**UNITED          STATES**

**SECURITIES          AND EXCHANGE COMMISSION**

**Washington,          D.C. 20549**

**Form          10-Q**

**[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT          OF          1934**

**[            ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES          EXCHANGE ACT OF 1934**

**TANDY        LEATHER FACTORY, INC.**

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

**3847        East Loop 820 South, Fort Worth, Texas 76119**

**(817)        496-4414**

| **Class**                                                  | **Shares                  outstanding as of May 5, 2006** |
|------------------------------------------------------------|-----------------------------------------------------------|
| Common                  Stock, par value $0.0024 per share | 10,783,231                                                |

----

**TANDY      LEATHER FACTORY, INC.**

**TABLE      OF CONTENTS**

|                                                                              | PAGE                NO. |
|-----------------------------------------------------------------------------------|-------------------------|
|                                                                              |                    |
| **PART                I. FINANCIAL INFORMATION**                                  |                    |
|                                                                              |                    |
| Item                1. Financial Statements                                       |                    |
|                                                                              |                    |
| Consolidated                Balance Sheets                                        |                    |
| March                31, 2006 and December 31, 2005                               | 3                       |
|                                                                              |                    |
| Consolidated                Statements of Income                                  |                    |
| Three                months ended March 31, 2006 and 2005                         | 4                       |
|                                                                              |                    |
| Consolidated                Statements of Cash Flows                              |                    |
| Three                months ended March 31, 2006 and 2005                         | 5                       |
|                                                                              |                    |
| Consolidated                Statements of Stockholders' Equity                    |                    |
| Three                months ended March 31, 2006 and 2005                         | 6                       |
|                                                                              |                    |
| Notes                to Consolidated Financial Statements                         | 7                       |
|                                                                              |                    |
| Item                2. Management's Discussion and Analysis of Financial          |                    |
| Condition                and Results of Operations                                | 10                      |
|                                                                              |                    |
| Item                3. Quantitative and Qualitative Disclosures About Market Risk | 13                      |
|                                                                              |                    |
| Item                4. Controls and Procedures                                    | 13                      |
|                                                                              |                    |
| **PART                II. OTHER INFORMATION**                                     |                    |
|                                                                              |                    |
| Item                6. Exhibits                                                   | 13                      |
|                                                                              |                    |
|                                                                              |                    |
| **SIGNATURES**                                                                    | 14                      |
|                                                                              |                    |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Balance Sheets**

