<PAGE> 1
                                      FORM 10-K

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D. C. 20549

       (X)         ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
                         THE SECURITIES EXCHANGE ACT OF 1934
                                    (Fee Required)

     For the fiscal year ended March 31, 1998    Commission File Number 0-12757

                                          or

       ( )        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                                  (No Fee Required)

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

                     TEXAS                              75-1835108     
           (State of Incorporation)        (I.R.S. Employer 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

          Securities registered pursuant to Section 12(b) of the Act:  None

             Securities registered pursuant to Section 12(g) of the Act:

                             Common Stock, $.10 Par Value
                                   (Title of Class)

          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 if disclosure of delinquent filers pursuant to
     Item  405 of  Regulation  S-K is  not  contained herein,  and  will not  be
     contained,  to the best of  Registrant's knowledge, in  definitive proxy or
     information statements incorporated by  reference in Part III of  this Form
     10-K or any amendment to this Form 10-K. (X)

          The  aggregate market value of  voting stock held  by nonaffiliates of
     the registrant at June 10, 1998 was approximately $36,429,232.

          At  June  10, 1998,  there were  4,710,886  outstanding shares  of the
     Registrant's Common Stock.

          The information required  by Items 11, 12  and 13 of Part  III of this
     Form are incorporated by reference from the registrant's Proxy Statement to
     be filed pursuant to Regulation 14A with respect to the registrant's Annual
     Meeting to be held on or about August 28, 1998.
<PAGE> 2
                              TMBR/SHARP DRILLING, INC.

                                      FORM 10-K

                                  TABLE OF CONTENTS



     Part I                                                            Page

          Item  1.  Business . . . . . . . . . . . . . . . . . . . .      3
          Item  2.  Properties . . . . . . . . . . . . . . . . . . .     16
          Item  3.  Legal Proceedings  . . . . . . . . . . . . . . .     17
          Item  4.  Submission of Matters to a Vote of
                      Security Holders . . . . . . . . . . . . . . .     18

     Part II

          Item  5.  Market for Registrant's Common Equity
                      and Related Stockholder Matters  . . . . . . .     19
          Item  6.  Selected Financial Data  . . . . . . . . . . . .     21
          Item  7.  Management's Discussion and Analysis
                      of Financial Condition and Results
                      of Operations  . . . . . . . . . . . . . . . .     22
          Item  8.  Financial Statements and Supplementary Data  . .     30
          Item  9.  Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure . . . .     54

     Part III

          Item 10.  Directors and Executive Officers
                      of the Registrant  . . . . . . . . . . . . . .     54
          Item 11.  Executive Compensation . . . . . . . . . . . . .     55
          Item 12.  Security Ownership of Certain Beneficial
                      Owners and Management  . . . . . . . . . . . .     55
          Item 13.  Certain Relationships and Related Transactions .     55

     Part IV and signatures

          Item 14.  Exhibits, Financial Statement Schedules
                      and Reports on Form 8-K  . . . . . . . . . . .     56
          Signatures . . . . . . . . . . . . . . . . . . . . . . . .     60










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<PAGE> 3
                                        PART I


     Item 1.  BUSINESS

     General

          TMBR/Sharp Drilling,  Inc. (the "Company") was  incorporated under the
     laws of  Texas in  October, 1982  under the  name TMBR  Drilling, Inc.   In
     August, 1986, the Company changed its name to TMBR/Sharp Drilling, Inc.

          The principal executive  offices of  the Company are  located at  4607
     West  Industrial Blvd., Midland, Texas,  79703 and its  telephone number is
     (915) 699-5050.

          The  Company is engaged  in two lines  of business,  which include the
     domestic  onshore  contract  drilling    of  oil  and  gas  wells, and  the
     acquisition, exploration for, development, production  and sale of oil  and
     natural gas.

          The Company  provides domestic  onshore contract drilling  services to
     major  and independent  oil  and gas  companies.   The Company  focuses its
     operations in the Permian Basin of west  Texas and eastern New Mexico.   In
     addition to its drilling rigs,  the Company provides the crews and  most of
     the ancillary  equipment used in the  operation of its drilling  rigs.  Rig
     utilization for the fiscal year ended  March 31, 1998 was approximately 78%
     compared to 52% for the year ended March 31, 1997.

          The Company owns 17 drilling rigs, of which 2 were operating on behalf
     of the  Company for  its own account,  6 of which  were operating  for non-
     affiliated  oil producers, and 9 were "stacked" (non-operating) at June 22,
     1998.  All  of the Company's rigs are operational  and actively marketed in
     the  Permian  Basin of  west Texas  and eastern  New  Mexico.   The Company
     markets  its contract  drilling services  to both  major oil  companies and
     independent  oil producers.  The  depth capabilities of  the Company's rigs
     range from 8,500 feet to 30,000 feet.

          An onshore drilling rig consists of engines, drawworks, mast, pumps to
     circulate drilling fluids, blowout  preventers, the drillstring and related
     equipment.  The  size and type  of rig utilized  for each drilling  project
     depends  upon  the location  of  the  well, the  well  depth and  equipment
     requirements specified in the drilling contract, among other factors.

          The Company believes it has  established a reputation for reliability,
     high  quality equipment and  well-trained crews.   The  Company continually
     seeks to modify and upgrade  its equipment to maximize the  performance and
     capabilities of its drilling rig fleet, which the Company believes provides
     it with a competitive advantage.  The Company has the capability to design,
     repair  and modify its  drilling rig fleet  from its  principal support and
     storage facilities in  Midland, Texas,  and an additional  storage yard  in
     Odessa, Texas.

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<PAGE> 4
          The  Company's  oil  and  gas exploration  and  production  operations
     complement  its onshore drilling operations.   These activities are focused
     in  the  mature producing  regions  in  the Permian  Basin.    Oil and  gas
     operations comprised  approximately 6%  of the  Company's revenues for  the
     fiscal year  ended March 31, 1998.   The Company's proved  reserves, all of
     which were proved developed producing, were approximately 919 MBOE (million
     barrels  of oil equivalent) and had a  present value of future net revenues
     of  approximately $4.7 million at  March 31, 1998.  At  March 31, 1998, the
     Company  owned interests in approximately 18,818 gross (2,464 net) acres of
     developed oil and gas  properties, and approximately 7,207 gross  (454 net)
     acres of undeveloped properties.

          The  Company  has  no   material  patents,  licenses,  franchises,  or
     concessions which it considers significant to its operations.

          The nature of the Company's business is such that it does not maintain
     or require a "backlog" of products, customer orders, or inventory.

          The Company's operations are  not subject to renegotiation  of profits
     or termination of contracts at the election of the federal government.

          The  Company has  not been  a party  to any  bankruptcy, receivership,
     reorganization, adjustment, or similar proceeding.

          Generally,  the  Company's business  activities  are  not seasonal  in
     nature.  However, weather conditions can hinder drilling activities.


     CONTRACT DRILLING OPERATIONS

     Drilling Rigs

          The following  table sets forth the type and depth capabilities of the
     Company's 17 onshore drilling rigs.

          Rig No.        Depth Capacity      Type
             2                  8,500        Weiss W-45
             3*                 8,500        Weiss W-45
             4                  8,500        Unit 15
             6                 12,500        National 75A
             7                 10,000        Unit 15
            10                 12,500        National 75A
            12                 11,500        National 50A
            14                 12,500        BDW 650
            17*                 9,500        Unit 15
            22*                13,500        Brewster N-75
            23*                13,500        National 75A
            24*                13,500        Gardner Denver 700
            27*                13,500        Gardner Denver 700
            28*                16,000        Gardner Denver 800
            29                 16,000        Gardner Denver 800
            55*                30,000        Gardner Denver DW-2100
            56                 20,000        National 110-M
          ----------------
          *In active operation at June 22, 1998.


                                         -4-

<PAGE> 5


          Major overhauls, repairs and general maintenance for the drilling rigs
     are  primarily conducted  at  the Company's  principal support  and storage
     facilities in Midland, Texas.   The Company emphasizes the  maintenance and
     periodic improvement of its  drilling equipment and believes that  its rigs
     are generally in good condition.  See "Item 2. Properties".

     Drilling Contracts

          The   Company's  drilling  contracts   are  usually  obtained  through
     competitive bidding or as  a result of direct negotiations  with customers.
     Drilling  contracts typically  obligate  the Company  to  pay all  expenses
     associated  with drilling an oil  or gas well,  including wages of drilling
     personnel, maintenance  expenses and  incidental purchases of  rig supplies
     and  equipment.   The  majority of  the  Company's contracts  are "footage"
     contracts with the remainder being "daywork" or "turnkey" contracts.  Under
     a footage  contract, the Company charges  an agreed price per  foot of hole
     drilled, whereas a day-work  contract permits the  Company to charge a  per
     diem fixed rate for each day the  rig is in operation.  A turnkey  contract
     specifies a total price  for drilling a well plus providing other services,
     materials or  equipment  which  are  typically the  responsibility  of  the
     operator under footage or daywork contracts.  Prices for all contracts vary
     depending on the  location, depth, duration,  complexity of the well  to be
     drilled, operating conditions  and other factors peculiar  to each proposed
     well.    Under  footage and  turnkey  contracts,  the  Company manages  the
     drilling operation and the type of equipment to be used, subject to certain
     customer specifications.   The Company also bears  the risk and expense  of
     mechanical malfunctions, equipment shortages, and other delays arising from
     problems caused in drilling a well.  Daywork contracts permit the  operator
     of  the well  to manage  drilling  operations and  to specify  the type  of
     equipment to be used.  Under daywork contracts, the Company generally bears
     none of the  risk due to time delays caused  by unforeseeable circumstances
     such as stuck  or broken drill pipe or blowouts.   Of the 8 rigs working at
     June  22, 1998,  5 were  subject to  daywork contracts,  2 were  subject to
     footage contracts, and one was subject to a turnkey contract.

          The Company's operations  are subject to many  hazards, including well
     blowouts and fires that could cause personal injury, suspension of drilling
     operations, damage to or  destruction of equipment and damage  to producing
     formations  and surrounding areas.   The Company believes  it is adequately
     insured for public liability and damage to the property of others resulting
     from its operations.

     Rig Utilization

          The Company's  contract drilling revenues depend  upon the utilization
     of its  drilling rigs  and the  contract rates  received  for its  drilling
     operations.   These  two factors  are affected  by a  number of  variables,
     including  competitive conditions in the drilling industry and the level of
     exploration  and development activity conducted by oil and gas producers at
     any given time.   The level of domestic  drilling activity has historically
     fluctuated and cannot be accurately  predicted because of numerous  factors
     affecting  the petroleum  industry, including  oil and  gas prices  and the

                                         -5-



<PAGE> 6
     degree  of  government regulation  of  the  industry.    Contract  drilling
     revenues and  rig utilization rates for  the past five years  are set forth
     below.

                           Contract Drilling 
            Year Ended         Revenues          Number of      Percent of
             March 31,      (in thousands)       Rigs Owned     Utilization
               1994            $ 18,359              15            47.6%
               1995              18,357              15            43.5%
               1996              21,298              15            45.1%
               1997              18,483              15            51.6%
               1998              34,891              17(a)         78.2%

     ____________________
          (a)  Of  the total  number of  rigs owned,  one was  owned only  for a
               portion of the fiscal year ended March 31, 1998.

     Customers

          During the fiscal  year ended March  31, 1998, the  Company drilled  a
     total of  157 wells for  approximately 29 customers.   The following  table
     sets  forth certain information with respect to the principal customers for
     the Company's contract drilling services during such period.

                                                Percent  of            Number of
     Wells
     Name of Customer                         Total Revenues           Drilled  


     Titan Resources I, Inc.                        13%                 15
     Penwell Energy, Inc.                           12%                  8
     Rand Paulson Oil Company, Inc.                  9%                 12

          The loss  of any  one  or more  of the  above customers  could have  a
     material adverse effect on  the Company, depending upon the demand  for the
     Company's drilling  rigs at the time of such loss and the Company's ability
     to attract new customers.

     Competition

          The  Company encounters  substantial competition  from other  drilling
     contractors in its  contract drilling operations.   The Company's principal
     market areas of west Texas and eastern New Mexico are highly fragmented and
     competitive.  Companies compete  primarily on the basis of  contract rates,
     suitability and availability of equipment and crews, experience of drilling
     in  certain  areas,  and reputation.    The  Company  believes it  competes
     favorably  with respect to all of  these factors.  Competition is primarily
     on a well-by-well basis and may vary significantly at any particular  time.
     Drilling rigs  can be  moved  from one  region to  another  in response  to
     perceived  long-term changes  in  levels of  activity.   In  recent  years,
     competition within the  industry has been intense due to  the oversupply of
     rigs  which resulted  from the  rig overbuilding  during the  peak drilling
     years of 1980  and 1981, and the depressed demand  resulting from lower oil
     and gas prices and excess deliverability of natural gas.

     
                                        -6-
     
     
<PAGE> 7     
     Employees

          At  June  5,  1998,   the  Company  had  45  salaried   employees  and
     approximately 182  hourly paid employees.  Employees of the Company are not
     covered by any collective  bargaining agreements and the Company  has never
     experienced a strike or work stoppage.   The Company considers its employee
     relations to be satisfactory.

     REGULATION

     Oil and Gas

          The Company's  operations are regulated  by certain federal  and state
     agencies.  In particular, oil and gas production and related operations are
     or have  been subject to price  controls, taxes and other  laws relating to
     the oil and gas industry.  The Company cannot predict how existing laws and
     regulations  may be interpreted  by enforcement agencies  or court rulings,
     whether additional laws and regulations will be adopted, or the effect such
     changes  may  have  on its  business,  financial  condition  or results  of
     operations.

          The  Company's  oil  and   gas  exploration,  production  and  related
     operations are  subject to extensive  rules and regulations  promulgated by
     federal,  state and local agencies.  Failure  to comply with such rules and
     regulations  can result in substantial penalties.  The regulatory burden on
     the oil and gas industry increases the Company's cost of doing business and
     affects  its  profitability.    Because  such  rules  and  regulations  are
     frequently amended or reinterpreted,  the Company is unable to  predict the
     future cost or impact of complying with such laws.

          The  State of Texas and many other states require permits for drilling
     operations,  drilling bonds  and reports  concerning operations  and impose
     other  requirements relating to the  exploration and production  of oil and
     gas.  Such states also have statutes or regulations addressing conservation
     matters, including provisions for the unitization or pooling of oil and gas
     properties, the establishment of  maximum rates of production from  oil and
     gas wells and the regulation  of spacing, plugging and abandonment  of such
     wells.

