**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**

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

|  |
|--|

**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 7, 2007 |
|----------------------------------------------------------|-----------------------------------------------------|
| Common                Stock, par value $0.0024 per share | 10,919,568                                          |

----

**TANDY      LEATHER FACTORY, INC.**

**TABLE      OF CONTENTS**

|                                                                                                                                                                                                                                | PAGE                NO. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
|                                                                                                                                                                                                                                |                    |
| **PART                I. FINANCIAL INFORMATION**                                                                                                                                                                                    |                    |
|                                                                                                                                                                                                                                |                    |
| Item                1. Financial Statements                                                                                                                                                                                         |                    |
|                                                                                                                                                                                                                                |                    |
| Consolidated                Balance Sheets                                                                                                                                                                                          |                    |
| March                31, 2007 and December 31, 2006 ..........................................................................................                                                                                 | 1                       |
|                                                                                                                                                                                                                                |                    |
| Consolidated                Statements of Income                                                                                                                                                                                    |                    |
| Three                months ended March 31, 2007 and                2006..................................................................................                                                                          | 2                       |
|                                                                                                                                                                                                                                |                    |
| Consolidated                Statements of Cash Flows                                                                                                                                                                                |                    |
| Three                months ended March 31, 2007 and                2006..................................................................................                                                                          | 3                       |
|                                                                                                                                                                                                                                |                    |
| Consolidated                Statements of Stockholders' Equity                                                                                                                                                                      |                    |
| Three                months ended March 31, 2007 and                2006..................................................................................                                                                          | 4                       |
|                                                                                                                                                                                                                                |                    |
| Notes                to Consolidated Financial                Statements......................................................................................                                                                      | 5                       |
|                                                                                                                                                                                                                                |                    |
| Item                2. Management's Discussion and Analysis of Financial                                                                                                                                                            |                    |
| Condition                and Results of                Operations.....................................................................................                                                                              | 8                       |
|                                                                                                                                                                                                                                |                    |
| Item                3. Quantitative and Qualitative Disclosures About Market Risk                ..................................                                                     | 10                      |
|                                                                                                                                                                                                                                |                    |
| Item                4. Controls and Procedures ................................................................................ | 10                      |
|                                                                                                                                                                                                                                |                    |
| **PART                II. OTHER INFORMATION**                                                                                                                                                                                       |                    |
|                                                                                                                                                                                                                                |                    |
| Item                6. Exhibits                .........................................................................................................................                | 11                      |
|                                                                                                                                                                                                                                |                    |
|                                                                                                                                                                                                                                |                    |
| **SIGNATURES**......................................................................................................................................                                                                            | 11                      |
|                                                                                                                                                                                                                                |                    |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Balance Sheets**

