|  |
|--|

| Delaware                                                       | 75-2543540                        |
|----------------------------------------------------------------|-----------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |

| Class                                     | Shares outstanding as of May 7, 2011 |
|-------------------------------------------|--------------------------------------|
| Common Stock, par value $0.0024 per share | 10,156,442                           |

----

TABLE OF CONTENTS

|                                                                                      | PAGE NO.  |
|-------------------------------------------------------------------------------------------|-----------|
|                                                                                      |      |
| PART I.  FINANCIAL INFORMATION                                                  |      |
|                                                                                      |      |
|   Item 1.  Financial Statements                                       |   1  |
|                                                                                      |      |
|     Consolidated Balance Sheets                                       |      |
|      March 31, 2011 and December 31, 2010                        |   1  |
|                                                                                      |      |
|     Consolidated Statements of Income                                 |      |
|      Three months ended March 31, 2011 and 2010                  |   2  |
|                                                                                      |      |
|     Consolidated Statements of Cash Flows                             |      |
|      Three months ended March 31, 2011 and 2010                  |   3  |
|                                                                                      |      |
|     Consolidated Statements of Stockholders' Equity                   |      |
|      Three months ended March 31, 2011 and 2010                  |   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                                                     |   11 |
|                                                                                      |      |
|   Item 6.  Exhibits                                                   |   11 |
|                                                                                      |      |
| SIGNATURES                                                                                |   11 |
|                                                                                      |      |

----

Item 1. Financial Statements

|                                                  | March 31, 2011(unaudited)                                    |                                                                | December 31, 2010(audited)                         |
|-------------------------------------------------------|-------------------------------------------------------------------|---------------------------------------------------------------------|---------------------------------------------------------|
| ASSETS                                                |                                                              |                                                                |                                                    |
| CURRENT ASSETS:                                       |                                                              |                                                                |                                                    |
|                                                  | Cash                                                              | $3,605,189                                                          |                                                    | $4,293,746 |
|                                                  | Short-term investments, including certificates of deposit         | 1,616,593                                                           |                                                    | 1,621,593 |
|                                                  | Accounts receivable-trade, net of allowance for doubtful accounts |                                                                |                                                    |   |
|                                                  |                                                              |                                                                | of $118,000 and $147,000 in 2011 and 2010, respectively | 1,434,117 |   | 1,253,639 |
|                                                  | Inventory                                                         | 20,209,855                                                          |                                                    | 20,236,028 |
|                                                  | Deferred income taxes                                             | 302,121                                                             |                                                    | 307,509 |
|                                                  | Other current assets                                              | 1,669,881                                                           |                                                    | 1,056,201 |
|                                                  |                                                              |                                                                |                                                    | Total current assets | 28,837,756 |   | 28,768,716 |
|                                                  |                                                              |                                                                |                                                    |
| PROPERTY AND EQUIPMENT, at cost                       | 14,539,446                                                        |                                                                | 14,390,662                                              |
| Less accumulated depreciation and amortization        | (4,333,607)                                                       |                                                                | (4,106,121)                                             |
|                                                  | 10,205,839                                                        |                                                                | 10,284,541                                              |
|                                                  |                                                              |                                                                |                                                    |
| GOODWILL                                              | 994,009                                                           |                                                                | 990,368                                                 |
| OTHER INTANGIBLES, net of accumulated amortization of |                                                              |                                                                |                                                    |
|                                                  | $507,000 and $495,000 in 2011 and 2010, respectively              | 221,778                                                             |                                                    | 232,416 |
| OTHER assets                                          | 318,869                                                           |                                                                | 319,533                                                 |
|                                                  | $40,578,251                                                       |                                                                | $40,595,574                                             |
|                                                  |                                                              |                                                                |                                                    |
| LIABILITIES AND STOCKHOLDERS' EQUITY                  |                                                              |                                                                |                                                    |
| CURRENT LIABILITIES:                                  |                                                              |                                                                |                                                    |
|                                                  | Accounts payable-trade                                            | $2,024,797                                                          |                                                    | $1,247,821 |
|                                                  | Accrued expenses and other liabilities                            | 2,707,485                                                           |                                                    | 4,893,236 |
|                                                  | Income taxes payable                                              | 555,879                                                             |                                                    | 554,380 |
|                                                  | Current maturities of long-term debt                              | 202,500                                                             |                                                    | 202,500 |
|                                                  |                                                              |                                                                |                                                    | Total current liabilities | 5,490,661 |   | 6,897,937 |
|                                                  |                                                              |                                                                |                                                    |
| DEFERRED INCOME TAXES                                 | 788,819                                                           |                                                                | 628,543                                                 |
|                                                  |                                                              |                                                                |                                                    |
| LONG-TERM DEBT, net of current maturities             | 3,256,875                                                         |                                                                | 3,307,500                                               |
|                                                  |                                                              |                                                                |                                                    |
| 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;    |                                                                |                                                    |   |
|                                                  |                                                              | 11,150,065 shares issued at 2011 and 2010;                          |                                                    |   |   |
|                                                  |                                                              | 10,156,442 shares outstanding at 2011 and 2010                      | 26,760                                                  |   | 26,760 |
|                                                  | Paid-in capital                                                   | 5,722,287                                                           |                                                    | 5,703,387 |
|                                                  | Retained earnings                                                 | 27,579,911                                                          |                                                    | 26,429,335 |
|                                                  | Treasury stock at cost (993,623 shares at 2011 and 2010)          | (2,894,068)                                                         |                                                    | (2,894,068) |
|                                                  | Accumulated other comprehensive income                            | 607,006                                                             |                                                    | 496,180 |
|                                                  |                                                              |                                                                |                                                    | Total stockholders' equity | 31,041,896 |   | 29,761,594 |
|                                                  | $40,578,251                                                       |                                                                | $40,595,574                                             |

