UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    Form 10-Q

(Mark One)

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

       For the quarterly period ended March 31, 1997

                                       OR

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

       For the transition period from ________ to ________

                         Commission File Number 1-12368

                            THE LEATHER FACTORY, INC.

             (Exact name of registrant as specified in its charter)

           Delaware                                          75-2543540
(State  or  other   jurisdiction  of                     (I.R.S. Employer
 incorporation or organization)                           Identification Number)

                3847 East Loop 820 South, Ft. Worth, Texas 76119
               (Address of principal executive offices) (Zip code)

                                 (817) 496-4414
              (Registrant's telephone number, including area code)


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to by filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes X No ____

      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

               Class                       Shares outstanding as of May 15, 1996
----------------------------------------   -------------------------------------
Common Stock, par value $.0024 per share                  9,853,161



                                       1
<PAGE>

                            THE LEATHER FACTORY, INC.

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997


                                TABLE OF CONTENTS


                                                                        PAGE NO.

PART I. FINANCIAL INFORMATION

  Item 1. Financial Statements

    Consolidated Balance Sheets
     March 31, 1997 and December 31, 1996 ..............................       3

    Consolidated Statements of Income
     Three months ended March 31, 1997 and 1996 ........................       4

    Consolidated Statements of Cash Flow
     Three months ended March 31, 1997 and 1996 ........................       5

    Consolidated Statement of Stockholders' Equity
     Three months ended March 31, 1997 .................................       6

    Notes to Consolidated Financial Statements .........................       7


  Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations ............................    8-10



PART II. OTHER INFORMATION

  Item 6. Exhibits and Reports on Form 8-K .............................      11


SIGNATURES .............................................................      12


EXHIBIT INDEX ..........................................................   13-17











                                       2
<PAGE>
                            THE LEATHER FACTORY, INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S>                                                                            <C>                   <C>
                                                                                    March 31,           December 31,
                                                                                      1997                   1996
                                                                               -----------------      -----------------
                                ASSETS                                            (UNAUDITED)
     CURRENT ASSETS:
        Cash                                                                   $                      $
                                                                                        327,064                488,192
        Accounts receivable-trade, net of allowance for
            doubtful accounts of $82,000 and $54,000
             in 1997 and 1996, respectively
                                                                                      2,192,990              1,947,698
        Inventory
                                                                                      7,333,428              7,737,320
        Prepaid income taxes
                                                                                        521,749                538,458
        Deferred income taxes
                                                                                        137,088                126,955
        Other current assets
                                                                                        504,898                542,809
                                                                               -----------------      -----------------
                       Total current assets
                                                                                     11,017,217             11,381,432
                                                                               -----------------      -----------------
     PROPERTY AND EQUIPMENT, at cost
                                                                                      2,770,921              2,672,253
       Less-accumulated depreciation and amortization
                                                                                    (1,344,606)            (1,273,609)
                                                                               -----------------      -----------------
                       Property and equipment, net
                                                                                      1,426,315              1,398,644
     GOODWILL and other, net of accumulated amortization of
        $714,000 and $660,000 in 1997 and 1996, respectively
                                                                                      5,454,179              5,484,471
                                                                               -----------------      -----------------
                                                                               $                      $
                                                                                     17,897,711             18,264,547
                                                                               =================      =================
             LIABILITIES AND STOCKHOLDERS' EQUITY
     CURRENT LIABILITIES:
        Accounts payable                                                       $        1,201,506      $       940,549
        Accrued expenses and other liabilities                                            453,800              597,007
        Income taxes payable                                                                    -                    -
        Notes payable and current maturities of
            long-term debt                                                              8,061,502            8,549,366
                                                                                ------------------      ---------------
                       Total current liabilities                                        9,716,808           10,086,922
                                                                                ------------------      ---------------

     DEFERRED INCOME TAXES                                                                134,309              137,310

     NOTES PAYABLE AND LONG-TERM DEBT,
        net of current maturities                                                          63,621               17,378

     COMMITMENTS AND CONTINGENCIES

     STOCKHOLDERS' EQUITY:
        Preferred stock, $0.10 par value; 20,000,000
            shares authorized, none issued or outstanding                                       -                    -
        Common stock, $0.0024 par value; 25,000,000 shares authorized, 9,853,161
            shares issued in 1997 and 1996                                                  23,648              23,648
        Paid-in capital                                                                  4,130,796           4,130,796
        Retained earnings                                                                4,428,092           4,464,277
        Less: Notes receivable - secured by common stock                                 (269,305)           (269,305)
        Cumulative translation adjustments                                                 (4,074)               (295)
        Less:  Unearned shares held by ESOP, 64,631
            shares in 1997 and 1996                                                      (326,184)           (326,184)
                                                                                ------------------      ---------------
                       Total stockholders' equity                                        7,982,973           8,022,937
                                                                                ------------------      ---------------
                                                                               $        17,897,711      $   18,264,547
                                                                                ==================       ==============
</TABLE>
   The accompanying notes are an integral part of these financial statements.


                                       3
<PAGE>

                            THE LEATHER FACTORY, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                   THREE MONTHS ENDED MARCH 31, 1997 AND 1996


<TABLE>
<CAPTION>
<S>                                                                      <C>                       <C>


                                                                               1997                      1996
                                                                         ---------------           ---------------

     NET SALES                                                           $    6,459,892            $    7,356,805

     COST OF SALES                                                            3,896,081                 4,462,141
                                                                         ---------------           ---------------

               Gross Profit                                                   2,563,811                 2,894,664

     OPERATING EXPENSES                                                       2,397,342                 2,753,592
                                                                         ---------------           ---------------

     INCOME FROM OPERATIONS                                                     166,469                   141,072

     OTHER (INCOME) EXPENSE:
        Interest expense                                                        201,338                   170,983
        Other, net                                                                (844)                   (5,097)
                                                                         ---------------           ---------------
               Total other (income) expense                                     200,494                   165,886
                                                                         ---------------           ---------------

     INCOME (LOSS)  BEFORE INCOME TAXES                                        (34,025)                  (24,814)

     PROVISION (BENEFIT)  FOR INCOME TAXES                                        2,160                   (2,820)
                                                                         ---------------           ---------------

     NET INCOME (LOSS)                                                   $     (36,185)            $     (21,994)
                                                                         ===============           ===============



     NET INCOME (LOSS)  PER SHARE OF COMMON STOCK                        $           -            $            -
                                                                         ===============           ===============

     WEIGHTED AVERAGE COMMON AND COMMON
        EQUIVALENT SHARES OUTSTANDING                                         9,788,530                 9,788,530
                                                                         ===============           ===============

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

</TABLE>


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


                                       4
<PAGE>


                            THE LEATHER FACTORY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (UNAUDITED)
                   THREE MONTHS ENDED MARCH 31, 1997 AND 1996


<TABLE>
<CAPTION>
<S>                                                                       <C>                      <C>

                                                                                  1997                    1996
                                                                          -----------------        ----------------
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income (loss)                                                   $        (36,185)        $       (21,994)
      Adjustments to reconcile net income to net
       cash provided by (used in) operating activities-
         Depreciation & amortization                                                125,954                 118,283
        (Gain) loss on sales of assets                                                    -                   (346)
         Deferred income taxes                                                     (13,134)                (10,292)
         Other                                                                      (1,623)                       -
         Net changes in assets and liabilities, net of effect of acquisitions:
           Accounts receivable-trade, net                                         (245,292)                 (3,734)

