<PAGE> 1





                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C.  20549

                                      Form 10-Q
                                 ____________________

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

                  For the quarterly period ended September 30, 1996

                                          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 0-12757

                              TMBR/SHARP DRILLING, INC.               
                (Exact name of registrant as specified in its charter)

                     TEXAS                                    75-1835108     
         (State or other jurisdiction of                   (I.R.S. Employer
         incorporation or organization)                   Identification No.)

              4607 WEST INDUSTRIAL BLVD.
                    MIDLAND, TEXAS                                79703   
         (Address of principal executive offices)               (Zip Code)

               Registrant's telephone number (area code) (915) 699-5050

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

          Common Stock, $.10 Par Value         Outstanding at November 4, 1996
                (Title of Class)                         3,521,586








<PAGE> 2
                              TMBR/SHARP DRILLING, INC.
                                   FORM 10-Q REPORT

                                        INDEX



                                                                        Page No.

     Part I.  Financial Information (Unaudited)

       Item 1.  Financial Statements

                Balance Sheets, September 30, 1996 and 
                  March 31, 1996 . . . . . . . . . . . . . . . . . . . .   3

                Statements of Operations, Three Months
                  Ended September 30, 1996 and 1995 . .  . . . . . . . .   5

                Statements of Operations, Six Months
                  Ended September 30, 1996 and 1995  . . . . . . . . . .   7

                Statements of Stockholders'
                  Equity   . . . . . . . . . . . . . . . . . . . . . . .   9

                Statements of Cash Flows, Six Months
                  Ended September 30, 1996 and 1995 . .  . . . . . . . .  10

                Notes to Financial Statements  . . . . . . . . . . . . .  11

       Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations  . . . . . . . . .  15


     Part II.  Other Information

       Item 1.  Legal Proceedings  . . . . . . . . . . . . . . . . . . .  16

       Item 6.  Exhibits and Reports on Form 8-K . . . . . . . . . . . .  18














                                         -2-





<PAGE> 3
     PART ONE - FINANCIAL INFORMATION (UNAUDITED)

     Item 1.  FINANCIAL STATEMENTS


                              TMBR/SHARP DRILLING, INC.
                                    BALANCE SHEETS
                  September 30, 1996 (Unaudited) and March 31, 1996
                        (In thousands, except per share data)



                                                 September 30,
                                                     1996            March 31,  
       ASSETS                                     (Unaudited)          1996     
       ------                                    -------------      -----------

     Current assets:
       Cash and cash equivalents                   $    130         $     339 
       Trade receivables,
         net of allowance for doubtful
           accounts of $1,225 at both 
           September 30, and March 31, 1996           3,283             2,942 
       Inventories                                       56                51 
       Deposits                                          73               423 
       Other                                            390               410 
                                                    --------          --------
         Total current assets                         3,932             4,165 
                                                    --------          --------

     Property and equipment, at cost:
       Drilling equipment                            41,671            39,750 
       Oil and gas properties, based on
         successful efforts accounting               11,420            10,398 
       Other property and equipment                   3,196             3,195 
                                                    --------          --------
                                                     56,287            53,343 

     Less accumulated depreciation,
       depletion and amortization                   (46,504)          (46,022)
                                                    --------          --------

         Net property and equipment                   9,783             7,321 
                                                    --------          --------

     Other assets                                       193               174 
                                                    --------          --------
         Total assets                              $ 13,908          $ 11,660 
                                                    ========          ========

     See accompanying notes to financial statements.


                                         -3-





<PAGE> 4
                              TMBR/SHARP DRILLING, INC.
                                    BALANCE SHEETS
                  September 30, 1996 (Unaudited) and March 31, 1996
                        (In thousands, except per share data)


                                                September 30, 
                                                    1996            March 31, 
     LIABILITIES AND STOCKHOLDERS' EQUITY        (Unaudited)          1996    
     ------------------------------------       ------------       -----------

     Current liabilities:
       Trade payables                             $   1,782          $  3,336 
       Accrued workers' compensation                  1,236             1,279   
       Other                                          1,147               786  
                                                    --------          --------
          Total current liabilities                   4,165             5,401 
                                                    --------          --------

     Long term liabilities:
       Borrowings from bank                           4,500             1,300 
                                                    --------          --------
          Total liabilities                           8,665             6,701 
                                                    --------          --------