----

Table of Contents

|                                                              | 2011                         |      | 2010        |
|-------------------------------------------------------------------|------------------------------|-----------|-------------|
|                                                              |                         |      |        |
| NET SALES                                                         | $15,879,040                  |      | $14,588,538 |
| COST OF SALES                                                     | 6,354,192                    |      | 5,611,942   |
|                                                              | Gross profit                 | 9,524,848 |        | 8,976,596 |
|                                                              |                         |      |        |
| OPERATING EXPENSES                                                | 7,612,360                    |      | 7,440,228   |
| INCOME FROM OPERATIONS                                            | 1,912,488                    |      | 1,536,368   |
|                                                              |                         |      |        |
| OTHER (INCOME) EXPENSE:                                           |                         |      |        |
| Interest expense                                                  | 62,003                       |      | 65,604      |
| Other, net                                                        | 48,832                       |      | (1,467)     |
|                                                              | Total other (income) expense | 110,835   |        | 64,137 |
|                                                              |                         |      |        |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES             | 1,801,653                    |      | 1,472,231   |
|                                                              |                         |      |        |
| PROVISION FOR INCOME TAXES                                        | 651,077                      |      | 524,654     |
|                                                              |                         |      |        |
| NET INCOME FROM CONTINUING OPERATIONS                             | 1,150,576                    |      | 947,577     |
|                                                              |                         |      |        |
| INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX                   | -                            |      | 536         |
|                                                              |                         |      |        |
| NET INCOME                                                        | $1,150,576                   |      | $948,113    |
|                                                              |                         |      |        |
|                                                              |                         |      |        |
| NET INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE:           |                         |      |        |
| BASIC                                                             | $0.11                        |      | $0.09       |
| DILUTED                                                           | $0.11                        |      | $0.09       |
|                                                              |                         |      |        |
| INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX PER COMMON SHARE: |                         |      |        |
| BASIC                                                             | $0.00                        |      | $0.00       |
| DILUTED                                                           | $0.00                        |      | $0.00       |
|                                                              |                         |      |        |
| NET INCOME PER COMMON SHARE:                                      |                         |      |        |
| BASIC                                                             | $0.11                        |      | $0.09       |
| DILUTED                                                           | $0.11                        |      | $0.09       |
|                                                              |                         |      |        |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:                    |                         |      |        |
| BASIC                                                             | 10,156,442                   |      | 10,137,715  |
| DILUTED                                                           | 10,169,701                   |      | 10,213,677  |

