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 ACT OF 1934

For the quarterly period ended ~~September 30, 2007~~March 31, 2008

[ ] 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

TANDY LEATHER FACTORY, INC.

(Exact name of registrant as specified in its charter)

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

~~3847 East~~1900 Southeast Loop 820, ~~South,~~ Fort Worth, Texas ~~76119~~76140

(Address of principal executive offices) (Zip Code)

(817) ~~496-4414~~872-3200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be 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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

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

Class		Shares outstanding as of ~~November 9, 2007~~ May 7, 2008
Common Stock, par value $0.0024 per share		10,977,092

TANDY LEATHER FACTORY, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2007~~MARCH 31, 2008

TABLE OF CONTENTS

	PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

~~Item 1. Financial Statements~~ Consolidated Balance Sheets
March 31, 2008 and December 31, 2007	1

Consolidated ~~Balance Sheets as~~Statements of ~~September 30,~~Income
Three months ended March 31, 2008 and 2007	2

Consolidated Statements of Cash Flows
Three months ended March 31, 2008 and ~~December 31, 2006~~2007	3

Consolidated Statements of ~~Income for the three and nine~~Stockholders' Equity
Three months ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~	4

Notes to Consolidated Financial Statements ~~of Cash Flows for the nine months ended September 30, 2007 and 2006~~	5

~~Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 2007 and 2006~~	6

~~Notes to Consolidated Financial Statements~~	7

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations	128

Item 3. Quantitative and Qualitative Disclosures About Market Risk	18

~~Item 4. Controls and Procedures~~	1811

Item 4. Controls and Procedures	11

PART II. OTHER INFORMATION

Item 6. Exhibits	1911


SIGNATURES	2011

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Tandy Leather Factory, Inc.

Consolidated Balance Sheets

September 30,
2007
(unaudited)

December 31,
2006
(audited)
ASSETS

CURRENT ASSETS:
Cash $3,757,534 $6,739,891
Accounts receivable-trade, net of allowance for doubtful accounts
of $127,000 and $149,000 in 2007 and 2006, respectively 2,294,922 2,599,279
Inventory 20,721,612 17,169,358
Prepaid income taxes 520,826 -
Deferred income taxes 287,942 266,018
Other current assets 974,559 1,089,258
Total current assets 28,557,394 27,863,804

PROPERTY AND EQUIPMENT, at cost 11,709,818 6,865,946
Less accumulated depreciation and amortization (5,197,704) (4,989,341)
6,512,114 1,876,605

GOODWILL 989,296 746,139
OTHER INTANGIBLES, net of accumulated amortization of
$300,000 and $262,000 in 2007 and 2006, respectively 396,957 360,676
OTHER assets 1,189,678 1,069,411

$37,645,440

$31,916,635

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable-trade $2,341,491 $1,776,646
Accrued expenses and other liabilities 2,431,130 3,424,010
Income taxes payable - 59,392
Current maturities of capital lease obligations 11,172 111,723
Current maturities of long-term debt 84,375 -
Total current liabilities 4,868,168 5,371,771

DEFERRED INCOME TAXES 225,396 221,621

LONG-TERM DEBT, less current maturities 3,965,625 -
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;
10,974,951 and 10,885,068 shares issued at 2007 and 2006, respectively;
10,969,092 and 10,879,209 outstanding at 2007 and 2006, respectively 26,340 26,124
Paid-in capital 5,389,111 5,292,591
Retained earnings 22,864,188 20,949,540
Treasury stock (5,859 shares at cost) (25,487) (25,487)
Accumulated other comprehensive income 332,099 80,475
Total stockholders' equity 28,586,251 26,323,243

$37,645,440

$31,916,635

					March 31, 2008 (unaudited)	December 31, 2007 (audited)
ASSETS
CURRENT ASSETS:
	Cash				$8,610,331	$6,810,396
	Accounts receivable-trade, net of allowance for doubtful accounts
			of $137,000 and $104,000 in 2008 and 2007, respectively		2,044,119	2,538,816
	Inventory				16,227,628	17,473,352
	Deferred income taxes				251,665	256,938
	Other current assets				1,246,771	1,102,836
				Total current assets	28,380,514	28,182,338

PROPERTY AND EQUIPMENT, at cost					14,220,027	11,793,317
Less accumulated depreciation and amortization					(4,497,550)	(4,794,505)
					9,722,477	6,998,812

GOODWILL					986,281	990,536
OTHER INTANGIBLES, net of accumulated amortization of
	$328,000 and $313,000 in 2008 and 2007, respectively				368,783	384,134
OTHER assets					405,126	1,095,686
					$39,863,181	$37,651,506

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable-trade				$1,485,783	$1,497,564
	Accrued expenses and other liabilities				2,647,416	2,072,640
	Income taxes payable				270,712	67,150
	Current maturities of long-term debt and capital lease obligations				419,103	135,000
				Total current liabilities	4,823,014	3,772,354

DEFERRED INCOME TAXES					293,743	148,648

LONG-TERM DEBT, net of current maturities					3,864,375	3,915,000
CAPITAL LEASE OBLIGATION, net of current maturities					525,275	-

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;
		10,982,951 shares issued at 2008 and 2007;
		10,977,092 shares outstanding at 2008 and 2007			26,359	26,359
	Paid-in capital				5,427,102	5,419,477
	Retained earnings				24,622,170	24,037,672
	Treasury stock (5,859 shares at cost)				(25,487)	(25,487)
	Accumulated other comprehensive income				306,630	357,483
				Total stockholders' equity	30,356,774	29,815,504
					$39,863,181	$37,651,506

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

~~Tandy Leather Factory, Inc.~~

~~Consolidated Statements of Income~~

~~(Unaudited)~~

~~For the Three and Nine Months Ended September 30, 2007 and 2006~~

THREE MONTHS

NINE MONTHS

2007

2006

2007

2006
NET SALES $12,806,333 $12,559,593 $40,691,125 $40,366,325

COST OF SALES 5,864,699 5,488,179 17,465,869 17,458,476

Gross profit 6,941,634 7,071,414 23,225,256 22,907,849

OPERATING EXPENSES 6,836,357 5,807,442 20,460,848 17,903,337

INCOME FROM OPERATIONS 105,277 1,263,972 2,764,408 5,004,512

OTHER INCOME (EXPENSE):
Interest expense (50,494) - (50,494) -
Other, net 272,658 37,422 349,172 84,951
Total other income (expense) 222,164 37,422 298,678 84,951

INCOME BEFORE INCOME TAXES 327,441 1,301,394 3,063,086 5,089,463

PROVISION FOR INCOME TAXES 155,835 410,975 1,148,438 1,720,288

NET INCOME $171,606 $890,419 $1,914,648 $3,369,175

NET INCOME PER COMMON SHARE-BASIC $ 0.02 $ 0.08 $ 0.17 $ 0.31
NET INCOME PER COMMON SHARE-DILUTED $ 0.02 $ 0.08 $ 0.17 $ 0.30

Weighted Average Number of Shares Outstanding:

Basic 10,968,635 10,818,130 10,943,817 10,788,720
Diluted 11,152,731 11,102,383 11,157,013 11,105,903

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

TABLE OF CONTENTS

Tandy Leather Factory, Inc.

Consolidated Statements of ~~Cash Flows~~Income

(Unaudited)

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~

2007

2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,914,648 $3,369,175
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation & amortization 470,832 291,257
Gain on disposal of assets - (1,750)
Non-cash stock-based compensation 22,876 78,600
Deferred income taxes (18,149) 56,975
Other 233,465 36,217
Net changes in assets and liabilities:
Accounts receivable-trade, net 360,709 (248,942)
Inventory (3,202,032) (1,493,683)
Income taxes (580,218) (412,676)
Other current assets 98,716 (648,879)
Accounts payable 516,201 1,924,072
Accrued expenses and other liabilities (992,879) (830,874)
Total adjustments (3,090,478) (1,249,683)

Net cash provided by (used in) operating activities (1,175,830) 2,119,492

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,084,907) (382,187)
Payments in connection with businesses acquired (650,000) -
Proceeds from sale of assets 25,339 1,750
Decrease (increase) in other assets (120,267) 9,407

Net cash used in investing activities (5,829,835) (371,030)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 4,050,000 -
Payments on capital lease obligations (100,550) (100,550)
Proceeds from issuance of common stock 73,860 106,590

Net cash provided by (used in) financing activities 4,023,310 6,040

NET CHANGE IN CASH (2,982,355) 1,754,502

CASH, beginning of period 6,739,891 3,215,727

CASH, end of period $3,757,534 $4,970,229

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $50,494 -
Income taxes paid during the period, net of (refunds) 1,758,519 $1,833,737

		2008	2007

NET SALES		$13,260,160	$14,507,805
COST OF SALES		5,519,138	5,909,852
	Gross profit	7,741,022	8,597,953

OPERATING EXPENSES		7,019,638	6,643,172
INCOME FROM OPERATIONS		721,384	1,954,781

OTHER (INCOME) EXPENSE:
Interest expense		81,741	-
Other, net		(280,390)	(48,996)
	Total other (income) expense	(198,649)	(48,996)

