, NC                           6,202                  29,025  February 2006     LF
Billings, MT                            2,600                  12,000  April 2004        LF
Tucson, AZ                              3,600                  21,033  May 2004          LF
Houston, TX                             4,250                  25,753  November 2005     LF
Dallas, TX                              5,040                  27,600  September 2005    LF
Chicago, IL                             6,100                  36,972  August 2006       LF
Long Island City, NY                   10,200                  71,146  June 2003         RCC
Oklahoma City, OK                       3,160                  20,012  December 2006     TAN
Boise, ID                               1,800                  16,200  February 2007     TAN
Sacramento, CA                          1,600                  22,907  April 2007        TAN
East Hartford, CT                       1,200                   9,600  May 2007          TAN
Salt Lake City, UT                      1,750                  21,000  May 2007          TAN
Fort Worth, TX                          3,000                  21,600  July 2007         TAN
Austin, TX                              3,800                  23,250  April 2005        TAN
Dallas, TX                              1,700                  23,052  July 2007         TAN
Albuquerque, NM                         1,764                  16,229  August 2007       TAN
Las Vegas, NV                           1,350                  20,250  June 2007         TAN
Indianapolis, IN                        1,500                  17,727  October 2007      TAN
Peoria, IL                              1,350                  14,833  October 2007      TAN
Memphis, TN                             2,500                  15,000  September 2005    TAN
Tempe, AZ                               1,986                  38,848  October 2007      TAN
Baltimore, MD                           2,200                  16,901  January 2008      TAN
Winnipeg, Manitoba, Canada              5,712                18,376**  November 2007     LF
Toronto, Ontario, Canada                5,614                21,968**  June 2006         LF
Edmonton, Alberta, Canada               5,210                21,572**  August 2007       LF
                            -----------------  ----------------------
Totals                                317,092  $            1,682,689
                            -----------------  ----------------------
</TABLE>
* Represents the average minimum annual rent over the balance
           of the unexpired lease term.
** As converted into U.S. dollars.
                                        8
<PAGE>

ITEM  3.   LEGAL  PROCEEDINGS.
------------------------------

     The  Company  is  involved  in  litigation  in  the  ordinary course of its
business but is not currently a party to any material pending legal proceedings.

ITEM  4.   SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS.
-----------------------------------------------------------------------

     There were no matters submitted to a vote of the Company's security holders
during  the fourth quarter of the Company's fiscal year ended December 31, 2002.


                                     PART II

ITEM  5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------------------

     The  Common  Stock  of the Company is traded on the American Stock Exchange
using  the symbol TLF.  The high and low prices for each calendar quarter during
the  last  two  fiscal  years  are  as  follows:

<TABLE>
<CAPTION>
                                     2002            2001
                                --------------  --------------
QUARTER ENDED                    HIGH    LOW     HIGH    LOW
-------------                   ------  ------  ------  ------
<S>                             <C>     <C>     <C>     <C>
March 31                        $3.850  $2.010  $1.125  $0.900
June 30                         $3.500  $2.850  $2.240  $0.950
September 30                    $3.240  $2.450  $3.000  $1.800
December 31                     $3.500  $2.800  $2.300  $1.750
</TABLE>

     There  were  approximately  644  stockholders  of record on March 11, 2003.

     There  have  been  no  cash  dividends  paid on the shares of the Company's
Common  Stock  and  currently  dividends  cannot be declared or paid without the
prior written consent of Wells Fargo Minnesota, N.A., the Company's lender.  The
Board  of  Directors  has  historically  followed  a  policy  of reinvesting the
earnings  of  the  Company  in  the  expansion  of its business.  This policy is
subject  to  change  based  on future industry and market conditions, as well as
other  factors  beyond  the  control  of  the  Company.
                                        9
<PAGE>

ITEM  6.  SELECTED  FINANCIAL  DATA.
------------------------------------

     The  selected financial data presented below are derived from and should be
read  in  conjunction  with  the Company's Consolidated Financial Statements and
related  notes.  This information should also be read in conjunction with Item 7
-  "Management's  Discussion  and Analysis of Financial Condition and Results of
Operations."  In  particular, see the information there relating to the adoption
of  a  new  accounting  pronouncement  in  2002.  The  financial  impact  of the
acquisition  of  Tandy  Leather  Company  in  November  2000  is included in the
information  presented  for  2002,  2001 and 2000.  Data in prior years have not
been  restated  to  reflect  acquisitions  that  occurred  in  subsequent years.

<TABLE>
<CAPTION>

INCOME STATEMENT DATA                                                                   Years Ended December 31,
<S>                                                                                <C>                 <C>          <C>
                                                                                            2002          2001         2000
                                                                                   -----------------   -----------  -----------
Net sales                                                                          $      39,728,615   $37,279,262  $30,095,264
Cost of sales                                                                             18,393,914    17,934,935   15,147,547
                                                                                   -----------------  ------------  -----------
Gross profit                                                                              21,334,701    19,344,327   14,947,717
Operating expenses                                                                        17,202,927    15,442,359   11,702,633
                                                                                  ------------------   -----------  -----------
Operating income                                                                           4,131,774     3,901,968    3,245,084
Other expense                                                                                311,918       533,482      653,779
                                                                                  ------------------   -----------  -----------
Income (loss) before income taxes                                                          3,819,856     3,368,486    2,591,305
Income tax provision (benefit)                                                             1,224,868     1,362,053    1,049,985
                                                                                  ------------------   -----------  -----------
Income (loss) before cumulative effect of change in accounting principle                   2,594,988     2,006,433    1,541,320
Cumulative effect of change in accounting principle                                       (4,008,831)            -            -
                                                                                  ------------------   -----------  -----------
Net income (loss)                                                                 $       (1,413,842)  $ 2,006,433  $ 1,541,320
                                                                                  ==================   ===========  ===========
Earnings (loss) per share                                                         $            (0.14)  $      0.20  $      0.16
                                                                                  ==================   ===========  ===========
Earnings (loss) per share- assuming dilution                                      $            (0.13)  $      0.19  $      0.15
                                                                                  ==================   ===========  ===========

Weighted average common shares outstanding for:
Basic EPS                                                                                 10,063,581     9,976,071    9,875,606
Diluted EPS                                                                               10,761,669    10,449,306   10,182,803



INCOME STATEMENT DATA                                                      YEARS ENDED DECEMBER 31,
<S>                                                                        <C>          <C>
                                                                               1999         1998
                                                                           -----------  -----------
Net sales                                                                  $27,164,399  $22,163,994
Cost of sales                                                               14,907,768   12,428,324
                                                                           ----------- ------------
Gross profit                                                                12,256,631    9,735,670
Operating expenses                                                          10,346,420    8,890,045
                                                                           ----------- ------------
Operating income                                                             1,910,211      845,625
Other expense                                                                  900,304      970,340
                                                                           ----------- ------------
Income (loss) before income taxes                                            1,009,907    (124,715)
Income tax provision (benefit)                                                 574,851     (85,524)
                                                                           ----------- ------------
Income (loss) before cumulative effect of change in accounting principle       435,056     (39,191)
Cumulative effect of change in accounting principle                                  -           -
                                                                           ----------- ------------
Net income (loss)                                                          $   435,056  $  (39,191)
                                                                           =========== ============
Earnings (loss) per share                                                  $      0.04  $     (0.00)
                                                                           =========== ============
Earnings (loss) per share- assuming dilution                               $      0.04  $     (0.00)
                                                                           =========== ============

Weighted average common shares outstanding for:
Basic EPS                                                                    9,853,161    9,803,887
Diluted EPS                                                                  9,890,098    9,803,887

</TABLE>

<TABLE>
<CAPTION>

BALANCE SHEET DATA                                            As of December 31,
<S>                                       <C>             <C>          <C>          <C>          <C>
                                                2002         2001         2000         1999         1998
                                          --------------  -----------  -----------  -----------  -----------

Total assets                              $   19,675,602  $19,548,323  $19,686,079  $18,220,775  $16,029,937
                                          --------------  -----------  -----------  -----------  -----------
Notes payable and current
    Maturities of long term debt               4,218,968    4,527,904    5,759,626    6,061,735    6,139,327
                                          --------------  -----------  -----------  -----------  -----------
Notes payable and long-term
    Debt, net of current maturities                2,256        7,691       13,025      121,686       61,389
                                          --------------  -----------  -----------  -----------  -----------
Total Stockholders' Equity                $   11,170,062  $12,423,671  $10,295,637  $ 8,680,425  $ 8,170,278
                                          ==============  ===========  ===========  ===========  ===========
</TABLE>
                                       10
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF  OPERATIONS.
---------------
     The Company is a leading provider of leather and leathercraft-related items
and  headwear  trims.  Its  products  are sold worldwide through Leather Factory
stores,  Tandy  Leather  stores,  the  Internet,  and  directly  to  headwear
manufacturers  (Cushman  only).


RESULTS  OF  OPERATIONS

     The  following  tables present selected financial data by category for each
of  the  years  ended  December  31,  2002,  2001  and  2000:

<TABLE>
<CAPTION>

                                      2002                      2001                       2000
                           ------------------------   -------------------------   ------------------------
                                         OPERATING                  OPERATING                   OPERATING
                              SALES       INCOME         SALES        INCOME        SALES         INCOME
                           -----------   ----------   -----------   -----------   -----------   ----------
<S>                        <C>           <C>          <C>           <C>           <C>           <C>
Leather Factory stores     $30,313,478   $3,742,844   $28,711,006   $3,719,517    $27,060,406   $2,991,804
Tandy Leather stores *       7,387,874      371,372     6,606,090      281,998        575,635      (43,724)
Cushman                      2,027,263       17,558     1,962,166      (99,547)     2,459,223      297,004
                           -----------   ----------   -----------   ----------    -----------   ----------
Total Operations           $39,728,615   $4,131,774   $37,279,262   $3,901,968    $30,095,264   $3,245,084
                           ===========   ==========   ===========   ==========    ===========   ==========
<FN>
*The  Tandy  Leather  assets  were  acquired  in  November  2000.
</TABLE>

                                       11
<PAGE>

                        ANALYSIS OF 2002 COMPARED TO 2001

     Consolidated  net  sales for 2002 increased $2.4 million, or 6.6%, compared
to  2001.  We had sales increases in all segments this year with Leather Factory
stores  contributing  $1.6 million to the increase, Tandy stores adding $782,000
and  Cushman  adding  $65,000.  The Company experienced an increase in operating
income  of  5.9%  from 2001 to 2002, due primarily to a continued improvement in
gross  profit  margins.
<TABLE>
<CAPTION>

                                                       2002         2001        $CHANGE     % CHANGE
                                                   -----------   -----------   ----------   --------
<S>                                                <C>           <C>           <C>          <C>
Net sales                                          $39,728,615   $37,279,262   $2,449,353      6.57%
Cost of sales                                       18,393,914    17,934,935      458,979      2.56%
                                                   -----------   -----------   ----------   --------
Gross profit                                        21,334,701    19,344,327    1,990,374     10.29%
Operating expenses                                  17,202,927    15,442,359    1,760,568     11.40%
                                                   -----------   -----------   ----------   --------
Operating income                                     4,131,774     3,901,968      229,806      5.89%
Other expense                                          311,917       533,482     (221,565)   (41.53%)
                                                   -----------   -----------   ----------   --------
Income before income taxes                           3,819,857     3,368,486      451,371     13.40%
Income tax provision                                 1,224,868     1,362,053     (137,185)  (10.07)%
                                                   -----------   -----------   ----------   --------
Income before change in accounting principle        $2,594,989    $2,006,433     $588,556     29.33%
Cumulative effect of chg in accounting principle    (4,008,831)        -       (4,008,831)       N/A
                                                   -----------   -----------   ----------   --------
Net income (loss)                                  $(1,413,842)   $2,006,433  $(3,420,275)       N/A
                                                   ===========    ==========  ===========   --------
</TABLE>
                                       12
<PAGE>

LEATHER  FACTORY  STORES

Net  sales  for  Leather Factory, which is comprised of 30 stores as of December
2002,  increased  5.6%  as  follows:
<TABLE>
<CAPTION>
                                                  2002          2001      $INCR (DECR)  % INCR (DECR)
                                              ------------  ------------  ------------  -------------
<S>                                           <C>           <C>           <C>           <C>
Same store sales (27 stores)                  $29,372,715   $28,014,932    $1,357,783       4.85%
% of total                                         96.90%        97.58%        84.73%

New store sales (3 stores)                        809,752       193,674       616,078     318.10%
% of total                                          2.67%         0.67%        38.45%

"Transferred to Tandy" store sales (1 store)      131,011       502,400      (371,389)   (73.92)%
% of total                                          0.43%         1.75%       (23.18)%
                                              -----------   -----------    ----------     -------
Total sales                                   $30,313,478   $28,711,006    $1,602,472       5.58%
                                              ===========   ===========    ==========     =======
                                                  100.00%       100.00%       100.00%
                                              -----------   -----------    ----------
</TABLE>

We  determine  our  sales  mix  based  on  internally-defined customer groups as
follows:
<TABLE>
<CAPTION>
CUSTOMER GROUP               GROUP CHARACTERISTICS
--------------               ---------------------
<S>                          <C>
Retail                       End  users,  consumers,  individuals
Institution                  Prisons,  prisoners,  hospitals, schools, YMCA, Boy Scouts, etc.
Wholesale                    Saddle  &  tack  stores, resellers and distributors, dealers, etc.
Craft                        Craft  stores  (individually  owned)  and  craft  store  chains
Midas                        Small  manufacturers
ASC                          Authorized  Sales  Centers
</TABLE>

     As  the  following table indicates, there was slight variation in our sales
mix from 2001 to 2002.  However, the majority of the sales growth in dollars was
the  result  of  increased  sales  in our Retail and Craft customer groups.  Our
Retail sales, while holding steady at approximately 20% of our total 2002 sales,
increased  in  dollars  by 19% over last year's retail sales and our Craft sales
increased  15%  in  dollars.  We  experienced  sales  gains in most markets, the
exception being minimal declines in our Wholesale and Institution groups (2% and
1%  declines,  respectively).
<TABLE>
<CAPTION>

                QTD 3/31/02   QTR 6/30/02   QTD 9/30/02   QTD 12/31/02   YTD 12/31/02
                -----------   -----------   -----------   ------------   ------------
CUSTOMER GROUP
--------------
<S>             <C>           <C>           <C>           <C>            <C>
Retail               21%          18%            17%            27%          21%
Institution           7%           8%             7%             7%           7%
Wholesale            32%          34%            34%            29%          32%
Craft                26%          25%            28%            20%          25%
Midas                 7%           8%             8%             9%           8%
ASC                   7%           7%             6%             8%           7%
                ----------   ------------   -----------   ------------   -----------
                    100%         100%           100%           100%         100%
                ==========   ============   ===========   ============   ============
</TABLE>

<TABLE>
<CAPTION>

                QTD 3/31/01   QTD 6/30/01   QTD 9/30/01   QTD 12/31/01   YTD 12/31/01
                ------------  ------------  ------------  -------------  -------------
CUSTOMER GROUP
--------------
<S>             <C>           <C>           <C>           <C>            <C>
Retail              21%           16%           19%            21%            19%
Institution          8%           10%            6%             6%             8%
Wholesale           32%           34%           34%            38%            34%
Craft               21%           28%           26%            20%            24%
Midas               11%            5%           10%             7%             8%
ASC                  7%            7%            5%             8%             7%
                 ----------   ------------  ------------  -------------  -------------
                   100%          100%          100%           100%           100%
                 ==========   ============  ============  =============  =============
</TABLE>

     Operating income for the Leather Factory stores increased $23,000 or 0.63%.
Operating  expenses were up 10.04% from 2001 - with increases in personnel costs
(wages  and  health  insurance) and advertising contributing the majority of the
increase.  Manager  bonuses  were  up  in  2002  as  well  due  to the increased
operating  profits  of  the  stores  over  2001.

