|  |
|--|

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

| Class                                     | Shares outstanding as of August 6, 2010 |
|-------------------------------------------|-----------------------------------------|
| Common Stock, par value $0.0024 per share | 10,254,442                              |

----

TABLE OF CONTENTS

|                                                                                                                    | PAGE NO.  |
|-------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                                                                                    |      |
| PART I.  FINANCIAL INFORMATION                                                                                |      |
|                                                                                                                    |      |
|   Item 1.  Financial Statements                                                                     |      |
|                                                                                                                    |      |
|     Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009                           |   1  |
|                                                                                                                    |      |
|     Consolidated Statements of Income for the three and six months ended June 30, 2010 and 2009     |   2  |
|                                                                                                                    |      |
|     Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009           |   3  |
|                                                                                                                    |      |
|     Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2010 and 2009 |   4  |
|                                                                                                                    |      |
|     Notes to Consolidated Financial Statements                                                      |   5  |
|                                                                                                                    |      |
|   Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations    |   9  |
|                                                                                                                    |      |
|   Item 3.  Quantitative and Qualitative Disclosures About Market Risk                               |   12 |
|                                                                                                                    |      |
|   Item 4.  Controls and Procedures                                                                  |   12 |
|                                                                                                                    |      |
| PART II.  OTHER INFORMATION                                                                                   |      |
|                                                                                                                    |      |
|   Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                              |   12 |
|                                                                                                                    |      |
|   Item 4.  Submission of Matters to a Vote of Security Holders                                      |   12 |
|                                                                                                                    |      |
|   Item 6.  Exhibits                                                                                 |   13 |
|                                                                                                                    |      |
| SIGNATURES                                                                                                              |   13 |
|                                                                                                                    |      |

----

Financial Statements.

|                                                                                                       | June 30,2010(unaudited) |                                                                                                                      | December 31,  2009(audited)                                                  |
|------------------------------------------------------------------------------------------------------------|-------------------------|---------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
| ASSETS                                                                                                     |                    |                                                                                                                      |                                                                                   |
| CURRENT ASSETS:                                                                                            |                    |                                                                                                                      |                                                                                   |
|                                                                                                       |                    | Cash                                                                                                                      | $10,596,697                                                                            |   | $7,891,962 |
|                                                                                                       |                    | Short-term investments, including certificates of deposit                                                                 | 2,503,593                                                                              |   | 5,017,000 |
|                                                                                                       |                    | Accounts receivable-trade, net of allowance for doubtful accounts of $174,000 and $136,000 in 2010 and 2009, respectively |   1,392,682                                                                       |   | 1,202,811  |
|                                                                                                       |                    | Inventory                                                                                                                 | 18,110,291                                                                             |   | 16,865,826 |
|                                                                                                       |                    | Prepaid income taxes                                                                                                      | 7,673                                                                                  |   | - |
|                                                                                                       |                    | Deferred income taxes                                                                                                     | 294,788                                                                                |   | 271,481 |
|                                                                                                       |                    | Other current assets                                                                                                      | 1,854,913                                                                              |   | 791,884 |
|                                                                                                       | Total current assets    | 34,760,637                                                                                                                |                                                                                   | 32,040,964 |
|                                                                                                       |                    |                                                                                                                      |                                                                                   |
| PROPERTY AND EQUIPMENT, at cost                                                                            | 13,838,322              |                                                                                                                      | 15,111,497                                                                             |
| Less accumulated depreciation and amortization                                                             | (4,380,971)             |                                                                                                                      | (5,431,776)                                                                            |
|                                                                                                       | 9,457,351               |                                                                                                                      | 9,679,721                                                                              |
|                                                                                                       |                    |                                                                                                                      |                                                                                   |
| GOODWILL                                                                                                   | 982,117                 |                                                                                                                      | 983,823                                                                                |
| OTHER INTANGIBLES, net of accumulated amortization of $448,000 and $418,000 in 2010 and 2009, respectively |   277,258          |                                                                                                                      |   307,802                                                                         |
| OTHER ASSETS                                                                                               | 316,533                 |                                                                                                                      | 314,921                                                                                |
|                                                                                                       | $45,793,896             |                                                                                                                      | $43,327,231                                                                            |
|                                                                                                       |                    |                                                                                                                      |                                                                                   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                       |                    |                                                                                                                      |                                                                                   |
| CURRENT LIABILITIES:                                                                                       |                    |                                                                                                                      |                                                                                   |
|                                                                                                       |                    | Accounts payable-trade                                                                                                    | $1,702,281                                                                             |   | $1,185,032 |
|                                                                                                       |                    | Accrued expenses and other liabilities                                                                                    | 4,371,226                                                                              |   | 3,988,144 |
|                                                                                                       |                    | Dividend payable                                                                                                          | 7,690,832                                                                              |   | - |
|                                                                                                       |                    | Income taxes payable                                                                                                      | -                                                                                      |   | 399,536 |
|                                                                                                       |                    | Current maturities of long-term debt                                                                                      | 202,500                                                                                |   | 202,500 |
| Total current liabilities                                                                                  | 13,966,839              |                                                                                                                      | 5,775,212                                                                              |
|                                                                                                       |                    |                                                                                                                      |                                                                                   |
| DEFERRED INCOME TAXES                                                                                      | 623,519                 |                                                                                                                      | 682,364                                                                                |
|                                                                                                       |                    |                                                                                                                      |                                                                                   |
| LONG-TERM DEBT, net of current maturities                                                                  | 3,408,750               |                                                                                                                      | 3,510,000                                                                              |
|                                                                                                       |                    |                                                                                                                      |                                                                                   |
| 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;                         |   |   |   |
|                                                                                                       |                    |                                                                                                                      |     11,148,065 and 11,021,951 shares issued at 2010 and 2009;      |   |   |   |
|                                                                                                       |                    |                                                                                                                      |     10,254,442 and 10,130,628 shares outstanding at 2010 and 2009, | 26,755 |   | 26,453 |
|                                                                                                       |                    |                                                                                                                      | Paid-in capital                                                                        | 5,676,288 |   | 5,491,736 |
|                                                                                                       |                    |                                                                                                                      | Retained earnings                                                                      | 24,278,301 |   | 29,959,910 |
|                                                                                                       |                    |                                                                                                                      | Treasury stock (893,623 shares at 2010, 891,323 shares at 2009)                        | (2,461,068) |   | (2,452,649) |
|                                                                                                       |                    |                                                                                                                      | Accumulated other comprehensive income                                                 | 274,512 |   | 334,205 |
| Total stockholders' equity                                                                                 | 27,794,788              |                                                                                                                      | 33,359,655                                                                             |
|                                                                                                       | $45,793,896             |                                                                                                                      | $43,327,231                                                                            |

