UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 1999

or

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

For the transition period from              to
                               -----------     -----------

                         Commission File Number 1-12368

                            THE LEATHER FACTORY, INC.
             (Exact name of registrant as specified in its charter)

             Delaware                                       75-2543540
 (State or other jurisdiction of                      (I.R.S.   Employer
 incorporation or organization)                       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 the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                Class                  Shares outstanding as of November 4, 1999
------------------------------------   -----------------------------------------
Common Stock, par value $.0024                         9,853,161
per share

<PAGE>


                            THE LEATHER FACTORY, INC.

                                    FORM 10-Q

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999


                                TABLE OF CONTENTS
                                -----------------


                                                                        PAGE NO.
                                                                        --------

PART I.   FINANCIAL INFORMATION

  Item 1. Financial Statements

    Consolidated Balance Sheets
     September 30, 1999 and December 31, 1998..........................    3

    Consolidated Statements of Income (Loss)
     Three and nine months ended September 30, 1999 and 1998...........    4

    Consolidated Statements of Cash Flows
     Nine months ended September 30, 1999 and 1998.....................    5

    Consolidated Statements of Stockholders' Equity and
     Comprehensive Income (Loss) Nine months ended
     September 30, 1999 and 1998.......................................    6

    Notes to Consolidated Financial Statements.........................    7-8

  Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations.........................    8-13

  Item 3. Quantitative and Qualitative Disclosures About Market Risk...    13

PART II.  OTHER INFORMATION

  Item 6. Exhibits and Reports on Form 14 8-K..........................    14

SIGNATURES.............................................................    14

EXHIBIT INDEX..........................................................    15-17




<PAGE>

<TABLE>

<CAPTION>

                            THE LEATHER FACTORY, INC.
                           CONSOLIDATED BALANCE SHEETS


                                                                      September 30,   December 31,
                                                                            1999           1998
                                                                      -------------   ------------
                                    ASSETS                             (UNAUDITED)
CURRENT ASSETS:
<S>                                                                   <C>             <C>
     Cash                                                             $     127,389   $    510,399
     Cash restricted for payment on revolving credit facility               432,880        232,838
     Accounts receivable-trade, net of allowance for
         doubtful accounts of $125,000 and $52,000
         in 1999 and 1998, respectively                                   2,511,984      1,582,459
     Inventory                                                            8,333,414      6,956,606
     Prepaid income taxes                                                         -        228,939
     Deferred income taxes                                                  135,520        102,012
     Other current assets                                                   522,249        272,993
                                                                      -------------   ------------
                            Total current assets                         12,063,436      9,886,246
                                                                      -------------   ------------

PROPERTY AND EQUIPMENT, at cost                                           3,113,758      2,671,827
     Less-accumulated depreciation and amortization                      (2,069,922)    (1,813,378)
                                                                      -------------   ------------
                            Property and equipment, net                   1,043,836        858,449


GOODWILL and other, net of accumulated amortization of
     $1,603,000 and $1,246,000 in 1999 and 1998, respectively             4,959,052      5,285,242
                                                                      -------------   ------------
                                                                      $  18,066,324  $  16,029,937
                                                                      =============  =============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                 $   1,563,862   $  1,019,069
     Accrued expenses and other liabilities                                 811,413        530,789
     Notes payable and current maturities of
         long-term debt                                                   7,039,654      6,139,327
                                                                      -------------   ------------
                            Total current liabilities                     9,414,929      7,689,185
                                                                      -------------   ------------

DEFERRED INCOME TAXES                                                        99,137        109,085

NOTES PAYABLE AND LONG-TERM DEBT,
     net of current maturities                                              152,549         61,389

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, 9,853,161 shares issued in 1999 and 1998                23,648         23,648
     Paid-in capital                                                      3,901,740      3,901,740
     Less:  Notes receivable - secured by common stock                     (182,987)      (224,750)
     Retained earnings                                                    4,682,460      4,495,378
     Accumulated other comprehensive loss                                   (25,152)       (25,738)
                                                                      -------------   ------------
                            Total stockholders' equity                    8,399,709      8,170,278
                                                                      -------------   ------------
                                                                      $  18,066,324   $ 16,029,937
                                                                      =============   ============

</TABLE>

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

                                       3

<PAGE>

<TABLE>

<CAPTION>

                           THE LEATHER FACTORY, INC.
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                   (UNAUDITED)
             THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998





                                                             THREE MONTHS                       NINE MONTHS

                                                           1999           1998                1999            1998
                                                      ------------   ------------        ------------    ------------
<S>                                                   <C>            <C>                 <C>             <C>
NET SALES                                             $  7,625,168   $  5,628,895        $ 19,678,118    $ 16,811,190

COST OF SALES                                            4,180,108      3,146,647          11,060,400       9,487,408
                                                      ------------   ------------        ------------    ------------
             Gross Profit                                3,445,060      2,482,248           8,617,718       7,323,782

OPERATING EXPENSES                                       2,723,615      2,186,063           7,546,169       6,678,596
                                                      ------------   ------------        ------------    ------------

INCOME FROM OPERATIONS                                     721,445        296,185           1,071,549         645,186

OTHER (INCOME) EXPENSE:
     Interest expense                                      183,403        250,841             581,297         751,188
     Other, net                                              4,701          3,580              (9,679)        (20,221)
                                                      ------------   ------------        ------------    ------------
             Total other (income) expense                  188,104        254,421             571,618         730,967
                                                      ------------   ------------        ------------    ------------

