**EXHIBIT
      10.3**





**CONSULTATION
      AGREEMENT**





This
      Consultation Agreement, dated as of January 1, 2007 (the “Agreement”) between
      TANDY LEATHER FACTORY, INC., a Delaware corporation (and any successor entity
      thereto, the “Company” or “TLF”) and J. WRAY THOMPSON (the
“Consultant”).





WHEREAS
      the Company desires to retain the Consultant as Chairman of the Board and as
      a
      Consultant and the Consultant desires to serve in those positions.





NOW,
      THEREFORE, in consideration of the covenants and agreements hereinafter set
      forth, the parties hereto agree as follows:





1.  EFFECTIVENESS
      OF AGREEMENT





This
      Agreement shall become effective as of January 1, 2007.





2.  SERVICE
      AND DUTIES





2.1  General. The
      Company hereby retains the Consultant, and the Consultant agrees to serve as
      Chairman of the Board of the Company, upon the terms and conditions herein
      contained. The Consultant shall have all of the responsibilities and powers
      normally associated with such office. The Consultant shall perform such other
      duties and services for the Company, commensurate with the Consultant’s
      position, as may be designated from time to time by the Board of Directors
      of
      the Company (the “Board”). The Consultant agrees to serve the Company faithfully
      and to the best of his ability under the direction of the Board. It is
      understood and agreed that the Consultant not be an employee of the Company
      despite any title assigned to the Consultant.





2.2  Services. Except
      as may otherwise be approved in advance by the Board and except during vacation
      periods and reasonable periods of absence due to sickness, personal injury,
      or
      other disability, the Consultant shall be available by telephone, fax, or in
      person at all reasonable times for consultation throughout the Term (as defined
      in Section 2.3). The Consultant shall render his services to the Company during
      the Term and shall use his best efforts, judgment and energy to improve and
      advance the business and interest of the Company in a manner consistent with
      the
      duties of his position. However, this Consultation Agreement will be
      non-exclusive and the Consultant may engage in other business or employment,
      not
      inconsistent with the terms of Section 7 herein.





2.3  Term
      of Service. The
      Consultant’s service under this Agreement shall commence as of January 1, 2007
      and shall terminate on the earlier of December 31, 2007 or termination of the
      Consultant’s service pursuant to this Agreement. The period commencing as of
      January 1, 2007 and ending on December 31, 2007 is hereinafter referred to
      as
      the “Term”.





2.4  Automatic
      Renewal. This
      Consultation Agreement will be automatically renewed each year until terminated
      as provided herein. Any renewal will be referred to as the “Renewed Term”. Each
      Term will be for a one (1) year period.





2.5  Company
      Credit Card/Expenses. During
      the Term or Renewed Term, the Consultant shall continue to be eligible to use
      his Company-issued credit card for reasonable travel and other business expenses
      incurred by him in the fulfillment of his duties hereunder, in accordance with
      Company practices as in effect during the Term.





3.  SALARY





3.1  Base
      Salary. The
      Consultant shall be entitled to receive a base salary (“Base Salary”) at a rate
      of $100,000 per annum, payable in arrears in equal installments not less
      frequently than monthly. Any increases will be in accordance with the terms
      hereof. Once increased, such higher shall constitute the Consultant’s annual
      Base Salary.





3.2  Annual
      Review. The
      Consultant’s Base Salary shall be reviewed by the Board, based upon the
      Consultant’s performance, not less often than annually. In addition to any
      increases effected as a result of such review, the Board at any time may in
      its
      sole discretion increase the Consultant’s Base Salary if, in the Board’s
      opinion, it is in the best interest of the Company to do so.





4.  BENEFITS





The
      Consultant will, during the Term of this Agreement, be included to the extent
      eligible in all Company medical, dental and vision insurance which shall be
      established by the Company for, or made available to Consultant. The Company’s
      medical plan, dental plan and vision plan shall provide benefits substantially
      similar to those provided to the Company’s existing plans provided for other
      employees. During the Term, the benefits described in this Section 4 may only
      be
      reduced as a result of a general reduction for Senior Consultants, where the
      Base Salary is increased to offset benefits lost. In the event is it necessary
      to purchase a separate health insurance policy for the Consultant, then the
      cost
      of medical, dental or vision insurance will be deducted from the Consultant’s
      Salary as defined in Section 3.