|                                                                                                  | **March                31,****2006****(unaudited)** |   | **December                31,****2005****(audited)** |
|-------------------------------------------------------------------------------------------------------|-----------------------------------------------------|--------|------------------------------------------------------|
| **ASSETS**                                                                                            |                                                |   |                                                 |
| CURRENT                ASSETS:                                                                        |                                                |   |                                                 |
| Cash                                                                                                  | $4,770,970                                          |   | $3,215,727                                           |
| Accounts                receivable-trade, net of allowance for doubtful accounts                      |                                                |   |                                                 |
| of                $92,000 and $138,000 in 2006 and 2005, respectively                                 | 2,985,271                                           |   | 2,178,848                                            |
| Inventory                                                                                             | 15,043,787                                          |   | 15,669,182                                           |
| Deferred                income taxes                                                                  | 240,697                                             |   | 273,872                                              |
| Other                current assets                                                                   | 924,541                                             |   | 358,058                                              |
| Total                current assets                                                                   | 23,965,266                                          |   | 21,695,687                                           |
|                                                                                                  |                                                |   |                                                 |
| PROPERTY                AND EQUIPMENT, at cost                                                        | 6,536,883                                           |   | 6,424,091                                            |
| Less                accumulated depreciation and amortization                                         | (4,752,226)                                         |   | (4,664,614)                                          |
|                                                                                                  | 1,784,657                                           |   | 1,759,477                                            |
|                                                                                                  |                                                |   |                                                 |
| GOODWILL                                                                                              | 745,903                                             |   | 746,611                                              |
| OTHER                INTANGIBLES, net of accumulated amortization of                                  |                                                |   |                                                 |
| $233,000                and $223,000 in 2006 and 2005, respectively                                   | 389,394                                             |   | 398,967                                              |
| OTHER                assets                                                                           | 1,079,270                                           |   | 1,079,731                                            |
|                                                                                                  | **$27,964,490**                                     |   | **$25,680,473**                                      |
|                                                                                                  |                                                |   |                                                 |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                               |                                                |   |                                                 |
| CURRENT                LIABILITIES:                                                                   |                                                |   |                                                 |
| Accounts                payable-trade                                                                 | $2,267,647                                          |   | $1,220,420                                           |
| Accrued                expenses and other liabilities                                                 | 1,895,321                                           |   | 2,550,573                                            |
| Income                taxes payable                                                                   | 719,824                                             |   | 199,581                                              |
| Current                maturities of capital lease obligations                                        | 134,067                                             |   | 134,067                                              |
| Total                current liabilities                                                              | 5,016,859                                           |   | 4,104,641                                            |
|                                                                                                  |                                                |   |                                                 |
| DEFERRED                INCOME TAXES                                                                  | 216,327                                             |   | 206,253                                              |
|                                                                                                  |                                                |   |                                                 |
| LONG-TERM                DEBT, net of current maturities                                              | -                                                   |   | -                                                    |
| CAPITAL                LEASE OBLIGATIONS, net of current maturities                                   | 78,206                                              |   | 111,722                                              |
|                                                                                                  |                                                |   |                                                 |
| 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;                         |                                                |   |                                                 |
| 10,773,058                and 10,741,835 shares issued at 2006 and 2005,                respectively; |                                                |   |                                                 |
| 10,767,199                and 10,735,976 outstanding at 2006 and 2005, respectively                   | 25,855                                              |   | 25,780                                               |
| Paid-in                capital                                                                        | 5,048,650                                           |   | 4,988,445                                            |
| Retained                earnings                                                                      | 17,518,738                                          |   | 16,172,475                                           |
| Treasury                stock                                                                         | (25,487)                                            |   | (25,487)                                             |
| Accumulated                other comprehensive income                                                 | 85,342                                              |   | 96,644                                               |
| Total                stockholders' equity                                                             | 22,653,098                                          |   | 21,257,857                                           |
|                                                                                                  | **$27,964,490**                                     |   | **$25,680,473**                                      |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Income**

**(Unaudited)**

**For      the Three Months Ended March 31, 2006 and 2005**

|                                                          | **2006**    |   | **2005**    |
|---------------------------------------------------------------|-------------|--------|-------------|
|                                                          |        |   |        |
| **NET                SALES**                                  | $14,413,649 |   | $12,707,516 |
| COST                OF SALES                                  | 6,299,515   |   | 5,550,233   |
| Gross                profit                                   | 8,114,134   |   | 7,157,283   |
|                                                          |        |   |        |
| OPERATING                EXPENSES                             | 6,072,346   |   | 5,587,736   |
| INCOME                FROM OPERATIONS                         | 2,041,788   |   | 1,569,547   |
|                                                          |        |   |        |
| OTHER                (INCOME) EXPENSE:                        |        |   |        |
| Interest                expense                               | -           |   | 3,188       |
| Other,                net                                     | (18,110)    |   | 15,465      |
| Total                other (income) expense                   | (18,110)    |   | 18,653      |
|                                                          |        |   |        |
| INCOME                BEFORE INCOME TAXES                     | 2,059,898   |   | 1,550,894   |
|                                                          |        |   |        |
| PROVISION                FOR INCOME TAXES                     | 713,635     |   | 501,672     |
|                                                          |        |   |        |
| NET                INCOME                                     | $1,346,263  |   | $1,049,222  |
|                                                          |        |   |        |
|                                                          |        |   |        |
| NET                INCOME PER COMMON SHARE - BASIC            | $0.13       |   | $0.10       |
|                                                          |        |   |        |
| NET                INCOME PER COMMON SHARE - DILUTED          | $0.12       |   | $0.10       |
|                                                          |        |   |        |
| Weighted                Average Number of Shares Outstanding: |        |   |        |
| Basic                                                         | 10,756,745  |   | 10,584,244  |
| Diluted                                                       | 11,102,906  |   | 10,911,103  |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Cash Flows**