          Sales of gas by  the Company are not regulated and  are made at market
     prices.    However,  the  Federal  Energy  Regulatory  Commission  ("FERC")
     regulates interstate  and certain  intrastate gas transportation  rates and
     service  conditions,  which affect  the marketing  of  gas produced  by the
     Company,  as well as the revenues received by the Company for sales of such
     production.    Since the  mid-1980s, FERC  has issued  a series  of orders,
     culminating  in Order  Nos. 636,636-A  and 636-B  ("Order 636"),  that have
     significantly altered the marketing  and transportation of gas.   Order 636
     mandates  a  fundamental restructuring  of  interstate  pipeline sales  and
     transportation service, including the unbundling by interstate pipelines of
     the sales,  transportation, storage and  other components of  the city-gate
     sales services such pipelines previously performed.  One of FERC's purposes
     in issuing the orders was to  increase competition within all phases of the
     gas  industry.  Order 636  and subsequent FERC  orders issued in individual

                                         -7-




<PAGE> 8
     pipeline restructuring proceedings  have been the  subject of appeals,  the
     results of which have  generally been supportive of the  FERC's open-access
     policy.   In 1996, the  United States Court of Appeals  for the District of
     Columbia Circuit  largely upheld Order  No. 636,  et seq.   Because further
     review  of certain of  these orders  is still  possible, and  other appeals
     remain pending,  it is  difficult  to predict  the ultimate  impact of  the
     orders on the Company and its gas marketing efforts.   Generally, Order 636
     has  eliminated   or  substantially   reduced  the   interstate  pipelines'
     traditional  role as wholesalers  of gas,  and has  substantially increased
     competition and volatility  in gas markets.   While significant  regulatory
     uncertainty remains, Order 636 may ultimately enhance the Company's ability
     to market and transport its  gas, although it may also subject  the Company
     to greater competition.

          The sale of oil by the Company is not regulated and is made  at market
     prices.  The price the Company receives from the sale of oil is affected by
     the cost of transporting the product to market.  Effective as of January 1,
     1995,  FERC implemented  regulations  establishing an  indexing system  for
     transportation rates  for interstate  common carrier oil  pipelines, which,
     generally,  would  index  such  rates  to  inflation,  subject  to  certain
     conditions and limitations.   These regulations could increase the  cost of
     transporting  oil  by  interstate   pipelines,  although  the  most  recent
     adjustment  generally decreased  rates.   These regulations  have generally
     been approved  on judicial review.  The Company is not able to predict with
     certainty what  effect, if  any, these  regulations will  have on it,  but,
     other factors being equal, the regulations may, over time, tend to increase
     transportation costs or reduce wellhead prices for oil.

          The  Company  is required  to comply  with  various federal  and state
     regulations regarding plugging and abandonment of oil and gas wells.

     Environmental

          Various federal, state  and local laws  and regulations governing  the
     discharge of materials into  the environment, or otherwise relating  to the
     protection of  the  environment, health  and safety,  affect the  Company's
     operations  and  costs.    These  laws  and  regulations  sometimes require
     governmental  authorization before  certain activities,  limit or  prohibit
     other activities because of protected  areas or species, impose substantial
     liabilities for pollution related to Company  operations or properties, and
     provide  penalties  for  noncompliance.     In  particular,  the  Company's
     exploration and  production operations,  its activities in  connection with
     storage  and transportation of oil  and other liquid  hydrocarbons, and its
     use  of   facilities  for   treating,  processing  or   otherwise  handling
     hydrocarbons and related exploration and  production wastes are subject  to
     stringent  environmental  regulation.    As with  the  industry  generally,
     compliance  with  existing   and  anticipated  regulations  increases   the
     Company's overall cost  of business.   While these  regulations affect  the
     Company's capital expenditures and earnings, the Company believes that such
     regulations  do not affect its competitive position in the industry because
     its  competitors   are  similarly  affected   by  environmental  regulatory

                                         -8-






<PAGE> 9
     programs.   Environmental  regulations  have historically  been subject  to
     frequent change and, therefore, the Company is unable to predict the future
     costs  or other future impacts  of environmental regulations  on its future
     operations.  A discharge  of hydrocarbons or hazardous substances  into the
     environment could subject the Company to substantial expense, including the
     cost to  comply with applicable regulations that  require a response to the
     discharge, such as containment or cleanup, claims by neighboring landowners
     or  other third  parties  for personal  injury,  property damage  or  their
     response costs and penalties assessed, or other claims sought by regulatory
     agencies for response cost or for natural resource damages.

          The following are examples of some environmental laws that potentially
     impact the Company and its operations.

          Water.  The Oil Pollution  Act ("OPA") was enacted in 1990  and amends
     provisions of the Federal Water Pollution Control Act of 1972 ("FWPCA") and
     other statutes as  they pertain to prevention of and  response to major oil
     spills.   The  OPA  subjects owners  of  facilities to  strict,  joint  and
     potentially  unlimited  liability  for  removal  costs  and  certain  other
     consequences of an oil spill, where such spill is into navigable waters, or
     along  shorelines.    In  the  event of  an  oil  spill  into  such waters,
     substantial liabilities could be imposed upon the Company.  States in which
     the  Company  operates have  also enacted  similar  laws.   Regulations are
     currently  being developed  under the OPA  and similar state  laws that may
     also impose additional regulatory burdens on the Company.

          The  FWPCA  imposes restrictions  and  strict  controls regarding  the
     discharge  of  produced waters,  other  oil and  gas  wastes,  any form  of
     pollutant, and, in some  instances, storm water runoff, into  waters of the
     United States.  The  FWPCA provides for civil, criminal  and administrative
     penalties  for any unauthorized discharges and, along with the OPA, imposes
     substantially potential liability for the costs of the removal, remediation
     or damages  resulting from an  unauthorized discharge.  State  laws for the
     control  of  water   pollution  also  provide   for  civil,  criminal   and
     administrative penalties  and liabilities  in the  case of  an unauthorized
     discharge into state waters.  The cost  of compliance with the OPA and  the
     FWPCA  have not historically been material to the Company's operations, but
     there can  be no assurance  that changes in  federal, state or  local water
     pollution control programs will not materially adversely effect the Company
     in  the future.  Although no assurances  can be given, the Company believes
     that  compliance with existing permits and  compliance with foreseeable new
     permit  requirements will  not  have  a  material  adverse  effect  on  the
     Company's financial condition or results of operations.

          Air  Emissions.  Amendments  to the Federal  Clean Air Act  enacted in
     late  1990 (the  "1990  CAA  Amendments")  require  or  will  require  most
     industrial operations in the United States to incur capital expenditures in
     order  to   meet  air   emissions  control   standards  developed   by  the
     Environmental  Protection Agency ("EPA")  and state environmental agencies.
     Although no assurances can be given, the Company believes implementation of
     the 1990  CAA Amendments will  not have  a material adverse  effect on  the
     Company's financial condition or results of operations.



                                          -9-



<PAGE> 10
          Solid Waste.   The Company  generates non-hazardous solid  wastes that
     are  subject to the requirements  of the Federal  Resource Conservation and
     Recovery Act  ("RCRA")  and comparable  state statutes.   The  EPA and  the
     states  in which  the  Company operates  are  considering the  adoption  of
     stricter disposal standards  for the type of non-hazardous wastes generated
     by the Company.  RCRA also governs the generation, management, and disposal
     of  hazardous wastes.   At present, the  Company is not  required to comply
     with a substantial portion  of the RCRA requirements because  the Company's
     operations generate minimal quantities of hazardous wastes.  However, it is
     anticipated that  additional wastes,  which could include  wastes currently
     generated  during  operations,  could  in  the   future  be  designated  as
     "hazardous  wastes".   Hazardous wastes  are subject  to more  rigorous and
     costly disposal and management  requirements than are non-hazardous wastes.
     Such   changes  in  the  regulations   may  result  in  additional  capital
     expenditures or operating expenses by the Company.

          Superfund.   The  Comprehensive Environmental  Response, Compensation,
     and Liability Act ("CERCLA"), also known as "Superfund", imposes liability,
     without  regard to fault  or the legality  of the original  act, on certain
     classes  of  persons  in  connection  with  the  release  of  a  "hazardous
     substance" into the environment.   These persons include the  current owner
     or operator of any site where a release historically occurred and companies
     that  disposed or  arranged for  the disposal  of the  hazardous substances
     found at the site.  CERCLA also authorizes the EPA and, in  some instances,
     third parties  to act in response  to threats to  the public health  or the
     environment and to seek to recover from the responsible classes  of persons
     the  costs they  incur.   In  the course  of its  ordinary operations,  the
     Company  may  have  managed  substances   that  may  fall  within  CERCLA's
     definition of  a "hazardous  substance".   the Company  may be  jointly and
     severally liable  under CERCLA  for all  or part of  the costs  required to
     clean up sites where the  Company disposed of or arranged for  the disposal
     of these substances.   This potential liability extends to  properties that
     the Company owned or operated, as  well as to properties owned and operated
     by others at which disposal of the Company's hazardous substances occurred.

          The Company  may also fall  into the category  of a "current  owner or
     operator".  The Company  currently owns or leases numerous  properties that
     for many years have been used for the exploration and production of oil and
     gas.  Although  the Company believes it has utilized operating and disposal
     practices that were  standard in the industry at the  time, hydrocarbons or
     other wastes  may have been  disposed of or released  by the Company  on or
     under the properties owned or leased by the Company.  In  addition, many of
     these  properties have been previously  owned or operated  by third parties
     who may have disposed of or released hydrocarbons or other  wastes at these
     properties.   Under CERCLA, and analogous state  laws, the Company could be
     subject to certain liabilities  and obligations, such as being  required to
     remove or  remediate previously disposed wastes  (including wastes disposed
     of  or released  by prior owners  or operators),  to clean  up contaminated
     property  (including  contaminated  groundwater)  or  to  perform  remedial
     plugging operations to prevent future contamination.



                                        -10-





<PAGE> 11
     OIL AND GAS OPERATIONS

          The  Company's  oil  and   gas  operations  involve  the  acquisition,
     exploration for, development and production of oil and natural gas.  During
     the fiscal year  ended March  31, 1998, the  Company's exploration  efforts
     were conducted in west Texas and eastern New Mexico.

          The Company is  actively investing in oil  and gas properties  for the
     purpose of  exploration, development and  production of  oil and gas.   The
     Company  acquires  or  participates  in  these  arrangements  as  a working
     interest owner and usually provides the contract drilling services for such
     ventures.

          Exploration for oil and natural gas requires substantial expenditures,
     especially for  exploration in more remote  areas.  As is  customary in the
     oil  and  gas industry,  the  drilling  of oil  and  gas  wells is  usually
     accomplished  through participation with other  third parties.   One of the
     parties  experienced with operations in  the area is  usually designated as
     the operator of the property and is responsible for the direct supervision,
     administration and accounting for  wells drilled and completed pursuant  to
     an operating agreement between  the parties.  The Company  typically serves
     as  operator  of  oil  and  gas  prospects  assembled  by the  Company  and
     participates  as  a  non-operating  working  interest  owner  in  prospects
     assembled  and  generated  by third  parties.    As  operator, the  Company
     supervises the drilling  and completion of  wells and production  therefrom
     and the further  development of surrounding properties.  The  operator of a
     well has  significant  control over  its  location and  the timing  of  its
     drilling.  In  addition, the operator  of a well  receives fees from  other
     working interest owners as reimbursement for the general and administrative
     expenses  attendant to  the operation  of  the wells.    The operator  will
     normally receive revenues and pay expenses equal to more than its ownership
     interest in the wells, and then must remit or collect all  but its share to
     or from the other respective participants in the well.  At June 5, 1998 the
     Company was operator of 19 wells.

     Oil and Gas Reserves

          Information  concerning the  Company's  estimated proved  oil and  gas
     reserves is included  in Note  (9) to the  Company's financial  statements.
     See "Item 8 - Financial Statements and Supplementary Data".

          The  reserve  information is  only an  estimate.   There  are numerous
     uncertainties  inherent  in estimating  oil  and  gas  reserves  and  their
     estimated values, including many factors beyond the control of the Company.
     Reserve  engineering  is a  subjective  process  of estimating  underground
     accumulations of  oil and natural gas  that cannot be measured  in an exact
     manner,  and the  accuracy of  any reserve  estimate is  a function  of the
     quality of available data and  of engineering and geological interpretation
     and  judgment.  As  a result, estimates of  different engineers often vary.
     In addition,  estimates of  reserves  are subject  to revision  due to  the
     results  of drilling, testing and production subsequent to the date of such

                                         -11-






<PAGE> 12
     estimates.   Accordingly,  reserve estimates are  often different  from the
     quantities of oil  and gas that are ultimately recovered.   The accuracy of
     such  estimates is  highly dependent  upon the  accuracy of  the underlying
     assumptions upon which they are based. 

          In  general,  the volume  of production  from  oil and  gas properties
     declines  as reserves  are  depleted.   Except  to the  extent  the Company
     acquires  properties  containing  proved reserves  or  conducts  successful
     exploration  and development activities,  or both, the  proved reserves of,
     and volumes of  production by,  the Company  will decline  as reserves  are
     produced.  The Company's future oil and gas production  is therefore highly
     dependent  upon its  level of  success in  acquiring or  finding additional
     reserves.

          The Company has no reserves outside the United States.

          No  major discovery or other  favorable or adverse  event has occurred
     since March  31, 1998 which is believed to have caused a significant change
     in the estimated proved oil and gas reserves of the Company.

          The Company's oil and  gas reserves and production are not  subject to
     any  long-term  supply or  similar agreements  with foreign  governments or
     authorities.

          The Company's estimate of reserves has not been filed with or included
     in reports  to any federal  agency other  than the Securities  and Exchange
     Commission.

     Productive Wells and Acreage

          The following  tables set forth the  gross and net productive  oil and
     gas wells and developed and undeveloped acreage  in which the Company owned
     a  working  interest as  of March  31, 1998.   Excluded  from the  table is
     acreage in which the  Company's interest is  limited to royalty or  similar
     interests.


                                                      Productive Wells          
                                                Gross                  Net      
                                             Oil     Gas           Oil      Gas 
     Texas................................... 75      10         10.401    1.485
     New Mexico.............................. 12       2          3.021     .144
                                             ---     ---         ------    -----
               Total......................... 87      12         13.422    1.629
                                             ===     ===         ======    =====


                                                        Acreage                
                                           Developed             Undeveloped   
                                        Gross       Net       Gross         Net
     Texas............................ 16,647      2,093      6,887          406
     New Mexico.......................  2,171        371        320           48
                                       ------      -----      -----        -----
               Total.................. 18,818      2,464      7,207          454
                                       ======      =====      =====        =====

                                        -12-


<PAGE> 13
          Generally,   the  terms  of  developed  oil  and  gas  leaseholds  are
     continuing and such leases  remain in force by  virtue of, and so  long as,
     production from lands under lease is  maintained.  Undeveloped oil and  gas
     leaseholds  are generally for  a primary term,  such as five  or ten years,
     subject  to maintenance with the payment of specified minimum delay rentals
     or extension by production.

          In addition to the  Company's developed and undeveloped  acreage shown
     above, on  September 5, 1995,  the Company entered  into a 10  year License
     Agreement  with the Government  of the Republic  of Palau and  the State of
     Kayangel which  will allow the Company  to explore for oil  and natural gas
     offshore.   The license covers  approximately 1.1 million  acres within the
     waters of  Palau.  Any exploration  activities in the license  area will be
     conducted  jointly with  other  third  parties  under a  carried  interest,
     farmout  or other  similar arrangements  which would  allow the  Company to
     retain  an  ownership  interest  without incurring  the  initial  costs  of
     exploration. 






























                                         -13-











<PAGE> 14
     Drilling Activity

          The  following table  sets  forth certain  information concerning  the
     number of gross  and net exploratory and development wells  drilled for the
     Company's account during the periods indicated.