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TABLE OF CONTENTS

|                                                                                                                   | THREE MONTHS |   | SIX MONTHS  |
|------------------------------------------------------------------------------------------------------------------------|--------------|--------|-------------|
|                                                                                                                   | 2010         |   | 2009        |   | 2010 |   | 2009 |
| NET SALES                                                                                                              | $14,350,822  |   | $13,046,498 |   | $28,939,360 |   | $26,229,593 |
|                                                                                                                   |         |   |        |   |   |   |   |
| COST OF SALES                                                                                                          | 5,635,856    |   | 5,370,457   |   | 11,247,798 |   | 10,813,106 |
|                                                                                                                   |         |   |        |   |   |   |   |
|           Gross profit                                               | 8,714,966    |   | 7,676,041   |   | 17,691,562 |   | 15,416,487 |
|                                                                                                                   |         |   |        |   |   |   |   |
| OPERATING EXPENSES                                                                                                     | 7,270,655    |   | 6,568,269   |   | 14,710,883 |   | 13,311,184 |
|                                                                                                                   |         |   |        |   |   |   |   |
| INCOME FROM CONTINUING OPERATIONS                                                                                      | 1,444,311    |   | 1,107,772   |   | 2,980,679 |   | 2,105,303 |
|                                                                                                                   |         |   |        |   |   |   |   |
| OTHER INCOME (EXPENSE):                                                                                                |         |   |        |   |   |   |   |
|           Interest expense                                           | (65,615)     |   | (83,078)    |   | (131,219) |   | (160,487) |
|           Other, net                                                 | 81,741       |   | 142,418     |   | 83,208 |   | 219,690 |
|                Total other income (expense) | 16,126       |   | 59,340      |   | (48,011) |   | 59,203 |
|                                                                                                                   |         |   |        |   |   |   |   |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                                                  | 1,460,437    |   | 1,167,112   |   | 2,932,668 |   | 2,164,506 |
|                                                                                                                   |         |   |        |   |   |   |   |
| PROVISION FOR INCOME TAXES                                                                                             | 399,327      |   | 431,014     |   | 923,981 |   | 755,350 |
| NET INCOME FROM CONTINUING OPERATIONS                                                                                  | $1,061,110   |   | 736,098     |   | 2,008,687 |   | 1,409,156 |
|                                                                                                                   |         |   |        |   |   |   |   |
| INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX                                                                        | -            |   | 25,153      |   | 536 |   | 50,012 |
|                                                                                                                   |         |   |        |   |   |   |   |
| NET INCOME                                                                                                             | $1,061,110   |   | $761,251    |   | $2,009,223 |   | $1,459,168 |
|                                                                                                                   |         |   |        |   |   |   |   |
|                                                                                                                   |         |   |        |   |   |   |   |
| NET INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE:                                                                |         |   |        |   |   |   |   |
| Basic                                                                                                                  | $0.10        |   | $0.07       |   | $0.20 |   | $0.14 |
| Diluted                                                                                                                | $0.10        |   | $0.07       |   | $0.20 |   | $0.14 |
|                                                                                                                   |         |   |        |   |   |   |   |
| NET INCOME FROM DISCONTINUED OPERATIONS PER COMMON SHARE:                                                              |         |   |        |   |   |   |   |
| Basic                                                                                                                  | $0.00        |   | $0.00       |   | $0.00 |   | $0.00 |
| Diluted                                                                                                                | $0.00        |   | $0.00       |   | $0.00 |   | $0.00 |
|                                                                                                                   |         |   |        |   |   |   |   |
| NET INCOME PER COMMON SHARE:                                                                                           |         |   |        |   |   |   |   |
| Basic                                                                                                                  | $0.10        |   | $0.07       |   | $0.20 |   | $0.14 |
| Diluted                                                                                                                | $0.10        |   | $0.07       |   | $0.20 |   | $0.14 |
|                                                                                                                   |         |   |        |   |   |   |   |
| Weighted Average Number of Shares Outstanding:                                                                         |         |   |        |   |   |   |   |
|   Basic                                                                                                      | 10,191,506   |   | 10,673,245  |   | 10,164,759 |   | 10,650,573 |
|   Diluted                                                                                                    | 10,238,217   |   | 10,731,998  |   | 10,226,015 |   | 10,705,871 |

