**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 205459**

**Form        10-Q**

**[X]        Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange        Act        of 1934**

**[        ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange        Act of 1934**

**For        the transition period from _________ to __________**

| **T****ANDY                  LEATHER FACTORY, INC.**(formerly                  The Leather Factory, Inc.)(Exact                  name of registrant as specified in its                  charter) |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| **3847                  East Loop 820 South, Ft. Worth, Texas 76119**(Address                  of principal executive offices) (Zip                  Code) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **(817)                  496-4414**(Registrant’s                  telephone number, including area                  code) |
|---------------------------------------------------------------------------------------------------------------------------------|

| Indicate                  by check mark whether the registrant (1) has filed all reports                  required to                  by filed by Section 13 or 15(d) of the Securities Exchange Act                  of 1934                  during the preceding 12 months (or for such shorter period that                  the                  registrant was required to file such reports), and (2) has been                  subject to                  such filing requirements for the past 90 days. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Yes                  [ X ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | No                  [    ] |

| Indicate                  by check mark whether the registrant is an accelerated                  filer. |
|----------------------------------------------------------------------------------------------------------|
| Yes                  [     ]                                               | No                  [ X ] |

| ClassCommon                  Stock, par value $0.0024 per share | Shares                  outstanding as of November 10, 200510,735,976 |
|-----------------------------------------------------------------|-----------------------------------------------------------------------|

----

**TANDY        LEATHER FACTORY, INC.**

**(f/k/a        The Leather Factory, Inc.)**

**TABLE        OF CONTENTS**

|                                                                                                                                                                                                                                                                            | PAGE                    NO. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|
|                                                                                                                                                                                                                                                                                                     |                        |
| **PART                    I. FINANCIAL INFORMATION**                                                                                                                                                                                                                                                     |                        |
|                                                                                                                                                                                                                                                                                                     |                        |
| Item                    1. Financial Statements                                                                                                                                                                                                                                                          |                        |
|                                                                                                                                                                                                                                                                                                     |                        |
| Consolidated                    Balance Sheets                                                                                                                                                                                                                                                           |                        |
| September                    30, 2005 and December 31, 2004                    .....................................................................................................................................                                                                             | 3                           |
|                                                                                                                                                                                                                                                                                                     |                        |
| Consolidated                    Statements of Income                                                                                                                                                                                                                                                     |                        |
| Three                    and nine months ended September 30, 2005 and                    2004..........................................................................................................                                                                                                  | 4                           |
|                                                                                                                                                                                                                                                                                                     |                        |
| Consolidated                    Statements of Cash Flows                                                                                                                                                                                                                                                 |                        |
| Nine                    months ended September 30, 2005 and                    2004............................................................................................................................                                                                                          | 5                           |
|                                                                                                                                                                                                                                                                                                     |                        |
| Consolidated                    Statements of Stockholders' Equity                                                                                                                                                                                                                                       |                        |
| Nine                    months ended September 30, 2005 and                    2004............................................................................................................................                                                                                          | 6                           |
|                                                                                                                                                                                                                                                                                                     |                        |
| Notes                    to Consolidated Financial                    Statements....................................................................................................................................                                                                                     | 7                           |
|                                                                                                                                                                                                                                                                                                     |                        |
| Item                    2. Management's Discussion and Analysis of Financial                                                                                                                                                                                                                             |                        |
| Condition                    and Results of                    Operations................................................................................................................................                                                                                                | 11                          |
|                                                                                                                                                                                                                                                                                                     |                        |
| Item                    3. Quantitative and Qualitative Disclosures About Market Risk                    .............................................................................                                                                       | 16                          |
|                                                                                                                                                                                                                                                                                                     |                        |
| Item                    4. Controls and Procedures                    .............................................................................................................................. | 16                          |
|                                                                                                                                                                                                                                                                                                     |                        |
| **PART                    II. OTHER INFORMATION**                                                                                                                                                                                                                                                        |                        |
|                                                                                                                                                                                                                                                                                                     |                        |
| Item                    6. Exhibits                    ...........................................................................................................................................................................                               | 16                          |
|                                                                                                                                                                                                                                                                                                     |                        |
|                                                                                                                                                                                                                                                                                                     |                        |
| **SIGNATURES**...................................................................................................................................................................................                                                                                                    | 17                          |
|                                                                                                                                                                                                                                                                                                     |                        |

