|  |
|--|

| Delaware                                                            |   | 75-2543540                                |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) |   | (IRS      Employer Identification Number) |

| Class                                          | Shares outstanding as of August 8,      2008 |
|------------------------------------------------|----------------------------------------------|
| Common      Stock, par value $0.0024 per share | 10,987,092                                   |

----

|                                                                                                                              | PAGE NO.       |
|-----------------------------------------------------------------------------------------------------------------------------------|----------------|
|                                                                                                                              |           |
| PART      I.  FINANCIAL INFORMATION                                                                                     |           |
|                                                                                                                              |           |
|   Item 1.  Financial    Statements                                                                            |           |
|                                                                                                                              |           |
|     Consolidated      Balance Sheets as of June 30, 2008 and December 31, 2007                                |        1  |
|                                                                                                                              |           |
|     Consolidated      Statements of Income for the three and six months ended June 30, 2008 and      2007     |        2  |
|                                                                                                                              |           |
|     Consolidated      Statements of Cash Flows for the six months ended June 30, 2008 and      2007           |        3  |
|                                                                                                                              |           |
|     Consolidated      Statements of Stockholders' Equity for the six months ended June 30, 2008      and 2007 |        4  |
|                                                                                                                              |           |
|     Notes to Consolidated Financial    Statements                                                             |        5  |
|                                                                                                                              |           |
|   Item 2.  Management's Discussion and Analysis of      Financial Condition and Results of Operations         |        8  |
|                                                                                                                              |           |
|   Item 3.  Quantitative and Qualitative      Disclosures About Market Risk                                    |        11 |
|                                                                                                                              |           |
|   Item 4.  Controls and      Procedures                                                                       |        11 |
|                                                                                                                              |           |
| PART      II.  OTHER INFORMATION                                                                                        |           |
|                                                                                                                              |           |
|   Item 4.  Submission of Matters to a Vote of      Security Holders                                           |        12 |
|                                                                                                                              |           |
|   Item 6.  Exhibits                                                                                           |        12 |
|                                                                                                                              |           |
| SIGNATURES                                                                                                                        |        12 |
|                                                                                                                              |           |

----

Item 1. Financial Statements.

|                                                       | June      30,  2008(unaudited)                                |                                                                                  | December      31,  2007(audited)                   |
|------------------------------------------------------------|-------------------------------------------------------------------------|---------------------------------------------------------------------------------------|--------------------------------------------------------------|
| ASSETS                                                     |                                                                    |                                                                                  |                                                         |
| CURRENT      ASSETS:                                       |                                                                    |                                                                                  |                                                         |
|                                                       | Cash                                                                    | $9,385,677                                                                            |                                                         | $6,310,396 |
|                                                       | Marketable      securities                                              | 500,000                                                                               |                                                         | 500,000 |
|                                                       | Accounts      receivable-trade, net of allowance for doubtful accounts  |                                                                                  |                                                         |   |
|                                                       |                                                                    |                                                                                  | of      $165,000 and $104,000 in 2008 and 2007, respectively | 2,355,647 |   | 2,538,816 |
|                                                       | Inventory                                                               | 15,310,947                                                                            |                                                         | 17,473,352 |
|                                                       | Prepaid      income taxes                                               | 116,990                                                                               |                                                         |   |
|                                                       | Deferred      income taxes                                              | 253,325                                                                               |                                                         | 256,938 |
|                                                       | Other      current assets                                               | 840,773                                                                               |                                                         | 1,102,836 |
|                                                       |                                                                    |                                                                                  |                                                         | Total      current assets | 28,763,359 |   | 28,182,338 |
|                                                       |                                                                    |                                                                                  |                                                         |
| PROPERTY      AND EQUIPMENT, at cost                       | 15,083,775                                                              |                                                                                  | 11,793,317                                                   |
| Less      accumulated depreciation and amortization        | (4,719,233)                                                             |                                                                                  | (4,794,505)                                                  |
|                                                       | 10,364,542                                                              |                                                                                  | 6,998,812                                                    |
|                                                       |                                                                    |                                                                                  |                                                         |
| GOODWILL                                                   | 987,526                                                                 |                                                                                  | 990,536                                                      |
| OTHER      INTANGIBLES, net of accumulated amortization of |                                                                    |                                                                                  |                                                         |
|                                                       | $339,000      and $313,000 in 2008 and 2007, respectively               | 358,489                                                                               |                                                         | 384,134 |
| OTHER      assets                                          | 373,779                                                                 |                                                                                  | 1,095,686                                                    |
|                                                       | $40,847,695                                                             |                                                                                  | $37,651,506                                                  |
|                                                       |                                                                    |                                                                                  |                                                         |
| LIABILITIES      AND STOCKHOLDERS' EQUITY                  |                                                                    |                                                                                  |                                                         |
| CURRENT      LIABILITIES:                                  |                                                                    |                                                                                  |                                                         |
|                                                       | Accounts      payable-trade                                             | $1,789,676                                                                            |                                                         | $1,497,564 |
|                                                       | Accrued      expenses and other liabilities                             | 2,793,616                                                                             |                                                         | 2,072,640 |
|                                                       | Income      taxes payable                                               | -                                                                                     |                                                         | 67,150 |
|                                                       | Current      maturities of long-term debt and capital lease obligations | 461,441                                                                               |                                                         | 135,000 |
|                                                       |                                                                    |                                                                                  |                                                         | Total      current liabilities | 5,044,733 |   | 3,772,354 |
|                                                       |                                                                    |                                                                                  |                                                         |
| DEFERRED      INCOME TAXES                                 | 503,448                                                                 |                                                                                  | 148,648                                                      |
|                                                       |                                                                    |                                                                                  |                                                         |
| LONG-TERM      DEBT, net of current maturities             | 3,813,750                                                               |                                                                                  | 3,915,000                                                    |
| CAPITAL      LEASE OBLIGATION, net of current maturities   | 441,124                                                                 |                                                                                  | -                                                            |
|                                                       |                                                                    |                                                                                  |                                                         |
| COMMITMENTS      AND CONTINGENCIES                         | -                                                                       |                                                                                  | -                                                            |
|                                                       |                                                                    |                                                                                  |                                                         |
| STOCKHOLDERS'      EQUITY:                                 |                                                                    |                                                                                  |                                                         |
|                                                       | Preferred      stock, $0.10 par value; 20,000,000 shares authorized;    |                                                                                  |                                                         |   |
|                                                       |                                                                    | none      issued or outstanding; attributes to be determined on    issuance           | -                                                            |   | - |
|                                                       | Common      stock, $0.0024 par value; 25,000,000 shares authorized;     |                                                                                  |                                                         |   |
|                                                       |                                                                    | 10,992,951      and 10,982,951 shares issued at 2008 and 2007,    respectively;       |                                                         |   |   |
|                                                       |                                                                    | 10,987,092      and 10,977,092 shares outstanding at 2008 and 2007,      respectively | 26,383                                                       |   | 26,359 |
|                                                       | Paid-in      capital                                                    | 5,448,203                                                                             |                                                         | 5,419,477 |
|                                                       | Retained      earnings                                                  | 25,277,420                                                                            |                                                         | 24,037,672 |
|                                                       | Treasury      stock (5,859 shares at cost)                              | (25,487)                                                                              |                                                         | (25,487) |
|                                                       | Accumulated      other comprehensive income                             | 318,121                                                                               |                                                         | 357,483 |
|                                                       |                                                                    |                                                                                  |                                                         | Total      stockholders' equity | 31,044,640 |   | 29,815,504 |
|                                                       | $40,847,695                                                             |                                                                                  | $37,651,506                                                  |