     Contingencies

     Stockholders' equity:
       Common stock, $0.10 par value
         Authorized, 50,000,000 shares;
         issued, 4,790,325 and 4,615,525
         shares at September 30, and 
         March 31, 1996, respectively                   479               461 
       Additional paid-in capital                    60,679            60,654 
       Accumulated deficit                          (55,765)          (56,006)
       Treasury stock-common, 1,268,739
         shares at September 30, and 
         March 31, 1996, at cost                       (150)             (150)
                                                    --------          --------
          Total stockholders' equity                  5,243             4,959 
                                                    --------          --------
          Total liabilities and
            stockholders' equity                  $  13,908         $  11,660 
                                                    ========          ========

     See accompanying notes to financial statements.







                                         -4-





<PAGE> 5
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
              Three months ended September 30, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)




                                                      Three months ended
                                                         September 30,  
                                                 -----------------------------
                                                    1996              1995    
                                                 -----------       -----------
       Revenues:
          Contract drilling                     $     3,838       $     5,197 
          Oil and gas                                   458               432 
                                                 -----------       -----------
              Total revenues                          4,296             5,629 
                                                 -----------       -----------

       Operating costs and expenses:
          Contract drilling                           2,815             3,959 
          Oil and gas production                        246               121 
          Dry holes and abandonments                    120               274 
          Depreciation, depletion and 
            amortization                                316               255 
          General and administrative                    376               375 
                                                 -----------       -----------
              Total operating costs
                and expenses                          3,873             4,984 
                                                 -----------       -----------
              Operating income                          423               645 
                                                 -----------       -----------

       Other income (expense):
          Interest                                      (72)              (35)
          Gain on sales of assets                        --                24 
          Other, net                                      8                14 
                                                 -----------       -----------
          Total other income (expense)                  (64)                3 
                                                 -----------       -----------
       Net income before income
          tax provision                                 359               648 
       Provision for income taxes                        --               (18)
                                                 -----------       -----------

       Net income                               $       359       $       630 
                                                 ===========       ===========

     See accompanying notes to financial statements.







                                         -5-

<PAGE> 6
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
              Three months ended September 30, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)




                                                      Three months ended 
                                                         September 30,   
                                                 -----------------------------
                                                    1996              1995
                                                 -----------       -----------

     Net income per share 
       of common stock                          $       .09       $       .15 
                                                 ===========       ===========

     Weighted average number of 
       common shares outstanding                  4,175,943         4,086,560 
                                                 ===========       ===========

     See accompanying notes to financial statements.

































                                         -6-


<PAGE> 7
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
               Six months ended September 30, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)




                                                       Six months ended
                                                         September 30,  
                                                 -----------------------------
                                                    1996              1995    
                                                 -----------       -----------
       Revenues:
          Contract drilling                     $     6,768       $    11,128 
          Oil and gas                                   945               791 
                                                 -----------       -----------
              Total revenues                          7,713            11,919 
                                                 -----------       -----------

       Operating costs and expenses:
          Contract drilling                           5,259             8,961 
          Oil and gas production                        453               205 
          Dry holes and abandonments                    337               291 
          Depreciation, depletion and 
            amortization                                608               525 
          General and administrative                    761               771 
                                                 -----------       -----------
              Total operating costs
                and expenses                          7,418            10,753 
                                                 -----------       -----------
              Operating income                          295             1,166 
                                                 -----------       -----------

       Other income (expense):
          Interest                                     (141)              (67)
          Gain on sales of assets                        65                24 
          Other, net                                     22                48 
                                                 -----------       -----------
          Total other income (expense)                  (54)                5 
                                                 -----------       -----------
       Net income before income
          tax provision                                 241             1,171 
       Provision for income taxes                        --               (30)
                                                 -----------       -----------

       Net income                               $       241       $     1,141 
                                                 ===========       ===========

     See accompanying notes to financial statements.







                                         -7-

<PAGE> 8
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
               Six months ended September 30, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)




                                                       Six months ended 
                                                         September 30,   
                                                 -----------------------------
                                                    1996              1995
                                                 -----------       -----------

     Net income per share 
       of common stock                          $       .06       $       .28 
                                                 ===========       ===========

     Weighted average number of 
       common shares outstanding                  4,160,494         4,083,973 
                                                 ===========       ===========

     See accompanying notes to financial statements.


