----

**TANDY        LEATHER FACTORY, INC.**

**CONSOLIDATED        BALANCE SHEETS**

|                                                                                                      | **September                  30,****2005****(unaudited)** |   | **December                  31,****2004****(audited)** |
|-----------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|--------|--------------------------------------------------------|
| **ASSETS**                                                                                                |                                                      |   |                                                   |
| CURRENT                  ASSETS:                                                                          |                                                      |   |                                                   |
| Cash                                                                                                      | $1,768,175                                                |   | $2,560,202                                             |
| Accounts                  receivable-trade, net of allowance for doubtful accounts                        |                                                      |   |                                                   |
| of                  $169,000 and $85,000 in 2005 and 2004, respectively                                   | 2,407,452                                                 |   | 2,032,289                                              |
| Inventory                                                                                                 | 17,534,039                                                |   | 12,749,709                                             |
| Income                  tax receivable                                                                    | 7,504                                                     |   | -                                                      |
| Deferred                  income taxes                                                                    | 274,071                                                   |   | 199,308                                                |
| Other                  current assets                                                                     | 860,484                                                   |   | 629,723                                                |
| Total                  current assets                                                                     | 22,851,725                                                |   | 18,171,231                                             |
|                                                                                                      |                                                      |   |                                                   |
| PROPERTY                  AND EQUIPMENT, at cost                                                          | 6,348,392                                                 |   | 6,005,526                                              |
| Less                  accumulated depreciation and amortization                                           | (4,563,080)                                               |   | (4,100,961)                                            |
|                                                                                                      | 1,785,312                                                 |   | 1,904,565                                              |
|                                                                                                      |                                                      |   |                                                   |
| GOODWILL,                  net of accumulated amortization of $775,000 and                                |                                                      |   |                                                   |
| $758,000                  in 2005 and 2004, respectively                                                  | 746,493                                                   |   | 742,860                                                |
| OTHER                  INTANGIBLES, net of accumulated amortization of                                    |                                                      |   |                                                   |
| $214,000                  and $185,000 in 2005 and 2004, respectively                                     | 408,540                                                   |   | 437,758                                                |
| OTHER                  assets                                                                             | 1,079,316                                                 |   | 910,749                                                |
|                                                                                                      | **$26,871,386**                                           |   | **$22,167,163**                                        |
|                                                                                                      |                                                      |   |                                                   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                 |                                                      |   |                                                   |
| CURRENT                  LIABILITIES:                                                                     |                                                      |   |                                                   |
| Accounts                  payable-trade                                                                   | $                  3,266,147                              |   | $                  1,954,146                           |
| Accrued                  expenses and other liabilities                                                   | 3,055,525                                                 |   | 1,682,003                                              |
| Income                  taxes payable                                                                     | -                                                         |   | 22,764                                                 |
| Current                  maturities of capital lease obligations                                          | 134,067                                                   |   | 134,067                                                |
| Total                  current liabilities                                                                | 6,455,739                                                 |   | 3,792,980                                              |
|                                                                                                      |                                                      |   |                                                   |
| DEFERRED                  INCOME TAXES                                                                    | 214,025                                                   |   | 313,006                                                |
|                                                                                                      |                                                      |   |                                                   |
| LONG-TERM                  DEBT, net of current maturities                                                | -                                                         |   | 505,154                                                |
| CAPITAL                  LEASE OBLIGATIONS, net of current maturities                                     | 145,239                                                   |   | 245,790                                                |
| COMMITMENTS                  AND CONTINGENCIES                                                            | -                                                         |   | -                                                      |
|                                                                                                      |                                                      |   |                                                   |
| STOCKHOLDERS'                  EQUITY:                                                                    |                                                      |   |                                                   |
| Preferred                  stock, $0.10 par value; 20,000,000 shares authorized;                          |                                                      |   |                                                   |
| none                  issued or outstanding                                                               | -                                                         |   | -                                                      |
| Common                  stock, $0.0024 par value; 25,000,000 shares authorized;                           |                                                      |   |                                                   |
| 10,720,335                  and 10,560,661 shares issued at 2005 and 2004,                  respectively; |                                                      |   |                                                   |
| 10,714,476                  and 10,554,711 outstanding at 2005 and 2004, respectively                     | 25,729                                                    |   | 25,345                                                 |
| Paid-in                  capital                                                                          | 4,971,028                                                 |   | 4,796,999                                              |
| Retained                  earnings                                                                        | 14,991,741                                                |   | 12,458,760                                             |
| Treasury                  stock                                                                           | (25,487)                                                  |   | (25,487)                                               |
| Accumulated                  other comprehensive income                                                   | 93,372                                                    |   | 54,616                                                 |
| Total                  stockholders' equity                                                               | 20,056,383                                                |   | 17,310,233                                             |
|                                                                                                      | **$26,871,386**                                           |   | **$22,167,163**                                        |

*The        accompanying notes are an integral part of these financial        statements.*