----

|                                                                                                                        | THREE      MONTHS |   | SIX      MONTHS |
|-----------------------------------------------------------------------------------------------------------------------------|-------------------|--------|-----------------|
|                                                                                                                        | 2008              |   | 2007            |   | 2008 |   | 2007 |
| NET      SALES                                                                                                              | $13,847,964       |   | $13,376,987     |   | $27,108,124 |   | $27,884,792 |
|                                                                                                                        |              |   |            |   |   |   |   |
| COST      OF SALES                                                                                                          | 5,836,312         |   | 5,691,318       |   | 11,355,450 |   | 11,601,170 |
|                                                                                                                        |              |   |            |   |   |   |   |
|           Gross      profit                                               | 8,011,652         |   | 7,685,669       |   | 15,752,674 |   | 16,283,622 |
|                                                                                                                        |              |   |            |   |   |   |   |
| OPERATING      EXPENSES                                                                                                     | 6,920,134         |   | 6,981,318       |   | 13,939,773 |   | 13,624,491 |
|                                                                                                                        |              |   |            |   |   |   |   |
| INCOME      FROM OPERATIONS                                                                                                 | 1,091,518         |   | 704,351         |   | 1,812,901 |   | 2,659,131 |
|                                                                                                                        |              |   |            |   |   |   |   |
| OTHER      INCOME (EXPENSE):                                                                                                |              |   |            |   |   |   |   |
|           Interest      expense                                           | (87,912)          |   | -               |   | (169,653) |   | - |
|           Other,      net                                                 | 26,293            |   | 27,522          |   | 306,683 |   | 76,514 |
|                Total      other income (expense) | (61,619)          |   | 27,522          |   | 137,030 |   | 76,514 |
|                                                                                                                        |              |   |            |   |   |   |   |
| INCOME      BEFORE INCOME TAXES                                                                                             | 1,029,899         |   | 731,873         |   | 1,949,931 |   | 2,735,645 |
|                                                                                                                        |              |   |            |   |   |   |   |
| PROVISION      FOR INCOME TAXES                                                                                             | 374,649           |   | 335,181         |   | 710,183 |   | 992,603 |
|                                                                                                                        |              |   |            |   |   |   |   |
| NET      INCOME                                                                                                             | $655,250          |   | $396,692        |   | $1,239,748 |   | $1,743,042 |
|                                                                                                                        |              |   |            |   |   |   |   |
| NET      INCOME PER COMMON SHARE-BASIC                                                                                      | $0.06             |   | $0.04           |   | $0.11 |   | $0.16 |
| NET      INCOME PER COMMON SHARE-DILUTED                                                                                    | $0.06             |   | $0.04           |   | $0.11 |   | $0.16 |
|                                                                                                                        |              |   |            |   |   |   |   |
|                                                                                                                        |              |   |            |   |   |   |   |
| Weighted      Average Number of Shares Outstanding:                                                                         |              |   |            |   |   |   |   |
|   Basic                                                                                                           | 10,981,378        |   | 10,945,661      |   | 10,979,235 |   | 10,931,201 |
|   Diluted                                                                                                         | 11,076,340        |   | 11,145,066      |   | 11,072,102 |   | 11,159,188 |