INCOME BEFORE INCOME TAXES		920,033	2,003,777

PROVISION FOR INCOME TAXES		335,535	657,422

NET INCOME		$584,498	$1,346,355


NET INCOME PER COMMON SHARE – BASIC		$0.05	$0.12

NET INCOME PER COMMON SHARE – DILUTED		$0.05	$0.12

Weighted Average Number of Shares Outstanding:
Basic		10,977,092	10,893,359
Diluted		11,067,863	11,150,246

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

TABLE OF CONTENTS

Tandy Leather Factory, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

For the Three Months Ended March 31, 2008 and 2007

						2008	2007
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income					$584,498	$1,346,355
	Adjustments to reconcile net income to net cash
		provided by operating activities -
			Depreciation and amortization			225,424	105,739
			Gain on disposal of assets			(12,109)	-
			Non-cash stock-based compensation			7,625	7,626
			Deferred income taxes			150,368	(15,281)
			Other			(46,598)	11,092
			Net changes in assets and liabilities, net of effect of business acquisitions:
				Accounts receivable-trade, net		494,697	(239,162)
				Inventory		1,245,724	(824,948)
				Income taxes		203,562	368,418
				Other current assets		(143,935)	(396,474)
				Accounts payable-trade		(11,781)	726,168
				Accrued expenses and other liabilities		574,776	(939,387)
	Total adjustments					2,687,753	(1,196,209)
					Net cash provided by operating activities	3,272,251	150,146

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of property and equipment					(2,136,246)	(200,097)
	Payments in connection with businesses acquired					-	(650,000)
	Proceeds from sale of assets					-	25,339
	Decrease (increase) in other assets					690,560	(81,063)
					Net cash used in investing activities	(1,445,686)	(905,821)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Payments on capital lease obligations					(44,959)	(33,517)
	Proceeds from sale of assets					18,329	50,910
					Net cash provided by (used in) financing activities	(26,630)	17,393

NET INCREASE (DECREASE) IN CASH						1,799,935	(738,294)

CASH, beginning of period						6,810,396	6,739,891

CASH, end of period						$8,610,331	$6,001,607


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period						$81,741	-
Income tax paid during the period, net of (refunds)						$60,210	$304,908

NON-CASH INVESTING ACTIVITIES:
Equipment acquired under capital lease financing arrangement						$803,712	-

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

TABLE OF CONTENTS

Tandy Leather Factory, Inc.

Consolidated Statements of Stockholders' Equity

(Unaudited)

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~

Number of Shares

Par
Value

Paid-in Capital

Treasury
Stock

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total

Comprehensive
Income (Loss)
BALANCE, December 31, 2005 10,741,835 $25,780 $4,988,445 $(25,487) $16,172,475 $96,644 $21,257,857

Shares issued - stock options and
warrants exercised

95,165

228

106,362

-

-

-

106,590

Stock-based compensation
- - 78,600 - - - 78,600

Net income
- - - - 3,369,175 - 3,369,175 $3,369,175

Translation adjustment
- - - - - 40,686 40,686 40,686
BALANCE, September 30, 2006 10,837,000 $26,008 $5,173,407 $(25,487) $19,541,650 $137,330 $24,852,908

Comprehensive income for the nine months ended September 30, 2006 $3,409,861

	Number of Shares	Par Value	Paid-in Capital	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total	Comprehensive Income (Loss)
BALANCE, December 31, 2006	10,885,068	$26,124	$5,292,591	$(25,487)	$20,949,540	$80,475	$26,323,243

Shares issued - stock options and warrants exercised	34,500	83	50,827	-	-	-	50,910
Stock-based compensation	-	-	7,626	-	-	-	7,626
Net income	-	-	-	-	1,346,355	-	1,346,355	$1,346,355
Translation adjustment	-	-	-	-	-	12,181	12,181	12,181
BALANCE, March 31, 2007	10,919,568	$26,207	$5,351,044	$(25,487)	$22,295,895	$92,656	$27,740,315

Comprehensive income for the three months ended March 31, 2007

$1,358,536

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 and
warrants exercised

89,883

216

73,644

-

-

-

73,860

Stock-based compensation
- - 22,876 - - - 22,876

Net income
- - - - 1,914,648 - 1,914,648 $1,914,648

Translation adjustment
- - - - - 251,624 251,622 251,624
BALANCE, September 30, 2007 10,969,092 $26,340 $5,389,111 $(25,487) $22,864,188 $332,099 $28,586,251

Comprehensive income for the nine months ended September 30, 2007 $2,166,272

BALANCE, December 31, 2007	10,977,092	$26,359	$5,419,477	$(25,487)	$24,037,672	$357,483	$29,815,504

Shares issued - stock options and warrants exercised	-	-	-	-	-	-	-
Stock-based compensation	-	-	7,625	-	-	-	7,625
Net income	-	-	-	-	584,498	-	584,498	$584,498
Translation adjustment	-	-	-	-	-	(50,853)	(50,853)	(50,853)
BALANCE, March 31, 2008	10,977,092	$26,359	$5,427,102	$(25,487)	$24,622,170	$306,630	$30,356,774

Comprehensive income for the three months ended March 31, 2008

$533,645

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

TABLE OF CONTENTS

TANDY LEATHER FACTORY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying consolidated financial statements for Tandy Leather Factory, Inc. and its consolidated subsidiaries contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its financial position as of ~~September 30, 2007~~March 31, 2008 and December 31, ~~2006,~~2007, and its results of operations and cash flows for the ~~three and/or nine-month~~three-month periods ended ~~September 30, 2007~~March 31, 2008 and ~~2006.~~2007. Operating results for the ~~three and nine-month periods~~three-month period ended ~~September 30, 2007~~March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2007.~~2008. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2006.~~2007.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Inventory. Inventory is stated at the lower of cost or market and is accounted for on the “first in, first out” method. Based on negotiations with vendors, title generally passes to us when merchandise is put on board. Merchandise to which we have title but have not yet received is recorded as Inventory in transit. In addition, the value of inventory is periodically reduced for slow-moving or obsolete inventory based on management's review of items on hand compared to their estimated future demand.

The components of inventory consist of the following:

	As of		As of
	September 30, 2007	December 31, 2006	March 31, 2008	December 31, 2007
Inventory on hand:
Finished goods held for sale	$19,127,786	$14,774,445	$14,703,432	$16,482,845
Raw materials and work in process	762,742	628,539	477,378	633,188
Inventory in transit	831,084	1,766,374	1,046,818	357,319
	$20,721,612	$17,169,358	$16,227,628	$17,473,352

Goodwill and Other Intangibles. Statement of Financial Accounting Standards ("SFAS") No. 142, ~~"Goodwill~~Goodwill and Other Intangible Assets", prescribes a two-phase process for impairment testing of goodwill, which is performed once annually, absent indicators of impairment during the interim. The first phase screens for impairment, while the second phase (if necessary) measures the impairment. We have elected to perform the annual analysis during the fourth calendar quarter of each year. As of December 31, ~~2006,~~2007, management determined that the present value of the discounted estimated future cash flows of the stores associated with the goodwill is sufficient to support their respective goodwill balances. No indicators of impairment were identified during the first ~~nine months~~quarter of ~~2007.~~2008.

A summary of changes in our goodwill for the periods ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ is as follows:

Leather Factory
Tandy Leather
Total
Balance, December 31, 2005 $363,205 $383,406 $746,611
Acquisitions and adjustments - - -
Foreign exchange gain/loss 4,471 - 4,471
Impairments - - -
Balance, September 30, 2006 $367,676 $383,406 $751,082

	Leather Factory	Tandy Leather	Total	Leather Factory	Tandy Leather	Total
Balance, December 31, 2006	$362,733	$383,406	$746,139	$362,733	$383,406	$746,139
Acquisitions and adjustments	225,000	-	225,000	225,000	-	225,000
Foreign exchange gain/loss	18,157	-	18,157	1,088	-	1,088
Impairments	-	-	-	-	-
Balance, September 30, 2007	$605,890	$383,406	$989,296
Balance, March 31, 2007				$588,821	$383,406	$972,227

				Leather Factory	Tandy Leather	Total
Balance, December 31, 2007				$607,130	$383,406	$990,536
Acquisitions and adjustments				-	-
Foreign exchange gain/loss				(4,255)	-	(4,255)
Impairments				-	-
Balance, March 31, 2008				$602,875	$383,406	$986,281

Other intangibles consist of the following:

	As of September 30, 2007			As of December 31, 2006			As of March 31, 2008			As of December 31, 2007
	Gross	Accumulated Amortization	Net	Gross	Accumulated Amortization	Net	Gross	Accumulated Amortization	Net	Gross	Accumulated Amortization	Net
Trademarks, Copyrights	$544,369	$274,412	$269,957	$544,369	$247,193	$297,176	$544,369	$295,086	$249,283	$544,369	$283,485	$260,884
Non-Compete Agreements	153,000	26,000	127,000	78,000	14,500	63,500	153,000	33,500	119,500	153,000	29,750	123,250
	$697,369	$300,412	$396,957	$622,369	$261,693	$360,676	$697,369	$328,586	$368,783	$697,369	$313,235	$384,134