     Gross  margin  as  a  percentage  of sales improved from 52.50% for 2001 to
53.56%  for  2002.  We  believe,  generally speaking, that the Leather Factory's
gross  margin  has  little  room  for  additional  improvement due to the mix of
customers it serves.  We continue to negotiate with vendors for lower pricing of
product  that  we purchase and we believe we were successful in that endeavor in
most  of our product categories.   We will continue to look for opportunities in
our  purchasing  efforts  as those opportunities present themselves; however, we
also  believe  that we have maximized those efforts as much as can reasonably be
expected  at  the present time.  Future fluctuations in gross margins will occur
primarily  as  a  result  of  the  mix  of  the  product categories sold and the
correlating  margins associated with those categories.  Our product line is made
up  of  approximately  2,600  items.  We  have  further expanded our merchandise
categories  from  those  discussed  in  our  2001  Annual  Report  as  follows:
<TABLE>
<CAPTION>

MERCHANDISE CATEGORY                                           2002 GP %    2001 GP %
----------------------------------------------------           ---------    ---------
<S>                                                            <C>          <C>
Belt Strips and Straps                                            59.93%      56.26%
Books, Patterns and Videos                                        60.99%      58.39%
Buckles                                                           62.13%      58.33%
Conchos                                                           68.43%      65.94%
Craft Supplies                                                    60.54%      57.54%
Custom Tools and Hardware                                         56.89%      52.08%
Dyes, Finishes, Glues and Supplies                                53.52%      52.41%
Hand Tools                                                        55.89%      54.78%
Hardware                                                          58.33%      57.59%
Kits                                                              51.47%      46.44%
Laces                                                             47.06%      40.85%
Leather                                                           41.54%      37.73%
Shoe Supplies                                                     49.80%      45.97%
Stamping Tools                                                    60.76%      57.66%
                                                                --------    --------
Leather Factory store gross profit margin  (overall)              53.56%      52.50%
                                                                ========    ========
</TABLE>
                                       13
<PAGE>

TANDY  LEATHER  STORES

     Tandy  Leather  was  operated  strictly  as  an order fulfillment house for
orders  generated  via phone, fax, mail order, and Internet in 2001. In 2002, we
began  the development of the retail store chain while temporarily operating the
order  fulfillment  house. This unit was eliminated as of September 1, 2002. The
fourteen  retail  stores  opened  in  2002  were  as  follows:
<TABLE>
<CAPTION>

LOCATION                      SQ FOOTAGE        MONTH OPENED
------------------            ----------        ------------
<S>                           <C>               <C>
Oklahoma City, OK (1)              3,160          January
Boise, ID (1)                      1,800            March
Sacramento, CA                     1,600             June
E Hartford, CT                     1,200            April
Salt Lake City, UT                 1,750             June
Fort Worth, TX                     3,000              May
Austin, TX (2)                     3,800             June
Dallas, TX                         1,700           August
Albuquerque, NM                    1,764           August
Las Vegas, NV                      1,350           August
Indianapolis, IN                   1,500          October
Peoria, IL                         1,350          October
Memphis, TN (1)                    2,500          October
Tempe, AZ (1)                      1,986         November
<FN>
     (1)  Purchased  existing  leathercraft  store
     (2)  Formerly  a  Leather  Factory  store
</TABLE>

     Net  sales for Tandy Leather, which was comprised of 14 retail stores as of
December  2002,  increased  11.8%  as  follows:
<TABLE>
<CAPTION>
                                                   2002         2001      $ INCR(DECR)   % INCR(DECR)
                                                -----------  -----------  ------------   ------------
<S>                                             <C>          <C>          <C>            <C>
Order fulfillment house (closed 9/1/02)          $3,605,087   $6,606,090   $(3,001,003)      (45.43)%
% of total                                           48.80%      100.00%     (383.87)%

New store sales (13 stores)                       3,249,214        -         3,249,214        ***
% of total                                           43.98%        0.00%       415.62%

Former "Leather Factory" store sales (1 store)      533,573        -           533,573        ***
% of total                                            7.22%        0.00%        68.25%
                                               ------------  -----------  ------------
Total sales                                      $7,387,874   $6,606,090   $   781,784         11.83%
                                               ============  ===========  ============
                                                    100.00%      100.00%       100.00%
</TABLE>

     We  intend  to continue the expansion of Tandy's retail store chain in 2003
by  opening  a  total  of  10-12  new  stores throughout the year as long as the
domestic  retail  leathercraft market can support the additional stores. Through
the  end  of  March, we have opened five stores in 2003: the Baltimore, MD store
opened  in  January,  the  Tulsa,  OK  store  opened  in February, and stores in
Pittsburgh,  PA,  Orange  County, CA, and Atlanta, GA opened in March. We remain
committed  to  a  conservative growth plan that minimizes risks to the Company's
profits  and  financial  stability.

     We  moved  Tandy to a new point-of-sale software in April 2002 which allows
us  to  track its sales mix in a similar fashion as that of the Leather Factory.

<TABLE>
<CAPTION>

CUSTOMER GROUPS                  2002            2001
---------------                  ----            ----
<S>                        <C>              <C>
Retail                            65%             53%
ASC                                8%             18%
Wholesale                         15%             14%
Institution                       12%             15%
Craft                              *              N/A
Midas                              *              N/A
                                 ----            ----
                                 100%            100%
                                 ====            ====
<FN>
*  less  than  1%
</TABLE>

On  a  quarterly  basis  in  2002,  Tandy's  sales  mix  was  as  follows:
<TABLE>
<CAPTION>
CUSTOMER GROUPS   Q1    Q2    Q3    Q4
---------------  ----  ----  ----  ----
<S>              <C>   <C>   <C>   <C>
Retail            61%   57%   62%   65%
ASC               15%    9%    7%    8%
Wholesale         11%   16%   18%   15%
Institution       12%   17%   12%   11%
Craft              1%    0%    *     *
Midas              0%    1%    *     *
                 ----  ----  ----  ----
Total            100%  100%  100%  100%
                 ====  ====  ====  ====
<FN>
*  less  than  1%
</TABLE>

     As  indicated  by  the percentages in the table above, Tandy's sales mix is
following  that  of historical performance in that sales to summer camps (in our
Institution  customer  category) is especially high in the second quarter of the
year  and  retail  sales typically rise in the fourth quarter due to the holiday
shopping  season.

     Due  to  the  elimination of the order fulfillment house ("OFH") during the
year  and  the  introduction  of  the  fourteen  retail  stores,  we present the
financial  performance  of  the  two  operational  structures  separately:
<TABLE>
<CAPTION>

                       OFH         %          STORES       %          TOTAL        %
                    ----------  -------     ----------  -------     ----------  -------
<S>                 <C>         <C>         <C>         <C>         <C>         <C>
Net sales           $3,605,087  100.00%      $3,782,787  100.00%     $7,387,874  100.00%
Cost of sales        1,519,404   42.15%       1,473,086   38.94%      2,992,490   40.51%
                    ----------               ----------              ----------
Gross profit         2,085,683   57.85%       2,309,701   61.06%      4,395,384   59.49%
Operating expenses   2,021,976   56.09%       2,002,036   52.92%      4,024,012   54.47%
                    ----------               ----------              ----------
Operating income    $   63,707    1.77%      $  307,665    8.14%     $  371,372    5.02%
                    ----------               ----------              ----------
</TABLE>

     While  we  believe  that  the  stores  are  able to improve their operating
efficiency  and  will continue to work toward that end, we also believe that the
table  above  proves  our  theory  that  the retail stores can operate much more
efficiently than a centralized order fulfillment house. The largest expenses for
the  stores,  as a percentage of sales, are salaries and wages, advertising, and
shipping.  While it is unrealistic to expect an elimination of shipping expenses
(shipping  product  to  customers)  by  the stores, we do expect this expense to
decrease  as  more  stores  are  open  and  our over-the-counter sales increase.

                                       14
<PAGE>

CUSHMAN

     Cushman's  sales were up modestly in 2002 (3.3%) while gross profit margins
increased  from  28.6% to 34.6%, an improvement of 21%. We still believe Cushman
is  continuing  to gain market share in the industry and that belief was further
strengthened in 2002 as one of our main competitors went out of business in late
2002.  Operating  income  increased  from  a  $99,000  loss in 2001 to income of
$17,000  for  2002.  The  elimination of goodwill amortization accounted for the
improvement.  Overall,  we  are  pleased  with Cushman's performance in 2002 and
believe  we  will  see  continued  improvement  in  2003.

     See  "Financial  Condition" section below for detailed discussion regarding
the effect of the change in accounting principle and the resulting write-down of
Cushman's  goodwill  in  2002.

OTHER  EXPENSE  AND  PROVISION  FOR  INCOME  TAXES

     Other  expenses  decreased approximately 42%.  The decrease is attributable
to  the  interest  paid  on our outstanding debt.  While there was only a slight
drop  in the interest rate during 2002 compared to 2001, the average outstanding
debt  balance  dropped  significantly.  Our  average outstanding debt balance in
2002  was  $3,600,000  while  the  2001  average  outstanding  debt  balance was
$4,900,000.

     The  provision  for  federal  and state income taxes was 32% of 2002 income
before  taxes compared to 40% in 2001. The reduction results from the conversion
of  the  operating  entities  from  corporations  to  more  tax-favored entities
(limited  partnership) in certain states in which we operate and the elimination
of  goodwill  amortization  for  book  purposes  in  2002.

                                       15
<PAGE>

                        ANALYSIS OF 2001 COMPARED TO 2000

     Consolidated  net sales for 2001 increased $7.2 million, or 23.9%, compared
to  2000. Tandy contributed $6.0 million to the increase as 2001 included a full
year  of  Tandy's  operations,  while  2000  only  included December operations.
Leather  Factory  added  an  additional $1.7 million in sales in 2001, partially
offset  by  a  sales  decline at Cushman of $500,000. The Company experienced an
increase  in  operating  income  of 20.2% from 2000 to 2001, due primarily to an
overall  improvement  in  gross  profit  margins.

<TABLE>
<CAPTION>

                               2001         2000       $ CHANGE    % CHANGE
                            -----------  -----------  -----------  ---------
<S>                         <C>          <C>          <C>          <C>
Net sales                   $37,279,262  $30,095,264   $7,183,998    23.87%
Cost of sales                17,934,935   15,147,547    2,787,388    18.40%
                             ----------  -----------  -----------
Gross profit                 19,344,327   14,947,717    4,396,610    29.41%
Operating expenses           15,442,359   11,702,633    3,739,726    31.96%
                             ----------  -----------  -----------
Operating income              3,901,968    3,245,084      656,884    20.24%
Other expense                   533,482      653,778     (120,296   (18.40%)
                             ----------  -----------  -----------
Income before income taxes    3,368,486    2,591,306      777,180    29.99%
Income tax provision          1,362,053    1,049,986      312,067    29.72%
                             ----------  -----------  -----------
Net income                   $2,006,433   $1,541,320   $  465,113    30.18%
                            ===========   ==========  ===========
</TABLE>
                                       16
<PAGE>

LEATHER  FACTORY  STORES

     Net  sales  for  Leather  Factory,  which  is  comprised of 30 stores as of
December  2001, increased 6.1%. The four new stores opened in late 2000 and 2001
contributed  a  significant  portion  (77.8%)  of the sales increase; while same
store  sales  contributed  the  remainder.

     The majority of the overall sales increase was to our Craft customers.  Our
Retail  sales,  while  holding  steady  at  20% of our total sales, increased in
dollars  by  8% over last year's retail sales.  We experienced sales declines in
our Institution and Midas markets, but compensated by gains in the Wholesale and
ASC  groups.

     Operating income for Leather Factory increased by $728,000 and improved the
operating margin to net sales from 11.1% in 2000 to 12.9% in 2001.  The increase
in  operating  income  results  from  improved gross profit margins as well as a
slight  improvement  in  operating  efficiency.  Operating  expenses  decreased
slightly  (0.42%)  as  a  percentage  of sales.  Management's target for Leather
Factory's  operating  expenses  as a percentage of sales is 40% or less and that
target  was  met  for  2001.

     Gross  margin  as  a  percentage  of  sales  improved  by 1.75 basis points
primarily  as  a  result of the changes we made in sourcing product - purchasing
from  different  vendors at a lower price.  Leather represents approximately 40%
of  our  inventory  (in  dollars)  at  any  given  time  and  also  represents
approximately  40%  of our sales.  However, we earn the smallest amount of gross
profit margin on the leather we sell - for 2001 and 2000, gross profit margin on
leather  sold  was approximately 38%.  The improvement in our margins comes from
the  items  sold  in  the  other  categories.
                                       17
<PAGE>

TANDY  LEATHER  ORDER  FULFILLMENT

     Tandy  Leather  was acquired by the Company in November 2000; therefore our
results for 2000 only included one month's operation for Tandy Leather. In 2001,
Tandy  operated  strictly as an order fulfillment house for orders generated via
phone,  fax,  mail  order,  and  Internet.

     Our 2001 sales target was $7.0 million, based on Tandy's annual sales prior
to  acquisition.  Tandy  missed  that target by $394,000. However, we discovered
early  in  the  year  that some of Tandy's sales were at very low profit margins
and,  in  a  few  cases,  were below cost. We quickly adjusted selling prices to
eliminate  these low-margin sales problems and as a result, lost some sales from
customers  who  were  not  willing to pay the new prices. Therefore, even though
Tandy's  2001  sales  were  slightly below expectation, we improved gross profit
margins  by  over  12  percentage  points. Operating expenses as a percentage of
sales  were  held  virtually  constant  from  2000  to  2001  at  51.8%.

CUSHMAN

     Cushman's  sales  were  down  20%  in  2001, even though we believe that we
continue  to gain market share from our competitors because of our commitment to
timely  delivery of quality product. The primary reason for this decrease is not
caused  by  a  reduction  in  number of trims produced, but in the type of trims
produced.

     The popularity of the straw hat, which is a more casual hat versus the felt
hat,  is  increasing  every  year due in part to straw hats being less expensive
than  felt and in part to the fashion trends. Historically, straw hats were worn
in  the  spring and summer seasons while felt hats were the hat of choice in the
fall  and winter. Now it is acceptable to wear straw hats year round. The global
warming  theory may also contribute to this shift in the headwear trend as straw
hats  are  cooler to wear than felt hats. As a result, the trims being requested
by  the  manufacturers are made from materials other than leather. Leather trims
are the most expensive, but generally are not put on straw hats. Therefore, even
though we produced as many trims in 2001 as we did in 2000, the selling price of
these  non-leather  trims  is  much  lower  than  that  of  the  leather  trims.

     Operating  income  decreased significantly due primarily to a drop in gross
profit  margin.  In 2001, we sold some trims at substantially-reduced prices for
two  reasons:  (1)  the market conditions and trends in the headwear industry in
general,  and  (2) to clear out some of our inventory that does not fit with the
fashion  trends developing.  We reduced our personnel costs late in 2001 to help
offset  the  low  gross  profit  margins.

OTHER  EXPENSE  AND  PROVISION  FOR  INCOME  TAXES

     Other  expenses  decreased approximately 18%.  The decrease is attributable
to  the  reduction  in  the  interest  rates  during 2001 compared to 2000.  Our
average  interest  rate in 2000 was 9.7% while the average interest rate in 2001
was  7.4%.  In  addition, there was a slight decrease in our average outstanding
debt  balance  from  $5.1  million  in  2000  to  $4.9  million  in  2001.

     The  provision  for  federal and state income taxes was 40% of 2001 pre-tax
income  -  the  same  as  in 2000. The dollar increase in our income tax expense
results  from  the  increase  in  income.
                                       18
<PAGE>

FINANCIAL  CONDITION

     At December 31, 2001, we had inventory of $9.0 million and net property and
equipment  of $1.3 million.  Goodwill and other intangibles (net of amortization
and  depreciation)  were  $4.5  million and $477,000, respectively.  The Company
also  holds  $250,000 in a leather artwork collection, most of which was created
by  Al  Stohlman,  a  legendary  leathercrafter.  Net  total  assets  were $19.5
million.  Current  liabilities  were  $7.1  million  (including  $4.5 million of
current  maturities  of long-term debt), while long-term debt was $8,000.  Total
stockholders'  equity  at  the  end  of  2001  had  increased  to $12.4 million,
principally  as a result of the $2.0 million of net income recorded during 2001.

     During  2001, net cash provided from operating activities was $2.0 million.
We applied $1.2 million to reduce the outstanding balance on our credit facility
described  below, leaving an outstanding principal balance of $4.5 million as of
December  31,  2001.

     As  a  result  of  various  acquisitions  made  during  our history, we had
recorded  goodwill  on  our  consolidated  balance  sheet and had amortized this
goodwill  through  the  end  of  2001.  In  June  2001, the Financial Accounting
Standards Board ("FASB") issued a new accounting rule regarding the amortization
of  goodwill  (SFAS No. 142, Goodwill and Other Intangible Assets).  As a result
of  that  pronouncement, effective January 1, 2002, the amortization of goodwill
(and  other  intangible  assets  with  indefinite lives) ceased and goodwill was
subject  to  an  impairment  test  based  on  its  fair  value.

     The  majority  of  the  goodwill  ($4.5  million)  as  presented  on  our
consolidated  balance sheet at December 31, 2001 belonged to Cushman.  Given the
current trends of the industry in which Cushman operates and Cushman's financial
results  over  the last several years, we felt it necessary to engage a business
valuation  firm to determine Cushman's fair value.  Based on that assessment, we
incurred  an  impairment  write-down of all of the Cushman goodwill in the first
quarter  of  2002  in  the  amount  of  $4.0  million.

     The  write-down  was  only  partially  offset  by the Company's 2002 income
before  giving  effect  to  this  accounting change. Retained earnings and total
stockholders'  equity  at  the  end of 2002 were $7.1 million and $11.2 million,
down  from  $8.5  million and $12.4 million at the end of 2001. The Company does
not  anticipate  any  other  similar  write-downs  at  this  time.