----

|                                                                                         | 2008        |   | 2007        |
|----------------------------------------------------------------------------------------------|-------------|--------|-------------|
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                                   |        |   |        |
|   Net      income                                                                  | $1,239,748  |   | $1,743,042  |
|   Adjustments      to reconcile net income to net                                  |        |   |        |
|    cash      provided by (used in) operating activities-                      |        |   |        |
|      Depreciation      & amortization                           | 509,324     |   | 233,742     |
|      Loss      on disposal of assets                                | 14,760      |   | -           |
|      Non-cash      stock-based compensation                         | 15,250      |   | 15,251      |
|      Deferred      income taxes                                     | 358,413     |   | (61)        |
|      Other                                                          | (36,354)    |   | 144,723     |
|      Net      changes in assets and liabilities:                    |        |   |        |
|        Accounts      receivable-trade, net                | 183,169     |   | (323,170)   |
|        Inventory                                          | 2,162,406   |   | (2,660,008) |
|        Income      taxes                                  | (184,140)   |   | (546,488)   |
|        Other      current assets                          | 262,063     |   | (25,420)    |
|        Accounts      payable                              | 292,114     |   | 138,298     |
|        Accrued      expenses and other liabilities        | 720,975     |   | (634,526)   |
|      Total      adjustments                                         | 4,297,980   |   | (3,657,660) |
|                                                                                         |        |   |        |
|       Net      cash provided by (used in) operating activities | 5,537,728   |   | (1,914,618) |
|                                                                                         |        |   |        |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                                   |        |   |        |
|   Purchase      of property and equipment                                          | (3,098,638) |   | (352,880)   |
|   Payments      in connection with businesses acquired                             | -           |   | (650,000)   |
|   Proceeds      from sale of assets                                                | 38,181      |   | 25,338      |
|   Decrease      (increase) in other assets                                         | 721,907     |   | (115,559)   |
|                                                                                         |        |   |        |
|       Net      cash used in investing activities               | (2,338,550) |   | (1,093,101) |
|                                                                                         |        |   |        |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                                   |        |   |        |
|   Payments      on long-term debt and notes payable                                | (33,750)    |   | -           |
|   Payments      on capital lease obligations                                       | (103,647)   |   | (67,034)    |
|   Proceeds      from issuance of common stock                                      | 13,500      |   | 54,960      |
|                                                                                         |        |   |        |
|       Net      cash used in financing activities               | (123,897)   |   | (12,074)    |
|                                                                                         |        |   |        |
| NET      CHANGE IN CASH                                                                      | 3,075,281   |   | (3,019,793) |
|                                                                                         |        |   |        |
| CASH,      beginning of period                                                               | 6,310,396   |   | 6,739,891   |
|                                                                                         |        |   |        |
| CASH,      end of period                                                                     | $9,385,677  |   | $3,720,098  |
|                                                                                         |        |   |        |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW INFORMATION:                                      |        |   |        |
|   Interest      paid during the period                                             | $169,653    |   | -           |
|   Income      taxes paid during the period, net of (refunds)                       | 534,957     |   | $1,548,067  |
|                                                                                         |        |   |        |
| NON-CASH      INVESTING ACTIVITIES:                                                          |        |   |        |
|   Equipment      acquired under capital lease financing arrangements               | 803,712     |   | -           |

----

|                                                                |           Number of         Shares |   | ParValue  |   |  Paid-in      Capital |   | TreasuryStock |   |  Retained      Earnings |   | Accumulated      Other Comprehensive Income (Loss) |   |  Total  |   | ComprehensiveIncome      (Loss) |
|---------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------|--------|---------------|--------|------------------------------|--------|----------------------------------------------------|--------|--------------|--------|---------------------------------|
| BALANCE,      December 31, 2006                                     | 10,879,209                                                                                          |   | $26,124   |   | $5,292,591                 |   | $(25,487)     |   | $20,949,540                  |   | $80,475                                            |   | $26,323,243  |   |                            |
|                                                                |                                                                                                |   |      |   |                       |   |          |   |                         |   |                                               |   |         |   |                            |
| Shares      issued - stock options and warrants      exercised |  75,883                                                                                        |   |  182 |   |  54,778               |   | -             |   |  -                      |   |  -                                            |   |  54,960 |   |                            |
|  Stock-based      compensation                                 | -                                                                                                   |   | -         |   | 15,251                     |   | -             |   | -                            |   | -                                                  |   | 15,251       |   |                            |
|  Net  income                                         | -                                                                                                   |   | -         |   | -                          |   | -             |   | 1,743,042                    |   | -                                                  |   | 1,743,042    |   | $1,743,042                      |
|  Translation      adjustment                                   | -                                                                                                   |   | -         |   | -                          |   | -             |   | -                            |   | 155,393                                            |   | 155,393      |   | 155,393                         |
| BALANCE,      June 30, 2007                                         | 10,955,092                                                                                          |   | $26,306   |   | $5,362,620                 |   | $(25,487)     |   | $22,692,582                  |   | $235,868                                           |   | $28,291,889  |   |                            |

