**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 August 7, 2007 |
|------------------------------------------------------------|--------|----------------------------------------------------------|
| Common                  Stock, par value $0.0024 per share |   | 10,969,092                                               |

----

**TANDY      LEATHER FACTORY, INC.**

**TABLE      OF CONTENTS**

|                                                                                                                                         | PAGE                NO. |
|----------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|
|                                                                                                                                         |                    |
| **PART                I. FINANCIAL INFORMATION**                                                                                             |                    |
|                                                                                                                                         |                    |
| Item                1. Financial Statements                                                                                                  |                    |
|                                                                                                                                         |                    |
| Consolidated                Balance Sheets as of June 30, 2007 and December 31, 2006                                                         | 1                       |
|                                                                                                                                         |                    |
| Consolidated                Statements of Income for the three and six months ended June 30,                2007 and                2006     | 2                       |
|                                                                                                                                         |                    |
| Consolidated                Statements of Cash Flows for the six months ended June 30, 2007 and                2006                          | 3                       |
|                                                                                                                                         |                    |
| Consolidated                Statements of Stockholders' Equity for the six months ended June                30, 2007                and 2006 | 4                       |
|                                                                                                                                         |                    |
| Notes                to Consolidated Financial Statements                                                                                    | 5                       |
|                                                                                                                                         |                    |
| Item                2. Management's Discussion and Analysis of Financial Condition and                Results                of Operations   | 9                       |
|                                                                                                                                         |                    |
| Item                3. Quantitative and Qualitative Disclosures About Market                Risk                                             | 12                      |
|                                                                                                                                         |                    |
| Item                4. Controls and Procedures                                                                                               | 12                      |
|                                                                                                                                         |                    |
| **PART                II. OTHER INFORMATION**                                                                                                |                    |
|                                                                                                                                         |                    |
| Item                4. Submission of Matters to a Vote of Security Holders                                                                   | 13                      |
|                                                                                                                                         |                    |
| Item                6. Exhibits                                                                                                              | 13                      |
|                                                                                                                                         |                    |
| **SIGNATURES**                                                                                                                               | 13                      |
|                                                                                                                                         |                    |

----

**PART      I. FINANCIAL INFORMATION **

**Tandy      Leather Factory, Inc.**

**Consolidated      Balance Sheets**

|                                                                                                  | **June                30,****2007****(unaudited)** |   | **December                31,****2006****(audited)** |
|-------------------------------------------------------------------------------------------------------|----------------------------------------------------|--------|------------------------------------------------------|
| **ASSETS**                                                                                            |                                               |   |                                                 |
| CURRENT                ASSETS:                                                                        |                                               |   |                                                 |
| Cash                                                                                                  | $3,720,098                                         |   | $6,739,891                                           |
| Accounts                receivable-trade, net of allowance for doubtful accounts                      |                                               |   |                                                 |
| of                $188,000 and $149,000 in 2007 and 2006, respectively                                | 2,978,801                                          |   | 2,599,279                                            |
| Inventory                                                                                             | 20,179,588                                         |   | 17,169,358                                           |
| Prepaid                income taxes                                                                   | 487,096                                            |   | -                                                    |
| Deferred                income taxes                                                                  | 297,306                                            |   | 266,018                                              |
| Other                current assets                                                                   | 1,098,695                                          |   | 1,089,258                                            |
| Total                current assets                                                                   | 28,761,584                                         |   | 27,863,804                                           |
|                                                                                                  |                                               |   |                                                 |
| PROPERTY                AND EQUIPMENT, at cost                                                        | 6,977,791                                          |   | 6,865,946                                            |
| Less                accumulated depreciation and amortization                                         | (4,980,186)                                        |   | (4,989,341)                                          |
|                                                                                                  | 1,997,605                                          |   | 1,876,605                                            |
|                                                                                                  |                                               |   |                                                 |
| GOODWILL                                                                                              | 981,809                                            |   | 746,139                                              |
| OTHER                INTANGIBLES, net of accumulated amortization of                                  |                                               |   |                                                 |
| $281,000                and $262,000 in 2007 and 2006, respectively                                   | 416,530                                            |   | 360,676                                              |
| OTHER                assets                                                                           | 1,184,970                                          |   | 1,069,411                                            |
|                                                                                                  | **$33,342,498**                                    |   | **$31,916,635**                                      |
|                                                                                                  |                                               |   |                                                 |
|                                                                                                  |                                               |   |                                                 |
|                                                                                                  |                                               |   |                                                 |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY**                                               |                                               |   |                                                 |
| CURRENT                LIABILITIES:                                                                   |                                               |   |                                                 |
| Accounts                payable-trade                                                                 | $1,963,588                                         |   | $1,776,646                                           |
| Accrued                expenses and other liabilities                                                 | 2,789,484                                          |   | 3,424,010                                            |
| Income                taxes payable                                                                   | -                                                  |   | 59,392                                               |
| Current                maturities of capital lease obligations                                        | 44,689                                             |   | 111,723                                              |
| Total                current liabilities                                                              | 4,797,761                                          |   | 5,371,771                                            |
|                                                                                                  |                                               |   |                                                 |
| DEFERRED                INCOME TAXES                                                                  | 252,848                                            |   | 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;                         |                                               |   |                                                 |
| 10,960,951                and 10,885,068 shares issued at 2007 and 2006,                respectively; |                                               |   |                                                 |
| 10,955,092                and 10,879,209 outstanding at 2007 and 2006, respectively                   | 26,306                                             |   | 26,124                                               |
| Paid-in                capital                                                                        | 5,362,620                                          |   | 5,292,591                                            |
| Retained                earnings                                                                      | 22,692,582                                         |   | 20,949,540                                           |
| Treasury                stock (5,859 shares at cost)                                                  | (25,487)                                           |   | (25,487)                                             |
| Accumulated                other comprehensive income                                                 | 235,868                                            |   | 80,475                                               |
| Total                stockholders' equity                                                             | 28,291,889                                         |   | 26,323,243                                           |
|                                                                                                  | **$33,342,498**                                    |   | **$31,916,635**                                      |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Income**