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TABLE OF CONTENTS

|                                                                                                                                       | 2010        |   | 2009        |
|--------------------------------------------------------------------------------------------------------------------------------------------|-------------|--------|-------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                      |        |   |        |
|   Net income                                                                                                                     | $2,009,223  |   | $1,459,168  |
|   Income from discontinued operations                                                                                            | 536         |   | 50,012      |
|                                                                                                                                       | 2,008,687   |   | 1,409,156   |
|   Adjustments to reconcile net income to net cash provided by operating activities:                                              |        |   |        |
|      Depreciation & amortization                                                                              | 471,410     |   | 560,835     |
|      Loss on disposal or abandonment of assets                                                                    | 8,553       |   | -           |
|      Non-cash stock-based compensation                                                                            | 18,388      |   | 2,540       |
|      Deferred income taxes                                                                                        | (82,823)    |   | 44,946      |
|      Other                                                                                                        | (52,842)    |   | 84,037      |
|      Net changes in assets and liabilities:                                                                       |        |   |        |
|        Accounts receivable-trade, net                                                                   | (195,779)   |   | (446,874)   |
|        Inventory                                                                                        | (1,244,465) |   | 229,038     |
|        Income taxes                                                                                     | (406,926)   |   | (194,104)   |
|        Other current assets                                                                             | (1,063,029) |   | (294,962)   |
|        Accounts payable                                                                                 | 517,249     |   | 365,711     |
|        Accrued expenses and other liabilities                                                           | 383,085     |   | (197,606)   |
|      Total adjustments                                                                                            | (1,647,179) |   | 153,561     |
|                                                                                                                                       |        |   |        |
|       Net cash provided by continuing operating activities                                                   | 361,508     |   | 1,562,717   |
|              Cash provided by (used in) discontinued operating activities | 6,831       |   | (15,193)    |
|       Net cash provided by operating activities                                                              | 368,339     |   | 1,547,524   |
|                                                                                                                                       |        |   |        |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                                      |        |   |        |
|   Purchase of property and equipment                                                                                             | (238,756)   |   | (442,402)   |
|   Purchase of certificates of deposit                                                                                            | (2,572,593) |   | (5,336,000) |
|   Proceeds from maturities or sales of certificates of deposit                                                                   | 5,086,000   |   | 2,775,000   |
|   Proceeds from sale of assets                                                                                                   | 6,560       |   | -           |
|   Decrease (increase) in other assets                                                                                            | (1,612)     |   | 1,052       |
|                                                                                                                                       |        |   |        |
|       Net cash provided by (used in) investing activities                                                    | 2,279,599   |   | (3,002,350) |
|              Cash provided by discontinued investing activities           | -           |   | -           |
|       Net cash provided by (used in) investing activities                                                    | 2,279,599   |   | (3,002,350) |
|                                                                                                                                       |        |   |        |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                      |        |   |        |
|   Payments on long-term debt and notes payable                                                                                   | (101,250)   |   | (101,250)   |
|   Payments on capital lease obligations                                                                                          | -           |   | (593,949)   |
|   Repurchase of common stock (treasury stock)                                                                                    | (8,419)     |   | (64,897)    |
|   Proceeds from issuance of common stock                                                                                         | 166,466     |   | 23,437      |
|                                                                                                                                       |        |   |        |
|       Net cash provided by (used in) financing activities                                                    | 56,797      |   | (736,659)   |
|              Cash provided by discontinued financing activities           | -           |   | -           |
|       Net cash provided by (used in) financing activities                                                    | 56,797      |   | (736,659)   |
|                                                                                                                                       |        |   |        |
| NET CHANGE IN CASH                                                                                                                         | 2,704,735   |   | (2,191,485) |
|                                                                                                                                       |        |   |        |
| CASH, beginning of period                                                                                                                  | 7,891,962   |   | 7,810,298   |
| CASH, end of period                                                                                                                        | $10,596,697 |   | $5,618,813  |
|                                                                                                                                       |        |   |        |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                                                         |        |   |        |
|   Interest paid during the period                                                                                                | $131,219    |   | $160,487    |
|   Income taxes paid during the period, net of (refunds)                                                                          | 1,405,089   |   | 884,425     |