           Inventory                                                                403,892               (403,096)
           Income taxes                                                              16,709                   1,163
           Other current assets                                                      37,911               (126,807)
           Accounts payable                                                         260,957                 491,292
           Accrued expenses and other liabilities                                 (143,207)               (178,447)
                                                                          -----------------        ----------------
         Total adjustments                                                          442,167               (111,984)
                                                                          -----------------        ----------------

          Net cash provided by (used in) operating activities                       405,982               (133,978)
                                                                          -----------------        ----------------

    CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of property and equipment                                           (98,804)               (119,480)
      Proceeds from sales of assets                                                       -                     236
      Cash paid for acquisitions, net of cash acquired                                    -               (300,000)
      Other intangible costs                                                       (26,685)                 (3,792)
                                                                          -----------------        ----------------

          Net cash used in investing activities                                   (125,489)               (423,036)
                                                                          -----------------        ----------------

    CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from notes payable and long-term debt                                271,204               1,300,000
      Payments on notes payable and long-term debt                                (712,825)             (1,061,976)
                                                                          -----------------        ----------------

          Net cash provided by (used in)  financing activities                    (441,621)                 238,024
                                                                          -----------------        ----------------

    NET INCREASE (DECREASE) IN CASH                                               (161,128)               (318,990)

    CASH, beginning of period                                                       488,192                 477,159
                                                                          -----------------        ----------------

    CASH, end of period                                                   $         327,064        $        158,169
                                                                          =================        ================

    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Interest paid during the period                                     $         198,303        $         37,243
      Income taxes paid during the period
                                                                                         -                    6,715
 
</TABLE>

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

                                      5
<PAGE>


                            THE LEATHER FACTORY, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)
                        THREE MONTHS ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
<S>                     <C>         <C>         <C>           <C>              <C>            <C>          <C>        <C>

                             Common Stock                                         Notes       Cumulative
                                                                                receivable
                        -----------------------
                            Number                  Paid-in       Retained       - secured    Translation  Unearned
                                                                                    by
                         of Shares  Par Value       Capital       Earnings     common stock   Adjustments ESOP            Total
                                                                                                            Shares
                        ----------- -----------  ------------- --------------  -------------  ----------  ----------- ------------

BALANCE, December 31,    9,853,161  $   23,648   $  4,130,796  $   4,464,277   $(269,305)     $   (295)   $ (326,184) $ 8,022,937
1996

Translation adjustment           -           -              -              -            -       (3,779)            -      (3,779)
Net loss                         -           -              -       (36,185)            -             -            -     (36,185)   
                        ----------- -----------  ------------- --------------  -----------    ----------  ----------- ------------
BALANCE,                 9,853,161  $   23,648   $  4,130,796  $   4,428,092   $(269,305)     $ (4,074)   $ (326,184) $ 7,982,973
 March 31,  1997        =========== ===========  ============= ==============  ===========    ==========  =========== ============
</TABLE>


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


                                      6
<PAGE>

                            THE LEATHER FACTORY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.  Basis of Presentation



         In the opinion of the Company, the accompanying  consolidated financial
statements  contain  all  adjustments   (consisting  of  only  normal  recurring
adjustments)  necessary to present fairly its financial position as of March 31,
1997 and December 31, 1996, and the results of operations and cash flows for the
three month periods ended March 31, 1997 and 1996. The results of operations for
the three  month  period are not  necessarily  indicative  of the  results to be
expected for the full fiscal year. The consolidated  financial statements should
be read in conjunction with the financial statement disclosures contained in the
Company's 1996 Annual Report to Stockholders.



2.  Inventories


         The components of inventory consist of the following:
<TABLE>
<CAPTION>
<S>                                                                   <C>                      <C>
                                                                          March 31,              December 31,
                                                                             1997                      1996
                                                                      -----------------        ------------------
                Finished goods held for sale                              $  6,119,980              $  6,516,517
                Raw materials and work in process                            1,213,448                 1,220,803
                                                                      =================        ==================
                                                                          $  7,333,428              $  7,737,320
                                                                      =================        ==================
</TABLE>


3.  Notes Payable and Long-Term Debt

        As  reported  in the  Company's  1996  Annual  Report on Form 10-K,  the
Company has certain  financing  arrangements  with  NationsBank  of Texas,  N.A.
("NationsBank")  which were to mature on April 30,  1997.  Effective as of April
30, 1997, the Company and  NationsBank  entered into the Sixth  Amendment to the
Second  Restated Loan Agreement  dated July 24, 1995,  which among other changes
extended the maturity date to August 31, 1997.

The other primary provisions of the amendment are listed below:

             Interest rate increased to prime plus 2%
             Extension fee of $15,417 was paid
             Agreed  to  apply  all  proceeds   from  expected  tax  refunds  of
              approximately $500,000 to reduce the term note.
             Wray  Thompson,  Ron Morgan and Robin Morgan agreed to pledge their
              stock in the Company as collateral on the notes.

        The extension was granted to allow the Company additional time to pursue
alternative financing  arrangements pursuant to the plan implemented in January.
Management   believes  that  the   restructuring  of  the  Company's   financing
arrangements on a favorable,  long term basis will be accomplished.  However, in
the event  alternative  financing  cannot be arranged,  the Company  would enter
negotiations  with  NationsBank to restructure the existing loans. If neither of
these  strategies  were  successful,  the Company  could  experience  a material
adverse impact.




                                       7
<PAGE>


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


General
-------

         The Leather Factory,  Inc. ("the Company") is a leading one stop source
for leather,  traditional  leathercraft  materials  involving  such  products as
do-it-yourself  kits,  stamping sets, and  leatherworking  tools,  craft-related
items  including  various  types  of  leather  lace,  beads,  and  wearable  art
accessories,  hardware,  metal garment  accessories  such as belt buckles,  belt
buckle designs and conchos, shoe repairing supplies and leather finishes.  These
products are distributed  primarily on a wholesale level and principally through
the  Company's  twenty-two  sales/distribution  units in the  United  States and
Canada.  Moreover, the Company is a manufacturer and distributor of hat trims in
braids,   leather,  and  woven  fabrics.   These  hat  trims  are  sold  to  hat
manufacturers and distributors.


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

                           Income Statement Comparison

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

                                                       Quarterly Period Ended
                                                               March 31,
                                                    1997                   1996
                                                    ----                   ----

Net sales                                          100.0%                 100.0%
Cost of sales                                       60.3                   60.7
                                                  ------                 ------
Gross profit                                        39.7                   39.3
Operating expenses                                  37.1                   37.4
                                                  ------                 ------
Income from operations                               2.6                    1.9
Interest expense, net                                3.1                    2.2
                                                  ------                -------
Income before income taxes                          -0.5                   -0.3
Provision for income taxes                          -0.0                    0.0
                                                  ------                 ------
Net income                                          -0.5%                  -0.3%
                                                  ======                 ======

Revenues
--------

         The  Company's net sales  decreased by 12.2% to  $6,459,892  during the
first fiscal quarter ended March 31, 1997 from $7,356,805 generated in the first
quarter of 1996. The 12.2%  decrease in revenues was primarily  comprised of two
pieces.  Reduced  sales of western  hatbands  comprised  8.4% and  retail  craft
industry  sales  comprised  1.8%.  The  remaining  2.0% of the revenue  decrease
resulted from reduced sales in five other markets  partially offset by increases
in three markets.  The Company's  sales continued to be impacted by the softness
in the craft and western  markets and while long term  trends are  difficult  to
determine,  management believes that those markets have stabilized although this
may not be reflected in overall sales until the second half of 1997.
         The Company is  continuing  efforts to develop new products and sell to
new markets and expects these efforts to gradually  replace some of the declines
that have been experienced in current markets.