**(Unaudited)**

**For      the Three and Six Months Ended June 30, 2007 and 2006**

|                                        | **THREE                MONTHS** |   | **SIX                MONTHS** |
|---------------------------------------------|---------------------------------|--------|-------------------------------|
|                                        | **2007**                        |   | **2006**                      |   | **2007** |   | **2006** |
| NET                SALES                    | $13,376,987                     |   | $13,393,082                   |   | $27,884,792 |   | $27,806,731 |
|                                        |                            |   |                          |   |   |   |   |
| COST                OF SALES                | 5,691,318                       |   | 5,670,782                     |   | 11,601,170 |   | 11,970,297 |
|                                        |                            |   |                          |   |   |   |   |
| Gross                profit                 | 7,685,669                       |   | 7,722,300                     |   | 16,283,622 |   | 15,836,434 |
|                                        |                            |   |                          |   |   |   |   |
| OPERATING                EXPENSES           | 6,981,318                       |   | 6,023,549                     |   | 13,624,491 |   | 12,095,895 |
|                                        |                            |   |                          |   |   |   |   |
| INCOME                FROM OPERATIONS       | 704,351                         |   | 1,698,751                     |   | 2,659,131 |   | 3,740,539 |
|                                        |                            |   |                          |   |   |   |   |
| OTHER                INCOME (EXPENSE):      |                            |   |                          |   |   |   |   |
| Interest                expense             | -                               |   | -                             |   | - |   | - |
| Other,                net                   | 27,522                          |   | 29,421                        |   | 76,514 |   | 47,530 |
| Total                other income (expense) | 27,522                          |   | 29,421                        |   | 76,514 |   | 47,530 |
|                                        |                            |   |                          |   |   |   |   |
| INCOME                BEFORE INCOME TAXES   | 731,873                         |   | 1,728,172                     |   | 2,735,645 |   | 3,788,069 |
|                                        |                            |   |                          |   |   |   |   |
| PROVISION                FOR INCOME TAXES   | 335,181                         |   | 595,678                       |   | 992,603 |   | 1,309,313 |
|                                        |                            |   |                          |   |   |   |   |
| NET                INCOME                   | $396,692                        |   | $1,132,494                    |   | $1,743,042 |   | $2,478,756 |
|                                        |                            |   |                          |   |   |   |   |

| NET                INCOME PER COMMON SHARE-BASIC                  |  $                0.04 |   |  $                0.10 |   |  $                0.16 |   |  $                0.23 |
|-------------------------------------------------------------------|-----------------------------|--------|-----------------------------|--------|-----------------------------|--------|-----------------------------|
| NET                INCOME PER COMMON SHARE-DILUTED                |  $                0.04 |   |  $                0.10 |   |  $                0.16 |   |  $                0.22 |
|                                                              |                        |   |                        |   |                        |   |                        |
|                                                              |                        |   |                        |   |                        |   |                        |
| **Weighted                Average Number of Shares Outstanding:** |                        |   |                        |   |                        |   |                        |
| Basic                                                             | 10,945,661                  |   | 10,790,661                  |   | 10,931,201                  |   | 10,773,772                  |
| Diluted                                                           | 11,145,066                  |   | 11,112,475                  |   | 11,159,188                  |   | 11,107,692                  |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Cash Flows**