----

Table of Contents

|                                                | 2011                                                                                                                                                                                                                        |                                                                           | 2010                                   |
|-----------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|----------------------------------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:               |                                                                                                                                                                                                                        |                                                                           |                                   |
|                                                | Net income                                                                                                                                                                                                                  | $1,150,576                                                                     |                                   | $948,113 |
|                                                | Income from discontinued operations                                                                                                                                                                                         | -                                                                              |                                   | 536 |
|                                                |                                                                                                                                                                                                                        | 1,150,576                                                                      |                                   | 947,577 |
|                                                | Adjustments to reconcile net income to net cash (used in) provided by operating activities:                                                                                                                                 |                                                                           |                                   |   |
|                                                |                                                                                                                                                                                                                        | Depreciation and amortization                                                  | 245,004                                |   | 234,026 |
|                                                |                                                                                                                                                                                                                        | (Gain) loss on disposal or abandonment of assets                               | (2,925)                                |   | 246 |
|                                                |                                                                                                                                                                                                                        | Non-cash stock-based compensation                                              | 18,900                                 |   | - |
|                                                |                                                                                                                                                                                                                        | Deferred income taxes                                                          | 165,664                                |   | 5,113 |
|                                                |                                                                                                                                                                                                                        | Other                                                                          | 102,119                                |   | 80,343 |
|                                                |                                                                                                                                                                                                                        | Net changes in assets and liabilities, net of effect of business acquisitions: |                                   |   |   |
|                                                |                                                                                                                                                                                                                        |                                                                           | Accounts receivable-trade, net         | (180,478) |   | (262,172) |
|                                                |                                                                                                                                                                                                                        |                                                                           | Inventory                              | 26,173 |   | (513,681) |
|                                                |                                                                                                                                                                                                                        |                                                                           | Income taxes                           | 1,499 |   | 35,575 |
|                                                |                                                                                                                                                                                                                        |                                                                           | Other current assets                   | (613,680) |   | (707,195) |
|                                                |                                                                                                                                                                                                                        |                                                                           | Accounts payable-trade                 | 776,976 |   | 428,607 |
|                                                |                                                                                                                                                                                                                        |                                                                           | Accrued expenses and other liabilities | (2,185,751) |   | (30,870) |
|                                                | Total adjustments                                                                                                                                                                                                           | (1,646,499)                                                                    |                                   | (730,008) |
|                                                | Net cash (used in) provided by continuing operating activities                                                                                                                                                              | (495,923)                                                                      |                                   | 217,569 |
|                                                | Cash provided from discontinued operations                                                                                                                                                                                  | -                                                                              |                                   | 6,831 |
|                                                |                             Net cash (used in) provided by operating activities | (495,923)                                                                      |                                   | 224,400 |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   |
| CASH FLOWS FROM INVESTING ACTIVITIES:               |                                                                                                                                                                                                                        |                                                                           |                                   |
|                                                | Purchase of property and equipment                                                                                                                                                                                          | (169,186)                                                                      |                                   | (99,117) |
|                                                | Purchase of certificates of deposit                                                                                                                                                                                         | -                                                                              |                                   | (2,572,598) |
|                                                | Proceeds from maturities of certificates of deposit                                                                                                                                                                         | 5,000                                                                          |                                   | 594,000 |
|                                                | Proceeds from sale of assets                                                                                                                                                                                                | 21,513                                                                         |                                   | 90 |
|                                                | Decrease (increase) in other assets                                                                                                                                                                                         | 664                                                                            |                                   | (3,297) |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   | Net cash used in investing activities | (142,009) |   | (2,080,922) |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   |
| CASH FLOWS FROM FINANCING ACTIVITIES:               |                                                                                                                                                                                                                        |                                                                           |                                   |
|                                                | Payments on notes payable and long-term debt                                                                                                                                                                                | (50,625)                                                                       |                                   | (50,625) |
|                                                | Repurchase of common stock (treasury stock)                                                                                                                                                                                 | -                                                                              |                                   | (8,419) |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   | Net cash used in financing activities | (50,625) |   | (59,044) |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   |
| NET DECREASE IN CASH                                | (688,557)                                                                                                                                                                                                                   |                                                                           | (1,915,566)                            |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   |
| CASH, beginning of period                           | 4,293,746                                                                                                                                                                                                                   |                                                                           | 7,891,962                              |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   |
| CASH, end of period                                 | $3,605,189                                                                                                                                                                                                                  |                                                                           | $5,976,396                             |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   |
|                                                |                                                                                                                                                                                                                        |                                                                           |                                   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:  |                                                                                                                                                                                                                        |                                                                           |                                   |
| Interest paid during the period                     | $62,003                                                                                                                                                                                                                     |                                                                           | $65,604                                |
| Income tax paid during the period, net of (refunds) | 411,721                                                                                                                                                                                                                     |                                                                           | 477,177                                |