----

**TANDY        LEATHER FACTORY, INC.**

**CONSOLIDATED        STATEMENTS OF INCOME**

**(UNAUDITED)**

**THREE        AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004**

|                                          | **THREE                  MONTHS** |   | **NINE                  MONTHS** |
|-----------------------------------------------|-----------------------------------|--------|----------------------------------|
|                                          | **2005**                          |   | **2004**                         |   | **2005** |   | **2004** |
| NET                  SALES                    | $11,777,133                       |   | $10,580,074                      |   | $36,666,348 |   | $33,720,764 |
|                                          |                              |   |                             |   |   |   |   |
| COST                  OF SALES                | 5,013,331                         |   | 4,640,641                        |   | 15,845,392 |   | 15,075,359 |
|                                          |                              |   |                             |   |   |   |   |
| Gross                  profit                 | 6,763,802                         |   | 5,939,433                        |   | 20,820,956 |   | 18,645,405 |
|                                          |                              |   |                             |   |   |   |   |
| OPERATING                  EXPENSES           | 5,865,676                         |   | 5,164,190                        |   | 17,031,669 |   | 15,569,191 |
|                                          |                              |   |                             |   |   |   |   |
| INCOME                  FROM OPERATIONS       | 898,126                           |   | 775,243                          |   | 3,789,287 |   | 3,076,214 |
|                                          |                              |   |                             |   |   |   |   |
| OTHER                  INCOME (EXPENSE):      |                              |   |                             |   |   |   |   |
| Interest                  expense             | -                                 |   | (14,910)                         |   | (3,188) |   | (41,019) |
| Other,                  net                   | 80,185                            |   | 30,600                           |   | 104,404 |   | 3,509 |
| Total                  other income (expense) | 80,185                            |   | 15,690                           |   | 101,216 |   | (37,510) |
|                                          |                              |   |                             |   |   |   |   |
| INCOME                  BEFORE INCOME TAXES   | 978,311                           |   | 790,933                          |   | 3,890,503 |   | 3,038,704 |
|                                          |                              |   |                             |   |   |   |   |
| PROVISION                  FOR INCOME TAXES   | 282,221                           |   | 363,548                          |   | 1,357,522 |   | 1,124,141 |
|                                          |                              |   |                             |   |   |   |   |
| NET                  INCOME                   | $                  696,090        |   | $                  427,385       |   | $                  2,532,981 |   | $                  1,914,563 |
|                                          |                              |   |                             |   |   |   |   |

| NET                  INCOME PER COMMON SHARE-BASIC                  |  $                  0.07 |   |  $                  0.04 |   |  $                  0.24 |   |  $                  0.18 |
|---------------------------------------------------------------------|-------------------------------|--------|-------------------------------|--------|-------------------------------|--------|-------------------------------|
| NET                  INCOME PER COMMON SHARE-DILUTED                |  $                  0.06 |   |  $                  0.04 |   |  $                  0.23 |   |  $                  0.17 |
|                                                                |                          |   |                          |   |                          |   |                          |
|                                                                |                          |   |                          |   |                          |   |                          |
| **Weighted                  Average Number of Shares Outstanding:** |                          |   |                          |   |                          |   |                          |
| Basic                                                               | 10,679,389                    |   | 10,560,661                    |   | 10,626,857                    |   | 10,540,374                    |
| Diluted                                                             | 11,029,840                    |   | 10,931,940                    |   | 10,965,922                    |   | 10,986,541                    |

*The        accompanying notes are an integral part of these financial        statements.*

----

**TANDY        LEATHER FACTORY, INC.**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

**NINE        MONTHS ENDED SEPTEMBER 30, 2005 AND 2004**

|                                                                   | **2005**                     |   | **2004**                     |
|------------------------------------------------------------------------|------------------------------|--------|------------------------------|
| CASH                  FLOWS FROM OPERATING ACTIVITIES:                 |                         |   |                         |
| Net                  income                                            | $                  2,532,981 |   | $                  1,914,563 |
| Adjustments                  to reconcile net income to net            |                         |   |                         |
| cash                  provided by operating activities-                |                         |   |                         |
| Depreciation                  & amortization                       | 346,217                      |   | 366,077                      |
| Gain                  on disposal of assets                            | (9,145)                      |   | -                            |
| Deferred                  income taxes                                 | (173,744)                    |   | 13,759                       |
| Other                                                                  | 35,123                       |   | 3,137                        |
| Net                  changes in assets and liabilities:                |                         |   |                         |
| Accounts                  receivable-trade, net                        | (375,163)                    |   | (413,809)                    |
| Inventory                                                              | (4,784,330)                  |   | (1,739,977)                  |
| Income                  taxes                                          | (30,268)                     |   | 191,666                      |
| Other                  current assets                                  | (230,761)                    |   | 93,380                       |
| Accounts                  payable                                      | 1,312,001                    |   | 87,279                       |
| Accrued                  expenses and other liabilities                | 1,373,522                    |   | 178,494                      |
| Total                  adjustments                                     | (2,536,548)                  |   | (1,219,995)                  |
|                                                                   |                         |   |                         |
| Net                  cash provided by (used in) operating activities   | (3,567)                      |   | 694,568                      |
|                                                                   |                         |   |                         |
| CASH                  FLOWS FROM INVESTING ACTIVITIES:                 |                         |   |                         |
| Purchase                  of property and equipment                    | (197,746)                    |   | (267,552)                    |
| Payments                  in connection with businesses acquired       | -                            |   | (156,454)                    |
| Proceeds                  from sale of assets                          | 9,145                        |   | -                            |
| Decrease                  (increase) in other assets                   | (168,567)                    |   | 11,387                       |
|                                                                   |                         |   |                         |
| Net                  cash used in investing activities                 | (357,168)                    |   | (412,619)                    |
|                                                                   |                         |   |                         |
| CASH                  FLOWS FROM FINANCING ACTIVITIES:                 |                         |   |                         |
| Net                  decrease in revolving credit loans                | (505,154)                    |   | (786,162)                    |
| Payments                  on capital lease obligations                 | (100,551)                    |   | (1,134)                      |
| Payments                  received on notes secured by common stock    | -                            |   | 5,000                        |
| Repurchase                  of treasury stock                          | -                            |   | (23,960)                     |
| Proceeds                  from issuance of common stock                | 174,413                      |   | 124,015                      |
|                                                                   |                         |   |                         |
| Net                  cash used in financing activities                 | (431,292)                    |   | (682,241)                    |
|                                                                   |                         |   |                         |
| NET                  CHANGE IN CASH                                    | (792,027)                    |   | (400,292)                    |
|                                                                   |                         |   |                         |
| CASH,                  beginning of period                             | 2,560,202                    |   | 1,728,344                    |
|                                                                   |                         |   |                         |
| CASH,                  end of period                                   | $                  1,768,175 |   | $                  1,328,052 |
|                                                                   |                         |   |                         |
| SUPPLEMENTAL                  DISCLOSURES OF CASH FLOW INFORMATION:    |                         |   |                         |
| Interest                  paid during the period                       | $                  3,188     |   | $                  43,960    |
| Income                  taxes paid during the period, net of (refunds) | 1,541,134                    |   | 848,427                      |