INCOME (LOSS)  BEFORE INCOME TAXES                         533,341         41,764             499,931         (85,781)

PROVISION  FOR INCOME TAXES                                260,776         35,850             312,849          30,377
                                                      ------------   ------------        ------------    ------------

NET INCOME (LOSS)                                     $    272,565   $      5,914        $    187,082    $   (116,158)
                                                      ============   ============        ============    ============



EARNINGS (LOSS) PER COMMON SHARE                      $       0.03   $       --          $       0.02    $      (0.01)
                                                      ============   ============        ============    ============

EARNINGS (LOSS) PER COMMON SHARE--Assuming Dilution   $       0.03   $       --          $       0.02    $      (0.01)
                                                      ============   ============        ============    ============

DIVIDENDS PAID PER COMMON SHARE                       $       --     $       --          $       --      $       --
                                                      ============   ============        ============    ============


</TABLE>













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

                                       4

<PAGE>

<TABLE>

<CAPTION>

                            THE LEATHER FACTORY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                  NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998



                                                                           1999           1998
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                    $   187,082    $  (116,158)
  Adjustments to reconcile net income to net
   cash provided by (used in) operating activities-
     Depreciation & amortization                                           415,554        399,104
     (Gain) loss on sales of assets                                           --           (9,118)
     Deferred financing costs                                              189,472        165,854
     Deferred income taxes                                                 (43,815)       (31,633)
     Other                                                                     945          4,472
     Net changes in operating assets and liabilities:
       Accounts receivable-trade, net                                     (929,525)      (186,546)
       Inventory                                                        (1,376,808)        25,002
       Income taxes                                                        413,554         20,495
       Other current assets                                               (249,255)       (12,241)
       Accounts payable                                                    544,793        301,191
       Accrued expenses and other liabilities                               96,009        (94,853)
                                                                       -----------    -----------
     Total adjustments                                                    (939,076)       581,727
                                                                       -----------    -----------

     Net cash provided by operating activities                            (751,994)       465,569
                                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                     (441,932)      (112,583)
  Proceeds from sales of assets                                                  0         10,000
  Other intangible costs                                                    (8,174)        (1,728)
                                                                       -----------    -----------

     Net cash used in investing activities                                (450,106)      (104,311)
                                                                       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in revolving credit loans                      1,116,440        241,900
  Proceeds from notes payable and long-term debt                           217,493           --
  Payments on notes payable and long-term debt                            (342,446)      (316,150)
  Change in cash restricted for payment on revolving credit facility      (200,042)        35,481
  Payments received on notes secured by common stock                        41,763         26,392
  Deferred financing costs                                                 (14,118)      (205,735)
                                                                       -----------    -----------

     Net cash used in financing activities                                 819,090       (218,112)
                                                                       -----------    -----------

NET INCREASE (DECREASE) IN CASH                                           (383,010)       143,146

CASH, beginning of period                                                  510,399         70,496
                                                                       -----------    -----------

CASH, end of period                                                    $   127,389    $   213,642
                                                                       ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid during the period                                      $   511,332    $   594,390
  Income taxes paid during the period, net of refunds                      (56,326)        34,895

</TABLE>


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

                                       5

<PAGE>

<TABLE>

<CAPTION>

                            THE LEATHER FACTORY, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         AND COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)
                  NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998





                                  Common Stock                        Notes                                 Accumulated
                               -------------------                  Receivable                                 Other
                                Number        Par      Paid-in     - Secured by    Unearned     Retained   Comprehensive
                               of Shares     Value     Capital     Common Stock  ESOP Shares    Earnings       Loss
                               ---------  ---------  -----------  -------------  -----------  -----------  -------------
<S>                            <C>        <C>        <C>          <C>            <C>          <C>          <C>
BALANCE, December 31, 1997     9,853,161  $  23,648  $ 4,119,915  $    (257,617) $  (273,851) $ 4,534,569  $     (14,018)

   Payments received on notes
   secured by common stock             -          -            -         26,392            -            -              -

   Allocation of suspended
   ESOP shares committed to
   be released                         -          -      (41,419)             -       45,795            -              -

   Warrants  issued to
   acquire 200,000 shares of
   common stock                        -          -       40,000              -            -            -              -

   Net loss                            -          -            -              -            -     (116,158)             -

   Foreign currency
   translation adjustment,
   net of tax of ($6,620)              -          -            -              -            -            -        (10,800)
                               ---------  ---------  -----------  -------------  -----------  -----------  -------------

BALANCE, September 30, 1998    9,853,161  $  23,648  $ 4,118,496  $    (231,225) $  (228,056) $ 4,418,411  $     (24,818)
                               =========  ========= ============  =============  ===========  ===========  =============



                                                       Total
                                                   Stockholder's  Comprehensive
                                                      Equity      Income (Loss)
                                                   -------------  -------------

BALANCE, December 31, 1997                         $   8,132,646

   Payments received on notes
   secured by common stock                                26,392

   Allocation of suspended
   ESOP shares committed to
   be released                                             4,376

   Warrants  issued to
   acquire 200,000 shares of
   common stock                                           40,000

   Net loss                                             (116,158) $    (116,158)

   Foreign currency
   translation adjustment,
   net of tax of ($6,620)                                (10,800)       (10,800)
                                                   -------------

BALANCE, September 30, 1998                        $   8,076,456
                                                   =============