We recorded amortization expense of ~~$38,718~~$15,351 during the first ~~nine months~~quarter of ~~2007~~2008 compared to ~~$28,718~~$9,573 during the first ~~nine months~~quarter of ~~2006.~~2007. All of our intangible assets are subject to amortization under SFAS 142. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding 5 years is as follows:

	Wholesale Leathercraft	Retail Leathercraft	Total	Wholesale Leathercraft	Retail Leathercraft	Total
2007	19,704	31,837	51,541
2008	20,954	30,337	51,291	$20,954	$30,337	$51,291
2009	20,954	30,337	51,291	20,954	30,337	51,291
2010	20,954	30,337	51,291	20,954	30,337	51,291
2011	20,027	30,337	50,364	20,027	30,337	50,364
2012				1,250	30,337	31,587

TABLE OF CONTENTS

Revenue Recognition. Our sales generally occur via two methods: (1) at the counter in our stores, and (2) shipment by common carrier. Sales at the counter are recorded and title passes as transactions occur. Otherwise, sales are recorded and title passes when the merchandise is shipped to the customer. Our shipping terms are FOB shipping point.

We offer an unconditional satisfaction guarantee to our customers and accept all product returns. Net sales represent gross sales less negotiated price allowances, product returns, and allowances for defective merchandise.

Recent Accounting Pronouncements. ~~In May 2005, the FASB issued SFAS No. 154~~ ~~“Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and Statement No. 3”~~ (“SFAS No. 154”). Previously, APB Opinion No. 20 “Accounting Changes” and SFAS No. 3 “Reporting Accounting Changes in Interim Financial Statements” required the inclusion of the cumulative effect of changes in accounting principle in net income of the period of the change. SFAS No. 154, which is effective January 1, 2006, requires companies to recognize a change in accounting principle, including a change required in a new accounting pronouncement when the pronouncement does not include specific transition provisions, retrospectively to prior periods’ financial statements. We will assess the impact of a change in accounting principle in accordance with SFAS No. 154 when such a change arises.

In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” which seeks to reduce the diversity in practice associated with the accounting and reporting for uncertainty in income tax provisions. This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. We implemented FIN 48 as of January 1, 2007 and have determined that there was no material effect to our consolidated financial statements.

In September 2006, ~~the~~ FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 ~~“Fair Value Measurements” (“SFAS 157”), which~~ defines fair value, ~~establishes~~creates a framework within GAAP for measuring fair value, ~~in GAAP,~~ and expands disclosures about fair value measurements. In defining fair value, SFAS 157 emphasizes a market-based measurement approach that is based on the assumptions that market participants would use in pricing an asset or liability. SFAS 157 does not require any new fair value measurements, but does generally apply to other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays for one year the effective date of SFAS 157 for most nonfinancial assets and nonfinancial liabilities. Nonfinancial instruments affected by this deferral include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. Effective January 1, 2008, we adopted SFAS 157 for financial assets and financial liabilities recognized at fair value on a recurring basis. The adoption of SFAS 157 for these items did not have a material impact on our financial position, results of operations and cash flows.

In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, ~~and~~including interim periods within ~~those~~that fiscal ~~years. Early adoption is permitted.~~year. We ~~must adopt these new requirements no later than~~did not elect the ~~first quarter~~fair value option for any of ~~2008. We~~our existing financial instruments as of March 31, 2008 and we have not ~~yet~~ determined ~~the effect on our consolidated financial statements, if any, upon adoption of SFAS 157,~~whether or ifnot we will ~~adopt~~elect this option for financial instruments we may acquire in the ~~requirements prior to the first quarter of 2008.~~future.

In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. Under SFAS 141R, all business combinations are accounted for by applying the acquisition method (previously referred to as the purchase method), under which the acquirer measures all identified assets acquired, liabilities assumed, and noncontrolling interests in the acquiree at their acquisition date fair values. Certain forms of contingent consideration and certain acquired contingencies are also recorded at their acquisition date fair values. SFAS 141R also requires that most acquisition related costs be expensed in the period incurred. SFAS 141R is effective for us in January 2009. SFAS 141R will change our accounting for business combinations on a prospective basis.

In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires a company to recognize noncontrolling interests (previously referred to as “minority interests”) as a separate component in the equity section of the consolidated statement of financial position. It also requires the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated statement of income. SFAS 160 also requires changes in ownership interest to be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. SFAS 160 is effective for us in January 2009. We are currently evaluating the impact, if any, SFAS 160 will have on our financial position, results of operations and cash flows.

In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 requires a company with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. SFAS 161 is effective for us in January 2009.

2. STOCK-BASED COMPENSATION

We have one stock option plan which provides for stock option grants to non-employee directors. No options have been awarded as of March 31, 2008. We had two other stock option plans from 1995 which ~~provide~~provided for stock option grants to officers, key employees and non-employee directors. ~~The~~These plans expired in 2005. The expiration of the plans has no effect on the options previously granted. Options outstanding and exercisable were granted at a stock option price which was not less than the fair market value of our ~~Common Stock~~common stock on the date the option was granted and no option has a term in excess of ten years. Additionally, options vest and become exercisable either six months from the option grant date or in equal installments over a five year period. Prior to fiscal 2006, we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations and provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based Compensation.

On January 1, 2006, we adopted SFAS No. 123(R), ~~“Share-Based~~Share-Based Payment”, and elected to adopt the standard using the modified prospective transition method. Under this transition method, compensation cost associated with stock options recognized in 2006 includes: (1) amortization related to the remaining unvested portion of all share based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original pro forma footnote disclosure provisions of FASB Statement No. 123 and (2) amortization related to all share based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of FASB Statement No. 123(R). Accordingly, stock compensation award expense is recognized over the requisite service period using the straight-line attribution method. ~~Previously reported amounts have not been restated.~~

We recognized share based compensation expense of approximately $7,600 for each of the ~~three~~quarters ended March 31, 2008 and ~~nine months ended September 30,~~ 2007, ~~and 2006~~respectively, as ~~follows:~~a component of operating expenses.

Three Months Ended September 30,
Nine Months Ended September 30,

2007
2006
2007
2006
Share-based compensation expense $7,625 $33,640 $22,876 $78,600

The fair values of stock options granted were estimated on the grant dates using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 3.375%-3.5%, a dividend yield of 0%; volatility factor of .366-.780; and an expected life of the valued options of 3-5 years.

TABLE OF CONTENTS

During the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2007, the stock option activity under our stock option plans was as follows:

	Weighted Average Exercise Price	# of Shares	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value	Weighted Average Exercise Price	# of shares	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding, January 1, 2007	$2.050	296,200			$2.05	296,200
Granted	-	-			-	-
Cancelled	-	-			-	-
Exercised	1.466	51,500			1.476	34,500
Outstanding, September 30, 2007	$2.180	244,700	4.35	$289,420
Exercisable, September 30, 2007	$2.050	228,700	4.22	$256,380
Outstanding, March 31, 2007					$2.13	261,700	4.80	$303,069
Exercisable, March 31, 2007					$1.88	231,700	4.56	$239,529

Outstanding, January 1, 2008					$2.11	236,700
Granted					-	-
Cancelled					-	-
Exercised					-	-
Outstanding, March 31, 2008					$2.11	236,700	3.79	$270,780
Exercisable, March 31, 2008					$1.97	220,700	3.65	$237,740

Other information pertaining to option activity during the ~~nine~~three month periods ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ are as follows:

	September 30, 2007	September 30, 2006	March 31, 2008	March 31, 2007
Weighted average grant-date fair value of stock options granted	N/A	$11,160	N/A	N/A
Total fair value of stock options vested	$30,500	$101,728	$7,625	$7,626
Total intrinsic value of stock options exercised	$43,640	$63,481	N/A	N/A

As of ~~September 30,~~March 31, 2008 and 2007, there was ~~$30,000~~$25,000 and $58,000, respectively, of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a remaining weighted average vesting period of 32 years.

3. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 and ~~2006:~~2007:

		Three Months Ended		Nine Months Ended			2008	2007
Net income						Net income	$584,498	$1,346,355
Numerator for basic and diluted earnings per share						Numerator for basic and diluted earnings per share	$584,498	$1,346,355
		September 30,		September 30,
		2007	2006	2007	2006
Numerator:
	Net income	$171,606	$890,419	$1,914,648	$3,369,175
	Numerator for basic and diluted earnings per share	171,606	890,419	1,914,648	3,369,175
Denominator:
	Weighted-average shares outstanding-basic	10,968,635	10,818,130	10,943,817	10,788,720
Denominator for basic earnings per share – weighted-average shares						Denominator for basic earnings per share – weighted-average shares	10,977,092	10,893,359

Effect of dilutive securities:	Effect of dilutive securities:					Effect of dilutive securities:
	Stock options	170,874	241,192	187,064	266,034	Stock options	90,771	205,304
	Warrants	13,222	43,061	26,132	51,149	Warrants	-	51,583
Dilutive potential common shares	Dilutive potential common shares	184,096	284,253	213,196	317,183	Dilutive potential common shares	90,771	256,887
	Denominator for diluted earnings per share- weighted-average shares	11,152,731	11,102,383	11,157,013	11,105,903
Denominator for diluted earnings per share – weighted-average shares						Denominator for diluted earnings per share – weighted-average shares	11,067,863	11,150,246

	Basic earnings per share	$0.02	$0.08	$0.18	$0.31	Basic earnings per share	$0.05	$0.12
	Diluted earnings per share	$0.02	$0.08	$0.17	$0.20	Diluted earnings per share	$0.05	$0.12

The net effect of converting stock options and warrants to purchase ~~289,000~~165,700 and ~~478,300~~394,500 shares of common stock at exercise prices less than the average market prices has been included in the computations of diluted EPS for the ~~three~~quarter ended March 31, 2008 and ~~nine months ended September 30,~~ 2007, ~~and 2006,~~ respectively.

4. SEGMENT INFORMATION

We identify our segments based on the activities of ~~three~~four distinct operations:

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;~~North America;

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~~North America;

c.	International Leathercraft, sells to both wholesale and retail customers. It carries the same products as North American stores. We started this operation in February 2008 and have one store located in Northampton, UK; and

d.	Other, which is a manufacturer of decorative hat trims sold directly to hat manufacturers.

Our reportable operating segments have been determined as separately identifiable business units and we measure segment earnings as operating earnings, defined as income before interest and income taxes.

Wholesale Leathercraft
Retail
Leathercraft

Other

Total
For the quarter ended September 30, 2007

Net sales $6,940,484 $5,657,198 $208,651 $12,806,333
Gross profit 3,608,272 3,254,075 79,287 6,941,634
Operating earnings 32,686 58,780 13,811 105,277
Interest expense 50,494 - - 50,494
Other, net (264,792) (7,866) - (272,658)
Income before income taxes 246,984 66,646 13,811 327,441

Depreciation and amortization 181,113 35,050 2,477 218,640
Fixed asset additions 4,657,769 74,257 - $4,732,026
Total assets $31,929,070 $5,548,815 $167,555 $37,645,440

For the quarter ended September 30, 2006

Net sales $7,113,181 $5,121,556 $324,856 $12,559,593
Gross profit 3,847,911 3,095,207 128,296 7,071,414
Operating earnings 910,942 362,744 (9,714) 1,263,972
Interest expense - - - -
Other, net 37,805 (1,664) 1,281 37,422
Income before income taxes 948,747 361,080 (8,433) 1,301,394

Depreciation and amortization 60,975 37,112 1,697 99,784
Fixed asset additions 100,403 52,009 - 152,412
Total assets $24,558,634 $5,192,664 $329,414 $30,080,712

Wholesale Leathercraft
Retail
Leathercraft

Other

Total
For the nine months ended September 30, 2007

Net sales $22,057,123 $17,753,614 $880,388 $40,691,125
Gross profit 12,378,185 10,482,976 364,095 23,225,256
Operating earnings 1,790,257 878,492 95,659 2,764,408
Interest expense 50,494 - - 50,494
Other, net (336,641) (12,531) - (349,172)
Income before income taxes 2,076,404 891,023 95,659 3,063,086

Depreciation and amortization 341,974 127,862 996 470,832
Fixed asset additions 4,892,019 192,687 200 $5,084,906
Total assets $31,929,070 $5,548,815 $167,555 $37,645,440

For the nine months ended September 30, 2006

Net sales $23,250,338 $15,858,835 $1,257,152 $40,366,325
Gross profit 12,930,486 9,634,035 343,328 22,907,849
Operating earnings 3,675,658 1,323,105 5,749 5,004,512
Interest expense - - - -
Other, net 102,089 (18,419) 1,281 84,951
Income before income taxes 3,777,747 1,304,686 7,030 5,089,463

Depreciation and amortization 180,289 106,651 4,317 291,257
Fixed asset additions 228,880 153,146 162 382,188
Total assets $24,558,634 $5,192,664 $329,414 $30,080,712

TABLE OF CONTENTS

	Wholesale Leathercraft	Retail Leathercraft	Int’l Leathercraft	Other	Total
For the quarter ended March 31, 2008
Net sales	$6,738,210	$6,270,774	$41,738	$209,438	$13,260,160
Gross profit	3,719,054	3,908,469	29,724	83,775	7,741,022
Operating earnings	123,955	614,451	(41,461)	24,438	721,384
Interest expense	81,741	-	-	-	81,741
Other, net	(280,608)	266	(49)	-	(280,390)
Income before income taxes	322,822	614,185	(41,412)	24,438	920,033

Depreciation and amortization	189,690	32,025	2,647	1,062	225,424
Fixed asset additions	2,856,751	15,260	67,947	-	$2,939,958
Total assets	$34,097,700	$5,368,486	$272,964	$124,031	$39,863,181

For the quarter ended March 31, 2007
Net sales	$7,940,487	$6,254,219	-	$313,099	$14,507,805
Gross profit	4,681,886	3,780,607	-	135,460	8,597,953
Operating earnings	1,346,203	553,748	-	54,830	1,954,781
Interest expense	-	-	-	-	-
Other, net	50,434	(1,438)	-	-	48,996
Income before income taxes	1,396,637	552,310	-	54,830	2,003,777

Depreciation and amortization	68,148	36,371	-	1,220	105,739
Fixed asset additions	178,797	21,300	-	-	200,097
Total assets	$27,794,341	$5,465,363	-	$239,241	$33,498,945

Net sales for geographic areas were as follows for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 and ~~2006 were as follows:~~

Three months ended September 30,
2007
2006
United States $11,423,156 $11,151,670
Canada 1,072,842 953,224
All other countries 310,335 454,699
$12,806,333 $12,559,593
2007:

Nine months ended September 30,	2007	2006
			2008	2007
United States	$36,194,509	$35,981,135	$11,531,896	$12,928,843
Canada	3,274,464	3,098,839	1,242,484	1,125,427
All other countries	1,222,152	1,286,351	485,780	453,535
	$40,691,125	$40,366,325	$13,260,160	$14,507,805

Geographic sales information is based on the location of the customer. No single foreign country, except for Canada, accounted for any material amount of our consolidated net sales for the ~~three or nine-month~~three-month periods ended ~~September 30, 2007 or 2006.~~March 31, 2008 and 2007. We do not have any significant long-lived assets outside of the United States.

5.	~~NOTES PAYABLE AND LONG-TERM DEBT~~

On July 31, we entered into a Credit Agreement and Line of Credit Note with JPMorgan Chase Bank, N.A., pursuant to which the bank agreed to provide us with a credit facility of up to $5,500,000 to facilitate our purchase of real estate consisting of a 195,000 square foot building situated on 30 acres of land located at 1900 SE Loop 820 in Fort Worth, Texas. Under the terms of the Line of Credit Note, we may borrow from time to time until April 30, 2008, up to the lesser of $5,500,000 or 90% of the cost of the property. We will make only monthly interest payments until April 30, 2008, at which time the principal balance will be rolled into a 10-year term note. Amounts drawn under the Credit Agreement accrue interest at a rate of 7.10% per annum.

Proceeds in the amount of $4,050,000 were used to fund the purchase of the property from Standard Motor Products, Inc. under an Agreement of Purchase and Sale, dated June 25, 2007, which closed on July 31, 2007. The remaining credit line available will be used to remodel portions of the building. We expect to move our corporate headquarters, central warehouse and other support units into the acquired building during the first quarter of 2008.

~~At September 30, 2007, the amount outstanding under the above agreement consisted of the following:~~

	~~2007~~
~~Credit Agreement with JPMorgan Chase Bank - collateralized by real estate; payable as follows:~~
~~Line of Credit Note dated July 31, 2007 in the maximum principal amount of $5,500,000 with revolving features as more fully described above - interest due monthly at 7.10%; matures April 30, 2018~~	~~$ 4,050,000~~
	~~4,050,000~~
~~Less - Current maturities~~	~~84,375~~
	~~$3,965,625~~

Item 2.Management’s Discussion and Analysis of Financial Condition

and Results of Operations.

Our Business

We are the world’s largest specialty retailer and wholesale distributor of leather and leathercraft related items. We market our products to our growing list of customers through company-owned retail ~~stores~~ and wholesale ~~distribution centers.~~stores. We are a Delaware corporation and our common stock trades on the American Stock Exchange under the symbol “TLF.” We operate our business in ~~three~~four segments: Wholesale Leathercraft, which operates wholesale stores in North America under the trade name, The Leather Factory, Retail Leathercraft, which operates retail stores in North America under the trade name, Tandy Leather Company,International Leathercraft, which operates combination retail/wholesale stores outside of North America under the trade name, Tandy Leather Factory, and Other~~Other~~. See Note 4 to the Consolidated Financial Statements for additional information concerning our segments, as well as our foreign operations.