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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, 2008                   | 10,664,555             |   | $26,388         |   | $5,464,443            |   | $(828,385)           |   | $26,641,853             |   | $(39,537)                                     |   | $31,264,762 |   |                       |
|                                         |                   |   |            |   |                  |   |                 |   |                    |   |                                          |   |        |   |                       |
| Shares issued - stock options exercised | 25,000                 |   | 60              |   | 23,377                |   | -                    |   | -                       |   | -                                             |   | 23,437      |   |                       |
| Purchase of treasury stock                   | (24,274)               |   | -               |   | -                     |   | (64,897)             |   | -                       |   | -                                             |   | (64,897)    |   |                       |
| Stock-based compensation                     | -                      |   | -               |   | 2,540                 |   | -                    |   | -                       |   | -                                             |   | 2,540       |   |                       |
| Net  income                        | -                      |   | -               |   | -                     |   | -                    |   | 1,459,168               |   | -                                             |   | 1,459,168   |   | $1,459,168T                |
| Translation adjustment                       | -                      |   | -               |   | -                     |   | -                    |   | -                       |   | 99,457                                        |   | 99,457      |   | 99,457                     |
| BALANCE, June 30, 2009                       | 10,665,281             |   | $26,448         |   | $5,490,360            |   | $(893,282)           |   | $28,101,021             |   | $59,920                                       |   | $32,784,467 |   |                       |

| Comprehensive income for the six months ended June 30, 2009 | $1,558,625 |
|-------------------------------------------------------------|------------|

| 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 exercised | 126,114    |   | 302     |   | 166,164    |   | -            |   | -           |   | -        |   | 166,466     |   |       |
| Purchase of treasury stock              | (2,300)    |   | -       |   | -          |   | (8,419)      |   | -           |   | -        |   | (8,419)     |   |       |
| Stock-based compensation                | -          |   | -       |   | 18,388     |   | -            |   | -           |   | -        |   | 18,388      |   |       |
| Dividend                                | -          |   | -       |   | -          |   | -            |   | (7,690,832) |   | -        |   | (7,690,832) |   |       |
| Net  income                   | -          |   | -       |   | -          |   | -            |   | 2,009,223   |   | -        |   | 2,009,223   |   | $2,009,223 |
| Translation adjustment                  | -          |   | -       |   | -          |   | -            |   | -           |   | (59,693) |   | (59,693)    |   | (59,693)   |
| BALANCE, June 30, 2010                  | 10,254,442 |   | $26,755 |   | $5,676,288 |   | $(2,461,068) |   | $24,278,301 |   | $274,512 |   | $27,794,788 |   |       |

| Comprehensive income for the six months ended June 30, 2010 | $1,949,530 |
|-------------------------------------------------------------|------------|

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TABLE OF CONTENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                              | As of         |
|-----------------------------------|---------------|
|                              | June 30, 2010 |   | December 31, 2009 |
| Inventory on hand:                |          |   |   |
| Finished goods held for sale      | $15,439,162   |   | $14,861,855 |
| Raw materials and work in process | 1,013,559     |   | 609,002 |
| Inventory in transit              | 1,657,570     |   | 1,394,969 |
|                              | $18,110,291   |   | $16,865,826 |

|                         | Leather Factory | Tandy Leather | Total    |
|------------------------------|-----------------|---------------|----------|
| Balance, December 31, 2008   | $583,259        | $383,406      | $966,665 |
| Acquisitions and adjustments | -               | -             | -        |
| Foreign exchange gain (loss) | 4,799           | -             | 4,799    |
| Impairments                  | -               | -             | -        |
| Balance, June 30, 2009       | $588,058        | $383,406      | $971,464 |

|                         | Leather Factory | Tandy Leather | Total    |
|------------------------------|-----------------|---------------|----------|
| Balance, December 31, 2009   | $600,417        | $383,406      | $983,823 |
| Acquisitions and adjustments | -               | -             | -        |
| Foreign exchange gain (loss) | (1,706)         | -             | (1,706)  |
| Impairments                  | -               | -             | -        |
| Balance, June 30, 2010       | $598,711        | $383,406      | $982,117 |

