TWST: What is Tandy Leather Factory?

Mr. Morgan: Tandy Leather Factory, founded in 1980, is a specialty retailer and a wholesale distributor of a broad range of leather and leathercraft supplies, which includes leatherworking tools, buckles, leather dyes and finishes, saddle and tack hardware, and lots of do-it-yourself kits. We are headquartered in Fort Worth, Texas.We distribute products through 29 Leather Factory stores located in 19 states and three Canadian provinces. The Leather Factory stores focus primarily on the wholesale customer. We also operate 70 Tandy Leather retail stores in 32 states and four Canadian provinces, and we have a wholesale company called Mid-Continent Leather Sales located in Oklahoma. I, along with Wray Thompson who retired last year, started The Leather Factory in 1980 as a wholesale supplier because we did not want to compete with Tandy Leather Company, which was in the retail business with some 300 stores across the United States. In 2000, we were able to buy Tandy Leather Company. By that time, Tandy had closed all of their retail stores. They jumped on the dot-com bandwagon and thought they could operate successfully without the bricks and mortar stores. It almost put them into bankruptcy. We had the opportunity to buy Tandy Leather, which has allowed us to rebuild that chain of retail stores. We have been opening Tandy Leather retail stores since 2002, opening anywhere from 10 to 12 stores a year. Currently, we have 70 retail stores in addition to our 30 Leather Factory wholesale stores.

TWST: Give us an idea of what you consider to be the market today. What are some of its headwinds, and what might be some of the tailwinds that are helping you?

Mr. Morgan: The craft industry has gotten to be about a $30 billion industry. In the last two or three years, even though we have had a pretty tough time of it, we have been able to keep growing because we are one of the oldest crafts in the industry. We have spent lot of time with groups such as Boy Scouts, YMCAs and summer camps. We do this because not only is it a solid growing business, but it also develops customers who become regular craft customers into our stores. Then there are the small leather manufacturers and the horse industry. There are 7 plus million horses in the United States - more today than ever. So there is saddle and tack repair, and that type of business. As strange as it sounds, they relate a lot, because some of the leathers that we sell to those manufacturers are the same leathers we put in kits that we sell to the hobby industry. It is still leather, snaps, rivets and hardware. It is just packaged a little differently for two different markets.

TWST: What is the competitive landscape?

Mr. Morgan: We are the largest leather craft business. We have been at it longer than anyone else. We really don't have any true competitors selling the variety of products we sell, domestically or overseas either.

TWST: What is the agenda at this point? If you look out over the next 12 to 24 months, what are your priorities and what would make that time frame a success?

Mr. Morgan: We are going to keep doing what we have been doing since 2000, since we purchased Tandy. We are going to keep expanding our markets, opening new retail stores. We are going to keep working with youth groups, teaching leather craft and developing more customers. We are not going to get in a big hurry. We are not going to sacrifice profits to grow. We are going to grow with the profits generated by our stores. I think we are in our seventh year of increased quarter-by-quarter sales and profits, so we are not a flash in the pan. We have got a good game plan and we are going to keep working on it.

TWST: So there are no funding items on that agenda? You are going to do it with your cash flow?

Mr. Morgan: Yes.

TWST: Introduce us to your top-level management team.

Mr. Morgan: Shannon Greene is our Chief Financial Officer and is one of the smartest, sharpest and hardest working CFOs around. Jon Thompson is Senior VP. Jon has been with us since we started in 1980. He grew up in this business as his father started the company with me. Mark Angus is Vice President of Merchandising. Mark's father taught me the leather business. Mark has been with us for 20 or so years.

TWST: As you continue to grow and you look overall at the organization and its bench strengths and skill sets, are there particular positions or areas to add or augment?

Mr. Morgan: We try to promote from within. I believe in this business. Understanding the dynamics comes from working at all levels, from running the sales operation, stores, and the warehousing and distribution. Our advertising manager, Dana Jones, has been with Tandy Leather and then The Leather Factory for more than 25 years. He started out as a store clerk, then was promoted to store manager. He developed an interest in advertising. He increased his knowledge of the product because it is not easy to advertise a piece of leather to the general public and make them understand exactly what it is. This is a good example of why you can't just go out and hire a top advertising man. We prefer to develop them in-house. We realize it works a lot better for us.