                                         -8-

<PAGE> 9



                              TMBR/SHARP DRILLING, INC.

                          STATEMENTS OF STOCKHOLDERS EQUITY

                Three Months Ended September 30, 1996 (Unaudited) and

                              Year Ended March 31, 1996

                                   (In thousands)

<TABLE>
<CAPTION>

                                                                                   Treasury Stock
                                                                                   --------------
                                       Common Stock     Additional                  Common Stock        Total
                                      --------------     Paid-In     Accumulated   --------------    Stockholders'
                                      Shares  Amount     Capital       Deficit     Shares  Amount       Equity
                                      ------  ------     -------     -----------   ------  ------    ------------
                 <S>                  <C>     <C>       <C>          <C>           <C>     <C>       <C>
                 Balance, 
                   March 31, 1996     4,616   $ 461     $ 60,654      $(56,006)     1,269  $(150)      $ 4,959

                 Exercise of
                   stock options        174      18           25            --         --     --            43 

                 Net income              --      --           --           241         --     --           241 
                                      -----    -----     --------      --------    -------  -----       -------

                 Balance, 
                   September 30,  
                     1996             4,790   $ 479     $ 60,679      $(55,765)     1,269  $(150)      $ 5,243
                                      =====    =====     ========      ========    =======  =====       =======
</TABLE>
          See accompanying notes to financial statements.


















                                         -9-
                               
                               
<PAGE> 10                               
                               TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF CASH FLOWS
           For the six months ended September 30, 1996 and 1995 (Unaudited)
                                    (In thousands)
                                       
                                                  Six months ended September 30,
                                                  ------------------------------
                                                    1996                 1995
                                                  ---------            ---------
    Cash flows from operating activities:
      Net income                                  $    241             $  1,141 
      Adjustments to reconcile net income
      to net cash provided (required) by
          operating activities:
           Depreciation, depletion and
            amortization                               608                  525 
           Dry holes and abandonments                  337                  291 
           Gain on sales of assets                     (65)                 (24)
           Changes in assets and liabilities:
            Trade receivables                         (341)                (661)
            Deposits                                   350                   74 
            Inventories and other assets                (4)                  72 
            Trade payables                          (1,554)               1,030 
            Accrued interest and other liabilities     318                 (313)
                                                   --------             --------
             Total adjustments                        (351)                 994 
                                                   --------             --------
             Net cash provided (required) by
              operating activities                    (110)               2,135 

    Cash flows from investing activities:
      Additions to property and equipment           (3,413)              (2,834)
      Proceeds from sales of property and
        equipment                                       71                   26 
                                                   --------             --------
             Net cash required by
              investing activities                  (3,342)              (2,808)

    Cash flows from financing activities:
      Repayments of capital lease                       --                  (42)
      Issuance of common stock                          43                  113 
      Loans from bank                                3,200                   -- 
      Repayments of leasehold borrowings                --                 (349)
                                                   --------             --------
             Net cash provided (required) by
              financing activities                   3,243                 (278)
                                                   --------             --------
             Net decrease in cash
              and cash equivalents                    (209)                (951)

    Cash and cash equivalents at beginning
      of period                                        339                1,590 
                                                   --------             --------
    Cash and cash equivalents at end of period     $   130              $   639
                                                   ========             ========

    See accompanying notes to financial statements.
                                         
                                         -10-
<PAGE> 11


                              TMBR/SHARP DRILLING, INC.
                            NOTES TO FINANCIAL STATEMENTS



          The amounts presented in the  balance sheet as of March 31,  1996 were
     derived from the  Company's audited  financial statements  included in  its
     Form  10-K Report  filed  for the  year  then  ended.   The  notes to  such
     statements are incorporated herein by reference.
      

     (1) Management's Representation

          In  the opinion  of management,  the accompanying  unaudited financial
     statements contain all adjustments (all of which are  of a normal recurring
     nature)  necessary to present fairly the Company's financial position as of
     September 30,  1996 and March 31,  1996, the results of  operations for the
     three and six months ended  September 30, 1996 and 1995, and the cash flows
     for the six month period ended September 30, 1996 and 1995.

          While the Company believes that the disclosures presented are adequate
     to  make the  information  not  misleading,  it  is  suggested  that  these
     condensed financial  statements be read  in conjunction with  the financial
     statements and the related notes in the Company's Annual Report on Form 10-
     K for the fiscal year ended March 31, 1996.