|                   | As of June 30, 2010 |                     | As of December 31, 2009 |
|------------------------|---------------------|--------------------------|-------------------------|
|                   | Gross               | Accumulated Amortization | Net                     |   | Gross | Accumulated Amortization | Net |
| Trademarks, Copyrights | $544,369            | $374,045                 | $170,324                |   | $544,369 | $356,067 | $188,302 |
| Non-Compete Agreements | 181,246             | 74,312                   | 106,934                 |   | 181,636 | 62,136 | 119,500 |
|                   | $725,615            | $448,357                 | $277,258                |   | $726,005 | $418,203 | $307,802 |

|   | Wholesale Leathercraft | Retail Leathercraft | Total   |
|--------|------------------------|---------------------|---------|
| 2010   | $29,190                | $30,337             | $59,527 |
| 2011   | 28,263                 | 30,337              | 58,600  |
| 2012   | 7,427                  | 30,337              | 37,764  |
| 2013   | -                      | 30,337              | 30,337  |
| 2014   | -                      | 30,337              | 30,337  |

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TABLE OF CONTENTS

| Due within one year                  | $636,000   |
|--------------------------------------|------------|
| Due between one and five years       | 1,867,593  |
| Due between five and ten years       | -          |
| Due between ten and fifteen years    | -          |
| Due between fifteen and twenty years | -          |
|                                 | $2,503,593 |

|                                                                                                                                                                                    | June 30, 2010 |   | December 31, 2009 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------|-------------------|
| 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 | $3,611,250    |   | $3,712,500        |
|                                                                                                                                                                                    | 3,611,250     |   | 3,712,500         |
| Less - Current maturities                                                                                                                                                               | (202,500)     |   | (202,500)         |
|                                                                                                                                                                                    | $3,408,750    |   | $3,510,000        |

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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, 2009 | $2.16                           | 224,700     |                                                   |                      |
| Granted                      | -                               | -           |                                                   |                      |
| Cancelled                    | -                               | -           |                                                   |                      |
| Exercised                    | 0.94                            | 25,000      |                                                   |                      |
| Outstanding, June 30, 2009   | $2.31                           | 199,700     | 2.77                                                   | $247,123                  |
| Exercisable, June 30, 2009   | $2.30                           | 197,700     | 2.75                                                   | $244,583                  |
|                         |                            |        |                                                   |                      |
| Outstanding, January 1, 2010 | $2.33                           | 197,700     |                                                   |                      |
| Granted                      | 5.30                            | 9,000       |                                                   |                      |
| Cancelled                    | -                               | -           |                                                   |                      |
| Exercised                    | 1.644                           | 134,700     |                                                   |                      |
| Outstanding, June 30, 2010   | $4.27                           | 72,000      | 4.23                                                   | $152,133                  |
| Exercisable, June 30, 2010   | $4.27                           | 72,000      | 4.23                                                   | $152,133                  |

|                                                            | June 30, 2010 | June 30, 2009 |
|-----------------------------------------------------------------|---------------|---------------|
| Weighted average grant-date fair value of stock options granted | $18,388       | N/A           |
| Total fair value of stock options vested                        | N/A           | N/A           |
| Total intrinsic value of stock options exercised                | $112,343      | $14,878       |

|                             | Three Months Ended June 30,                                        |       | Six Months Ended June 30, |
|----------------------------------|--------------------------------------------------------------------|------------|---------------------------|
|                             |                                                               | 2010       |                      | 2009 |   | 2010 |   | 2009 |
| Numerator:                       |                                                               |       |                      |   |   |   |   |   |
|                             | Net  income                                              | $1,061,110 |                      | $761,251 |   | $2,009,223 |   | $1,459,168 |
|                             | Numerator for basic and diluted earnings per share                 | 1,061,110  |                      | 761,251 |   | 2,009,223 |   | 1,459,168 |
| Denominator:                     |                                                               |       |                      |   |   |   |   |   |
|                             | Weighted-average shares outstanding-basic                          | 10,191,506 |                      | 10,673,245 |   | 10,164,759 |   | 10,650,573 |
|                             |                                                               |       |                      |   |   |   |   |   |
| Effect of dilutive securities:   |                                                               |       |                      |   |   |   |   |   |
|                             | Stock options                                                      | 46,711     |                      | 58,753 |   | 61,256 |   | 55,298 |
| Dilutive potential common shares |                                                               | 46,711     |                      | 58,753 |   | 61,256 |   | 55,298 |
|                             | Denominator for diluted earnings per share-weighted-average shares | 10,238,217 |                      | 10,731,998 |   | 10,226,015 |   | 10,705,871 |
|                             |                                                               |       |                      |   |   |   |   |   |
|                             | Basic earnings per share                                           | $0.10      |                      | $0.07 |   | $0.20 |   | $0.14 |
|                             | Diluted earnings per share                                         | $0.10      |                      | $0.07 |   | $0.20 |   | $0.14 |