Our Wholesale Leathercraft segment operates 30 company-owned wholesale stores in 20 states and three Canadian provinces. These stores are engaged in the wholesale distribution of leather and related items, including leatherworking tools, buckles and belt adornments, leather dyes and finishes, saddle and tack hardware, and do-it-yourself kits, to retailers, manufacturers, and end users. Our Wholesale Leathercraft segment also includes our National Account sales group.

Our Retail Leathercraft segment operates company-owned Tandy Leather retail stores in 34 states and five Canadian provinces. Tandy Leather, the oldest and best-known supplier of leather and related supplies used in the leathercraft industry, has been the primary leathercraft resource for decades. Tandy Leather’s products include quality tools, leather, accessories, kits and teaching materials. In 2002, we began expanding Tandy Leather’s industry presence by opening retail stores. As of ~~November~~May 1, ~~2007,~~2008, we were operating 72 Tandy Leather retail stores located throughout the United States and Canada.

Our International Leathercraft segment operates one company-owned store in Northampton, United Kingdom. The store, which opened in February 2008, functions as a combination retail and wholesale store.

Our “Other” segment consists of Roberts, Cushman and Co., a wholly-owned subsidiary that custom designs and distributes decorative hat trims for headwear manufacturers.

Critical Accounting Policies

A description of our critical accounting policies appears in ~~"Item~~Item 7. Management's Discussions and Analysis of Financial Condition and Results of ~~Operations"~~Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2006.~~2007.

TABLE OF CONTENTS

Forward-Looking Statements

Certain statements contained in this report and other materials we file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made or to be made by us, other than statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally are accompanied by words such as “may,” “will,” “could,” “should,” “anticipate,” “believe,” “budgeted,” “expect,” “intend,” “plan,” “project,” “potential,” “estimate,” “continue,” or “future” variations thereof or other similar statements. There are certain important risks that could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of the important risks, including those described below, could cause actual results to differ materially from those suggested by the forward-looking statements. Please refer also to our annual report on Form 10-K for fiscal year ~~2006~~2007 for additional information concerning these and other uncertainties that could negatively impact ~~us.~~the Company.

Ø	We believe that the continued 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.

Various oils used to manufacture certain leather and leathercrafts are derived from petroleum and natural gas. Also, the carriers who transport our goods rely on petroleum-based fuels to power their ships, trucks and trains. They are likely to pass their increased costs on to us. We are unsure how much of this increase we will be able to pass on to our customers.

Continued weakness in the economy in the United States, as well as abroad, may cause our sales to decrease or not to increase or adversely affect the prices charged for our products. Furthermore, negative trends in general consumer-spending levels, including the impact of the availability and level of consumer debt and levels of consumer confidence could adversely affect our sales.

General economic factors that are beyond our control impact our forecasts and actual performance. These factors include interest rates, recession, inflation, deflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that influence consumer confidence and spending.

We assume no obligation to update or otherwise revise our forward-looking statements even if experience or future changes make it clear that any projected results, express or implied, will not be ~~realized.~~realized.

Results of Operations

~~Three Months Ended September 30, 2007 and 2006~~

The following tables present selected financial data of each of our ~~three~~four segments for the quarters ended ~~September 30, 2007~~March 31, 2008 and ~~2006. Certain prior year amounts have been reclassified to conform to the current year presentation.~~2007.

	Quarter Ended September 30, 2007		Quarter Ended September 30, 2006		Quarter Ended March 31, 2008		Quarter Ended March 31, 2007
	Sales	Operating Income	Sales	Operating Income	Sales	Operating Income	Sales	Operating Income
Wholesale Leathercraft	$6,940,484	$32,686	$7,088,181	$910,942	$6,738,211	$123,955	$7,940,487	$1,346,203
Retail Leathercraft	5,657,198	58,780	5,121,556	362,744	6,270,774	614,452	6,254,219	553,748
Int’l Leathercraft					41,737	(41,460)	-	-
Other	208,651	13,811	349,856	(9,714)	209,438	24,437	313,099	54,830
Total Operations	$12,806,333	$105,277	$12,559,593	$1,263,972	$13,260,160	$721,384	$14,507,805	$1,954,781

Consolidated net sales for the quarter ended ~~September 30, 2007 increased 2%~~March 31, 2008 decreased $1.2 million, or (8.6)%, compared to the same period in ~~2006.~~2007. Retail ~~Leathercraft contributed $535,000 of additional~~and International Leathercraft’s sales ~~offset by a combined sales decrease of $289,000 in~~increased $16,500 and $41,700, respectively, while Wholesale Leathercraft and ~~Other.~~Other reported decreases of $1.2 million and $104,000, respectively. Operating income on a consolidated basis for the quarter ended ~~September 30, 2007~~March 31, 2008 was down ~~92%~~63.1% or ~~$1.1~~$1.2 million ~~over~~from the ~~third~~first quarter of ~~2006.~~2007.

The following table shows in comparative form our consolidated net income for the ~~third~~first quarters of ~~2007~~2008 and ~~2006:~~2007:

2007

2006
% Change
Net income $171,606 $890,419 (80.7)%

	2008		2007	% change
Net income	$584,498		$1,346,355	56.6%

While Wholesale Leathercraft recorded 51% of our sales in the quarter, all segments, excluding International Leathercraft, contributed to our consolidated net income. Additional information appears below for each segment.

Wholesale Leathercraft

Our Wholesale Leathercraft operation consists of 30 wholesale stores and our National Account group. The following table presents the combined sales mix by customer categories for the quarters ended ~~September 30, 2007~~March 31, 2008 and ~~2006:~~2007:

	Quarter ended		Quarter ended
Customer Group	09/30/07	09/30/06	03/31/08	03/31/07
RETAIL (end users, consumers, individuals)	21%	23%	28%	29%
INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)	8%	7%	7%	6%
WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.)	43%	39%	43%	38%
MANUFACTURERS	13%	11%	10%	11%
NATIONAL ACCOUNTS	15%	20%	12%	16%
	100%	100%	100%	100%

Net sales decreased 2%15.1%, or ~~$148,000,~~$1.2 million, for the ~~third~~first quarter of ~~2007~~2008 as follows:

	Quarter Ended 09/30/07	Quarter Ended 09/30/06	$ change	% change	Quarter Ended 03/31/08	Quarter Ended 03/31/07	$ change	% change
Same store sales (29)	$5,992,707	$5,968,100	$24,607	0.4%	$5,829,014	$6,624,606	$(795,592)	(12)%
New store (1)	164,314	-	164,314	N/A	162,938	185,263	(22,325)	(12)%
National account group	783,462	1,120,081	(336,619)	(30.1)%	746,259	1,130,618	(384,359)	(34)%
	$6,940,483	$7,088,181	$(147,698)	(2.1)%	$6,738,211	$7,940,487	$(1,202,276)	(15)%

~~The~~

TABLE OF CONTENTS

All customer groups’ sales mix for the third quarter indicates a decline in sales to retail customers and our national account customers. We achieved gains in sales to our Institution (specifically prisons and prisoners) and Wholesale customers. Sales to our national account customers were down ~~30% for the quarter~~ compared to the ~~same quarter last year. Approximately 25% of the sales decline is attributable to one customer which intends to stop purchasing from us in the second~~first quarter of 2008 due to its vendor consolidation policy. We believe the sales mix speaks to several issues: (1) the craft industry overall has weakened in recent years and (2) the retail customer is more cautious in discretionary spending2007 due to the ~~concerns about~~weakness in our sales. However, the ~~economy overall.~~mix of sales to the various customer groups is fairly consistent which would indicate an overall weakness related to the economic conditions in the United States rather than an internal issue unique to our specific company.

Operating income for Wholesale Leathercraft during the current quarter decreased by ~~$878,000~~$1.2 million from the comparative ~~2006~~2007 quarter, a decline of ~~96%~~91%. ~~Operating~~The lower sales accounted for the majority of the decrease in operating income, as well as an increase in operating expenses ~~as a percentage~~ of ~~sales were 51.5%, up $653,000 from~~$259,000. The moving expenses incurred to move our corporate offices, central warehouse and other support departments at the ~~third~~end of the quarter of 2006. Employee compensation increased $250,000 as our headcount is up 10% compared to the third quarter of 2006. At September 30, 2007, there are 7 manager trainees in the Leather Factory stores. We are analyzing the headcount increase at the support units and will be making adjustments as necessary to reduce this expense. Employee benefits, specifically health insurance and 401(k) plan contributions, are up $115,000 as well. Advertising expenses increased $200,000 over last year’s third quarter in an effort to improve sales. Legal and professional fees are up $115,000 as we’ve incurred fees related to our recent real estate purchase$125,000 and the ~~defense~~accelerated depreciation expense in anticipation of the abandonment of the leasehold improvements at our ~~intellectual property.~~former offices of $125,000 accounted for the majority of operating expense increase for the quarter.