     (2) Summary of Significant Accounting Policies

     Inventories

          Inventories  consist primarily  of  casing and  tubing.   The  Company
     values its inventories at  the lower of  cost or estimated net  recoverable
     value using the specific identification method.

     Property and Equipment

          Drilling  equipment  is  depreciated on  a  units-of-production method
     based  on the  monthly utilization  of the  equipment.   Drilling equipment
     which  is  not utilized  during  a  month is  depreciated  using a  minimum
     utilization rate  of approximately  twenty-five percent.   Estimated useful
     lives range  from four to  eight years.   Other property  and equipment  is
     depreciated using  the straight-line method of  depreciation with estimated
     useful lives of three to seven years.

          Oil  and gas properties are accounted for using the successful efforts
     method.   Accordingly, the costs  incurred to acquire  property (proved and
     unproved),  all  development costs  and  successful  exploratory costs  are
     capitalized,  whereas  the  costs  of unsuccessful  exploratory  wells  are
     expensed.  Geological and  geophysical costs, including seismic costs,  are
     charged  to expense  when incurred.   In  cases where the  Company provides
     contract drilling  services related to oil  and gas properties in  which it
     has  an ownership  interest,  the Company's  proportionate  share of  costs
     related to  these properties is  capitalized as  stated above,  net of  the


                                         -11-
<PAGE> 12


     Company's  working  interest share  of  profits from  the  related drilling
     contracts.   Capitalized  costs of  undeveloped properties,  which are  not
     depleted until proved reserves  can be associated with the  properties, are
     periodically reviewed for possible impairment. 

          Depletion, depreciation  and amortization  of capitalized oil  and gas
     property costs was provided  using the units-of-production method  based on
     estimated proved or proved  developed oil and gas reserves,  as applicable,
     of the respective property units.

          Major  renewals and  betterments  are capitalized  in the  appropriate
     property accounts while the cost  of repairs and maintenance is  charged to
     operating expense in  the period  incurred.  For  assets sold or  otherwise
     retired, the  cost and related accumulated depreciation amounts are removed
     from the accounts and any resulting gain or loss is recognized.

     Net Income Per Common Share

          Net income per share of common stock is based on  the weighted average
     number of common shares  outstanding during each period.  All  common stock
     equivalents  are considered dilutive  for purposes  of calculating  the net
     income per share.
      

     (3)  Debt

          Line of Credit

          On January 16,  1996, the Company entered  into a loan  agreement with
     Norwest  Bank Texas, Midland, N.A. (Norwest) that provides for a $3,000,000
     revolving line of credit secured by the Company's drilling rigs and related
     equipment, accounts receivable and inventory.  Borrowings under the line of
     credit bear  interest at the  Norwest Bank Minnesota,  National Association
     base rate  and the interest is  payable monthly.  The  loan matures January
     15,  1998 at  which time  the  then outstanding  principal and  all of  the
     accrued and unpaid interest is due and payable.  At September 30, 1996, the
     Company had borrowed $3,000,000 under the facility.   Prior to November 13,
     1996, the Company  was in violation  of certain financial covenants  of the
     loan  agreement.  On  November 13, 1996,  Norwest agreed to  amend the loan
     agreement and, as a result, the Company is in compliance with  all the debt
     covenants.

          On August 15, 1996, the Company and Norwest entered  into another loan
     agreement  which provides for a $2,000,000 revolving line of credit secured
     by the  Company's oil and gas producing properties.  At September 30, 1996,
     the Company had borrowed $1,500,000 under this line of credit.  The line of
     credit bears interest  at the Norwest Bank  Minnesota, National Association
     base rate and the interest is payable monthly.  The line of  credit matures
     on February 15, 1998.







                                         -12-
<PAGE> 13



     (4)  Stockholders' Equity
      
          1984 Stock Option Plan

          In August of 1984, the Company adopted the 1984 Stock Option Plan (the
     "Plan") which initially authorized  375,000 shares of the  Company's common
     stock to be issued as either  incentive stock options or nonqualified stock
     options.  This Plan was  amended in August 1986 to increase  the authorized
     shares  to 475,000 shares of the Company's  common stock.  In January 1988,
     the Plan was  amended to reduce the option price  on certain options issued
     prior to March 31,  1986, to reflect the then current fair  market value of
     the Company's common stock.  The Plan provides that options  may be granted
     to key  employees or directors for various  terms at a price  not less than
     the fair market value of the shares on  the date of the grant.  Options  to
     purchase 108,000 shares of common stock are currently outstanding under the
     Plan, with 84,250 of  the options being exercisable at  September 30, 1996.
     No additional shares are available for grant as the Plan expired by its own
     terms  in August  1994.    The  options  that were  granted  prior  to  the
     expiration of the  Plan, and which are  outstanding, remain subject to  the
     terms of the Plan.