      At December 31, 2002, we owned $12.7 million of inventory and $2.0 million
of  property and equipment.  Goodwill and other intangibles (net of amortization
and  depreciation)  were  $686,000  and $483,000, respectively and we still hold
$250,000  in a leather artwork collection.  Net total assets were $19.7 million.
Current  liabilities  were  $8.3  million  (including  $4.2  million  of current
maturities  of  long-term  debt),  while  long-term  debt  was  $2,000.  Total
stockholders'  equity  at  the  end  of  2002  had  decreased  to $11.2 million,
principally  as  a  result  of  the  $1.4 million net loss recorded during 2002.
                                       19
<PAGE>

CAPITAL  RESOURCES  AND  LIQUIDITY

     On March 20, 2002, the Company entered into a Credit and Security Agreement
with  Wells  Fargo  Bank  Minnesota,  N.A.  ("Wells  Fargo"), which replaced the
borrowing  arrangement  with  Wells  Fargo  Business  Credit, Inc. ("WFBC"). The
facility  matures  in  November  2004 and is secured by all of the assets of the
Company.

     The  Company  is  currently in compliance with all covenants and conditions
contained  in  the Credit Facility and has no reason to believe that it will not
continue  to  operate  in  compliance  with  the  provisions  of these financing
arrangements.  The  principal  terms  and  conditions of the Credit Facility are
described  in  further  detail in Note 4 Notes Payable and Long-Term Debt to the
Consolidated  Financial  Statements.

     The  Company  borrows  and  repays  funds  under  revolving credit terms as
needed.  Principal  balances  at  the  end  of  each  quarter  are  shown below:
<TABLE>
<CAPTION>

4TH QTR. '01   1ST QTR. '02   2ND QTR. '02   3RD QTR. '02   4TH QTR. '02
-------------  -------------  -------------  -------------  -------------
<S>            <C>            <C>            <C>            <C>
   (WFBC)      (WELLS FARGO)  (WELLS FARGO)  (WELLS FARGO)  (WELLS FARGO)
  $4,500,422    $2,978,645     $3,323,269     $3,899,379     $4,213,533
</TABLE>

     Total indebtedness with WFBC at the end of 2001 and with Wells Fargo at the
end  of  2002  are  shown  below:
<TABLE>
<CAPTION>
                                       DECEMBER 31,
                           2001                          2002
                -----------------------------  -----------------------------
                           WFBC                       WELLS FARGO
                -----------------------------  -----------------------------
                 PRINCIPAL   ACCRUED INTEREST   PRINCIPAL   ACCRUED INTEREST
                ----------- -----------------  ----------- -----------------
<S>             <C>         <C>                <C>         <C>
Revolving Line  $ 4,500,422 $          19,657  $ 4,213,533  $         15,706
                =========== =================  ===========  ================
</TABLE>

     The  primary source of liquidity and capital resources during 2002 was cash
flow provided by operating activities and our Credit and Security Agreement with
Wells  Fargo.  Cash  flows  from  operations  for  2002  were $1.4 million.  The
largest portion of the operating cash flow was generated from  income before the
goodwill  write-off.

     Consolidated  accounts receivable decreased to $1.9 million at December 31,
2002  compared  to  $2.3  million at December 31, 2001.  Average days to collect
accounts  improved  from  47.86  days  in  2001  to  43.54  days  in  2002  on a
consolidated  basis.  Individually,  Leather Factory's days to collect was 41.52
days  for  2002, an improvement over 2001 of 2.01 days.  Tandy's days to collect
was 34.09 days for 2002, an improvement of 17.59 days from 2001.  Cushman's days
to  collect was 63.26 for 2002, an improvement of 11.87 days from 2001.  Tandy's
significant  improvement  in  average  days  to  collect  is  the  result of the
significant  collection  of  delinquent  accounts  obtained in the Tandy Leather
acquisition.

     Inventory increased to $12.7 million at December 31, 2002 from $9.0 million
at  the  end  of  2001.  This  increase  was principally attributable to (1) our
efforts  to boost inventory in anticipation of the dock strike on the West Coast
of  the United States that has since ended, (2) the surge in flow of goods to us
after  the  strike  ended  and  the  backlog  of shipments unloaded, and (3) the
addition  of the fourteen new Tandy Leather stores in 2002.  We have reduced our
inventory purchases considerably in the first quarter of 2003 in order to return
inventory  to  customary  levels, although we anticipate it will be into the 2nd
quarter  of  2003  before  the  inventory  begins  to  level  out.

     Consolidated  inventory  turned  3.65  times during 2002, a slight slowdown
from  2001  (4.08  times)  and  essentially  the  same  as  2000  (3.64  times).
Separately,  Tandy  Leather's  2002 and 2001 inventory turns were 8.10 times and
4.79 times, respectively.  Leather Factory's inventory turned 3.20 times in 2002
and 3.96 times in 2001, and Cushman's inventory turned 4.12 times and 3.86 times
in  2002  and  2001, respectively.  The significant improvement in the inventory
turn  rate  for Tandy Leather is due to the elimination of its central warehouse
in  September  2002  (combined into Leather Factory's warehouse).  We now record
only  merchandise  held  in  Tandy  Leather  stores  as Tandy Leather inventory.

     Leather  Factory's turns slowed slightly in 2002 because it added the Tandy
Leather  warehouse  inventory  to  the  goods held for the Leather Factory store
system.  Additionally,  the  increase  in  inventory  arriving  at  the  central
warehouse  in  the fourth quarter adversely affected Leather Factory's inventory
turns.  Leather  Factory  store inventory turns, excluding the central warehouse
inventory,  were approximately 7.0 and 6.5 turns in 2002 and 2001, respectively.
We  compute  our inventory turnover rates as sales divided by average inventory.

     Accounts  payable  increased to $1.6 million at December 31, 2002 from $1.3
million  at the end of 2001.  The increased inventory on hand at the end of 2002
accounted  for  the  increase.

     The Company's current ratio improved at December 31, 2002 to 1.94, compared
to 1.82 at December 31, 2001.     If, however, accounting rules had not required
the  Company's debt with Wells Fargo to be classified as short-term (even though
the stated maturity is in November 2004), the current ratio at December 31, 2002
would  have  been  3.94.

     The  largest  use  of  operating  cash  in  2002 was for debt reduction and
various  capital  expenditures.  Capital  expenditures  totaled  $1,073,000  and
$630,000  for the years ended December 31, 2002 and 2001, respectively.  Capital
expenditures  in  2002 included approximately $600,000 in leasehold improvements
for  the  central warehouse and factory consolidation and remodeling of the Fort
Worth  Leather  Factory  store.

     The  following  table  summarizes  by years our contractual obligations and
commercial  commitments  as  of  December  31,  2002:
<TABLE>
<CAPTION>
                                                    PAYMENTS DUE BY PERIODS
                               ------------------------------------------------------------------
                                                LESS THAN     1 - 3
CONTRACTUAL OBLIGATIONS              TOTAL       1 YEAR       YEARS     4 -5 YEARS  AFTER 5 YEARS
-----------------------------  --------------   ---------  -----------  ----------  -------------
<S>                            <C>              <C>        <C>          <C>         <C>
LONG-TERM DEBT*                $    4,213,533        -     $4,213,533        -            -
CAPITAL LEASE OBLIGATIONS               8,002  $    6,859       1,143        -            -
OPERATING LEASES                    5,744,905   1,594,438   3,349,950   $ 800,517         -
                               --------------  ----------  ----------   ---------   -------------
TOTAL CONTRACTUAL OBLIGATIONS  $    9,966,440  $1,601,297  $7,564,626   $ 800,517   $     -
                               ==============  ==========  ==========   =========   =============
<FN>
_____________
*  The  Company's loan from Wells Fargo matures in November 2004.  The loan's maturity can be accelerated in the event of
a  material  adverse  change  or  upon  other  occurrences  described  in  the  related  credit  agreement.
</TABLE>
                                       20
<PAGE>

CRITICAL  ACCOUNTING  POLICIES

     The  analysis  and  discussion  of  our  financial condition and results of
operations  is  based  upon our consolidated financial statements that have been
prepared  in  accordance  with  generally  accepted accounting principles in the
United  States (US GAAP).  The preparation of financial statements in accordance
with  US  GAAP requires management to make estimates and assumptions that affect
the  reported  amounts  of  assets,  liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities.  US GAAP provides the framework
from  which  to  make  these  estimates, assumptions and disclosures.  We choose
accounting policies within US GAAP that we believe are appropriate to accurately
and  fairly  report  the Company's operating results and financial position in a
consistent  manner.  Management  regularly  assesses  these policies in light of
current  and  forecasted economic conditions.  The Company's accounting policies
are  stated  in  Note  2  to  the  consolidated  financial  statements.  We have
summarized below the accounting policies that we believe are most critical to an
understanding  of  the  preparation  of  our  financial  statements.

     BASIS  OF  CONSOLIDATION.  We  report  our  financial  information  on  a
consolidated  basis.  Therefore,  unless there is an indication to the contrary,
financial  information  is provided for the parent company, The Leather Factory,
Inc.,  and its subsidiaries as a whole.  Transactions between the parent company
and any subsidiaries are eliminated for this purpose.  We own all of the capital
stock  of  our  subsidiaries,  and  we do not have any subsidiaries that are not
consolidated.  None  of  our  subsidiaries  is  "off  balance  sheet".

     REVENUE  RECOGNITION.  We  recognize  revenue for retail (over the counter)
sales  as  transactions  occur  and  other  sales  upon shipment of our products
provided that there are no significant post-delivery obligations to the customer
and collection is reasonably assured, which generally occurs upon shipment.  Net
sales  represent  gross sales less negotiated price allowances, product returns,
and  allowances  for  defective  merchandise.

     ALLOWANCE  FOR  ACCOUNTS  RECEIVABLE.  We  reduce accounts receivable by an
allowance  for  amounts  that  may  become  uncollectible  in  the future.  This
allowance  is  an  estimate  based  primarily  our  evaluation of the customer's
financial  condition, past collection history, and the aging of the account.  If
the  financial  condition  of any of our customers deteriorates, resulting in an
impairment or inability to make payments, additional allowances may be required.

     INVENTORY.  Inventory  is  stated  at  the  lower  of cost or market and is
accounted  for  on  the  "first in, first out" method.  This means that sales of
inventory  treat the oldest item of identical inventory as being the first sold.
In  addition,  we periodically reduce the value of our inventory for slow-moving
or  obsolete inventory.  This reduction is based on management's review of items
on  hand  compared to their estimated future demand.  If actual future demand is
less favorable than those projected by management, additional write-downs may be
necessary.  Goods  shipped  to us are recorded as inventory owned by us when the
risk  of  loss  shifts  to  us  from  the  supplier.

     GOODWILL.  We  have  indicated  above that a change in the accounting rules
necessitated  a  change  in 2002 in how we report goodwill on our balance sheet.
As  a  result, we incurred an impairment write-down in the first quarter of 2002
of  our  investment  in  Cushman  in  the  amount  of $4 million.  The remaining
goodwill  on  our  balance  sheet  is  analyzed  by  management  periodically to
determine  the  appropriateness  of  its  carry value.  As of December 31, 2002,
management  has  determined  that  the present value of the discounted estimated
future  cash  flows  of the stores associated with the goodwill is sufficient to
support  their  respective goodwill balances.  If actual results of these stores
differs  significantly  from  management's  projections,  such  difference could
affect the present value calculation in the future resulting in an impairment of
all  or  part  of the goodwill currently carried on the Company's balance sheet.
                                       21
<PAGE>

FORWARD-LOOKING  STATEMENTS

     "Item  1.  Business"  and  "Item 7. Management's Discussion and Analysis of
Financial  Condition  and  Results  of  Operations"  of  this  report  contain
forward-looking  statements of management.  In general, these are predictions or
suggestions  of  future  events  and  statements  or  expectations  of  future
occurrences.  There  are  certain  important  risks  that could cause results to
differ  materially  from  those  anticipated  by  some  of  the  forward-looking
statements.  Some,  but not all, of the important risks which could cause actual
results  to  differ  materially  from  those  suggested  by  the forward-looking
statements  include,  among  other  things:

-     Involvement  by  the United States in war and other military operations in
the  Middle  East  could  disrupt  international  trade and affect the Company's
inventory  sources.

-     The  recent  slump in the economy in the United States, as well as abroad,
may  cause  our  sales  to  decrease  or not to increase or adversely affect the
prices  charged  for our products.  Also, hostilities, terrorism or other events
could  worsen  this  condition.

-     As  a  result  of  the  on-going threat of terrorist attacks on the United
States,  consumer  buying  habits  could  change  and  decrease  our  sales.

-     The prices of hides and leathers also fluctuate in normal times, and these
fluctuations  can  affect  the  Company.

-     If,  for  whatever  reason,  the  costs of our raw materials and inventory
increase,  we  may  not  be  able  to  pass  those  costs  on  to our customers,
particularly  if  the  economy  has  not  recovered  from  its  downturn.

-     Other  factors  could  cause  either  fluctuations  in  buying patterns or
possible  negative  trends in the craft and western retail markets. In addition,
our  customers may change their preferences to products other than ours, or they
may  not  accept  new  products  as  we  introduce  them.

-     We  might fail to realize the anticipated benefits of the opening of Tandy
Leather  retail  stores  or  other  retail  initiatives might not be successful.

-     Tax  or  interest rates might increase.  In particular, interest rates are
likely to increase at some point from their present low levels.  These increases
will  increase  our  costs  of  borrowing  funds  as  needed  in  our  business.

-     Any  change  in  the  commercial banking environment may affect us and our
ability  to  borrow  capital  as  needed.

-     Other  uncertainties, which are difficult to predict and many of which are
beyond  the  control  of  the  Company,  may  occur  as  well.

The  Company  does  not  intend  to  update  forward-looking  statements.

                                       22
<PAGE>

ITEM  7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK
---------------------------------------------------------------------------

     We  face  exposure to financial market risks, including adverse movement in
foreign  current  exchange rates and changes in interest rates.  These exposures
may  change over time and could have a material impact on our financial results.
We  do  not  use  or invest in market risk sensitive instruments to hedge any of
these  risks  or  for  any  other  purpose.

FOREIGN  CURRENCY  EXCHANGE  RATE  RISK

     Our  primary  foreign  currency  exposure  is  related to our subsidiary in
Canada.  The  Leather  Factory  of  Canada,  Ltd.  has  local currency (Canadian
dollar)  revenue and local currency operating expenses.  Changes in the currency
exchange  rate impacts the U.S. dollar amount of revenue and expenses.  See Note
12  to the Consolidated Financial Statements, Segment Information, for financial
information  concerning  the  Company's  foreign  activities.

INTEREST  RATE  RISK

     We  are  subject  to market risk associated with interest rate movements on
outstanding  debt.  Our  borrowings  under  the credit facility with Wells Fargo
accrue  interest  at  a  rate  that changes with fluctuations in the prime rate.
Based  on  the  Company's  level  of  debt at March 15, 2003, an increase of one
percent  in  the  prime  rate  would  result  in  additional interest expense of
approximately  $60,000  during  a  twelve-month  period.

ITEM  8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA.
----------------------------------------------------------

     The  Financial  Statements  and Financial Statement Schedule are filed as a
part  of  this report.  See page 22, Index to Consolidated Financial Statements.

ITEM  9.  CHANGE  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL  DISCLOSURE.
----------------------
                                       23
<PAGE>

     None

                            THE LEATHER FACTORY, INC.
                            -------------------------

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

Consolidated Balance Sheets at December 31, 2002 and 2001                    25

Consolidated Statements of Income for the Years Ended
      December 31, 2002, 2001 and 2000                                       26

Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2002, 2001 and 2000                                       27

Consolidated Statements of Stockholders' Equity for the Years Ended
    December 31, 2002, 2001 and 2000                                         28

Notes to Consolidated Financial Statements                                   29

     Financial Statements Schedules for the years ended
           December 31, 2002, 2001 and 2000:

     II - Valuation and Qualifying Accounts and Reserves                     41

All other schedules are omitted since the required information is not present or
is  not  present  in amounts sufficient to require submission of the schedule or
because  the  information  required  is  included  in the consolidated financial
statements  and  notes  thereto.