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Table of Contents

|                          |  Number of Shares |   |  Par Value |   |  Paid-in Capital |   |  Treasury Stock |   |  Retained Earnings |   | Accumulated Other Comprehensive Income (Loss) |   |  Total |   | ComprehensiveIncome (Loss) |
|-------------------------------|------------------------|--------|-----------------|--------|-----------------------|--------|----------------------|--------|-------------------------|--------|-----------------------------------------------|--------|-------------|--------|----------------------------|
| BALANCE, December 31, 2009    | 10,130,628             |   | $26,453         |   | $5,491,736            |   | $(2,452,649)         |   | $29,959,910             |   | $334,205                                      |   | $33,359,655 |   |                       |
|                          |                   |   |            |   |                  |   |                 |   |                    |   |                                          |   |        |   |                       |
| Shares issued - stock options | 12,894                 |   | 31              |   | (31)                  |   | -                    |   | -                       |   | -                                             |   | -           |   |                       |
| Purchase of treasury stock    | (2,300)                |   | -               |   | -                     |   | (8,419)              |   | -                       |   | -                                             |   | (8,419)     |   |                       |
| Net  income         | -                      |   | -               |   | -                     |   | -                    |   | 948,113                 |   | -                                             |   | 948,113     |   | $948,113                   |
| Translation adjustment        | -                      |   | -               |   | -                     |   | -                    |   | -                       |   | 84,633                                        |   | 84,633      |   | 84,633                     |
| BALANCE, March 31, 2010       | 10,141,222             |   | $26,484         |   | $5,491,705            |   | $(2,461,068)         |   | $30,908,023             |   | $418,838                                      |   | $34,383,982 |   |                       |

| Comprehensive income for the three months ended March 31, 2010 | $1,032,746 |
|----------------------------------------------------------------|------------|

|                       |  Number of Shares |   |  Par Value |   |  Paid-in Capital |   |  Treasury Stock |   |  Retained Earnings |   | Accumulated Other Comprehensive Income (Loss) |   |  Total |   | ComprehensiveIncome (Loss) |
|----------------------------|------------------------|--------|-----------------|--------|-----------------------|--------|----------------------|--------|-------------------------|--------|-----------------------------------------------|--------|-------------|--------|----------------------------|
| BALANCE, December 31, 2010 | 10,156,442             |   | $26,760         |   | $5,703,387            |   | $(2,894,068)         |   | $26,429,335             |   | $496,180                                      |   | $29,761,594 |   |                       |
|                       |                   |   |            |   |                  |   |                 |   |                    |   |                                          |   |        |   |                       |
| Stock-based compensation   | -                      |   | -               |   | 18,900                |   | -                    |   | -                       |   | -                                             |   | 18,900      |   |                       |
| Net  income      | -                      |   | -               |   | -                     |   | -                    |   | 1,150,576               |   | -                                             |   | 1,150,576   |   | $1,150,576                 |
| Translation adjustment     | -                      |   | -               |   | -                     |   | -                    |   | -                       |   | 110,826                                       |   | 110,826     |   | 110,826                    |
| BALANCE, March 31, 2011    | 10,156,442             |   | $26,760         |   | $5,722,287            |   | $(2,894,068)         |   | $27,579,911             |   | $607,006                                      |   | $31,041,896 |   |                       |

| Comprehensive income for the three months ended March 31, 2011 | $1,261,402 |
|----------------------------------------------------------------|------------|

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                              | As of          |
|-----------------------------------|----------------|
|                              | March 31, 2011 |   | December 31, 2010 |
| Inventory on hand:                |           |   |   |
| Finished goods held for sale      | $18,519,324    |   | $17,847,002 |
| Raw materials and work in process | 603,987        |   | 518,422 |
| Inventory in transit              | 1,086,544      |   | 1,870,604 |
|                              | $20,209,855    |   | $20,236,028 |

