<PAGE> 1

                                      FORM 10-KA
   
                                  (Amendment No. 2)
       
                       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, 1996    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.

          The  aggregate market value of  voting stock held  by nonaffiliates of
     the registrant at June 3, 1996 was approximately $19,825,718.

          At  June 3,  1996,  there were  3,382,586  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 29, 1996.
<PAGE> 2



   
     Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                         Page

            Report of Independent Public Accountants                       3

            Balance Sheets, March 31, 1996 and 1995                        4

            Statements of Operations, Years ended
              March 31, 1996, 1995 and 1994                                6

            Statements of Stockholders' Equity (Deficit),
              Years ended March 31, 1996, 1995 and 1994                    7

            Statements of Cash Flows,
              Years ended March 31, 1996, 1995 and 1994                    8

            Notes to Financial Statements                                  9

    
































                                         -2-


<PAGE> 3


                       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, 1996 and 1995, and the
     related statements  of operations, stockholders' equity  (deficit) and cash
     flows for  each of  the three  years in  the period  ended March 31,  1996.
     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, 1996  and 1995,  and the results  of their
     operations and their cash flows for  each of the three years in  the period
     ended March  31, 1996,  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 31, 1996

                                         -3-



<PAGE> 4
                              TMBR/SHARP DRILLING, INC.

                                    Balance Sheets

                               March 31, 1996 and 1995

                        (In thousands, except per share data)




      ASSETS                                               1996           1995 
      ------                                               ----           ---- 

    Current assets:
      Cash and cash equivalents                        $     339      $   1,590
      Trade receivables,
        net of allowance for doubtful
          accounts of $1,225 in 1996
          and 1995                                         2,942          2,568
      Inventories                                             51             45
      Deposits                                               423            513
      Other                                                  410            265
                                                          ------         ------
         Total current assets                              4,165          4,981
                                                          ------         ------


    Property and equipment, at cost:
      Drilling equipment                                  39,750         38,308
      Oil and gas properties, based on
        successful efforts accounting                     10,398          5,790
      Other property and equipment                         3,195          3,206
                                                          ------         ------
                                                          53,343         47,304
      Less accumulated depreciation,
        depletion and amortization                       (46,022)       (42,505)
                                                          ------         ------
         Net property and equipment                        7,321          4,799
                                                          ------         ------

    Other assets                                             174            260
                                                          ------         ------

              Total assets                             $  11,660      $  10,040
                                                          ======         ======


    See accompanying notes to financial statements.



                                         -4-






<PAGE> 5
                              TMBR/SHARP DRILLING, INC.

                                    Balance Sheets

                               March 31, 1996 and 1995

                        (In thousands, except per share data)



      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)       1996             1995
      ----------------------------------------------       ----             ----

    Current liabilities:
      Current portion of capital lease
        obligations                                     $     --       $      92
      Trade payables                                       3,336           1,839
      Accrued workers' compensation                        1,279           1,220
      Leasehold purchase obligation                           --             386
      Other                                                  786             728
                                                          ------          ------
         Total current liabilities                         5,401           4,265
                                                          ------          ------
    Long term liabilities:
      Borrowings from bank                                 1,300              --
                                                          ------          ------
         Total liabilities                                 6,701           4,265
                                                          ------          ------
    Contingencies

    Stockholders' equity:
      Common stock, $0.10 par value.
        Authorized, 50,000,000 shares;
        issued, 4,615,525 shares at
        March 31, 1996 and 4,393,525 at
        March 31, 1995.                                     461             439 
      Additional paid-in capital                         60,654          60,540 
      Accumulated deficit                               (56,006)        (55,054)
      Treasury stock-common, 1,268,739 shares
        at March 31, 1996 and 1995, at cost.               (150)           (150)
                                                         ------          ------ 
         Total stockholders' equity                       4,959           5,775 
                                                         ------          ------ 

           Total liabilities and 
             stockholders' equity                     $  11,660       $  10,040 
                                                         ======          ====== 

    See accompanying notes to financial statements.







                                         -5-

<PAGE> 6
                              TMBR/SHARP DRILLING, INC.