| Comprehensive      income for the six months ended June 30, 2007 | $1,898,435 |
|------------------------------------------------------------------|------------|

| BALANCE,      December 31, 2007                   | 10,977,092   |   | $26,359  |   | $5,419,477   |   | $(25,487) |   | $24,037,672 |   | $357,483 |   | $29,815,504    |   |       |
|---------------------------------------------------|--------------|--------|----------|--------|--------------|--------|-----------|--------|-------------|--------|----------|--------|----------------|--------|------------|
|                                              |         |   |     |   |         |   |      |   |        |   |     |   |           |   |       |
| Shares      issued - stock options exercised |  10,000 |   |  24 |   |  13,476 |   |  -   |   |  -     |   |  -  |   |  13,500   |   |       |
|  Stock-based      compensation               | -            |   | -        |   | 15,250       |   | -         |   | -           |   | -        |   | 15,250         |   |       |
|  Net  income                       | -            |   | -        |   | -            |   | -         |   | 1,239,748   |   | -        |   | 1,239,748      |   | $1,239,748 |
|  Translation      adjustment                 | -            |   | -        |   | -            |   | -         |   | -           |   | (39,362) |   |  (39,362) |   | (39,362)   |
| BALANCE,      June 30, 2008                       | 10,987,092   |   | $26,383  |   | $5,448,203   |   | $(25,487) |   | $25,277,420 |   | $318,121 |   | $31,044,640    |   |       |

| Comprehensive      income for the six months ended June 30, 2008 | $1,200,386 |
|------------------------------------------------------------------|------------|

----

1.  BASIS OF PRESENTATION AND CERTAIN SIGNIFICANTACCOUNTING POLICIES

|                                   | As      of         |
|----------------------------------------|--------------------|
|                                   | June      30, 2008 |   | December      31, 2007 |
| Inventory      on hand:                |               |   |   |
| Finished      goods held for sale      | $13,817,053        |   | $16,482,845 |
| Raw      materials and work in process | 442,559            |   | 633,188 |
| Inventory      in transit              | 1,051,335          |   | 357,319 |
|                                   | $15,310,947        |   | $17,473,352 |

|                              | Leather      Factory | Tandy      Leather | Total    |
|-----------------------------------|----------------------|--------------------|----------|
| Balance,      December 31, 2006   | $362,733             | $383,406           | $746,139 |
| Acquisitions      and adjustments | 225,000              | -                  | 225,000  |
| Foreign      exchange gain/loss   | 10,670               | -                  | 10,670   |
| Impairments                       | -                    | -                  | -        |
| Balance,      June 30, 2007       | $598,403             | $383,406           | $981,809 |

|                              | Leather      Factory | Tandy      Leather | Total    |
|-----------------------------------|----------------------|--------------------|----------|
| Balance,      December 31, 2007   | $607,130             | $383,406           | $990,536 |
| Acquisitions      and adjustments | -                    | -                  | -        |
| Foreign      exchange gain/loss   | (3,010)              | -                  | (3,010)  |
| Impairments                       | -                    | -                  | -        |
| Balance,      June 30, 2008       | $604,120             | $383,406           | $987,526 |

|                        | As      of June 30, 2008 |                    | As      of December 31, 2007 |
|-----------------------------|--------------------------|-------------------------|------------------------------|
|                        |  Gross              | AccumulatedAmortization |  Net                    |   |  Gross | AccumulatedAmortization |  Net |
| Trademarks,      Copyrights | $544,369                 | $301,630                | $242,739                     |   | $544,369 | $283,485 | $260,884 |
| Non-Compete      Agreements | 153,000                  | 37,250                  | 115,750                      |   | 153,000 | 29,750 | 123,250 |
|                        | $697,369                 | $338,880                | $358,489                     |   | $697,369 | $313,235 | $384,134 |

|   | Wholesale Leathercraft | Retail Leathercraft | Total   |
|--------|------------------------|---------------------|---------|
| 2008   | $20,954                | $30,337             | $51,291 |
| 2009   | 20,954                 | 30,337              | 51,291  |
| 2010   | 20,954                 | 30,337              | 51,291  |
| 2011   | 20,027                 | 30,337              | 50,364  |
| 2012   | 1,250                  | 30,337              | 31,587  |