**(Unaudited)**

**For      the Three Months Ended March 31, 2006 and 2005**

|                                                                                                         | **2006**      |   | **2005**      |
|--------------------------------------------------------------------------------------------------------------|---------------|--------|---------------|
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                         |          |   |          |
| Net                income                                                                                    | $1,346,263    |   | $1,049,222    |
| Adjustments                to reconcile net income to net cash                                               |          |   |          |
| provided                by operating activities -                                                            |          |   |          |
| Depreciation                and amortization                                                                 | 97,185        |   | 118,431       |
| Gain                on disposal of assets                                                                    | -             |   | (7,703)       |
| Non-cash                stock-based compensation                                                             | 22,480        |   | -             |
| Deferred                income taxes                                                                         | 43,249        |   | (81,967)      |
| Other                                                                                                        | (10,594)      |   | 24,511        |
| Net                changes in assets and liabilities, net of effect of business                acquisitions: |          |   |          |
| Accounts                receivable-trade, net                                                                | (806,423)     |   | (512,929)     |
| Inventory                                                                                                    | 625,395       |   | (377,349)     |
| Income                taxes                                                                                  | 520,243       |   | 510,797       |
| Other                current assets                                                                          | (566,483)     |   | (245,264)     |
| Accounts                payable-trade                                                                        | 1,047,227     |   | (432,652)     |
| Accrued                expenses and other liabilities                                                        | (655,252)     |   | 454,942       |
| Total                adjustments                                                                             | 317,027       |   | (549,182)     |
| **Net                cash provided by operating activities**                                                 | **1,663,290** |   | **500,040**   |
|                                                                                                         |          |   |          |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                         |          |   |          |
| Purchase                of property and equipment                                                            | (112,792)     |   | (29,030)      |
| Proceeds                from sale of assets                                                                  | -             |   | 7,703         |
| Decrease                (increase) in other assets                                                           | 461           |   | (88,503)      |
| **Net                cash used in investing activities**                                                     | **(112,331)** |   | **(109,830)** |
|                                                                                                         |          |   |          |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                         |          |   |          |
| Net                decrease in revolving credit loans                                                        | -             |   | (505,154)     |
| Payments                on notes payable and long-term debt                                                  | (33,516)      |   | (33,517)      |
| Proceeds                from exercise of stock options and warrants                                          | 37,800        |   | 55,350        |
| **Net                cash provided by (used in) financing activities**                                       | **4,284**     |   | **(483,321)** |
|                                                                                                         |          |   |          |
| NET                INCREASE (DECREASE) IN CASH                                                               | 1,555,243     |   | (93,111)      |
|                                                                                                         |          |   |          |
| CASH,                beginning of period                                                                     | 3,215,727     |   | 2,560,202     |
|                                                                                                         |          |   |          |
| CASH,                end of period                                                                           | $4,770,970    |   | $2,467,091    |
|                                                                                                         |          |   |          |
|                                                                                                         |          |   |          |
| SUPPLEMENTAL                DISCLOSURES OF CASH FLOW INFORMATION:                                            |          |   |          |
| Interest                paid during the period                                                               | -             |   | $3,188        |
| Income                tax paid during the period, net of (refunds)                                           | $48,761       |   | 72,842        |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Stockholders' Equity**

**For      the Three Months Ended March 31, 2006 and 2005**

|                                                  |   **Number                of Shares** |   |   **Par                Value** |   |   **Paid-in                Capital** |   |   **Treasury****Stock** |   |   **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |   |    **Total** |   |   **Comprehensive****Income                (Loss)** |
|-------------------------------------------------------|-------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------------------------|--------|-----------------------------|--------|---------------------------------------------------------------|
| BALANCE,                December 31, 2004             | 10,560,661                                      |   | $25,346                                  |   | $4,796,999                                     |   | $(25,487)                         |   | $12,458,760                                      |   | $54,616                                                          |   | $17,310,234                 |   |                                                          |
|                                                  |                                            |   |                                     |   |                                           |   |                              |   |                                             |   |                                                             |   |                        |   |                                                          |
| Shares                issued - stock optionsexercised |  41,000                                    |   |  98                                 |   |  55,252                                   |   |  -                           |   |  -                                          |   |  -                                                          |   |  55,350                |   |                                                          |
|  Net                income                       | -                                               |   | -                                        |   | -                                              |   | -                                 |   | 1,049,222                                        |   | -                                                                |   | 1,049,222                   |   | $1,049,222                                                    |
|  Translation                adjustment           | -                                               |   | -                                        |   | -                                              |   | -                                 |   | -                                                |   | 23,072                                                           |   | 23,072                      |   | 23,072                                                        |
| BALANCE,                March 31, 2005                | 10,601,661                                      |   | $25,444                                  |   | $4,852,251                                     |   | $(25,487)                         |   | $13,507,982                                      |   | $77,688                                                          |   | $18,437,878                 |   |                                                          |