   Comprehensive income (loss) for the nine months                -------------
   ended September 30, 1998                                       $    (126,958)
                                                                  =============





















                                  Common Stock                        Notes                                 Accumulated
                               -------------------                  Receivable                                 Other
                                Number        Par      Paid-in     - Secured by    Unearned     Retained   Comprehensive
                               of Shares     Value     Capital     Common Stock  ESOP Shares    Earnings       Loss
                               ---------  ---------  -----------  -------------  -----------  -----------  -------------
<S>                            <C>        <C>        <C>          <C>            <C>          <C>          <C>
BALANCE, December 31, 1998     9,853,161  $  23,648  $ 3,901,740  $    (224,750)           -  $ 4,495,378  $     (25,738)

   Payments received on notes
   secured by common stock             -          -            -         41,763            -            -              -

   Allocation of suspended
   ESOP shares committed to
   be released                         -          -            -              -            -            -              -

   Net income                          -          -            -              -            -      187,082              -

   Foreign currency
   translation adjustment,
   net of tax of ($359)                -          -            -              -            -            -            586
                               ---------  ---------  -----------  -------------  -----------  -----------  -------------

BALANCE, September 30, 1999    9,853,161  $  23,648  $ 3,901,740  $    (182,987)           -  $ 4,682,460  $     (25,152)
                               =========  =========  ===========  =============  ===========  ===========  =============


                                                       Total
                                                   Stockholder's  Comprehensive
                                                      Equity      Income (Loss)
                                                   -------------  -------------

BALANCE, December 31, 1998                         $   8,170,278

   Payments received on notes
   secured by common stock                                41,763

   Allocation of suspended
   ESOP shares committed to
   be released                                                 -

   Net income                                            187,082  $     187,082

   Foreign currency
   translation adjustment,
   net of tax of ($359)                                      586            586
                                                   -------------

BALANCE, September 30, 1999                        $  8,399,709
                                                   ============

   Comprehensive income (loss) for the nine months                -------------
   ended September 30, 1999                                       $     187,668
                                                                  =============


</TABLE>





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

                                       6

<PAGE>

<TABLE>

<CAPTION>

                            THE LEATHER FACTORY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.  BASIS OF PRESENTATION

In the opinion of The Leather Factory,  Inc. (the  "Company"),  the accompanying
consolidated  financial  statements contain all adjustments  (consisting of only
normal recurring adjustments) necessary to present fairly its financial position
as of September  30, 1999 and December 31, 1998,  and the results of  operations
and cash flows for the three and nine month periods ended September 30, 1999 and
1998.  The results of  operations  for the three and nine month  periods are not
necessarily  indicative  of the results to be expected for the full fiscal year.
The  consolidated  financial  statements  should be read in conjunction with the
financial  statements  and  disclosures  contained in the Company's  1998 Annual
Report on Form 10-K ("Annual Report").



2.  INVENTORY

The components of inventory consist of the following:

                                                  September 30,    December 31,
                                                        1999            1998
                                                  -------------    ------------
      Finished goods held for sale                $   7,092,418    $  5,564,406
      Raw materials and work in process               1,240,996       1,392,200
                                                  =============    ============
                                                  $   8,333,414    $  6,956,606
                                                  =============    ============



3.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

                                                         Three Months Ended               Nine Months Ended
                                                            September 30,                   September 30,
                                                        --------------------            --------------------
                                                        1999            1998            1999            1998
                                                     ----------      ----------      ----------      ----------
<S>                                                  <C>             <C>             <C>             <C>
Numerator for earnings per share:
  Net income (loss) - Basic                          $  272,565      $    5,914      $  187,082      $ (116,158)
                                                     ==========      ==========      ==========      ==========
  Net income (loss) - Diluted                        $  282,532      $    5,914      $  187,082      $ (116,158)
                                                     ==========      ==========      ==========      ==========

Denominator for earnings per share:
  Weighted-average shares outstanding - Basic         9,971,982       9,805,385       9,901,828       9,802,349
  Weighted-average shares outstanding - Diluted      10,662,590       9,805,385       9,901,828       9,802,349

Basic earnings per share                             $     0.03      $        -      $     0.02      $    (0.01)
                                                     ==========      ==========      ==========      ==========
Diluted earnings per share                           $     0.03      $        -      $     0.02      $    (0.01)
                                                     ==========      ==========      ==========      ==========

</TABLE>

Unexercised  employee and director stock options to purchase 360,000 and 543,000
shares of common stock as of September 30, 1999 and 1998, respectively, were not
included in the  computations of diluted  earnings per share ("EPS") because the
options'  exercise prices were greater than or equal to the average market price
of the common stock during the respective periods.

Warrants (see note 9 to consolidated  financial statements in the Annual Report)
to acquire  300,000 shares of common stock were included in the  computations of
diluted  EPS because the  warrants'  exercise  prices were less than the average
market  price of the common  stock  during the  quarter  and nine  months  ended
September 30, 1999.

                                       7

<PAGE>


The 13% convertible debt (see note 3 to consolidated financial statements in the
Annual  Report) was not included in the  computation of diluted EPS for the nine
months  ended  September  30, 1999  because the  interest  cost (net of tax) per
assumed converted share was more than basic EPS and, therefore, the effect would
be  antidilutive.  For the quarter ended  September 30, 1999,  the net after tax
interest  cost per  assumed  converted  share was less than basic EPS,  having a
dilutive effect, and have been included in the computation of diluted EPS.