|                                                                                                  | **March                31,****2007****(unaudited)** |   | **December                31,****2006****(audited)** |
|-------------------------------------------------------------------------------------------------------|-----------------------------------------------------|--------|------------------------------------------------------|
| **ASSETS**                                                                                            |                                                |   |                                                 |
| CURRENT                ASSETS:                                                                        |                                                |   |                                                 |
| Cash                                                                                                  | $6,001,607                                          |   | $6,739,891                                           |
| Accounts                receivable-trade, net of allowance for doubtful accounts                      |                                                |   |                                                 |
| of                $159,000 and $149,000 in 2007 and 2006, respectively                                | 2,894,793                                           |   | 2,599,279                                            |
| Inventory                                                                                             | 18,344,527                                          |   | 17,169,358                                           |
| Deferred                income taxes                                                                  | 276,212                                             |   | 266,018                                              |
| Other                current assets                                                                   | 1,469,749                                           |   | 1,089,258                                            |
| Total                current assets                                                                   | 28,986,888                                          |   | 27,863,804                                           |
|                                                                                                  |                                                |   |                                                 |
| PROPERTY                AND EQUIPMENT, at cost                                                        | 6,825,009                                           |   | 6,865,946                                            |
| Less                accumulated depreciation and amortization                                         | (4,861,756)                                         |   | (4,989,341)                                          |
|                                                                                                  | 1,963,253                                           |   | 1,876,605                                            |
|                                                                                                  |                                                |   |                                                 |
| GOODWILL                                                                                              | 972,227                                             |   | 746,139                                              |
| OTHER                INTANGIBLES, net of accumulated amortization of                                  |                                                |   |                                                 |
| $271,000                and $262,000 in 2007 and 2006, respectively                                   | 426,103                                             |   | 360,676                                              |
| OTHER                assets                                                                           | 1,150,474                                           |   | 1,069,411                                            |
|                                                                                                  | **$33,498,945**                                     |   | **$31,916,635**                                      |
|                                                                                                  |                                                |   |                                                 |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                               |                                                |   |                                                 |
| CURRENT                LIABILITIES:                                                                   |                                                |   |                                                 |
| Accounts                payable-trade                                                                 | $2,551,457                                          |   | $1,776,646                                           |
| Accrued                expenses and other liabilities                                                 | 2,484,623                                           |   | 3,424,010                                            |
| Income                taxes payable                                                                   | 427,810                                             |   | 59,392                                               |
| Current                maturities of capital lease obligations                                        | 78,206                                              |   | 111,723                                              |
| Total                current liabilities                                                              | 5,542,096                                           |   | 5,371,771                                            |
|                                                                                                  |                                                |   |                                                 |
| DEFERRED                INCOME TAXES                                                                  | 216,534                                             |   | 221,621                                              |
|                                                                                                  |                                                |   |                                                 |
| COMMITMENTS                AND CONTINGENCIES                                                          | -                                              |   | -                                               |
|                                                                                                  |                                                |   |                                                 |
| STOCKHOLDERS'                EQUITY:                                                                  |                                                |   |                                                 |
| Preferred                stock, $0.10 par value; 20,000,000 shares authorized;                        |                                                |   |                                                 |
| none                issued or outstanding; attributes to be determined on                issuance     | -                                                   |   | -                                                    |
| Common                stock, $0.0024 par value; 25,000,000 shares authorized;                         |                                                |   |                                                 |
| 10,919,568                and 10,885,068 shares issued at 2007 and 2006,                respectively; |                                                |   |                                                 |
| 10,913,709                and 10,879,209 outstanding at 2007 and 2006, respectively                   | 26,207                                              |   | 26,124                                               |
| Paid-in                capital                                                                        | 5,351,044                                           |   | 5,292,591                                            |
| Retained                earnings                                                                      | 22,295,895                                          |   | 20,949,540                                           |
| Treasury                stock (5,859 shares at cost)                                                  | (25,487)                                            |   | (25,487)                                             |
| Accumulated                other comprehensive income                                                 | 92,656                                              |   | 80,475                                               |
| Total                stockholders' equity                                                             | 27,740,315                                          |   | 26,323,243                                           |
|                                                                                                  | **$33,498,945**                                     |   | **$31,916,635**                                      |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Income**

**(Unaudited)**

**For      the Three Months Ended March 31, 2007 and 2006**

|                                                          | **2007**    |   | **2006**    |
|---------------------------------------------------------------|-------------|--------|-------------|
|                                                          |        |   |        |
| **NET                SALES**                                  | $14,507,805 |   | $14,413,649 |
| COST                OF SALES                                  | 5,909,852   |   | 6,299,515   |
| Gross                profit                                   | 8,597,953   |   | 8,114,134   |
|                                                          |        |   |        |
| OPERATING                EXPENSES                             | 6,643,172   |   | 6,072,346   |
| INCOME                FROM OPERATIONS                         | 1,954,781   |   | 2,041,788   |
|                                                          |        |   |        |
| OTHER                (INCOME) EXPENSE:                        |        |   |        |
| Interest                expense                               | -           |   | -           |
| Other,                net                                     | (48,996)    |   | (18,110)    |
| Total                other (income) expense                   | (48,996)    |   | (18,110)    |
|                                                          |        |   |        |
| INCOME                BEFORE INCOME TAXES                     | 2,003,777   |   | 2,059,898   |
|                                                          |        |   |        |
| PROVISION                FOR INCOME TAXES                     | 657,422     |   | 713,635     |
|                                                          |        |   |        |
| NET                INCOME                                     | $1,346,355  |   | $1,346,263  |
|                                                          |        |   |        |
|                                                          |        |   |        |
| NET                INCOME PER COMMON SHARE - BASIC            | $0.12       |   | $0.13       |
|                                                          |        |   |        |
| NET                INCOME PER COMMON SHARE - DILUTED          | $0.12       |   | $0.12       |
|                                                          |        |   |        |
| Weighted                Average Number of Shares Outstanding: |        |   |        |
| Basic                                                         | 10,893,359  |   | 10,756,745  |
| Diluted                                                       | 11,150,246  |   | 11,102,906  |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Cash Flows**