| Comprehensive                income for the three months ended March 31, 2005 | $1,072,294 |
|-------------------------------------------------------------------------------|------------|

| BALANCE,                December 31, 2005                                               | 10,741,835   |   | $25,780  |   | $4,988,445   |   | $(25,487) |   | $16,172,475 |   | $96,642  |   | $21,257,855  |   |       |
|-----------------------------------------------------------------------------------------|--------------|--------|----------|--------|--------------|--------|-----------|--------|-------------|--------|----------|--------|--------------|--------|------------|
|                                                                                    |         |   |     |   |         |   |      |   |        |   |     |   |         |   |       |
|  Shares                issued - stock options andwarrants                exercised |  31,223 |   |  75 |   |  37,725 |   |  -   |   |  -     |   |  -  |   |  37,725 |   |       |
|  Stock-based                compensation                                           | -            |   | -        |   | 22,480       |   | -         |   | -           |   | -        |   | 22,480       |   |       |
|  Net                income                                                         | -            |   | -        |   | -            |   | -         |   | 1,346,263   |   | -        |   | 1,346,263    |   | $1,346,263 |
|  Translation                adjustment                                             | -            |   | -        |   | -            |   | -         |   | -           |   | (11,300) |   | (11,300)     |   | (11,300)   |
| BALANCE,                March 31, 2006                                                  | 10,773,058   |   | $25,855  |   | $5,048,650   |   | $(25,487) |   | $17,518,738 |   | $85,342  |   | $22,653,098  |   |       |

| Comprehensive                income for the three months ended March 31, 2006 | $1,334,963 |
|-------------------------------------------------------------------------------|------------|

----

**TANDY      LEATHER FACTORY, INC.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

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

*Inventory*
*.      *

|                                             | **As                of**          |
|--------------------------------------------------|-----------------------------------|
|                                             | **March                31, 2006** |   | **December                31, 2005** |
| Inventory                on hand:                |                              |   |   |
| Finished                goods held for sale      | $13,586,025                       |   | $14,035,384 |
| Raw                materials and work in process | 873,837                           |   | 984,878 |
| Inventory                in transit              | 583,925                           |   | 648,920 |
|                                             | $15,043,787                       |   | $15,669,182 |

*Goodwill      and Other Intangibles*

|                                  | **As                of March 31, 2006** |                            | **As                of December 31, 2005** |
|---------------------------------------|-----------------------------------------|---------------------------------|--------------------------------------------|
|                                  |  **Gross**                         | **Accumulated****Amortization** |  **Net**                              |   |  **Gross** | **Accumulated****Amortization** |  **Net** |
| Trademarks,                Copyrights | $544,369                                | $219,975                        | $324,394                                   |   | $544,369 | $210,902 | $333,467 |
| Non-Compete                Agreements | 78,000                                  | 13,000                          | 65,000                                     |   | 78,000 | 12,500 | 65,500 |
|                                  | $622,369                                | $232,975                        | $389,394                                   |   | $622,369 | $223,402 | $398,967 |

|   | **Wholesale                Leathercraft** | **Retail                Leathercraft** | **Total** |
|--------|-------------------------------------------|----------------------------------------|-----------|
| 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                                 | 36,291    |
| 2010   | 5,954                                     | 30,337                                 | 36,291    |

*Revenue      Recognition*
*.*

*Recent      Accounting Pronouncements.*
*“Inventory      Costs, an Amendment of ARB No. 43, Chapter 4” *

*“Exchanges      of Nonmonetary Assets, an Amendment of APB Opinion No. 29”*

*“Accounting      Changes and Error Corrections, a replacement of APB Opinion No. 20 and      Statement No. 3” *