                                          Years Ended March 31,                 
                               1998                1997                1996     
     Type of Well        Gross      Net      Gross      Net      Gross      Net 

     Exploratory (1)
          Oil              3        .913       3        .700       7       1.340

          Gas             --        --         2        .433       1        .250

          Dry              6        .956       5       1.077      11       2.067


     Development (2)
          Oil              9       1.592       7       1.835       6        .480

          Gas             --        --        --         --       --         --

          Dry              3        .355       2        .625       3        .510


     --------------------------
     (1)  An exploratory well is  a well drilled to find and produce  oil or gas
          in  an unproved area,  to find a  new reservoir in  a field previously
          found  to be  productive of  oil or  gas in  another reservoir,  or to
          extend a known reservoir.

     (2)  A development well  is a well drilled within the proved  area of a oil
          or gas reservoir  to the depth of a stratigraphic  horizon known to be
          productive. 

          At June 22,  1998, the Company was participating in  the drilling of 2
     gross (.56 net)  exploratory well in  Reeves County, Texas and  Lea County,
     New Mexico.

          Substantially  all of  the equipment  used  in the  Company's drilling
     operations is owned by the Company; however, certain insignificant items of
     drilling equipment are leased or rented as needed as  such equipment either
     cannot be  purchased or is only necessary for the drilling of certain types
     of wells located in certain areas.






                                         -14-






<PAGE> 15
          Production,  Prices and Costs.  The following table sets forth certain
     information  regarding the volumes of  the Company's net  production of oil
     and gas, the average sales prices received associated with its sales of oil
     and gas, and the average production (lifting) cost per equivalent barrel of
     oil ("EBO").

                                                Years Ended March 31,       
                                         1998           1997           1996 
     Net Production
          Oil (Bbls)                    72,880         76,266         70,941
          Gas (Mcf)                    439,711        361,745        212,062
          EBO (1)                      146,165        136,557        106,285

     Sales Prices
          Oil ($/Bbl)                    18.24          23.93          17.67
          Gas ($/Mcf)                     1.80           1.81           1.52
          EBO                            14.55          18.24          15.83

     Production (Lifting) Costs
          per EBO                       $ 6.46         $ 6.77         $ 5.20

     --------------------
          (1)  An EBO is one equivalent barrel of oil using the ratio of six Mcf
     of gas to one barrel of oil.


     Title to Properties

          As is  customary in  the oil  and  gas industry,  a preliminary  title
     examination is conducted at the  time oil or gas properties believed  to be
     suitable  for  drilling  are  acquired  by the  operator.    Prior  to  the
     commencement of operations, curative work determined to be appropriate as a
     result  of a title search is  performed with respect to significant defects
     before the operator  commences development.   Title examinations have  been
     performed with respect to  substantially all of the Company's  interests in
     its  producing  properties.    The  Company  believes  that  title  to  its
     properties is good  and defensible in  accordance with standards  generally
     acceptable in the oil and  gas industry, subject to such exceptions  which,
     in the  Company's opinion, are not so  material as to detract substantially
     from the value of such properties.  The Company's properties are subject to
     royalty, overriding  royalty, and other outstanding  interests customary in
     the  industry, and are  also subject to  burdens such as  liens incident to
     operating agreements,  current taxes  not yet due,  development obligations
     under  oil   and  gas  leases,   and  other  encumbrances,   easements  and
     restrictions.   The Company does not believe that any of these burdens will
     materially interfere with the use of its properties in the operation of the
     Company's business.

     Markets and Customers

          The Company  sells its oil and gas at the wellhead on an "as-produced"

                                         -15-






<PAGE> 16
     basis and does not refine petroleum products.  Other than normal production
     facilities, the  Company does  not  own an  interest  in any  bulk  storage
     facilities or  pipelines.   As is  customary in  the industry, the  Company
     sells  its production  in  any  one  area  to  relatively  few  purchasers,
     including  transmission companies  that have  pipelines near  the Company's
     producing  wells.   Gas purchase  contracts are  generally on  a short-term
     "spot  market" basis and usually contain provisions by which the prices and
     delivery quantities for future  deliveries will be determined.   During the
     year ended  March 31, 1998,  Titan Resources  I, Inc. and  Amoco Production
     Company  accounted  for approximately  16%  and 15%,  respectively,  of the
     Company's oil and gas revenues for such period.  The loss  of either one of
     these purchasers could cease or delay the Company's production and sale  of
     its oil and gas reserves  to the extent that alternative  purchasers having
     adequate gathering  facilities are not  found to  replace such  purchaser's
     volume of  oil or gas purchased.   However, in the  event of a  loss of any
     purchaser, the Company believes that, under present circumstances, it would
     be able to find other purchasers for its oil and gas production.

     Competition

          The Company encounters strong competition from major oil companies and
     independent producers and operators in acquiring  properties and leases for
     exploration  for oil  and gas.   Competition  is particularly  intense with
     respect to the  acquisition of  desirable undeveloped oil  and gas  leases.
     The principal competitive factors in the acquisition of undeveloped oil and
     gas leases include the staff and data necessary to acquire and develop such
     leases, as well as  the amount of consideration and terms offered.  Many of
     the Company's  competitors have financial resources,  staffs and facilities
     substantially  greater than  those  of  the  Company.    In  addition,  the
     producing and marketing of  natural gas and oil is affected  by a number of
     factors which  are beyond the control  of the Company, the  effect of which
     cannot be  accurately predicted.   Of significant  importance recently  has
     been  the domination  and  control of  oil  markets and  prices by  foreign
     producers.

          The  principal   raw  materials   and  resources  necessary   for  the
     exploration  and development of oil  and gas are  leasehold prospects under
     which  oil and gas  reserves may be  discovered, drilling  rigs and related
     equipment  to explore  for  such reserves  and  knowledgeable personnel  to
     conduct all phases of oil and gas operations.  The Company must compete for
     such  raw materials  and  resources  with  both  major  oil  companies  and
     independent operators,  and  the continued  availability, without  periodic
     interruption,  of such  materials and  resources to  the Company  cannot be
     assured.


     Item 2.  PROPERTIES

          In addition to its drilling rigs and related equipment and its oil and
     gas properties,  the Company owns a 31 acre tract of land in Midland, Texas
     on which  the Company's  executive offices  are  located and  on which  the

                                         -16-






<PAGE> 17
     principal  support  and  storage   facilities  for  its  contract  drilling
     operations are located.   Such  facilities include an  office building  and
     fabrication and maintenance shop.   The facility allows for open storage of
     drilling equipment and drill pipe.

          The Company also  owns a 78 acre tract of land in Odessa, Texas, which
     is presently being utilized as a secondary storage location.   From time to
     time, the Company's  rigs are stored and stacked in the  field at the rig's
     last location site.

          The  Company   owns  a  warehouse   and  yard  facility   situated  on
     approximately 4 acres in Midland, Texas.  This additional storage is  being
     used  to  complement  the existing  Midland  yard  facility.   The  Company
     believes that the support  and storage facilities for its drilling rigs and
     related equipment are more than adequate.


     Item 3.  LEGAL PROCEEDINGS

          In March,  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 approximate 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.

          In November, 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") was seeking 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  was
     seeking to recover a total of $803,057.11.

          On  September 9, 1997, the Company entered into a settlement agreement
     with the Guaranty  Association.  The Company agreed to  pay to the Guaranty
     Association  the  sum of  $375,000 in  full  satisfaction of  any liability
     relating the Company's workers compensation insurance program with SFIC and
     Sir  Lloyd's  Insurance Company  and the  lawsuit  brought by  the Guaranty
     Association.   The  Company  originally accrued  $854,153  relating to  the
     Guaranty  Association's  claim  for reimbursement.    As  a  result of  the
     settlement,  the Company  has eliminated  the accrual  of $854,153  and the
     difference  between the accrued amount and the settlement amount ($479,153)

                                         -17-






<PAGE> 18
     has been  recognized as  miscellaneous  income in  the Company's  financial
     statements.

          In  addition, the Company has entered into a settlement agreement with
     the  insurance agent that  represented the Company at  the time the workers
     compensation insurance policies  were purchased from Sir Lloyd's  and SFIC.
     The agent has paid  the Company the sum  of $180,000 in full  settlement of
     all  claims  and liabilities  relating to  SFIC  and Sir  Lloyd's Insurance
     Company.   This amount has been  recognized as miscellaneous income  in the
     Company's financial statements.

          The Company  provides for  its workers'  compensation claims  prior to
     September  1997 based upon the  most recent information  available from its
     insurance  carrier concerning  claims  and estimated  costs.   However,  in
     future  years  the  Company   may  receive  retroactive  adjustments,  both
     favorable and unfavorable, related to estimates of claim costs for previous
     years, which  may be material to  the Company's results of  operations.  No
     provision  for retroactive adjustments to claim costs is recorded until the
     Company  receives  notification from  its  insurance  carrier because  this
     amount, if any, cannot be estimated.   For claims incurred November 1993 to
     September  1997, the Company is generally responsible for the first $10,000
     ($100,000  prior to  November  1993)  in  claim  costs  for  each  workers'
     compensation injury.   Currently the Company is covered  by a fully insured
     workers compensation policy.

          The Company is a defendant in various lawsuits generally incidental to
     its business.  The Company does not believe that the ultimate resolution of
     such litigation will have  a significant effect on the  Company's financial
     position or results of operations.


     Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          There  was no meeting  of security holders  of the Company  during the
     fourth quarter of the fiscal year ended March 31, 1998, and no matters were
     submitted to a vote of security holders during such period.
















                                         -18-






<PAGE> 19
                                       PART II


     Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS

          The Company's Common  Stock is  traded on the  NASDAQ National  Market
     System under the  symbol "TBDI".  The following table sets  forth, on a per
     share  basis for  the periods  indicated, the  range of  high and  low last
     reported sales prices  as reported by  NASDAQ.   The quotations are  inter-
     dealer prices  without retail mark-ups,  mark-downs or commissions  and may
     not represent actual transactions. 

                                                        Price      
                                                   High       Low  
                Fiscal 1997
                       First Quarter              $ 8 1/4    $ 6 3/4
                       Second Quarter              12          7    
                       Third Quarter               12          8     
                       Fourth Quarter              13 7/8     10 3/4

                Fiscal 1998
                       First Quarter               14 1/2      9    
                       Second Quarter              29 1/4     13 1/2
                       Third Quarter               33 1/4     14 3/8
                       Fourth Quarter              19         10 1/2 

          The  transfer agent for the  Company's Common Stock  is American Stock
     Transfer & Trust Company, New York, New York.

          On February 13, 1997,  the Company privately placed 725,000  shares of
     its Common  Stock to eleven accredited  investors, at a per  share price of
     $11.00.   Rauscher Pierce  Refsnes, Inc. ("Rauscher")  served as  placement
     agent for the  offering.   The net proceeds  from the  sale of the  shares,
     approximately  $7.47 million,  were  used to  repay  all of  the  Company's
     outstanding bank debt (approximately $4.5 million) and  for general working
     capital  purposes.    As  consideration  for  serving  as  placement agent,
     Rauscher  received a 5%  cash commission (an aggregate  of $398,750), and a
     non-accountable expense allowance of  $25,000.  The Company also  issued to
     Rauscher, for nominal consideration, a five-year  stock purchase warrant to
     purchase 36,250 shares of the Company's  Common Stock at an exercise  price
     of  $13.20 per  share.   The Common  Stock  was sold  in reliance  upon the
     exemption from registration  under Section  4(2) of the  Securities Act  of
     1933, as amended (the "Act"), and Rule 506 of Regulation D under the Act.

          On June  8, 1998, the outstanding shares of the Company's Common Stock
     were held of record by approximately 3,218 stockholders.





                                         -19-






<PAGE> 20
          The  Company has  never declared  or paid  any  cash dividends  on its
     Common Stock  and has no  present intention  to pay cash  dividends in  the
     future.   The Company presently intends to  retain all earnings to fund its
     operations  and future growth.   Under  the terms  of the  Company's Credit
     Facility with  its bank lender, the Company  is prohibited from paying cash
     dividends to the holders of Common Stock without the written consent of the
     bank.    See Item  7, "Management's  Discussion  and Analysis  of Financial
     Condition and Results of Operations - Liquidity and Capital Resources".











































                                         -20-







<PAGE> 21
     Item 6.  SELECTED FINANCIAL DATA

                 The following table sets forth certain selected financial data 
     for the Company's operations for each of the five years ended March 31, 
     1998.   The data  set forth  in this table  should be read in conjunction 
     with  "Management's Discussion and Analysis of Financial Condition  and 
     Results of Operations", and the Company's Financial Statements and related 
     notes included elsewhere herein.
<TABLE>
<CAPTION>
                                                                              Years ended March 31,
                                                         ----------------------------------------------------------------------
                                                         1998              1997            1996           1995              1994
                                                         ----              ----            ----           ----              ----
                                                                     (In thousands, except per share amounts)
         <S>                                          <C>              <C>              <C>              <C>              <C>
         INCOME STATEMENT DATA                             
         Operating revenues:
           Contract drilling                          $ 34,891         $ 18,483         $ 21,298         $ 18,357         $ 18,359
           Oil and gas                                   2,126            2,491            1,683            1,042              621
                                                        ------           ------           ------           ------           ------

              Total operating revenues                  37,017           20,974           22,981           19,399           18,980

         Operating costs and expenses:                                     
           Contract drilling                            23,163           14,190           17,252           14,630           14,989
           Oil and gas production                          944              924              554              350              318
           Dry holes and abandonments                      476              558              945              629              656
           Depreciation, depletion
             and amortization                            4,080            1,784              907              876              746
           General and administrative                    1,863            1,560            1,599            1,553            1,339
           Writedown of oil and
             gas properties (a)                          3,120              171            2,624               --               --
                                                        ------           ------           ------           ------           ------  
              Total operating costs                                  
                and expenses                            33,646           19,187           23,881           18,038           18,048 
                                                        ------           ------           ------           ------           ------
              Operating income (loss)                    3,371            1,787             (900)           1,361              932 

         Other income (expenses):                                
           Interest                                        133             (278)            (139)            (154)            (89)
           Other                                         1,180               52              117              359              258 
                                                        ------           ------           ------           ------           ------
              Total other income (expense)               1,313             (226)             (22)             205              169
                                                        ------           ------           ------           ------           ------

         Net income(loss) before income
           tax provision                                 4,684            1,561             (922)           1,566            1,101
         Provision for income taxes                       (140)             (16)             (30)             (30)             (62)
                                                        ------           ------           ------           ------           ------
         Net income (loss) before                                
           extraordinary items                        $  4,544          $ 1,545         $   (952)        $  1,536         $  1,039
                                                        ======           ======           ======           ======           ======

                                                                     -21-




<PAGE> 22
     Net income (loss)
           before extraordinary
           items per share:                          
                 Basic                                   $0.98            $0.43           ($0.29)           $0.49            $0.38
                 Diluted                                 $0.91            $0.38              --             $0.38            $0.23
                                                        ======           ======           ======           ======           ======

         Weighted average number of
           common shares outstanding:                                    
                Basic                                    4,615            3,608            3,254            3,109            2,762
                Diluted                                  5,014            4,106            4,075            4,032            4,603
                                                         =====            =====            =====            =====            =====


         BALANCE SHEET DATA                          
           Cash and cash equivalents                  $  1,623         $  1,048         $    339         $  1,590         $  1,039 
           Total assets                                 24,648           19,761           11,660           10,040            7,648 
           Total debt                                       --               --            1,300               --               74 
           Stockholders' equity                         19,960           14,372            4,959            5,775            4,133 

         ____________________
</TABLE>
              (a)  During fiscal years ended March 31, 1998,  1997 and 1996, 
                   the Company recognized a non-cash charge of approximately
                   $3,120,000,  $171,000 and  $2,624,000, respectively,  due 
                   to a writedown of the carrying value  of its  oil and gas
                   properties.   This charge is a result of the  adoption of 
                   Statement of Financial Accounting Standards No. 121 ("SFAS
                   121") "Accounting for  the Impairment of Long-Lived Assets  
                   and for Long-Lived Assets to  Be Disposed Of".  SFAS  121
                   requires the Company to assess the need for an  impairment 
                   of capitalized  costs of  oil and gas  properties on  a
                   property-by-property basis  in contrast  to the  Company's 
                   prior  policy of  evaluating the  undiscounted future  net
                   revenues of its oil and gas properties in total.  According 
                   to SFAS  121, if an  impairment is  indicated based on
                   undiscounted future  cash flows, then it  is recognized to  
                   the extent that net  capitalized costs exceed  discounted
                   future cash flows.