|                         | Leather Factory       | Tandy Leather       | Total       |
|------------------------------|-----------------------|---------------------|-------------|
| Balance, December 31, 2009   | $600,417              | $383,406            | $983,823    |
| Acquisitions and adjustments | -                     | -                   | -           |
| Foreign exchange gain/loss   | 3,989                 | -                   | 3,989       |
| Impairments                  | -                     | -                   | -           |
| Balance, March 31, 2010      | $604,406              | $383,406            | $987,812    |
|                         |  Leather Factory |  Tandy Leather |  Total |
| Balance, December 31, 2010   | $606,962              | $383,406            | $990,368    |
| Acquisitions and adjustments | -                     | -                   | -           |
| Foreign exchange gain/loss   | 3,641                 | -                   | 3,641       |
| Impairments                  | -                     | -                   | -           |
| Balance, March 31, 2011      | $610,603              | $383,406            | $994,009    |

|                   | As of March 31, 2011 |                     | As of December 31, 2010 |
|------------------------|----------------------|--------------------------|-------------------------|
|                   | Gross                | Accumulated Amortization | Net                     |   | Gross | Accumulated Amortization | Net |
| Trademarks, Copyrights | $544,369             | $400,075                 | $144,294                |   | $544,369 | $391,531 | $152,838 |
| Non-Compete Agreements | 183,968              | 106,484                  | 77,484                  |   | 183,134 | 103,556 | 79,578 |
|                   | $728,337             | $506,559                 | $221,778                |   | $727,503 | $495,087 | $232,416 |

|   | Wholesale Leathercraft | Retail Leathercraft | Total   |
|--------|------------------------|---------------------|---------|
| 2011   | $13,263                | $30,337             | $43,600 |
| 2012   | 6,177                  | 30,337              | 36,514  |
| 2013   | -                      | 30,337              | 30,337  |
| 2014   | -                      | 30,337              | 30,337  |
| 2015   | -                      | 25,635              | 25,635  |

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Table of Contents

|                                                                                                                                                                                    | March 31, 2011         |   | December 31, 2010 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|--------|-------------------|
| Credit Agreement with JPMorgan Chase Bank – collateralized by real estate; payable as follows:                                                                                    |                   |   |              |
| Line of Credit Note dated July 31, 2007, converted to a 10-year term note on April 30, 2008; $16,875 monthly principal payments plus interest at 7.1% per annum; matures April 30, 2018 | $  3,459,375 |   | $3,510,000        |
|                                                                                                                                                                                    |                   |   |              |
| Credit Agreement with Comerica Bank – unsecured; payable as follows:                                                                                                              |                   |   |              |
|  Master Revolving Note dated June 30, 2010 in the maximum principal amount of $2,500,000 – interest due monthly as LIBOR plus 2%; matures June 29, 2011                      | -                      |   | -                 |
|                                                                                                                                                                                    | 3,459,375              |   | 3,510,000         |
| Less - Current maturities                                                                                                                                                               | (202,500)              |   | (202,500)         |
|                                                                                                                                                                                    | $3,256,875             |   | $3,307,500        |

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Table of Contents

|                         | Weighted Average Exercise Price | # of shares | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value |
|------------------------------|---------------------------------|-------------|--------------------------------------------------------|---------------------------|
| Outstanding, January 1, 2010 | $2.33                           | 197,700     |                                                   |                      |
| Granted                      | -                               | -           |                                                   |                      |
| Cancelled                    | -                               | -           |                                                   |                      |
| Exercised                    | 1.35                            | 20,000      |                                                   |                      |
| Outstanding, March 31, 2010  | $2.44                           | 177,700     | 2.28                                                   | $230,030                  |
| Exercisable, March 31, 2010  | $2.44                           | 177,700     | 2.28                                                   | $230,030                  |
|                         |                            |        |                                                   |                      |
| Outstanding, January 1, 2011 | $4.35                           | 103,600     |                                                   |                      |
| Granted                      | -                               | -           |                                                   |                      |
| Cancelled                    | -                               | -           |                                                   |                      |
| Exercised                    | -                               | -           |                                                   |                      |
| Outstanding, March 31, 2011  | $4.35                           | 103,600     | 5.44                                                   | $192,075                  |
| Exercisable, March 31, 2011  | $4.35                           | 103,000     | 5.44                                                   | $192,075                  |

|                                                            | March 31, 2011 | March 31, 2010 |
|-----------------------------------------------------------------|----------------|----------------|
| Weighted average grant-date fair value of stock options granted | N/A            | N/A            |
| Total fair value of stock options vested                        | $18,900        | N/A            |
| Total intrinsic value of stock options exercised                | N/A            | $16,058        |