----

**2.**
**STOCK-BASED      COMPENSATION**

*Accounting      for Stock Issued to Employees*
*Accounting      for Stock-Based Compensation*

|                                                                                                      | **2005**   |
|-----------------------------------------------------------------------------------------------------------|------------|
| Net                income, as reported                                                                    | $1,049,222 |
| Add:                Stock-based compensation expense included in reported net                income       | -          |
| Deduct:                Stock-based compensation expense determined under fair value                method | 27,780     |
| Net                income, pro forma                                                                      | $1,021,442 |
|                                                                                                      |       |
| Net                income per share:                                                                      |       |
| Basic                - as reported                                                                        | $0.10      |
| Basic                - pro forma                                                                          | $0.10      |
|                                                                                                      |       |
| Diluted                - as reported                                                                      | $0.10      |
| Diluted                - pro forma                                                                        | $0.09      |

|                                        | Weighted                Average ExercisePrice | #                of                shares | Weighted                Average Remaining Contractual Term (in                years) | Aggregate                Intrinsic                Value |
|---------------------------------------------|-----------------------------------------------|-------------------------------------------|--------------------------------------------------------------------------------------|---------------------------------------------------------|
| Outstanding,                January 1, 2006 | $1.93                                         | 421,000                                   |                                                                                 |                                                    |
| Granted                                     | -                                             | -                                         |                                                                                 |                                                    |
| Cancelled                                   | -                                             | -                                         |                                                                                 |                                                    |
| Exercised                                   | 1.35                                          | 28,000                                    |                                                                                 |                                                    |
| Outstanding,                March 31, 2006  | $1.97                                         | 393,000                                   | 5.69                                                                                 | $420,256                                                |
| Exercisable,                March 31, 2006  | $1.80                                         | 275,000                                   | 5.52                                                                                 | $266,052                                                |

|                                                                           | March                31, 2006 | March                31, 2005 |
|--------------------------------------------------------------------------------|-------------------------------|-------------------------------|
| Weighted                average grant-date fair value of stock options granted | N/A                           | N/A                           |
| Total                fair value of stock options vested                        | N/A                           | N/A                           |
| Total                intrinsic value of stock options exercised                | $22,480                       | $32,920                       |

----

**3.      EARNINGS PER SHARE**

|                                                                                |                                      | **2006** |       | **2005** |
|-------------------------------------------------------------------------------------|-------------------------------------------|----------|------------|----------|
| Net                income                                                           | $1,346,263                                |     | $1,049,222 |
| Numerator                for basic and diluted earnings per share                   | $1,346,263                                |     | $1,049,222 |
|                                                                                |                                      |     |       |     |
| Denominator                for basic earnings per share - weighted-average shares   | 10,756,745                                |     | 10,584,244 |
|                                                                                |                                      |     |       |     |
| Effect                of dilutive securities:                                       |                                      |     |       |
|                                                                                | Stock                options              | 285,632  |       | 316,454  |
|                                                                                | Warrants                                  | 60,529   |       | 10,405   |
| Dilutive                potential common shares                                     | 346,161                                   |     | 326,859    |
|                                                                                |                                      |     |       |     |
| Denominator                for diluted earnings per share - weighted-average shares | 11,102,906                                |     | 10,911,103 |
|                                                                                |                                      |     |       |     |
|                                                                                | Basic                earnings per share   | $0.13    |       | $0.10    |
|                                                                                | Diluted                earnings per share | $0.12    |       | $0.10    |

**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 March 31, 2006** |                          |                       |            |            |
| Net                sales                                | $8,388,265                    | $5,541,082                 | $484,302        | $14,413,649     |
| Gross                profit                             | 4,643,100                     | 3,341,841                  | 129,193         | 8,114,134       |
| Operating                earnings                       | 1,519,020                     | 495,824                    | 26,944          | 2,041,788       |
| Interest                expense                         | -                             | -                          | -               | -               |
| Other,                net                               | 27,270                        | (9,160)                    | -               | 18,110          |
| Income                before income taxes               | 1,546,290                     | 486,664                    | 26,944          | 2,059,898       |
|                                                    |                          |                       |            |            |
| Depreciation                and amortization            | 62,141                        | 33,734                     | 1,310           | 97,185          |
| Fixed                asset additions                    | 44,570                        | 68,060                     | 162             | 112,792         |
| Total                assets                             | $22,921,203                   | $4,242,928                 | $800,359        | $27,964,490     |