                                        -22-





<PAGE> 23
     Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

        This Form 10-K  Annual Report ("Report") and  the documents incorporated
     by reference in this Report  include certain statements that may  be deemed
     to be "forward-looking statements" within the meaning of Section 27A of the
     Securities Act  of 1933 and Section  21E of the Securities  Exchange Act of
     1934,  as amended  (the  "Exchange  Act").    All  statements,  other  than
     statements  of  historical facts,  included  in  this  Report that  address
     activities,  events or  developments that  the Company  estimates, intends,
     projects, expects, believes or anticipates will or may occur in the future,
     including such  matters as  market conditions, future  capital, development
     and  exploration expenditures  (including the  amount and  nature thereof),
     drilling  rig  utilization rates,  drilling  of  wells, reserve  estimates,
     business strategies and other plans and objectives, expansion and growth of
     the  Company's  operations  and  other such  matters,  are  forward-looking
     statements.  These statements are based on certain assumptions and analyses
     made  by  the Company  in light  of its  experience  and its  perception of
     historical  trends, current  conditions,  expected future  developments and
     other  facts  it  believes are  appropriate  in  the  circumstances.   Such
     statements are subject to a number of assumptions, risks and uncertainties,
     including the  risk factors discussed above, general  economic and business
     conditions,  the  business  opportunities (or  lack  thereof)  that  may be
     presented to  and pursued by the Company, changes in law or regulations and
     other factors,  many of which are beyond the  control of the Company.  Such
     statements are not guarantees  of future performance and actual  results or
     developments may  differ materially  from those projected  in the  forward-
     looking statements.  

     Overview

        Since 1982,  the principal business of the Company has been the contract
     drilling of domestic onshore oil and gas wells.  In 1987, the Company began
     acquiring oil and gas  properties and participating in the  exploration for
     and development of oil and gas reserves.

        Contract Drilling Operations

        Drilling  revenues from footage and  daywork contracts are recognized as
     work  is performed  utilizing the  percentage-of-completion method.   Costs
     under footage and daywork contracts  are recognized in the period they  are
     incurred.   The Company utilizes the completed contract method to recognize
     drilling revenues and  expenses relating  to turnkey  contracts.   Expected
     losses on all  in-process contracts are recognized  in the period  the loss
     can reasonably be determined.

        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  25%.   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.





                                         -23-

<PAGE> 24
        The contract  drilling industry remains  highly competitive.   Recently,
     the demand for drilling rigs has  softened due to extremely weak oil prices
     and lower gas prices.  The Company believes it owns a sufficient  number of
     drilling rigs  to remain  competitive within its  areas of  operation.   In
     addition,  the Company believes it  competes favorably with  respect to the
     depth capabilities of its  rigs, the experience level of its personnel, its
     reputation  and  its relationship  with existing  customers.   However, the
     Company's  operating results will continue  to be directly  affected by the
     level of drilling activity in the Company's service areas.

        The  following table  sets  forth certain  information  relating to  the
     Company's contract drilling operations for the periods indicated:

                                                   Year Ended March 31,
                                                 1998       1997      1996
                                                 (In thousands, except %s)

          Contract drilling revenues           $34,891    $18,483    $21,298
          Contract drilling expenses            23,163     14,190     17,252

          Contract drilling expenses as
            a percent of drilling revenues        66.4%      76.8%      81.0%

          Rig utilization                         78.2%      51.6%      45.1%


        Oil and Gas Operations  

        The Company's oil and gas  producing activities are accounted  for using
     the successful  efforts  method of  accounting.   Accordingly, the  Company
     capitalizes  all costs incurred to  acquire oil and  gas properties (proved
     and  unproved),   all  development  costs,  and  the  costs  of  successful
     exploratory  wells.    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 for oil and  gas properties in which it has  an ownership
     interest,  the Company's  proportionate share  of costs  is  capitalized as
     stated above,  net of  its   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.    Such
     unevaluated costs totaled  approximately $111,000 and $196,000  as of March
     31, 1998, and March 31, 1997, respectively.

        For properties with  proved or proved  developed oil  and gas  reserves,
     depletion,  depreciation   and  amortization   of  capitalized   costs  was
     calculated  for  fiscal  1998, 1997  and  1996  by  applying the  units-of-
     production method to the estimated amount of such reserves. 

        In fiscal 1998, 1997 and  1996, the Company recognized  non-cash charges
     of approximately $3.1 million, $171,000 and $2.6 million, respectively, due
     to  writedowns of the  carrying value of its  oil and gas properties.   The
     writedowns are the result of the adoption in 1996 of Statement of Financial
     Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of
     Long-Lived  Assets and for Long-Lived Assets to  Be Disposed Of".  SFAS 121
     requires the  Company to assess the  need for an impairment  of capitalized

                                         -24-

<PAGE> 25
     costs of oil and gas properties on a property-by-property basis. This is in
     contrast  to the  Company's  prior policy  of  evaluating the  undiscounted
     future net  revenues of its oil and gas properties  in total.  According to
     SFAS 121, if  an impairment is indicated based  on undiscounted future cash
     flows, then it is to be recognized to the extent that net capitalized costs
     exceed discounted future cash flows.

        The  following table  sets  forth certain  information  relating to  the
     Company's oil and gas operations for the periods indicated:

                                                 Year Ended March 31,   
                                              1998       1997       1996
                                                    (In thousands)

          Oil and gas revenues               $2,126     $2,491     $1,683
          Production expenses                   944        924        554
          Dry holes and abandonments            476        558        945
          Depreciation, depletion and
            amortization                      1,891        802        468
          Writedown of properties             3,120        171      2,624


        The Company has not entered into hedging  arrangements and does not have
     any delivery  commitments.  While  hedging arrangements reduce  exposure to
     losses of resulting  from unfavorable  price changes, they  also limit  the
     ability to benefit from favorable market price changes.

     RESULTS OF OPERATIONS

     Comparison of Year Ended March 31, 1998 to Year Ended March 31, 1997

        Contract drilling  revenues in  fiscal 1998  increased by  89% from  the
     previous year.   During fiscal  1998, the Company  experienced very  strong
     demand  for its contract drilling services, which resulted in increased rig
     utilization and higher contract prices.  Rig  utilization was 78% in fiscal
     1998 compared to 52% in the prior fiscal year.

        Contract   drilling  expenses  represented   66%  of  contract  drilling
     revenues in  fiscal  1998 versus  77%  in fiscal  1997.   The  decrease  is
     attributable to the  increase in  the average price  received for  drilling
     contracts.

        Oil  and  gas revenues  decreased  by  15%  during  fiscal 1998.    This
     decrease was a result of weaker oil and gas prices.  Oil and gas production
     expenses remained relatively constant.

        The Company participated  as a working-interest owner in the drilling of
     21 wells during fiscal 1998, of which nine were dry holes.  In fiscal 1997,
     the Company  participated as a working-interest owner in the drilling of 19
     wells, of which seven were dry holes.







                                         -25-

<PAGE> 26

        During the  year  ended  March  31,  1998,  the  Company  completed  the
     assembly  of two  additional  drilling  rigs  from  its  inventory  of  rig
     components.    One  of the  rigs  is  capable of  drilling  to  a  depth of
     approximately  8,500 feet,  the  other to  a  depth of  10,000  feet.   The
     addition  of these two U-15 Unit rigs  brings the Company's available fleet
     to  17  rigs.   The increase  in  depreciation, depletion  and amortization
     expense  for fiscal  1998 reflects  the added  equipment(the two  U-15 Unit
     drilling  rigs, drill pipe and miscellaneous drilling equipment) as well as
     the larger number of producing wells in which the Company  has an ownership
     interest (a total of 99 wells in fiscal 1998 versus 92 wells in 1997).

        As noted above, the Company recognized a non-cash charge of $3.1 million
     in fiscal  1998 and $171,000 in fiscal 1997 related to the writedown of the
     carrying value of its oil and gas properties.

        As  described  in  "Item  3.  Legal  Proceedings",  the  Company  was  a
     defendant  in  a lawsuit  filed by  Texas  Property and  Casualty Insurance
     Guaranty  Association  that  had  resulted  in  the  Company's  accrual  of
     approximately $854,000 for a  contingent liability.  On September  9, 1997,
     the  Company  entered  into  a  settlement  agreement   with  the  Guaranty
     Association.  The Company agreed to pay to the Guaranty Association the sum
     of $375,000 in full satisfaction of any liability relating to the Company's
     workers compensation programs  with SFIC and Sir  Lloyd's Insurance Company
     and  the lawsuit brought by  the Guaranty Association.   As a result of the
     settlement, the Company recognized approximately $479,000 as  miscellaneous
     income during the year ended March 31, 1998.

        In addition,  the Company entered  into a settlement  agreement with the
     insurance  agent that  represented  the Company  at  the time  the  workers
     compensation insurance  policies were purchased from Sir  Lloyd's and SFIC.
     The  agent paid the Company  the sum of $180,000 in  full settlement of all
     claims  and liabilities relating to SFIC and Sir Lloyd's Insurance Company.
     This amount was recognized as miscellaneous  income in the year ended March
     31,  1998.     The  Company   also  recorded   approximately  $236,000   of
     miscellaneous income from the sale of junk drill bits.

        Net working  capital was $6.0  million at  March 31,  1998, compared  to
     $2.7  million  at  March  31,  1997.    The  gain  in  working  capital  is
     attributable to an increase in cash and trade receivables.

     Comparison of Year Ended March 31, 1997 to Year Ended March 31, 1996

        Contract drilling revenues  for fiscal 1997 decreased by 13% from fiscal
     1996.  The decrease was  due to a drop-off  in the number of turnkey  wells
     drilled by  the Company  (from 12 wells  in fiscal 1996  to none  in fiscal
     1997).The decline in turnkey contracts, however, was partially offset by an
     increase from the prior year in the average prices the Company received for
     footage and daywork contracts.

        Rig  utilization  rates in  fiscal  1997  and  1996 were  52%  and  45%,
     respectively.    The  fiscal 1997  rate,  and  therefore contract  drilling
     revenues, were adversely affected by extremely low utilization in the first
     three months of the year.   During the first quarter, drilling  prices were
     depressed  and the  Company chose  to underutilize  its  drilling equipment
     rather  than subject  it  to  additional  wear  and  tear  at  unacceptable

                                         -26-

<PAGE> 27
     operating margins.  As a result, the utilization rate for the first quarter
     was only  34%.  In  the second quarter,  however, demand for  the Company's
     contract drilling services began to increase substantially,  resulting in a
     fourth-quarter utilization rate of  70%.  Rig utilization in  the Company's
     operating  market is difficult to  project because of  wide fluctuations in
     drilling  activity.  In addition, the number  of rigs industrywide that are
     actually available for work cannot be accurately determined.

        Contract  drilling expenses  equaled 77%  and  81% of  contract drilling
     revenues   in  fiscal  1997  and  1996,  respectively.    The  decrease  is
     attributable to the  increase in  the average price  received for  drilling
     contracts.

        Oil and gas revenues increased by 48% in  fiscal 1997.  Accordingly, oil
     and gas production expenses increased 67% over the same period.

        Depreciation, depletion and  amortization expense also increased  due to
     the addition of drill pipe and an increase in the number of producing wells
     in which the Company had an ownership interest during fiscal 1997.

        Interest expense increased  100% for fiscal 1997 due to borrowings under
     the  Company's credit facilities with  its bank lender  during this period.
     See "Liquidity and Capital Resources" below.

        Net working capital  was $2.7 million at  March 31, 1997, compared  to a
     negative $1.2  million  at March  31,  1996.   The  improvement in  working
     capital was  due to  an  increase in  accounts  receivable, a  decrease  in
     accounts payable and an increase in cash and cash equivalents.

     Income Taxes

        At March  31,  1998, the  Company  had  approximately $68.3  million  of
     unused net operating loss ("NOL") carryforwards  for tax purposes.  Use  of
     these carryforwards is  dependent upon  the Company's  ability to  generate
     taxable  earnings in  future periods.   These  carryforwards will  begin to
     expire in the  1998 tax  year.  The  Company's ability to  utilize its  NOL
     carryforwards may be substantially limited in the future under the Internal
     Revenue Code of 1986, as amended  (the "Code").  If the Company experiences
     an  ownership  change  under  applicable   provisions  of  the  Code,   the
     carryforward would be limited  to an annual amount determined  by specified
     interest rates  and  other variables.    The Company  does not  believe  an
     ownership change has occurred to date.

        The  effective  tax rates  for  fiscal 1998  and  1997  differ from  the
     statutory  tax rate of 34%  primarily due to the utilization  of NOLs.  Tax
     expense is generally limited to alternative minimum tax.

        The Company  utilizes  an asset  and  liability approach  for  financial
     accounting and reporting for income taxes.  The Company has  a deferred tax
     asset primarily due  to its NOL carryforwards.  The  Company has provided a
     valuation allowance  for the entire balance of deferred tax assets as it is
     likely that a portion of the NOLs may expire  before the Company is able to
     use them.

     


                                         -27-

<PAGE> 28
     Liquidity and Capital Resources   
     
        In January  1996, the  Company entered  into a loan  agreement with  its
     bank  lender  providing  for  a  revolving  credit  facility  (the  "Credit
     Facility")  originally  maturing  on  January  15,  1998.    The  aggregate
     principal  amount of the Company's  borrowings outstanding at  any one time
     under the revolving  facility was limited to the lesser  of $3.0 million or
     one-third of  the borrowing base amount then in effect.  The borrowing base
     amount  was redetermined  by the  bank monthly.   The  Credit Facility  was
     established  to finance the  Company's purchases of drill  pipe and oil and
     gas  exploration activities.  Interest only was payable monthly. The entire
     principal amount  was  due  and payable  on  January 15,  1998,  which  was
     extended  to April  15, 1998.   The  Credit Facility  bore interest  at the
     bank's base  rate and  was secured  by substantially  all of  the Company's
     accounts receivable, drilling  rigs and  related equipment.   At March  31,
     1998, there were no amounts outstanding under the Credit Facility.  

        In August  1996, the Company entered  into a second  loan agreement with
     its bank lender.  This agreement provided for a $2.0 million revolving line
     of  credit (the  "Line  of Credit")  secured by  substantially  all of  the
     Company's producing  oil  and gas  properties.    The Line  of  Credit  was
     established to finance the Company's oil and gas exploration activities and
     for general  corporate purposes.  The  Line of Credit bore  interest at the
     bank's  base rate,  with interest only  to be  paid monthly.   The original
     maturity date of  February 15, 1998,  was extended to April  15, 1998.   At
     that time, the principal amount then outstanding  was due and payable, plus
     any accrued  and unpaid  interest.   At  March 31,  1998,  no amounts  were
     outstanding under the Line of Credit.  