                               Statements of Operations

                      Years Ended March 31, 1996, 1995 and 1994

                        (In thousands, except per share data)


                                                1996         1995        1994  
                                                ----         ----        ----  
    Revenues:
      Contract drilling                     $  21,298    $  18,357   $  18,359 
      Oil and gas                               1,683        1,042         621 
                                               ------       ------      ------ 
              Total revenues                   22,981       19,399      18,980 
                                               ------       ------      ------ 
    Operating costs and expenses:
      Contract drilling                        17,252       14,630      14,989 
      Oil and gas production                      554          350         318 
      Dry holes and abandonments                  945          629         656 
      Depreciation, depletion and
        amortization                              907          876         746 
      Writedown of oil and gas
        properties                              2,624         --          --   
      General and administrative                1,599        1,553       1,339 
                                               ------       ------      ------ 
              Total operating costs
                and expenses                   23,881       18,038      18,048 
                                               ------       ------      ------ 
              Operating income (loss)            (900)       1,361         932 
                                               ------       ------      ------ 
    Other income (expense):
      Interest                                   (139)        (154)        (89)
      Gain on sales of assets                      26          100         103 
      Other, net                                   91          259         155 
                                               ------       ------      ------ 
              Total other income, net              22          205         169 
                                               ------       ------      ------ 
    Net income (loss) before
      income tax provision                       (922)       1,566       1,101 
    Provision for income taxes                    (30)         (30)        (62)
                                               ------       ------      ------ 
    Net income (loss)                       $    (952)       1,536       1,039 
                                               ======       ======      ====== 
    Net income (loss) per 
      common share                         $   (0.23)   $    0.38   $    0.23  
                                             =========    =========   =========
    Weighted average number of
      common shares outstanding              4,074,567    4,032,195   4,603,130
                                             =========    =========   =========

    See accompanying notes to financial statements.





                                         -6-

<PAGE> 7
                                            TMBR/SHARP DRILLING, INC.
                                   Statements of Stockholders' Equity (Deficit)
                                     Years Ended March 31, 1996, 1995 and 1994
                                                  (In thousands)
<TABLE>
<CAPTION>
                                                                                             Treasury Stock
                                                                                      --------------------------          Total
                    Preferred Stock   Common Stock     Additional                     Common           Preferred      Stockholders'
                    ---------------   ------------      Paid-In     Accumulated   ---------------   ---------------      Equity  
                    Shares   Amount  Shares   Amount    Capital       Deficit     Shares   Amount   Shares   Amount     (Deficit)
                    ------   ------  ------   ------   ----------   -----------   ------   ------   ------   ------   -------------
<S>                 <C>      <C>     <C>      <C>      <C>            <C>         <C>      <C>      <C>      <C>         <C>
Balance, March 31,  
  1993               4,170   $ 417    3,930   $ 393     $ 59,971      $(57,629)       47   $ (70)    4,170    $(1)       $ 3,081

Retirement of
  Preferred
  Treasury Stock    (4,170)   (417)      --       --         416           --         --      --    (4,170)     1            --

Exercise of Stock
  Options              --       --       296      30          63           --         --      --       --       --            93

Contribution of
  Common Stock
  from
  Shareholders         --       --       --       --         --            --      1,196      --       --       --           --

Purchase of 
  Treasury
  Common Stock         --       --       --       --         --            --         27     (80)      --       --          (150)

Net Income             --       --       --       --         --          1,039        --      --       --       --         1,039
                    -------   -----    -----    -----    --------      --------    -----    -----    -----     ---        -------

Balance, March 31,
  1994                 --    $  --       --    $ 423    $ 60,450      $(56,590)    1,270   $(150)      --     $ --       $ 4,133

Exercise of Stock
  Options              --       --       168      16          90           --         --      --       --       --           106

Net Income             --       --       --       --         --          1,536        --      --       --       --         1,536
                    -------   -----    -----    -----    --------      --------    -----    -----    -----     ---        -------

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 Income             --       --       --       --         --           (952)       --      --       --       --          (952)
                    -------   -----    -----    -----    --------      --------    -----    -----    -----     ---        -------

Balance, March 31,
  1996                 --    $  --     4,616   $ 461    $ 60,654      $(56,006)    1,270   $(150)      --     $ --       $ 4,959
                    =======   =====    =====    =====    ========      ========    =====    =====    =====     ===        =======
</TABLE>
See accompanying notes to financial statements.
                                                        -7-
<PAGE> 8
                              TMBR/SHARP DRILLING, INC.
                               Statements of Cash Flows
                      Years Ended March 31, 1996, 1995 and 1994
                                    (In thousands)