**(Unaudited)**

**For      the Three Months Ended March 31, 2007 and 2006**

|                                                                                                         | **2007**      |   | **2006**      |
|--------------------------------------------------------------------------------------------------------------|---------------|--------|---------------|
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                         |          |   |          |
| Net                income                                                                                    | $1,346,355    |   | $1,346,263    |
| Adjustments                to reconcile net income to net cash                                               |          |   |          |
| provided                by operating activities -                                                            |          |   |          |
| Depreciation                and amortization                                                                 | 105,739       |   | 97,185        |
| Gain                on disposal of assets                                                                    | -             |   | -             |
| Non-cash                stock-based compensation                                                             | 7,626         |   | 22,480        |
| Deferred                income taxes                                                                         | (15,281)      |   | 43,249        |
| Other                                                                                                        | 11,092        |   | (10,594)      |
| Net                changes in assets and liabilities, net of effect of business                acquisitions: |          |   |          |
| Accounts                receivable-trade, net                                                                | (239,162)     |   | (806,423)     |
| Inventory                                                                                                    | (824,948)     |   | 625,395       |
| Income                taxes                                                                                  | 368,418       |   | 520,243       |
| Other                current assets                                                                          | (396,474)     |   | (566,483)     |
| Accounts                payable-trade                                                                        | 726,168       |   | 1,047,227     |
| Accrued                expenses and other liabilities                                                        | (939,387)     |   | (655,252)     |
| Total                adjustments                                                                             | (1,196,209)   |   | 317,027       |
| **Net                cash provided by operating activities**                                                 | **150,146**   |   | **1,663,290** |
|                                                                                                         |          |   |          |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                         |          |   |          |
| Purchase                of property and equipment                                                            | (200,097)     |   | (112,792)     |
| Payments                in connection with businesses acquired                                               | (650,000)     |   | -             |
| Proceeds                from sale of assets                                                                  | 25,339        |   | -             |
| Decrease                (increase) in other assets                                                           | (81,063)      |   | 461           |
| **Net                cash used in investing activities**                                                     | **(905,821)** |   | **(112,331)** |
|                                                                                                         |          |   |          |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                         |          |   |          |
| Payments                on capital lease obligations                                                         | (33,517)      |   | (33,516)      |
| Proceeds                from exercise of stock options and warrants                                          | 50,910        |   | 37,800        |
| **Net                cash provided by financing activities**                                                 | **17,393**    |   | **4,284**     |
|                                                                                                         |          |   |          |
| NET                INCREASE (DECREASE) IN CASH                                                               | (738,294)     |   | 1,555,243     |
|                                                                                                         |          |   |          |
| CASH,                beginning of period                                                                     | 6,739,891     |   | 3,215,727     |
|                                                                                                         |          |   |          |
| CASH,                end of period                                                                           | $6,001,607    |   | $4,770,970    |
|                                                                                                         |          |   |          |
|                                                                                                         |          |   |          |
| SUPPLEMENTAL                DISCLOSURES OF CASH FLOW INFORMATION:                                            |          |   |          |
| Interest                paid during the period                                                               | -             |   | -             |
| Income                tax paid during the period, net of (refunds)                                           | $304,908      |   | $48,761       |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Stockholders' Equity**

