U.S. Securities and Exchange Commission
                Washington, D.C.  20549

                     Form 10-QSB

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

For the quarterly period ended September 30, 1996

[   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT

For the transition period from . . . . . . . . to . . .  . . .  

Commission file number 0-21087

              Tollycraft Yacht Corporation
  (Exact name of registrant as specified in its charter)

          Minnesota                        41-1735422
(State or other jurisdiction of        (I.R.S. Employer
 incorporation or organization)         Identification No.)

 2200 Clinton Avenue, Kelso, Washington     98626
(Address of principal executive offices)  (Zip Code)

           (360) 423-5160
(Registrant's telephone number, including area code)

      Check whether the issuer (1) filed all the reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past twelve 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
_______ No _______

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

      Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 
15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by court.  
Yes _______ No _______

APPLICABLE ONLY TO CORPORATE ISSUERS

      State the number of shares outstanding of each of the
issuers classes of common equity, as of the latest 
practicable date:   55,000,000 as of 10-20-96.

      Transitional Small Business Disclosure Format (check one):
Yes _______ No ___X____


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

<TABLE>
TOLLYCRAFT YACHT CORPORATION                           
Consolidated Balance Sheets                            
                              
<CAPTION>                              
    
                                                                  December 31,       September 30,  
                                                                      1995               1996 
<S>                                                               <C>                <C>         
                        ASSETS

Current assets:                              
     Cash                                                         $     20,022       $          -  
     Accounts receivable                                                23,038                  0
     Raw material inventories                                          450,000            451,687   
     Costs incurred and income recognized in excess         
          of billings on uncompleted contracts                       1,598,669          1,607,525      
     Other current assets                                               58,105             89,972     
               Total current assets                                  2,149,834          2,149,184      
                              
Equipment, net                                                       2,786,908          2,744,993      
Product rights                                                          22,000             22,000    
Net deferred tax assets                                                 15,325             15,325     
                              
               Totals assets                                      $  4,974,067          4,931,502    
                              
                        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)              
          
     

Current liabilities:                              
     Accounts payable                                             $    771,661          1,237,010     
     Customer deposits                                                 155,000            728,000   
     Work-in-process financing                                       2,942,287          3,000,000      
     Accrued payroll and payroll related liabilities                 1,635,480          2,474,185      
     Notes payable                                                   2,708,986          3,389,468      
     Other accrued liabilities                                         248,304            549,639
     
     Long-term debt, due within one year                               254,300            254,300   
               Total current liabilities                             8,716,018         11,632,602 

Long-term debt                                                         737,380          1,136,534 

Stockholders' equity (deficit):                        
     Common stock, no par value, 1,000,000 shares                     1,581,267         1,581,267 
          authorized, issued and outstanding             
               Retained deficit                                      (6,060,598)       (9,418,901)
               Total stockholders' equity (deficit)                  (4,479,331)       (7,837,634)

               Total liabilities and stockholders' equity (deficit)  $4,974,067         4,931,502 

</TABLE>




<TABLE>
TOLLYCRAFT YACHT CORPORATION                                
     
     
Consolidated Statement of Operations                        
               
     
<CAPTION>                                             

                                             Three Months                               Nine Months    
     
                                           Ended September 30,                        Ended September 30,  
     
                                         1995               1996                 1995                1996

<S>                                    <C>                <C>                 <C>                  <C>        
Net sales                              $3,170,539          $155,919           $8,358,168           $3,921,542 
                                             
Cost of sales                           3,633,956           423,561            9,172,169            5,671,901 
                                             
Gross margin                             (463,417)         (267,642)            (814,001)          (1,750,359)
                                             
Selling expenses                          135,297            69,479              453,262              338,067 
                                             
General and administrative expenses       418,947           139,812            1,139,050              769,624 
                                             
Loss from operations                   (1,017,661)         (476,933)          (2,406,313)          (2,858,050)
                                             
Other income (expenses):                                    
     
     Interest, net                       (144,005)         (179,052)            (455,589)            (512,558)
     Other                                      0            12,305                    0               12,305 
          Total other income(expenses)   (144,005)         (166,747)            (455,589)            (500,253)
                                             
Loss before benefit for income taxes   (1,161,666)         (643,680)          (2,861,902)          (3,358,303)
                                             
Benefit for income taxes-deferred               0                 0               15,325                    0 
                                             