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TABLE OF CONTENTS

| a.   | Wholesale Leathercraft, which consists of a chain of wholesale 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 North America; and |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | International Leathercraft, consists of one combination wholesale/retail store located in Northampton, United Kingdom. |
|----------------|------------------------------------------------------------------------------------------------------------------------|

|                                                        | Wholesale Leathercraft | Retail Leathercraft | InternationalLeathercraft | Discontinued Operations | Total       |
|-------------------------------------------------------------|------------------------|---------------------|---------------------------|-------------------------|-------------|
| For the quarter ended June 30, 2010                         |                   |                |                      |                    |        |
| Net sales                                                   | $6,248,279             | $7,706,679          | $395,864                  |                    | $14,350,822 |
| Gross profit                                                | 3,904,444              | 4,573,109           | 237,413                   |                    | 8,714,966   |
| Operating earnings                                          | 623,266                | 769,476             | 51,569                    |                    | 1,444,311   |
| Interest (expense)                                          | (65,615)               | -                   | -                         |                    | (65,615)    |
| Other income (expense), net                                 | 76,813                 | (2,610)             | 7,538                     |                    | 81,741      |
| Income before income taxes                                  | 634,464                | 766,866             | 59,107                    |                    | 1,460,437   |
|                                                        |                   |                |                      |                    |        |
|      Depreciation and amortization | 201,828                | 32,251              | 3,305                     |                    | 237,384     |
|      Fixed asset additions         | 130,670                | 8,969               | -                         |                    | 139,639     |
|      Total assets                  | $39,239,711            | $5,878,346          | $675,839                  | -                       | $45,793,896 |
|                                                        |                   |                |                      |                    |        |
| For the quarter ended June 30, 2009                         |                   |                |                      |                    |        |
| Net sales                                                   | $6,112,421             | $6,626,225          | $307,852                  |                    | $13,046,498 |
| Gross profit                                                | 3,502,921              | 4,026,569           | 146,551                   |                    | 7,676,041   |
| Operating earnings                                          | 473,527                | 646,307             | (12,062)                  |                    | 1,107,772   |
| Interest (expense)                                          | (83,078)               | -                   | -                         |                    | (83,078)    |
| Other income (expense), net                                 | (7,374)                | 1,081               | 148,711                   |                    | 142,418     |
| Income before income taxes                                  | 383,075                | 647,388             | 136,649                   |                    | 1,167,112   |
|                                                        |                   |                |                      |                    |        |
|      Depreciation and amortization | 250,296                | 27,848              | 3,401                     |                    | 281,545     |
|      Fixed asset additions         | 132,139                | 32,039              | -                         |                    | 164,178     |
|      Total assets                  | $34,880,109            | $5,499,948          | $1,238,393                | $172,730                | $41,791,180 |

|                                                        | Wholesale Leathercraft | Retail Leathercraft | InternationalLeathercraft | Discontinued Operations | Total       |
|-------------------------------------------------------------|------------------------|---------------------|---------------------------|-------------------------|-------------|
| For the six months ended June 30, 2010                      |                   |                |                      |                    |        |
| Net sales                                                   | $12,836,083            | $15,322,975         | $780,302                  |                    | $28,939,360 |
| Gross profit                                                | 7,792,346              | 9,410,403           | 488,813                   |                    | 17,691,562  |
| Operating earnings                                          | 1,157,462              | 1,692,214           | 131,003                   |                    | 2,980,679   |
| Interest (expense)                                          | (131,219)              | -                   | -                         |                    | (131,219)   |
| Other income (expense), net                                 | 96,956                 | (524)               | (13,224)                  |                    | 83,208      |
| Income before income taxes                                  | 1,123,199              | 1,691,690           | 117,779                   |                    | 2,932,668   |
|                                                        |                   |                |                      |                    |        |
|      Depreciation and amortization | 399,615                | 65,035              | 6,760                     |                    | 471,410     |
|      Fixed asset additions         | 201,377                | 37,379              | -                         |                    | 238,756     |
|      Total assets                  | $39,239,711            | $5,878,346          | $675,839                  | -                       | $45,793,896 |
|                                                        |                   |                |                      |                    |        |
| For the six months ended June 30, 2009                      |                   |                |                      |                    |        |
| Net sales                                                   | $12,399,122            | $13,229,747         | $600,724                  |                    | $26,229,593 |
| Gross profit                                                | 7,070,844              | 7,976,733           | 368,910                   |                    | 15,416,487  |
| Operating earnings                                          | 839,774                | 1,196,475           | 69,054                    |                    | 2,105,303   |
| Interest expense                                            | (160,487)              | -                   | -                         |                    | (160,487)   |
| Other income (expense), net                                 | 86,634                 | 890                 | 132,166                   |                    | 219,690     |
| Income before income taxes                                  | 765,921                | 1,197,365           | 201,220                   |                    | 2,164,506   |
|                                                        |                   |                |                      |                    |        |
|      Depreciation and amortization | 497,398                | 56,872              | 6,565                     |                    | 560,835     |
|      Fixed asset additions         | 385,925                | 56,477              | -                         |                    | 442,402     |
|      Total assets                  | $34,880,109            | $5,499,948          | $1,238,393                | $172,730                | $41,791,180 |