**For      the Three Months Ended March 31, 2007 and 2006**

|                                                  |   **Number                of Shares** |   |   **Par****Value** |   |   **Paid-in                Capital** |   |   **Treasury****Stock** |   |   **Retained                Earnings** |   | **Accumulated****Other                Comprehensive Income****(Loss)** |   |    **Total** |   |   **Comprehensive****Income                (Loss)** |
|-------------------------------------------------------|-------------------------------------------------|--------|------------------------------|--------|------------------------------------------------|--------|-----------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------------------------------|--------|-----------------------------|--------|---------------------------------------------------------------|
| 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 optionsexercised |  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 |
|-------------------------------------------------------------------------------|------------|

| BALANCE,                December 31, 2006                                               | 10,885,068   |   | $26,124  |   | $5,292,591   |   | $(25,487) |   | $20,949,540 |   | $80,475 |   | $26,323,243  |   |       |
|-----------------------------------------------------------------------------------------|--------------|--------|----------|--------|--------------|--------|-----------|--------|-------------|--------|---------|--------|--------------|--------|------------|
|                                                                                    |         |   |     |   |         |   |      |   |        |   |    |   |         |   |       |
|  Shares                issued - stock options andwarrants                exercised |  34,500 |   |  83 |   |  50,827 |   |  -   |   |  -     |   |  - |   |  50,910 |   |       |
|  Stock-based                compensation                                           | -            |   | -        |   | 7,626        |   | -         |   | -           |   | -       |   | 7,626        |   |       |
|  Net                income                                                         | -            |   | -        |   | -            |   | -         |   | 1,346,355   |   | -       |   | 1,346,355    |   | $1,346,355 |
|  Translation                adjustment                                             | -            |   | -        |   | -            |   | -         |   | -           |   | 12,181  |   | 12,181       |   | 12,181     |
| BALANCE,                March 31, 2007                                                  | 10,919,568   |   | $26,207  |   | $5,351,044   |   | $(25,487) |   | $22,295,895 |   | $92,656 |   | $27,740,315  |   |       |

| Comprehensive                income for the three months ended March 31, 2007 | $1,358,536 |
|-------------------------------------------------------------------------------|------------|

----

**TANDY      LEATHER FACTORY, INC.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

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

*Inventory*
*.      *

|                                             | **As                of**          |
|--------------------------------------------------|-----------------------------------|
|                                             | **March                31, 2007** |   | **December                31, 2006** |
| Inventory                on hand:                |                              |   |   |
| Finished                goods held for sale      | $16,341,766                       |   | $14,774,445 |
| Raw                materials and work in process | 545,533                           |   | 628,539 |
| Inventory                in transit              | 1,457,228                         |   | 1,766,374 |
|                                             | $18,344,527                       |   | $17,169,358 |

*Goodwill      and Other Intangibles*

|                                        | **Leather                Factory** | **Tandy                Leather** | **Total** |
|---------------------------------------------|------------------------------------|----------------------------------|-----------|
| Balance,                December 31, 2005   | $363,205                           | $383,406                         | $746,611  |
| Acquisitions                and adjustments | -                                  | -                                | -         |
| Foreign                exchange gain/loss   | (708)                              | -                                | (708)     |
| Impairments                                 | -                                  | -                                | -         |
| Balance,                March 31, 2006      | $362,497                           | $383,406                         | $745,903  |

|                                        | **Leather                Factory** | **Tandy                Leather** | **Tota**l |
|---------------------------------------------|------------------------------------|----------------------------------|-----------|
| Balance,                December 31, 2006   | $362,733                           | $383,406                         | $746,139  |
| Acquisitions                and adjustments | 225,000                            | -                                | 225,000   |
| Foreign                exchange gain/loss   | 1,088                              | -                                | 1,088     |
| Impairments                                 | -                                  | -                                | -         |
| Balance,                March 31, 2007      | $588,821                           | $383,406                         | $972,227  |

|                                  | **As                of March 31, 2007** |                            | **As                of December 31, 2006** |
|---------------------------------------|-----------------------------------------|---------------------------------|--------------------------------------------|
|                                  |  **Gross**                         | **Accumulated****Amortization** |  **Net**                              |   |  **Gross** | **Accumulated****Amortization** |  **Net** |
| Trademarks,                Copyrights | $544,369                                | $256,266                        | $288,103                                   |   | $544,369 | $247,193 | $297,176 |
| Non-Compete                Agreements | 153,000                                 | 15,000                          | 138,000                                    |   | 78,000 | 14,500 | 63,500 |
|                                  | $697,369                                | $271,266                        | $426,103                                   |   | $622,369 | $261,693 | $360,676 |

|   | **Wholesale                Leathercraft** | **Retail                Leathercraft** | **Total** |
|--------|-------------------------------------------|----------------------------------------|-----------|
| 2007   | 19,704                                    | 32,337                                 | 51,541    |
| 2008   | 20,954                                    | 31,837                                 | 51,291    |
| 2009   | 20,954                                    | 30,337                                 | 51,291    |
| 2010   | 20,954                                    | 30,337                                 | 51,291    |
| 2011   | 20,027                                    | 30,337                                 | 50,364    |