|                                                                                  |                       | 2011   |       | 2010   |
|---------------------------------------------------------------------------------------|----------------------------|--------|------------|--------|
| Net income                                                                            | $1,150,576                 |   | $948,113   |
| Numerator for basic and diluted earnings per share                                    | $1,150,576                 |   | $948,113   |
|                                                                                  |                       |   |       |   |
| Denominator for basic earnings per share –  weighted-average shares   | 10,156,442                 |   | 10,137,715 |
|                                                                                  |                       |   |       |   |
| Effect of dilutive securities:                                                        |                       |   |       |
|                                                                                  | Stock options              | 13,259 |       | 75,962 |
|                                                                                  | Warrants                   | -      |       | -      |
| Dilutive potential common shares                                                      | 13,259                     |   | 75,962     |
|                                                                                  |                       |   |       |   |
| Denominator for diluted earnings per share –  weighted-average shares | 10,169,701                 |   | 10,213,677 |
|                                                                                  |                       |   |       |   |
|                                                                                  | Basic earnings per share   | $0.11  |       | $0.09  |
|                                                                                  | Diluted earnings per share | $0.11  |       | $0.09  |

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Table of Contents

| a.   | Wholesale Leathercraft, which consists of a chain of wholesales stores 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; and |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | International Leathercraft, which 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, UK. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                        | Wholesale Leathercraft | Retail Leathercraft | Int’l Leathercraft | Discontinued  Operations | Total       |
|-------------------------------------------------------------|------------------------|---------------------|--------------------------|------------------------------------|-------------|
| For the quarter ended March 31, 2011                        |                   |                |                     |                               |        |
| Net sales                                                   | $6,720,709             | $8,649,152          | $509,179                 |                               | $15,879,040 |
| Gross profit                                                | 3,941,571              | 5,268,048           | 315,229                  |                               | 9,524,848   |
| Operating earnings                                          | 808,314                | 1,004,042           | 100,132                  |                               | 1,912,488   |
| Interest expense                                            | 62,003                 | -                   | -                        |                               | 62,003      |
| Other, net                                                  | 64,606                 | 1,741               | (17,515)                 |                               | 48,832      |
| Income before income taxes                                  | 681,705                | 1,002,301           | 117,647                  |                               | 1,801,653   |
|                                                        |                   |                |                     |                               |        |
|      Depreciation and amortization | 208,188                | 34,325              | 2,491                    |                               | 245,004     |
|      Fixed asset additions         | 107,414                | 60,272              | 1,500                    |                               | 169,186     |
|      Total assets                  | $32,970,795            | $6,475,780          | $1,131,676               | -                                  | $40,578,251 |
|                                                        |                   |                |                     |                               |        |
| For the quarter ended March 31, 2010                        |                   |                |                     |                               |        |
| Net sales                                                   | $6,587,804             | $7,616,296          | $384,438                 |                               | $14,588,538 |
| Gross profit                                                | 3,887,902              | 4,837,294           | 251,400                  |                               | 8,976,596   |
| Operating earnings                                          | 534,196                | 922,738             | 79,434                   |                               | 1,536,368   |
| Interest expense                                            | 65,604                 | -                   | -                        |                               | 65,604      |
| Other, net                                                  | (20,143)               | (2,086)             | 20,762                   |                               | (1,467)     |
| Income before income taxes                                  | 488,735                | 924,824             | 58,672                   |                               | 1,472,231   |
|                                                        |                   |                |                     |                               |        |
|      Depreciation and amortization | 197,787                | 32,784              | 3,455                    |                               | 234,026     |
|      Fixed asset additions         | 70,707                 | 28,410              | -                        |                               | 99,117      |
|      Total assets                  | $38,622,176            | $5,680,489          | $614,500                 | -                                  | $44,917,165 |

|                | 2011        | 2010        |
|---------------------|-------------|-------------|
| United States       | $13,518,932 | $12,613,850 |
| Canada              | 1,585,524   | 1,344,596   |
| All other countries | 774,584     | 630,092     |
|                | $15,879,040 | $14,588,538 |