| Three months ended June 30, | 2010        | 2009        |
|-----------------------------|-------------|-------------|
| United States               | $12,570,039 | $11,357,751 |
| Canada                      | 1,377,127   | 1,080,061   |
| All other countries         | 403,656     | 608,686     |
|                        | $14,350,822 | $13,046,498 |

| Six months ended June 30, | 2010        | 2009        |
|---------------------------|-------------|-------------|
| United States             | $25,183,889 | $22,915,566 |
| Canada                    | 2,721,723   | 2,131,135   |
| All other countries       | 1,033,748   | 1,182,892   |
|                      | $28,939,360 | $26,229,593 |

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TABLE OF CONTENTS

Item 2

| Ø   | We believe that a 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, 2010 |   | Quarter Ended June 30, 2009 |
|----------------------------|-----------------------------|--------|-----------------------------|
|                       | Sales                       |   | Operating Income            |   | Sales |   | Operating Income |
| Wholesale Leathercraft     | $6,248,279                  |   | $623,266                    |   | $6,112,421 |   | $473,527 |
| Retail Leathercraft        | 7,706,679                   |   | 769,476                     |   | 6,626,225 |   | 646,307 |
| International Leathercraft | 395,864                     |   | 51,569                      |   | 307,852 |   | (12,062) |
| Total Operations           | $14,350,822                 |   | $1,444,311                  |   | $13,046,498 |   | $1,107,772 |

|       | 2010       |   | 2009     | % Change |
|------------|------------|--------|----------|----------|
| Net income | $1,061,110 |   | $761,251 | 39.4%    |

----

TABLE OF CONTENTS

|                                                                                                    | Quarter ended |
|---------------------------------------------------------------------------------------------------------|---------------|
| Customer Group                                                                                          | 06/30/10      |   | 06/30/09 |
|   RETAIL (end users, consumers, individuals)                                                  | 30%           |   | 27% |
|   INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)             | 7%            |   | 8% |
|   WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) | 42%           |   | 43% |
|   MANUFACTURERS                                                                               | 8%            |   | 8% |
|   NATIONAL ACCOUNTS                                                                           | 13%           |   | 14% |
|                                                                                                    | 100%          |   | 100% |

|                   | Quarter Ended  06/30/10 |   | Quarter Ended  06/30/09 |   | $ change  | % change |
|------------------------|-----------------------------------|--------|-----------------------------------|--------|-----------|----------|
| Same store sales (30)  | $5,568,229                        |   | $5,327,001                        |   | $241,228  | 4.5%     |
| National account group | 680,050                           |   | 785,420                           |   | (105,370) | (13.4%)  |
|                   | $6,248,279                        |   | $6,112,421                        |   | $135,858  | 2.2%     |

|                        | # Stores | Qtr Ended 06/30/10 | Qtr Ended 06/30/09 | $ Incr (Decr) | % Incr (Decr) |
|-----------------------------|----------|--------------------|--------------------|---------------|---------------|
| Same (existing) store sales | 74       | $7,588,880         | $6,624,026         | $964,854      | 14.6%         |
| New store sales             | 2        | 117,799            | 2,199              | 115,600       | N/A           |
| Total sales                 | 76       | $7,706,679         | $6,626,225         | $1,080,454    | 16.3%         |

|                                                                                                    | Quarter Ended |
|---------------------------------------------------------------------------------------------------------|---------------|
| Customer Group                                                                                          | 06/30/10      |   | 06/30/09 |
|   RETAIL (end users, consumers, individuals)                                                  | 63%           |   | 60% |
|   INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)             | 8%            |   | 11% |
|   WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) | 28%           |   | 28% |
|   NATIONAL ACCOUNTS                                                                           | -             |   | - |
|   MANUFACTURERS                                                                               | 1%            |   | 1% |
|                                                                                                    | 100%          |   | 100% |

----

TABLE OF CONTENTS

|                       | Six Months Ended June 30, 2010 |   | Six Months Ended June 30, 2009 |
|----------------------------|--------------------------------|--------|--------------------------------|
|                       | Sales                          |   | Operating Income               |   | Sales |   | Operating Income |
| Wholesale Leathercraft     | $12,836,083                    |   | $1,157,462                     |   | $12,399,122 |   | $839,774 |
| Retail Leathercraft        | 15,322,975                     |   | 1,692,214                      |   | 13,229,747 |   | 1,196,475 |
| International Leathercraft | 780,302                        |   | 131,003                        |   | 600,724 |   | 69,054 |
| Total Operations           | $28,939,360                    |   | $2,980,679                     |   | $26,229,593 |   | $2,105,303 |