**(Unaudited)**

**For      the Six Months Ended June 30, 2007 and 2006**

|                                                                 | **2007**    |   | **2006**    |
|----------------------------------------------------------------------|-------------|--------|-------------|
| CASH                FLOWS FROM OPERATING ACTIVITIES:                 |        |   |        |
| Net                income                                            | $1,743,042  |   | $2,478,756  |
| Adjustments                to reconcile net income to net            |        |   |        |
| cash                provided by (used in) operating activities-      |        |   |        |
| Depreciation                & amortization                       | 233,742     |   | 191,481     |
| Gain                on disposal of assets                            | -           |   | (1,750)     |
| Non-cash                stock-based compensation                     | 15,251      |   | 44,960      |
| Deferred                income taxes                                 | (61)        |   | 27,067      |
| Other                                                                | 144,723     |   | 37,337      |
| Net                changes in assets and liabilities:                |        |   |        |
| Accounts                receivable-trade, net                        | (323,170)   |   | (555,007)   |
| Inventory                                                            | (2,660,008) |   | (1,251,365) |
| Income                taxes                                          | (546,488)   |   | (87,213)    |
| Other                current assets                                  | (25,420)    |   | (207,521)   |
| Accounts                payable                                      | 138,298     |   | 1,175,499   |
| Accrued                expenses and other liabilities                | (634,526)   |   | 702,086     |
| Total                adjustments                                     | (3,657,660) |   | 75,574      |
|                                                                 |        |   |        |
| Net                cash provided by (used in) operating activities   | (1,914,618) |   | 2,554,330   |
|                                                                 |        |   |        |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                 |        |   |        |
| Purchase                of property and equipment                    | (352,880)   |   | (229,775)   |
| Payments                in connection with businesses acquired       | (650,000)   |   | -           |
| Proceeds                from sale of assets                          | 25,338      |   | 1,750       |
| Decrease                (increase) in other assets                   | (115,559)   |   | (24,966)    |
|                                                                 |        |   |        |
| Net                cash used in investing activities                 | (1,093,101) |   | (252,991)   |
|                                                                 |        |   |        |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                 |        |   |        |
| Payments                on capital lease obligations                 | (67,034)    |   | (67,033)    |
| Proceeds                from issuance of common stock                | 54,960      |   | 72,435      |
|                                                                 |        |   |        |
| Net                cash provided by (used in) financing activities   | (12,074)    |   | 5,402       |
|                                                                 |        |   |        |
| NET                CHANGE IN CASH                                    | (3,019,793) |   | 2,306,741   |
|                                                                 |        |   |        |
| CASH,                beginning of period                             | 6,739,891   |   | 3,215,727   |
|                                                                 |        |   |        |
| CASH,                end of period                                   | $3,720,098  |   | $5,522,468  |
|                                                                 |        |   |        |
| SUPPLEMENTAL                DISCLOSURES OF CASH FLOW INFORMATION:    |        |   |        |
| Interest                paid during the period                       | -           |   | -           |
| Income                taxes paid during the period, net of (refunds) | $1,548,067  |   | $1,285,653  |

----

**Tandy      Leather Factory, Inc.**

**Consolidated      Statements of Stockholders' Equity**

**For      the Six Months Ended June 30, 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                                         | 10,735,976                                      |   | $25,780                      |   | $4,988,445                                     |   | $(25,487)                         |   | $16,172,475                                      |   | $96,642                                                          |   | $21,257,855                 |   |                                                          |
|                                                                              |                                            |   |                         |   |                                           |   |                              |   |                                             |   |                                                             |   |                        |   |                                                          |
| Shares                issued - stock options andwarrants                exercised |  69,865                                    |   |  168                    |   |  72,267                                   |   |  -                           |   |  -                                          |   |  -                                                          |   |  72,435                |   |                                                          |
|  Stock-based                compensation                                     | -                                               |   | -                            |   | 44,960                                         |   | -                                 |   | -                                                |   | -                                                                |   | 44,960                      |   |                                                          |
|  Net                income                                                   | -                                               |   | -                            |   | -                                              |   | -                                 |   | 2,478,756                                        |   | -                                                                |   | 2,478,756                   |   | $2,478,756                                                    |
|  Translation                adjustment                                       | -                                               |   | -                            |   | -                                              |   | -                                 |   | -                                                |   | 41,866                                                           |   | 41,866                      |   | 41,866                                                        |
| BALANCE,                June 30, 2006                                             | 10,805,841                                      |   | $25,948                      |   | $5,105,672                                     |   | $(25,487)                         |   | $18,651,231                                      |   | $138,508                                                         |   | $23,895,872                 |   |                                                          |