Costs, Gross Profit, and Expenses
---------------------------------

         Cost of sales as a percentage of revenue was 60.3% for the first fiscal
quarter of 1997 as  compared  to 60.7% for the same  quarter in 1996.  This 0.4%
reduction resulted from efforts by Company management to increase  manufacturing
productivity  and was  achieved  while  operating in a very  competitive  market
environment.

                                      8
<PAGE>

         Operating expenses decreased $356,250 or 12.9% to $2,397,342 during the
first fiscal quarter of 1997 from $2,753,592  during the quarter ended March 31,
1996.  The decrease in the dollar amount of operating  expenses  between the two
quarters  resulted  from a  determined  effort by Company  management  to reduce
expenses  and  improve  efficiency  so that  cost  levels  are more in line with
current sales levels.

Other (Income) Expense
----------------------

         Other  expenses  increased  $34,608 or 20.9% to $200,494  for the first
fiscal  quarter  of 1997 from  $165,887  during the same  quarter in 1996.  This
increase was primarily due to higher  interest  expenses  resulting  from higher
interest  rates on existing  debt and a reduction in  discounts  taken for early
invoice  payment.  It should be noted that while these  expenses are higher than
they were during the same quarter in 1996, due to reductions in bank debt,  they
are $39,032 or 16.3% less than the third  fiscal  quarter of 1996 when they were
$239,526.


Net Income
----------

         The net  loss of the  Company  increased  by  $14,190  to a net loss of
$36,185  during  the first  fiscal  quarter  of 1997  compared  to a net loss of
$21,994  during the quarter ended March 31, 1996.  The  increased  loss resulted
from the factors noted above regarding revenues, costs and expenses.


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

         The primary source of funds for the Company during the first quarter of
1997 resulted  from funds  generated by a $403,892  reduction in inventory.  The
current  inventory turn rate of 2.07 indicates that  additional  funds should be
available as management  continues its efforts to adjust  inventory levels to be
more in line with the 2.25,  2.32 and 2.84 turn rates during 1996, 1995 and 1994
respectively.

        The  availability  of funds under the  Company's  credit  facility  with
NationsBank of Texas, N.A. ("NationsBank") continues to be the primary source of
liquidity and capital resources.

        Background   of  Agreement   with  Bank.   The   NationsBank   financing
        ---------------------------------------
arrangements,  which  include  a  working  capital  line  of  credit  and a term
facility, are governed by the Second Restated Loan Agreement dated July 24, 1995
as  amended  (the "Loan  Agreement").  The  Company  presently  has  outstanding
principal  balances on its working  capital line of credit and its term facility
of $5,250,000 and $2,750,000,  respectively. From June 30, 1996 through December
31, 1996,  the Company had been in default  under  certain  financial  covenants
contained  in the Loan  Agreement.  These  financial  covenants  related  to the
following ratio tests:

        (1) Current Assets to Current Liabilities;
        (2) Total Liabilities to Tangible Net Worth;
        (3) Senior Funded Debt to Earnings Before Interest, Taxes, Depreciation 
            and Amortization ("EBITDA"); and
        (4) Cash Flow Ratio.

    On August 14, 1996,  effective  June 30, 1996,  NationsBank  and the Company
entered into an amendment to the Loan  Agreement  pursuant to which  NationsBank
agreed to forbear the exercising of their legal rights due to the aforementioned
events of  default  under  the Loan  Agreement  until  September  30,  1996 (the
"Forbearance  Period").  NationsBank  also waived a default  under the Borrowing
Base and the element of the Borrowing  Base which gave rise to the default,  the
net income test, was eliminated as part of said Borrowing Base.

     On September  30, 1996,  NationsBank  and the Company  entered into another
amendment  to the Loan  Agreement  whereby  NationsBank  agreed  to  extend  the
Forbearance Period until December 31, 1996 (the "Extended  Forbearance Period").
NationsBank  and the Company  also agreed to decrease  the amount of the working
capital  line of credit  from $10  million  to $7.5  million.  Additionally  the
Company  agreed to grant  NationsBank  a lien on its facility  located in Tampa,
Florida.

    The Company  remained in default  under the  financial  covenants  described
above.

    December 31, 1996  Agreement.  As of December 31, 1996,  NationsBank and the
    -----------------------------
Company  entered into the Fifth  Amendment to the Second Restated Loan Agreement
(the "Fifth Amendment") whereby NationsBank and the Company agreed to modify the
Loan  Agreement.  In the Fifth  Amendment  the  Company  agreed to employ  Price
Waterhouse to assist in obtaining  alternative  financing of the  obligations to
NationsBank. The Company and Nations Bank also agreed:

                                       9
<PAGE>

    1. To decrease  the amount of the working  capital  line of credit from $7.5
       million to $6.5  million;  
    2. To modify  the  maturity  date of the  working capital  line of credit 
       note to April 30,  1997; 
    3. To modify the  maturity date of the  Roberts  Cushman  &  Company  note 
       to April  30,  1997.  
    4. The financial covenants under which the Company was in default previously
       were eliminated or modified.

    Current  Agreement.  Effective  April 30, 1997 the  Company and  NationsBank
    -------------------
entered into the Sixth Amendment to the Second  Restated Loan Agreement  whereby
the maturity  dates of the working  capital line of credit and the term loan are
extended until August 31, 1997. The Company and NationsBank also agreed:

    1.  To modify the interest rate from prime plus 1.5% to prime plus 2.0%;
    2.  To apply all proceeds from expected tax refunds of approximately 
        $500,000 to reduce the term note:
    3.  That Wray Thompson, Ron Morgan and Robin Morgan would pledge their stock
        in the Company as collateral on the notes and
    4.  The Company would pay a $15,417 fee for the extension.

    Management  remains  confident  that  the  restructuring  of  our  financing
arrangements on a favorable,  long term basis will be accomplished.  However, in
the event  alternative  financing  cannot be arranged,  the Company  would enter
negotiations  with  NationsBank to restructure the existing loans. If neither of
these  strategies  were  successful,  the Company  could  experience  a material
adverse impact.

   While subject to the issues surrounding the Company's financing arrangements,
the Company's  management believes that current sources of liquidity and capital
resources will be sufficient to fund current operations and internal growth.