Report of Independent Auditors                                               42

                                       24
<PAGE>

                            THE LEATHER FACTORY, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   December 31,    December 31,
                                                                                       2002            2001
                                                                                  -------------   --------------
<S>                                                                               <C>             <C>
ASSETS
CURRENT ASSETS:
  Cash                                                                            $     101,557   $     409,040
  Cash restricted for payment on revolving credit facility                              553,839         491,729
  Accounts receivable-trade, net of allowance for doubtful accounts
      of $78,000 and $191,000 in 2002 and 2001, respectively                          1,938,698       2,297,953
  Inventory                                                                          12,695,344       9,054,269
  Prepaid income taxes                                                                   55,644               -
  Deferred income taxes                                                                 159,090         128,111
  Other current assets                                                                  672,117         479,390
                                                                                  --------------  --------------
    Total current assets                                                             16,176,289      12,860,492
                                                                                  --------------  --------------

PROPERTY AND EQUIPMENT, at cost                                                       5,321,749       4,201,368
  Less-accumulated depreciation and amortization                                     (3,301,898)     (2,858,869)
                                                                                  --------------  --------------
    Property and equipment, net                                                       2,019,851       1,342,499

GOODWILL, net of accumulated amortization of $734,000
  and $1,583,000 in 2002 and 2001, respectively                                         686,484       4,535,412
OTHER INTANGIBLES, net of accumulated amortization of
  $113,000 and $66,000, in 2002 and 2001, respectively                                  483,507         476,908
OTHER assets                                                                            309,471         333,012
                                                                                  --------------  --------------
                                                                                  $  19,675,602   $  19,548,323
                                                                                  ==============  ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                                $   1,594,909   $   1,303,596
  Accrued expenses and other liabilities                                              2,503,331       1,171,152
  Income taxes payable                                                                     -             52,662
  Notes payable and current maturities of long-term debt                              4,218,968       4,527,904
                                                                                  --------------  --------------
    Total current liabilities                                                         8,317,208       7,055,314
                                                                                  --------------  --------------

DEFERRED INCOME TAXES                                                                   186,076          61,647

NOTES PAYABLE AND LONG-TERM DEBT, net of current maturities                               2,256           7,691

COMMITMENTS AND CONTINGENCIES (Note 7)                                                        -               -

STOCKHOLDERS' EQUITY:
  Preferred stock, $0.10 par value; 20,000,000 shares authorized,
      none issued or outstanding                                                              -               -
  Common stock, $0.0024 par value; 25,000,000 shares authorized, 10,149,961 and
      9,991,161 shares issued and outstanding at 2002 and 2001, respectively             24,360          23,979
  Paid-in capital                                                                     4,163,901       4,030,508
  Retained earnings                                                                   7,064,345       8,478,187
  Less: Notes receivable - secured by common stock                                      (44,003)        (71,939)
  Accumulated other comprehensive loss                                                  (38,541)        (37,064)
                                                                                  --------------  --------------
    Total stockholders' equity                                                       11,170,062      12,423,671
                                                                                  --------------  --------------
                                                                                  $  19,675,602   $  19,548,323
                                                                                  ==============  ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       25
<PAGE>

                            THE LEATHER FACTORY, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>

                                                               2002          2001          2000
                                                           ------------  ------------  -----------
<S>                                                        <C>           <C>           <C>
NET SALES                                                  $39,728,615   $37,279,262   $30,095,264

COST OF GOODS SOLD                                          18,393,914    17,934,935    15,147,547
                                                           -----------   -----------   -----------
Gross Profit                                                21,334,701    19,344,327    14,947,717

OPERATING EXPENSES                                          17,202,927    15,442,359    11,702,633
                                                           -----------   -----------   -----------
INCOME FROM OPERATIONS                                       4,131,774     3,901,968     3,245,084

OTHER EXPENSE:
Interest Expense                                             (246,878)     (458,558)     (617,400)
Other, net                                                    (65,039)      (74,924)      (36,379)
                                                           -----------   -----------   -----------
Total Other Expense                                          (311,917)     (533,482)     (653,779)
                                                           -----------   -----------   -----------

INCOME BEFORE INCOME TAXES and CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                     3,819,857     3,368,486     2,591,305

PROVISION FOR INCOME TAXES                                   1,224,868     1,362,053     1,049,985
                                                           -----------   -----------   -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE                                      2,594,989     2,006,433     1,541,320

CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE                                        (4,008,831)        -             -
                                                           -----------   -----------   -----------
NET INCOME (LOSS)                                          $(1,413,842)   $2,006,433    $1,541,320
                                                           ===========   ===========   ===========


NET INCOME (LOSS) PER COMMON SHARE - BASIC:
Income before Cumulative Effect of Accounting Principle         $ 0.26         $0.20         $0.16
Cumulative Effect of Change in Accounting Principle, net         (0.40)          -             -
                                                           -----------   -----------   -----------
NET INCOME PER COMMON SHARE                                     $(0.14)        $0.20         $0.16
                                                           ===========   ===========   ===========

NET INCOME (LOSS) PER COMMON SHARE - DILUTED:
Income before Cumulative Effect of Accounting Principle         $ 0.24         $0.19         $0.15
Cumulative Effect of Change in Accounting Principle, net         (0.37)          -             -
                                                           -----------   -----------   -----------
NET INCOME PER COMMON SHARE - DILUTED                           $(0.13)        $0.19         $0.15
                                                           ===========   ===========   ===========


WEIGHTED AVERAGE NUMBER OF SHARES:
Basic                                                       10,063,581     9,976,181     9,875,606
Diluted                                                     10,761,670    10,449,306    10,182,803
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       26
<PAGE>

                            THE LEATHER FACTORY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>

                                                                                      2002          2001          2000
                                                                                  ------------  ------------  ------------
<S>                                                                               <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                                 $(1,413,842)   $2,006,433    $1,541,320
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
   Depreciation and amortization                                                      491,312       730,153       582,778
   Loss on disposal of assets                                                             -           5,588         5,089
   Amortization of deferred financing costs                                            37,038        45,753        44,804
   Deferred income taxes                                                              (30,184)       (8,135)        4,056
   Other                                                                               (2,502)      (10,898)       (4,184)
   Cumulative effect of change in accounting principle                              4,008,831           -             -
   Net changes in assets and liabilities, net of effects of business acquisitions:
     Accounts receivable-trade, net                                                   359,255      (105,957)      368,848
     Inventory                                                                     (3,463,866)      151,629     1,562,274
     Income taxes                                                                      16,124       (42,133)     (379,467)
     Other current assets                                                            (192,726)      230,695        83,990
     Accounts payable                                                                 291,311      (856,314)     (137,686)
     Accrued expenses and other liabilities                                         1,332,179      (119,461)      230,732
                                                                                  ------------  ------------  ------------
   Total adjustments                                                                2,846,772        20,920     2,361,234
                                                                                  ------------  ------------  ------------
   Net cash provided by operating activities                                        1,432,930     2,027,353     3,902,554
                                                                                  ------------  ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment                                                 (1,073,515)    (629,773)      (377,840)
Payments in connection with businesses acquired                                      (435,747)         -       (2,999,159)
Proceeds from sale of assets                                                             -           3,200          2,484
(Increase) decrease in other assets                                                   (14,754)      (1,386)         2,519
Other intangible costs                                                                 (1,625)          -             -
                                                                                  ------------  ------------  ------------
Net cash used in investing activities                                              (1,525,641)    (627,959)    (3,371,996)
                                                                                  ------------  ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving credit loans                                    (286,889)  (1,150,543)      (167,687)
Payments on notes payable and long-term debt                                          (27,482)    (105,189)      (243,083)
Increase in cash restricted for payment on revolving credit loans                     (62,110)    (101,262)       (72,563)
Payments received on notes secured by common stock                                     27,936       48,400         33,077
Deferred financing costs incurred                                                         -            -          (25,626)
Proceeds from issuance of common stock                                                133,774       84,099         45,000
                                                                                  ------------  ------------  ------------
Net cash used in financing activities                                                (214,772)  (1,224,495)      (430,882)
                                                                                  ------------  ------------  ------------

NET INCREASE (DECREASE) IN CASH                                                      (307,483)     174,899         99,676

CASH, beginning of period                                                             409,040      234,141        134,465
                                                                                  ------------  ------------  ------------
CASH, end of period                                                                  $101,557     $409,040       $234,141
                                                                                  ============  ============  ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period                                                      $213,791     $443,925       $572,557
Income tax paid during the period                                                   1,254,679    1,414,404      1,424,648

NON-CASH INVESTING ACTIVITIES:
Equipment acquired under capital lease financing arrangements                            -         $18,676           -
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       27
<PAGE>


                            THE LEATHER FACTORY, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>

                                                                      Common Stock
                                                             ---------------------------------
                                                                 Number             Par          Paid-in       Retained
                                                               of shares           value         capital       earnings
                                                             -------------   -----------------  ----------  ---------------
<S>                                                          <C>             <C>                <C>         <C>
BALANCE, December 31, 1999                                       9,853,161   $          23,648  $3,901,740  $    4,930,434

  Payments on notes receivable secured by common stock                -                   -           -               -

  Shares issued - stock options exercised                           55,000                 132      44,868            -

  Net income                                                          -                   -           -          1,541,320

  Translation adjustment                                              -                   -           -               -
                                                              ------------   -----------------  ----------  ---------------
BALANCE, December 31, 2000                                       9,908,161   $          23,780  $3,946,608  $    6,471,754

  Payments on notes receivable secured by common stock                -                   -           -               -

  Shares issued - stock options exercised                           83,000                 199      83,900            -

  Net income                                                          -                   -           -          2,006,433

  Translation adjustment                                              -                   -           -               -
                                                              ------------   -----------------  ----------  ---------------
BALANCE, December 31, 2001                                       9,991,161   $          23,979  $4,030,508  $    8,478,187

  Payments on notes receivable secured by common stock                -                   -           -               -

  Shares issued - stock options and warrants exercised             158,800                 381     133,393            -

  Net loss                                                            -                   -           -         (1,413,842)

  Translation adjustment                                              -                   -           -               -
                                                              ------------   -----------------  ----------  ---------------
BALANCE, December 31, 2002                                      10,149,961   $          24,360  $4,163,901  $    7,064,345
                                                              ============   =================  ==========  ===============

                                                                  Notes      Accumulated
                                                               Receivable       Other                      Comprehensive
                                                               secured by     Cumulative                      Income
                                                              common stock       Loss        Total            (Loss)
                                                             --------------  ------------  -----------   ----------------
<S>                                                          <C>             <C>           <C>           <C>
BALANCE, December 31, 1999                                   $    (153,416)  $   (21,981)  $ 8,680,425

  Payments on notes receivable secured by common stock              33,077          -           33,077

  Shares issued - stock options exercised                             -             -           45,000

  Net income                                                          -             -        1,541,320   $     1,541,320

  Translation adjustment                                              -           (4,185)       (4,185)           (4,185)
                                                             --------------  ------------  -----------   ----------------
BALANCE, December 31, 2000                                   $    (120,339)  $   (26,166)  $10,295,637

  Comprehensive income for the year ended December 31, 2000                                              $     1,537,135
                                                                                                         ================

  Payments on notes receivable secured by common stock              48,400          -           48,400

  Shares issued - stock options exercised                             -             -           84,099

  Net Income                                                          -             -        2,006,433         2,006,433

  Translation adjustment                                              -          (10,898)      (10,898)          (10,898)
                                                             --------------  ------------  -----------   ----------------
BALANCE, December 31, 2001                                   $     (71,939)  $   (37,064)  $12,423,671

  Comprehensive income for the year ended December 31, 2001                                              $     1,995,535
                                                                                                         ================

  Payments on notes receivable secured by common stock              27,936          -           27,936

  Shares issued - stock options and warrants exercised                -             -          133,774

  Net Loss                                                            -             -       (1,413,842)       (1,413,842)

  Translation adjustment                                              -           (1,477)       (1,477)           (1,477)
                                                             --------------  ------------  -----------   ----------------
BALANCE, December 31, 2002                                   $     (44,003)  $   (38,541)  $11,170,062
                                                             ==============  ============  ===========
  Comprehensive loss for the year ended December 31, 2002                                                $    (1,415,319)
                                                                                                         ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       28
<PAGE>



                            THE LEATHER FACTORY, INC.
                              NOTES TO CONSOLIDATED
                              FINANCIAL STATEMENTS

                        DECEMBER 31, 2002, 2001, AND 2000


 1.  ORGANIZATION  AND  NATURE  OF  OPERATIONS

The  Leather  Factory,  Inc.  and subsidiaries (the "Company") is engaged in the
manufacture  and distribution of a broad product line of leather, leathercrafts,
western  apparel  and  related  accessory  items.  The  Company  operates stores
throughout the United States and Canada. Numerous customers including retailers,
wholesalers,  assemblers,  distributors  and  other manufacturers geographically
disbursed throughout the world purchase the Company's products. The Company also
has  light  manufacturing  facilities  in  Texas  and  New  York.

Certain  reclassifications have been made to conform the 2000 and 2001 financial
statements  to the presentation in 2002.  The reclassifications had no effect on
net  income.

2.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

CONSOLIDATION

The  consolidated  financial  statements include the accounts of the Company and
its  subsidiaries,  all  of  which  are  wholly-owned.  Significant intercompany
accounts  and  transactions  have  been  eliminated  in  consolidation.

INVENTORY

The  Company's  inventory  is valued at the lower of first-in, first-out cost or
market.

PROPERTY  AND  EQUIPMENT

Property  and  equipment  are  stated at cost.  Expenditures for maintenance and
repairs  are  charged  to  expense when incurred.  The cost of assets retired or
sold  and  the  related amounts of accumulated depreciation are removed from the
accounts,  and  any  gain  or  loss  is  included  in  the  statement of income.
Depreciation  is  determined  using  the straight-line method over the estimated
useful  lives  as  follows:

                    Leasehold  improvements      5-7   years
                    Equipment                    5-10  years
                    Furniture  and  fixtures     5-7   years
                    Automobiles                    5   years

Depreciation  expense  was  $443,029, $460,741; and $358,787 for the years ended
December  31,  2002,  2001  and  2000,  respectively.

GOODWILL

In  June  2001,  the  FASB  issued  Statements of Financial Accounting Standards
("SFAS")  No.  142, Goodwill and Other Intangible Assets. This standard requires
companies  to  stop  amortizing  goodwill  and  certain  intangible  assets with
indefinite  useful lives. Instead, goodwill and intangible assets deemed to have
indefinite  useful  lives are subject to an annual review of impairment. The new
standard  was  effective  for  the  Company  in  the first quarter of 2002. Upon
adoption  of  SFAS  No.  142, the Company recorded a one-time, noncash charge of
approximately  $4.0  million  to  eliminate  the  carrying value of its goodwill
relating  to  its  subsidiary,  Roberts,  Cushman  &  Co.,  Inc.  This charge is
non-operational  in  nature  and  is  reflected  as  a  cumulative  effect of an
accounting  change  in  the  accompanying  consolidated statement of income. For
additional  discussion  on  the  impact  of  adopting SFAS No. 142, see Note 13.


ADVERTISING  COSTS

With the exception of catalog costs, advertising costs are expensed as incurred.
Catalog costs are capitalized and expensed over the estimated useful life of the
particular  catalog  in  question, which is typically twelve to eighteen months.
Such capitalized costs are included in other current assets and totaled $116,611
and  $162,495  at  December  31, 2002 and 2001, respectively.  Total advertising
expense  was  $2,265,659  in  2002;  $2,023,527 in 2001; and $1,353,520 in 2000.

REVENUE  RECOGNITION

Retail  (over  the  counter)  sales are recorded as transactions occur and other
sales  are  recorded  when  goods  are  shipped  to  customers.

INCOME  TAXES

Deferred  income  taxes result from temporary differences in the basis of assets
and  liabilities  reported  for  financial  statement  and  income tax purposes.

EARNINGS  PER  SHARE

Basic  earnings  per  share  is  computed by dividing income available to common
stockholders  by  the  weighted  average  number  of  common shares outstanding.
Diluted  earnings  per  share is computed by dividing income available to common
stockholders  by  the  weighted  average  number  of  common  shares outstanding
increased  for potentially dilutive common shares outstanding during the period.
The  dilutive  effect  of  stock  options,  warrants  and  their  equivalents is
calculated  using  the  treasury stock method.  Unearned shares, if any, held by
the  Employees'  Stock  Ownership  Plan  are  deemed  not  to be outstanding for
earnings  per  share  calculations.

ACCOUNTING  ESTIMATES

The  consolidated financial statements include estimates and assumptions made by
management  that  affect  the  reported  amounts  of assets and liabilities, the
reported  amounts  of  revenues  and  expenses  and the disclosure of contingent
assets  and  liabilities.  Actual  results  could  differ  from those estimates.

ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS

The Company reduces its accounts receivable by an allowance for amounts that may
become  uncollectible  in  the  future.  This  allowance  is  an  estimate based
primarily on the aging of the accounts as well as management's evaluation of the
financial  condition  and  past  collection  history  of  each  customer.

LONG-LIVED  ASSETS

SFAS  No.  144,  Accounting for the Impairment or Disposal of Long-Lived Assets,
requires  that  long-lived  assets and certain identifiable intangible assets be
reviewed  for impairment whenever events indicate that the carrying amount of an
asset  may  not  be recoverable.  The Company determined that as of December 31,
2002  and  2001, it had no long-lived assets that met the impairment criteria of
SFAS  No.  144.

STOCK-BASED  COMPENSATION

SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,  and  SFAS No. 148,
Accounting  for  Stock-Based  Compensation  -  Transition  and  Disclosure  - an
amendment  of  FASB  Statement 123 (see Note 14), establish financial accounting
and  reporting  standards  and disclosures for stock-based employee compensation
plans.  As permitted by SFAS No. 123, the Company has elected to continue to use
Accounting  Principles  Board  Opinion  No.  25,  Accounting for Stock Issued to
Employees  ("APB  25")  and related Interpretations, in accounting for its stock
option  plans.

Pro forma information regarding net income and earnings per share is required by
SFAS  No.  123  and  SFAS  No. 148 and has been determined as if the Company had
accounted for its stock options under the fair value method.  The fair value for
these  options was estimated at the date of grant using the Black Scholes option
pricing  model  with  the  following  weighted-average  assumptions:  risk-free
interest  rates  of  3.00%  in  2002; 3.50% in 2001; and 5.75% in 2000; dividend
yields  of 0% for all years; volatility factors of .736 for 2002, .780 for 2001,
..821  for  2000;  and  an  expected  life  of  the  valued  options  of 5 years.