| Comprehensive                income for the six months ended June 30, 2006 | $2,520,622 |
|----------------------------------------------------------------------------|------------|

| BALANCE,                December 31, 2006                                         | 10,879,209   |   | $26,124   |   | $5,292,591   |   | $(25,487) |   | $20,949,540 |   | $80,475  |   | $26,323,243  |   |       |
|-----------------------------------------------------------------------------------|--------------|--------|-----------|--------|--------------|--------|-----------|--------|-------------|--------|----------|--------|--------------|--------|------------|
|                                                                              |         |   |      |   |         |   |      |   |        |   |     |   |         |   |       |
| Shares                issued - stock options andwarrants                exercised |  75,883 |   |  182 |   |  54,778 |   |  -   |   |  -     |   |  -  |   |  54,960 |   |       |
|  Stock-based                compensation                                     | -            |   | -         |   | 15,251       |   | -         |   | -           |   | -        |   | 15,251       |   |       |
|  Net                income                                                   | -            |   | -         |   | -            |   | -         |   | 1,743,042   |   | -        |   | 1,743,042    |   | $1,743,042 |
|  Translation                adjustment                                       | -            |   | -         |   | -            |   | -         |   | -           |   | 155,393  |   | 155,393      |   | 155,393    |
| BALANCE,                June 30, 2007                                             | 10,955,092   |   | $26,306   |   | $5,362,620   |   | $(25,487) |   | $22,692,582 |   | $235,868 |   | $28,291,889  |   |       |

| Comprehensive                income for the six months ended June 30, 2007 | $1,898,435 |
|----------------------------------------------------------------------------|------------|

----

**TANDY      LEATHER FACTORY, INC.**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

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

*Inventory*
*.      *

|                                             | **As                of**         |
|--------------------------------------------------|----------------------------------|
|                                             | **June                30, 2007** |   | **December                31, 2006** |
| Inventory                on hand:                |                             |   |   |
| Finished                goods held for sale      | $17,990,389                      |   | $14,774,445 |
| Raw                materials and work in process | 622,227                          |   | 628,539 |
| Inventory                in transit              | 1,566,972                        |   | 1,766,374 |
|                                             | $20,179,588                      |   | $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   | 4,527                              | -                                | 4,527     |
| Impairments                                 | -                                  | -                                | -         |
| Balance,                June 30, 2006       | $367,732                           | $383,406                         | $751,138  |

|                                        | **Leather                Factory** | **Tandy                Leather** | **Total** |
|---------------------------------------------|------------------------------------|----------------------------------|-----------|
| Balance,                December 31, 2006   | $362,733                           | $383,406                         | $746,139  |
| Acquisitions                and adjustments | 225,000                            | -                                | 225,000   |
| Foreign                exchange gain/loss   | 10,670                             | -                                | 10,670    |
| Impairments                                 | -                                  | -                                | -         |
| Balance,                June 30, 2007       | $598,403                           | $383,406                         | $981,809  |

----

|                                  | **As                of June 30, 2007** |                            | **As                of December 31, 2006** |
|---------------------------------------|----------------------------------------|---------------------------------|--------------------------------------------|
|                                  |  **Gross**                        | **Accumulated****Amortization** |  **Net**                              |   |  **Gross** | **Accumulated****Amortization** |  **Net** |
| Trademarks,                Copyrights | $544,369                               | $265,339                        | $279,030                                   |   | $544,369 | $247,193 | $297,176 |
| Non-Compete                Agreements | 153,000                                | 15,500                          | 137,500                                    |   | 78,000 | 14,500 | 63,500 |
|                                  | $697,369                               | $280,839                        | $416,530                                   |   | $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*

|                                            | **Three                Months Ended** | **Six                Months Ended** |
|-------------------------------------------------|---------------------------------------|-------------------------------------|
|                                            | **June                30, 2007**      | **June                30, 2006**    | **June                30, 2007** | **June                30, 2006** |
| Share-based                compensation expense | $7,626                                | $22,480                             | $15,251 | $44,960 |