                                                   1996       1995       1994   
                                                   ----       ----       ----   
   Cash flows from operating activities:
     Net income (loss)                          $   (952)  $   1,536  $   1,039 
     Adjustments to reconcile net 
       income to net cash provided
       (required) by operating activities:
         Depreciation, depletion and amortization     907        876        746 
         Dry holes and abandonments                   945        629        656 
         Gain on sales of assets                      (26)      (100)      (103)
         Writedown of properties                    2,624        --        --   
         Changes in assets and liabilities:
           Trade receivables                         (374)        45      1,780 
           Deposits                                    90        273       (347)
           Inventories and other current assets       (65)      (175)        19 
           Trade payables                           1,497        555     (1,809)
           Accrued interest and other
             current liabilities                      117       (102)       333 
                                                  --------   --------   --------
             Total adjustments                      5,715      2,001      1,275 
                                                  --------   --------   --------
             Net cash provided
               by operating activities              4,763      3,537      2,314 

   Cash flows from investing activities:
     Additions to property and equipment           (7,016)    (3,495)    (1,970)
     Proceeds from sales of property  
       and equipment                                   44        106        117 
                                                  --------   --------   --------
             Net cash required
               by investing activities             (6,972)    (3,389)    (1,853)

   Cash flows from financing activities:
     Proceeds from capital lease                      --         --         186 
     Repayments of capital lease                      (92)       (89)       (45)
     Proceeds from exercise of stock options          136        106         93 
     Purchase of treasury stock                       --         --         (80)
     Proceeds from bank loan                        1,300        --         --  
     Leasehold borrowings and repayments 
       of leasehold borrowings                       (386)       386        --  
                                                  --------   --------   --------
             Net cash provided by
               financing activities                   958        403        154 
                                                  --------   --------   --------
             Net increase (decrease) in
               cash and cash equivalents           (1,251)       551        615 

   Cash and cash equivalents at beginning
     of year                                        1,590      1,039        424 
                                                  --------   --------   --------
   Cash and cash equivalents at end of year     $     339  $   1,590  $   1,039 
                                                  ========   ========   ========
   See accompanying notes to financial statements.
                                         -8-
<PAGE> 9



                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



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

     Organization and Nature of Business

          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 $139,000 in 1996, $154,000 in 1995, and $89,000 in 1994.
     Cash  payments for taxes due  totaled $23,000, $13,000  and $131,000 during
     1996, 1995 and 1994, respectively.

     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

                                         -9-


<PAGE> 10
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     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 $1,100,000  and $973,000  as of  March 31,  1996 and
     1995, respectively.

          During 1996,  1995 and 1994, depletion,  depreciation and amortization
     of capitalized oil and gas property costs was  provided using the units-of-
     production method based on estimated proved or proved developed oil and gas
     reserves, as applicable, of the respective property units.

          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.   The  Company recognized  a $2.6  million charge  as a
     result  of the adoption of SFAS 121.   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.






                                         -10-






<PAGE> 11
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     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).

     Net Income (Loss) Per Share of Common Stock

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

     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 


                                          -11-



<PAGE> 12
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     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.  The disclosures required under SFAS 123 will be included in the
     footnotes to the financial statements of the Company's 1997 annual report.


     (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 provides for a $3,000,000
     revolving line of credit secured by the Company's drilling rigs and related
     equipment, accounts receivable and inventory.  Borrowings under the line of
     credit  bear interest at  the Norwest Bank  Minnesota, National Association
     base rate  and the interest is  payable monthly.  The  loans mature January
     15,  1998 at  which time  the  then outstanding  principal and  all of  the
     accrued and unpaid  interest is due  and payable.   At March 31,  1996, the
     Company  had  borrowed  $1,300,000 under  the  facility.    The Company  is
     required to  maintain certain financial covenants,  including a requirement
     to maintain a minimum tangible net worth of $6.25 million.  As of March 31,
     1996, the Company was not in compliance with this requirement, and obtained
     a  waiver allowing their  non-compliance.  The Company  is working with the
     bank  to modify the terms  of the loan agreement  in order to eliminate the
     non-compliance with the debt covenant.

          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.