Option  valuation  models  require  the  input of highly subjective assumptions,
including  the  expected  stock  price  volatility,  and  changes in these input
assumptions can materially affect the fair value estimate they produce.  Because
of  this,  it  is  management's  opinion that existing models do not necessarily
provide a reliable single measure of fair value for the Company's stock options.
For pro forma disclosures, the estimated fair values determined by the model are
being  amortized  to  expense  on a straight-line basis over the options vesting
period  as  adjusted  for  estimated  forfeitures.  The  Company's  pro  forma
information  follows:

<TABLE>
<CAPTION>
                                         2002         2001        2000
                                     ------------  ----------  ----------
<S>                                  <C>           <C>         <C>
Net income (loss), as reported       $(1,413,842)  $2,006,433  $1,541,320

Deduct:  Total stock-based employee
 compensation expense determined
 under fair based method for all
 awards, net of related tax effects      103,619       28,539     121,627
                                     ------------  ----------  ----------
     Pro forma net income (loss)     $(1,517,461)  $1,977,894  $1,419,693
                                     ============  ==========  ==========

Earnings per share:
  Basic - as reported                $     (0.14)  $     0.20  $     0.16
  Basic - pro forma                  $     (0.15)  $     0.20  $     0.14

  Diluted - as reported              $     (0.13)  $     0.19  $     0.15
  Diluted - pro forma                $     (0.14)  $     0.19  $     0.14
</TABLE>

FOREIGN  CURRENCY  TRANSLATION

Foreign  currency translation adjustments arise from activities of the Company's
Canadian  operations.  Results  of  operations  are translated into U.S. dollars
using the average exchange rates during the period, while assets and liabilities
are  translated  using  period-end exchange rates.  Foreign currency translation
adjustments  of  assets  and  liabilities  are recorded in stockholders' equity.

COMPREHENSIVE  INCOME

Comprehensive  income  represents all changes in stockholders' equity, exclusive
of  transactions with stockholders.  The accumulated balance of foreign currency
translation adjustments is presented in the consolidated financial statements as
"accumulated  other  comprehensive  income  or  loss".

                                       29
<PAGE>

3.  BALANCE  SHEET  COMPONENTS
<TABLE>
<CAPTION>

                                                        DECEMBER 31,
                                                      2002           2001
                                                  -----------     ----------
<S>                                               <C>             <C>
INVENTORY:
Finished goods held for sale                      $11,693,868     $8,025,845
Raw materials and work in process                   1,001,476      1,028,424
                                                  -----------     ----------
Total                                             $12,695,344     $9,054,269
                                                  ===========     ==========

PROPERTY AND EQUIPMENT:
Leasehold improvements                             $1,043,076     $  470,709
Equipment                                           3,407,332      2,987,518
Furniture and fixtures                                839,326        711,126
Autos                                                  32,015         32,015
                                                  -----------     ----------
                                                    5,321,749      4,201,368
Less: accumulated depreciation and amortization    (3,301,898)    (2,858,869)
                                                  -----------     ----------
Total                                              $2,019,851     $1,342,499
                                                  ===========     ==========

OTHER CURRENT ASSETS:
Accounts receivable - employees                    $   21,977     $   40,550
Accounts receivable - other                            23,364         29,546
Prepaid expenses                                      362,698        349,242
Payments on merchandise not received                  264,078         54,518
Other                                                    -             5,534
                                                  -----------     ----------
Total                                              $  672,117     $  479,390
                                                  ===========     ==========

ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued bonuses                                    $  934,191     $  706,696
Accrued payroll                                       226,501        146,730
Accrued ESOP contribution                              28,100         25,000
Sales and payroll taxes payable                        95,849         55,482
Inventory in transit                                1,000,000           -
Other                                                 218,690        237,244
                                                  -----------     ----------
Total                                              $2,503,331     $1,171,152
                                                  ===========     ==========
</TABLE>
                                       30
<PAGE>

4.  NOTES  PAYABLE  AND  LONG-TERM  DEBT

On March 20, 2002, the Company entered into a Credit and Security Agreement with
Wells  Fargo Bank Minnesota, N.A. ("Wells Fargo"), pursuant to which Wells Fargo
agreed to provide a revolving credit facility of up to $7,500,000.  The revolver
bears  interest  at  prime  or,  at  the  Company's option, the London interbank
eurodollar  market  rate  ("LIBOR")  plus  2.60%.  The  agreement  terminates on
November  30,  2004.

Proceeds  of the closing of the Credit Facility were used to pay all amounts due
and  owing  by  the  Company  pursuant  to the Credit and Security Agreement, as
amended,  by  and  between  the  Company  and  Wells Fargo Business Credit, Inc.
("WFBC").  At  closing,  the Company's revolving line of credit with WFBC in the
principal  amount  of  $2,980,242  was  satisfied  in  its  entirety.

At  December  31,  2002  and  2001,  the  amounts  outstanding  under  the above
agreements  and  other  long-term  debt  consisted  of  the  following:
<TABLE>
<CAPTION>

                                                                                  2002           2001
                                                                                -----------  -----------
<S>                                                                             <C>          <C>
Credit and Security Agreement with Wells Fargo - collateralized by
 all of the assets of the Company; payable as follows:

     Revolving Note dated March 20, 2002 in the maximum principal
     amount of $7,500,000 with revolving features as more fully described
     below - interest due monthly at prime (4.25% at December 31, 2002);
     matures November 30, 2004                                                  $4,213,533         -

Credit and Security Agreement with WFBC - collateralized by all of the
 assets of the Company; payable as follows:

     Revolving Note dated November 19, 1999 in the maximum principal
     amount of $8,500,000 with revolving features - interest due monthly              -       $4,500,422

Capital Lease secured by equipment - total monthly principal and interest
 payments of $572 at approximately 12% interest; maturing  February 2004             7,691        35,173
                                                                                -----------   ----------
                                                                                 4,221,224     4,535,595
Less - Current maturities (see below)                                            4,218,968     4,527,904
                                                                                -----------   ----------
                                                                                $    2,256    $    7,691
                                                                                ===========   ==========
</TABLE>

The  current portion of long-term debt includes the Wells Fargo revolving credit
facility  although this obligation does not mature until November 30, 2004.  The
classification of this debt was attributable to an accounting requirement that a
revolving  credit  agreement that includes both a subjective acceleration clause
and  a requirement to maintain an arrangement, whereby cash collections from the
borrower's customers directly reduce the debt outstanding, to be classified as a
short-term  obligation  (Emerging Issues Task Force Issue 95-22).  A covenant of
the  facility is that collections from customers are to be deposited into a cash
collateral  account  that  directly  pays  down  the revolving credit loan.  The
balance  in  this account comprises the restricted cash on the Company's balance
sheet.  Because  of  this  arrangement  and  the  fact  that  the debt agreement
contains  a  clause that would allow acceleration of payment of the debt in case
of  a "material adverse change", this rule applies.  Management does not believe
that  any  such  acceleration  will  occur.

Pursuant  to  the  Credit  and  Security Agreement with Wells Fargo, the overall
combined  borrowings  under the revolving credit loan and outstanding balance on
letters  of  credit  is  limited  to  a  combined  amount of $7,500,000.  Of the
$7,500,000  limit, letters of credit cannot exceed $500,000.  The unused portion
of  the  letter of credit limit can be utilized for borrowings, up to the limits
imposed for the indebtedness.  As of December 31, 2002, there were no letters of
credit  outstanding.  Total  borrowings  under this arrangement are subject to a
percentage of trade accounts receivable and inventory reduced by the outstanding
balance  of  letters of credit and any required reserves.  The unused portion of
the  credit  facility  at  December  31,  2002  was  $2,413,556.

The  terms  of  the  Credit Facility contain various covenants which among other
things  require  the  Company to maintain a certain level of income and book net
worth and limit capital expenditures.  Other covenants prohibit the Company from
incurring  indebtedness except as permitted by the terms of the Credit Facility,
from  declaring or paying cash dividends upon any of its stock and from entering
into  any  new  business  or  making  material  changes  in any of the Company's
business  objectives,  purposes  or  operations.

Scheduled  maturities  of  the Company's notes payable and long-term debt are as
follows:
<TABLE>
<CAPTION>
<S>                                     <C>
                            2003        $4,218,968
                            2004             2,256
                            2005              -
                            2006              -
                                        ----------
                                        $4,221,224
                                        ==========
</TABLE>
                                       31
<PAGE>

5.  EMPLOYEE  BENEFIT  PLAN

The Company has an Employee Stock Ownership Plan (the "Plan") for employees with
at least one year of service (as defined by the Plan) and who have reached their
21st  birthday.  Under  the  Plan,  the  Company  makes  annual  cash  or  stock
contributions  to  a  trust  for  the  benefit of eligible employees.  The trust
invests  in  shares  of the Company's common stock.  The amount of the Company's
annual  contribution  is discretionary.  Benefits under the Plan are 100% vested
after  three  years  of  service  and  are  payable  upon  death,  disability or
retirement.  Vested  benefits  are  payable  upon  termination  of  employment.

The  Company  applies  Statement  of  Position  93-6  (SOP  93-6"),  "Employers'
Accounting  for  Employee  Stock  Ownership  Plans," of the Accounting Standards
Division  of  the  American  Institute  of  CPAs.   During 2002, 2001, and 2000,
respectively,  the  Company contributed $345,312; $277,892; and $249,017 in cash
as  current  year  contributions to the plan and recognized compensation expense
related  to  these  payments.

The  following  table  summarizes  the number of shares held by the Plan and the
market  value  as  of  December  31,  2002,  2001,  and  2000:
<TABLE>
<CAPTION>
                  NO. OF SHARES                        MARKET VALUE
            --------------------------      --------------------------------
             2002     2001     2000            2002        2001       2000
            -------  -------  -------       ----------  ----------  --------
<S>         <C>      <C>      <C>           <C>         <C>         <C>
 Allocated  956,320  895,928  808,539       $3,232,362  $1,863,530  $808,539
 Unearned      -        -        -                -           -         -
            -------  -------  -------       ----------  ----------  --------
Total       956,320  895,928  808,539       $3,232,362  $1,863,530  $808,539
            =======  =======  =======       ==========  ==========  ========
</TABLE>

The Company currently offers no postretirement or postemployment benefits to its
employees.

6.  INCOME  TAXES

The  provision  for  income  taxes  consists  of  the  following:
<TABLE>
<CAPTION>

                                  2002        2001        2000
                               ----------  ----------  ----------
Current provision (benefit):
<S>                            <C>         <C>         <C>
Federal                        $1,078,146  $1,154,847  $  849,994
State                              51,556     218,717     191,070
                               ----------  ----------  ----------
                                1,129,702   1,373,564   1,041,064
                               ----------  ----------  ----------
Deferred provision (benefit):
Federal                            82,014     (11,299)      7,418
State                              13,152        (212)      1,503
                               ----------  ----------  ----------
                                   95,166     (11,511)      8,921
                               ----------  ----------  ----------
                               $1,224,868  $1,362,053  $1,049,985
                               ==========  ==========  ==========
</TABLE>

The  income  tax  effects of temporary differences that give rise to significant
portions  of  deferred  income  tax  assets  and  liabilities  are  as  follows:
<TABLE>
<CAPTION>
                                                      2002       2001
                                                    ---------  ---------
<S>                                                 <C>        <C>
Deferred income tax assets:
Allowance for doubtful accounts                       $28,780    $28,450
Capitalized inventory costs                           115,590     90,942
Accrued expenses, reserves, and other                  14,720      8,719
                                                    ---------  ---------
Total deferred income tax assets                      159,090    128,111
                                                    ---------  ---------

Deferred income tax liabilities:
Property and equipment depreciation                   171,601     55,750
Goodwill and other intangible assets amortization      15,380     12,577
Tax effect of translation adjustment and other           (905)    (6,680)
                                                    ---------  ---------
Total deferred income tax liabilities                 186,076     61,647
                                                    ---------  ---------
Net deferred tax asset (liability)                   $(26,986)   $66,464
                                                    =========  =========
</TABLE>

<TABLE>
<CAPTION>

The effective tax rate differs from the statutory rate as follows:
                                                                    2002   2001   2000
                                                                    -----  -----  -----
<S>                                                                 <C>    <C>    <C>
Statutory rate                                                        34%    34%    34%
State and local taxes                                                  1%     3%     7%
Non-deductible goodwill amortization                                   0%     2%     3%
Other                                                                (3%)     1%   (3%)
                                                                    -----  -----  -----
Effective rate                                                        32%    40%    41%
                                                                    =====  =====  =====
</TABLE>
                                       32
<PAGE>

7.  COMMITMENTS  AND  CONTINGENCIES

OPERATING  LEASES

The Company's primary office facility and warehouse are leased under a five-year
lease  agreement  that  expires  in  March  2008.  Rental  agreements  for  the
sales/distribution  units expire on dates ranging from July 2003 to August 2008.
The  Company's  lease  agreement  for  the manufacturing facility in Long Island
City,  New  York,  expires  on  June  30,  2003.

Rent  expense  on  all  operating  leases for the years ended December 31, 2002,
2001,  and  2000,  was  $1,465,577,  $1,299,582,  and  $1,106,171, respectively.

CAPITAL  LEASES

The  Company leases certain computer and warehouse equipment under capital lease
agreements.  Assets  subject to the agreements totaling $18,651 and $365,252 and
related accumulated depreciation of $4,885 and $249,470 are included in property
and  equipment  as  of  December  31,  2002  and  2001,  respectively.

COMMITMENTS

Future  minimum  lease payments under capital and noncancelable operating leases
at  December  31,  2002  were  as  follows:

<TABLE>
<CAPTION>
                                                                    CAPITAL     OPERATING
                                                                     LEASES       LEASES
                                                                    -------    ----------
<S>                                                                 <C>        <C>
Year ending December 31:
2003                                                                 $6,859    $1,594,438
2004                                                                  1,143     1,277,163
2005                                                                   -        1,114,538
2006                                                                   -          958,249
2007 and thereafter                                                    -          800,517
                                                                    -------    ----------
Total minimum lease payments                                          8,002    $5,744,905
Less amount representing interest                                       311    ==========
                                                                    -------
Present value of net minimum capital lease payments                   7,691
Less current installments of minimum capital lease payments           5,435
                                                                    -------
Long-term capital lease obligations, excluding current installments  $2,256
                                                                    =======
</TABLE>

LITIGATION

The Company is involved in various litigation that arises in the ordinary course
of  its  business  and  operations.  There  are no such matters pending that the
Company  expects to have a material impact on its financial position and results
of  operations.

8.     SIGNIFICANT  BUSINESS  CONCENTRATIONS  AND  RISK

Major  Customers
----------------

The  Company's  revenues are derived from a diverse group of customers primarily
involved  in  the sale of leather crafts.  While no single customer accounts for
more  than  10%  of  the Company's consolidated revenues in 2002, 2001 and 2000,
sales  to  the  Company's  five  largest customers represented 15%, 15% and 14%,
respectively,  of  consolidated  revenues in those years.  While management does
not  believe  the loss of one of these customers would have a negative impact on
the Company's operations, it does believe the loss of several of these customers
simultaneously  or  a  substantial  reduction  in  sales generated by them could
temporarily  affect  the  Company's  operating  results.

Major  Vendors
--------------

The  Company  purchases  a  significant  portion  of  its  inventory through one
supplier.  Due  to  the  number  of  alternative sources of supply, loss of this
supplier  would  not  have  an  adverse  impact  on  the  Company's  operations.