TWST: What historically has been the shareholder base with the company? Has that base undergone any recent changes?

Mr. Morgan: Not really. There are more institutions in our stock than there were several years ago, primarily because when Wray Thompson retired, he and I allowed some 3 million shares of what we owned to go in the market. That was part of Wray's plan for his retirement. I still own 1.8 million shares and am the largest stockholder in the company.

TWST: When you speak with the investment community, are there any recurring questions or misperceptions about Tandy Leather Factory today? Is the story understood?

Mr. Morgan: I think that most people believe that we are in the finished leather goods business. They think we are selling handbags or furniture, and I have to continue to tell them that we are not Wilson's, that we are not Coach. We sell craft materials and leather skins and supplies. The only thing that we make or try to make is money. We don't make leather goods.

TWST: As investors track and assess performance, what are the key metrics that they should focus on?

Mr. Morgan: We are very gross profit minded. We worry about our gross profit margins all the time. We spend a lot of time and effort tracking movement of product and the prices so that we are maintaining as good a profit margin as possible. We try to spend as little money as possible. The management team in Fort Worth is paid based on the profits of the company. If we do well, they do well. If the company does poorly, they don't make a whole lot of money. They all understand the program. They are all behind the program, and it pays dividends. Our store managers are paid the same way. Our store managers are entrepreneurs who are good at operating small, little boutique leather stores and making a profit. We pay them a salary plus 25% of the operating profit of the stores they run. That causes them not to want to spend any money, because for every dollar they spend, a quarter of it is coming out of their pocket. They are trying to sell all they can because with the profit they make on that product, a quarter of that belongs to them. Sharing the profits with your employees leads to more dedicated and loyal employees. The biggest problem that we have today is finding loyal employees. One of our biggest obstacles in the future will be to continuously find new, hard working young employees and give them the year or two it takes to understand our business before they can really be a benefit.

TWST: As far as the sourcing and materials cost, are there any large concerns?

Mr. Morgan: Not really. Leather is a worldwide commodity and generally speaking we have no problems. We have had problems in the past couple of years with some of the metal prices, but that seems to be coming back in line.If there is any problem, it is staying ahead of the rising cost of doing business today, from credit transactions to personnel costs. Everything is going up, seemingly faster than in the past. Recruiting and training good employees is my greatest concern.

TWST: You mentioned your geographic footprint being the US and Canada primarily. Are there opportunities beyond that current footprint?

Mr. Morgan: Yes, there are. We will keep growing in both the United States and Canada, but we also see some real opportunities overseas. We track our customers and know where the orders are coming from - where the customer base is. There are several foreign countries that are prime for us: the UK and Australia, for example. We believe the interest in leathercraft is growing in popularity in those countries so there are some real opportunities for us. Tandy Leather has been around since 1919, and some of the boom years of the leather craft industry were from 1965 to 1975. We expect years 2008 to 2012 to be banner years because the baby boomers are retiring. A lot of them had a taste of leather crafts in the schools and in the youth programs. We are seeing it every day today in correspondence where people say, "I did leather craft in school or in Scouts. I am retired now and need something to do to keep me occupied." Because we have been around for so long, they know us and they know our product. They will be looking for things to do to keep them busy. We expect tremendous business in the future from the retiring baby boomers. We will continue to invest in youth groups, schools, etc. to continue to grow our customer base. Every child we expose to leathercraft today will eventually retire. And if we do our job, they'll consider leathercraft as a retirement activity.

TWST: What are the key points today that compel investors to include Tandy Leather Factory as part of their current portfolios and also as part of their longer-term investment strategies?

Mr. Morgan: In our industry, we have a lot of long-term competitive advantages. We have got the best name in this industry, Tandy Leather. It is probably one of the best known names in the craft industry in general. We have vast libraries of intellectual property. We have the most experienced and knowledgeable industry professionals on staff. We have a history of performing well. We will have some tough times as is the case in any industry. But we know this business and we know how to survive those tough times. We have a history of making money and have every reason to believe that Tandy Leather Factory will continue to do so.

TWST: Thank you. (DWA)

RONALD C. MORGAN President & CEO Tandy Leather Factory, Inc. 3847 East Loop 820 South Fort Worth, TX 76119 (817) 496-4414 (817) 496-9806 FAX www.tandyleatherfactory.com