Retail Leathercraft

Our Retail Leathercraft operation consists of 7172 Tandy Leather retail stores at ~~September 30, 2007,~~March 31, 2008, compared to 6165 stores at ~~September 30, 2006.~~March 31, 2007. Net sales were ~~up approximately 10%~~virtually flat for the ~~third~~first quarter of ~~2007~~2008 over the same quarter last year. A store is categorized as ~~"new"~~“new” until it is operating for the full comparable period in the prior year.

	# Stores	Qtr Ended 09/30/07	Qtr Ended 09/30/06	$ Incr (Decr)	% Incr (Decr)	# Stores	Qtr ended 03/31/08	Qtr ended 03/31/07	$ Incr (decr)	% Incr (decr)
Same (existing) store sales	61	$5,319,336	$5,084,332	$235,004	4.6%	65	$5,889,635	$6,254,219	$(364,584)	(6)%
New store sales	10	337,862	37,224	300,638	N/A	7	381,139	-	381,139	N/A
Total sales	71	$5,657,198	$5,121,556	$535,642	10.5%	72	$6,270,774	$6,254,219	$16,555	0%

The following table presents sales mix by customer categories for the quarters ended ~~September 30,~~March 31, 2008 and 2007 ~~and 2006~~ for our Retail Leathercraft operation:

	Quarter Ended		Quarter ended
Customer Group	09/30/07	09/30/06	03/31/08	03/31/07
RETAIL (end users, consumers, individuals)	62%	62%	64%	65%
INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.)	7	8	8	7
WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.)	28	30	27	26
NATIONAL ACCOUNTS	-	-	-	-
MANUFACTURERS	3	-	1	2
	100%	100%	100%	100%

Sales to ~~our Retail~~each customer group increased ~~7% compared to~~slightly over the ~~third~~first quarter of ~~2006. Sales~~2007, except for the Manufacturers group. Our experience is that small manufacturers and wholesalers tend to ~~the Wholesale and Manufacturers customer groups increased 3% each as more stores are beginning to develop these types of customers~~be especially cautious in their ~~local markets. The retail stores opened prior~~purchasing during a weak economy since they generally do not maintain excess cash to ~~July 1, 2007 averaged approximately $28,000~~invest in ~~sales per month for the third quarter of 2007.~~raw materials and inventory. As a result, their purchases from us tend to be more sporadic and smaller in dollars spent.

Operating income ~~decreased $304,000~~increased $61,000 from the comparative 2006 quarter to 1.0% of sales, compared to 7.1% of sales in the third quarter of 2006. Our gross margin fell from 60.4% to 57.5% due to cost increases that we were unable to pass on to customers and the increase in sales to wholesale customers.2007 quarter. Operating ~~expenses increased $460,000 in the third quarter of 2007 over the third quarter of 2006, and~~income as a percentage of sales also increased slightly from 53.4% to 56.5%. The operating expenses at the new stores opened since October 1, 2006 totaled $350,000. The remainder of the increase consisted of $50,000 in additional advertising and a $50,000 increase in employee benefits (health insurance, etc.).

~~Other (Roberts, Cushman)~~

Sales decreased $141,000 or 40.4% for the third quarter of 2007. Gross profit margins decreased by $55,000 while operating income increased by $23,000. We expected sales to decline as we increased the minimum order quantities due to the change in operations as we converted from a manufacturer to a distributor. However, we also expected gross profit margins and operating margins to improve as we eliminated substantial labor and direct manufacturing expenses by outsourcing that function.

~~Other Expenses~~

~~We paid interest~~8.9% in the ~~third~~first quarter of 2007 ~~of $50,000 as a result of the bank debt incurred~~ to purchase a building in July 2007. We also recorded $97,000 in rent income on this building in August and September. In addition, we recorded $106,000 in other income, representing an oil and gas lease bonus related to the property. We earned $27,000 during the quarter in interest income. We recorded $6,000 in income during the quarter for currency fluctuations from our Canadian operation.

~~Nine Months Ended September 30, 2007 and 2006~~

~~The following table presents selected financial data of each of our three segments for the nine months ended September 30, 2007 and 2006:~~

Nine Months Ended
September 30, 2007

Nine Months Ended
September 30, 2006

Sales

Operating
Income

Sales

Operating
Income
Wholesale Leathercraft $22,057,123 $1,790,257 $22,880,119 $3,675,658
Retail Leathercraft 17,753,614 878,492 15,858,836 1,323,105
Other 880,388 95,659 1,627,370 5,749
Total Operations $40,691,125 $2,764,408 $40,366,325 $5,004,512

Consolidated net sales for the nine months ended September 30, 2007 were up almost 1%, increasing $325,000, compared to the same period in 2006. Retail Leathercraft contributed additional sales of $1.9 million, offset by a combined sales decrease of $1.6 million from Wholesale Leathercraft and Other. Operating income on a consolidated basis for the nine months ended September 30, 2007 was down 44.8% or $2.2 million over the first nine months of 2006.

~~The following table shows in comparative form our consolidated net income for the first nine months of 2007 and 2006:~~

2007

2006
% change
Net income $1,914,648 $3,369,175 (43.2)%

~~Wholesale Leathercraft~~

~~Net sales decreased 3.6%, or $823,000, for the first nine months of 2007 as follows:~~

Nine Months Ended September 30, 2007

Nine Months Ended
September 30, 2006

$ Change

% Change
Same store sales (29) $18,729,902 $19,521,828 $(791,926) (4.1)%
New store (1) 553,451 - 553,451 N/A
National account group 2,773,770 3,358,291 (584,521) (17.4)%
$22,057,123 $22,880,119 $(822,996) (3.6)%

~~The following table presents the combined sales mix by customer categories for the nine months ended September 30, 2007 and 2006:~~

Nine Months Ended
Customer Group
09/30/07

09/30/06
RETAIL (end users, consumers, individuals) 22% 23%
INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.) 8% 7%
WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) 43% 39%
MANUFACTURERS 15% 11%
NATIONAL ACCOUNTS 12% 20%
100% 100%

Operating income for Wholesale Leathercraft for the nine months ended September 30, 2007 decreased by $1.9 million from the comparative 2006 period, a decline of 51.3%. Operating expenses as a percentage of sales were 48.0%, up $1.5 million from the first nine months of 2006.

~~Retail Leathercraft~~

~~Net sales were up approximately 12% for the first nine months of 2007 over the same period last year.~~

#
Stores
Nine Months Ended
09/30/07
Nine Months Ended
09/30/06
$ Incr
(Decr)
% Incr
(Decr)
Same (existing) store sales 52 $15,247,415 $14,856,541 $390,874 2.6%
New store sales 19 2,506,199 1,002,294 1,503,905 N/A
Total sales 71 $17,753,614 $15,858,835 $1,894,779 11.9%

~~The following table presents sales mix by customer categories for the nine months ended September 30, 2007 and 2006 for our Retail Leathercraft operation:~~

Nine Months Ended
Customer Group
09/30/07

09/30/06
RETAIL (end users, consumers, individuals) 63% 65%
INSTITUTION (prisons, prisoners, hospitals, schools, youth organizations, etc.) 8 9
WHOLESALE (resellers & distributors, saddle & tack shops, authorized dealers, etc.) 26 25
NATIONAL ACCOUNTS - -
MANUFACTURERS 3 1
100% 100%

~~The retail stores opened prior to January 1, 2007 averaged approximately $31,000 in sales per month for the first nine months of 2007.~~

~~Operating income for the first nine months of 2007 decreased $444,000 from the comparative 2006 period and as a percentage of sales, from 8.3%~~9.8% in the first ~~nine months~~quarter of ~~2006~~2008. Our gross margin increased from 60.5% to 4.9% in the first nine months of 2007. Gross margin fell from 60.7% to 59.1% due to the increase in sales to wholesale customers and cost increases in various products and our inability to pass those cost increases on to our customers. We publish our retail selling prices in our annual catalog which is distributed in October of each year. Selling prices are set based on our estimate of the cost of the items for the coming year. As costs fluctuate during the year, our gross margins can be affected positively or negatively.62.3%. Operating expenses as a percentage of sales increased from ~~52.4%~~51.6% to ~~54.1%~~52.5%. Operating expenses increased $67,000 over the first quarter of 2007. The seven new stores opened since March 31, 2007 account for additional operating expenses of $234,000. Offsetting those expenses are reductions in supplies, employee benefits, property taxes, and moving expenses.

International Leathercraft

Sales totaled $42,000 for the first quarter of 2008, generated from our new store located in the UK. The store was opened in February 2008. Gross profit margin was 71%, which was higher than comparable stores in the U.S.. The store generated higher profit margins primarily due to the store’s unique sales mix and the level at which we set our selling prices in the UK. We establish such levels to compensate for the higher cost of doing business overseas compared to the US. We do not expect the gross margins to maintain this level in the future. Operating expenses totaled $71,000, the largest contributors being employee compensation, store set-up supplies, and legal fees.