Credit  Risk
------------

Due  to  the  large  number of customers comprising the Company's customer base,
concentrations  of credit risk with respect to customer receivables are limited.
At  December  31,  2002  and  2001,  20% and 23%, respectively, of the Company's
consolidated  accounts  receivable  were  due  from  three nationally recognized
retail  chains.  The  Company does not generally require collateral for accounts
receivable,  but  performs  periodic  credit  evaluations  of  its customers and
believes  the  allowance  for doubtful accounts is adequate.  It is management's
opinion  that  if  any  one or a group of customer receivable balances should be
deemed  uncollectible,  it  would  not  have  a  material  adverse effect on the
Company's  results  of  operations  and  financial  condition.
                                       33
<PAGE>

9.  EARNINGS  PER  SHARE

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
                                                                                2002         2001        2000
                                                                            -----------  -----------  ----------
<S>                                                                         <C>          <C>          <C>
Numerator:
Net income (loss)                                                           $(1,413,842)  $2,006,433  $1,541,320
                                                                             ----------   ----------  ----------
Numerator for basic and diluted earnings per share                           (1,413,842)   2,006,433   1,541,320

Denominator:
Denominator for basic earnings per share - weighted-average shares           10,063,581    9,976,181   9,875,606

Effect of dilutive securities:
Stock options                                                                   477,005      265,621     134,300
Warrants                                                                        221,084      207,504     172,897
                                                                             ----------   ----------  ----------
Dilutive potential common shares                                                698,089      473,125     307,197
                                                                             ----------   ----------  ----------

Denominator for diluted earnings per share - adjusted weighted-average
    shares and assumed conversions                                           10,761,670   10,449,306  10,182,803
                                                                             ==========   ==========  ==========
Basic earnings per share                                                     $    (0.14)  $     0.20  $     0.16
                                                                             ===========  ==========  ==========
Diluted earnings per share                                                   $    (0.13)  $     0.19  $     0.15
                                                                             ===========  ==========  ==========

</TABLE>

For  additional  disclosures  regarding  the  employee  stock  options  and  the
warrants,  see  Note  10.  Unexercised  employee  and  director stock options to
purchase  -0- and 2,000 shares of common stock as of December 31, 2002 and 2001,
respectively,  were  not  included  in  the computations of diluted earnings per
share ("EPS") because the options' exercise prices were greater than or equal to
the  average  market prices of the common stock and, therefore, the effect would
be  antidilutive.  The  net  effect  of converting stock options and warrants to
purchase  762,200  and 844,000 shares of common stock at option prices less than
the  average  market prices has been included in the computations of diluted EPS
for  the  years  ended  December  31,  2002  and  2001,  respectively.
                                       34
<PAGE>

10.  STOCKHOLDERS'  EQUITY

STOCK  OPTION  PLANS

1995  Stock  Option  Plan
-------------------------
In  connection  with  its 1995 Stock Option Plan for officers and key management
employees,  the  Company  has  outstanding options to purchase its common stock.
The  plan  provides for the granting of either qualified incentive stock options
or  non-qualified options at the discretion of the Compensation Committee of the
Board  of  Directors.  Options  are  granted  at  the  fair  market value of the
underlying  common  stock at the date of grant and vest over a five-year period.
The  Company  has  reserved  1,000,000 shares of common stock for issuance under
this  plan.

1995  Director  Non-Qualified  Stock  Option  Plan
--------------------------------------------------
In  connection  with  its  1995  Director  Non-qualified  Stock  Option Plan for
non-employee  directors,  the  Company  has  outstanding options to purchase its
common  stock.  The  plan  provides for the granting of non-qualified options at
the discretion of the Compensation Committee of the Board of Directors.  Options
are  granted at the fair market value of the underlying common stock at the date
of  grant and vest after six months.  The Company has reserved 100,000 shares of
common  stock  for  issuance  under  this  plan.

Stock  Option  Summary
----------------------
All  options  expire ten years from the date of grant and are exercisable at any
time  after  vesting.  Of  the  combined 1,100,000 shares available for issuance
under  the  two  plans, at December 31, 2002, 2001 and 2000, there were 106,000;
116,000;  and  587,000;  respectively, in un-optioned shares reserved for future
grants.

A  summary  of  stock option transactions for the years ended December 31, 2002,
2001,  and  2000,  is  as  follows:
<TABLE>
<CAPTION>
                                        2002                  2001                2000
                                --------------------   ------------------   -----------------
                                            WEIGHTED             WEIGHTED            WEIGHTED
                                             AVERAGE              AVERAGE             AVERAGE
                                 OPTION     EXERCISE    OPTION   EXERCISE    OPTION  EXERCISE
                                 SHARES       PRICE     SHARES     PRICE     SHARES    PRICE
                                --------    --------   --------  --------   -------- --------
<S>                             <C>         <C>        <C>       <C>        <C>      <C>
Outstanding at January 1         846,000     $1.128     458,000    $0.814    453,000   $0.779
Granted                           10,000      2.720     477,000     1.361     60,000    0.958
Forfeited or expired                -           -        (6,000)    0.751       -        -
Exchanged                           -           -          -          -         -        -
Exercised                       (108,800)     0.810     (83,000)    0.761    (55,000)   0.676
                                --------    --------   --------  --------   -------- --------
Outstanding at December 31       747,200     $1.196     846,000    $1.128    458,000   $0.814
                                ========    ========   ========  ========   ======== ========
Exercisable at end of year       747,200     $1.196     844,000    $1.123    358,000   $0.820
                                ========    ========   ========  ========   ======== ========
Weighted-average fair value of
Options granted during year        $1.54                  $0.81                $0.61
                                ========               ========             ========
</TABLE>

The  following  table  summarizes  outstanding  options  into  groups based upon
exercise  price  ranges  at  December  31,  2002:
<TABLE>
<CAPTION>

                           OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                WEIGHTED  WEIGHTED               WEIGHTED   WEIGHTED
                                 AVERAGE   AVERAGE                AVERAGE    AVERAGE
                        OPTION  EXERCISE  MATURITY     OPTION    EXERCISE   MATURITY
EXERCISE PRICE RANGE    SHARES    PRICE    (YEARS)     SHARES      PRICE     (YEARS)
---------------------  -------  --------  --------    -------    --------   --------
<S>                    <C>      <C>       <C>         <C>        <C>        <C>
$0.75 or Less           32,000    $0.610      5.35     32,000      $0.610       5.35

More than $0.75 and
Less Than  $1.00       221,500     0.841      3.86    221,500       0.841       3.86

More than $1.00        493,700     1.393      8.36    493,700       1.393       8.36
                       -------  --------  --------    -------    --------   --------
                       747,200    $1.196      6.90    747,200      $1.196       6.90
                       =======  ========  ========    =======    ========   ========

</TABLE>

WARRANTS

Warrants  to acquire up to 200,000 shares of common stock at approximately $0.44
per share were issued in conjunction with a consulting agreement to an unrelated
individual  in  August  1998.  The  warrants  may be exercised at any time until
expiration  on  August  3,  2003.

NOTES  RECEIVABLE  SECURED  BY  COMMON  STOCK

During  1996,  the  Company purchased certain notes from a financial institution
that  are  collateralized  by the Company's common stock.  These notes relate to
shares  issued  under  the  Company's  1993 Non-Qualified Incentive Stock Option
Plan.  These  notes,  as  renewed  in  2000,  are  due  from  certain members of
management,  require  monthly  payments, and have maturity dates of December 31,
2004.
                                       35
<PAGE>

11.     BUSINESS  ACQUISITIONS

During 2002, the Company acquired certain assets of the following entities for a
total  purchase  price  of  $435,747:
<TABLE>
<CAPTION>

ENTITY                               LOCATION          DATE OF ACQUISITION
-----------------------       -----------------------  -------------------
<S>                           <C>                      <C>
Oklahoma Leather Supply       Oklahoma City, Oklahoma     January 2002
Heritage Leather                   Boise, Idaho            March 2002
The Leather Shop                Memphis, Tennessee        October 2002
Copper Saguaro                    Tempe, Arizona          November 2002
</TABLE>

All  of  the  acquired  entities  were  formerly  operated as independent retail
leathercraft  stores.  The  assets  purchased  in  these  acquisitions consisted
primarily  of  inventory, store furniture and fixtures, and equipment.  Goodwill
recognized  in  these  transactions amounted to $158,878, and is reported in the
Tandy  Leather  Company  segment.  The  Company  also  entered  into non-compete
agreements  with  the  former  owners  totaling $52,000 for periods ranging from
three  to  five  years.

In  November  2000,  the  Company  acquired  the  assets,  primarily  accounts
receivable,  inventory,  fixtures,  and equipment, of TLC Direct, Inc. and Tandy
Leather  Dealer,  Inc. (dba Tandy Leather Company), a distributor of leather and
related  products  located  in  Fort  Worth,  Texas.  Additionally,  the Company
acquired  the  exclusive  right  to certain trademarks associated with the Tandy
Leather  business.  The  total  purchase  price for the operating and intangible
assets  was  approximately  $3.3  million,  subject to adjustment.  The purchase
price  was  paid  in  the  form of cash, funded with proceeds from the Company's
revolving  credit  facility  (see  Note  4),  and  the  assumption  of  certain
liabilities.  The  transaction  was  accounted  for under the purchase method of
accounting and the purchase price was allocated to the net assets acquired based
on  their  estimated fair values.  The excess of cost over the fair value of net
assets  acquired,  before  adjustment,  totaled  approximately  $410,000 and was
recorded as goodwill as of the acquisition date.  The purchase price adjustment,
as  defined  in  the  Asset Purchase Agreement between the buyer and seller, was
computed  at approximately $200,000 and subsequently reduced the goodwill amount
previously recorded.  The operations of the acquired business have been included
in  the  Company's  financial  statements  beginning  December  1,  2000.

The  following  pro  forma  information  (unaudited) has been prepared as if the
acquisition  of  Tandy  Leather  had  occurred  at  the beginning of 2000.  Such
information  is not necessarily reflective of the actual results that would have
occurred  had  the  acquisition  occurred  on  that  date.
<TABLE>
<CAPTION>
                                                    2000
                                                 -----------
<S>                                              <C>
Net Sales                                        $36,708,000
Net Income                                        $1,637,000
Net Income per common share                            $0.17
Net Income per common share - assuming dilution        $0.16
</TABLE>
                                       36
<PAGE>

12.  SEGMENT  INFORMATION

The  Company  identifies  its segments based on the activities of three distinct
businesses:  The  Leather  Factory, which sells primarily to wholesale customers
and consists of a chain of stores located in the United States and Canada; Tandy
Leather  Company,  which  sells  primarily to retail customers and consists of a
chain  of  stores  located in the United States; and Roberts, Cushman & Company,
which  manufactures  decorative  hat trims sold directly to hat manufactures and
distributors.

The  Company's  reportable operating segments have been determined as separately
identifiable business units.  The Company measures segment earnings as operating
earnings,  defined  as  income  before  interest  and  income taxes.  The "Tandy
Leather  Company" column for the year ended December 31, 2000 contains operating
results  beginning  after  its  November  30,  2000  acquisition.

<TABLE>
<CAPTION>
                                              LEATHER       TANDY
                                              FACTORY       LEATHER     ROBERTS, CUSHMAN      TOTAL
                                           ------------  -----------    ----------------   ------------
<S>                                        <C>           <C>            <C>                <C>
For the year ended December 31, 2002
Net Sales                                   $30,313,478   $7,387,874       $2,027,263      $39,728,615
Gross Profit                                 16,237,143    4,395,383          702,175       21,334,701
Operating earnings                            3,742,844      371,372           17,558        4,131,774
Interest expense                               (246,316)        (562)            -            (246,878)
Other, net                                      (64,071)        (968)            -             (65,039)
                                                                                           -----------
Income before income taxes and cumulative
  effect of change in accounting principle    3,432,457      369,842           17,558        3,819,857
                                                                                           -----------
Depreciation and amortization                   367,218      111,013           13,081          491,312
Fixed asset additions                           888,491      180,522            4,502        1,073,515
Total assets                                $16,205,347   $2,562,737         $907,518      $19,675,602
                                           ------------  -----------    ----------------  ------------

For the year ended December 31, 2001
Net Sales                                   $28,711,006   $6,606,090       $1,962,166      $37,279,262
Gross Profit                                 15,074,323    3,708,691          561,313       19,344,327
Operating earnings                            3,719,517      281,998          (99,547)       3,901,968
Interest expense                               (457,549)      (1,009)            -            (458,558)
Other, net                                      (74,799)        (125             -             (74,924)
                                                                                           -----------
Income before income taxes                    3,187,169      280,864          (99,547)       3,368,486
                                                                                           -----------
Depreciation and amortization                   474,114      103,118          152,921          730,153
Fixed asset additions                           454,809      172,434            2,530          629,773
Total assets                                $12,322,754   $2,333,639       $4,891,930      $19,548,323
                                           ------------  -----------    ----------------  ------------

For the year ended December 31, 2000
Net Sales                                   $27,060,406     $575,635       $2,459,223      $30,095,264
Gross Profit                                 13,735,454      252,453          959,810       14,947,717
Operating earnings (loss)                     2,991,804      (43,724)         297,004        3,245,084
Interest expense                               (617,400         -                -            (617,400)
Other, net                                      (36,280)        -                 (99)         (36,379)
                                                                                           -----------
Income (loss) before income taxes             2,338,124      (43,724)         296,905        2,591,305
                                                                                           -----------
Depreciation and amortization                   423,313        4,895          154,570          582,778
Fixed asset additions                           332,319       37,477            8,044          377,840
Total assets                                $10,783,149   $3,688,976       $5,213,954      $19,686,079
                                           ------------  -----------    ----------------  ------------
</TABLE>

Net  sales  for  geographic  areas  was  as  follows:
-----------------------------------------------------
<TABLE>
<CAPTION>

                                   2002         2001         2000
                               -----------  -----------  -----------
<S>                            <C>          <C>          <C>
United States                  $37,510,567  $35,193,935  $28,964,542
All other countries              2,218,048    2,085,327    1,130,722
                               -----------  -----------  -----------
                               $39,728,615  $37,279,262  $30,095,264
                               ===========  ===========  ===========
</TABLE>

Geographic  sales  information  is  based  on the location of the customer.  Net
sales  from no single foreign country was material to the Company's consolidated
net  sales  for  the years ended December 31, 2002, 2001, and 2000.  The Company
does  not  have  any significant long-lived assets outside of the United States.
                                       37
<PAGE>

13.  GOODWILL  AND  OTHER  INTANGIBLES

As  discussed  in  Note  2, in January 2002, the Company adopted SFAS 142, which
requires  companies  to  stop  amortizing goodwill and certain intangible assets
with indefinite lives.  Instead, it requires that goodwill and intangible assets
deemed  to have indefinite useful lives be reviewed for impairment upon adoption
(January  1,  2002)  and  annually  thereafter.

Under  SFAS 142, goodwill impairment is deemed to exist if the net book value of
a  reporting  unit  exceeds  its  estimated fair value.  The Company's reporting
units  are  generally  the  individual  stores,  which  are  combined  into  the
applicable  operating segments identified in Note 12 - Segment Information.  The
new  methodology  in SFAS 142 differs from the Company's prior policy, which was
permitted  under  earlier accounting standards, of using undiscounted cash flows
of  the  acquired  asset  to  determine  if  goodwill  is  recoverable.

Upon  adoption  of SFAS 142 in the first quarter of 2002, the Company recorded a
one-time,  non-cash  charge of approximately $4.0 million to reduce the carrying
value  of  its  goodwill.  This  charge  in  non-operational  in  nature  and is
reflected  as  a  cumulative  effect of an accounting change in the accompanying
consolidated  statement  of  income.

The  SFAS  142  goodwill impairment is associated solely with goodwill resulting
from  the  acquisition of Roberts, Cushman & Co., Inc. ("Cushman") in 1995.  The
current  fair  value  of  Cushman and its assets was estimated by an independent
third  party using projected discounted future operating cash flows.  The amount
of  the  impairment  primarily reflects the decline in Cushman's sales since the
acquisition  occurred.

A  summary  of changes in the Company's goodwill for the year ended December 31,
2002  is  as  follows:
<TABLE>
<CAPTION>

                  JANUARY 1,     ACQUISITIONS &                     DECEMBER 31,
                     2002         ADJUSTMENTS       IMPAIRMENTS         2002
                  ----------  -----------------    -------------  --------------
<S>               <C>         <C>                  <C>            <C>
Leather Factory   $  332,630          $  1,025             -            $333,655
Tandy Leather        193,951           158,878             -            $352,829
Roberts, Cushman   4,008,831              -         $(4,008,831)            -
                  ----------  -----------------    -------------  --------------
Total             $4,535,412          $159,903      $(4,008,831)        $686,484
                  ==========  =================    =============  ==============
</TABLE>

As  of  December  31,  2002 and 2001, the Company's intangible assts and related
accumulated  amortization  consisted  of  the  following:
<TABLE>
<CAPTION>
                                             AS OF DECEMBER 31, 2002
                           --------------------------------------------------------------
<S>                        <C>                        <C>                        <C>
                                     GROSS            ACCUMULATED AMORTIZATION     NET
                           -------------------------  -------------------------  --------
Trademarks, Copyrights     $                 544,369  $                 102,029  $442,340
Non-Compete Agreements                        52,000                     10,833    41,167
                           -------------------------  -------------------------  --------
                           $                 596,369  $                 112,862  $483,507
                           =========================  =========================  ========

                                             AS OF DECEMBER 31, 2001
                           --------------------------------------------------------------
                                     GROSS            ACCUMULATED AMORTIZATION     NET
                           -------------------------  -------------------------  --------
Trademarks, Copyrights     $                 542,744  $                  65,836  $476,908
                           =========================  =========================  ========
</TABLE>

The Company has no intangible assets not subject to amortization under SFAS 142.
Amortization  of  intangible  assets,  excluding  goodwill,  of $48,283 in 2002,
$40,443  in  2001, $11,278 in 2000 was recorded in operating expenses.  Based on
the  current  amount of intangible assets subject to amortization, the estimated
amortization  expense  for  each  of  the  succeeding  5  years  are as follows:
<TABLE>
<CAPTION>

      LEATHER FACTORY   TANDY LEATHER    TOTAL
      ----------------  --------------  -------
<S>   <C>               <C>             <C>
2003       $5,918          $42,337      $48,255
2004       5,918            42,337       48,255
2005       5,918            32,337       38,255
2006       5,918            31,670       37,588
2007       5,918            31,670       37,588
</TABLE>

During  2002,  the  Company  acquired  the  following  intangible  assets:
<TABLE>
<CAPTION>