----

|                                        | **Weighted                Average Exercise****Price** |  **#                of****Shares** | **Weighted                Average****Remaining                Contractual Term (in years)** | **Aggregate****Intrinsic****Value** |
|---------------------------------------------|-------------------------------------------------------|-----------------------------------------|---------------------------------------------------------------------------------------------|-------------------------------------|
| Outstanding,                January 1, 2007 | $2.050                                                | 296,200                                 |                                                                                        |                                |
| Granted                                     | -                                                     | -                                       |                                                                                        |                                |
| Cancelled                                   | -                                                     | -                                       |                                                                                        |                                |
| Exercised                                   | 1.466                                                 | 37,500                                  |                                                                                        |                                |
| Outstanding,                June 30, 2007   | $2.140                                                | 258,700                                 | 4.86                                                                                        | $300,660                            |
| Exercisable,                June 30, 2007   | $1.880                                                | 228,700                                 | 4.62                                                                                        | $237,120                            |

|                                                                           | **June                30, 2007** | **June                30, 2006** |
|--------------------------------------------------------------------------------|----------------------------------|----------------------------------|
| Weighted                average grant-date fair value of stock options granted | N/A                              | N/A                              |
| Total                fair value of stock options vested                        | -                                | $71,228                          |
| Total                intrinsic value of stock options exercised                | $32,399                          | $43,168                          |

**3.      EARNINGS PER SHARE**

|                                            | **Three                Months Ended**                                                            |             | **Six                Months Ended** |
|-------------------------------------------------|--------------------------------------------------------------------------------------------------|------------------|-------------------------------------|
|                                            | **June                30,**                                                                      |             | **June                30,**         |
|                                            |                                                                                             | **2007**         |                                | **2006** |   | **2007** |   | **2006** |
| Numerator:                                      |                                                                                             |             |                                |   |   |   |   |   |
|                                            | Net                income                                                                        | $396,692         |                                | $1,132,494 |   | $1,743,042 |   | $2,478,756 |
|                                            | Numerator                for basic and diluted earnings per share                                | 396,692          |                                | 1,132,494 |   | 1,743,042 |   | 2,478,756 |
| Denominator:                                    |                                                                                             |             |                                |   |   |   |   |   |
|                                            | Weighted-average                shares outstanding-basic                                         | 10,945,661       |                                | 10,790,661 |   | 10,931,201 |   | 10,773,772 |
|                                            |                                                                                             |             |                                |   |   |   |   |   |
| Effect                of dilutive securities:   |                                                                                             |             |                                |   |   |   |   |   |
|                                            | Stock                options                                                                     | 185,394          |                                | 271,766 |   | 195,294 |   | 278,660 |
|                                            | Warrants                                                                                         | 14,011           |                                | 50,048 |   | 32,693 |   | 55,260 |
| Dilutive                potential common shares |                                                                                             | 199,405          |                                | 321,814 |   | 227,987 |   | 333,920 |
|                                            | Denominator                for diluted earnings per share-weighted-average                shares |  11,145,066 |                                |  11,112,475 |   |  11,159,188 |   |  11,107,692 |
|                                            |                                                                                             |             |                                |   |   |   |   |   |
|                                            | Basic                earnings per share                                                          | $0.04            |                                | $0.10 |   | $0.16 |   | $0.23 |
|                                            | Diluted                earnings per share                                                        | $0.04            |                                | $0.10 |   | $0.16 |   | $0.22 |

**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 June 30, 2007** |                          |                       |            |            |
| Net                sales                               | $7,176,153                    | $5,842,198                 | $358,636        | $13,376,987     |
| Gross                profit                            | 4,088,106                     | 3,448,293                  | 149,270         | 7,685,669       |
| Operating                earnings                      | 411,368                       | 265,964                    | 27,019          | 704,351         |
| Interest                expense                        | -                             | -                          | -               | -               |
| Other,                net                              | 21,419                        | 6,103                      | -               | 27,522          |
| Income                before income taxes              | 432,787                       | 272,067                    | 27,019          | 731,873         |
|                                                   |                          |                       |            |            |
| Depreciation                and amortization           | 81,562                        | 46,441                     | -               | 128,003         |
| Fixed                asset additions                   | 55,453                        | 97,130                     | 200             | 152,783         |
| Total                assets                            | $27,394,503                   | $5,722,016                 | $225,979        | $33,342,498     |