Other (Roberts, Cushman)

Sales decreased ~~$747,000 in~~$104,000 or 33% for the first ~~nine months~~quarter of ~~2007 compared to the same period in 2006.~~2008. Gross profit margins fell to 40% from 43.3% a year ago. Operating income decreased ~~by $68,000 while operating margin increased by $89,000.~~$30,000 due to the reduction in sales. Operating expenses decreased ~~by $158,000 in~~$21,000 from the first ~~nine months~~quarter of 2007 ~~compared~~due to ~~2006.~~the reduction of insurance costs and collection of customer accounts previously written off as uncollectible.

Other Expenses

We paid $81,000 in interest in the first quarter of ~~$50,000 as a result of the~~2008 on our bank debt, ~~incurred~~compared to ~~purchase a building~~zero in ~~July~~the first quarter of 2007. We ~~earned $108,000~~recorded $41,000 in interest ~~income. We recorded $1,000 in~~ income during the quarter as earned on our cash balances compared to $47,000 a year ago. We also received $215,000 as a signing bonus on an oil and gas lease. We recorded $15,000 in income for currency fluctuations ~~from our Canadian operation.~~in the first quarter of 2008. Comparatively, in the first ~~nine months~~quarter of ~~2006,~~2007, we recorded $8,000 in income ~~of $56,000~~ for currency fluctuations.

Capital Resources, Liquidity and Financial Condition

On our consolidated balance sheet, total assets increased from ~~$31.9~~$37.6 million at year-end ~~2006~~2007 to ~~$37.6~~$39.8 million at ~~September 30, 2007. The increase in inventory~~March 31, 2008. Property and ~~fixed assets, offset partially by~~equipment, specifically the ~~decrease in cash,~~building improvements, accounted for the majority of the increase. Total stockholders’ equity increased from ~~$26.3~~$29.8 million at December 31, ~~2006~~2007 to ~~$28.6~~$30.3 million at ~~September 30, 2007. Most of~~March 31, 2008, the increase ~~was~~being attributable to earnings in the first ~~nine months~~quarter of this year. Our current ratio ~~rose~~fell from ~~5.2~~7.4 at December 31, ~~2006~~2007 to 5.9 at ~~September 30, 2007.~~March 31, 2008 due to the reduction in inventory during that time period.

Our investment in inventory ~~increased~~decreased by ~~$3.5~~$1.2 million at ~~September 30, 2007~~March 31, 2008 from year-end ~~2006.~~2007. The ~~increase~~decrease is ~~attributable~~due to ~~weaker than expected sales and not decreasing our~~a decrease in purchases ~~to match the sales trend.~~as a result of weak sales. Inventory turnover decreased to an annualized rate of ~~2.86~~3.15 times during the first ~~nine months~~quarter of ~~2007,~~2008, from ~~3.28~~3.59 times for the first ~~nine months~~quarter of ~~2006.~~2007. Inventory turnover was ~~3.36~~3.19 times for all of ~~2006.~~2007. We compute our inventory turns as sales divided by average inventory. At the end of the ~~third~~first quarter, our total inventory on hand was ~~25% over~~slightly under our internal targets for optimal inventory levels. We are ~~reducing~~pleased with the efforts made by our ~~inventory purchases during the remainder of the year in an attempt~~buying department to reduce ~~our inventory on hand by year-end.~~purchases in light of these difficult economic times.

Trade accounts receivable was ~~$2.3~~$2.0 million at ~~September 30, 2007,~~March 31, 2008, down ~~$304,000~~$495,000 from ~~$2.6~~$2.5 million at year-end ~~2006.~~2007. Aggressive collection efforts as well as a tighter credit policy accounts for the reduction. The average days to collect accounts for the first ~~nine months~~quarter of ~~2007~~2008 were ~~54.9~~59 days, up from the first ~~nine months~~quarter of ~~2006~~2007 of ~~47.5~~57 days. We ~~are tightening~~have experienced a slow paying pattern with many of our small customers which explains the lengthening days to collect. To compensate, we have tightened our credit policy and ~~analyzing~~are closely managing our ~~customers with open~~customer accounts to ensure ~~collectability of the accounts and will make adjustments as needed.~~collectibility.

Accounts payable ~~increased $565,000 to $2.3~~remained virtually unchanged at $1.5 million at ~~the end of the September 2007,~~March 31, 2008 compared to year-end 2007. Accrued expenses increased $575,000 due primarily to the ~~increases in inventory purchases. Accrued expenses and other liabilities decreased $993,000 due to the decrease~~increase in inventory in transit at ~~September 30,~~quarter-end compared to December 31, 2007.

During the first ~~three quarters~~quarter of ~~2007,~~2008, cash flow ~~used~~provided by operating activities was ~~$1.2~~$3.2 million. The ~~increase in inventory and decrease in accrued expenses accounted~~net income generated for the ~~majority~~quarter contributed a portion of the cash ~~used, offset by net income.~~flow, in addition to the reduction in accounts receivable and inventory. Cash flow used in investing activities totaled ~~$5.8~~$1.4 million consisting of ~~$5.1~~the improvements made on the building of $2.1 million offset by a reduction in ~~fixed asset purchases, including $4.5 million for the purchase~~other assets of building for our corporate headquarters, and $650,000 for the acquisition of Mid-Continent Leather Sales, Inc., a wholesale distributor of leather and leathercraft supplies located in Coweta, Oklahoma.$690,000. Cash flow ~~provided~~used by financing activities totaled ~~$4.0 million,~~$26,000, consisting of ~~borrowings~~payments on ~~a note payable related to the building purchase.~~our capital lease of $45,000, offset by proceeds from miscellaneous sales of assets of $18,000.

We expect to fund our operating and liquidity needs as well as our ~~current expansion of Tandy Leather's retail~~ store ~~chain~~growth from a combination of current cash balances and internally generated funds.

TABLE OF CONTENTS

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For disclosures about market risk affecting us, see Item 7A ~~"Quantitative~~“Quantitative and Qualitative Disclosures About Market ~~Risk"~~Risk” in our Annual Report on Form 10-K for fiscal year ended December 31, ~~2006.~~2007. We believe that our exposure to market risks has not changed significantly since December 31, ~~2006.~~2007.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management team, under the supervision and with the participation of our ~~chief~~principal executive officer and ~~chief~~our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as ~~of September 30, 2007. The~~such term ~~“disclosure controls and procedures,” as~~is defined ~~in Rules~~under Rule 13a-15(e) ~~and 15d-15(e)~~promulgated under the Securities Exchange Act off 1934,as amended, oras of the ~~Exchange Act,~~last day of the fiscal period covered by this report, March 31, 2008. The term disclosure controls and procedures means our controls and other procedures ~~of a company~~ that are designed to ensure that information required to be disclosed by ~~a company~~us in the reports that ~~it files~~we file or ~~submits~~submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the ~~SEC’s~~Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by ~~a company~~us in the reports that ~~it files~~we file or ~~submits~~submit under the Securities Exchange Act of 1934. as amended is accumulated and communicated to ~~the company’s~~ management, including ~~its~~our principal executive and principal financial ~~officers,~~officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on ~~the~~this evaluation, of our ~~disclosure controls and procedures as of September 30, 2007, our chief~~principal executive officer and ~~chief~~our principal financial officer concluded that, as of ~~such date,~~March 31, 2008, our disclosure controls and procedures were effective at a reasonable assurance level.

~~We maintain certain internal controls over financial reporting that are appropriate,~~Changes in management’s judgment with similar cost-benefit considerations, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. No changeInternal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting ~~occurred~~ during the fiscal quarter ended ~~September 30, 2007~~March 31, 2008 that ~~has~~ materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits

Exhibit Number	Description
3.1	Certificate of Incorporation of The Leather Factory, Inc., and Certificate of Amendment to Certificate of Incorporation of The Leather Factory, Inc. filed as Exhibit 3.1 to Form 10-Q filed by Tandy Leather Factory, Inc. with the Securities and Exchange Commission on August 12, 2005 and 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.~~Ron Morgan, Chief Executive Officer and ~~President~~President.
*31.2	13a-14(a) Certification by Shannon Greene, Chief Financial Officer and ~~Treasurer~~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

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.