Item 2.           Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Table of Contents

| Ø   | Our business may be negatively impacted by general economic conditions and the current global financial crisis. |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| Ø   | Our profitability may decline as a result of increasing pressure on margins. |
|--------------------|------------------------------------------------------------------------------|

|                     | Quarter Ended March 31, 2011 |   | Quarter Ended March 31, 2010 |
|--------------------------|------------------------------|--------|------------------------------|
|                     | Sales                        |   | Operating Income             |   | Sales |   | Operating Income |
| Wholesale Leathercraft   | $6,720,709                   |   | $808,314                     |   | $6,587,804 |   | $534,196 |
| Retail Leathercraft      | 8,649,152                    |   | 1,004,042                    |   | 7,616,296 |   | 922,738 |
| Int’l Leathercraft | 509,179                      |   | 100,132                      |   | 384,438 |   | 79,434 |
| Total Operations         | $15,879,040                  |   | $1,912,488                   |   | $14,588,538 |   | $1,536,368 |

|       | 2011       |   | 2010     | % change |
|------------|------------|--------|----------|----------|
| Net income | $1,150,576 |   | $948,113 | 21.4%    |

|                                                                                                    | Quarter ended |
|---------------------------------------------------------------------------------------------------------|---------------|
| Customer Group                                                                                          | 03/31/11      |   | 03/31/10 |
|   RETAIL (end users, consumers, individuals)                                                  | 31%           |   | 30% |
|   INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)             | 5%            |   | 6% |
|   WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) | 42%           |   | 42% |
|   MANUFACTURERS                                                                               | 8%            |   | 7% |
|   NATIONAL ACCOUNTS                                                                           | 14%           |   | 15% |
|                                                                                                    | 100%          |   | 100% |

|                   | # Stores | Qtr Ended 03/31/11 |   | # Stores | Qtr Ended 03/31/10 |   | $ Change | % Change |
|------------------------|----------|--------------------|--------|----------|--------------------|--------|----------|----------|
| Same store sales       | 29       | $5,933,280         |   | 29       | $5,694,280         |   | $239,000 | 4.2%     |
| Closed store           | -        | -                  |   | 1        | 88,896             |   | (88,896) | N/A      |
| National account group |     | 787,429            |   |     | 804,628            |   | (17,199) | (2.1)%   |
| Total sales            | 29       | $6,720,709         |   | 30       | $6,587,804         |   | $132,905 | 2.0%     |

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Table of Contents

|             | # Stores | Qtr Ended 03/31/11 |   | # Stores | Qtr Ended 03/31/10 |   | $ Change   | % Change |
|------------------|----------|--------------------|--------|----------|--------------------|--------|------------|----------|
| Same store sales | 75       | $8,554,308         |   | 75       | $7,583,485         |   | $970,823   | 12.8%    |
| New store sales  | 1        | 94,844             |   | 1        | 32,811             |   | 62,033     | 189.1%   |
| Total sales      | 76       | $8,649,152         |   | 76       | $7,616,296         |   | $1,032,856 | 13.6%    |

|                                                                                                    | Quarter ended |
|---------------------------------------------------------------------------------------------------------|---------------|
| Customer Group                                                                                          | 03/31/11      |   | 03/31/10 |
|   RETAIL (end users, consumers, individuals)                                                  | 64%           |   | 65% |
|   INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)             | 5%            |   | 6% |
|   WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) | 30%           |   | 28% |
|   NATIONAL ACCOUNTS                                                                           | -             |   | - |
|   MANUFACTURERS                                                                               | 1%            |   | 1% |
|                                                                                                    | 100%          |   | 100% |

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Table of Contents

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Item 4.  Controls and Procedures

Item 6. Exhibits

| Exhibit Number  | 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 3.5 to the Current Report on Form 8-K (Commission File No. 001-12368) filed by Tandy Leather Factory, Inc (f/k/a The Leather Factory, Inc.) with the Securities and Exchange Commission on July 14, 2004 and incorporated by reference herein.                              |
| *31.1                | 13a-14(a) Certification by Jon Thompson, 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:  May 13, 2011 | By:  /s/ Jon Thompson                                  |
|                          | Jon Thompson                                                     |
|                          | Chief Executive Officer and President                            |
|                          |                                                             |
| Date:  May 13, 2011 | By:  /s/ Shannon L. Greene                             |
|                          | Shannon L. Greene                                                |
|                          | Chief Financial Officer and Treasurer (Chief Accounting Officer) |