          1994 Stock Option Plan

          In July  1994, the  Company adopted  its 1994  Stock Option  Plan (the
     "1994 Plan")  which  authorized the  grant  of options  to purchase  up  to
     750,000 shares  of the Company's common stock.  These options may be issued
     as  either incentive or nonqualified stock options.  The 1994 Plan provides
     that options may be granted to key employees or directors for various terms
     at a price not less than the fair market value of the shares on the date of
     grant.  The 1994 Plan  was ratified and approved by the stockholders at the
     Company's annual meeting of stockholders held on August 30, 1994.

          On  September  3,  1996,   the  Company  granted  465,000   shares  of
     nonqualified  stock options  to key  employees under  the 1994  Plan.   The
     following  sets  forth certain  information  concerning these  nonqualified
     options.

                                          Number          Option Price
                                            of         -------------------
                                          Shares       Per Share     Total
                                          ------       -------------------

          Outstanding March 31, 1996         --            --          --

          Granted                        465,000        $7.75      $3,603,750
                                         -------         ----       ---------

          Outstanding September 30,
            1996                         465,000        $7.75      $3,603,750
                                         =======         ====       =========

          All of the  nonqualified stock  options granted on  September 3,  1996
     will be earned and exercisable on May 1, 1997.                             


                                         -13-
<PAGE> 14


        



     (5)  Employee Benefits

          Effective  May  1,  1995,   the  Company  established  the  TMBR/Sharp
     Drilling,  Inc. Employee Retirement Plan  which is a  401(K) profit sharing
     plan.   Company contributions are discretionary and have been currently set
     at  25% for  each dollar  contributed by  each eligible  employee, limited,
     however, to a maximum of 5% of the employee's compensation.

     (6)  Contingencies

          On March 19, 1992, the Company was notified by the Texas Department of
     Insurance  that  the  Company's  former   workers'  compensation  insurance
     carriers,  Sir  Lloyd's  Insurance  Company  and  its  affiliate,  Standard
     Financial Indemnity Corporation ("SFIC"), had been placed in liquidation by
     order of the 201st District Court of Travis County, Texas on March 12, 1992
     in Cause No. 92-12765, The State of Texas vs. Sir Lloyd's Insurance Company
     and  Sir Insurance Agency,  Inc., and in  Cause No. 91-12766,  The State of
     Texas  vs. Standard  Financial  Indemnity Corporation.   Approximately  two
     months  before being  ordered  into liquidation,  SFIC  requested that  the
     Company pay policy premiums in  the amount of $646,476.   On July 22,  1993
     the  special  deputy  receiver of  SFIC  billed  the Company  approximately
     $1,061,000 for retrospective premiums, but adjusted the amount  to $854,153
     on January 12, 1994.   Although the Company disputes the amount  claimed by
     SFIC and its receiver, the Company is presently unable to determine whether
     and to what extent such amount is, in fact, an accurate estimate of amounts
     owed to SFIC, if  any, largely as a result  of the difficulty of  verifying
     the  insurance   carrier's  estimated   claims  and  adjustments   and  the
     unavailability of  SFIC personnel.   However, an  accrual was  made in  the
     Company's financial statements for the amount in question.

          In  a  related  development, on  November  3,  1995,  the Company  was
     notified that a lawsuit had been filed in Travis County, Texas styled Texas
     Property  and  Casualty  Insurance  Guaranty   Association  vs.  TMBR/Sharp
     Drilling,  Inc.  (Cause No.  95-12318).   The  Texas Property  and Casualty
     Insurance Guaranty Association ("Guaranty Association") seeks a recovery of
     past  workers' compensation  claims  advanced by  the Guaranty  Association
     related to  the Company's workers compensation insurance program with SFIC.
     The Guaranty Association is seeking to recover a total of $803,057.11.