                                         AMORTIZATION PERIOD
                                         -------------------
<S>                           <C>        <C>
Non-Compete Agreements        $52,000         3 - 5 years
Copyright                       1,625          15 years
</TABLE>

The  2001 and 2000 results on a historical basis do not reflect the provision of
SFAS  142.  Had  the Company adopted SFAS 142 on January 1, 2000, the historical
net  income  and  basic  and diluted net income per common share (without giving
effect  to  the  charge  relating  to the reduction of goodwill) would have been
changed  to  the  adjusted  amounts  indicated  below:
<TABLE>
<CAPTION>

                                                               YEAR ENDED DECEMBER 31, 2001
                               -------------------------------------------------------------------------------------------
                                        NET INCOME             EARNINGS PER SHARE - BASIC    EARNINGS PER SHARE - DILUTED
                               -----------------------------  -----------------------------  -----------------------------
<S>                            <C>                            <C>                            <C>
Reported net income                     $2,006,433                        $0.20                          $0.19
Addback goodwill amortization              223,894                         0.02                           0.02
                               -----------------------------  -----------------------------  -----------------------------
Adjusted net income                     $2,230,327                        $0.22                          $0.21
                               =============================  =============================  =============================

                                                               YEAR ENDED DECEMBER 31, 2000
                               -------------------------------------------------------------------------------------------
                                        NET INCOME             EARNINGS PER SHARE - BASIC    EARNINGS PER SHARE - DILUTED
                               -----------------------------  -----------------------------  -----------------------------
Reported net income                     $1,541,320                        $0.16                          $0.15
Addback goodwill amortization              208,411                         0.02                           0.02
                               -----------------------------  -----------------------------  -----------------------------
Adjusted net income                     $1,749,731                        $0.18                          $0.17
                               =============================  =============================  =============================
</TABLE>
                                       38
<PAGE>

14.  RECENT  ACCOUNTING  PRONOUNCEMENTS

In  August  2001,  the  Financial  Accounting  Standards  Board  ("FASB") issued
Statement  of  Financial  Accounting  Standards  No.  143,  Accounting for Asset
Retirement  Obligations  ("SFAS  143"), which addresses financial accounting and
reporting  for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs and applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that  result  from  the acquisition, construction, development and/or the normal
operation of a long-lived asset, except for certain obligations of lessees. SFAS
143  requires  that  the  fair  value  of  a  liability  for an asset retirement
obligation  be  recognized in the period in which it is incurred if a reasonable
estimate  of  fair  value can be made. The associated asset retirement costs are
capitalized  as part of the carrying amount of the long-lived asset. SFAS 143 is
effective  for financial statements issued for fiscal years beginning after June
15,  2002. The Company will adopt SFAS 143 in January 2003 and believes that the
adoption of SFAS 143 will not have a material effect on the Company's results of
operations  or  financial  position.

Also in August 2001, the FASB issued Statement of Financial Accounting Standards
No.  144,  Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144"),  which addresses financial accounting and reporting for the impairment or
disposal  of  long-lived assets. SFAS 144 establishes a single accounting model,
based  on  the  framework  established  in  Statement  of  Financial  Accounting
Standards  No.  121,  Accounting for the Impairment of Long-Lived Assets and for
Long-Lived  Assets  to  be Disposed Of ("SFAS 121"), for long-lived assets to be
disposed  of by sale. SFAS 121 did not address the accounting for a segment of a
business  accounted  for  as  a discontinued operation under APB Opinion No. 30,
Reporting  the  Results  of  Operations-  Reporting the Effects of Disposal of a
Segment  of  a  Business,  and Extraordinary, Unusual and Infrequently Occurring
Events  and  Transactions  ("APB  30")  so two accounting models existed for the
disposal  of  long-lived  assets. SFAS 144 replaces both SFAS 121 and APB 30, so
that  only  one  accounting  model exists for the disposal of long-lived assets.
SFAS 144 also resolves implementation issues related to SFAS 121. The provisions
of  SFAS  144  are  effective  for  financial statements issued for fiscal years
beginning after December 15, 2001 and are applied prospectively. The adoption of
SFAS  144  on January 1, 2002 had no material effect on the Company's results of
operations  or  financial  position.

In  April  2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No.  13,  and  Technical  Corrections.  This  statement provides guidance on the
classification  of  gains  and losses from the extinguishment of debt and on the
accounting  for  certain  specified  lease  transactions.  The  adoption of this
statement  did not have a material impact on the Company's results of operations
or  financial  position.

In  July  2002,  the FASB issued Statement of Financial Accounting Standards No.
146,  Accounting for Costs Associated with Exit or Disposal Activities (SFAS No.
146).  SFAS 146 nullifies FASB Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to  Exit  an Activity (including Certain Costs Incurred in a Restructuring)". It
requires  that a liability be recognized for those costs only when the liability
is  incurred, that is, when it meets the definition of a liability in the FASB's
conceptual  framework. SFAS No. 146 also establishes fair value as the objective
for  initial  measurement of liabilities related to exit or disposal activities.
SFAS  146  is effective for exit or disposal activities that are initiated after
December 31, 2002, with earlier adoption encouraged. The Company does not expect
that  the  adoption  of SFAS 146 will have a material impact on its results from
operations  or  financial  position.

In  December  2002,  the FASB issued Statement of Financial Accounting Standards
148,  Accounting  for  Stock-Based Compensation - Transition and Disclosure - an
amendment  of  FASB  Statement  123  ("SFAS  148").  SFAS 148 amends SFAS 123 to
provide  alternative  transition methods for an entity's voluntary change in its
accounting  for  stock-based  compensation from the intrinsic method to the fair
value  method  under  SFAS  123.  In  addition,  SFAS  148 amends the disclosure
requirements  of  SFAS  123  to require prominent disclosures in both annual and
interim financial statements about the method of accounting used for stock-based
employee  compensation  and  the  effect of the method used on reported results.
The  Company  currently  plans  to  continue  to  account  for  its  stock-based
compensation  using  the  intrinsic  value  method  as prescribed by APB No. 25,
Accounting for Stock Issued to Employees and will comply with the new disclosure
requirements  beginning  with  these  financial  statements.
                                       39
<PAGE>

15.  FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

CASH,  ACCOUNTS  RECEIVABLE-TRADE  AND  ACCOUNTS  PAYABLE

The  carrying  amount  approximates  fair value because of the short maturity of
those  instruments.

NOTES  PAYABLE  AND  LONG-TERM  DEBT

The  interest  rates on the Company's notes payable and long-term debt fluctuate
with  changes  in  the  prime  rate and are the rates currently available to the
Company;  therefore, the carrying amount of those instruments approximates their
fair  value.

16.  QUARTERLY  FINANCIAL  DATA  (UNAUDITED)
<TABLE>
<CAPTION>

                                                                    FIRST       SECOND       THIRD       FOURTH
                  2002                                            QUARTER      QUARTER     QUARTER      QUARTER
-----------------------------------------------------------   -----------  -----------  ----------   ----------
<S>                                                           <C>          <C>          <C>          <C>
Net sales                                                     $10,203,951  $10,052,036  $9,484,730   $9,987,898
Gross profit                                                    5,368,595    5,435,626   5,088,398    5,442,082
Income before cumulative effect of
  change in accounting principle                                  759,305      792,047     534,092      509,545
Income before cumulative effect of
  change in accounting principle per common share:
           Basic                                                     0.08         0.08        0.05         0.05
           Diluted                                                   0.07         0.07        0.05         0.05
Weighted average number of common shares outstanding:
           Basic                                               10,001,717   10,041,018  10,064,249   10,145,749
           Diluted                                             10,731,712   10,799,630  10,723,403   10,791,694


                                                                    FIRST       SECOND       THIRD       FOURTH
                  2001                                            QUARTER      QUARTER     QUARTER      QUARTER
-----------------------------------------------------------   -----------  -----------  ----------   ----------
Net sales                                                      $9,372,613   $9,359,893  $9,198,401   $9,348,355
Gross profit                                                    4,884,216    4,978,795   4,611,574    4,869,742
Net income                                                        497,283      621,910     396,529      490,711
Net income per common share:
           Basic                                                     0.05         0.06        0.04         0.05
           Diluted                                                   0.05         0.06        0.04         0.05
Weighted average number of common shares outstanding:
           Basic                                                9,949,494    9,971,952   9,991,052    9,991,161
           Diluted                                             10,204,608   10,329,817  10,656,859   10,656,968
</TABLE>
                                       40
<PAGE>

*******************************************************************************

                            THE LEATHER FACTORY, INC.
                  SCHEDULE II - ALLOWANCE FOR DOUBTFUL ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>

                                                 2002        2001        2000
                                               ---------  ----------  ----------
<S>                                            <C>        <C>         <C>
BALANCE AT BEGINNING OF YEAR                   $191,000    $338,000    $177,000
Reserve "purchased" during year (Tandy)            -           -        248,000
Additions charged to income                     (39,000)     17,000      22,000
Balances written off, net of recoveries         (74,000)   (164,000)   (109,000)
                                               ---------  ----------  ----------
Balance at end of year                          $78,000    $191,000    $338,000
                                               =========  ==========  ==========
</TABLE>
                                       41
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


The  Board  of  Directors
The  Leather  Factory,  Inc.

     We have audited the accompanying consolidated balance sheets of The Leather
Factory,  Inc.  as  of  December 31, 2002 and 2001, and the related consolidated
statements  of  operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2002.  Our audits also included the
financial  statement  schedule  referred  to  in the index at Item 14(a).  These
financial  statements  and  schedule  are  the  responsibility  of the Company's
management.  Our  responsibility  is  to  express  an opinion on these financial
statements  and  schedule  based  on  our  audits.

     We  conducted  our  audits  in accordance with auditing standards generally
accepted  in the United States of America.  Those standards require that we plan
and  perform  the  audits  to  obtain  reasonable  assurance  about  whether the
financial  statements  are  free  of  material  misstatement.  An audit includes
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  financial  statements.  An  audit  also  includes  assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating  the  overall  financial statement presentation.  We believe that our
audits  provide  a  reasonable  basis  for  our  opinion.

     In  our  opinion,  the  consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The  Leather  Factory,  Inc. at December 31, 2002 and 2001, and the consolidated
results  of its operations and its cash flows for each of the three years in the
period  ended  December  31,  2002,  in  conformity  with  accounting principles
generally  accepted  in the United States of America.  Also, in our opinion, the
related  financial  statement schedule, when considered in relation to the basic
financial  statements taken as a whole, presents fairly in all material respects
the  information  set  forth  therein.

     As  discussed  in  Note  2  to  the  consolidated financial statements, the
Company  adopted  Statement  of Financial Accounting Standards No. 142, Goodwill
and  Other  Intangible  Assets,  effective  January  1,  2002.


Hein  +  Associates  LLP


Dallas,  Texas
February  6,  2003
                                       42
<PAGE>

                                    PART III

ITEM  10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT.

     Information  required  by  this  item  with regard to executive officers in
included  in Part I, Item 1 of this report under the heading "Executive Officers
of  the  Registrant",  which  information  is  incorporated herein by reference.

     Information  required  by  this item regarding the Directors of the Company
and  compliance with Section 16(a) of the Securities Exchange Act of 1934 is set
forth  in  the  Company's  Proxy  Statement  for  its  2003  Annual  Meeting  of
Stockholders  (the "Proxy Statement") under the heading "Election of Directors",
which  information  is  incorporated  herein by reference.  This Proxy Statement
will  be filed with the Commission pursuant to Regulation 14A within 120 days of
the  year  ended  December  31,  2002.

ITEM  11.  EXECUTIVE  COMPENSATION.

     Information  concerning  executive  compensation  is set forth in the Proxy
Statement  under  the  heading  "Executive  Compensation", which is incorporated
herein  by  reference.  This  Proxy  Statement will be filed with the Commission
pursuant  to Regulation 14A within 120 days of the year ended December 31, 2002.

ITEM  12.  SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  STOCKHOLDER  MATTERS.

     Information  concerning security ownership of certain beneficial owners and
management  and  securities  authorized  for  issuance under equity compensation
plans  is set forth in the Proxy Statement under the heading "Security Ownership
of  Certain  Beneficial  Owners and Management", which is incorporated herein by
reference.  This  Proxy  Statement will be filed with the Commission pursuant to
Regulation  14A  within  120  days  of  the  year  ended  December  31,  2002.

ITEM  13.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

     Information  concerning  certain  relationships and related transactions is
set forth in the Proxy Statement under the heading "Certain Transactions", which
is  incorporated  herein  by reference.  This Proxy Statement will be filed with
the  Commission  pursuant  to  Regulation  14A within 120 days of the year ended
December  31,  2002.

ITEM  14.  CONTROLS  AND  PROCEDURES.

     (a)  As  of  a date within ninety (90) days of the date of this report (the
"Evaluation  Date"),  our President, Chief Executive Officer and Chief Financial
Officer  evaluated  the  effectiveness  of  the  design  and  operation  of  our
disclosure  controls and procedures pursuant to Rule 13a-14 under the Securities
Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act").  Based  upon this
evaluation,  they  have  concluded  that,  subject  to  the  limitations  on the
effectiveness of the controls described below, the Company's disclosure controls
and  procedures  are  sufficiently  effective  to  ensure  that  the information
required  to  be  disclosed  by  the  Company  in the reports it files under the
Exchange  Act  is  gathered,  analyzed  and  disclosed with adequate timeliness,
accuracy  and  completeness.

     (b)  There  have  been  no  significant  changes  in the Company's internal
controls  or  in  other  factors  that could significantly affect these controls
subsequent  to  the  date  of  the  evaluation referred to above. No significant
deficiencies  or  material  weaknesses  in  the Company's internal controls were
observed.  Accordingly,  no  corrective  actions  were  undertaken.

     Limitations  on  the  Effectiveness of Controls.  Our management, including
the  President,  Chief  Executive  Officer and Chief Financial Officer, does not
expect  that  the  Company's disclosure controls and procedures or the Company's
internal  controls  will  prevent all error and all fraud.  A control system, no
matter  how  well  conceived  and  operated,  is  based  in  part  upon  certain
assumptions  about  the  likelihood  of  future  events  and  can  provide  only
reasonable,  not  absolute,  assurance that the objectives of the control system
are  met.  Further,  the  design  of a control system must reflect the fact that
there  are resource constraints, and the benefits of controls must be considered
relative  to  their  costs.  Because  of the inherent limitations in all control
systems,  no  evaluation  of  controls  can  provide absolute assurance that all
control  issues  and instances of fraud, if any, within the Company have been or
will  be  detected.
                                       43
<PAGE>

                                     PART IV

ITEM  15.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES  AND  REPORTS ON FORM 8-K.

     (a)     1.  Financial  statements  and  financial  statement  schedules

     See  Item  8  for  an  index  to  the consolidated financial statements and
supplementary  financial  information.

          2.  Exhibits

     The  exhibits  listed  on the accompanying Exhibit Index, which immediately
precedes  such  exhibits, are filed or incorporated by reference as part of this
Report  and  such  Exhibit  Index.

     (b)  Reports  on  Form  8-K

          None
                                       44
<PAGE>

                                   SIGNATURES

Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  the Company caused this Report to be signed on its behalf by the
undersigned,  thereunto  duly  authorized.

                               THE  LEATHER  FACTORY,  INC.

                               By:  /s/  Wray  Thompson
                                    -------------------
                                    WRAY  THOMPSON
                                    CHAIRMAN OF THE BOARD AND
                                     CHIEF EXECUTIVE OFFICER

                              By:  /s/  Shannon  L.  Greene
                                   ------------------------
                                   SHANNON  L.  GREENE
                                   CHIEF FINANCIAL OFFICER AND TREASURER
Dated:  March  27,  2003

                                POWER OF ATTORNEY

By  signing  this  Form  10-K  below, I hereby appoint each of Wray Thompson and
Shannon  L.  Greene  as  my attorney-in-fact to sign all amendments to this Form
10-K  on my behalf, and to file this Form 10-K (including all exhibits and other
documents  related  to  the  Form  10-K)  with  the United States Securities and
Exchange  Commission.  I authorize each of my attorneys-in-fact to (1) appoint a
substitute  attorney-in-fact  for  himself  and  (2) perform any actions that he
believes  are necessary or appropriate to carry out the intention and purpose of
this  Power of Attorney.  I ratify and confirm all lawful actions taken directly
or  indirectly  by my attorneys-in-fact and by any properly appointed substitute
attorneys-in-fact.

In  accordance  with  the  Securities Exchange Act of 1934, this Report has been
signed  below  by  the  following  persons  on  behalf of the Company and in the
capacities  and  on  the  dates  indicated.