*The        accompanying notes are an integral part of these financial        statements.*

----

**TANDY        LEATHER FACTORY, INC.**

**CONSOLIDATED        STATEMENTS OF STOCKHOLDERS' EQUITY**

**(UNAUDITED)**

**FOR        THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004**

|                                                                               |   **Number                  of Shares** |   |   **Par                  Value** |   |   **Paid-in                  Capital** |   |   **Treasury****Stock** |   |   **Retained                  Earnings** |   | **Notes                  receivable****secured                  by common stock** |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |    **Total** |   |   **Comprehensive****Income                  (Loss)** |
|------------------------------------------------------------------------------------|---------------------------------------------------|--------|--------------------------------------------|--------|--------------------------------------------------|--------|-----------------------------------|--------|----------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-----------------------------|--------|-----------------------------------------------------------------|
| BALANCE,                  December 31, 2003                                        | 10,487,961                                        |   | $25,171                                    |   | $4,673,158                                       |   | -                                 |   | $9,804,719                                         |   | $(20,000)                                                                         |   | $26,445                                                            |   | $14,509,493                 |   |                                                            |
|                                                                               |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   |                                                            |
| Payments                  on notes receivable secured by common stock              |  -                                           |   |  -                                    |   |  -                                          |   |  -                           |   |  -                                            |   |  5,000                                                                       |   |  -                                                            |   |  5,000                 |   |                                                            |
| Shares                  issued - stock options exercised                           |  72,700                                      |   |  174                                  |   |  74,896                                     |   |  -                           |   |  -                                            |   |  -                                                                           |   |  -                                                            |   |  75,070                |   |                                                            |
|  Warrants                  to acquire 50,000 shares of common stock issued    | -                                                 |   | -                                          |   | 48,945                                           |   | -                                 |   | -                                                  |   | -                                                                                 |   | -                                                                  |   | 48,945                      |   |                                                            |
|  Purchase                  of treasury stock                                  | -                                                 |   | -                                          |   | -                                                |   | (23,960)                          |   |                                               |   |                                                                              |   |                                                               |   | (23,960)                    |   |                                                            |
|  Net                  income                                                  | -                                                 |   | -                                          |   | -                                                |   | -                                 |   | 1,914,563                                          |   | -                                                                                 |   | -                                                                  |   | 1,914,563                   |   | $1,914,563                                                      |
|  Translation                  adjustment                                      | -                                                 |   | -                                          |   | -                                                |   | -                                 |   | -                                                  |   | -                                                                                 |   | 5,869                                                              |   | 5,869                       |   | 5,869                                                           |
| BALANCE,                  September 30, 2004                                       | 10,560,661                                        |   | $25,345                                    |   | $4,796,999                                       |   | $(23,960)                         |   | $11,719,282                                        |   | $(15,000)                                                                         |   | $32,314                                                            |   | $16,534,980                 |   |                                                            |
|                                                                               |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   |                                                            |
| Comprehensive                  income for the nine months ended September 30, 2004 |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   | $1,920,432                                                      |
|                                                                               |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   |                                                            |
|                                                                               |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   |                                                            |
| BALANCE,                  December 31, 2004                                        | 10,560,661                                        |   | $25,345                                    |   | $4,796,999                                       |   | $(25,487)                         |   | $12,458,760                                        |   | -                                                                                 |   | $54,616                                                            |   | $17,310,233                 |   |                                                            |
|                                                                               |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   |                                                            |
| Shares                  issued - stock options & warrants exercised            |  159,674                                     |   |  384                                  |   |  174,029                                    |   |  -                           |   |  -                                            |   |  -                                                                           |   |  -                                                            |   |  174,412               |   |                                                            |
|  Net                  income                                                  | -                                                 |   | -                                          |   | -                                                |   | -                                 |   | 2,532,981                                          |   | -                                                                                 |   | -                                                                  |   | 2,532,981                   |   | $2,532,981                                                      |
|  Translation                  adjustment                                      | -                                                 |   | -                                          |   | -                                                |   | -                                 |   | -                                                  |   | -                                                                                 |   | 38,756                                                             |   | 38,756                      |   | 38,756                                                          |
| BALANCE,                  September 30, 2005                                       | 10,720,335                                        |   | $25,729                                    |   | $4,971,028                                       |   | $(25,487)                         |   | $14,991,741                                        |   | -                                                                                 |   | $93,372                                                            |   | $20,056,383                 |   |                                                            |
|                                                                               |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   |                                                            |
| Comprehensive                  income for the nine months ended September 30, 2005 |                                              |   |                                       |   |                                             |   |                              |   |                                               |   |                                                                              |   |                                                               |   |                        |   | $2,571,737                                                      |