          The Company disagrees with the claims made by the Guaranty Association
     and intends  to vigorously defend its position against the Receiver of SFIC
     and  the Texas  Guaranty Association.   The  Company believes  that  if the
     Guaranty  Association's claim  is  ultimately determined  to  be valid  and
     enforceable,  then  the  Receiver's  claim against  the  Company  is either
     without  merit or that its claim would  be offset against the claims of the
     Guaranty Association.  For  these reasons, the Company has  not accrued the
     Guaranty Association's claim in its financial statements.





                                         -14-
<PAGE> 15



     Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
              RESULTS OF OPERATIONS

          In  addition  to  historical  information,  this  discussion  contains
     certain  forward-looking statements  that  involve risks  and uncertainties
     about the business, long-term  strategy, financial condition and  future of
     the Company.   Factors that may  affect future results are  included in the
     discussion  below and in Part I,  Items 1 and 2 of  the Company's Form 10-K
     for the year ended March 31, 1996.  Actual results  could differ materially
     from those forward-looking statements.

     Results of Operations

          Total  revenues were $4,296,000 and  $7,713,000 for the  three and six
     months ended September  30, 1996 which  represents a 24%  and 35%  decrease
     over the same periods in 1995.  Operating expenses as a percent of  revenue
     were 90%  and 96% for  the three and  six months  ended September 30,  1996
     versus 86% and 90% for the same period of the prior year.   These decreases
     can be attributed to a decrease in rig utilization rates.

          Rig utilization  rates were 44% and  39% for the three  and six months
     ended  September 30, 1996 as compared to 40% and 47% in the same periods in
     1995.   Presently, the Company is experiencing  a strong upward increase in
     demand  for its  contract  drilling  services.    Rig  utilization  in  the
     Company's  operating  market  is  difficult  to  project  because  contract
     drilling  is a  highly competitive industry.   In  addition, the  number of
     rigs,  industry  wide, actually  available  for work  cannot  be accurately
     determined.

          Oil and gas  revenues increased by  approximately 6%  and 19% for  the
     three and  six months ended  September 30, 1996  compared to  September 30,
     1995 periods, respectively.   Accordingly, oil and  gas production expenses
     also  increased.  Depreciation and depletion expense has also increased due
     to the  increase in the number of producing wells  in which the Company has
     an ownership interest.

          Interest  expense  has  increased  due to  the  borrowings  under  the
     Company's line of credit with Norwest.

          Net  working  capital was  a negative  $334,000  for the  period ended
     September 30, 1996 compared  to a negative $1,236,000 for the  period ended
     March 31,  1996.  The  increase in working  capital can be  attributed to a
     decrease in trade payables and an increase in accounts receivable.

     Liquidity and Capital Resources

          On  January 16, 1996,  the Company entered into  a loan agreement with
     Norwest Bank Texas, Midland, N. A. (Norwest) that provides for a $3,000,000
     revolving line of credit secured by the Company's drilling rigs and related
     equipment, accounts receivable and inventory.  Borrowings under the line of
     credit bear interest  at the Norwest  Bank Minnesota, National  Association
     base rate.  Interest only is payable monthly.  The loans mature January 15,
     1998, at which time, the then outstanding principal and accrued interest is


                                         -15-
<PAGE> 16




     due  and  payable.    At  September  30,  1996,  the  Company  had borrowed
     $3,000,000 under the facility. 

          On August 15, 1996, the Company  and Norwest entered into another loan
     agreement  which provides for a $2,000,000 revolving line of credit secured
     by the  Company's oil and gas producing properties.  At September 30, 1996,
     the Company had borrowed $1,500,000 under this line of credit.  The line of
     credit bears interest  at the Norwest Bank  Minnesota, National Association
     base rate and the interest  is payable monthly.  The line of credit matures
     on February  15, 1998.   Prior to  November 13,  1996, the  Company was  in
     violation  of  certain  financial covenants  of  the  loan  agreement.   On
     November  13, 1996, Norwest  agreed to amend  the loan agreement  and, as a
     result,  the Company  is in compliance  with all  the debt  covenants.  The
     Company intends to meet  its cash flow requirements for fiscal 1997 through
     cash flow provided from operations and if needed, additional borrowings. 