|       | 2010       |   | 2009       | % change |
|------------|------------|--------|------------|----------|
| Net income | $2,009,223 |   | $1,459,168 | 37.7%    |

|                   | Six Months Ended  06/30/10 |   | Six Months Ended 06/30/09 |   | $ Change  | % Change |
|------------------------|--------------------------------------|--------|---------------------------|--------|-----------|----------|
| Same store sales (30)  | $11,351,406                          |   | $10,741,997               |   | $609,409  | 5.6%     |
| National account group | 1,484,677                            |   | 1,657,125                 |   | (172,448) | (10.4%)  |
|                   | $12,836,083                          |   | $12,399,122               |   | $436,961  | 3.5%     |

|                                                                                                    | Six Months Ended |
|---------------------------------------------------------------------------------------------------------|------------------|
| Customer Group                                                                                          | 06/30/10         |   | 06/30/09 |
|   RETAIL (end users, consumers, individuals)                                                  | 31%              |   | 30% |
|   INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)             | 7%               |   | 7% |
|   WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) | 41%              |   | 41% |
|   MANUFACTURERS                                                                               | 7%               |   | 7% |
|   NATIONAL ACCOUNTS                                                                           | 14%              |   | 15% |
|                                                                                                    | 100%             |   | 100% |

|                        | # Stores | Six Months Ended 06/30/10 | Six Months Ended 06/30/09 | $ Incr (Decr) | % Incr (Decr) |
|-----------------------------|----------|---------------------------|---------------------------|---------------|---------------|
| Same (existing) store sales | 74       | $15,116,515               | $13,227,548               | $1,888,967    | 14.3%         |
| New store sales             | 2        | 206,460                   | 2,199                     | 204,261       | N/A           |
| Total sales                 | 76       | $15,322,975               | $13,229,747               | $2,093,228    | 15.8%         |

|                                                                                                    | Six Months Ended |
|---------------------------------------------------------------------------------------------------------|------------------|
| Customer Group                                                                                          | 06/30/10         |   | 06/30/09 |
|   RETAIL (end users, consumers, individuals)                                                  | 64%              |   | 63% |
|   INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)             | 7%               |   | 9% |
|   WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) | 28%              |   | 27% |
|   NATIONAL ACCOUNTS                                                                           | -                |   | - |
|   MANUFACTURERS                                                                               | 1%               |   | 1% |
|                                                                                                    | 100%             |   | 100% |

----

TABLE OF CONTENTS

Item 3.

Item 4

Item 2

| ISSUER PURCHASES OF EQUITY SECURITIES |
|---------------------------------------|
| Period                                | (a) Total Number of Shares  Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| April 1 – April 30              | - | - | - | 962,000 |
| May 1 – May 31                  | - | - | - | 962,000 |
| June 1 – June 30                | - | - | - | 962,000 |
| Total                                 | - | - | - | 962,000 |

| (1)   | Represents shares that we may purchase through a stock repurchase program permitting us to repurchase up to one million shares of our common stock at prevailing market prices not to exceed $3.70 per share.  We announced the program on December 9, 2009, such program replacing our previous stock repurchase program which permitted us, on the date of its termination, to repurchase up to 974,773 shares of our common stock at prevailing prices not to exceed $2.85 per share.  Purchases under the program commenced on December 9, 2009 and will terminate on December 10, 2010. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item 4

|                 | For       | Against   | Abstaining | Broker Non-Votes |
|----------------------|-----------|-----------|------------|------------------|
| Shannon L. Greene    | 7,496,139 | 6,057     | 1,390      | -                |
| T. Field Lange       | 7,432,853 | 69,043    | 1,690      | -                |
| Joseph R. Mannes     | 7,493,565 | 8,331     | 1,690      | -                |
| L. Edward Martin III | 7,436,027 | 65,878    | 1,681      | -                |
| Michael A. Nery      | 6,093,680 | 1,381,556 | 28,350     | -                |
| Jon Thompson         | 7,494,446 | 8,245     | 895        | -                |
| Wray Thompson        | 7,266,029 | 235,817   | 1,740      | -                |

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TABLE OF CONTENTS

Item 6

| 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.                              |
| 10.1                 | Consulting Agreement, dated January 1, 2010, by and between Tandy Leather Factory, Inc. and J. Wray Thompson, filed as Exhibit 10.1 to Form 8-K filed by Tandy Leather Factory, Inc. with the Securities and Exchange Commission on January 5, 2010 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: August 16, 2010 | By:  /s/ Jon Thompson                                  |
|                  | Jon Thompson                                                     |
|                  | Chief Executive Officer and President                            |
|                  |                                                             |
| Date: August 16, 2010 | By:  /s/ Shannon L. Greene                             |
|                  | Shannon L. Greene                                                |
|                  | Chief Financial Officer and Treasurer (Chief Accounting Officer) |