                                         -12-





<PAGE> 13
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     (3)  Stockholders' Equity (Deficit)

          (a)  Stock Option Plan

               In August of 1984, the Company adopted the 1984 Stock Option Plan
     (the  "Plan") which authorized 375,000 shares of the Company's common stock
     to  be issued  as  either incentive  stock  options or  nonqualified  stock
     options.  This Plan was  amended in August 1986 to increase  the authorized
     shares  to 475,000 shares of the Company's  common stock.  In January 1988,
     the Plan was  amended to reduce the option price  on certain options issued
     prior to March 31, 1986,  to reflect the then current fair  market value of
     the Company's common stock.  The Plan provides that options  may be granted
     to  key employees or directors  for various terms at  a price not less than
     the  fair market  value of  the  shares on  the  date of  the  grant.   The
     following sets forth certain information concerning these options:
                                                              Option Price
                                           Number             ------------
                                          of Shares     Per Share       Total
                                          ---------     ---------      -------
          Outstanding March 31, 1994       334,000                    $503,250
               Exercised                  (158,000)  $0.375 to 3.00    (67,125)
               Forfeited                   (10,000)   0.375 to 3.00    (16,875)
                                           -------                     -------
          Outstanding March 31, 1995       166,000                    $419,250
               Exercised                   (58,000)  $0.375 to 3.00    (95,250)
                                           -------                     -------
          Outstanding March 31, 1996       108,000                    $324,000
                                           =======                     =======

          60,500 of the  108,000 option shares  outstanding were exercisable  at
     March 31, 1996.  The remaining 47,500 shares outstanding become exercisable
     on  June  1  of  every  year  in  23,750  share  increments  becoming fully
     exercisable on June 1, 1997.

          In addition to the aforementioned options, in 1988, the Company issued
     90,000 shares of nonqualified stock options to two directors at an exercise
     price of $0.375  per share (estimated fair market value  at date of grant).
     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).  


                                         -13-





<PAGE> 14
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          The  following  sets   forth  certain  information  concerning   these
     nonqualified options:

                                                              Option Price
                                       Number                 ------------
                                      of Shares        Per Share        Total
                                      ---------        ---------        -----
        Outstanding March 31, 1994      862,000         $0.25         $215,500
                                      ---------                        -------
        Outstanding March 31, 1995      862,000         $0.25         $215,500
             Exercised                 (161,800)         0.25          (40,450)
                                      ---------                        -------
        Outstanding March 31, 1996      700,200                       $175,050
                                      =========                        =======

          All nonqualified options outstanding were earned and exercisable as of
     March 31, 1996.

          (b)  Common stock

          On December 31, 1993, the Company entered into an agreement cancelling
     an option that  would have  allowed the Company  to purchase  approximately
     1,595,000 shares of common stock at  $0.25 per share.  As consideration for
     cancelling  the option, State Farm contributed to the Company approximately
     1,195,000 shares at no cost and retained 400,000 shares.  The Company holds
     the contributed shares as treasury stock at March 31, 1996. 


     (4)  Income Taxes

          At  March 31, 1996, the  Company had approximately  $71,409,000 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.






                                         -14-





<PAGE> 15
                              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, 1996    March 31, 1995
                                             --------------    --------------
          Deferred Tax Assets (Liabilities)
            Federal NOL Carryforwards         $ 24,279,040      $ 24,607,475
            Asset Impairment                        --                99,490
            Allowance for Bad Debts                416,403           416,427
            Book over tax depreciation
              and amortization                     815,254            47,543
            Accrued Workers Compensation           434,884           414,836
            Other accrued expenses                  (5,616)           10,361
                                                ----------        ----------
              Total deferred tax assets         25,939,965        25,596,132
              Valuation allowance              (25,939,965)      (25,596,132)
                                                ----------        ----------
                Net deferred tax asset        $     --          $     --
                                                ==========        ==========

          The  Company has provided a valuation allowance for the entire balance
     of deferred tax assets  at March 31, 1996 and March 31, 1995, 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, 1996,  1995 and
     1994 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.   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:

                                              1996         1995        1994
                                              ----         ----        ----
          Tax provision (benefit)
            utilizing statutory rates         (313)         532         374

          Utilization of NOL                   343         (502)       (312)
                                               ---          ---         ---
          Tax provision                         30           30          62
                                               ===          ===         ===





                                         

                                         -15-



<PAGE> 16
     (5)  Related Parties

          During  1996, 1995 and 1994, the Company sold $791,000, $1,731,000 and
     $847,000  and  purchased  $427,000, $357,000  and  $411,000,  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 paragraphs
     are noninterest-bearing and are settled in the normal course of business.








































                                        