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

General
-------

The Company is the premier  distributor of leather and leathercraft  products to
over 40,000  customers  ranging  from the  individual  hobbyist to large  retail
chains.  Customer  groups  served  include:   individual  hobbyists,   wholesale
distributors,  tack and saddle  shops,  shoe-findings  customers,  institutions,
prisons and prisoners,  dealer stores,  western  stores,  craft stores and craft
store chains, hat manufacturers and distributors, other large volume purchasers,
manufacturers,  and retailers.  The Company's products are distributed primarily
through 26  sales/distribution  units in the United States and Canada or through
its  subsidiary,  Roberts,  Cushman & Company,  Inc.  ("Cushman"),  in New York.
Cushman  manufactures  and distributes hat trims in braids,  leather,  and woven
fabrics.


Results of Operations
---------------------

                     Analysis of Third Quarter 1999 Compared
                              To Third Quarter 1998

                           Income Statement Comparison

The following table sets forth, for the interim periods indicated, certain items
from the  Company's  Consolidated  Statements  of Income  (Loss)  expressed as a
percentage of net sales:

                                          Quarterly Period Ended
                                              September 30,
                                          ----------------------

                                           1999            1998
                                          ------          ------

Net sales                                  100.0 %         100.0 %
Cost of sales                               54.8            55.9
                                          ------          ------
Gross Profit                                45.2            44.1
Operating expenses                          35.7            38.9
                                          ------          ------
Income from operations                       9.5             5.2
Interest and other expense, net              2.5             4.5
                                          ------          ------
Income before income taxes                   7.0             0.7
Provision for income taxes                   3.4             0.6
                                          ------          ------
Net Income                                   3.6 %           0.1 %
                                          ======          ======









                                       8

<PAGE>


Revenues

For the second consecutive quarter, sales exhibited strong growth well above the
comparative period for the prior year. Net sales for the quarter ended September
30, 1999,  increased  35.5% to  $7,625,168  from  $5,628,895 in the same interim
period during 1998.  Outside the effect of a strategic decision to phase out low
profit margin goods sold to shoe repair  customers,  sales to all major customer
groups  continued  to show  strong  sales  gains.  Third  quarter  sales  to the
Company's core business and institutional customers reflected over a 50% gain in
sales above the third quarter of last year. Through completion of implementation
issues with new programs  previously  announced,  the Company  experienced sales
gains of 58.4% over the same period last year in the craft and craft distributor
categories.  Likewise, retail sales showed a 75% growth rate. The Company's four
new  sales/distribution  centers opened earlier in the year generated  sales for
the quarter  totaling  $255,638,  while the Company's  second quarter program of
authorizing sales centers ("ASCs") produced third quarter sales of $339,619.

Costs, Gross Profit, and Expenses

Cost of sales as a percentage of revenue was 54.8% for the third quarter of 1999
as compared to 55.9% for the same  quarter in 1998.  This 1.1  percentage  point
reduction for the three-month  period resulted from improved product mix and the
Company's  strategic  efforts to selectively  increase  prices and eliminate low
margin items from its product lines.

Lower relative cost of sales percentages meant that gross profit as a percentage
of sales improved to 45.2% for the three month period ended  September 30, 1999,
as  compared  to 44.1% for the same period in 1998.  Accordingly,  gross  profit
dollars increased $962,812 or 38.8% for the quarterly period ended September 30,
1999, compared to the respective 1998 period.

Operating  expenses  increased  $537,552 or 24.6% to $2,723,615 during the third
quarter of 1999 from $2,186,063  during the quarter ended September 30, 1998. Of
this  increase,  $145,125  related  to  the  cost  of  operating  the  four  new
sales/distribution  units,  with the remaining  $392,427  resulting  mainly from
increased personnel,  salary, and other costs necessary to support the increased
level of sales  discussed  above.  However,  the increase for the quarter  ended
September 30, 1999, is only 5.4% above the  operating  expense  reported for the
second quarter of this year. The Company's  efforts to control these costs while
supporting  the  increased  sales  level  have  reduced  operating  costs  as  a
percentage  of sales to 35.7% during the quarter  from 38.9% in the  comparative
quarter of 1998.

Other (Income) Expense

Other expenses  decreased $129,908 or 51.1% to $188,104 for the third quarter of
1999 from $254,421  during the same quarter in 1998.  The decrease was primarily
due to lower interest expense resulting from a reduction in prevailing  interest
rates  between  the third  quarter of 1998 and 1999.  While it appears  that the
Company's indebtedness was up dramatically for the current quarter, the increase
in notes payable occurred late in the quarter ended September 30, 1999.

Net Income (Loss)

The Company reported net income for the second  consecutive  quarter of $272,565
for the three months  ended  September  30,  1999,  as compared to net income of
$5,914 in the corresponding  period of 1998. The increased operating results for
such period resulted from the factors noted above regarding sales, gross profit,
operating and other expenses.