SIGNATURE                              TITLE                                DATE
--------------------------------------------------------------------------------
/s/ Wray Thompson         Chairman of the Board,
------------------------   Chief Executive Officer and Director   March 27, 2003
WRAY THOMPSON

/s/ Shannon L. Greene     Chief Financial Officer,
------------------------   Treasurer and Director                 March 27, 2003
SHANNON L. GREENE

/s/ Joseph R. Mannes              Director                        March 27, 2003
------------------------
JOSEPH R. MANNES

/s/ H.W. Markwardt                Director                        March 27, 2003
------------------------
H.W. MARKWARDT

/s/ Michael A. Markwardt          Director                        March 27, 2003
------------------------
MICHAEL A. MARKWARDT

/s/ Ronald C. Morgan       President and Director                 March 27, 2003
------------------------
RONALD C. MORGAN

/s/ Robin L. Morgan       Vice President, Assistant Secretary
------------------------   and Director                           March 27, 2003
ROBIN L. MORGAN

/s/ Anthony C. Morton             Director                        March 27, 2003
------------------------
ANTHONY C. MORTON

/s/ William M. Warren       Secretary and Director                March 27, 2003
------------------------
WILLIAM M. WARREN
                                       45
<PAGE>

                                 CERTIFICATIONS

I,  WRAY  THOMPSON,  certify  that:

1.  I  have  reviewed  this  annual  report on Form 10-K of The Leather Factory,
Inc.;

2.  Based  on  my  knowledge,  this  annual  report  does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rule  13a-14  and  15d-14)  for  the  registrant  and  have:

a)  designed such disclosure controls  and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is  made  known  to  us by others within those entities, particularly during the
period  in  which  this  annual  report  is  being  prepared;

b) evaluated the effectiveness  of  the  registrant's disclosure controls and
procedures  as  of a date within 90 days prior to the filing date of this annual
report  (the  "Evaluation  Date");  and

c) presented in this annual report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on  our  evaluation as of the
Evaluation  Date;

5.  The registrant's other certifying officer and I have disclosed, based on our
most  recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect  the  registrant's  ability  to record, process,
summarize  and  report  financial  data and have identified for the registrant's
auditors  any  material  weaknesses  in  internal  controls;  and

b) any fraud, whether  or  not  material,  that  involves management or other
employees who have a significant role in the registrant's internal controls; and

6.  The  registrant's  other  certifying  officers  and I have indicated in this
annual  report whether there were significant changes in internal controls or in
other  factors  that  could significantly affect internal controls subsequent to
the  date  of  our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.

Date:     March  27,  2003
                                          /s/  Wray  Thompson
                                          -------------------
                                          Wray  Thompson
                                          President and Chief Executive Officer
                                          (principal  executive  officer)

                                    ********
                                       46
<PAGE>

I,  SHANNON  L.  GREENE,  certify  that:

1.  I  have  reviewed  this  annual  report on Form 10-K of The Leather Factory,
Inc.;

2.  Based  on  my  knowledge,  this  annual  report  does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;

3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;

4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rule  13a-14  and  15d-14)  for  the  registrant  and  have:

a) designed such disclosure  controls  and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is  made  known  to  us by others within those entities, particularly during the
period  in  which  this  annual  report  is  being  prepared;

b) evaluated the effectiveness  of  the  registrant's disclosure controls and
procedures  as  of a date within 90 days prior to the filing date of this annual
report  (the  "Evaluation  Date");  and

c) presented in this annual report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on  our  evaluation as of the
Evaluation  Date;

5.  The registrant's other certifying officer and I have disclosed, based on our
most  recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect  the  registrant's  ability  to record, process,
summarize  and  report  financial  data and have identified for the registrant's
auditors  any  material  weaknesses  in  internal  controls;  and

b) any fraud, whether  or  not  material,  that  involves management or other
employees who have a significant role in the registrant's internal controls; and

6.  The  registrant's  other  certifying  officers  and I have indicated in this
annual  report whether there were significant changes in internal controls or in
other  factors  that  could significantly affect internal controls subsequent to
the  date  of  our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.

Date:     March  27,  2003
                                    /s/  Shannon  L.  Greene
                                    -------------------------
                                    Shannon L. Greene
                                    Chief Financial Officer and Treasurer
                                    (principal financial and accounting officer)

                                       47
<PAGE>


                        THE LEATHER FACTORY, INC. AND SUBSIDIARIES
                                        EXHIBIT INDEX
EXHIBIT
NUMBER                                      DESCRIPTION
-------  ----------------------------------------------------------------------

3.1      Certificate of Incorporation of The Leather Factory, Inc., filed as
         Exhibit 3.1 to the Registration Statement on Form SB-2 of The Leather
         Factory, Inc. (Commission File No. 33-81132) filed with the Securities
         and Exchange Commission on July 5, 1994, and incorporated by reference
         herein.

3.2      Bylaws of The Leather Factory, Inc., filed as Exhibit 3.2 to the
         Registration Statement on Form SB-2 of The Leather Factory, Inc.
         (Commission File No. 33-81132) filed with the Securities and Exchange
         Commission on July 5, 1994, and incorporated by reference herein.

10.1     The Leather Factory, Inc. Stock Purchase Warrant for 200,000 shares
         common stock, $.0024 par value issued to Evert I. Schlinger dated
         August 3, 1998 and terminating on August 3, 2003, filed as Exhibit
         4.13 to the Quarterly Report on Form 10-Q of The Leather Factory, Inc.
         (Commission File No. 1-12368) filed with the Securities and
         Exchange Commission November 12, 1998, and incorporated by reference
         herein.

10.2     Credit and Security Agreement dated November 22, 1999, by and between
         The Leather Factory, Inc., a Delaware corporation, The Leather Factory,
         Inc., a Texas corporation, The Leather Factory, Inc., an Arizona
         corporation, Roberts, Cushman & Company, Inc., and Hi-Line Leather &
         Manufacturing and Wells Fargo Business Credit, Inc., filed as Exhibit
         4.1 to the Current Report on Form 8-K of The Leather Factory, Inc.
         (Commission File No. 1-12368) filed with the Securities and Exchange
         Commission on December 16, 1999, and incorporated by reference herein.

10.3     Revolving Note (Revolving Credit Loan) dated November 22, 1999, in the
         principal amount of 8,500,000, payable to the order of Wells Fargo
         Business Credit, Inc., which matures November 30, 2002, filed as
         Exhibit 4.2 to the Current Report on Form 8-K of The Leather Factory,
         Inc. (Commission File No. 1-12368) filed with the Securities and
         Exchange Commission on December 16, 1999, and incorporated by
         reference herein.

10.4     Term Note dated November 22, 1999, in the principal amount of $150,000,
         payable to the order of Wells Fargo Business Credit, Inc., which
         matures May 1, 2000, filed as Exhibit 4.3 to the Current Report on Form
         8-K of The Leather Factory, Inc. (Commission File No. 1-12368) filed
         with the Securities and Exchange Commission on December 16, 1999, and
         incorporated by reference herein.

10.5     Copyright Security Agreement dated November 22, 1999, by and between
         The Leather Factory, Inc., a Delaware corporation, The Leather Factory,
         Inc., a Texas corporation, The Leather Factory, Inc., an Arizona
         corporation, Roberts, Cushman & Company, Inc., and Hi-Line Leather &
         Manufacturing and Wells Fargo Business Credit, Inc., filed as Exhibit
         4.4 to the Current Report on Form 8-K of The Leather Factory, Inc.
         (Commission File No. 1-12368) filed with the Securities and Exchange
         Commission on December 16, 1999, and incorporated by reference herein.

10.6     First Amendment to Credit and Security Agreement dated November 30,
         2000, by and between The Leather Factory, Inc. a Delaware corporation,
         The Leather Factory, Inc., a Texas corporation, The Leather Factory,
         Inc., an Arizona corporation, Roberts, Cushman & Company, Inc.,
         Hi-Line Leather & Manufacturing, and Tandy Leather Company, Inc.
         (f/k/a Leather Tan Acquisition, Inc.) and Wells Fargo Business Credit,
         Inc. filed as Exhibit 99.1 to the Current Report on Form 8-K of The
         Leather Factory, Inc. (Commission File No. 1-12368) filed with the
         Securities and Exchange Commission on December 15, 2000, and
         incorporated by reference herein.

10.7     Second Amendment to Credit and Security Agreement dated February 7,
         2001, by and between The Leather Factory, Inc. a Delaware corporation,
         The Leather Factory, Inc., a Texas corporation, The Leather Factory,
         Inc., an Arizona corporation, Roberts, Cushman & Company, Inc.,
         Hi-Line Leather & Manufacturing, and Tandy Leather Company, Inc. (f/k/a
         Leather Tan Acquisition, Inc.) and Wells Fargo Business Credit, Inc.
         filed an Exhibit 4.1 to the Form 10-Q filed by The Leather Factory,
         Inc. with the Securities and Exchange Commission on August 14, 2001,
         and incorporated by reference herein.

10.8     Third Amendment to Credit and Security Agreement and Waiver of Defaults
         dated June 14, 2001, by and between The Leather Factory, Inc. a
         Delaware corporation, The Leather Factory, Inc., a Texas corporation,
         The Leather Factory, Inc., an Arizona corporation, Roberts, Cushman &
         Company, Inc., Hi-Line Leather & Manufacturing, and Tandy Leather
         Company, Inc. (f/k/a Leather Tan Acquisition, Inc.) and Wells Fargo
         Business Credit, Inc. filed an Exhibit 4.2 to Form 10-Q filed by
         The Leather Factory, Inc. with the Securities and Exchange Commission
         On August 14, 2001, and incorporated by reference herein.

10.9     Letter Agreement for Consulting Services dated July 24, 1998, by and
         between The Leather Factory, Inc. and Evert I. Schlinger, filed as
         Exhibit 4.13 to the Quarterly Report on Form 10-Q of The Leather
         Factory, Inc. (Commission File No. 1-12368) filed with the Securities
         and Exchange Commission on November 12, 1998, and incorporated by
         reference herein.

10.10    Asset Purchase Agreement dated November 30, 2000, by Tandy Leather
         Company, Inc. (f/k/a Leather Tan Acquisition, Inc.), a Texas
         corporation, TLC Direct, Inc., a Texas corporation, and Tandy
         Leather Dealer, Inc., a Texas corporation, filed as Exhibit No. 2.1 to
         the Current Report on Form 8-K of The Leather Factory, Inc.
         (Commission File No. 1-12368) filed with the Securities and Exchange
         Commission on December 15, 2000, and incorporated herein by reference.

10.11    Amended and Restated Credit Agreement, dated as of March 20, 2002,
         made by and among The Leather Factory, Inc., a Delaware corporation;
         Roberts, Cushman & Company, Inc., a New York corporation; The Leather
         Factory, Inc., a Nevada corporation; The Leather Factory of Nevada
         Investments Inc., a Nevada corporation; Tandy Leather Company, Inc.,
         a Nevada corporation; Tandy Leather Company Investments, Inc., a
         Nevada corporation; The Leather Factory, L.P., a Texas limited
         partnership; Tandy Leather Company, L.P., a Texas limited partnership;
         Hi-Line Leather & Manufacturing Company, a California corporation; and
         The Leather Factory, Inc., an Arizona corporation, and Wells Fargo Bank
         Minnesota, National Association, filed as Exhibit 10.1 to the Current
         Report on Form 8-K of The Leather Factory, Inc. (Commission File No. 1-
         12368) filed with the Securities and Exchange Commission on March 20,
         2002, and incorporated herein by reference.

10.12    Revolving Note, dated March 20, 2002, in the principal amount of up to
         $7,500,000.00 given by The Leather Factory, Inc., a Delaware
         corporation; Roberts, Cushman & Company, Inc., a New York corporation;
         The Leather Factory, Inc., a Nevada corporation; The Leather Factory of
         Nevada Investments Inc., a Nevada corporation; Tandy Leather Company,
         Inc., a Nevada corporation; Tandy Leather Company Investments, Inc.,
         a Nevada corporation; The Leather Factory, L.P., a Texas limited
         partnership; Tandy Leather Company, L.P., a Texas limited partnership;
         Hi-Line Leather & Manufacturing Company, a California corporation; and
         The Leather Factory, Inc., an Arizona corporation, as borrowers,
         payable to the order of Wells Fargo Bank Minnesota, National
         Association, filed as Exhibit 10.2 to the Current Report on Form 8-K
         of The Leather Factory, Inc. (Commission File No. 1-12368) filed with
         the Securities and Exchange Commission on March 20, 2002, and
         incorporated herein by reference.

10.13    Collection Account Agreement, dated as of March 20, 2002, among The
         Leather Factory, Inc., a Delaware corporation; Roberts, Cushman &
         Company, Inc., a New York corporation; The Leather Factory, Inc., a
         Nevada corporation; The Leather Factory of Nevada Investments Inc., a
         Nevada corporation; Tandy Leather Company, Inc., a Nevada corporation;
         Tandy Leather Company Investments, Inc., a Nevada corporation; The
         Leather Factory, L.P., a Texas limited partnership; Tandy Leather
         Company, L.P., a Texas limited partnership; Hi-Line Leather &
         Manufacturing Company, a California corporation; and The Leather
         Factory, Inc., an Arizona corporation, and Wells Fargo Bank Minnesota,
         National Association, a national banking association and Wells Fargo
         Bank Texas, National Association, filed as Exhibit 10.3 to the Current
         Report on Form 8-K of The Leather Factory, Inc. (Commission File No.
         1-12368) filed with the Securities and Exchange Commission on March 20,
         2002, and incorporated herein by reference.

10.14    Amended and Restated Security Agreement, dated as of March 20, 2002,
         by and between The Leather Factory of Canada, Ltd., a Manitoba
         corporation, and Wells Fargo Bank Minnesota, National Association,
         filed as Exhibit 10.4 to the Current Report on Form 8-K of The Leather
         Factory, Inc. (Commission File No. 1-12368) filed with the Securities
         and Exchange Commission on March 20, 2002, and incorporated herein by
         reference.

10.15    Amended and Restated Guaranty (the Leather Factory of Canada, Ltd.),
         dated as of March 20, 2002, executed by The Leather Factory of Canada,
         Ltd., a Manitoba corporation, for the benefit of Wells Fargo Bank
         Minnesota, National Association, filed as Exhibit 10.5 to the Current
         Report on Form 8-K of The Leather Factory, Inc. (Commission File No.
         1-12368) filed with the Securities and Exchange Commission on March 20,
         2002, and incorporated herein by reference.

*21.1    Subsidiaries of the Company.

*23.1    Consent of Hein + Associates LLP dated March XX, 2003.

*99.1    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002
______________
*Filed herewith.
                                       48
<PAGE>

EXHIBIT  21.1


                     LIST OF THE SUBSIDIARIES OF THE COMPANY


-  The  Leather  Factory,  Inc.,  a  Nevada  corporation
-  The  Leather  Factory  of  Nevada  Investments, Inc., a Nevada corporation
-  The  Leather  Factory,  LP,  a  Texas  limited  partnership
-  The  Leather  Factory  ,Inc.,  an  Arizona  corporation
-  Hi-Line  Leather  &  Manufacturing  Company,  a  California  corporation
-  Roberts,  Cushman  &  Company,  Inc.,  a  New  York  corporation
-  The Leather Factory of Canada Ltd., a Manitoba domiciled Canadian corporation
-  Tandy  Leather  Company,  Inc.,  a  Nevada  corporation
-  Tandy  Leather  Company  Investments,  Inc.  a  Nevada  corporation
-  Tandy  Leather  Company,  LP,  a  Texas  limited  partnership

                                       49
<PAGE>

EXHIBIT  23.1


                         CONSENT OF INDEPENDENT AUDITORS



     We  consent to the incorporation by reference in the Registration Statement
(Form  S-8  No.  33-81214)  pertaining  to the Employee Stock Ownership Plan and
Trust  of The Leather Factory, Inc. and the Registration Statement (Form S-8 No.
333-07147) pertaining to the 1995 Stock Option Plan of The Leather Factory, Inc.
of our report dated February 6, 2003, with respect to the consolidated financial
statements  and  schedule  of  The  Leather Factory, Inc. included in the Annual
Report  (Form  10-K)  for  the  year  ended  December  31,  2002.



HEIN  +  ASSOCIATES  LLP


Dallas,  Texas
March  28,  2003

                                       50
<PAGE>

EXHIBIT  99.1


Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906  of  the  Sarbanes-Oxley  Act  of  2002

In  connection  with the Annual Report on Form 10-K of The Leather Factory, Inc.
for  the  fiscal  year  ended  December 31, 2002 as filed with the United States
Securities  and  Exchange  Commission  on  the  date hereof (the "Report"), Wray
Thompson,  as  Chairman  and  Chief Executive Officer, and Shannon L. Greene, as
Treasurer  and  Chief  Financial  Officer, each hereby certifies, pursuant to 18
U.S.C.  Section  1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act  of  2002,  that:

i.     The Report fully complies with the requirements of section 13(a) or 15(d)
of  the  Securities  Exchange  Act  of  1934;  and
ii.     The  information contained in the Report fully presents, in all material
respects,  the  financial  condition  and  results of operations of the Company.


March  27,  2003                   By:  /s/  WRAY  THOMPSON
                                        -------------------
                                        WRAY  THOMPSON
                                        CHAIRMAN OF THE BOARD AND CHIEF
                                             EXECUTIVE OFFICER


March  27,  2003                   By:  /s/  SHANNON  L.  GREENE
                                        ------------------------
                                        SHANNON  L.  GREENE
                                        CHIEF FINANCIAL OFFICER AND TREASURER
                                       51
<PAGE>