| **For                the quarter ended June 30, 2006** |        |       |     |        |
|--------------------------------------------------------|-------------|------------|----------|-------------|
| Net                sales                               | $7,748,892  | $5,196,198 | $447,992 | $13,393,082 |
| Gross                profit                            | 4,439,475   | 3,196,987  | 85,838   | 7,722,300   |
| Operating                earnings                      | 1,245,696   | 464,538    | (11,483) | 1,698,751   |
| Interest                expense                        | -           | -          | -        | -           |
| Other,                net                              | 37,016      | (7,595)    | -        | 29,421      |
| Income                before income taxes              | 1,282,712   | 456,943    | (11,483) | 1,728,172   |
|                                                   |        |       |     |        |
| Depreciation                and amortization           | 57,181      | 35,805     | 1,310    | 94,296      |
| Fixed                asset additions                   | 83,907      | 33,076     | -        | 116,983     |
| Total                assets                            | $24,600,851 | $4,854,055 | $604,406 | $30,059,312 |

|                                                      | **Wholesale****Leathercraft** | **Retail****Leathercraft** |  **Other** |  **Total** |
|-----------------------------------------------------------|-------------------------------|----------------------------|-----------------|-----------------|
| **For                the six months ended June 30, 2007** |                          |                       |            |            |
| Net                sales                                  | $15,116,639                   | $12,096,416                | $671,737        | $27,884,792     |
| Gross                profit                               | 8,769,992                     | 7,228,900                  | 284,730         | 16,283,622      |
| Operating                earnings                         | 1,757,571                     | 819,712                    | 81,848          | 2,659,131       |
| Interest                expense                           | -                             | -                          | -               | -               |
| Other,                net                                 | 71,849                        | 4,665                      | -               | 76,514          |
| Income                before income taxes                 | 1,829,420                     | 824,377                    | 81,848          | 2,735,645       |
|                                                      |                          |                       |            |            |
| Depreciation                and amortization              | 152,697                       | 82,812                     | (1,767)         | 233,742         |
| Fixed                asset additions                      | 234,250                       | 118,430                    | 200             | 352,880         |
| Total                assets                               | $27,394,503                   | $5,722,016                 | $225,979        | $33,342,498     |

| **For                the six months ended June 30, 2006** |        |        |     |        |
|-----------------------------------------------------------|-------------|-------------|----------|-------------|
| Net                sales                                  | $16,137,156 | $10,737,280 | $932,295 | $27,806,731 |
| Gross                profit                               | 9,082,575   | 6,538,828   | 215,031  | 15,836,434  |
| Operating                earnings                         | 2,764,714   | 960,362     | 15,463   | 3,740,539   |
| Interest                expense                           | -           | -           | -        | -           |
| Other,                net                                 | 64,285      | (16,755)    | -        | 47,530      |
| Income                before income taxes                 | 2,828,999   | 943,607     | 15,463   | 3,788,069   |
|                                                      |        |        |     |        |
| Depreciation                and amortization              | 119,321     | 69,539      | 2,621    | 191,481     |
| Fixed                asset additions                      | 128,477     | 101,136     | 162      | 229,775     |
| Total                assets                               | $24,600,851 | $4,854,055  | $604,406 | $30,059,312 |

| **Three                months ended June 30,** | **2007**    | **2006**    |
|------------------------------------------------|-------------|-------------|
| United                States                   | $11,842,509 | $12,042,890 |
| Canada                                         | 1,076,195   | 1,022,573   |
| All                other countries             | 458,283     | 327,619     |
|                                           | $13,376,987 | $13,393,082 |

| **Six                months ended June 30,** | **2007**    | **2006**    |
|----------------------------------------------|-------------|-------------|
| United                States                 | $24,771,353 | $24,829,468 |
| Canada                                       | 2,201,622   | 2,145,615   |
| All                other countries           | 911,817     | 831,648     |
|                                         | $27,884,792 | $27,806,731 |

----

| **5.  ** | **SUBSEQUENT                EVENT** |
|--------------------|-------------------------------------|

**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**

*Three      Months Ended June 30, 2007 and 2006*

|                                  | **Quarter                Ended June 30, 2007** |   | **Quarter                Ended June 30, 2006** |
|---------------------------------------|------------------------------------------------|--------|------------------------------------------------|
|                                  |  **Sales**                                |   | **Operating****Income**                        |   |  **Sales** |   | **Operating****Income** |
| Wholesale                Leathercraft | $7,176,153                                     |   | $411,368                                       |   | $7,571,541 |   | $1,245,696 |
| Retail                Leathercraft    | 5,842,198                                      |   | 265,964                                        |   | 5,196,198 |   | 464,538 |
| Other                                 | 358,636                                        |   | 27,09                                          |   | 625,343 |   | (11,483) |
| Total                Operations       | $13,376,987                                    |   | $704,351                                       |   | $13,393,082 |   | $1,698,751 |