*The        accompanying notes are an integral part of these financial        statements.*

----

**TANDY        LEATHER FACTORY, INC.**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.        BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING        POLICIES**

*Inventory*
*.        *

|                                               | **As                  of**              |
|----------------------------------------------------|-----------------------------------------|
|                                               | **September                  30, 2005** |   | **December                  31, 2004** |
| Inventory                  on hand:                |                                    |   |   |
| Finished                  goods held for sale      | $14,976,815                             |   | $11,571,869 |
| Raw                  materials and work in process | 1,089,592                               |   | 1,177,840 |
| Inventory                  in transit              | 1,467,632                               |   | - |
|                                               | $17,534,039                             |   | $12,749,709 |

*Goodwill        and Other Intangibles*

|                                    | **As                  of September 30, 2005** |                            | **As                  of December 31, 2004** |
|-----------------------------------------|-----------------------------------------------|---------------------------------|----------------------------------------------|
|                                    |  **Gross**                               | **Accumulated****Amortization** |  **Net**                                |   |  **Gross** | **Accumulated****Amortization** |  **Net** |
| Trademarks,                  Copyrights | $544,369                                      | $201,829                        | $342,540                                     |   | $544,369 | $174,611 | $369,758 |
| Non-Compete                  Agreements | 78,000                                        | 12,000                          | 66,000                                       |   | 78,000 | 10,000 | 68,000 |
|                                    | $622,369                                      | $213,829                        | $408,540                                     |   | $622,369 | $184,611 | $437,758 |

|   | **Wholesale                  Leathercraft** | **Retail                  Leathercraft** | **Total** |
|--------|---------------------------------------------|------------------------------------------|-----------|
| 2005   | $5,954                                      | $32,837                                  | $38,791   |
| 2006   | 5,954                                       | 32,337                                   | 38,291    |
| 2007   | 5,954                                       | 31,837                                   | 37,791    |
| 2008   | 5,954                                       | 30,337                                   | 36,291    |
| 2009   | 5,954                                       | 30,337                                   | 30,337    |

----

*Revenue        Recognition*
*.*

*Recent        Accounting Pronouncements*
*.        *

**2.        STOCK-BASED COMPENSATION**

|                                                                                                          | **Three                  Months Ended****September                  30,** |   | **Nine                  Months Ended****September                  30,** |
|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|
|                                                                                                          | **2005**                                                                  |   | **2004**                                                                 |   | **2005** |   | **2004** |
|                                                                                                          |                                                                      |   |                                                                     |   |   |   |   |
| Net                  income, as reported                                                                      | $696,090                                                                  |   | $427,385                                                                 |   | $2,532,981 |   | $1,914,563 |
| Add:                  Stock-based compensation expense included in reported net                  income       |  -                                                                   |   |  -                                                                  |   |  - |   |  - |
| Deduct:                  Stock-based compensation expense determined under fair value                  method |  30,734                                                              |   |  29,361                                                             |   |  92,201 |   |  88,083 |
| Net                  income, pro forma                                                                        | $665,356                                                                  |   | $398,024                                                                 |   | $2,440,780 |   | $1,826,480 |
|                                                                                                          |                                                                      |   |                                                                     |   |   |   |   |
| Net                  income per share:                                                                        |                                                                      |   |                                                                     |   |   |   |   |
| Basic                  - as reported                                                                          | $0.07                                                                     |   | $                  0.04                                                  |   | $0.24 |   | $                  0.18 |
| Basic                  - pro forma                                                                            | $0.06                                                                     |   | $                  0.04                                                  |   | $0.23 |   | $                  0.17 |
|                                                                                                          |                                                                      |   |                                                                     |   |   |   |   |
| Diluted                  - as reported                                                                        | $0.06                                                                     |   | $                  0.04                                                  |   | $0.23 |   | $                  0.17 |
| Diluted                  - pro forma                                                                          | $0.06                                                                     |   | $                  0.04                                                  |   | $0.22 |   | $                  0.17 |