	TANDY LEATHER FACTORY, INC.
	(Registrant)

Date: ~~November~~May 14, ~~2007~~2008	By: ~~/s/ Ronald C.~~/s/ Ron Morgan
	~~Ronald C.~~Ron Morgan
	Chief Executive Officer and President

Date: ~~November~~May 14, ~~2007~~2008	By: ~~/s/~~/s/ Shannon L. Greene
	Shannon L. Greene
	Chief Financial Officer and Treasurer (Chief Accounting Officer)

~~EXHIBIT 31.1~~

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

I, ~~Ronald C. Morgan~~~~, certify that:~~

~~1. I have reviewed this quarterly report on Form 10-Q of Tandy Leather Factory, Inc.;~~

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

~~4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))~~ ~~[language intentionally omitted SEC Rel. 33-8238 and 33-8618]~~ ~~for the registrant and have:~~

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

~~(b)~~ ~~[Left blank intentionally SEC Rel. No. 33-8238 and 33-8618]~~;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

~~(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.~~

~~Date: November 14, 2007~~	~~/s/ Ronald C. Morgan~~
	~~Ronald C. Morgan~~
	~~Chief Executive Officer and President~~
	~~(principal executive officer)~~

~~EXHIBIT 31.2~~

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

I, ~~Shannon L. Greene~~~~, certify that:~~

~~1. I have reviewed this quarterly report on Form 10-Q of Tandy Leather Factory, Inc.;~~

~~(b)~~ ~~[Left blank intentionally SEC Rel. No. 33-8238 and 33-8618]~~;

~~(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.~~

~~Date: November 14, 2007~~	~~/s/ Shannon L. Greene~~
	~~Shannon L. Greene~~
	~~Chief Financial Officer and Treasurer~~
	~~(principal financial and accounting officer)~~

~~EXHIBIT 32.1~~

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

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

In connection with the Quarterly Report on Form 10-Q of Tandy Leather Factory, Inc. for the quarter ended September 30, 2007 as filed with the United States Securities and Exchange Commission on the date hereof (the "Report"), Ronald C. Morgan, as Chief Executive Officer and President, and Shannon L. Greene, as Treasurer and Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

~~ii.~~

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

~~November 14, 2007~~	~~/s/ Ronald C. Morgan~~
	~~Ronald C. Morgan~~
	~~Chief Executive Officer and President~~

~~November 14, 2007~~	~~By: /s/ Shannon L. Greene~~
	~~Shannon L. Greene~~
	~~Chief Financial Officer and Treasurer~~

	September 30, 2007 (unaudited)	December 31, 2006 (audited)
ASSETS
CURRENT ASSETS:
Cash	$3,757,534	$6,739,891
Accounts receivable-trade, net of allowance for doubtful accounts
of $127,000 and $149,000 in 2007 and 2006, respectively	2,294,922	2,599,279
Inventory	20,721,612	17,169,358
Prepaid income taxes	520,826	-
Deferred income taxes	287,942	266,018
Other current assets	974,559	1,089,258
Total current assets	28,557,394	27,863,804

PROPERTY AND EQUIPMENT, at cost	11,709,818	6,865,946
Less accumulated depreciation and amortization	(5,197,704)	(4,989,341)
	6,512,114	1,876,605

GOODWILL	989,296	746,139
OTHER INTANGIBLES, net of accumulated amortization of
$300,000 and $262,000 in 2007 and 2006, respectively	396,957	360,676
OTHER assets	1,189,678	1,069,411
	$37,645,440	$31,916,635

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$2,341,491	$1,776,646
Accrued expenses and other liabilities	2,431,130	3,424,010
Income taxes payable	-	59,392
Current maturities of capital lease obligations	11,172	111,723
Current maturities of long-term debt	84,375	-
Total current liabilities	4,868,168	5,371,771

DEFERRED INCOME TAXES	225,396	221,621

LONG-TERM DEBT, less current maturities	3,965,625	-
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;
10,974,951 and 10,885,068 shares issued at 2007 and 2006, respectively;
10,969,092 and 10,879,209 outstanding at 2007 and 2006, respectively	26,340	26,124
Paid-in capital	5,389,111	5,292,591
Retained earnings	22,864,188	20,949,540
Treasury stock (5,859 shares at cost)	(25,487)	(25,487)
Accumulated other comprehensive income	332,099	80,475
Total stockholders' equity	28,586,251	26,323,243
	$37,645,440	$31,916,635

	THREE MONTHS		NINE MONTHS
	2007	2006	2007	2006
NET SALES	$12,806,333	$12,559,593	$40,691,125	$40,366,325

COST OF SALES	5,864,699	5,488,179	17,465,869	17,458,476

Gross profit	6,941,634	7,071,414	23,225,256	22,907,849

OPERATING EXPENSES	6,836,357	5,807,442	20,460,848	17,903,337

INCOME FROM OPERATIONS	105,277	1,263,972	2,764,408	5,004,512

OTHER INCOME (EXPENSE):
Interest expense	(50,494)	-	(50,494)	-
Other, net	272,658	37,422	349,172	84,951
Total other income (expense)	222,164	37,422	298,678	84,951

INCOME BEFORE INCOME TAXES	327,441	1,301,394	3,063,086	5,089,463

PROVISION FOR INCOME TAXES	155,835	410,975	1,148,438	1,720,288

NET INCOME	$171,606	$890,419	$1,914,648	$3,369,175


NET INCOME PER COMMON SHARE-BASIC	$ 0.02	$ 0.08	$ 0.17	$ 0.31
NET INCOME PER COMMON SHARE-DILUTED	$ 0.02	$ 0.08	$ 0.17	$ 0.30


Weighted Average Number of Shares Outstanding:
Basic	10,968,635	10,818,130	10,943,817	10,788,720
Diluted	11,152,731	11,102,383	11,157,013	11,105,903

	Number of Shares	Par Value	Paid-in Capital	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total	Comprehensive Income (Loss)
BALANCE, December 31, 2005	10,741,835	$25,780	$4,988,445	$(25,487)	$16,172,475	$96,644	$21,257,857

Shares issued - stock options and warrants exercised	95,165	228	106,362	-	-	-	106,590
Stock-based compensation	-	-	78,600	-	-	-	78,600
Net income	-	-	-	-	3,369,175	-	3,369,175	$3,369,175
Translation adjustment	-	-	-	-	-	40,686	40,686	40,686
BALANCE, September 30, 2006	10,837,000	$26,008	$5,173,407	$(25,487)	$19,541,650	$137,330	$24,852,908

	Comprehensive income for the nine months ended September 30, 2006							$3,409,861

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 and warrants exercised	89,883	216	73,644	-	-	-	73,860
Stock-based compensation	-	-	22,876	-	-	-	22,876
Net income	-	-	-	-	1,914,648	-	1,914,648	$1,914,648
Translation adjustment	-	-	-	-	-	251,624	251,622	251,624
BALANCE, September 30, 2007	10,969,092	$26,340	$5,389,111	$(25,487)	$22,864,188	$332,099	$28,586,251

	Comprehensive income for the nine months ended September 30, 2007							$2,166,272

	Three Months Ended September 30,		Nine Months Ended September 30,
	2007	2006	2007	2006
Share-based compensation expense	$7,625	$33,640	$22,876	$78,600

	Wholesale Leathercraft	Retail Leathercraft	Other	Total
For the quarter ended September 30, 2007
Net sales	$6,940,484	$5,657,198	$208,651	$12,806,333
Gross profit	3,608,272	3,254,075	79,287	6,941,634
Operating earnings	32,686	58,780	13,811	105,277
Interest expense	50,494	-	-	50,494
Other, net	(264,792)	(7,866)	-	(272,658)
Income before income taxes	246,984	66,646	13,811	327,441

Depreciation and amortization	181,113	35,050	2,477	218,640
Fixed asset additions	4,657,769	74,257	-	$4,732,026
Total assets	$31,929,070	$5,548,815	$167,555	$37,645,440

For the quarter ended September 30, 2006
Net sales	$7,113,181	$5,121,556	$324,856	$12,559,593
Gross profit	3,847,911	3,095,207	128,296	7,071,414
Operating earnings	910,942	362,744	(9,714)	1,263,972
Interest expense	-	-	-	-
Other, net	37,805	(1,664)	1,281	37,422
Income before income taxes	948,747	361,080	(8,433)	1,301,394

Depreciation and amortization	60,975	37,112	1,697	99,784
Fixed asset additions	100,403	52,009	-	152,412
Total assets	$24,558,634	$5,192,664	$329,414	$30,080,712

For the nine months ended September 30, 2006
Net sales	$23,250,338	$15,858,835	$1,257,152	$40,366,325
Gross profit	12,930,486	9,634,035	343,328	22,907,849
Operating earnings	3,675,658	1,323,105	5,749	5,004,512
Interest expense	-	-	-	-
Other, net	102,089	(18,419)	1,281	84,951
Income before income taxes	3,777,747	1,304,686	7,030	5,089,463

Depreciation and amortization	180,289	106,651	4,317	291,257
Fixed asset additions	228,880	153,146	162	382,188
Total assets	$24,558,634	$5,192,664	$329,414	$30,080,712

	2007		2006	% Change
Net income	$171,606		$890,419	(80.7)%

	Nine Months Ended September 30, 2007	Nine Months Ended September 30, 2006	$ Change	% Change
Same store sales (29)	$18,729,902	$19,521,828	$(791,926)	(4.1)%
New store (1)	553,451	-	553,451	N/A
National account group	2,773,770	3,358,291	(584,521)	(17.4)%
	$22,057,123	$22,880,119	$(822,996)	(3.6)%

	# Stores	Nine Months Ended 09/30/07	Nine Months Ended 09/30/06	$ Incr (Decr)	% Incr (Decr)
Same (existing) store sales	52	$15,247,415	$14,856,541	$390,874	2.6%
New store sales	19	2,506,199	1,002,294	1,503,905	N/A
Total sales	71	$17,753,614	$15,858,835	$1,894,779	11.9%