----

|                      | **2007** |   | **2006**   | **%                Change** |
|---------------------------|----------|--------|------------|-----------------------------|
| Net                income | $396,692 |   | $1,132,494 | (64.9)%                     |

**Wholesale        Leathercraft**

|                                                                                                                                     | **Quarter                ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| **Customer                Group**                                                                                                        | **06/30/07**                     |   | **06/30/06** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 21%                              |   | 22% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 9%                               |   | 8% |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 42%                              |   | 40% |
| MANUFACTURERS                                                                                                                            | 11%                              |   | 11% |
| NATIONAL                ACCOUNTS                                                                                                         | 17%                              |   | 19% |
|                                                                                                                                     | 100%                             |   | 100% |

|                                  | **Quarter                Ended****06/30/07** |   | **Quarter                Ended****06/30/06** |   | **$****change** | **%****change** |
|---------------------------------------|----------------------------------------------|--------|----------------------------------------------|--------|-----------------|-----------------|
| Same                store sales (29)  | $6,112,589                                   |   | $6,441,428                                   |   | $(328,839)      | (5.1)%          |
| New                store (1)          | 203,874                                      |   | -                                            |   | 203,874         | N/A             |
| National                account group | 859,690                                      |   | 1,130,113                                    |   | (270,423)       | (23.9)%         |
|                                  | $7,176,153                                   |   | $7,571,541                                   |   | $(395,388)      | (5.2)%          |

**Retail      Leathercraft **

|                                       | **#                Stores** | **Qtr                Ended****06/30/07** | **Qtr                Ended****06/30/06** | **$                Incr****(Decr)** | **%                Incr****(Decr)** |
|--------------------------------------------|-----------------------------|------------------------------------------|------------------------------------------|-------------------------------------|-------------------------------------|
| Same                (existing) store sales | 56                          | $5,318,712                               | $5,085,747                               | $232,965                            | 4.5%                                |
| New                store sales             | 12                          | 523,486                                  | 110,451                                  | 413,035                             | N/A                                 |
| Total                sales                 | 68                          | $5,842,198                               | $5,196,198                               | $646,000                            | 12.4%                               |

|                                                                                                                                     | **Quarter                Ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| **Customer                Group**                                                                                                        | **06/30/07**                     |   | **06/30/06** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 61%                              |   | 63% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 10                               |   | 12 |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 26                               |   | 24 |
| NATIONAL                ACCOUNTS                                                                                                         | -                                |   | - |
| MANUFACTURERS                                                                                                                            | 3                                |   | 1 |
|                                                                                                                                     | 100%                             |   | 100% |

**Other        (Roberts, Cushman) **

----

**Other      Expenses **

*Six      Months Ended June 30, 2007 and 2006*

|                                  | **Six                Months Ended June 30, 2007** |   | **Six                Months Ended June 30, 2006** |
|---------------------------------------|---------------------------------------------------|--------|---------------------------------------------------|
|                                  |  **Sales**                                   |   | **Operating****Income**                           |   |  **Sales** |   | **Operating****Income** |
| Wholesale                Leathercraft | $15,116,639                                       |   | $1,757,571                                        |   | $15,791,938 |   | $2,764,714 |
| Retail                Leathercraft    | 12,096,416                                        |   | 819,712                                           |   | 10,737,280 |   | 960,362 |
| Other                                 | 671,737                                           |   | 81,848                                            |   | 1,277,513 |   | 15,463 |
| Total                Operations       | $27,884,792                                       |   | $2,659,131                                        |   | $27,806,731 |   | $3,740,539 |

|                      | **2007**   |   | **2006**   | **%                change** |
|---------------------------|------------|--------|------------|-----------------------------|
| Net                income | $1,743,042 |   | $2,478,756 | (29.7)%                     |