----

**3.        EARNINGS PER SHARE**

|                                                                  | **Three                    Months Ended**                                                                |             | **Nine                    Months Ended** |
|-----------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|------------------|------------------------------------------|
|                                                                  | **September                    30,**                                                                     |             | **September                    30,**     |
|                                                                  |                                                                                                     | **2005**         |                                     | **2004** |   | **2005** |   | **2004** |
| Numerator:                                                            |                                                                                                     |             |                                     |   |   |   |   |   |
| Net                    income                                         |                                                                                                     | $696,060         |                                     | $427,385 |   | $2,532,981 |   | $1,914,563 |
| Numerator                    for basic and diluted earnings per share |                                                                                                     | 696,090          |                                     | 427,385 |   | 2,532,981 |   | 1,914,563 |
|                                                                  |                                                                                                     |             |                                     |   |   |   |   |   |
| Denominator:                                                          |                                                                                                     |             |                                     |   |   |   |   |   |
| Weighted-average                    shares outstanding-basic          |                                                                                                     | 10,679,389       |                                     | 10,560,661 |   | 10,626,857 |   | 10,540,374 |
|                                                                  |                                                                                                     |             |                                     |   |   |   |   |   |
| Effect                    of dilutive securities:                     |                                                                                                     |             |                                     |   |   |   |   |   |
|                                                                  | Stock                    options                                                                         | 311,817          |                                     | 352,595 |   | 314,561 |   | 413,576 |
|                                                                  | Warrants                                                                                                 | 38,634           |                                     | 18,684 |   | 24,504 |   | 32,591 |
| Dilutive                    potential common shares                   |                                                                                                     | 350,451          |                                     | 371,279 |   | 339,065 |   | 446,167 |
|                                                                  | Denominator                    for diluted earnings per share-weighted-average                    shares |  11,029,840 |                                     |  10,931,940 |   |  10,965,922 |   |  10,986,541 |
|                                                                  |                                                                                                     |             |                                     |   |   |   |   |   |
|                                                                  | Basic                    earnings per share                                                              | $0.07            |                                     | $0.04 |   | $0.24 |   | $0.18 |
|                                                                  | Diluted                    earnings per share                                                            | $0.06            |                                     | $0.04 |   | $0.23 |   | $0.17 |

**4.        SEGMENT INFORMATION**

| ***a.  *** | ***Wholesale                  Leathercraft,***                  which consists of a chain of warehouse distribution units operating                  under                  the name, *The                  Leather Factory*,                  located in the United States and Canada; |
|----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ***b.  *** | ***Retail                  Leathercraft,***which                  consists of a chain of retail stores operating under the name,                  *Tandy                  Leather Company*,                  located in the United States and Canada; and |
|----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ***c.  *** | ***Other***,                  which is a manufacturer of decorative hat trims sold directly to                  hat                  manufacturers. |
|----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                          | **Wholesale                  Leathercraft** | **Retail****Leathercraft** |  **Other** |  **Total** |
|---------------------------------------------------------------|---------------------------------------------|----------------------------|-----------------|-----------------|
| **For                  the quarter ended September 30, 2005** |                                        |                       |            |            |
| Net                  sales                                    | $7,257,583                                  | $4,197,712                 | $321,838        | $11,777,133     |
| Gross                  profit                                 | 4,098,119                                   | 2,573,510                  | 92,173          | 6,763,802       |
| Operating                  earnings                           | 652,725                                     | 242,499                    | 2,901           | 898,126         |
| Interest                  expense                             | -                                           | -                          | -               | -               |
| Other                  (income), net                          | 80,522                                      | (337)                      | -               | 80,185          |
| Income                  before income taxes                   | 733,248                                     | 242,162                    | 2,901           | 978,311         |
|                                                          |                                        |                       |            |            |
| Depreciation                  and amortization                | 76,346                                      | 32,788                     | 1,406           | 110,540         |
| Fixed                  asset additions                        | 78,428                                      | 35,137                     | 1,066           | 114,631         |
| Total                  assets                                 | $21,935,587                                 | $4,160,349                 | $775,449        | $26,871,386     |

| **For                  the quarter ended September 30, 2004** |        |       |     |        |
|---------------------------------------------------------------|-------------|------------|----------|-------------|
| Net                  sales                                    | $7,067,483  | $3,053,712 | $458,879 | $10,580,074 |
| Gross                  profit                                 | 3,861,917   | 1,934,296  | 143,220  | 5,939,433   |
| Operating                  earnings                           | 583,253     | 168,459    | 23,531   | 775,243     |
| Interest                  expense                             | 14,910      | -          | -        | 14,910      |
| Other                  (income) expense, net                  | (28,995)    | (1,605)    | -        | (30,600)    |
| Income                  before income taxes                   | 597,338     | 170,064    | 23,531   | 790,933     |
|                                                          |        |       |     |        |
| Depreciation                  and amortization                | 79,937      | 30,724     | 2,715    | 113,376     |
| Fixed                  asset additions                        | 66,883      | 67,752     | 1,867    | 136,502     |
| Total                  assets                                 | $16,399,199 | $3,399,499 | $842,998 | $20,641,696 |

|                                                              | **Wholesale                  Leathercraft** | **Retail****Leathercraft** |  **Other** |  **Total** |
|-------------------------------------------------------------------|---------------------------------------------|----------------------------|-----------------|-----------------|
| **For                  the nine months ended September 30, 2005** |                                        |                       |            |            |
| Net                  sales                                        | $22,836,542                                 | $12,577,621                | $1,252,185      | $36,666,348     |
| Gross                  profit                                     | 12,673,675                                  | 7,787,996                  | 359,285         | 20,820,956      |
| Operating                  earnings                               | 2,682,884                                   | 1,043,951                  | 62,451          | 3,789,287       |
| Interest                  expense                                 | 3,188                                       | -                          | -               | 3,188           |
| Other                  (income), net                              | (91,623)                                    | (12,781)                   | -               | (104,404)       |
| Income                  before income taxes                       | 2,771,319                                   | 1,056,732                  | 62,451          | 3,890,503       |
|                                                              |                                        |                       |            |            |
| Depreciation                  and amortization                    | 246,862                                     | 93,342                     | 6,013           | 346,217         |
| Fixed                  asset additions                            | 131,443                                     | 61,891                     | 4,412           | 197,746         |
| Total                  assets                                     | $21,935,587                                 | $4,160,349                 | $775,449        | $26,871,386     |