5.  TERMINATION
      OF SERVICE





5.1  General. If,
      prior to the expiration of the Term, the Consultant’s service is terminated by
      the Company, the Company shall continue to pay the Consultant the Base Salary
      (at the rate in effect on the date of such termination) for the remainder of
      the
      Term (such period being referred to hereinafter as the “Severance Period”), at
      such intervals as the same would have been paid had the Consultant remained
      in
      the active service of the Company. In addition, the Consultant shall be entitled
      to continue to participate during the Severance Period in any benefit plans
      set
      forth herein. The Consultant shall have no further right to receive any other
      compensation or benefits after such termination or resignation of service except
      as determined in accordance with the terms of the employee benefits plans or
      programs of the Company established for Consultant under the terms of this
      Agreement.





5.2  Death
      During Term or Severance Period. In the
      event of the Consultant’s death during the Term or the Severance Period,
      payments of the Base Salary under this Section 5 shall terminate.





5.3  Date
      of Termination. The date
      of termination of service shall be the date specified in a written notice of
      termination to the Consultant. The date of resignation shall be the date
      specified in the written notice of resignation from the Consultant to the
      Company.





6.  DISABILITY





In
      the
      event of termination of service by reason of Permanent Disability (as
      hereinafter defined), the Consultant (or his estate, as applicable) shall be
      entitled to Base Salary and benefits determined under Sections 3 and 4 hereof
      through the date of disability. Other benefits shall be determined in accordance
      with the benefits plans maintained by the Company applicable to the Consultant,
      and the Company shall have no further obligation hereunder. For purposes of
      this
      Agreement, “ Permanent
      Disability ”
means
      a
      physical or mental disability or infirmity of the Consultant that prevents
      the
      normal performance of substantially all his duties as a consultant of the
      Company, which disability or infirmity shall exist for any continuous period
      of
      60 days. The presumption of disability will arise if the Consultant is unable
      to
      attend two (2) consecutive Board meetings.





7.  NONSOLICITATION;
      CONFIDENTIALITY; NONCOMPETITION





7.1  Nonsolicitation. For so
      long as the Consultant serves the Company and continuing for two years
      thereafter, the Consultant shall not, without the prior written consent of
      the
      Company, directly or indirectly, as a sole proprietor, member of a partnership,
      stockholder or investor, office or director of a corporation, or as an employee,
      associate, consultant or agent of any person, partnership, corporation or other
      business organization or entity other than the Company:





a)
            1)
            solicit
                or endeavor to entice away from the Company, or any of its subsidiaries
                or





2)
            solicit
                any person or entity who during the then most recent twelve-month
                period,
                was employed by or served as an agent or key consultant of the Company
                or
                any of its Subsidiaries, or





b)  solicit
      or endeavor to entice away from the Company, or any of its subsidiaries, any
      person or entity who is, or was within the then most recent 12-month period,
      a
      customer or client (or reasonably anticipated [to the general knowledge of
      the
      Consultant or the public] to become a customer or client) of the Company, or
      any
      of its subsidiaries.





7.2  Confidentiality. The
      Consultant covenants and agrees with the Company that he will not at any time,
      except in performance of his obligations to the Company hereunder or with the
      prior written consent of the Company, directly or indirectly, disclose any
      secret or confidential information that he may learn or has learned by reason
      of
      his association with the Company, or any of its subsidiaries and affiliates.
      The
      term “confidential information” includes information not previously disclosed to
      the public or to the trade by the Company’s management, or otherwise in the
      public domain, with respect to the Company’s, or any of its affiliates’ or
      subsidiaries’, products, facilities, applications and methods, trade secrets and
      other intellectual property, systems, procedures, manuals, confidential reports,
      product price lists, customer lists, technical information, financial
      information (including the revenues, cost or profits associated with any of
      the
      Company’s products), business plans, prospects or opportunities, but shall
      exclude any information which (i) is or becomes available to the public or
      is
      general known in the industry or industries in which the Company operates other
      than as a result of disclosure by any employee of the Company, including, but
      not limited to, the Consultant’s agreement under this Section 7.2 or (ii) the
      Consultant is required to disclose under any applicable laws, regulations or
      directives of any government agency, tribunal or authority having jurisdiction
      in the matter or under subpoena or other process of law.





7.3  Non
      Compete. For so
      long as the Consultant serves the Company (or, if the Consultant is entitled
      to
      a continuation of his Base Salary, the period during which such Base Salary
      is
      continued) and continuing for two years thereafter, the Consultant shall not,
      directly or indirectly, as a sole proprietor, member of a partnership,
      stockholder, investor, officer or director of a corporation, or as an employee,
      associate, consult or agent of any person, partnership, corporation or other
      business organization or entity other than the Company, or any of its
      subsidiaries, render any service to or in any way be affiliated with a
      competitor (or any person or entity that is reasonably anticipated [to the
      general knowledge of the Consultant or the public] to become a competitor)
      of
      the Company, or any of its subsidiaries. Further purposes of this Section 7.3,
      ownership of securities having no more than one percent of the outstanding
      voting power of any competitor which is listed on any national securities
      exchange or traded actively in the national over-the-counter market shall not
      be
      deemed to be in violation of this Section so long as Consultant has no other
      connection or relationship with such competitor.