        On May  26, 1998,  the Company  renewed, extended  and consolidated  the
     prior  loan facilities  its bank  lender.   The amended  and restated  loan
     agreement provides for a $5.0  million revolving line of credit secured  by
     the Company's drilling rigs and related equipment, accounts receivable  and
     inventory.   Borrowings under  this line  of  credit bear  interest at  the
     Norwest Bank base rate and  accrued interest is payable monthly.   The loan
     facility matures on May 26, 2000.

        The Company  anticipates  that funds  for  its capital  expenditures  in
     fiscal 1999 will be available from a combination of sources, including  (i)
     borrowings under the line of  credit , (ii) funds raised  through issuances
     of  equity or debt securities in public  or private transactions, and (iii)
     internally generated funds.














                                         -28-


<PAGE> 29
        The  following  table  sets  forth  information  regarding  the  capital
     expenditures made by the Company during the last three fiscal years.

                                                        Year Ended March 31,    
                                                      1998       1997      1996
                                                           (In thousands)
     Oil and gas exploration and development.....   $ 3,846     $3,424    $5,553
     Drilling rigs, drill pipe and 
       related equipment.........................     6,086      2,940     1,452
     Other.......................................       249        390        11
                                                     ------      -----     -----
          Total..................................   $10,181     $6,754    $7,016
                                                     ======      =====     =====

        The  Company  presently  anticipates  making  capital   expenditures  of
     approximately $5.5  million in its 1999  fiscal year.  Of  this amount, the
     Company  expects  that approximately  $2.5 million  will  be spent  for the
     acquisition of  drill  pipe,  drill  collars  and  related  equipment,  and
     approximately  $3.0 million  for oil  and gas  exploration  and development
     activities.    It  is  the  Company's  policy,  however,  to  make  capital
     expenditures  based on prevailing  economic conditions, the  results of its
     drilling   activities,   and   other   factors  affecting   its   business.
     Accordingly,  the amounts  actually  spent  in  fiscal  1999  could  differ
     substantially from the amounts estimated.

     Trends and Prices

        Although  the Company  achieved  record  growth, profitability  and  rig
     utilization in  fiscal 1998,  the contract  drilling industry  is currently
     experiencing decreased  demand and  declining prices for  contract drilling
     services  due to the  weakening of  oil and gas  prices.  The  Company will
     certainly be affected by oil and gas industry conditions but cannot predict
     either the  future level  of demand for  its contract drilling  services or
     future conditions in the contract drilling industry.

        In recent  years,  oil and  gas  prices  have been  extremely  volatile.
     Prices  are affected  by market  supply and  demand factors  as well  as by
     actions of state and local  agencies, the U.S. and foreign  governments and
     international cartels.  The Company has no way of accurately predicting the
     supply of and  demand for oil and gas, domestic  or international political
     events or  the effects of  any such factors on  the prices received  by the
     Company for its oil and gas.

     Year 2000 Issues

        The Company has reviewed the effect of the year 2000 issues relating  to
     its information  systems.  The  Company has determined  that the  year 2000
     issues directly related to its information systems will not have a material
     impact  on its business, operations  nor its financial  position.  However,
     the Company  cannot determine  what effect,  if any,  the year 2000  issues
     affecting its vendors, customers and the numerous local, state, federal and
     other U. S. government entities with which it conducts business or which it
     is regulated  or governed or taxed  will have on its  business or financial
     position.



                                         -29-

<PAGE> 30
     Recently Issued Accounting Standards

        In June  1997,  the Financial  Accounting Standard  Board (FASB)  issued
     SFAS  No.  130,  "Reporting   Comprehensive  Income",  which  requires  the
     presentation of  comprehensive income in an  entity's financial statements.
     Comprehensive income represents all  changes in equity of an  entity during
     the reporting period,  including net  income and charges  made directly  to
     equity which are excluded from net  income.  The adoption of this statement
     did not have a material impact on the Company's financial disclosures.

        In  June 1997,  the FASB also  issued SFAS  No. 131,  "Disclosures about
     Segments  of  an Enterprise  and  Related  Information", which  establishes
     standards  for the way public  enterprises are to  report information about
     operating  segments  in  annual   financial  statements  and  requires  the
     reporting  of  selected information  about  operating  segments in  interim
     financial  reports issued to shareholders.   SFAS No.  131 also establishes
     standards for  related disclosures about products  and services, geographic
     areas,  and  major customers.    SFAS  No.  131  is effective  for  periods
     beginning after December 15, 1997, at which time the Company will adopt the
     provision.  This statement is not  anticipated to have a material impact on
     the Company's financial disclosures.
































                                         
                                         -30-


       

<PAGE> 31
     Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                       Page

          Report of Independent Public Accountants                      31

          Balance Sheets, March 31, 1998 and 1997                       32

          Statements of Operations, Years ended
            March 31, 1998, 1997 and 1996                               34

          Statements of Stockholders' Equity,
            Years ended March 31, 1998, 1997 and 1996                   35

          Statements of Cash Flows,
            Years ended March 31, 1998, 1997 and 1996                   36

          Notes to Financial Statements                                 37






































                                         -31-


<PAGE> 32
                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


     To the Board of Directors and Stockholders of TMBR/Sharp Drilling, Inc.:

        We have audited the accompanying balance  sheets of TMBR/Sharp Drilling,
     Inc. (a Texas corporation)  as of March 31, 1998 and  1997, and the related
     statements of operations, stockholders'  equity and cash flows for  each of
     the  three  years in  the period  ended March  31,  1998.   These financial
     statements and the schedule referred to below are the responsibility of the
     Company's management.  Our responsibility is to express an opinion on these
     financial statements and schedule based on our audits.

        We conducted our audits in  accordance with generally accepted  auditing
     standards.  Those standards require  that we plan and perform the  audit to
     obtain reasonable assurance about whether the financial statements are free
     of material misstatement.   An audit includes examining,  on a test  basis,
     evidence  supporting   the  amounts   and  disclosures  in   the  financial
     statements.   An audit  also includes  assessing the accounting  principles
     used  and significant estimates made  by management, as  well as evaluating
     the overall financial statement  presentation.  We believe that  our audits
     provide a reasonable basis for our opinion.

        In  our opinion,  the  financial statements  referred  to above  present
     fairly,  in  all material  respects, the  financial position  of TMBR/Sharp
     Drilling,  Inc. as  of  March 31,  1998 and  1997, and  the results  of its
     operations and its cash  flows for each  of the three  years in the  period
     ended  March 31,  1998, in  conformity with  generally  accepted accounting
     principles.

        As explained  in Note 1  to the financial  statements, effective January
     1, 1996,  the Company changed  its method of  accounting for impairment  of
     long-lived assets.

        Our audits were made for  the purpose of forming an opinion on the basic
     financial statements taken as a whole.  The schedule listed in the index at
     Item 14(a)2 is presented for purposes of complying with the Securities  and
     Exchange Commission's  rules and  is  not a  part  of the  basic  financial
     statements.   This schedule has  been subjected to  the auditing procedures
     applied  in the  audits  of the  basic financial  statements,  and, in  our
     opinion, fairly states in all material respects the financial data required
     to be set forth therein in relation to the basic financial statements taken
     as a whole.
       





                                               ARTHUR ANDERSEN LLP              

     Dallas, Texas,
       May 26, 1998




                                         -32-

<PAGE> 33
                              TMBR/SHARP DRILLING, INC.

                                    Balance Sheets

                               March 31, 1998 and 1997

                          (In thousands, except share data)


<TABLE>
<CAPTION>
      ASSETS                                               1998            1997 
      ------                                               ----            ---- 
    <S>                                                <C>            <C>
    Current assets:
      Cash and cash equivalents                        $   1,623       $   1,048
      Marketable securities                                   87              87
      Trade receivables,
        net of allowance for doubtful
          accounts of $1,135 in 1998
          and 1997.                                        8,149           6,218
      Inventories                                             82              74
      Deposits                                                73              73
      Other                                                  664             560
                                                          ------          ------
         Total current assets                             10,678           8,060
                                                          ------          ------


    Property and equipment, at cost:
      Drilling equipment                                  48,691          42,690
      Oil and gas properties, based on
        successful efforts accounting                     15,452          13,102
      Other property and equipment                         3,786           3,584
                                                          ------          ------
                                                          67,929          59,376
      Less accumulated depreciation,
        depletion and amortization                       (54,132)        (47,851)
                                                          ------          ------
         Net property and equipment                       13,797          11,525
                                                          ------          ------

    Other assets                                             173             176
                                                          ------          ------

              Total assets                             $  24,648       $  19,761
                                                          ======          ======

</TABLE>
    See accompanying notes to financial statements.







                                         -33-

<PAGE> 34
                              TMBR/SHARP DRILLING, INC.

                                    Balance Sheets

                               March 31, 1998 and 1997

                          (In thousands, except share data)

<TABLE>
<CAPTION>
      LIABILITIES AND STOCKHOLDERS' EQUITY                 1998             1997
      ------------------------------------                 ----             ----
    <S>                                                 <C>            <C>
    Current liabilities:
      Trade payables                                    $  2,622       $   2,739
      Accrued workers' compensation                          411           1,245
      Other                                                1,655           1,405
                                                          ------          ------
         Total current liabilities                         4,688           5,389
                                                          ------          ------
         Total liabilities                                 4,688           5,389
                                                          ------          ------
    Contingencies

    Stockholders' equity:
      Common stock, $0.10 par value
        Authorized, 50,000,000 shares;
        issued, 5,979,625 shares at
        March 31, 1998 and 5,696,825 at
        March 31, 1997                                      598             570 
      Additional paid-in capital                         69,429          68,413 
      Accumulated deficit                               (49,917)        (54,461)
      Treasury stock-common, 1,268,739 shares
        at March 31, 1998 and 1997, at cost                (150)           (150)
                                                         ------          ------ 
         Total stockholders' equity                      19,960          14,372 
                                                         ------          ------ 

           Total liabilities and 
             stockholders' equity                     $  24,648       $  19,761 
                                                         ======          ====== 
</TABLE>
    See accompanying notes to financial statements.













                                         -34-


<PAGE> 35
                              TMBR/SHARP DRILLING, INC.

                               Statements of Operations

                      Years Ended March 31, 1998, 1997 and 1996

                          (In thousands, except share data)


                                                1998         1997        1996  
                                                ----         ----        ----  
    Revenues:
      Contract drilling                     $  34,891    $  18,483   $  21,298 
      Oil and gas                               2,126        2,491       1,683 
                                               ------       ------      ------ 
              Total revenues                   37,017       20,974      22,981 
                                               ------       ------      ------ 
    Operating costs and expenses:
      Contract drilling                        23,163       14,190      17,252 
      Oil and gas production                      944          924         554 
      Dry holes and abandonments                  476          558         945 
      Depreciation, depletion and
        amortization                            4,080        1,784         907 
      Writedown of oil and gas
        properties                              3,120          171       2,624 
      General and administrative                1,863        1,560       1,599 
                                               ------       ------      ------ 
              Total operating costs
                and expenses                   33,646       19,187      23,881 
                                               ------       ------      ------ 
              Operating income (loss)           3,371        1,787        (900)
                                               ------       ------      ------ 
    Other income (expense):
      Interest                                    133         (278)       (139)
      Gain on sales of assets                     179           65          26 
      Other, net                                1,001          (13)         91 
                                               ------       ------      ------ 
              Total other income
                (expense), net                  1,313         (226)        (22)
                                               ------       ------      ------ 
    Net income (loss) before
      income tax provision                      4,684        1,561        (922)
    Provision for income taxes                   (140)         (16)        (30)
                                               ------       ------      ------ 
    Net income (loss)                       $   4,544    $   1,545   $    (952)
                                               ======       ======      ====== 
    Net income (loss) per common share:
         Basic                              $    0.98    $    0.43   $   (0.29)
         Diluted                                 0.91         0.38          -- 
                                             =========    =========   =========
    Weighted average number of
      common shares outstanding:
         Basic                               4,614,959    3,607,925   3,254,262
         Diluted                             5,013,981    4,105,882   4,074,567
                                             =========    =========   =========

    See accompanying notes to financial statements.

                                         -35-
<PAGE> 36





                                   TMBR/SHARP DRILLING, INC.

                              Statements of Stockholders' Equity 

                           Years Ended March 31, 1998, 1997 and 1996

                                         (In thousands)


<TABLE>
<CAPTION>
                                         Common Stock     Additional                 Treasury Stock        Total
                                         ------------      Paid-In     Accumulated   ---------------   Stockholders'
                                        Shares   Amount    Capital       Deficit     Shares   Amount      Equity
                                        ------   ------   ----------   -----------   ------   ------   -------------

                 <S>                    <C>      <C>       <C>           <C>          <C>     <C>         <C>
                 Balance, March 31,
                   1995                  4,394   $ 439     $ 60,540      $(55,054)    1,270   $(150)      $ 5,775

                 Exercise of Stock
                   Options                 222      22          114           --         --      --           136

                 Net Loss                  --       --          --           (952)       --      --          (952)
                                         -----    -----     --------      --------    -----    -----       -------
                 Balance, March 31,
                   1996                  4,616   $ 461     $ 60,654      $(56,006)    1,270   $(150)      $ 4,959

                 Issuance of 
                   Common Stock            750      76        7,704           --         --      --         7,780

                 Exercise of Stock 
                   Options                 331      33           55           --         --      --            88

                 Net Income                 --      --           --         1,545        --      --         1,545
                                         -----    -----     --------      --------    -----    -----       -------
                 Balance, March 31,
                   1997                  5,697   $ 570     $ 68,413      $(54,461)    1,270   $(150)      $14,372

                 Exercise of 
                   Stock Options           283      28        1,016            --        --      --         1,044

                 Net Income                 --      --           --         4,544        --      --         4,544
                                         -----    -----     --------      --------    -----    -----       -------
                 Balance, March 31,
                   1998                  5,980   $ 598     $ 69,429     $ (49,917)    1,270   $(150)      $19,960
                                         =====    =====     ========      ========    =====    =====       =======
</TABLE>
                 See accompanying notes to financial statements.