| **For                  the nine months ended September 30, 2004** |        |       |       |        |
|-------------------------------------------------------------------|-------------|------------|------------|-------------|
| Net                  sales                                        | $22,934,369 | $9,193,196 | $1,593,199 | $33,720,764 |
| Gross                  profit                                     | 12,416,110  | 5,709,563  | 519,732    | 18,645,405  |
| Operating                  earnings                               | 2,306,807   | 660,782    | 108,625    | 3,076,214   |
| Interest                  expense                                 | 41,019      | -          | -          | 41,019      |
| Other                  (income) expense, net                      | (996)       | (2,513)    | -          | (3,509)     |
| Income                  before income taxes                       | 2,266,784   | 663,295    | 108,625    | 3,038,704   |
|                                                              |        |       |       |        |
| Depreciation                  and amortization                    | 275,216     | 83,693     | 7,168      | 366,077     |
| Fixed                  asset additions                            | 114,592     | 143,143    | 9,817      | 267,552     |
| Total                  assets                                     | $16,399,199 | $3,399,499 | $842,998   | $20,641,696 |

----

|                                 | **Three                  Months Ended****September                  30,** |        | **Nine                  Months Ended****September                  30,** |
|--------------------------------------|---------------------------------------------------------------------------|-------------|--------------------------------------------------------------------------|
|                                 | **2005**                                                                  | **2004**    |                                                                     | **2005** | **2004** |
| United                  States       | $10,631,856                                                               | $9,729,500  |                                                                     | $32,904,863 | $31,213,487 |
| Canada                               | 828,840                                                                   | 428,140     |                                                                     | 2,599,185 | 1,337,707 |
| All                  other countries | 316,437                                                                   | 422,434     |                                                                     | 1,162,300 | 1,169,570 |
|                                 | $11,777,133                                                               | $10,580,074 |                                                                     | $36,666,348 | $33,720,764 |

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

** **
**and        Results of Operations.**

**Our        Business**

**Wholesale        Leathercraft**
*The        Leather Factory;*
**Retail        Leathercraft**
*Tandy        Leather Company;*
**Other**

**Critical        Accounting Policies**

**Forward-Looking        Statements**

----

**Results        of Operations**

| **Quarter                    Ended****September                    30, 2005**     | **Wholesale                    Leathercraft** | **Retail****Leathercraft** |  **Other** |  **Total** |
|-----------------------------------------------------------------------------------|-----------------------------------------------|----------------------------|-----------------|-----------------|
| Sales                                                                             | $7,257,583                                    | $4,197,712                 | $321,838        | $11,777,133     |
| Operating                    Income                                               | 652,725                                       | 242,499                    | 2,901           | 898,126         |
| Net                    Income                                                     |                                          |                       |            | $696,090        |
|                                                                              |                                          |                       |            |            |
| **Quarter                    Ended****September                    30, 2004**     | **Wholesale                    Leathercraft** | **Retail****Leathercraft** |  **Other** |  **Total** |
| Sales                                                                             | $7,067,483                                    | $3,053,712                 | $458,879        | $10,580,074     |
| Operating                    Income                                               | 583,253                                       | 168,459                    | 23,531          | 775,243         |
| Net                    Income                                                     |                                          |                       |            | $427,385        |
|                                                                              |                                          |                       |            |            |
| **Nine                    Months Ended****September                    30, 2005** | **Wholesale                    Leathercraft** | **Retail****Leathercraft** |  **Other** |  **Total** |
| Sales                                                                             | $22,836,542                                   | $12,577,621                | $1,252,185      | $36,666,348     |
| Operating                    Income                                               | 2,682,884                                     | 1,043,951                  | 62,451          | 3,789,287       |
| Net                    Income                                                     |                                          |                       |            | $2,532,981      |
|                                                                              |                                          |                       |            |            |
| **Nine                    Months Ended****September                    30, 2004** | **Wholesale                    Leathercraft** | **Retail****Leathercraft** |  **Other** |  **Total** |
| Sales                                                                             | $22,934,369                                   | $9,193,196                 | $1,593,199      | $33,720,764     |
| Operating                    Income                                               | 2,306,807                                     | 660,782                    | 108,625         | 3,076,214       |
| Net                    Income                                                     |                                          |                       |            | $1,914,563      |

----

**Wholesale        Leathercraft **

|                                      | **Quarter                    Ended****09/30/05** | **Quarter                    Ended****09/30/04** | **$****change** | **%****change** |
|-------------------------------------------|--------------------------------------------------|--------------------------------------------------|-----------------|-----------------|
| Wholesale                    Center sales | $6,077,364                                       | $5,910,887                                       | $166,477        | 2.8%            |
| NATIONAL                    ACCOUNT sales | 1,180,220                                        | 1,156,596                                        | 23,624          | 2.0%            |
| Total                    sales            | $7,257,584                                       | $7,067,483                                       | $190,101        | 2.7%            |