| **For                the quarter ended March 31, 2005** |        |       |     |        |
|---------------------------------------------------------|-------------|------------|----------|-------------|
| Net                sales                                | $7,913,892  | $4,285,606 | $508,018 | $12,707,516 |
| Gross                profit                             | 4,372,578   | 2,661,030  | 123,675  | 7,157,283   |
| Operating                earnings                       | 1,168,982   | 386,718    | 13,847   | 1,569,547   |
| Interest                expense                         | (3,188)     | -          | -        | (3,188)     |
| Other,                net                               | (12,661)    | (2,804)    | -        | (15,465)    |
| Income                before income taxes               | 1,153,133   | 383,914    | 13,847   | 1,550,894   |
|                                                    |        |       |     |        |
| Depreciation                and amortization            | 86,388      | 29,712     | 2,332    | 118,432     |
| Fixed                asset additions                    | 13,940      | 12,998     | 2,092    | 29,030      |
| Total                assets                             | $19,004,908 | $3,472,224 | $739,984 | $23,217,116 |

|                               | **2006**    | **2005**    |
|------------------------------------|-------------|-------------|
| United                States       | $12,786,578 | $11,354,776 |
| Canada                             | 1,123,042   | 925,654     |
| All                other countries | 504,029     | 427,086     |
|                               | $14,413,649 | $12,707,516 |

----

**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**

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

----

**Results      of Operations**

|                                  | **Quarter                Ended March 31, 2006** |   | **Quarter                Ended March 31, 2005** |
|---------------------------------------|-------------------------------------------------|--------|-------------------------------------------------|
|                                  |  **Sales**                                 |   | **Operating****Income**                         |   |  **Sales** |   | **Operating****Income** |
| Wholesale                Leathercraft | $8,388,265                                      |   | $1,519,020                                      |   | $7,913,892 |   | $1,168,982 |
| Retail                Leathercraft    | 5,541,082                                       |   | 495,824                                         |   | 4,285,606 |   | 386,718 |
| Other                                 | 484,302                                         |   | 26,944                                          |   | 508,018 |   | 13,847 |
| Total                Operations       | $14,413,649                                     |   | $2,041,788                                      |   | $12,707,516 |   | $1,569,547 |

|                      | **2006**   |   | **2005**   | **%                change** |
|---------------------------|------------|--------|------------|-----------------------------|
| Net                income | $1,346,263 |   | $1,049,222 | 28.3%                       |

**Wholesale      Leathercraft**

|                                                                                                                                     | **Quarter                ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| **Customer                Group**                                                                                                        | **03/31/06**                     |   | **03/31/05** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 25%                              |   | 24% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 7%                               |   | 6% |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 40%                              |   | 45% |
| MANUFACTURERS                                                                                                                            | 10%                              |   | 8% |
| NATIONAL                ACCOUNTS                                                                                                         | 18%                              |   | 17% |
|                                                                                                                                     | 100%                             |   | 100% |

|                                            | **Quarter                Ended****03/31/06** |   | **Quarter                Ended****03/31/05** |   | **$****change** | **%****change** |
|-------------------------------------------------|----------------------------------------------|--------|----------------------------------------------|--------|-----------------|-----------------|
| Distribution                centers             | $7,083,659                                   |   | $6,562,790                                   |   | $520,869        | 7.9%            |
| Center                converted to retail store | 28,642                                       |   | 86,162                                       |   | (57,520)        | (66.7)%         |
| National                account group           | 1,275,964                                    |   | 1,264,940                                    |   | 11,024          | 0.9%            |
|                                            | $8,388,265                                   |   | $7,913,892                                   |   | $474,373        | 6.0%            |