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

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








                                      10
<PAGE>


                                                  PART II. OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

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

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

(b) Reports on Form 8-K
    -------------------
        None




                                       13
<PAGE>

                                   SIGNATURES


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



                                           THE LEATHER FACTORY, INC.
                                           (Registrant)

Date: May  15, 1997                        By /s/ Wray Thompson
                                              -----------------
                                                  Wray Thompson
                                                   Chairman of the Board,
                                                   President and
                                                   Chief Executive Officer



Date: May  15, 1997                         By   /s/ Fred N. Howell
                                                 ------------------
                                                     Fred N. Howell
                                                      Chief Financial Officer,
                                                      Treasurer and Director
                                                      (Chief Financial and
                                                       Accounting Officer)






                                       12
<PAGE>
                   THE LEATHER FACTORY, INC. AND SUBSIDIARIES
                                  EXHIBIT INDEX

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

          3.1  Certificate of Incorporation of The Leather Factory,  Inc., filed
               as Exhibit 3.1 to the Registration  Statement on Form SB-2 of The
               Leather Factory,  Inc.  (Commission File No. 33-81132) filed with
               the  Securities  and  Exchange  Commission  on July 5, 1994,  and
               incorporated by reference herein.

          3.2  Bylaws of The Leather Factory,  Inc., filed as Exhibit 3.2 to the
               Registration  Statement on Form SB-2 of The Leather Factory, Inc.
               (Commission  File No.  33-81132)  filed with the  Securities  and
               Exchange   Commission  on  July  5,  1994,  and  incorporated  by
               reference herein.

          3.3  Amendment to Certificate of Incorporation of The Leather Factory,
               Inc. -- Certificate of Designation, Preferences and Rights of the
               Senior  Cumulative  Convertible  Preferred  Stock  Dated July 24,
               1995, filed as Exhibit 3.3 to the Quarterly Report on Form 10-QSB
               of The Leather Factory,  Inc. (Commission File No. 1-12368) filed
               with the Securities  and Exchange  Commission on August 10, 1995,
               and incorporated by reference herein.

          4.1  Second  Restated  Loan  Agreement  dated  July 24,  1995,  by and
               between The Leather Factory,  Inc., a Delaware  corporation,  and
               NationsBank of Texas, N.A., filed as Exhibit 4.1 to the Quarterly
               Report on Form 10-QSB of The Leather  Factory,  Inc.  (Commission
               File  No.   1-12368)  filed  with  the  Securities  and  Exchange
               Commission  on August 10,  1995,  and  incorporated  by reference
               herein.

          4.2  Promissory Note (Working  Capital Line of Credit) dated September
               30, 1996, in the principal  amount of $7,500,000,  payable to the
               order of  NationsBank  of Texas,  N.A.,  which  matures March 31,
               1997.

          4.3  Promissory  Note  (Acquisition  Line) dated July 24, 1995, in the
               principal  amount  of  $10,000,000,   payable  to  the  order  of
               NationsBank of Texas,  N.A.,  which matures August 1, 2000, filed
               as  Exhibit  4.3 to the  Quarterly  Report on Form  10-QSB of The
               Leather  Factory,  Inc.  (Commission File No. 1-12368) filed with
               the  Securities  and Exchange  Commission on August 10, 1995, and
               incorporated by reference herein.

          4.4  Promissory  Note dated December 28, 1994 in the principal  amount
               of  $5,000,000,  payable  to the order of  NationsBank  of Texas,
               N.A.,  which matures  December 28, 1999, filed as Exhibit No. 4.5
               to the 1994 Annual Report on Form 10-KSB of The Leather  Factory,
               Inc.  (Commission File No. 1-12368) filed with the Securities and
               Exchange Commission on March 27, 1995, and incorporated herein by
               reference.

          4.5  Stock  Purchase  Agreement  dated  as of July  28,  1995,  by and
               between Center Street Capital Partners,  L.P., a Delaware Limited
               Partnership,  Stratford Capital  Partners,  L.P., a Texas Limited
               Partnership,   and  The  Leather   Factory,   Inc.,   a  Delaware
               Corporation, filed as Exhibit 4.5 to the Quarterly Report on Form
               10-QSB of The Leather Factory, Inc. (Commission File No. 1-12368)
               filed with the Securities  and Exchange  Commission on August 10,
               1995, and incorporated by reference herein.



                                       13
<PAGE>

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

          4.6     Commitment  Agreement  dated July 28,  1995,  by and among The
                  Leather Factory,  Inc., a Delaware Corporation,  Center Street
                  Capital Partners,  L.P., a Delaware Limited  Partnership,  and
                  Stratford Capital Partners, L.P., a Texas Limited Partnership,
                  filed as Exhibit 4.6 to the Quarterly Report on Form 10-QSB of
                  The Leather Factory,  Inc. (Commission File No. 1-12368) filed
                  with the  Securities  and  Exchange  Commission  on August 10,
                  1995, and incorporated by reference herein.

          4.7     Registration  Rights  Agreement  dated July 28,  1995,  by and
                  between  Center  Street  Capital  Partners,  L.P.,  a Delaware
                  Limited Partnership, Stratford Capital Partners, L.P., a Texas
                  Limited Partnership, and The Leather Factory, Inc., a Delaware
                  Corporation,  filed as Exhibit 4.7 to the Quarterly  Report on
                  Form 10-QSB of The Leather Factory,  Inc. (Commission File No.
                  1-12368) filed with the Securities and Exchange  Commission on
                  August 10, 1995, and incorporated by reference herein.

          4.8     Shareholders  Agreement  dated July 28,  1995,  by and between
                  Wray  Thompson,  an  individual  and  resident of the State of
                  Texas,  Sally A.  Thompson,  an individual and resident of the
                  State of Texas,  Ronald C. Morgan,  an individual and resident
                  of the State of Texas,  Robin L.  Morgan,  an  individual  and
                  resident  of  the  State  of  Texas,   Center  Street  Capital
                  Partners,  L.P.,  a Delaware  Limited  Partnership,  Stratford
                  Capital Partners,  L.P., a Texas Limited Partnership,  and The
                  Leather  Factory,  Inc.,  a  Delaware  Corporation,  filed  as
                  Exhibit  4.8 to the  Quarterly  Report  on Form  10-QSB of The
                  Leather Factory, Inc. (Commission File No. 1-12368) filed with
                  the Securities and Exchange Commission on August 10, 1995, and
                  incorporated by reference herein.

           4.9    First Amendment to Second Restated Loan Agreement effective as
                  of December  31,  1995,  by and  between The Leather  Factory,
                  Inc., a Delaware Corporation,  and NationsBank of Texas, N.A.,
                  filed as  Exhibit  No. 4.9 to the 1995  Annual  Report on Form
                  10-KSB  of The  Leather  Factory,  Inc.  (Commission  File No.
                  1-12368), filed with the Securities and Exchange Commission on
                  March 28, 1996, and incorporated herein by reference.

           4.10   Second Amendment to Second Restated Loan Agreement effective
                  as of March 31,  1996,  by and between The Leather  Factory,
                  Inc.,  a Delaware  Corporation,  and  NationsBank  of Texas,
                  N.A.,  filed as Exhibit No. 4.10 to the Quarterly  Report on
                  Form 10-Q of The Leather Factory,  Inc. (Commission File No.
                  1-12368) filed with the  Securities and Exchange  Commission
                  on May 20, 1996, and incorporated by reference herein.