----

|                              | Weighted      Average Exercise      Price |  #      of      shares | Weighted      Average Remaining Contractual      Term (in years) | Aggregate      Intrinsic      Value |
|-----------------------------------|-------------------------------------------|-----------------------------|------------------------------------------------------------------|-------------------------------------|
| Outstanding,      January 1, 2007 | $2.050                                    | 296,200                     |                                                             |                                |
| Granted                           | -                                         | -                           |                                                             |                                |
| Cancelled                         | -                                         | -                           |                                                             |                                |
| Exercised                         | 1.466                                     | 37,500                      |                                                             |                                |
| Outstanding,      June 30, 2007   | $2.140                                    | 258,700                     | 4.86                                                             | $300,660                            |
| Exercisable,      June 30, 2007   | $1.880                                    | 228,700                     | 4.62                                                             | $237,120                            |
|                              |                                      |                        |                                                             |                                |
| Outstanding,      January 1, 2008 | $2.11                                     | 236,700                     |                                                             |                                |
| Granted                           | -                                         | -                           |                                                             |                                |
| Cancelled                         | -                                         | -                           |                                                             |                                |
| Exercised                         | 1.35                                      | 10,000                      |                                                             |                                |
| Outstanding,      June 30, 2008   | $2.15                                     | 226,700                     | 3.70                                                             | $262,751                            |
| Exercisable,      June 30, 2008   | $2.00                                     | 210,700                     | 3.56                                                             | $229,711                            |

|                                                                 | June 30,      2008 | June 30,      2007 |
|----------------------------------------------------------------------|--------------------|--------------------|
| Weighted      average grant-date fair value of stock options granted | N/A                | N/A                |
| Total      fair value of stock options vested                        | -                  | -                  |
| Total      intrinsic value of stock options exercised                | $8,029             | $32,399            |

----

|                                  |  Three      Months Ended June 30,                                  |       | Six      Months Ended June 30, |
|---------------------------------------|-------------------------------------------------------------------------|------------|--------------------------------|
|                                  |                                                                    | 2008       |                           | 2007 |   | 2008 |   | 2007 |
| Numerator:                            |                                                                    |       |                           |   |   |   |   |   |
|                                  | Net  income                                                   | $655,250   |                           | $396,692 |   | $1,239,748 |   | $1,743,042 |
|                                  | Numerator      for basic and diluted earnings per share                 | 655,250    |                           | 396,692 |   | 1,239,748 |   | 1,743,042 |
| Denominator:                          |                                                                    |       |                           |   |   |   |   |   |
|                                  | Weighted-average      shares outstanding-basic                          | 10,981,378 |                           | 10,945,661 |   | 10,979,235 |   | 10,931,201 |
|                                  |                                                                    |       |                           |   |   |   |   |   |
| Effect      of dilutive securities:   |                                                                    |       |                           |   |   |   |   |   |
|                                  | Stock      options                                                      | 94,962     |                           | 185,394 |   | 92,867 |   | 195,294 |
|                                  | Warrants                                                                | -          |                           | 14,011 |   | - |   | 32,693 |
| Dilutive      potential common shares |                                                                    | 94,962     |                           | 199,405 |   | 92,867 |   | 227,987 |
|                                  | Denominator      for diluted earnings per share-weighted-average shares | 11,076,340 |                           | 11,145,066 |   | 11,072,102 |   | 11,159,188 |
|                                  | Basic      earnings per share                                           | $0.06      |                           | $0.04 |   | $0.11 |   | $0.16 |
|                                  | Diluted      earnings per share                                         | $0.06      |                           | $0.04 |   | $0.11 |   | $0.16 |

| a.   | Wholesale      Leathercraft, which consists of a chain of warehouse distribution      units operating under the name, The Leather Factory,      located in North America; |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Retail      Leathercraft, which consists of a chain of retail stores operating      under the name, Tandy      Leather Company, located in the North  America; |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | International      Leathercraft, sells to both wholesale and retail      customers.  It carries the same products as North American      stores.  We started this operation in February 2008 and have one      store located in Northampton, United Kingdom;  and |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d.   | Other,      which consists of Roberts, Cushman and Co., a producer of decorative hat      trims sold directly to hatmanufacturers. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------|