                                       9

<PAGE>



                   Analysis of Nine Months Ended 1999 Compared
                            To Nine Months Ended 1998

                           Income Statement Comparison

The following table sets forth, for the interim periods indicated, certain items
from the  Company's  Consolidated  Statements  of Income  (Loss)  expressed as a
percentage of net sales:

                                                  Nine Months Ended
                                                    September 30,
                                                  -----------------

                                                  1999        1998
                                                  -----       -----

Net sales                                         100.0 %     100.0 %
Cost of sales                                      56.2        56.4
                                                  -----       -----
Gross Profit                                       43.8        43.6
Operating expenses                                 38.3        39.7
                                                  -----       -----
Income from operations                              5.5         3.9
Interest and other expense, net                     2.9         4.4
                                                  -----       -----
Income (Loss) before income taxes                   2.6        (0.5)
(Benefit) provision for income taxes                1.6        (0.2)
                                                  -----       -----
Net Income (Loss)                                   1.0 %      (0.3)%



Revenues

The Company  continued  to show strong  sales gains for the first nine months of
the year in the majority of its customer  groups as displayed  through the first
six months of the year.  Net sales  increased  17.1% for the nine  months  ended
September 30, 1999,  compared to the same interim  period in 1998.  Sales to the
Company's core business and institutional customers reflected over a 37% gain in
sales  above  the  comparative  nine  months  of  last  year.  Craft  and  craft
distributor  sales also  reflected  an  increase in sales of 19.0% over the same
period last year. The Company's four new  sales/distribution  units posted sales
of $348,452 or 1.8% of sales for the nine  months.  Sales to the  Company's  new
ASCs totaled  $564,411 and  accounted  for 2.9% of net sales for the  nine-month
period.  Management  expects  this  increase  in sales  to the ASCs to  continue
throughout the fourth quarter and could account for 4% of net sales by year-end.

Costs, Gross Profit, and Expenses

Cost of sales as a  percentage  of revenue was 56.2% for the nine months of 1999
as  compared  to 56.4% for the same period in 1998.  This 0.2  percentage  point
reduction for the nine-month  period resulted from improved  product mix and the
Company's  strategic  efforts to selectively  increase  prices and eliminate low
margin items from its product lines.

Lower relative cost of sales percentages meant that gross profit as a percentage
of sales  improved to 43.8% for the nine month period ended  September 30, 1999,
as compared to only 43.6% for the same period in 1998. This 0.2 percentage point
increase in gross profit generated an additional  $1,293,936 or a 17.7% increase
for the nine months ended September 30, 1999 above the respective 1998 period.

Operating  expenses  increased  $867,573 or 13.0% to $7,546,169 during the first
nine months of 1999 from $6,678,596  during the same nine months ended September
30, 1998. The increase between the two nine-month periods resulted from $241,521
in operating costs for the four new  sales/distribution  units opened earlier in
the year. The balance of costs totaling  $626,052  related to the higher cost of
personnel,  salary,  insurance,  and other costs necessary to support the higher
level of sales as reported for the nine-month period.

                                       10


<PAGE>


Other (Income) Expense

Other  expenses  decreased  $159,349 or 21.8% to $571,618 for the nine months of
1999 from  $730,967  during the same period in 1998.  The decrease was primarily
due to lower interest expense  resulting from lower interest rates applicable to
the Company's  revolving debt. While it appears that the Company's  indebtedness
was up  dramatically  for the current  quarter,  the  increase in notes  payable
occurred late in the quarter ended September 30, 1999.

Net Income (Loss)

The Company  reported net after tax income of $187,082 for the nine months ended
September 30, 1999,  as compared to a net loss of $116,158 in the  corresponding
period during 1998.  The increased  operating  results for such period  resulted
from the factors noted above regarding sales, gross profit,  operating and other
expenses.

Capital Resources and Liquidity
-------------------------------

The primary  sources of liquidity  and capital  resources  during the first nine
months of 1999 were net income in the amount of $187,082,  non-cash  adjustments
to net income of depreciation and  amortization  totaling  $605,026,  borrowings
from FINOVA Capital Corporation  ("FINOVA"),  and a subordinated  debenture with
The Schlinger Foundation ("Schlinger"), and capital leases to finance investment
in new computer equipment.

The  Company's   investment  in   net  accounts  receivable  was  $2,511,984  at
September 30, 1999, up $929,525 from  $1,582,459 at year-end  1998. The addition
to the average accounts  receivable  balance is due to the Company's  increasing
sales  levels.  Inventory  increased  $1,376,808  to $8,333,414 at September 30,
1999, from $6,956,606 at year-end 1998.  Although  inventories were increased to
support  the volume of sales  reported in the nine months  ended  September  30,
1999,  inventory  turnover  remained at the improved annual rate of 1.9 times as
was reported  earlier for the six months ended June 30, 1999, which is above the
ratios  of  1.81  for the  first  quarter  of 1999  and  1.74  for all of  1998.
Management's  ongoing  implementation of new information systems assisted in the
monitoring of sales and inventory levels which contributed to improved inventory
management.

The  largest  uses of cash  beyond  debt  payments  during 1999 were for capital
expenditures,  which  totaled  $154,362  for the  quarter and  $441,932  for the
nine-month   period  and  related  to  the  Company's  ongoing  computer  system
implementation, warehouse fixtures and other equipment additions or replacements
at various  sales/distribution  units, and leasehold  improvements and equipment
costs associated with the opening of four additional sales/distribution units.

The amount of the  revolving  credit  facility with FINOVA that is available for
advances  is based  upon the  level of the  Company's  accounts  receivable  and
inventory.  At  September  30,  1999 and  December  31,  1998,  the  Company had
additional  availability  on the  revolving  credit  facility  of  approximately
$702,000  and  $475,000  respectively.  Cash  restricted  for  payment  on  this
revolving credit facility  increased by $200,042 to $432,880 as of September 30,
1999.