           4.11   Forbearance  Agreement  and  Third  Amendment  to  the  Second
                  Restated Loan Agreement  effective as of June 30, 1996, by and
                  between The Leather Factory, Inc., a Delaware Corporation, and
                  NationsBank of Texas,  N.A.,  filed as Exhibit No. 4.11 to the
                  Quarterly  Report on Form 10-Q of The  Leather  Factory,  Inc.
                  (Commission  File No.  1-12368)  filed with the Securities and
                  Exchange  Commission on August 19, 1996, and  incorporated  by
                  reference herein.

           4.12   Forbearance  Agreement and Fourth Amendment to Second Restated
                  Loan  Agreement  effective  as of September  30, 1996,  by and
                  between The Leather Factory, Inc., a Delaware Corporation, and
                  NationsBank of Texas, N.A.




                                       14
<PAGE>
                   THE LEATHER FACTORY, INC. AND SUBSIDIARIES
                                  EXHIBIT INDEX
                                   (Continued)
     Exhibit
     Number                                            Description
     -------                                           -----------

        4.13      Fifth Amendment to Second Restated Loan Agreement effective as
                  of December  31,  1996,  by and  between The Leather  Factory,
                  Inc., a Delaware Corporation, and NationsBank of Texas, N.A.

        *4.14     Sixth Amendment to Second Restated Loan Agreement effective as
                  of April 30, 1997, by and between The Leather Factory, Inc., a
                  Delaware Corporation, and NationsBank of Texas, N.A.

        10.1      Stock  Exchange  Agreement  dated July 9, 1993, by and among
                  The Leather  Factory,  Inc., a Texas  corporation,  National
                  Transfer & Register Corp., a Colorado  corporation,  J. Wray
                  Thompson,  Sr.,  Ronald C.  Morgan,  Robin L. Morgan and The
                  Leather  Factory,  Inc.  Employees'  Stock  Ownership Plan &
                  Trust,  filed  as  Exhibit  No.  10.1  to  the  Registration
                  Statement  on  Form  10-SB  of  The  Leather  Factory,  Inc.
                  (Commission  File No.  0-22128),  including  any  amendments
                  thereto,  filed with the Securities and Exchange  Commission
                  on July 22, 1993, and incorporated herein by reference.

         10.2     Stock Exchange Agreement dated July 10, 1993, by and between
                  National  Transfer & Register Corp., a Colorado  corporation
                  and  Vicki   Byrd,   filed  as  Exhibit   No.  10.2  to  the
                  Registration Statement on Form 10-SB of The Leather Factory,
                  Inc. (Commission File No. 0-22128), including any amendments
                  thereto,  filed with the Securities and Exchange  Commission
                  on July 22, 1993, and incorporated herein by reference.

         10.3     Stock Purchase  Agreement dated as of June 30, 1993, by and 
                  between The Leather  Factory, Inc.,  a  Texas  corporation  
                  and  Steve  Lindley,  filed  as  Exhibit  No.  10.3  to the
                  Registration  Statement on Form 10-SB of The Leather Factory, 
                  Inc.  (Commission File No. 0-22128),  including  any  
                  amendments  thereto,  filed with the  Securities  and Exchange
                  Commission on July 22, 1993, and incorporated herein by 
                  reference.

         10.4     Amendment to Stock Purchase  Agreement  executed September 20,
                  1993,  to be  effective  June 30,  1993,  by and  between  The
                  Leather Factory,  Inc., a Texas corporation and Steve Lindley,
                  filed as Exhibit No.  19.1 to the 1993  Annual  Report on Form
                  10-KSB  of The  Leather  Factory,  Inc.  (Commission  File No.
                  1-12368), filed with the Securities and Exchange Commission on
                  March 30, 1994, and incorporated herein by reference.

         10.5     Stock Purchase  Agreement  dated as of June 30, 1993, by and
                  between The Leather Factory,  Inc., a Texas  corporation and
                  Kevin F. White and Durham  Hefta,  filed as Exhibit No. 10.4
                  to the  Registration  Statement on Form 10-SB of The Leather
                  Factory,  Inc. (Commission File No. 0-22128),  including any
                  amendments  thereto,  filed with the Securities and Exchange
                  Commission  on July 22,  1993,  and  incorporated  herein by
                  reference.

          10.6    Stock Purchase  Agreement  dated as of June 30, 1993, by and
                  between The Leather Factory,  Inc., a Texas  corporation and
                  James Durr,  filed as Exhibit  No. 10.5 to the  Registration
                  Statement  on  Form  10-SB  of  The  Leather  Factory,  Inc.
                  (Commission  File No.  0-22128),  including  any  amendments
                  thereto,  filed with the Securities and Exchange  Commission
                  on July 22, 1993, and incorporated herein by reference.




                                       15
<PAGE>


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

         10.7      The Leather Factory, Inc. 1993 Non-Qualified Incentive Stock
                   Option  Plan,  filed as Exhibit  No. 10.6 to the 1993 Annual
                   Report  on  Form  10-KSB  of  The  Leather   Factory,   Inc.
                   (Commission  File No. 1-12368) filed with the Securities and
                   Exchange  Commission  on March 30,  1994,  and  incorporated
                   herein by reference.

         10.8      Acquisition  Agreement  dated as of January 10, 1994, by and
                   between The Leather  Factory,  Inc., a Colorado  corporation
                   and  Hi-Line  Leather  &  Manufacturing  Company,  filed  as
                   Exhibit  No.  2.1 to the  Current  Report on Form 8-K of The
                   Leather  Factory,  Inc.  (Commission File No. 1-12368) filed
                   with the Securities  and Exchange  Commission on January 10,
                   1994, and incorporated herein by reference.

         10.9      Asset Purchase  Agreement dated as of April 15, 1994, by and
                   among The Leather Factory, Inc., a Colorado corporation, The
                   Leather Warehouse Company, a Michigan corporation, Daniel W.
                   Holbert, Linda S. McCleary, Richard J. Hill, and the Richard
                   J. Hill  Trust,  filed as  Exhibit  No.  2.1 to the  Current
                   Report on Form 8-K of The Leather Factory,  Inc. (Commission
                   File No.  1-12368)  filed with the  Securities  and Exchange
                   Commission  on April 15, 1994,  and  incorporated  herein by
                   reference.

        10.10      Acquisition Agreement by and among The Leather Factory, Inc.
                   and David Lieberman,  Individually and as the Shareholder of
                   Roberts, Cushman & Company, Inc., related to the acquisition
                   of the  issued and  outstanding  capital  stock of  Roberts,
                   Cushman & Company,  Inc.,  filed as  Exhibit  No. 2.1 to the
                   Current  Report  on Form 8-K of The  Leather  Factory,  Inc.
                   (Commission  File No. 1-12368) filed with the Securities and
                   Exchange  Commission  on January 9, 1995,  and  incorporated
                   herein by reference.

        10.11      The Leather  Factory,  Inc.  Employees' Stock Ownership Plan
                   and Trust (Restated),  dated February 22, 1994, effective as
                   of  October  1,  1993,  filed  as  Exhibit  No.  4.1  to the
                   Registration  Statement on Form S-8 of The Leather  Factory,
                   Inc.   (Commission   File  No.   33-81214),   including  any
                   amendments  thereto,  filed with the Securities and Exchange
                   Commission  on July 5,  1994,  and  incorporated  herein  by
                   reference.