                                         -16-




<PAGE> 17
                              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,
                                     ----------------------------------------
                                        1996           1995           1994
                                     ----------     ----------     ----------
                                                  (In thousands)
     Revenues:
       Contract drilling             $  21,298      $  18,357      $  18,359 
       Oil and gas                       1,683          1,042            621 
                                       --------       --------       --------
                                     $  22,981      $  19,399      $  18,980 
                                       ========       ========       ========
     Net income (loss) (a):
       Contract drilling             $   2,245      $   2,182      $   1,770 
       Oil and gas                      (3,058)          (492)          (674)
                                       --------       --------       --------
                                          (813)         1,690          1,096 
       Corporate expenses (b)             (139)          (154)           (57)
                                       --------       --------       --------
                                     $    (952)     $   1,536      $   1,039 
                                       ========       ========       ========
     Identifiable assets:
       Contract drilling             $   6,415      $   5,117      $   4,661 
       Oil and gas                       4,322          2,808            854 
                                       --------       --------       --------
                                        10,737          7,925          5,515 
       Corporate assets (c)                923          2,115          2,133
                                       --------       --------       --------
                                     $  11,660      $  10,040      $   7,648 
                                       ========       ========       ========
     Depreciation, depletion and
      amortization:
       Contract drilling             $     439      $     476      $     465 
       Oil and gas                         468            400            281 
                                       --------       --------       --------
                                     $     907      $     876      $     746 
                                       ========       ========       ========
     Capital expenditures:
       Contract drilling             $   1,463      $     515      $     951 
       Oil and gas                       5,553          2,980          1,019 
                                       --------       --------       --------
                                     $   7,016      $   3,495      $   1,970 
                                       ========       ========       ========


                                         -17-


<PAGE> 18


                              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 expenses consist of interest 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, 1996, 1995 and 1994, contract  drilling
     revenues earned from individual customers constituting 10% or more of total
     contract drilling revenues were:

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

          (b)  three customers in 1995 individually represented approximately 
               24%, 17% and 14% of drilling revenues,

          (c)  two customers in 1994 individually represented approximately
               40% and 15% 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 into 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 $646,000.  On July
     22,  1993  the  special   deputy  receiver  of  SFIC  billed   the  Company
     approximately $1,061,000  for  retrospective  premiums,  but  adjusted  the
     amount of $854,153 on January 12,  1994.  Although the Company disputes the
     amount claimed by the receiver for SFIC, the Company is presently unable to
     determine  whether and to what extent such  amount is, in fact, an accurate
     estimate of amounts owed to SFIC, if any.  However, an accrual was  made in
     the  company's financial  statements  for the  amount  in question.    In a
     related development, on June 5, 1995, the 

                                                  -18-



<PAGE> 19
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     Company  received a letter from  the Texas Property  and Casualty Insurance
     Guaranty  Association ("Guaranty  Association") requesting  payment in  the
     approximate amount of $729,000 for claims that the Guaranty Association has
     paid on behalf of SFIC.  The Guaranty Association does not believe that the
     policies written  by SFIC involved a transfer of insurance risk as required
     by  the Texas  Insurance  Code and  is  asserting that  it  is entitled  to
     reimbursement for  all monies paid to  claimants under these policies.   In
     November, 1995,  the  Guaranty  Association filed  a  lawsuit  against  the
     Company  in  Travis  County,  Texas, styled  Texas  Property  and  Casualty
     Insurance Guaranty Association vs. TMBR/Sharp Drilling, Inc., Cause No. 95-
     12318.   The  Guaranty  Association is  seeking  to recover  past  workers'
     compensation  claims in  the amount  of approximately $803,000,  which have
     been  advanced by  the  Guaranty Association  under  the Company's  workers
     compensation insurance program with SFIC.  In May, 1996, and pursuant to an
     order of the  Travis County District Court, the claims  of the receiver for
     SFIC  were assigned  to and  became a  part  of the  Guaranty Association's
     claims against the Company.   The Company has  rejected a settlement  offer
     made by the Guaranty Association for an amount less than the amount accrued
     by  the Company and  the Company intends to  vigorously defend its position
     against the Guaranty Association.

          The Company provides  for its workers' compensation  claims 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.   The
     Company is generally responsible  for the first $10,000 ($100,000  prior to
     November 1993) in claim costs for each workers' compensation injury.

          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.