|                                                             | Wholesale      Leathercraft | Retail      Leathercraft | InternationalLeathercraft | Other    | Total       |
|------------------------------------------------------------------|-----------------------------|--------------------------|---------------------------|----------|-------------|
| For      the quarter ended June 30, 2008                         |                        |                     |                      |     |        |
| Net      sales                                                   | $7,218,197                  | $6,235,427               | $193,822                  | $200,518 | $13,847,964 |
| Gross      profit                                                | 3,901,648                   | 3,898,022                | 112,284                   | 99,698   | 8,011,652   |
| Operating      earnings                                          | 524,619                     | 571,869                  | (7,456)                   | 2,486    | 1,091,518   |
| Interest      expense                                            | (87,912)                    | -                        | -                         | -        | (87,912)    |
| Other      income (expense), net                                 | 33,420                      | (134)                    | (6,993)                   | -        | 26,293      |
| Income      before income taxes                                  | 470,127                     | 571,735                  | (14,449)                  | 2,486    | 1,029,899   |
|                                                             |                        |                     |                      |     |        |
|      Depreciation      and amortization | 248,425                     | 31,732                   | 3,744                     | -        | 283,901     |
|      Fixed      asset additions         | 150,013                     | 6,660                    | 2,007                     | -        | 158,680     |
|      Total      assets                  | $34,790,281                 | $5,423,423               | $501,521                  | $132,470 | $40,847,695 |
|                                                             |                        |                     |                      |     |        |
| For      the quarter ended June 30, 2007                         |                        |                     |                      |     |        |
| Net      sales                                                   | $7,176,153                  | $5,842,198               | -                         | $358,636 | $13,376,987 |
| Gross      profit                                                | 4,088,106                   | 3,448,293                | -                         | 149,270  | 7,685,669   |
| Operating      earnings                                          | 411,368                     | 265,964                  | -                         | 27,019   | 704,351     |
| Interest      expense                                            | -                           | -                        | -                         | -        | -           |
| Other      income (expense), net                                 | 21,419                      | 6,103                    | -                         | -        | 27,522      |
| Income      before income taxes                                  | 432,787                     | 272,067                  | -                         | 27,019   | 731,873     |
|                                                             |                        |                     |                      |     |        |
|      Depreciation      and amortization | 81,562                      | 46,441                   | -                         | -        | 128,003     |
|      Fixed      asset additions         | 55,453                      | 97,130                   | -                         | 200      | 152,783     |
|      Total      assets                  | $27,394,503                 | $5,722,016               | -                         | $225,979 | $33,342,498 |

|                                                             | Wholesale      Leathercraft | Retail      Leathercraft | InternationalLeathercraft | Other    | Total       |
|------------------------------------------------------------------|-----------------------------|--------------------------|---------------------------|----------|-------------|
| For      the six months ended June 30, 2008                      |                        |                     |                      |     |        |
| Net      sales                                                   | $13,956,408                 | $12,506,201              | $235,559                  | $409,956 | $27,108,124 |
| Gross      profit                                                | 7,620,702                   | 7,806,491                | 142,008                   | 183,473  | 15,752,674  |
| Operating      earnings                                          | 648,574                     | 1,186,321                | (48,917)                  | 26,923   | 1,812,901   |
| Interest      expense                                            | (169,653)                   | -                        | -                         | -        | (169,653)   |
| Other      income (expense), net                                 | 314,028                     | (401)                    | (6,944)                   | -        | 306,683     |
| Income      before income taxes                                  | 792,949                     | 1,185,920                | (55,861)                  | 26,923   | 1,949,931   |
|                                                             |                        |                     |                      |     |        |
|      Depreciation      and amortization | 438,114                     | 63,757                   | 6,391                     | 1,062    | 509,324     |
|      Fixed      asset additions         | 3,006,764                   | 21,920                   | -                         | 69,954   | 3,098,638   |
|      Total      assets                  | $34,790,281                 | $5,423,423               | $501,521                  | $132,470 | $40,847,695 |
|                                                             |                        |                     |                      |     |        |
| For      the six months ended June 30, 2007                      |                        |                     |                      |     |        |
| Net      sales                                                   | $15,116,639                 | $12,096,416              | -                         | $671,737 | $27,884,792 |
| Gross      profit                                                | 8,769,992                   | 7,228,900                | -                         | 284,730  | 16,283,622  |
| Operating      earnings                                          | 1,757,571                   | 819,712                  | -                         | 81,848   | 2,659,131   |
| Interest      expense                                            | -                           | -                        | -                         | -        | -           |
| Other      income (expense), net                                 | 71,849                      | 4,665                    | -                         | -        | 76,514      |
| Income      before income taxes                                  | 1,829,420                   | 824,377                  | -                         | 81,848   | 2,735,645   |
|                                                             |                        |                     |                      |     |        |
|      Depreciation      and amortization | 152,697                     | 82,812                   | -                         | (1,767)  | 233,742     |
|      Fixed      asset additions         | 234,250                     | 118,430                  | -                         | 200      | 352,880     |
|      Total      assets                  | $27,394,503                 | $5,722,016               | -                         | $225,979 | $33,342,498 |

----

| Three      months ended June 30, | 2008        | 2007        |
|----------------------------------|-------------|-------------|
| United      States               | $12,081,267 | $11,842,509 |
| Canada                           | 1,229,723   | 1,076,195   |
| All      other countries         | 536,974     | 458,283     |
|                             | $13,847,964 | $13,376,987 |

| Six      months ended June 30, | 2008        | 2007        |
|--------------------------------|-------------|-------------|
| United      States             | $23,613,163 | $24,771,353 |
| Canada                         | 2,472,207   | 2,201,622   |
| All      other countries       | 1,022,754   | 911,817     |
|                           | $27,108,124 | $27,884,792 |

Item2.           Management’sDiscussion and Analysis of Financial Condition andResults of Operations.