|                                                                                                                                           | **Quarter                  ended** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|
| **Customer                  Group**                                                                                                            | **09/30/05**                       |   | **09/30/04** |
| RETAIL                  (end                  users, consumers, individuals)                                                                   | 22%                                |   | 22% |
| INSTITUTION                  (prisons,                  prisoners, hospitals, schools, youth organizations, etc.)                              | 7                                  |   | 7 |
| WHOLESALE                  (resellers                  & distributors, saddle & tack shops, authorized dealers,                  etc.) | 45                                 |   | 48 |
| NATIONAL                  ACCOUNTS                                                                                                             | 16                                 |   | 15 |
| MANUFACTURERS                                                                                                                                  | 10                                 |   | 8 |
|                                                                                                                                           | 100%                               |   | 100% |

|                                      | **Nine                    Months Ended****09/30/05** | **Nine                    Months Ended****09/30/04** | **$****change** | **%****change** |
|-------------------------------------------|------------------------------------------------------|------------------------------------------------------|-----------------|-----------------|
| Wholesale                    Center sales | $19,108,181                                          | $18,645,805                                          | $462,376        | 2.5%            |
| NATIONAL                    ACCOUNT sales | 3,728,363                                            | 4,288,564                                            | (560,201)       | (13.1)%         |
| Total                    sales            | $22,836,544                                          | $22,934,369                                          | $(97,825)       | (0.4)%          |

----

**Retail        Leathercraft **

|                                                     | **Quarter                  ended****09/30/05** | **Quarter                  ended****09/30/04** |  **$                  Incr (decr)** |  **%                  Incr (decr)** |
|----------------------------------------------------------|------------------------------------------------|------------------------------------------------|------------------------------------------|------------------------------------------|
| Same                  store sales (36 stores)            | $3,393,999                                     | $3,053,712                                     | $340,287                                 | 11.1%                                    |
| New                  or acquired store sales (12 stores) | 803,712                                        | -                                              | 803,712                                  | ***                                      |
| Total                  sales                             | $4,197,711                                     | $3,053,712                                     | $1,143,999                               | 37.5%                                    |

|                                                                                                                                           | **Quarter                  ended** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|
| **Customer                  Group**                                                                                                            | **09/30/05**                       |   | **09/30/04** |
| RETAIL                  (end                  users, consumers, individuals)                                                                   | 64%                                |   | 68% |
| INSTITUTION                  (prisons,                  prisoners, hospitals, schools, youth organizations, etc.)                              | 6                                  |   | 10 |
| WHOLESALE                  (reseller                  & distributors, saddle & tack stores, authorized dealers,                  etc.) | 28                                 |   | 22 |
| NATIONAL                  ACCOUNTS                                                                                                             | *                                  |   | * |
| MANUFACTURERS                                                                                                                                  | 2                                  |   | * |
|                                                                                                                                           |                               | 100% |   | 100% |

|                                                    | **Nine                  months ended****09/30/05** | **Nine                  months ended****09/30/04** | **$****Incr                  (decr)** | **%****Incr                  (decr)** |
|---------------------------------------------------------|----------------------------------------------------|----------------------------------------------------|---------------------------------------|---------------------------------------|
| Same                  store sales (40 stores)           | $9,758,809                                         | $9,024,854                                         | $733,955                              | 8.1%                                  |
| New                  or acquired store sales (8 stores) | 2,818,811                                          | 168,342                                            | 2,650,469                             | ***                                   |
| Total                  sales                            | $12,577,620                                        | $9,193,196                                         | $3,384,424                            | 36.8%                                 |

----

**Other        (Roberts, Cushman)**

**Other        Income and Expenses **

**Capital        Resources, Liquidity and Financial Condition**

----

**Item        3. Quantitative and Qualitative Disclosures About Market        Risk**

**Item        4. Controls and Procedures **

*Limitations        on the Effectiveness of Controls. *

**PART        II. OTHER INFORMATION**

**Item        6. Exhibits**

| **Exhibit****Number**             |  ** ****Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                               | Certificate                  of Amendment to Certificate of Incorporation of Tandy Leather Factory,                  Inc., and 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 Tandy Leather Factory, Inc. (f/k/a The Leather Factory, Inc.),                  filed as                  Exhibit 3.2 to the Registration Statement on Form SB-2 of Tandy                  Leather                  Factory, Inc. (f/k/a The Leather Factory, Inc.) (Commission File                  No.                  33-81132), filed with the Securities and Exchange Commission on                  July 5,                  1994 and incorporated by reference herein. |
| *31.1                             | 13a-14(a)                  Certification by Wray Thompson, Chairman of the Board and Chief                  Executive                  Officer                                                                                                                                                                                                                                                                                                                                                             |
| *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. |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

----

**SIGNATURES**

|                                                                       | ** TANDY LEATHER FACTORY, INC.**                                                                |
|----------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
|                                                                       |  (Registrant)                                                                                   |
|                                                                       |                                                                                                 |
|  Date:                 November 11, 2005     |  By:                 /s/ Wray Thompson                                                     |
|                                                                       |  Wray                Thompson                                                                   |
|                                                                       |  Chairman                and Chief Executive Officer                                            |
|                                                                       |                                                                                                 |
|  Date:                 November 11, 2005          |  By:                 /s/ Shannon L. Greene                                                 |
|                                                                       |  Shannon                L. Greene                                                               |
|                                                                       |  Chief                Financial Officer and Treasurer (Chief Accounting                Officer) |

----