The Company believes that the current sources of liquidity and capital resources
will be sufficient to fund current  operations,  meet debt  obligations and fund
the future opening of new  sales/distribution  units.  In 1999,  funding for the
opening of new units was provided by operating leases, cash flows from operating
activities,  and the Company's  Revolving  Credit Loan with FINOVA.  The Company
expects to open two to three sales/distribution units per year for the next five
years.  The  opening  of a  sales/distribution  unit is not  capital  intensive.
Historically, the Company invested approximately $125,000 in opening a new unit.
The four units  opened this year  required  substantially  less to open per unit
than the $125,000 historically invested in a new unit.

The Company's Senior Debt Facility with FINOVA and  Subordinated  Debenture with
Schlinger, (the "Obligations") mature on December 1, 1999. The Company is in the
process of negotiations with potential  investors/lenders  regarding renewing or
refinancing of the Obligations.  Management believes the Company will be able to
successfully  replace  or renew  these  Obligations  prior  to  their  maturity.
However,  management  can provide no assurances  about the Company's  ability to
renew or refinance the  Obligations.  In the event that the  Obligations are not
renewed or refinanced  on or before  maturity,  the Company  could  experience a
material adverse impact.


                                       11

<PAGE>


Year 2000 Issue
---------------

The Year 2000 ("Y2K") problem arose because many computer  programs use only the
last two digits to refer to a year.  As a  consequence,  unless  modified,  many
computer  systems will  interpret  "00" as 1900 rather than the year 2000.  This
issue is believed to affect virtually all  organizations  and failure to address
the problem  could  result in system  failures and the  generation  of erroneous
data. Each company's  potential costs and uncertainties  will depend on a number
of factors  including but not limited to its software,  hardware,  the nature of
its industry,  and the  sophistication  of its manufacturing and process control
systems.

The  Company has  developed a  comprehensive  Y2K  readiness  plan to ensure its
systems will be Y2K compliant prior to the year 2000. Pursuant to this plan, the
Company conducted  preliminary  reviews of its critical  information  technology
("IT") systems as well as its non-IT systems.  The majority of systems that were
found to be defective  in this review,  including  the  Company's  point of sale
("POS")  software used for invoicing and inventory  maintenance in the Company's
Texas locations, have now been replaced or upgraded.

The installation of the POS system in the Company's remaining distribution units
was delayed until after the conversion and testing of the Y2K compliant  version
of the software.  Outside of two  sales/distribution  units,  the  conversion is
complete.  The installation and training in the remaining two units is scheduled
to be completed by November 30, 1999.

The Company has  appointed a Y2K  committee  composed of senior  executives  and
middle management.  This committee is charged with testing systems for potential
Y2K problems missed in the preliminary review and remediation process as well as
assessing potential risks from the Company's trading partners' Y2K failures. The
committee's  testing was completed by June 30, 1999. The committee's  assessment
of risks from the Company's  trading  partners' Y2K failures has been an ongoing
analysis,  and the committee has reported periodically to the Company's Board of
Directors.

The Company  has  managed  its Y2K  compliance  program  using  mostly  internal
salaried staff.  For this reason and the fact that much of the replacement  cost
of  non-compliant  IT systems  would have been  incurred in the normal course of
business,  it is  difficult to quantify the actual Y2K  remediation  costs.  The
Company invested approximately $402,666 for new computer systems and software in
1998 and the first  three  quarters of 1999.  This  investment  included  system
upgrades that facilitated  completion of the Y2K compliance program.  Management
believes that the majority of the total  expected  system  remediation  cost has
already been incurred and does not expect to have additional hardware,  software
or license purchases during the remainder of the year.

The Company believes because of the nature of its operations and the steps taken
as  discussed  above that the Y2K issue  will not have a material  impact on the
Company's results of operations, liquidity, or financial condition. Specifically
the Company does not  anticipate  any disruption in its ability to provide goods
or services to its customers. Actual results may differ from the forward-looking
statements contained in this discussion,  and there can be no guarantee that the
failure  of  certain  systems  will not have a  material  adverse  effect on the
Company.

In the unlikely  event that  unforeseen Y2K problems are not remedied prior to a
disruption in normal business operations, the Company would in most instances be
able to temporarily  revert to manual  processes  that the Company  successfully
used  prior to  automating  many  routine  tasks.  Because  of the nature of the
leathercraft  industry and the numerous sources of supply,  the Company does not
expect any significant disruption that would hinder its ability to provide goods
and services as a result of any of its vendors or trading partners failing to be
ready for the year 2000.








                                       12



<PAGE>


Cautionary Statement
--------------------

The  disclosures  under  "-Results  of  Operations",   "-Capital  Resources  and
Liquidity",  and in the "Notes to Consolidated Financial Statements" as provided
elsewhere  herein,  contain   forward-looking   statements  and  projections  of
management.  There are certain  important  factors  which could cause results to
differ  materially  than  those  anticipated  by  some  of  the  forward-looking
statements.  Some of the important  factors which could cause actual  results to
differ materially from those in the forward-looking  statements include, changes
from  anticipated  levels of sales,  whether due to future  national or regional
economic and competitive conditions, including, but not limited to, retail craft
buying  patterns,  possible  negative  trends in the craft  and  western  retail
markets, customer acceptance of existing and new products, and pricing pressures
due to competitive  industry  conditions.  Additional factors that may result in
different actual results include:  increases in prices for leather (a world-wide
commodity)  that for some reason,  may not be passed on to the  customers of the
Company's  products;  changes in tax rates;  change in interest rates; change in
the  commercial  banking  environment;  problems  with  the  importation  of the
products which the Company buys in 14 countries around the world, including, but
not limited to,  transportation  problems or changes in the political climate of
the countries  involved,  including the  maintenance by those  countries of Most
Favored   Nation   status  with  the  United   States  of  America;   and  other
uncertainties,  all of which  are  difficult  to  predict  and many of which are
beyond the control of the Company.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The Company's Senior Debt Facility  includes loans with interest rates that vary
with changes in the prime rate. An increase of one percentage point in the prime
rate would not have a material impact on the Company's future earnings.