----

*Revenue      Recognition*
*.*

*Recent      Accounting Pronouncements.*
*“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*

|                                        | 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                                                |
|                                        |                                          |                                      |                                                                                 |                                                    |
| Outstanding,                January 1, 2007 | $2.05                                         | 296,200                                   |                                                                                 |                                                    |
| Granted                                     | -                                             | -                                         |                                                                                 |                                                    |
| Cancelled                                   | -                                             | -                                         |                                                                                 |                                                    |
| Exercised                                   | 1.476                                         | 34,500                                    |                                                                                 |                                                    |
| Outstanding,                March 31, 2007  | $2.13                                         | 261,700                                   | 4.80                                                                                 | $303,069                                                |
| Exercisable,                March 31, 2007  | $1.88                                         | 231,700                                   | 4.56                                                                                 | $239,529                                                |

|                                                                           | **March                31, 2007** | **March                31, 2006** |
|--------------------------------------------------------------------------------|-----------------------------------|-----------------------------------|
| 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                | $7,625                            | $22,480                           |

----

**3.      EARNINGS PER SHARE**

|                                                                                |                                      | **2007** |       | **2006** |
|-------------------------------------------------------------------------------------|-------------------------------------------|----------|------------|----------|
| Net                income                                                           | $1,346,355                                |     | $1,346,263 |
| Numerator                for basic and diluted earnings per share                   | $1,346,355                                |     | $1,346,263 |
|                                                                                |                                      |     |       |     |
| Denominator                for basic earnings per share - weighted-average shares   | 10,893,359                                |     | 10,756,745 |
|                                                                                |                                      |     |       |     |
| Effect                of dilutive securities:                                       |                                      |     |       |
|                                                                                | Stock                options              | 205,304  |       | 285,632  |
|                                                                                | Warrants                                  | 51,583   |       | 60,529   |
| Dilutive                potential common shares                                     | 256,887                                   |     | 346,161    |
|                                                                                |                                      |     |       |     |
| Denominator                for diluted earnings per share - weighted-average shares | 11,150,246                                |     | 11,102,906 |
|                                                                                |                                      |     |       |     |
|                                                                                | Basic                earnings per share   | $0.12    |       | $0.13    |
|                                                                                | Diluted                earnings per share | $0.12    |       | $0.12    |

**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, 2007** |                                      |                       |            |            |
| Net                sales                                | $7,940,487                                | $6,254,219                 | $313,099        | $14,507,805     |
| Gross                profit                             | 4,681,886                                 | 3,780,607                  | 135,460         | 8,597,953       |
| Operating                earnings                       | 1,346,203                                 | 553,748                    | 54,830          | 1,954,781       |
| Interest                expense                         | -                                         | -                          | -               | -               |
| Other,                net                               | 50,434                                    | (1,438)                    | -               | 48,996          |
| Income                before income taxes               | 1,396,637                                 | 552,310                    | 54,830          | 2,003,777       |
|                                                    |                                      |                       |            |            |
| Depreciation                and amortization            | 68,148                                    | 36,371                     | 1,220           | 105,739         |
| Fixed                asset additions                    | 178,797                                   | 21,300                     | -               | 200,097         |
| Total                assets                             | $27,794,341                               | $5,465,363                 | $239,241        | $33,498,945     |

| **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 |

|                               | **2007**    | **2006**    |
|------------------------------------|-------------|-------------|
| United                States       | $12,928,843 | $12,786,578 |
| Canada                             | 1,125,427   | 1,123,042   |
| All                other countries | 453,535     | 504,029     |
|                               | $14,507,805 | $14,413,649 |