                                         -36-


<PAGE> 37
                              TMBR/SHARP DRILLING, INC.
                              Statements of Cash Flows
                      Years Ended March 31, 1998, 1997 and 1996
                                   (In thousands)
    
                                                   1998       1997       1996   
                                                   ----       ----       ----   
   Cash flows from operating activities:
     Net income (loss)                          $   4,544  $   1,545  $    (952)
     Adjustments to reconcile net 
       income (loss) to net cash provided
       by operating activities:
         Depreciation, depletion and amortization   4,080      1,784        907 
         Dry holes and abandonments                   476        558        945 
         Gain on sales of assets                     (179)       (65)       (26)
         Writedown of properties                    3,120        171      2,624 
         Changes in assets and liabilities:
           Trade receivables                       (1,931)    (3,276)      (374)
           Deposits                                    --        350         90 
           Inventories and other assets              (109)      (262)       (65)
           Trade payables                            (117)      (597)     1,497 
           Accrued payables and other
             current liabilities                     (584)       585        117 
                                                  --------   --------   --------
             Total adjustments                      4,756       (752)     5,715 
                                                  --------   --------   --------
             Net cash provided
               by operating activities              9,300        793      4,763 
                                                  --------   --------   --------
   Cash flows from investing activities:
     Additions to property and equipment          (10,181)    (6,754)    (7,016)
     Proceeds from sales of property  
       and equipment                                  412        102         44 
                                                  --------   --------   --------
             Net cash required
               by investing activities             (9,769)    (6,652)    (6,972)
                                                  --------   --------   --------
   Cash flows from financing activities:
     Repayments of capital lease                       --         --        (92)
     Proceeds from issuance of common stock            --      7,780         -- 
     Proceeds from exercise of stock options        1,044         88        136 
     Proceeds from bank loan                           --      3,200      1,300 
     Repayments of bank loan                           --     (4,500)        -- 
     Leasehold borrowings and repayments 
       of leasehold borrowings                         --         --       (386)
                                                  --------   --------   --------
             Net cash provided by
               financing activities                 1,044      6,568        958 
                                                  --------   --------   --------
             Net increase (decrease) in
               cash and cash equivalents              575        709     (1,251)

   Cash and cash equivalents at beginning of year   1,048        339      1,590 
                                                  --------   --------   --------
   Cash and cash equivalents at end of year     $   1,623  $   1,048  $     339 
                                                  ========   ========   ========
   See accompanying notes to financial statements.

                                         -37-
<PAGE> 38



                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




     (1)  Organization, Nature of Business and Summary of Significant Accounting
          Policies

     Nature of Operations

          TMBR/Sharp Drilling,  Inc. (the "Company") was  incorporated under the
     laws  of Texas  in October, 1982  under the  name TMBR  Drilling, Inc.   In
     August, 1986, the Company changed its name to TMBR/Sharp Drilling, Inc.

          The Company's  principal businesses are the  domestic onshore contract
     drilling  of oil  and  gas wells  for  major and  independent  oil and  gas
     producers,  and, to a lesser  extent, the exploration  for, development and
     production of  oil and natural gas.   The Company's drilling activities are
     primarily  conducted in  the Permian  Basin of west  Texas and  eastern New
     Mexico.

     Cash and Cash Equivalents

          For  purposes of the statements  of cash flows,  the Company considers
     highly liquid debt  instruments which  have an original  maturity of  three
     months or  less to be cash equivalents.  Cash payments for interest expense
     were approximately $0 in 1998, $278,000 in 1997 and $139,000 in 1996.  Cash
     payments  for taxes due  totaled $29,000, $0 and  $23,000 during 1998, 1997
     and 1996, respectively.

     Marketable Securities

            Under  SFAS No. 115, "Accounting for Certain Investments in Debt and
     Equity  Securities", marketable  securities,  such as  those  owned by  the
     Company,  are classified  as available-for-sale  securities  and are  to be
     reported at market value, with  unrealized gains and losses, net  of income
     taxes,  excluded  from earnings  and reported  as  a separate  component of
     stockholders' equity.   The market value  of these securities at  March 31,
     1998  was not materially different from the historical cost, and therefore,
     no unrealized gains or losses have been recorded.









                                         -38-


<PAGE> 39

                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements



     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  of accounting.  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
     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.   Such unevaluated  costs
     totaled approximately $111,000 and $196,000 as of March 31,  1998 and 1997,
     respectively.

          Depletion, depreciation  and amortization  of capitalized oil  and gas
     property  costs is 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.









                                         -39-




<PAGE> 40
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          Prior to 1996, the Company provided impairments for significant proved
     oil and gas properties  to the extent that  net capitalized costs  exceeded
     aggregated  undiscounted future net cash  flows.  During  1996, the Company
     adopted Statement of Financial  Accounting Standards No. 121  ("SFAS 121"),
     "Accounting  for the  Impairment  of Long-Lived  Assets and  for Long-Lived
     Assets to  Be Disposed Of".   SFAS 121 requires  the Company to  assess the
     need for an impairment of capitalized costs of oil  and gas properties on a
     property-by-property basis.   According to  SFAS 121, if  an impairment  is
     indicated  based on  undiscounted expected  future cash  flows, then  it is
     recognized  to  the extent  that  net capitalized  costs  exceed discounted
     future  cash flows.   In  connection  with the  adoption of  SFAS 121,  the
     Company  provided  an  impairment  of   $2,624,000  in  1996.    Additional
     impairments  of $3,120,000  and $171,000  were recorded  in 1998  and 1997,
     respectively.  Management's estimate of future cash flows is based on their
     estimate of reserves and prices.   It is reasonably possible that  a change
     in reserve  or price estimates could  occur in the near  term and adversely
     impact  management's estimate  of future  cash flows  and consequently  the
     carrying value of properties.

          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.

     Drilling Revenues and Costs

          Drilling revenues from footage and daywork contracts are recognized as

     work is performed utilizing the  percentage-of-completion method.  Costs on
     footage and daywork contracts  are recognized in the period incurred.   The
     Company  utilizes  the  completed  contract method  to  recognize  drilling
     revenues  and expenses relating to  turnkey contracts.   Expected losses on
     all  in-process contracts  are  recognized  in  the  period  the  loss  can
     reasonably be determined.

     Risks and Uncertainties

          The preparation  of financial statements in  conformity with generally
     accepted accounting  principles requires  management to make  estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of contingent  assets  and  liabilities  at  the  date  of  the
     financial  statements and  the reported  amounts of  revenues  and expenses
     during  the reporting  period.   Actual  results  could differ  from  those
     estimates.  Significant estimates with regard to these financial statements
     include the estimate of proved oil and gas reserve volumes  and the related
     present  value of estimated future net revenues therefrom (see Note 8), and
     the valuation allowance for deferred taxes (see Note 4).
                              
                                         -40-
                              


<PAGE> 41
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     Net Income (Loss) Per Share of Common Stock

          On   April  1,  1997,  the  Company  adopted  Statement  of  Financial
     Accounting Standards  No.  128  ("SFAS 128")  "Earnings  Per  Share"  which
     superseded Accounting Principles Board Opinion  No. 15 ("APB 15") "Earnings
     Per Share."  SFAS 128 simplifies earnings per share ("EPS") calculations by
     replacing  previously  reported  primary  EPS  with  basic  EPS  which   is
     calculated by  dividing reported earnings available  to common shareholders
     by  the weighted average shares  outstanding.  No  dilution for potentially
     dilutive  securities is included in  basic EPS.   Previously reported fully
     diluted EPS is called  diluted EPS which includes all  potentially dilutive
     securities.

     Stock Based Employee Compensation

          In  October  1995, the  Financial  Accounting  Standards Board  issued
     Statement  of   Financial  Accounting   Standards  No.  123   ("SFAS  123")
     "Accounting for Stock-Based Compensation," which establishes accounting and
     reporting standards for various  stock based compensation plans.   SFAS 123
     encourages the  adoption of  a fair  value based method  of accounting  for
     employee stock options, but permits continued application of the accounting
     method  prescribed by Accounting Principles  Board Opinion No. 25 ("Opinion
     25"), "Accounting for Stock Issued to Employees."   The Company has elected
     to  continue to apply the  provisions of Opinion 25.   Under Opinion 25, if
     the exercise price of  the Company's stock options equals  the market value
     of the  underlying stock on the  date of grant, no  compensation expense is
     recognized.    SFAS  123  requires  disclosure  of  pro  forma  information
     regarding net income and earnings per share as if the Company had accounted
     for  its  employee  stock  options  under  the  fair  value method  of  the
     statement.  See Note 3 "Stockholders' Equity."


     (2)  Debt

          Line of Credit

          On January 16,  1996, the Company entered  into a loan  agreement with
     Norwest  Bank Texas, Midland, N.A. (Norwest) that provided 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 bore  interest at the  Norwest Bank Minnesota,  National Association
     base rate and the  interest was payable monthly.  The loan agreement had an
     extended maturity date of  April 15, 1998, at  which time, the  outstanding
     principal and all of the accrued and unpaid interest were due and payable.




                                        -41-



<PAGE> 42
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



          In August, 1996, the Company entered into a second loan agreement with
     Norwest.  The  second loan  agreement provided for  a $2,000,000  revolving
     line of credit secured by substantially all of  the Company's producing oil
     and gas properties.   Borrowings under the line of  credit bore interest at
     the Norwest base rate  and the interest was  payable monthly.  The line  of
     credit had an extended maturity date of April 15,  1998, at which time, the
     principal  amount outstanding  was due  and payable,  plus any  accrued and
     unpaid interest.   The borrowings under both  loan agreements were paid  in
     full in February, 1997.

          On  May 26,  1998, the  Company renewed  and  extended the  prior loan
     agreements with Norwest Bank  Texas, N.A..  The  amended and restated  loan
     agreement provides for a $5,000,000 revolving line of credit secured by the
     Company's  drilling rigs  and  related equipment,  accounts receivable  and
     inventory.   Borrowings under the renewed and  extended line of credit bear
     interest at the Norwest Bank base rate and the interest is payable monthly.
     The renewed and extended loan agreement matures on May 26, 2000.

          Leasehold Purchase Obligation

          On  December 9,  1994,  the Company  entered  into an  agreement  with
     Paladin  Exploration Co., Inc. ("Paladin")  to acquire certain  oil and gas
     leases.  The  Company agreed  to reimburse Paladin  an aggregate amount  of
     approximately  $629,000 (including imputed interest  at a rate  of 9.5% per
     annum)  for leasehold  acquisition,  legal and  seismic  costs incurred  by
     Paladin associated with the acquisition of such leases.  At March 31, 1996,
     the obligation outstanding to Paladin had been satisfied.


     (3)  Stockholders' Equity

          (a)  Common Stock

          On  February 13,  1997,  the Company  closed  a private  placement  of
     725,000 shares of  common stock at a  price of $11.00  per share.  The  net
     proceeds from the placement were approximately $7.4 million.

          (b) Stock Option Plans

     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, 
     
     
     
                                       -42-
     

<PAGE> 43
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements


     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  100,000 shares  of  common stock  are  currently exercisable  and
     outstanding under the Plan.   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 March 31, 1997     465,000       $7.75         $3,603,750

          Exercised                      127,500        7.75            988,125
                                         -------        ----          ---------
          Outstanding March 31, 1998     337,500       $7.75         $2,615,625
                                         =======        ====          =========

          All of the nonqualifed  stock options granted on September 3, 1996 are
     earned and exercisable as of May 1, 1997.



                                        -43-




<PAGE> 44     
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



          In addition to the aforementioned options, during fiscal year 1989, an
     additional 500,000  shares of  nonqualified stock  options were  granted to
     another director who is also an officer.   These options were granted at an
     exercise price of  $0.25 per share (estimated fair market  value at date of
     grant).    On April  4,  1990,  the Board  of  Directors  also approved  an
     additional 500,000 shares  of nonqualified stock options granted to another
     director at  an exercise price  of $0.25  per share (estimated  fair market
     value at date of grant).  

          The  following   sets  forth  certain  information   concerning  these
     nonqualified options:

                                                              Option Price
                                       Number                 ------------
                                      of Shares        Per Share        Total
                                      ---------        ---------        -----
        Outstanding March 31, 1996      698,000         $0.25         $174,500
             Exercised                 (329,200)         0.25          (82,300)
                                      ---------                        -------
        Outstanding March 31, 1997      368,800         $0.25         $ 92,200

             Exercised                 (149,300)         0.25          (37,325)
                                      ---------                        -------
        Outstanding March 31, 1998      219,500         $0.25         $ 54,875
                                      =========                        =======

          All nonqualified options outstanding were earned and exercisable as of
     March 31, 1998.

          Pro forma information regarding  net income and earnings per  share is
     required  by SFAS  123,  and has  been  determined as  if  the Company  had
     accounted  for its employee  stock options under  the fair value  method of
     that  statement.  The fair  value of each option grant  is estimated on the
     date of the  grant using  the Black-Scholes option  pricing model with  the
     following weighted-average assumptions used for  grants in fiscal 1997:  no
     dividend yield, expected volatility of 68.32% and a risk free interest rate
     of 6.7%.

             Year of     Option     Exercise     Expected     Fair
              Grant      Shares      Price         Life       Value
             -------     ------     --------     --------     -----
              1997       465,000     $7.75         5.0        $4.87




                                         -44-





<PAGE> 45
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




          For purposes of pro forma disclosures, the estimated fair value of the
     options  is amortized  to expense over  the options'  vesting period.   The
     Company's pro forma information follows:

                                       1998                     1997
                                --------------------     --------------------
                               As Reported  Pro Forma   As Reported  Pro Forma
                               -----------  ---------   -----------  ---------
                                       (In thousands, except share amounts)

     Net income (loss) from
       continuing operations     $4,544       $4,261      $1,545       $(436)

     Net income (loss) from
       continuing operations  
         per share (basic)        $0.98        $0.92       $0.43        $(0.10) 


          The effects of applying SFAS 123 in this pro forma  disclosure are not
     indicative of future amounts, as SFAS 123 does not apply to awards prior to
     1995 and additional awards are anticipated in future years.
              

     (4)  Income Taxes

          At  March 31, 1998, the  Company had approximately  $68,297,000 of net
     operating loss carryforwards for tax purposes.  Realization of the benefits
     of  these carryforwards is dependent upon the Company's ability to generate
     taxable  earnings  in  future periods.    If  these  carryforwards are  not
     utilized,  they will  begin to  expire  in 1998.  The Company's  ability to
     utilize  its net operating loss  carryforwards may be substantially limited
     in the future under Section 382 of the Internal Revenue Code (IRC).  If the
     Company encounters a change of  control as defined in IRC Section  382, the
     carryforward  would  be limited  to an  annual  amount calculated  based on
     market  value.   The  Company does  not  believe a  change  of control,  as
     defined, has occurred to date.








                                         -45-





<PAGE> 46
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




          The Company utilizes  an asset  and liability  approach for  financial
     accounting  and  reporting  for income  taxes.    The  major components  of
     deferred tax assets and liabilities follows:

                                             March 31, 1998    March 31, 1997
                                             --------------    --------------
          Deferred Tax Assets (Liabilities)
            Federal NOL Carryforwards         $ 23,220,964      $ 24,372,057
            Allowance for Bad Debts                385,803           385,803
            Book over tax depreciation
              and amortization                     739,967           112,171
            Accrued Workers Compensation           139,574           423,170
            Other accrued expenses                  27,353            40,689 
                                                ----------        ----------
              Total deferred tax assets         24,513,661        25,333,890
              Valuation allowance              (24,513,661)      (25,333,890)
                                                ----------        ----------
                Net deferred tax asset        $     --          $     --
                                                ==========        ==========

          The  Company has provided a valuation allowance for the entire balance
     of deferred tax assets at March 31, 1998 and  March 31, 1997, as it is more
     likely than not that the deferred tax asset will not be realized.

          The  effective tax rates for the years  ended March 31, 1998, 1997 and
     1996 differ from the statutory tax rate of 34% primarily due to utilization
     of net operating  loss carryforwards.  Tax expense is  generally limited to
     alternative minimum tax.
