                                         -19-







<PAGE> 20
                              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,
                                                             ---------
                                                          1996        1995
                                                          ----        ----
                                                           (In thousands)

               Oil and gas properties                   $10,398     $ 5,790

               Accumulated depreciation,
                 depletion and amortization              (6,076)     (2,982)
                                                         -------     -------
                                                        $ 4,322     $ 2,808
                                                         =======     =======

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

                                                   Years Ended March 31,
                                                   ---------------------
                                               1996        1995        1994
                                               ----        ----        ----
                                                      (In thousands)

               Property acquisition costs    $   970     $ 1,309     $   170

               Exploration costs               3,969       1,035         609

               Development costs                 614         636         240
                                              -------     -------     -------
                                             $ 5,553     $ 2,980     $ 1,019
                                              =======     =======     =======









                                         -20-






<PAGE> 21
                              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,
                                                   ---------------------
                                               1996        1995        1994
                                               ----        ----        ----
                                                      (In thousands)
          Revenues                           $ 1,683     $ 1,042     $   621

          Production costs                       554         350         318

          Dry holes and abandonments             945         629         656

          Depreciation, depletion and
            amortization and valuation
            provisions                         3,092         400         281

          Income tax provision                   --          --          --
                                              -------      -------     -------
          Results of operations from
            producing activities
            (excluding corporate
            overhead and interest costs      $(2,908)     $  (337)    $  (634)
                                              =======      =======     =======

     (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.






                                         -21-






<PAGE> 22
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          Quantities of proved reserves:

                                             Crude Oil           Natural Gas
                                              (MBbl)               (MMcf)
                                             ---------           -----------
     Balance, March 31, 1993                    108.3                 353.2

     Discoveries and additions                   40.7                  35.1
     Production                                 (28.6)                (74.8)
                                             ---------           -----------

     Balance, March 31, 1994                    120.4                 313.5

     Discoveries and additions                  206.5                 920.6
     Production                                 (51.3)               (104.7)
                                             ---------           -----------
     Balance, March 31, 1995                    275.6               1,129.4

     Discoveries and additions                  163.9               1,898.3
     Production                                 (70.9)               (212.1)
                                             ---------           -----------
     Balance, March 31, 1996                    368.6               2,815.6
                                             =========           ===========

     Proved Developed reserves:
                                             Crude Oil           Natural Gas
                                               (MBbl)              (MMcf)
                                             ---------           -----------

     March 31, 1993                             108.3                 353.2
                                             =========           ===========

     March 31, 1994                             120.4                 313.5
                                             =========           ===========

     March 31, 1995                             275.6               1,129.4
                                             =========           ===========

     March 31, 1996                             368.6               2,815.6
                                             =========           ===========






                                         -22-






<PAGE> 23
                              TMBR/SHARP DRILLING, INC.

                            Notes to Financial Statements


                                                         March 31,
                                                  -----------------------
                                                    1996           1995
                                                    ----           ----

          Standardized Measure

            Future cash inflows production        $10,369        $ 6,013

            Future production and 
              development costs                    (3,089)        (1,988)
                                                   -------        -------
            Future net cash flows                   7,280          4,025

            10% discount factor                    (2,326)        (1,146)
                                                   -------        -------
            Discounted future net cash flows        4,954          2,879

            Discounted income taxes                   --             --
                                                   -------        -------
            Standardized Measure                  $ 4,954        $ 2,879
                                                   =======        =======


                                          1996        1995         1994
                                          ----        ----         ----

          Standardized measure,
            beginning of year           $ 2,879     $   971      $ 1,139

          Revisions
               Prices and costs             235         676         (241)
               Accretion of discount        288          97          114
                                         -------     -------     --------
          Net revisions                     523         773         (127)

          Discoveries and additions       2,681       1,764          262
          Production                     (1,129)       (629)        (303)
                                         -------     -------      -------
          Standardized measure,
            end of year                 $ 4,954     $ 2,879      $   971
                                         =======     =======      =======








                                         -23-



<PAGE> 24
                                      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.          




     May 27, 1997                            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.



     May 27, 1997                               /s/ Thomas C. Brown             
                                                -------------------------------
                                                Thomas C. Brown, Chairman       
                                                of the Board of Directors       
                                                (Principal Executive Officer)   


     May 27, 1997                               /s/ Joe G. Roper                
                                                -------------------------------
                                                Joe G. Roper, President and     
                                                Director                        


     May 27, 1997                               /s/ Patricia R. Elledge         
                                                -------------------------------
                                                Patricia R. Elledge, Controller/
                                                Treasurer (Principal Financial  
                                                Officer)                        


     May 27, 1997                               /s/ David N. Fitzgerald         
                                                -------------------------------
                                                David N. Fitzgerald, Director   



     May 27, 1997                               /s/ Donald L. Evans             
                                                -------------------------------
                                                Donald L. Evans, Director       



                                         -24-