----

**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, 2007** |   | **Quarter                Ended March 31, 2006** |
|---------------------------------------|-------------------------------------------------|--------|-------------------------------------------------|
|                                  |  **Sales**                                 |   | **Operating****Income**                         |   |  **Sales** |   | **Operating****Income** |
| Wholesale                Leathercraft | $7,940,487                                      |   | $1,346,203                                      |   | $8,220,397 |   | $1,519,020 |
| Retail                Leathercraft    | 6,254,219                                       |   | 553,748                                         |   | 5,541,082 |   | 495,824 |
| Other                                 | 313,099                                         |   | 54,830                                          |   | 652,170 |   | 26,944 |
| Total                Operations       | $14,507,805                                     |   | $1,954,781                                      |   | $14,413,649 |   | $2,041,788 |

|                      | **2007**   |   | **2006**   | **%                change** |
|---------------------------|------------|--------|------------|-----------------------------|
| Net                income | $1,346,355 |   | $1,346,263 | 0.01%                       |

----

**Wholesale      Leathercraft**

|                                                                                                                                     | **Quarter                ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| **Customer                Group**                                                                                                        | **03/31/07**                     |   | **03/31/06** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 29%                              |   | 25% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 6%                               |   | 7% |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 38%                              |   | 40% |
| MANUFACTURERS                                                                                                                            | 11%                              |   | 10% |
| NATIONAL                ACCOUNTS                                                                                                         | 16%                              |   | 18% |
|                                                                                                                                     | 100%                             |   | 100% |

|                                  | **Quarter                Ended****03/31/07** |   | **Quarter                Ended****03/31/06** |   | **$****change** | **%****change** |
|---------------------------------------|----------------------------------------------|--------|----------------------------------------------|--------|-----------------|-----------------|
| Same                store sales (29)  | $6,624,606                                   |   | $7,112,301                                   |   | $(487,695)      | (6.9)%          |
| New                store (1)          | 185,263                                      |   | -                                            |   | 185,263         | N/A             |
| National                account group | 1,130,618                                    |   | 1,108,097                                    |   | 22,521          | 2.0%            |
|                                  | $7,940,487                                   |   | $8,220,397                                   |   | $(279,911)      | (3.4)%          |

**Retail      Leathercraft **

|                                       | **#****Stores** | **Qtr                ended****03/31/07** | **Qtr                ended****03/31/06** | **$                Incr****(decr)** | **%                Incr****(decr)** |
|--------------------------------------------|-----------------|------------------------------------------|------------------------------------------|-------------------------------------|-------------------------------------|
| Same                (existing) store sales | 53              | $5,529,927                               | $5,490,955                               | $38,972                             | 1%                                  |
| New                store sales             | 12              | 724,292                                  | 50,127                                   | 674,165                             | N/A                                 |
| Total                sales                 | 65              | $6,254,219                               | $5,541,082                               | $713,137                            | 12.9%                               |

|                                                                                                                                     | **Quarter                ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| **Customer                Group**                                                                                                        | **03/31/07**                     |   | **03/31/06** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 65%                              |   | 68% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 7                                |   | 6 |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 26                               |   | 25 |
| NATIONAL                ACCOUNTS                                                                                                         | -                                |   | - |
| MANUFACTURERS                                                                                                                            | 2                                |   | 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 **

----

**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 Ron Morgan, Chief Executive Officer and                President.                                                                                                                                                                                                                                                                                                                              |
| *31.2                           | 13a-14(a)                Certification by Shannon Greene, Chief Financial Officer and                Treasurer.                                                                                                                                                                                                                                                                                                                          |
| *32.1                           | Certification                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                     |
| ____________                    |                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| *Filed                herewith. |                                                                                                                                                                                                                                                                                                                                                                                                                                     |

**SIGNATURES**

|                              | **TANDY                LEATHER FACTORY, INC.**                                                 |
|-----------------------------------|------------------------------------------------------------------------------------------------|
|                              | (Registrant)                                                                                   |
|                              |                                                                                           |
| Date:                May 15, 2007 | By:                /s/                Ron Morgan                                               |
|                              | Ron                Morgan                                                                      |
|                              | Chief                Executive Officer and President                                           |
|                              |                                                                                           |
| Date:                May 15, 2007 | By:                /s/                Shannon L. Greene                                        |
|                              | Shannon                L. Greene                                                               |
|                              | Chief                Financial Officer and Treasurer (Chief Accounting                Officer) |

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