        10.12      Amendment  No. 1 to The  Leather  Factory,  Inc.  Employees'
                   Stock  Ownership  Plan and Trust  (Restated as of October 1,
                   1993),  dated  October 5, 1994 to be effective  December 28,
                   1990,  filed as Exhibit No. 10.12 to the 1994 Annual  Report
                   on Form 10-KSB of The Leather Factory, Inc. (Commission File
                   No.   1-12368)   filed  with  the  Securities  and  Exchange
                   Commission  on March 27, 1995,  and  incorporated  herein by
                   reference.

        10.13      Participation   Agreement  in  The  Leather  Factory,   Inc.
                   Employees'  Stock  Ownership Plan and Trust  (Restated as of
                   October 1, 1993),  dated  February  28, 1995 to be effective
                   January 2,  1995,  filed as  Exhibit  No.  10.13 to the 1994
                   Annual  Report on Form 10-KSB of The Leather  Factory,  Inc.
                   (Commission  File No. 1-12368) filed with the Securities and
                   Exchange  Commission  on March 27,  1995,  and  incorporated
                   herein by reference.






                                       16
<PAGE>
                   THE LEATHER FACTORY, INC. AND SUBSIDIARIES
                                  EXHIBIT INDEX
                                   (Continued)
     Exhibit
     Number                                            Description
     -------                                           -----------

        10.14     Indemnification Agreement dated October 17, 1994, by and among
                  The Leather Factory, Inc., a Delaware corporation,  Securities
                  Transfer Corporation, a Texas corporation,  and Halter Capital
                  Corporation,  a Texas corporation,  filed as Exhibit No. 10.14
                  to the  1994  Annual  Report  on Form  10-KSB  of The  Leather
                  Factory,  Inc.  (Commission  File No.  1-12368) filed with the
                  Securities  and Exchange  Commission  on March 27,  1995,  and
                  incorporated herein by reference.

        10.15     Guaranty,  as amended,  dated July 24, 1995,  by and between
                   NationsBank of Texas, N. A., The Leather Factory, Inc., Wray
                   Thompson,  Ronald Morgan, and Robin Morgan, filed as Exhibit
                   No.  10.15 to the  Quarterly  Report  on Form  10-QSB of The
                   Leather  Factory,  Inc.  (Commission File No. 1-12368) filed
                   with the Securities  and Exchange  Commission on November 9,
                   1995, and incorporated herein by reference.

        10.16      The Leather Factory, Inc. 1995 Director  Non-Qualified Stock
                   Option  Plan and Stock  Option  Agreement,  effective  as of
                   September  26,  1995,  subject to approval by the  Company's
                   stockholders  at the 1996  Annual  Meeting of  Stockholders,
                   filed as Exhibit No. 10.16 to the  Quarterly  Report on Form
                   10-QSB of The Leather  Factory,  Inc.  (Commission  File No.
                   1-12368) filed with the  Securities and Exchange  Commission
                   on November 9, 1995, and incorporated herein by reference.

        10.17      The Leather  Factory,  Inc. 1995 Stock Option Plan and Stock
                   Option  Agreements,  effective  as of  September  26,  1995,
                   subject to approval  by the  Company's  stockholders  at the
                   1996 Annual  Meeting of  Stockholders,  filed as Exhibit No.
                   10.17 to the Quarterly  Report on Form 10-QSB of The Leather
                   Factory,  Inc.  (Commission File No. 1-12368) filed with the
                   Securities and Exchange  Commission on November 9, 1995, and
                   incorporated herein by reference.

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

       * 27.1      Financial Data Schedule

------------
*Filed herewith.


                                       17
<PAGE>





















                                  EXHIBIT 4.14












                                       18
<PAGE>
                SIXTH AMENDMENT TO SECOND RESTATED LOAN AGREEMENT

         This Sixth  Amendment to Second  Restated Loan Agreement  ("Amendment")
dated  effective as of April 30, 1997  ("Effective  Date") is entered into among
The Leather  Factory,  Inc., a Delaware  corporation  ("Borrower"),  The Leather
Factory,  Inc., a Texas corporation,  and Roberts,  Cushman & Company, Inc., New
York corporation  (collectively,  "Guarantors"),  and NationsBank of Texas, N.A.
("Bank"), as follows:

                                    Recitals
                                    --------

                  (a) Bank,  Borrower and  Guarantors are parties to the certain
         Second Restated Loan Agreement dated as of July 24, 1995, as amended by
         the First  Amendment  to Second  Restated  Loan  Agreement  dated as of
         December  31,  1995,  the  Second  Amendment  to Second  Restated  Loan
         Agreement  dated as of March 31, 1996,  the  Forbearance  Agreement and
         Third  Amendment to Second Restated Loan Agreement dated as of June 30,
         1996, the Forbearance Agreement and Fourth Amendment to Second Restated
         Loan Agreement  dated as of September 30, 1996 and the Fifth  Amendment
         to Second  Restated Loan  Agreement  dated as of December 31, 1996 (the
         "Forbearance  Agreement"),  each among  Borrower,  Guarantors  and Bank
         (collectively  the  "Loan  Agreement").   Terms  defined  in  the  Loan
         Agreement,  wherever  used in  this  Agreement,  shall  have  the  same
         meanings herein as are prescribed by the Loan Agreement.

                  (b)  Borrower,  Guarantors  and Bank wish to further amend the
         Loan  Agreement  as  provided  hereinbelow.   Therefore,  for  valuable
         consideration,   the  receipt  and   sufficiency  of  which  hereby  is
         acknowledged,  and in consideration of the mutual  agreements  provided
         herein,  Bank,  Borrower  and each of the  Guarantors  hereby  agree as
         follows:

                                    Agreement
                                    ---------

         Section 1.        Amendment of Loan Agreement.  As of the Effective 
                           ---------------------------
                           Date, the Loan Agreement is amended as follows:

         1.1        Effective as of April 30, 1997, Section 2.B ("Interest") is 
                    amended and restated in its entirety to read as follows:

               "B.  Interest.  The interest to be paid by Borrower and collected
                    ---------
                    by Bank on the Notes (except with respect to the Acquisition
                    Line which has terminated and is no longer in effect on such
                    date)  shall be a rate per  annum  equal to the  Prime  Rate
                    established  by Bank from time to time,  being the  variable
                    rate of interest  announced by Bank from time to time as its
                    general  reference rate of interest,  which rate of interest
                    may not be the lowest rate of  interest  charged by Bank to
                    other borrowers, plus two percent (2.00%)."