| Ø   | We      believe that the continued rise in oil and natural gas prices will      increase the costs of the goods that we sell, including the costs of      shipping those goods from the manufacturer to our stores and      customers. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ø   | Continued      weakness 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.  Furthermore, negative trends in      general consumer-spending levels, including the impact of the availability      and level of consumer debt and levels of consumer confidence could      adversely affect our sales. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                            | Quarter      Ended June 30, 2008 |   | Quarter      Ended June 30, 2007 |
|---------------------------------|----------------------------------|--------|----------------------------------|
|                            | Sales                            |   | Operating      Income            |   | Sales |   | Operating      Income |
| Wholesale      Leathercraft     | $7,218,197                       |   | $524,619                         |   | $7,176,153 |   | $411,368 |
| Retail      Leathercraft        | 6,235,427                        |   | 571,869                          |   | 5,842,198 |   | 265,964 |
| International      Leathercraft | 193,822                          |   | (7,456)                          |   | - |   | - |
| Other                           | 200,518                          |   | 2,486                            |   | 358,636 |   | 27,019 |
| Total      Operations           | $13,847,964                      |   | $1,091,518                       |   | $13,376,987 |   | $704,351 |

|            | 2008     |   | 2007     | % Change |
|-----------------|----------|--------|----------|----------|
| Net      income | $655,250 |   | $396,692 | 65.2%    |

|                                                                                                                   | Quarter      ended |
|------------------------------------------------------------------------------------------------------------------------|--------------------|
| Customer Group                                                                                                         | 06/30/08           |   | 06/30/07 |
|   RETAIL      (end users, consumers,      individuals)                                                       | 25%                |   | 21% |
|   INSTITUTION      (prisons, prisoners,      hospitals, schools, youth organizations, etc.)                  | 10%                |   | 9% |
|   WHOLESALE      (resellers &      distributors, saddle & tack shops, authorized dealers,      etc.) | 41%                |   | 42% |
|   MANUFACTURERS                                                                                              | 9%                 |   | 11% |
|   NATIONAL      ACCOUNTS                                                                                     | 15%                |   | 17% |
|                                                                                                                   | 100%               |   | 100% |

|                        | Quarter      Ended 06/30/08 |   | Quarter      Ended 06/30/07 |   | $ change   | % change |
|-----------------------------|----------------------------------|--------|----------------------------------|--------|------------|----------|
| Same      store sales (30)  | $6,069,076                       |   | $6,316,463                       |   | $(247,387) | (3.9%)   |
| National      account group | 1,149,121                        |   | 859,690                          |   | 289,431    | 33.7%    |
|                        | $7,218,197                       |   | $7,176,153                       |   | $42,044    | 0.6%     |

|                             | #      Stores | Qtr      Ended 06/30/08 | Qtr      Ended 06/30/07 | $      Incr (Decr) | %      Incr (Decr) |
|----------------------------------|---------------|-------------------------|-------------------------|--------------------|--------------------|
| Same      (existing) store sales | 68            | $6,027,222              | $5,842,198              | $185,024           | 3.2%               |
| New      store sales             | 4             | 208,205                 | -                       | 208,205            | N/A                |
| Total      sales                 | 72            | $6,235,427              | $5,842,198              | $393,229           | 6.7%               |

|                                                                                                                   | Quarter      Ended |
|------------------------------------------------------------------------------------------------------------------------|--------------------|
| Customer Group                                                                                                         | 06/30/08           |   | 06/30/07 |
|   RETAIL      (end users, consumers,      individuals)                                                       | 60%                |   | 61% |
|   INSTITUTION      (prisons, prisoners,      hospitals, schools, youth organizations, etc.)                  | 11%                |   | 10% |
|   WHOLESALE      (resellers &      distributors, saddle & tack shops, authorized dealers,      etc.) | 28%                |   | 26% |
|   NATIONAL      ACCOUNTS                                                                                     | -                  |   | - |
|   MANUFACTURERS                                                                                              | 1%                 |   | 3% |
|                                                                                                                   | 100%               |   | 100% |

----

|                            | Six      Months Ended June 30, 2008 |   | Six      Months Ended June 30, 2007 |
|---------------------------------|-------------------------------------|--------|-------------------------------------|
|                            | Sales                               |   | Operating      Income               |   | Sales |   | Operating      Income |
| Wholesale      Leathercraft     | $13,956,408                         |   | $648,574                            |   | $15,116,639 |   | $1,757,571 |
| Retail      Leathercraft        | 12,506,201                          |   | 1,186,321                           |   | 12,096,416 |   | 819,712 |
| International      Leathercraft | 235,559                             |   | (48,917)                            |   | - |   | - |
| Other                           |   409,956                 |   | 26,923                              |   |   671,737 |   | 81,848 |
| Total      Operations           | $27,108,124                         |   | $1,812,901                          |   | $27,884,792 |   | $2,659,131 |

|            | 2008       |   | 2007       | % change |
|-----------------|------------|--------|------------|----------|
| Net      income | $1,239,748 |   | $1,743,042 | (28.9)%  |

|                        | Six      Months Ended  06/30/08 |   | Six      Months Ended 06/30/07 |   | $ Change     | % Change |
|-----------------------------|-------------------------------------------|--------|--------------------------------|--------|--------------|----------|
| Same      store sales (29)  | $11,744,151                               |   | $12,737,195                    |   | $(993,044)   | (7.8)%   |
| New      store (1)          | 316,877                                   |   | 389,137                        |   | (72,260)     | (18.6)%  |
| National      account group | 1,895,380                                 |   | 1,990,307                      |   | (94,928)     | (4.7)%   |
|                        | $13,956,408                               |   | $15,116,639                    |   | $(1,160,231) | (7.7)%   |