7.4  Exclusive
      Property. The
      Consultant confirms that all confidential information is and shall remain the
      exclusive property of the Company. All business records, papers and documents
      kept or made by the Consultant relating to the business of the Company shall
      be
      and remain the property of the Company.





7.5  Injunctive
      Relief. Without
      intending to limit the remedies available to the Company, the Consultant
      acknowledges that a breach of any of the covenants contained in this Section
      7
      may result in material and irreparable injury to the Company, or its affiliates
      or subsidiaries, for which there is no adequate remedy at law, that it will
      not
      be possible to measure damages for such injuries precisely and that, in the
      event of such a breach or threat thereof, the Company shall be entitled to
      seek
      a temporary restraining order and/or a preliminary or permanent injunction
      restraining the Consultant from engaging in activities prohibited by this
      Section 7 or such other relief as may be required specifically to enforce any
      of
      the covenants in this Section 7. If for any reason it is held that the
      restrictions under this Section 7 are not reasonable or that consideration
      therefor is inadequate, such restrictions shall be interpreted or modified
      to
      include as much of the duration and scope identified in this Section 7 as will
      render such restrictions valid and enforceable.





8.  MISCELLANEOUS





|8.1 | Notices.All notices or communications hereunder shall be in writing, addressed
              as
              follows:
|--- | ----------------------------------------------------------------------------------------------------------------------




To
                the Company:
            Tandy
                Leather Factory, Inc.3847
                East Loop 820 SouthFort
                Worth, Texas 76119Telecopier
                No: 817-496-9806Attention:
                Ronald C. MorganWith
                a copy to:
            William
                M. WarrenLoe,
                Warren, Rosenfield, Kaitcer, Hibbs & Windsor, PC4420
                W. Vickery BlvdFort
                Worth, Texas 76107Telecopier
                No.: 817-377-1120To
                the Consultant:
            J.
                Wray Thompson2803
                WoodwindArlington,
                Texas 76013





All
      such
      notices shall be conclusively deemed to be received and shall be effective
      (i)
      if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile
      transmission, upon confirmation of receipt by the sender of such transmission
      or
      (iii) if sent by registered or certified mail, on the fifth day after the day
      on
      which such notice is mailed.





8.2  Severability. Each
      provision of this Agreement shall be interpreted in such manner as to be
      effective and valid under applicable law, but if any provision of this Agreement
      is held to be prohibited by or invalid under applicable law, such provision
      will
      be ineffective only to the extent of such prohibition or invalidity, without
      invalidating the remainder of such provision or the remaining provisions of
      this
      Agreement.





8.3  Assignment. The
      Company’s rights and obligations under this Agreement shall not be assignable by
      the Company except as incident to a reorganization, merger or consolidation,
      or
      transfer of all or substantially all of the Company’s business and properties.
      Neither this Agreement nor any rights hereunder shall be assignable or otherwise
      subject to hypothecation by the Consultant.





8.4  Entire
      Agreement. This
      Agreement represents the entire agreement of the parties and shall supersede
      any
      and all previous contracts, arrangements or understandings between the Company
      and the Consultant, including, without limitation, the Prior Agreement. This
      Agreement may be amended at any time by mutual written agreement of the parties
      hereto. In the case of any conflict between any express term of this Agreement
      and any statement contained in any employment manual, memo or rule of general
      applicability of the Company, this Agreement shall control.





8.5  Withholding. The
      payment of any amount pursuant to this Agreement shall be subject to applicable
      withholding and payroll taxes, and such other deductions as may be required
      under the Company’s employee benefit plans, if any.





8.6  Governing
      Law. This
      Agreement shall be construed, interpreted and governed in accordance with the
      laws of Texas without reference to rules relating to conflict of law. The venue
      for any dispute will be in the Court of applicable jurisdiction in Tarrant
      County, Texas.





IN
      WITNESS WHEREOF, the Company has caused this Agreement to be duly executed
      and
      the Consultant has hereunto set his hand, as of the day and year first above
      written.





TANDY
      LEATHER FACTORY, INC.





By:  /s/
      Ronald C. Morgan


Ronald
      C.
      Morgan


Title:  Chief
      Executive Officer











Consultant





/s/
      J.
      Wray Thompson


J.
      Wray
      Thompson