----

**Retail      Leathercraft **

|                                                 | **#****Stores** | **Qtr                ended****03/31/06** | **Qtr                ended****03/31/05** | **$                Incr****(decr)** | **%                Incr****(decr)** |
|------------------------------------------------------|-----------------|------------------------------------------|------------------------------------------|-------------------------------------|-------------------------------------|
| Same                (existing) store sales           | 42              | $4,724,519                               | $4,235,971                               | $488,548                            | 11.5%                               |
| Store                converted from wholesale center | 1               | 98,906                                   | -                                        | 98,906                              | N/A                                 |
| New                store sales                       | 13              | 717,657                                  | 49,635                                   | 668,022                             | N/A                                 |
| Total                sales                           | 56              | $5,541,082                               | $4,285,606                               | $1,255,476                          | 29.3%                               |

|                                                                                                                                     | **Quarter                ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| **Customer                Group**                                                                                                        | **03/31/06**                     |   | **03/31/05** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 68%                              |   | 73% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 6                                |   | 4 |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 25                               |   | 22 |
| NATIONAL                ACCOUNTS                                                                                                         | -                                |   | - |
| MANUFACTURERS                                                                                                                            | 1                                |   | 1 |
|                                                                                                                                     | 100%                             |   | 100% |

**Other      (Roberts, Cushman) **

**Other      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 Incorporation of The Leather Factory, Inc., and Certificate of                Amendment to Certificate of Incorporation of The Leather Factory,                Inc.                filed as Exhibit 3.1 to Form 10-Q filed by Tandy Leather Factory,                Inc.                with the Securities and Exchange Commission on August 12, 2005 and                incorporate by reference herein. |
| 3.2                             | Bylaws                of The Leather Factory, Inc., filed as Exhibit 3.2 to the Registration                Statement on Form SB-2 of The Leather Factory, Inc. (Commission File                No.                33-81132), filed with the Securities and Exchange Commission on July                5,                1994 and incorporated by reference herein.                                                                      |
| *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:                  May 12, 2006 | By:                  /s/                  Wray Thompson                                            |
|                                | Wray                  Thompson                                                                     |
|                                | Chairman                  and Chief Executive Officer                                              |
|                                |                                                                                               |
| Date:                  May 12, 2006 | By:                  /s/                  Shannon L. Greene                                        |
|                                | Shannon                  L. Greene                                                                 |
|                                | Chief                  Financial Officer and Treasurer (Chief Accounting                  Officer) |

----

**EXHIBIT      31.1**

**RULE      13a-14(a) CERTIFICATION **

**Wray      Thompson**

*[language      intentionally omitted SEC Rel. 33-8238 and 33-8618]*

*[Left      blank intentionally SEC Rel. No. 33-8238 and 33-8618]*

| Date:                  May 12, 2006 | /s/                  Wray Thompson                    |
|-------------------------------------|-------------------------------------------------------|
|                                | Wray                  Thompson                        |
|                                | Chairman                  and Chief Executive Officer |
|                                | (principal                  executive officer)        |

----

**EXHIBIT      31.2**

**RULE      13a-14(a) CERTIFICATION**

**Shannon      L. Greene**

*[language      intentionally omitted SEC Rel. 33-8238 and 33-8618]*

*[Left      blank intentionally SEC Rel. No. 33-8238 and 33-8618]*

| Date:                  May 12, 2006 | /s/                  Shannon L. Greene                                         |
|-------------------------------------|--------------------------------------------------------------------------------|
|                                | Shannon                  L. Greene                                             |
|                                | Chief                  Financial Officer and Treasurer                         |
|                                | (principal                  financial and accounting                  officer) |

----

**EXHIBIT      32.1**

**Certification      Pursuant to 18 U.S.C. Section 1350,**

**as      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of      2002**

| i.   | The                Report fully complies with the requirements of section 13(a) or 15(d)                of                the Securities Exchange Act of 1934;                and |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ii.   | The                information contained in the Report fully presents, in all material                respects, the financial condition and results of operations of the                Company                as of the dates and for the periods expressed in the                Report. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| May                  12, 2006 | By:                  /s/                  Wray Thompson                     |
|-------------------------------|-----------------------------------------------------------------------------|
|                          | **Wray                  Thompson**                                          |
|                          | **Chairman                  of the Board and Chief Executive Officer**      |
|                          |                                                                        |
| May                  12, 2006 | By:                  /s/                  Shannon L. Greene                 |
|                          | **Shannon                  L. Greene**                                      |
|                          | **Chief                  Financial Officer and                  Treasurer** |

----