         1.2      Section 4.A ("Financial Condition") hereby is amended as 
                  follows:

               a.   Subparagraph (i), which prescribes minimum  requirements for
                    the ratio of  current  assets  to  current  liabilities,  is
                    amended and restated to read in its entirety as follows:

                           "(i)     Maintain  a  minimum   ratio  of  current   
                                    assets  to  current liabilities as follows:

                                    Ratio                   Effective Date
                                    -----                   --------------
                                    1.08 to 1.00            January 31, 1997
                                    1.10 to 1.00            March  31,  1997 and
                                                                    thereafter"













                  b. Subparagraph  (ii), which prescribes  minimum  requirements
         for the ratio of total  liabilities  to Tangible  Net Worth,  hereby is
         amended, with respect to the applicable periods ending January 31, 1997
         and March 31, 1997, and thereafter, to read as follows:

                                    Ratio             Period
                                    -----             ------
                                    "3.75 to 1.0      January 31, 1997
                                     3.54 to 1.0      March 31, 1997
                                     3.50 to 1.0      at  all  times  following
                                                        March  31, 1997"

          1.3  Section 5.H ("Capital  Expenditures")  hereby is amended and
               restated to read in its entirety as follows:

               "H.  Capital  Expenditures.  Make capital expenditures during any
                    ----------------------
                    period  of  twelve  (12)  calendar   months  which,  in  the
                    aggregate  with all other capital  expenditures  by Borrower
                    and Guarantors during such period,  would exceed the maximum
                    aggregate  amount of  $250,000.00.  As used herein  "capital
                    expenditures"  means  expenditures which would be classified
                    as capital expenditures  according to GAAP,  provided,  that
                    any  such  capital  expenditures  made  in  connection  with
                    Borrower's  purchase  and  installation  of a "POS (point of
                    sale)" computer  system,  in the aggregate  amount up to but
                    not  exceeding  $400,000.00,  shall be excluded in measuring
                    compliance with the foregoing requirement."


                                       19
<PAGE>


         1.4      Section 5.K ("Leases") hereby is deleted in its entirety.

         Section 2.        Amendment of Notes.  As of the Effective  Date,  the
                           -------------------
Note  evidencing  the  Revolving  Line and the R,C&Co. Loan, respectively, in 
each case is modified and amended, as follows:

                  a. Revolving Line. The certain promissory note dated September
                     ---------------
         30, 1996 executed by Borrower  payable to the order of Bank in the face
         amount of  $7,500,00.00  (subsequently  amended  to be  $6,500,000,00),
         evidencing  the  Revolving  Line,  hereby is  modified  and  amended as
         follows:  The stated  maturity  as set forth  therein is  modified  and
         amended to be August 31, 1997.

                  b. R,C&Co.  Loan. The certain  promissory  note dated December
                     -------------- 
         28, 1994 executed by Borrower  payable to the order of Bank in the face
         amount of  $5,000,000.00,  evidencing  the  R,C&Co.  Loan,  hereby is  
         modified and amended as follows:

               (i)  The stated maturity of the R,C&Co. Loan as set forth therein
                    hereby is modified to be August 31, 1997; and

               (ii) Notwithstanding  the  payment  schedule  presently  provided
                    thereby,  the Note  evidencing  the  R,C&Co.  Loan  shall be
                    payable  as  follows:  Accrued  interest  shall  be  payable
                    monthly on the first (1st) day of each calendar  month,  and
                    principal  payments  shall be payable on March 31,  1997 and
                    June 30, 1997, in the amount of  $250,000.00  each,  and all
                    remaining  unpaid  principal  shall  be  paid  on the  final
                    maturity date, August 31, 1997.

         Section 3.    Agreement Regarding Disposition of Tax Refunds; Amendment
                       ---------------------------------------------------------
                       of Security Agreements.
                       -----------------------

               a.   Borrower has advised Bank that  Borrower has filed an income
                    tax return  which  reflects the right of Borrower to payment
                    of a refund of federal income taxes  previously  paid, in an
                    estimated  amount of  $500,000,  payment  of which  Borrower
                    anticipates receipt during the months of August or September
                    of 1997 (all such amounts,  whenever received,  being herein
                    called the "Tax Refund  Proceeds").  Borrower  hereby agrees
                    that all Tax Refund  Proceeds,  immediately  upon receipt by
                    Borrower, shall be promptly remitted to Bank for application
                    in  reduction   of   principal   evidenced  by  the  certain
                    promissory note dated December 28, 1994 executed by Borrower
                    payable  to  the  order  of  Bank  in  the  face  amount  of
                    $5,000,000.00, evidencing the R,C&Co. Loan, such payments to
                    be  applied  in  inverse  order of  maturity  to the  latest
                    maturing payments of principal.

               b.   Borrower and each Guarantor each expressly  acknowledges and
                    agrees that all tax refunds  (including  federal  income tax
                    refunds)  and all  proceeds  thereof  at any  time  received
                    (specifically including,  without limitation, the Tax Refund
                    Proceeds),  and the right of  Borrower or any  Guarantor  to
                    receive   same,  is  covered  and  included  as  a  "General
                    Intangible" under each of the Security  Agreements.  In this
                    regard, as clarification  only, it is agreed that, as of the
                    Effective Date, the unnumbered  paragraph  entitled "General
                    Intangibles"  in each of the Security  Agreements  hereby is
                    amended and restated to read in its entirety as follows:

                  "General  Intangibles.  All general  intangibles  now owned or
                  hereafter acquired by Debtor.  General  intangibles  includes,
                  without limitation,  all tax refunds (including federal income
                  tax refunds),  and all proceeds  thereof at any time received,
                  and  all  customer  lists,  mailing  lists  and  similar  data
                  respecting  names and  addresses  of  customers  or  potential
                  customers,  whether in tangible or intangible form and however
                  recorded or stored, together with all systems and software for
                  retrieving or utilizing same."

         Section 4.  Additional Agreements.  In consideration of this Amendment:
                     ----------------------

         4.1 Within thirty (30) days after the Effective  Date,  Borrower  shall
cause each of Wray  Thompson,  Ron Morgan and Robin Morgan (each a "Pledgor") to
grant to Bank a continuing first priority pledge, security interest,  collateral
assignment  and lien in and to all shares of Borrower,  now owned and  hereafter
acquired,  as continuing security for payment and performance of all obligations
and  indebtedness  from  time to time  owing by  Borrower  and  each  Guarantor,
(including without limitation  obligations and indebtedness pursuant to the Loan
Agreement),  in each case pursuant to a pledge and security  agreement,  in form
satisfactory  to Bank.  Borrower  shall  cause each such  Pledgor to execute and
deliver to Bank such additional  agreements,  opinions or other documentation as
may be required by Bank in connection therewith.

         4.2 Borrower  agrees to pay to Lender an extension and amendment fee in
the  amount of  $15,416.67,  which  shall be  payable  in cash  upon  Borrower's
execution of this Amendment.


                                       20
<PAGE>

         4.3  Borrower and Guarantors each represents and warrants to Bank the
              following:

                  4.3.1  The  execution,   delivery  and   performance  of  this
         Agreement  are within its  corporate  power and authority and have been
         duly   authorized  by  appropriate   proceedings   and  this  Agreement
         constitutes  a legal,  valid and binding  obligation  of  Borrower  and
         Guarantors, enforceable in accordance with its terms, except as limited
         by applicable bankruptcy,  insolvency,  reorganization,  moratorium, or
         similar laws  affecting  the rights of creditors  generally and general
         principles of equity.

                  4.3.2 Borrower and  Guarantors  each has disclosed to Bank all
         material  facts known to it  concerning  its  financial  condition  and
         business operations. All such information furnished by Borrower and any
         Guarantor to Bank was true and complete at the time of delivery thereof
         to Bank, and there has been no material change in any such  information
         except as may have been disclosed to Bank in writing.  There is no fact
         known to Borrower or Guarantors  which would be reasonably  expected to
         materially and adversely effect  Borrower's or a Guarantor's  financial
         condition,  operations or ability to perform its obligations  under the
         Loan   Documents.   Upon   execution   of   this   Amendment   (i)  all
         representations  and  warranties  provided  by the Loan  Documents,  as
         amended,  are true and  correct in all  material  respects  and (ii) no
         Default is in existence other than the Existing Defaults.