                                       13

<PAGE>




                           PART II. OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits
    --------

A list of  exhibits  required to be filed as part of this report is set forth in
the Exhibit Index, which immediately precedes such exhibits, and is incorporated
herein by reference.

(b) Reports on Form 8-K
    -------------------

None

                                   SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                              THE LEATHER FACTORY, INC.
                                              (Registrant)


Date:  November 10, 1999                      /s/ Wray Thompson
                                              ----------------------------------
                                              Wray Thompson
                                              Chairman of the Board, President,
                                              Chief Executive Officer, and Chief
                                              Accounting Officer












                                       14

<PAGE>


                   THE LEATHER FACTORY, INC. AND SUBSIDIARIES
                                EXHIBIT INDEX
Exhibit
Number                           Description
-------                          -----------

  3.1     Certificate of Incorporation  of The Leather  Factory,  Inc., filed as
          Exhibit 3.1 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.

  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.

  4.1     Loan and Security  Agreement  dated  November 21, 1997, by and between
          The  Leather  Factory,  Inc.,  a  Delaware  corporation,  The  Leather
          Factory,  Inc., a Texas  corporation,  The Leather  Factory,  Inc., an
          Arizona  corporation,  Hi-Line  Leather  &  Manufacturing  Company,  a
          California corporation,  Roberts,  Cushman & Company, Inc., a New York
          corporation,  and FINOVA Capital Corporation,  filed as Exhibit 4.1 to
          the  Current  Report  on  Form  8-K  of  The  Leather  Factory,   Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference herein.

  4.2     Revolving Note (Revolving Credit Loan) dated November 21, 1997, in the
          principal amount of $7,000,000, payable to the order of FINOVA Capital
          Corporation,  which  matures  December 1, 1999 filed as Exhibit 4.2 to
          the  Current  Report  on  Form  8-K  of  The  Leather  Factory,   Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference herein.

  4.3     Term  Loan A Note  (Term  Loan A)  dated  November  21,  1997,  in the
          principal  amount of $400,000,  payable to the order of FINOVA Capital
          Corporation,  which  matures  December 1, 1999 filed as Exhibit 4.3 to
          the  Current  Report  on  Form  8-K  of  The  Leather  Factory,   Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference herein.

  4.4     Term  Loan C Note  (Term  Loan C)  dated  November  21,  1997,  in the
          principal amount of $1,500,000, payable to the order of FINOVA Capital
          Corporation,  which  matures  December 1, 1999 filed as Exhibit 4.5 to
          the  Current  Report  on  Form  8-K  of  The  Leather  Factory,   Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference  herein.
          . 4.5 Subordination  Agreement dated November 21, 1997, by and between
          FINOVA  Capital  Corporation,  The Schlinger  Foundation,  The Leather
          Factory,  Inc., a Delaware corporation,  The Leather Factory,  Inc., a
          Texas corporation,  The Leather Factory, Inc., an Arizona corporation,
          Hi-Line Leather & Manufacturing Company, a California corporation, and
          Roberts,  Cushman & Company,  Inc.,  a New York  corporation  filed as
          Exhibit 4.6 to the Current Report on Form 8-K of The Leather  Factory,
          Inc.  (Commission  File No.  1-12368)  filed with the  Securities  and
          Exchange Commission on February 6, 1998, and incorporated by reference
          herein.

  4.6     Pledge  Agreement  dated  November 21, 1997, by and between  Ronald C.
          Morgan and Robin L.  Morgan and FINOVA  Capital  Corporation  filed as
          Exhibit 4.7 to the Current Report on Form 8-K of The Leather  Factory,
          Inc.  (Commission  File No.  1-12368)  filed with the  Securities  and
          Exchange Commission on February 6, 1998, and incorporated by reference
          herein.

  4.7     Patent Security  Agreement dated November 21, 1997, by and between The
          Leather Factory,  Inc., a Delaware  corporation,  The Leather Factory,
          Inc.,  a Texas  corporation,  The Leather  Factory,  Inc.,  an Arizona
          corporation,  Hi-Line  Leather & Manufacturing  Company,  a California
          corporation, Roberts, Cushman & Company, Inc., a New York corporation,
          and FINOVA  Capital  Corporation  filed as Exhibit  4.8 to the Current
          Report on Form 8-K of The Leather Factory,  Inc.  (Commission File No.
          1-12368) filed with the Securities and Exchange Commission on February
          6, 1998, and incorporated by reference herein.