          The Company  believes it owns a sufficient  number of drilling rigs to
     remain competitive within its  areas of operation.  However,  the cash flow
     generated from operations and the Company's operating results will continue
     to be directly affected by the  level of drilling activity in the Company's
     operating  areas.   By  focusing on  drilling  contracts which  can provide
     operating  cash flow,  the Company  believes its  operating cash  flow will
     improve.  Cash required by operating activities was  approximately $110,000
     for the  quarter compared with  a $2.1  million inflow for  the six  months
     ended September 30, 1995.

          As a  result of the present  worldwide excess supply of  crude oil and
     natural gas and higher domestic finding costs on an equivalent  unit basis,
     producers have significantly reduced their domestic drilling budgets.  This
     decreased demand coupled with  the extreme competitive conditions prevalent
     in the contract drilling industry continue to challenge the Company.


     PART TWO - OTHER INFORMATION

     Item 1.  Legal Proceedings

          On March 19, 1992, the Company was notified by the Texas Department of
     Insurance   that  the  Company's  former  workers'  compensation  insurance
     carriers,  Sir  Lloyd's  Insurance  Company  and  its  affiliate,  Standard
     Financial Indemnity Corporation ("SFIC"), had been placed in liquidation by
     order of the 201st District Court of Travis County, Texas on March 12, 1992
     in Cause No. 92-12765, The State of Texas vs. Sir Lloyd's Insurance Company
     and Sir  Insurance Agency, Inc.,  and in Cause  No. 91-12766, The  State of
     Texas  vs. Standard  Financial  Indemnity Corporation.   Approximately  two
     months  before  being ordered  into  liquidation, SFIC  requested  that the
     Company pay policy premiums  in the amount of $646,476.   On July 22,  1993
     the  special  deputy receiver  of  SFIC  billed the  Company  approximately
     $1,061,000 for retrospective premiums, but adjusted  the amount to $854,153
     on January 12,  1994.  Although the Company disputes  the amount claimed by
     SFIC and its receiver, the Company is presently unable to determine whether
     and to what extent such amount is, in fact, an accurate estimate of amounts

                                         -16-

<PAGE> 17



     owed to SFIC, if  any, largely as a  result of the difficulty of  verifying
     the  insurance   carrier's  estimated   claims  and  adjustments   and  the
     unavailability of  SFIC personnel.   However,  an accrual  was made in  the
     Company's financial statements for the amount in question.

          In  a  related  development, on  November  3,  1995,  the Company  was
     notified that a lawsuit had been filed in Travis County, Texas styled Texas
     Property  and  Casualty  Insurance   Guaranty  Association  vs.  TMBR/Sharp
     Drilling,  Inc.  (Cause No.  95-12318).   The  Texas Property  and Casualty
     Insurance Guaranty Association ("Guaranty Association") seeks a recovery of
     past  workers' compensation  claims  advanced by  the Guaranty  Association
     related to the Company's workers  compensation insurance program with SFIC.
     The Guaranty Association is seeking to recover a total of $803,057.11.

          The Company disagrees with the claims made by the Guaranty Association
     and intends to vigorously defend its position against  the Receiver of SFIC
     and the  Texas Guaranty  Association.   The  Company believes  that if  the
     Guaranty Association's  claim  is ultimately  determined  to be  valid  and
     enforceable,  then the  Receiver's  claim  against  the Company  is  either
     without merit or that its  claim would be offset against the  claims of the
     Guaranty Association.  For  these reasons, the Company has not  accrued the
     Guaranty Association's claim in its financial statements.































                                         -17-


<PAGE> 18



     Item 6.  Exhibits and reports on Form 8-K.

          (a)  Exhibits:

               27 - Financial Data Schedule

          (b)  Reports on Form 8-K:

               No  reports on  Form  8-K were  filed  during the  quarter  ended
               September 30, 1996.










































                                         -18-



<PAGE> 19


                                      SIGNATURES




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



                                           TMBR/SHARP DRILLING, INC.            




     November 13, 1996                By:  /s/  Patricia R. Elledge             
     -----------------                     ------------------------     
          Date                                  Patricia R. Elledge             
                                                Controller/Treasurer            

                                           (Ms. Elledge is the Chief Financial  
                                           Officer and has been duly authorized 
                                           to sign on behalf of the Registrant) 





























                                         -19-



<PAGE> 20

                                    Exhibit Index





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

       27           Financial Data Schedule 










































                                         -20-