**Wholesale      Leathercraft**

|                                  | **Six                Months Ended 06/30/07** |   | **Six                Months Ended 06/30/06** |   |  **$                Change** |  **%                Change** |
|---------------------------------------|----------------------------------------------|--------|----------------------------------------------|--------|-----------------------------------|-----------------------------------|
| Same                store sales (29)  | $12,737,194                                  |   | $13,553,728                                  |   | $(816,534)                        | (6.0)%                            |
| New                store (1)          | 389,137                                      |   | -                                            |   | 389,137                           | N/A                               |
| National                account group | 1,990,308                                    |   | 2,238,210                                    |   | (247,902)                         | (11.1)%                           |
|                                  | $15,116,639                                  |   | $15,791,938                                  |   | $(675,299)                        | (4.3)%                            |

|                                                                                                                                     | **Six                Months Ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
| **Customer                Group**                                                                                                        | **06/30/07**                        |   | **06/30/06** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 25%                                 |   | 24% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 8%                                  |   | 8% |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 40%                                 |   | 40% |
| MANUFACTURERS                                                                                                                            | 11%                                 |   | 10% |
| NATIONAL                ACCOUNTS                                                                                                         | 16%                                 |   | 18% |
|                                                                                                                                     | 100%                                |   | 100% |

**Retail      Leathercraft **

|                                       |  **#                Stores** | **Six                Months Ended****06/30/07** | **Six                Months Ended****06/30/06** | **$                Incr****(Decr)** | **%                Incr****(Decr)** |
|--------------------------------------------|-----------------------------------|-------------------------------------------------|-------------------------------------------------|-------------------------------------|-------------------------------------|
| Same                (existing) store sales | 53                                | $10,711,743                                     | $10,442,131                                     | $269,612                            | 2.6%                                |
| New                store sales             | 15                                | 1,384,673                                       | 295,149                                         | 1,089,524                           | N/A                                 |
| Total                sales                 | 68                                | $12,096,416                                     | $10,737,280                                     | $1,359,136                          | 12.7%                               |

----

|                                                                                                                                     | **Six                Months Ended** |
|------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
| **Customer                Group**                                                                                                        | **06/30/07**                        |   | **06/30/06** |
| RETAIL                (end                users, consumers, individuals)                                                                 | 63%                                 |   | 63% |
| INSTITUTION                (prisons,                prisoners, hospitals, schools, youth organizations, etc.)                            | 8                                   |   | 9 |
| WHOLESALE                (resellers                & distributors, saddle & tack shops, authorized dealers,                etc.) | 27                                  |   | 26 |
| NATIONAL                ACCOUNTS                                                                                                         | -                                   |   | - |
| MANUFACTURERS                                                                                                                            | 2                                   |   | 2 |
|                                                                                                                                     | 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      4. Submission of Matters to a Vote of Security Holders**

|                                | **For**   | **Against** | **Abstaining** |
|-------------------------------------|-----------|-------------|----------------|
| Shannon                L. Greene    | 7,503,968 | 207,193     | -              |
| T.                Field Lange       | 7,578,268 | 132,893     | -              |
| Joseph                R. Mannes     | 7,683,968 | 27,193      | -              |
| L.                Edward Martin III | 7,578,068 | 133,093     | -              |
| Ronald                C. Morgan     | 7,684,568 | 26,593      | -              |
| Michael                A. Nery      | 7,684,168 | 26,993      | -              |
| Wray                Thompson        | 7,685,568 | 25,593      | -              |

| **For**   | **Against** | **Abstaining** |
|-----------|-------------|----------------|
| 5,240,889 | 314,946     | 193,859        |

**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                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.                                                                       |
| 10.1                            | 2007                Director Non-qualified Stock Option Plan of Tandy Leather Factory,                Inc.                dated March 22, 2007, filed as an Exhibit to Tandy Leather Factory,                Inc.’s                Definitive Proxy Statement filed with the Securities and Exchange                Commission on April 18, 2007 and incorporated by reference                herein.                               |
| 10.2                            | Agreement                of Purchase and Sale, dated June 25, 2007, by and between Standard                Motor                Products, Inc. and Tandy Leather Factory, L.P., filed as Exhibit                10.4 to                Form 8-K filed with the Securities and Exchange Commission on August                6,                2007 and incorporated by reference herein.                                                   |
| *31.1                           | 13a-14(a)                Certification by Ronald C. 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:                August 14, 2007 | By:                /s/                Ronald C. Morgan                                         |
|                                 | Ronald                C. Morgan                                                                |
|                                 | Chief                Executive Officer and President                                           |
|                                 |                                                                                           |
| Date:                August 14, 2007 | By:                /s/                Shannon L. Greene                                        |
|                                 | Shannon                L. Greene                                                               |
|                                 | Chief                Financial Officer and Treasurer (Chief Accounting                Officer) |

----