                                       15

<PAGE>




                   THE LEATHER FACTORY, INC. AND SUBSIDIARIES
                                  EXHIBIT INDEX
                                   (CONTINUED)


Exhibit
Number                            Description
-------                           -----------

  4.8     Trademark  Security  Agreement dated November 21, 1997, by and between
          The  Leather  Factory,  Inc.,  a  Delaware  corporation,  The  Leather
          Factory,  Inc., a Texas  corporation,  The Leather  Factory,  Inc., an
          Arizona  corporation,  Hi-Line  Leather  &  Manufacturing  Company,  a
          California corporation,  Roberts,  Cushman & Company, Inc., a New York
          corporation,  and FINOVA Capital  Corporation  filed as Exhibit 4.9 to
          the  Current  Report  on  Form  8-K  of  The  Leather  Factory,   Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference herein.

  4.9     Copyright  Security  Agreement dated November 21, 1997, by and between
          The  Leather  Factory,  Inc.,  a  Delaware  corporation,  The  Leather
          Factory,  Inc., a Texas  corporation,  The Leather  Factory,  Inc., an
          Arizona  corporation,  Hi-Line  Leather  &  Manufacturing  Company,  a
          California corporation,  Roberts,  Cushman & Company, Inc., a New York
          corporation,  and FINOVA Capital  Corporation filed as Exhibit 4.10 to
          the  Current  Report  on  Form  8-K  of  The  Leather  Factory,   Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference herein.

  4.10    Promissory Note  (Subordinated  Debenture) dated November 14, 1997, in
          the  principal  amount  of  $1,000,000,  payable  to the  order of The
          Schlinger Foundation,  which matures December 1, 1999 filed as Exhibit
          4.11 to the Current  Report on Form 8-K of The Leather  Factory,  Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference herein.

  4.11    Pledge and Security  Agreement dated November 14, 1997, by and between
          The Schlinger  Foundation and J. Wray  Thompson,  Sr. filed as Exhibit
          4.12 to the Current  Report on Form 8-K of The Leather  Factory,  Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission on February 6, 1998, and incorporated by reference herein.

  4.12    Amendment to Loan and Security  Agreement  dated May 13, 1998,  by and
          between The Leather Factory, Inc., a Delaware corporation, The Leather
          Factory,  Inc., a Texas  corporation,  The Leather  Factory,  Inc., an
          Arizona  corporation,  Hi-Line  Leather  &  Manufacturing  Company,  a
          California corporation,  Roberts,  Cushman & Company, Inc., a New York
          corporation,  and FINOVA  Capital  Corporation  effective  as of March
          31,1998 filed as Exhibit 4.15 to the Quarterly  Report on Form 10-Q of
          The Leather Factory, Inc. (Commission File No. 1-12368) filed with the
          Securities and Exchange  Commission on May 15, 1998, and  incorporated
          by reference herein.

  4.13    The Leather  Factory,  Inc. Stock Purchase  Warrant for 200,000 shares
          common  stock,  $.0024 par value  issued to Evert I.  Schlinger  dated
          August 3, 1998 and  terminating  on August 3,  2003,  filed as Exhibit
          4.13 to the Quarterly Report on Form 10-Q of The Leather Factory, Inc.
          (Commission  File No.  1-12368) filed with the Securities and Exchange
          Commission November 12, 1998, and incorporated by reference herein.

  4.14    Second Amendment to Loan and Security Agreement dated May 13, 1999, by
          and between The Leather  Factory,  Inc., a Delaware  corporation,  The
          Leather Factory, Inc., a Texas corporation, The Leather Factory, Inc.,
          an Arizona  corporation,  Hi-Line Leather & Manufacturing  Company,  a
          California corporation,  Roberts,  Cushman & Company, Inc., a New York
          corporation,  and FINOVA  Capital  Corporation  effective  as of March
          31,1999, filed as Exhibit 4.14 to the Quarterly Report on Form 10-Q of
          The Leather Factory, Inc. (Commission File No. 1-12368) filed with the
          Securities and Exchange  Commission on May 17, 1999, and  incorporated
          by reference herein.





                                       16

<PAGE>

  4.15    Third Amendment to Loan and Security  Agreement dated August 12, 1999,
          by and between The Leather Factory, Inc., a Delaware corporation,  The
          Leather Factory, Inc., a Texas corporation, The Leather Factory, Inc.,
          an Arizona  corporation,  Hi-Line Leather & Manufacturing  Company,  a
          California corporation,  Roberts,  Cushman & Company, Inc., a New York
          corporation,  and FINOVA Capital Corporation  effective as of June 30,
          1999,  filed as Exhibit 4.15 to the  Quarterly  Report on Form 10-Q of
          The Leather Factory, Inc. (Commission File No. 1-12368) filed with the
          Securities   and  Exchange   Commission   on  August  16,  1999,   and
          incorporated by reference herein.

  10.1    Letter  Agreement for Consulting  Services dated July 24, 1998, by and
          between The Leather  Factory,  Inc. and Evert I.  Schlinger,  filed as
          Exhibit  10.1 to the  Quarterly  Report  on Form  10-Q of The  Leather
          Factory,  Inc. (Commission File No. 1-12368) filed with the Securities
          and  Exchange  Commission  November  12,  1998,  and  incorporated  by
          reference herein.

  21.1    Subsidiaries  of the  Company,  filed as Exhibit  No. 22.1 to the 1995
          Annual Report on Form 10-KSB of The Leather Factory,  Inc. (Commission
          File No. 1-12368),  filed with the Securities and Exchange  Commission
          on March 28, 1996, and incorporated by reference herein.

 *27.1        Financial Data Schedule
---------------
*Filed herewith.

















                                       17