Net loss                              $(1,161,666)        $(643,680)         $(2,846,577)         $(3,358,303)
                                             


</TABLE>





<TABLE>
TOLLYCRAFT YACHT CORPORATION                      
Consolidated Statement of Cash Flows                        
<CAPTION>                         
                         
                                                                Nine Months         
                                                              Ended September 30,      
                                                            1995              1996 
<S>                                                       <C>              <C>                              
Cash, January 1,                                            $265,664          $20,022  
                              
Cash flows from operating activities:                       
     Net Loss                                             (2,846,577)      (3,358,303)    
     Adjustments to reconcile net loss to net               
     cash used in operating activities:                     
          Depreciation and amortization                      241,542          272,761
     Change in assets and liabilities:                      
          Inventories                                        (55,608)          (1,686)   
          Accounts receivable                                                  23,038    
          Costs incurred and income recognized              
          in excess of billings on uncompleted contracts    (410,727)          (8,856)   
          Other current assets                               (67,369)         (31,867)  
          Accounts payable                                    17,011          465,348   
          Customer deposits                                 (830,534)         573,000 
          Accrued payroll liabilities                        691,391          742,876 
          Other accrued liabilities                           17,053          397,164 
                                                          (3,243,818)        (926,525)

Cash flows from investing activities:                       
     Purchase of equipment                                  (103,846)        (230,846)
     Benefit from deferred income tax                        (15,325)               0 
     Investment in purchase option                              (500)               0 
                                                            (119,671)        (230,846)

Cash flows from financing activities:                       
     Proceeds from work-in-process financing               2,807,436
          1,203,835 
     Proceeds from notes payable                             392,454        1,393,142 
     Proceeds from long-term debt                            416,615 
     Proceeds from issue of common stock                      15,000                0 
     Repayment of work-in-process financing                        0       (1,146,122)
     Repayment of notes payable                             (712,660)
     Repayment of long-term debt                             (12,382)         (17,461)
                                                           3,202,508        1,137,349 
                         
Cash, September 30,                                         $104,683       $-   
</TABLE>                      
TOLLYCRAFT YACHT CORPORATION
Notes to Consolidated Financial Statements
For the Three Months Ending September 30, 1996

Note 1 - Basis of Presentation

The accompanying financial statements have been prepared by
Tollycraft Yacht Corporation  without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. 
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.

The financial information presented herein reflects all normal
recurring adjustments which are, in the opinion of management,
necessary for fair presentation of the results for the interim
periods presented.  The results for the interim periods are not
necessarily indicative of the results to be expected for the full
year.

The presentation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of
assets, liabilities, income and expenses and disclosure of other
accounting information.  Future events could alter such
estimates.

Note 2 - Summary of Significant Accounting Policies

  The Company and Acquisitions
Tollycraft Yacht Corporation (the "Company") was incorporated
under the laws of the State of Minnesota on December 7, 1992. 
The Company changed its name from Child Guard Corporation in
January 1996.  Also in January 1996 the Company acquired all of
the outstanding common stock of Tollycraft Acquisition
Corporation ("TAC"), a Washington corporation incorporated on
February 4, 1994.

The acquisition by the Company of TAC has been accounted for as a
pooling of interests.  Except where otherwise indicated,
references to the Company in these financial statements and notes
thereto include the activities of TAC.

  Nature of business
Tollycraft Yacht Corporation (the "Company"), is engaged in the
manufacture and distribution of luxury motor yachts.

  Cash
The Company periodically throughout the period maintained cash
balances in its bank accounts in excess of federally insured
limits.

  Inventories
Inventories are valued at the lower of average cost or market.

  Equipment
Equipment is valued at cost.  Depreciation of equipment is
provided using the straight-line method over the estimated useful
lives of the assets.  Additions and improvements, including
patterns and molds for yacht production which have been produced
in house, are capitalized at cost.


TOLLYCRAFT YACHT CORPORATION
Notes to Consolidated Financial Statements (continued)

Note 2 - Summary of Significant Accounting Policies (continued)

  Estimated Warranties
The Company records an accrual at the time of sale of each yacht
for estimated warranty  claims.  There is a general one year
parts and labor warranty to the original owner for defects in
material and workmanship.  In addition, there is a 15 year
transferable limited warranty for structural defects in all
Tollycraft built hulls, deck bridges, stringers, and bulkheads.