|                                                                                                                   | Six      Months Ended |
|------------------------------------------------------------------------------------------------------------------------|-----------------------|
| Customer Group                                                                                                         | 06/30/08              |   | 06/30/07 |
|   RETAIL      (end users, consumers,      individuals)                                                       | 27%                   |   | 25% |
|   INSTITUTION      (prisons, prisoners,      hospitals, schools, youth organizations, etc.)                  | 8%                    |   | 8% |
|   WHOLESALE      (resellers &      distributors, saddle & tack shops, authorized dealers,      etc.) | 44%                   |   | 40% |
|   MANUFACTURERS                                                                                              | 9%                    |   | 11% |
|   NATIONAL      ACCOUNTS                                                                                     | 12%                   |   | 16% |
|                                                                                                                   | 100%                  |   | 100% |

|                             | #      Stores | Six      Months Ended 06/30/08 | Six      Months Ended 06/30/07 | $      Incr (Decr) | %      Incr (Decr) |
|----------------------------------|---------------|--------------------------------|--------------------------------|--------------------|--------------------|
| Same      (existing) store sales | 64            | $11,739,052                    | $11,948,057                    | $(209,006)         | (1.8)%             |
| New      store sales             | 8             | 767,149                        | 148,359                        | 618,790            | N/A                |
| Total      sales                 | 72            | $12,506,201                    | $12,096,416                    | $409,784           | 3.4%               |

|                                                                                                                   | Six      Months Ended |
|------------------------------------------------------------------------------------------------------------------------|-----------------------|
| Customer Group                                                                                                         | 06/30/08              |   | 06/30/07 |
|   RETAIL      (end users, consumers,      individuals)                                                       | 62%                   |   | 63% |
|   INSTITUTION      (prisons, prisoners,      hospitals, schools, youth organizations, etc.)                  | 9%                    |   | 8% |
|   WHOLESALE      (resellers &      distributors, saddle & tack shops, authorized dealers,      etc.) | 28%                   |   | 27% |
|   NATIONAL      ACCOUNTS                                                                                     | -                     |   | - |
|   MANUFACTURERS                                                                                              | 1%                    |   | 2% |
|                                                                                                                   | 100%                  |   | 100% |

----

Item 3.  Quantitative and Qualitative Disclosures AboutMarket Risk.

Item 4.  Controls and Procedures.

----

Item 4.  Submission of Matters to a Vote of SecurityHolders.

|                      | For       | Against | Abstaining |
|---------------------------|-----------|---------|------------|
| Shannon      L. Greene    | 7,273,852 | 822,963 | -          |
| T.      Field Lange       | 7,904,217 | 192,598 | -          |
| Joseph      R. Mannes     | 7,906,288 | 190,527 | -          |
| L.      Edward Martin III | 7,966,017 | 130,798 | -          |
| Ronald      C. Morgan     | 7,968,288 | 128,527 | -          |
| Michael      A. Nery      | 7,968,288 | 128,527 | -          |
| Wray      Thompson        | 7,911,577 | 185,238 | -          |

Item 6. Exhibits

| ExhibitNumber    |  Description                                                                                                                                                                                                                                                                                                                                               |
|-----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                   | Certificate      of Incorporation of The Leather Factory, Inc., and Certificate of      Amendment to Certificate of Incorporation of The Leather Factory, Inc.      filed as Exhibit 3.1 to Form 10-Q filed by Tandy Leather Factory, Inc.      with the Securities and Exchange Commission on August 12, 2005 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.                                                              |
| 4.1                   | Financial      Advisor’s Warrant Agreement, dated February 24, 2004, between The Leather      Factory, Inc. and Westminster Securities Corporation filed as Exhibit 4.1      to Form 10-Q filed by The Leather Factory, Inc. with the Securities and      Exchange Commission on May 14, 2004 and incorporated by reference      herein.             |
| *31.1                 | 13a-14(a)      Certification by Ron Morgan, Chief Executive Officer and      President.                                                                                                                                                                                                                                                                    |
| *31.2                 | 13a-14(a)      Certification by Shannon Greene, Chief Financial Officer and      Treasurer.                                                                                                                                                                                                                                                                |
| *32.1                 | Certification      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of      the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                               |
| ____________          |                                                                                                                                                                                                                                                                                                                                                            |
| *Filed      herewith. |                                                                                                                                                                                                                                                                                                                                                            |

|                                  | TANDY      LEATHER FACTORY, INC.                                       |
|---------------------------------------|------------------------------------------------------------------------|
|                                  | (Registrant)                                                           |
|                                  |                                                                   |
| Date:  August      14, 2008 | By:  /s/ Ronald C. Morgan                                    |
|                                  | Ronald      C. Morgan                                                  |
|                                  | Chief      Executive Officer                                           |
|                                  |                                                                   |
| Date:  August      14, 2008 | By:  /s/ Shannon L. Greene                                   |
|                                  | Shannon      L. Greene                                                 |
|                                  | Chief      Financial Officer and Treasurer (Chief Accounting  Officer) |