                                         -46-





<PAGE> 47
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




          The following table sets  forth a reconciliation of the  tax provision
     using  statutory  rates  to  the  actual  tax  provision  provided  in  the
     statements of operations:

                                            1998       1997        1996
                                            ----       ----        ----

          Tax provision (benefit)
            utilizing statutory rates     $ 1,545     $ 525       $(313)

          Utilization of NOL               (1,405)     (509)        343 
                                            -----       ---         ---
          Tax provision                   $   140     $  16       $  30
                                            =====       ===         ===


     (5)  Related Parties

          During  1998, 1997 and 1996,  the Company sold  $113,000, $190,000 and
     $791,000 and  purchased $139,000,  $119,000 and $427,000,  respectively, of
     goods and  services from  entities affiliated with  individuals serving  as
     officers and/or  directors of the Company.   These purchases and  sales are
     transacted  using  market  rates.    These  transactions  are  included  in
     "contract  drilling  revenue" and  "contract  drilling  expense" or  "other
     income or expense" in the accompanying statements of operations.

          The related  party transactions  discussed in the  preceding paragraph
     are noninterest-bearing and are settled in the normal course of business.
















                                         -47-





<PAGE> 48
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


     (6)  Business Segments and Significant Customers

          The Company  is engaged in contract drilling of oil and gas wells and,
     to a lesser extent, in oil and gas production.   Information concerning the
     Company's business segments follows:

                                               Years Ended March 31,
                                     ----------------------------------------
                                        1998           1997           1996
                                     ----------     ----------     ----------
                                                  (In thousands)
     Revenues:
       Contract drilling             $  34,891      $  18,483      $  21,298 
       Oil and gas                       2,126          2,491          1,683 
                                       --------       --------       --------
                                     $  37,017      $  20,974      $  22,981 
                                       ========       ========       ========
     Net income (loss) (a):
       Contract drilling             $   8,838      $   1,937      $   2,245 
       Oil and gas                      (4,427)          (114)        (3,058)
                                       --------       --------       --------
                                         4,411          1,823           (813)
       Corporate income
         (expenses) (b)                    133           (278)          (139)
                                       --------       --------       --------
                                     $   4,544      $   1,545      $    (952)
                                       ========       ========       ========
     Identifiable assets:
       Contract drilling             $  17,775      $  11,711      $   6,415 
       Oil and gas                       4,325          6,179          4,322 
                                       --------       --------       --------
                                        22,100         17,890         10,737 
       Corporate assets (c)              2,548          1,871            923
                                       --------       --------       --------
                                     $  24,648      $  19,761      $  11,660 
                                       ========       ========       ========
     Depreciation, depletion and
      amortization:
       Contract drilling             $   2,188      $     982      $     439 
       Oil and gas                       1,892            802            468 
                                       --------       --------       --------
                                     $   4,080      $   1,784      $     907 
                                       ========       ========       ========
     Capital expenditures:
       Contract drilling             $   6,334      $   3,330      $   1,463 
       Oil and gas                       3,847          3,424          5,553 
                                       --------       --------       --------
                                     $  10,181      $   6,754      $   7,016 
                                       ========       ========       ========


                                         -48-

<PAGE> 49



                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          (a)  General and administrative costs and other income are allocated
               between segments based on identifiable assets.

          (b)  Corporate  income and  expenses  consist of  interest income  and
               expense.

          (c)  Corporate assets are those assets which are not specifically
               identifiable with a segment and consist primarily of cash and
               cash equivalents, short-term investments and prepaid expenses.

          For the  years ended March 31, 1998,  1997 and 1996, contract drilling
     revenues earned from individual customers constituting 10% or more of total
     contract drilling revenues were:

          (a)  two customers in 1998 individually represented approximately 
               14%, and 12% of drilling revenues,

          (b)  four customers in 1997 individually represented approximately
               21%, 18%, 12% and 10% of drilling revenues,

          (c)  three customers in 1996 individually represented approximately
               19%, 18% and 14% of drilling revenues.

          The loss of one  or more of the above customers  could have a material
     adverse effect on the Company, depending  upon the demand for drilling rigs
     at the time of such loss and the Company's ability to find new customers.

     (7)  Contingencies

          In March, 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 approximate 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.

          In November, 1995,  the Company was  notified that a lawsuit  had been
     filed in Travis County, Texas styled Texas property and Casualty Insurance 

                                         -49-



<PAGE> 50

                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


     Guaranty Association  vs. TMBR/Sharp  Drilling, Inc. (Cause  No. 95-12318).
     The Texas  Property and Casualty Insurance  Guaranty Association ("Guaranty
     Association") was seeking 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 was
     seeking to recover a total of $803,057.11.

          On  September 9, 1997, the Company entered into a settlement agreement
     with the Guaranty Association.   The Company agreed to pay to  the Guaranty
     Association  the  sum of  $375,000 in  full  satisfaction of  any liability
     relating the Company's workers compensation insurance program with SFIC and
     Sir  Lloyd's  Insurance Company  and the  lawsuit  brought by  the Guaranty
     Association.    The Company  originally  accrued $854,153  relating  to the
     Guaranty  Association's  claim  for reimbursement.    As  a  result of  the
     settlement,  the Company  has eliminated  the accrual  of $854,153  and the
     difference between the accrued amount and  the settlement amount ($479,153)
     has  been recognized  as  miscellaneous income  in the  Company's financial
     statements.

          In  addition, the Company has entered into a settlement agreement with
     the  insurance agent that  represented the Company at  the time the workers
     compensation insurance  policies were purchased from Sir  Lloyd's and SFIC.
     The  agent has paid the  Company the sum of $180,000  in full settlement of
     all  claims  and liabilities  relating to  SFIC  and Sir  Lloyd's Insurance
     Company.   This amount has been  recognized as miscellaneous income  in the
     Company's financial statements.

          The Company  provides for  its workers'  compensation claims prior  to
     September  1997 based upon the  most recent information  available from its
     insurance carrier  concerning  claims and  estimated  costs.   However,  in
     future  years  the  Company   may  receive  retroactive  adjustments,  both
     favorable and unfavorable, related to estimates of claim costs for previous
     years, which  may be material to  the Company's results of  operations.  No
     provision  for retroactive adjustments to claim costs is recorded until the
     Company  receives  notification from  its  insurance  carrier because  this
     amount, if  any, cannot be estimated.  For claims incurred November 1993 to
     September  1997, the Company is generally responsible for the first $10,000
     ($100,000  prior to  November  1993)  in  claim  costs  for  each  workers'
     compensation injury.   Currently the Company is covered  by a fully insured
     workers compensation policy.

          The Company is a defendant in various lawsuits generally incidental to
     its business.  The Company does not believe that the ultimate resolution of
     such litigation will have  a significant effect on the  Company's financial
     position or results of operations.

                                         -50-





<PAGE> 51
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     (8)  Supplemental Information Related to Oil and Gas Activities

          The  Company's  capitalized  cost of  oil  and  gas  properties is  as
     follows:

                                                             March 31,
                                                             ---------
                                                          1998        1997
                                                          ----        ----
                                                           (In thousands)

               Oil and gas properties                   $15,452     $13,102

               Accumulated depreciation,
                 depletion and amortization             (11,127)     (6,923)
                                                         -------     -------
                                                        $ 4,325     $ 6,179
                                                         =======     =======

          The  Company's  costs  incurred  related  to  oil   and  gas  property
     acquisition, exploration and development activities are as follows:

                                                   Years Ended March 31,
                                                   ---------------------
                                               1998        1997        1996
                                               ----        ----        ----
                                                      (In thousands)

               Property acquisition costs    $   275     $   194     $   970

               Exploration costs               1,430         920       3,969

               Development costs               2,141       2,310         614
                                              -------     -------     -------
                                             $ 3,846     $ 3,424     $ 5,553
                                              =======     =======     =======









                                         -51-






<PAGE> 52
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          The  Company's  results of  operations  from  oil  and  gas  producing
     activities are as follows:

                                                   Years Ended March 31,
                                                   ---------------------
                                               1998        1997        1996
                                               ----        ----        ----
                                                      (In thousands)
          Revenues                           $ 2,126     $ 2,491     $ 1,683

          Production costs                       944         924         554

          Dry holes and abandonments             476         558         945

          Depreciation, depletion and
            amortization                       1,892         802         468

          Writedown of oil and gas
            properties                         3,120         171       2,624

          Income tax provision                   --          --          --
                                              -------      -------    -------
          Results of operations from
            producing activities
            (excluding corporate
            overhead and interest costs)     $(4,306)     $    36    $(2,908)
                                              =======      =======    =======

     (9)  Unaudited supplemental oil and gas reserve information

          The reserve information presented below are only estimates.  There are
     numerous uncertainties inherent in estimating quantities of proved reserves
     and  in projecting  future rates  of production  and timing  of development
     expenditures, including many  factors beyond  the control  of the  Company.
     Reserve  engineering  is a  subjective  process  of estimating  underground
     accumulations of  crude oil and natural  gas that cannot be  measured in an
     exact manner, and the accuracy of any reserve estimate is a function of the
     quality of available data and  of engineering and geological interpretation
     and judgment.  The quantities of oil and gas that are ultimately recovered,
     production and operating costs, the amount and timing of future development
     expenditures  and  future oil  and gas  prices  may all  differ  from those
     assumed in such estimates.




                                         -52-






<PAGE> 53
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          The  following sets  forth proved  oil and gas  reserves at  March 31,
     1998, 1997 and 1996:
<TABLE>
<CAPTION>
                                                     1998                    1997                       1996     
                                            ---------------------    ---------------------     ---------------------
                                               Oil         Gas          Oil         Gas           Oil         Gas 
                                              MBbls        MMcf        MBbls        MMcf         MBbls        MMcf   
                                            -------     ---------    -------     ---------     -------     ---------
                                                                        (In thousands)
         <S>                                 <C>       <C>           <C>          <C>           <C>         <C>
         Proved Reserves:

           Beginning of Year                 484.6      2,413.7       368.6       2,815.6       275.6       1,129.4 

           Revisions of previous                     
             estimates                      (159.3)     1,069.3       103.5      

           Improved recovery                  --           --           3.7          (5.6)       --            -
           
           Purchases of minerals in                                  
             place and extensions            131.9        247.5        85.0          85.7       190.8       1,647.4
           
           Sales of minerals in place        (13.9)        (1.9)       --            --          --            --  

           Production                        (72.9)      (439.7)      (76.2)       (361.7)      (70.9)       (212.1)
                                             -----      -------       -----       -------       -----       -------
           End of year                       370.4      3,288.9       484.6       2,413.7       368.6       2,815.6
                                             =====      =======       =====       =======       =====       =======
                                             
                                             
         Proved Developed Resources:

           Beginning of year                 484.6      2,413.7       368.6       2,815.6       275.6       1,129.4
                                             -----      -------       -----       -------       -----       -------
           End of year                       370.4      3,288.9       484.6       2,413.7       368.6       2,815.6
                                             =====      =======       =====       =======       =====       =======
</TABLE>









                                         -53-





<PAGE> 54
                              TMBR/SHARP DRILLING, INC.

                            Notes to Financial Statements


                                                         March 31,
                                                  -----------------------
                                                    1998           1997
                                                    ----           ----
                                                       (In thousands)

          Standardized Measure

            Future cash inflows                   $10,065        $12,848

            Future production and 
              development costs                    (3,205)        (4,201)
                                                   -------        -------
            Future net cash flows                   6,860          8,647

            10% discount factor                    (2,200)        (2,982)
                                                   -------        -------
            Discounted future net cash flows        4,660          5,665

            Discounted income taxes                   --             --
                                                   -------        -------
            Standardized Measure                  $ 4,660        $ 5,665
                                                   =======        =======


                                          1998        1997         1996
                                          ----        ----         ----
                                                 (In thousands)

          Standardized measure,
            beginning of year           $ 5,665     $ 4,954      $ 2,879

          Revisions
               Prices and costs          (1,889)        813          235 
               Accretion of discount        567         495          288
                                         -------     -------     --------
          Net revisions                  (1,322)      1,308          523 

          Discoveries and additions       1,499         970        2,681
          Production                     (1,182)     (1,567)      (1,129)
                                         -------     -------      -------
          Standardized measure,
            end of year                 $ 4,660     $ 5,665      $ 4,954
                                         =======     =======      =======



                                         -54-






<PAGE> 55
     Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE

          None.
                                       PART III

     Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The directors  and officers of  the Company  at June 10,  1998 are  as
     follows:

                                                                        Director
                                                                      or Officer
          Name                Age         Position with Company          since

     Thomas C. Brown           71    Chairman of the Board of Directors
                                       and Chief Executive Officer        1982

     Joe G. Roper              69    Director and President               1982

     Donald L. Evans (1)       51    Director                             1982

     David N. Fitzgerald (1)   75    Director                             1984

     Don H. Lawson             59    Vice President - Operations          1992

     Jeffrey D. Phillips       37    Vice President - Production          1997

     Patricia R. Elledge       40    Controller/Treasurer                 1994

     James M. Alsup            61    Secretary                            1982

     --------------------------
     (1)  Member of Compensation and Audit Committees

          Directors  of   the  Company  serve   until  the  annual   meeting  of
     stockholders to be  held in  August, 1998,  and until  their successors  in
     office are  elected and qualified.   Each officer is  appointed annually by
     the  Company's Board of  Directors to serve  at the Board's  discretion and
     until his successor in office is elected and qualified.

          Mr. Brown  has served as a Director of the Company since the Company's
     formation in 1982.   He is presently Chairman of the Board of Directors and
     Chief Executive Officer  of the Company  and has served in  such capacities
     since 1990.  Mr.  Brown is also a Director  of Tom Brown, Inc.,  the former
     parent of the Company.

          Mr. Roper  has served as a Director of the Company since the Company's
     formation in  1982.  He  served as Chairman of  the Board of  Directors and
     Chief Executive Officer of the Company  from 1982 until 1990 when he became
     President of the Company.


                                         -55-





<PAGE> 56
          Mr.  Evans has  been a  Director  of the  Company since  the Company's
     formation in 1982.  He served  as President of the Company from  1982 until
     1990 when Mr. Roper  was elected to the office of President.   Mr. Evans is
     currently  the Chairman  of  the Board  of  Directors and  Chief  Executive
     Officer of  Tom Brown,  Inc., positions  he has held  since 1990  and 1985,
     respectively.

          Mr. Fitzgerald  has served  as a  Director of  the  Company since  his
     initial  election to the Board  of Directors in 1984.   He is the President
     and  a  shareholder of  Dave Fitzgerald,  Inc.,  a privately  held oilfield
     equipment  sales company that Mr.  Fitzgerald has owned  and operated since
     1963.  Mr. Fitzgerald is also a Director of Mineral Development, Inc.

          Mr.  Lawson has been employed by the  Company since 1967.  He has been
     the Vice President - Operations of the Company since 1992.
          
          Mr. Phillips has been employed by the Company since 1995.  He has been
     the  Vice President  - Production since  1997.   From 1993  to 1995  he was
     Operations Manager  for Staley Operating Co., a  privately held exploration
     and production company.

          Ms.  Elledge was  employed  by the  Company  from September,  1989  to
     December, 1993 when she resigned to  relocate.  Ms. Elledge returned to the
     employ  of the  Company  in  September, 1994  in  her current  capacity  as
     Controller - Treasurer.

          Mr.  Alsup has been  the Secretary of the  Company since the Company's
     formation in  1982.   He  has been  a partner  in  the law  firm of  Lynch,
     Chappell & Alsup since 1970.

          There  are no  family relationships  between any  of the  Directors or
     officers of the Company, except that Patricia R. Elledge is the daughter of
     Joe G. Roper.

     Item 11.  EXECUTIVE COMPENSATION

          The  discussion  under  "Executive  Compensation"  in  the   Company's
     definitive proxy statement for  the 1998 annual meeting of  shareholders is
     incorporated herein by reference. 

     Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The  discussion under  "Principal  Shareholders"  and the  information
     appearing under "Election  of Directors" in the  Company's definitive proxy
     statement for  the  1998 annual  meeting  of shareholders  is  incorporated
     herein by reference.

     Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The discussion  under "Executive Compensation -  Certain Transactions"
     in  the Company's definitive proxy statement for the 1998 annual meeting of
     stockholders is incorporated herein by reference.
                                       
                                        -56-
                                       




<PAGE> 57
                                       PART IV

     Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                          Page

       (a)1.   See Index to  Financial Statements at Item 8                30

       (a)2.   Financial Statement Schedules
                 Years ended March 31, 1998, 1997 and 1996

               Schedule II -  Valuation and Qualifying Accounts .  . . .   59

                    All  other  schedules  are  omitted   as  the
                    required information is  inapplicable or  the
                    information  is  presented  in the  Financial
                    Statements or related notes.

       (a)3.   Exhibits:

            Exhibit  3.1 - Articles of Incorporation of the Company, as amended.
              (Incorporated by  reference to Exhibit 3.1  in Registrant's Annual
              Report on Form 10-K dated June 28, 1991)

            Exhibit 3.2 - Bylaws of the Registrant, as amended.  (Incorporated
              by  reference to Exhibit 3.2 in Registrant's Annual Report on Form
              10-K dated June 27, 1994)

              Executive Compensation Plans and Arrangements
              (Exhibits  10.1 through  and  including  Exhibit  10.9  constitute
              executive compensation plans and arrangements of the Registrant)

            Exhibit 10.1 - Incentive Stock Option Plan. (Incorporated by 
              reference to  Exhibit 10.3 in Registrant's  Registration Statement
              on Form 10 as amended, effective October 9, 1984)

            Exhibit  10.2 -  Nonqualified  Stock Option  Agreement dated  August
              29,   1990,  between   Thomas   C.  Brown   and  the   Registrant.
              (Incorporated by reference to Exhibit 10.15 in Registrant's Annual
              Report on form 10-K dated June 25, 1993)

            Exhibit  10.3 -  Nonqualified  Stock Option  Agreement dated  August
              30,  1988, between Joe G. Roper and the Registrant.  (Incorporated
              by reference  to Exhibit  10.17 in  Registrant's Annual  Report on
              Form 10-K dated June 25, 1993)



                                         -57-










<PAGE> 58
            Exhibit 10.4 - Incentive Stock Option Agreement dated November 16,
              1993  between Joe G. Roper  and the Registrant.   (Incorporated by
              reference to  Exhibit 10.5 in  Registrant's Annual Report  on Form
              10-K dated June 27, 1994)

            Exhibit  10.5 - Incentive  Stock Option Agreement  dated December 4,
              1992   between   Patricia   R.   Elledge   and   the   Registrant.
              (Incorporated by reference to Exhibit 10.20 in Registrant's Annual
              Report on Form 10-K dated June 25, 1993)

            Exhibit 10.6  - Incentive Stock  Option Agreement dated  December 4,
              1992 between Don H.  Lawson and the Registrant.   (Incorporated by
              reference to Exhibit 10.21  in Registrant's Annual Report  on Form
              10-K dated June 25, 1993)

            Exhibit 10.7 - Incentive Stock Option Agreement dated November 16, 
              1993 between Don H.  Lawson and the Registrant.   (Incorporated by
              reference to Exhibit 10.10 in  Registrant's Annual Report on  Form
              10-K dated June 27, 1994)

            Exhibit 10.8 - 1994 Stock Option Plan.  (Incorporated by reference
              to  Exhibit 10.10 in Registrant's Annual Report on Form 10-K dated
              June 28, 1995)

            Exhibit 10.9 - TMBR/Sharp Drilling, Inc. Employee Retirement Plan.
              (Incorporated by reference to Exhibit 10.11 in Registrant's Annual
              Report on Form 10-K dated June 28, 1995)

            Exhibit  10.10 -  Form  of Stock  Purchase  Agreement, dated  as  of
              February 13, 1997, between  the  Registrant and the stockholders
              named therein (Incorporated by reference to  Exhibit 10.1  in the
              Registrant's Registration Statement on Form S-3, No. 333-23391)

            Exhibit 10.11 - Bonus  Agreement dated October 2, 1997,  between Joe
              G. Roper and the Registrant. (Incorporated by reference to Exhibit
              10.1 in  Registrant's Quarterly Report on Form 10-Q dated February
              11, 1998)

            Exhibit  10.12 -  Bonus  Agreement dated  October  2, 1997,  between
              Thomas C. Brown and the Registrant.   (Incorporated by reference
              to Exhibit 10.2 in  Registrant's Quarterly Report on  Form 10-Q
              dated February 11, 1998)

            Exhibit 10.13 - Bonus Agreement dated October 2, 1997, between David
              N. Fitzgerald and  the Registrant.  (Incorporated  by reference to
              Exhibit 10.3 in Registrant's  Quarterly Report on Form  10-Q dated
              February 11, 1998)

            Exhibit  10.14  - Bonus  Agreement  dated October  2,  1997, between
              Donald L. Evans and the Registrant.  (Incorporated by reference to
              Exhibit 10.4  in Registrant's Quarterly Report on  Form 10-Q dated
              February 11, 1998)


                                        -58-




<PAGE> 59

            Exhibit 10.15 - Bonus Agreement dated October 2, 1997, between
              Patricia  R.  Elledge  and   the  Registrant.    (Incorporated  by
              reference to Exhibit 10.5 in Registrant's Quarterly Report on Form
              10-Q dated February 11, 1998)

            Exhibit 10.16 - Bonus  Agreement dated October 2, 1997,  between Don
              H. Lawson and the Registrant. (Incorporated by  reference to 
              Exhibit 10.6 in Registrant's Quarterly Report on Form 10-Q dated  
              February 11, 1998)

            Exhibit  10.17  - Bonus  Agreement  dated October  2,  1997, between
              Jeffrey D. Phillips  and the  Registrant.  (Incorporated  by 
              reference  to Exhibit  10.7 in Registrant's Quarterly  Report on 
              Form 10-Q dated February 11, 1998)

           *Exhibit 10.18 - Loan Agreement dated May 26, 1998 between Norwest
              Bank, Texas N. A. and the Registrant.

           *Exhibit 23.1 - Consent of Arthur Andersen LLP

           *Exhibit 23.2 - Consent of Joe C. Neal & Associates

           *Exhibit 27 - Financial Data Schedule

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

     (b)   No reports on Form 8-K  were filed during the  last quarter of fiscal
     1998.























                                         -59-





<PAGE> 60

                                                                    Schedule II
                                                                    -----------



                              TMBR/SHARP DRILLING, INC.

                          Valuation and Qualifying Accounts

                      Years ended March 31, 1998, 1997 and 1996

                                    (In thousands)



                                                        Recoveries
                              Balance at   Additions    or other     Balance
                              beginning    charged to   reserve      at end
         Description          of year      operations   reductions   of year
     ---------------------    ----------   ----------   ----------   -------

     Allowance for
       doubtful accounts:

               1998            $ 1,135      $   --        $    --    $ 1,135

               1997            $ 1,225      $   --        $    90    $ 1,135

               1996            $ 1,225      $   --        $    --    $ 1,225

























                                         -60-



<PAGE> 61

                                      SIGNATURES



          Pursuant to the requirements of Section 13 or 15(d) 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.          




     June 26, 1998                           By /s/ Thomas C. Brown             
                                                Thomas C. Brown, Chairman       
                                                of the Board of Directors       



          Pursuant to the requirements  of the Securities Exchange Act  of 1934,
     this report has been signed below by the following persons on behalf of the
     Registrant and in the capacities on the dates indicated.



     June 26, 1998                               /s/ Thomas C. Brown            
                                                Thomas C. Brown, Chairman       
                                                of the Board of Directors       
                                                (Principal Executive Officer)   


     June 26, 1998                               /s/ Joe G. Roper               
                                                Joe G. Roper, President and     
                                                Director                        


     June 26, 1998                               /s/ Patricia R. Elledge        
                                                Patricia R. Elledge, Controller/
                                                Treasurer (Principal Financial  
                                                Officer)                        


     June 26, 1998                               /s/ David N. Fitzgerald        
                                                David N. Fitzgerald, Director   



     June 26, 1998                               /s/ Donald L. Evans            
                                                Donald L. Evans, Director       






                                         -61-


<PAGE> 62
                                  INDEX TO EXHIBITS




                                   Description                     Page No.
                                   -----------                     --------  

     Exhibit 3.1    Articles of Incorporation of the Company, as
                    amended.    (Incorporated  by   reference  to
                    Exhibit 3.1 in  Registrant's Annual Report on
                    Form 10-K dated June 28, 1991)

     Exhibit 3.2    Bylaws of the Company, as amended.  (Incor-
                    porated  by  reference  to  Exhibit   3.2  in
                    Registrant's Annual Report on Form 10-K dated
                    June 27, 1994)

                    Executive Compensation Plans and Arrangements
                    (Exhibits 10.1 through and  including Exhibit
                    10.9 constitute  executive compensation plans
                    and arrangements of the Registrant)

     Exhibit 10.1   Incentive Stock Option Plan (Incorporated by
                    reference  to  Exhibit  10.3 in  Registrant's
                    Registration   Statement   on  Form   10,  as
                    amended, effective October 9, 1984)

     Exhibit 10.2   Nonqualified Stock Option Agreement dated
                    August 29, 1990, between  Thomas C. Brown and
                    the Registrant.   (Incorporated by  reference
                    to  Exhibit  10.15  in   Registrant's  Annual
                    Report on Form 10-K dated June 25, 1993)

     Exhibit 10.3   Nonqualified Stock Option Agreement dated 
                    August 30, 1988, between Joe G. Roper and the
                    Registrant.    (Incorporated by  reference to
                    Exhibit 10.17 in  Registrant's Annual  Report
                    on Form 10-K dated June 25, 1993)

     Exhibit 10.4   Incentive Stock Option Agreement dated 
                    November 16,  1993 between  Joe G.  Roper and
                    the Registrant.   (Incorporated by  reference
                    to Exhibit 10.5 in Registrant's Annual Report
                    on Form 10-K dated June 27, 1994)

     Exhibit 10.5   Incentive Stock Option Agreement dated
                    December 4, 1992 between Patricia  R. Elledge
                    and   the   Registrant.     (Incorporated  by
                    reference  to  Exhibit 10.20  in Registrant's
                    Annual  Report on  Form 10-K  dated June  25,
                    1993)



                                         -62-



<PAGE> 63
     Exhibit 10.6   Incentive Stock Option Agreement dated
                    December  4, 1992  between Don H.  Lawson and
                    the Registrant.   (Incorporated by  reference
                    to  Exhibit  10.21  in   Registrant's  Annual
                    Report on Form 10-K dated June 25, 1993)

     Exhibit 10.7   Incentive Stock Option Agreement dated
                    November 16,  1993 between Don H.  Lawson and
                    the Registrant.   (Incorporated by  reference
                    to  Exhibit  10.10  in   Registrant's  Annual
                    Report on Form 10-K dated June 27, 1994)

     Exhibit 10.8   1994 Stock Option Plan.  (Incorporated by
                    reference  to  Exhibit 10.10  in Registrant's
                    Annual  Report on  Form 10-K  dated June  28,
                    1995)

     Exhibit 10.9   TMBR/Sharp Drilling, Inc. Employee Retirement
                    Plan.  (Incorporated  by reference to Exhibit
                    10.11  in Registrant's Annual  Report on Form
                    10-K dated June 28, 1995)

     Exhibit 10.10  Form of Stock Purchase Agreement, dated as of
                    February 13, 1997, between the Registrant and
                    the stockholders  named therein (Incorporated
                    by  reference   to   Exhibit  10.1   in   the
                    Registrant's  Registration Statement  on Form
                    S-3, No. 333-23391)

     Exhibit 10.11  Bonus Agreement dated October 2, 1997, between
                    Joe    G.    Roper   and    the   Registrant.
                    (Incorporated by reference to Exhibit 10.1 in
                    Registrant's  Quarterly  Report on  Form 10-Q
                    dated February 11, 1998)

     Exhibit 10.12  Bonus Agreement dated October 2, 1997, between 
                    Thomas   C.   Brown   and   the   Registrant.
                    (Incorporated by reference to Exhibit 10.2 in
                    Registrant's  Quarterly  Report on  Form 10-Q
                    dated February 11, 1998)

     Exhibit 10.13  Bonus Agreement dated October 2, 1997, between 
                    David  N.  Fitzgerald  and   the  Registrant.
                    (Incorporated by reference to Exhibit 10.3 in
                    Registrant's  Quarterly  Report on  Form 10-Q
                    dated February 11, 1998)

     Exhibit 10.14  Bonus Agreement dated October 2, 1997, between
                    Donald   L.   Evans   and   the   Registrant.
                    (Incorporated by reference to Exhibit 10.4 in
                    Registrant's  Quarterly  Report on  Form 10-Q
                    dated February 11, 1998)


                                         -63-




<PAGE> 64
     Exhibit 10.15  Bonus Agreement dated October 2, 1997, between
                    Patricia  R.  Elledge  and   the  Registrant.
                    (Incorporated by reference to Exhibit 10.5 in
                    Registrant's  Quarterly  Report on  Form 10-Q
                    dated February 11, 1998)

     Exhibit 10.16  Bonus Agreement dated October 2, 1997, between
                    Don   H.   Lawson    and   the    Registrant.
                    (Incorporated by reference to Exhibit 10.6 in
                    Registrant's  Quarterly  Report on  Form 10-Q
                    dated February 11, 1998)

     Exhibit 10.17  Bonus Agreement dated October 2, 1997, between 
                    Jeffrey  D.  Phillips  and   the  Registrant.
                    (Incorporated by reference to Exhibit 10.7 in
                    Registrant's  Quarterly  Report on  Form 10-Q
                    dated February 11, 1998)

     *Exhibit 10.18 Loan Agreement dated May 26, 1998 between Norwest
                    Bank, Texas N. A. and the Registrant.

     *Exhibit 23.1  Consent of Arthur Andersen LLP                      64

     *Exhibit 23.2  Consent of Joe C. Neal & Associates                 65

     *Exhibit 27    Financial Data Schedule                             66

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


























                                         -64-



<PAGE> 65
                                                                    Exhibit 23.1


                      CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



          As  independent   public  accountants,   we  hereby  consent   to  the
     incorporation  by reference of  our report included in  this Form 10-K into
     the  Company's  previously  filed   Registration  Statements  on  Form  S-8
     (registration no. 33-46699 and  no. 33-89878) and the Company's  previously
     filed registration statement on Form S-3, No. 333-23391.




                                            /s/  ARTHUR ANDERSEN LLP            

     Dallas, Texas,
       May 26, 1998



































                                         -65-



<PAGE> 66
                                                                    Exhibit 23.2


                      CONSENT OF INDEPENDENT PETROLEUM ENGINEERS



                    As independent petroleum engineers, we hereby consent to the
     incorporation  by reference of  our report included in  this Form 10-K into
     the  Company's  previously  filed   Registration  Statements  on  Form  S-8
     (registration no.  33-46699 and no. 33-898878) and the Company's previously
     filed registration statement on Form S-3, No. 333-23391.





                                                   /s/  JOE C. NEAL & ASSOCIATES


     Midland, Texas
       June 26, 1998

































                                         -66-