         4.4  The  following  items  shall  be  delivered  to Bank  prior  to or
              simultaneously with execution and delivery of this Amendment:

                  4.4.1 A  certificate  signed  by the  corporate  secretary  of
         Borrower and each Guarantor (i) certifying to Bank that its Certificate
         of Incorporation and Bylaws have not been amended since its most recent
         certification  thereof to Bank, and certifying the names and signatures
         of its duly appointed officers authorized to act in respect of the Loan
         Documents and (ii) attaching and certifying resolutions duly adopted by
         its board of directors  authorizing this Amendment and the transactions
         evidenced  hereby,  and  authorizing  and  directing  one or more named
         officers  to  execute  and  deliver  this  Amendment,  and all  related
         documentation  required by Bank on behalf of Borrower  and  Guarantors,
         which certificate shall be in form satisfactory to Bank;

                  4.2.2 Such other  amendments  of any of the Loan  Documents in
         conformity  with this Agreement,  duly executed,  as may be required by
         Bank and in form satisfactory to Bank.

         4.5 Borrower and Guarantors each shall reimburse Bank for all expenses,
including  attorneys  fees and  disbursements  of legal  counsel  for  Bank,  in
connection with the preparation,  negotiation and closing of this Amendment.  In
consideration  of this Amendment,  Borrower and Guarantors each agrees to pay to
Bank on demand any and all costs and expenses,  including reasonable  attorneys'
fees, legal expenses and disbursements,  appraisal fees, search fees, filing and
recording  fees,  fees and costs of experts or other  consultants,  court costs,
travel  expenses,  and all other costs and expenses  incurred or paid by Bank in
administering  the Loan  Documents and protecting or enforcing any of its rights
thereunder,  including without limitation (i) ongoing administration of the Loan
Documents,  including  field  examinations  and inspection of  Collateral,  (ii)
negotiating,  preparing and closing any amendment, waiver or consent relating to
the Loan Documents, and (iii) taking possession, holding, storing, preparing for
sale,  selling or otherwise  disposing  of, or  collecting  the proceeds of, the
Collateral,  collecting  the  Obligations,  or exercising or enforcing any other
rights or remedies or pursuing or defending  any claim arising out of, or in any
way relating to the Loan  Documents.  Borrower and Guarantors  each will pay any
applicable stamp, registration,  recordation and similar taxes, fees and charges
in respect of the Collateral or perfection or maintenance of Bank's rights under
the Loan  Documents,  and  agrees to  indemnify  Bank  against  any  liabilities
resulting  from any delay,  deferral  or  omission in payment of any such taxes,
fees or charges.  All fees, costs and expenses for which Borrower or a Guarantor
is obligated  under the Loan  Documents  shall be payable to Bank on demand.  At
Bank's option,  the amount of such fees, costs and expenses may be deducted from
the  proceeds  of any loan  hereunder  or added to the unpaid  principal  due by
Borrower  under the  Revolving  Line,  in which event such amount will be deemed
paid and the amount thereof shall be treated as a loan thereunder.

         4.6 Except as amended by this Amendment,  the Loan Agreement (including
all previous  amendments  to the extent not  superseded by the terms hereof) and
all other Loan  Documents  remain in full force and effect as provided  therein.
Borrower and Guarantors each hereby ratifies and confirms the Loan Documents, as
amended  hereby,  and agrees that the Security  Agreements,  and all Collateral,
continue to secure all Obligations.  Without limiting the foregoing, each of the
Guarantors  hereby  expressly  ratifies and confirms its  obligations  under the
certain guaranty  agreements  previously executed by it for the benefit of Bank,
and agrees that the  Obligations  continue to be included within the obligations
and indebtedness guaranteed thereby. Borrower and Guarantors each agrees that it
will comply with all terms and provisions of the Loan  Documents,  as amended by
this Amendment.

         4.7 Wherever any Loan Document makes  reference to the  Agreement,  the
same shall be deemed to mean the  Agreement as amended by this  Amendment.  This
Amendment is a Loan  Document for purposes of the  provisions  of all other Loan
Documents.  Any breach of the  representations,  warranties and covenants  under
this Amendment shall constitute a Default under the Loan Documents.
         4.8 Borrower has informed Bank that the ratio of total  liabilities  to
Tangible Net Worth,  calculated  pursuant to the Loan  Agreement as of March 31,
1997, was 3.54 to 1.0, which exceeded the maximum amount allowable under Section
4.A(ii) of the Loan Agreement.  In consideration of this Amendment,  Bank hereby
confirms that such noncompliance is hereby waived, provided, that such waiver is
extends only to the foregoing specifically  identified instance of noncompliance
and is  expressly  limited as  provided  herein,  and Bank shall be  entitled to
expect and require strict  compliance  with all other  requirements  of the Loan
Documents in accordance with their respective terms.


                                       21
<PAGE>

         4.9 This Agreement shall be governed by the laws of the State of Texas.
If any provision in this Agreement is held to be  unenforceable,  such provision
shall be severed and the  remaining  provisions  shall  remain in full force and
effect. All representations,  warranties,  and covenants of this Agreement shall
survive the execution of this Agreement and any other contract or agreement. The
provisions of this  Agreement may be waived or amended only in a writing  signed
by all of the parties hereto.  This Agreement shall bind Borrower and Guarantors
and their  respective  successors  and assigns and shall inure to the benefit of
Bank and its successors and assigns.  This Agreement may be executed in multiple
counterparts which together shall constitute one and the same agreement.

         4.10 The provisions of Section 10 ("Arbitration") of the Loan Agreement
shall be deemed  applicable  to this  Amendment and are  incorporated  herein by
reference.

         4.11 This Amendment (i) shall be deemed  effective  prospectively as of
the Effective Date, (ii) contains the entire agreement among the parties and may
not be amended or modified except in writing signed by all parties,  (iii) shall
be governed and  construed  according to the laws of the State of Texas and (iv)
may be executed in any number of  counterparts,  each of which shall be valid as
an original and all of which shall be one and the same agreement.  A telecopy of
any executed counterpart shall be deemed valid as an original.

         THIS  WRITTEN  AGREEMENT  AND THE LOAN  DOCUMENTS  REPRESENT  THE FINAL
         AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE  CONTRADICTED BY EVIDENCE
         OF  PRIOR,  CONTEMPORANEOUS,  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF  THE
         PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.




                   [Reminder of Page Intentionally Left Blank]


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<PAGE>

Executed as of the Effective Date.

                                 NATIONSBANK OF TEXAS, N.A.


                                 By:      /s/ Mark L Henze
                                 Mark L. Henze, Vice President


                                 THE LEATHER FACTORY, INC.
                                 A Delaware corporation


                                 By:      /s/ Fred N Howell
                                 Title:   Chief Financial Officer and Treasurer


                                 THE LEATHER FACTORY, INC.
                                 A Texas corporation


                                 By:      /s/ Fred N Howell
                                 Title:   Chief Financial Officer and Treasurer


                                 ROBERTS, CUSHMAN & COMPANY, INC.


                                 By:      /s/ Fred N Howell
                                 Title:   Chief Financial Officer and Treasurer





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                                  EXHIBIT 27.1


















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