  Revenue Recognition
Revenue is recognized using the percentage-of-completion method. 
This method is measured by comparing the percentage of costs
incurred to date to the estimated total cost for each finished
yacht.  Yacht costs include all direct material costs, direct
labor costs, and indirect manufacturing costs such as indirect
labor, supplies, small tools, and other indirect manufacturing
overhead costs.  Selling, general and administrative costs, and
interest on indebtedness are charged to expense as incurred.  

Changes in job performance, job conditions, and estimated
profitability may result in revisions to estimated costs and
income, which are recognized in the period in which the revisions
are determined.

The current asset "Costs incurred and income recognized in excess
of billings on uncompleted contracts," represents costs and
estimated contract profits for yachts in process.

  Pension and profit sharing plans
Union and non-union employees participate in a pension plan which
qualifies under Section 401(k) of the Internal Revenue Code.  The
Company is not required and has not made any contributions to the
plan.

Note 3 - Uncompleted Contracts

Costs incurred and billings on uncompleted contracts consisted of
the following:
Costs incurred on uncompleted contracts   $  1,450,849
Income (loss) recognized                       156,676
                                          $  1,607,525

Note 4 - Equipment

Equipment consists of the following:
Manufacturing equipment                   $     354,480
Office furniture and equipment                  376,320
Molds and patterns                            2,805,056
       Subtotal                               3,535,856
Less accumulated depreciation            (      790,863)
                                           $  2,744,993
 


TOLLYCRAFT YACHT CORPORATION
Notes to Consolidated Financial Statements (continued)

Note 4 - Work-in-process Financing

The Company has available a $3,000,000 line-of-credit with
Caterpillar Financial Services Corporation.  Under the terms of
the agreement, borrowings are limited to 75% of the dealer net
price of each particular yacht.  Advances are made at 1/3 upon
commencement of hull lamination, 1/3 upon commencement of the
assembly process, and 1/3 upon installation of the engines. 
Interest on borrowings are payable monthly at a variable rate. 
Borrowings are collaterized by specific vessels with assigned
hull numbers upon which Caterpillar Financial Services has
advanced funds and filed specific UCC-1's.  Outstanding
borrowings at September 30, 1996 were $ 3,000,000.

The Company is also required to maintain a minimum level of
stockholder's equity and a ratio of total liabilities to
stockholders equity.  At September 30, 1996, the Company was in
violation of these minimum requirements.

Note 5 - Notes Payable

The Company has a line-of-credit with Vera Corporation for
working capital purposes.  Interest on the borrowings are payable
monthly at a rate of 12% per annum.  Borrowings are
collateralized by substantially all assets.  Outstanding
borrowings at June 30, 1996 were $3,389,468.

Note 6 - Other Accrued Liabilities

Other accrued liabilities consisted of the following:
Estimated liabilities for warranties     $   22,210
Interest                                    176,558
Accrued factory lease                       154,970
Accrued property taxes                      116,620
Excise taxes                                 51,379
Other current liabilities                    27,902
                                         $  549,639

Note 7 - Long-term Debt

Long-term debt consists of various obligations assumed in 1994 by
Tollycraft Acquisition Corporation in connection with the
purchase of the yacht manufacturing business, tooling, molds,
patterns and all rights and privileges to the name "Tollycraft".

Note 8 - Operating Lease Commitments

The Company leases certain vehicles and machinery under
non-cancelable operating leases.  Minimum future lease payments
under these operating leases are as follows:

Years ending   1996           $   19,836
               1997               19,836
               1998                6,612
                              $   46,284

The Company also leases its manufacturing facilities and
effective October 1, 1995 has entered into a twenty year lease at
$29,500 per month.  The agreement calls for 7% increases at the
end of each five year period of the lease.

TOLLYCRAFT YACHT CORPORATION
Notes to Consolidated Financial Statements (continued)

Note 9 - Provision for Income Taxes

Deferred income taxes are recognized for all significant
temporary differences between the tax and financial statement
basis of assets and liabilities.  The classification of the
resulting deferred tax assets and liabilities is based upon the
classification of the related balance sheet asset or liability. 
Deferred tax assets and liabilities result principally from the
Company's net operating loss carryforwards, differences in
depreciation methods for tax purposes and other temporary
differences.  A valuation allowance has been created for purposes
of financial reporting.



Item 2. Management's Discussion and Analysis or Plan of Operation

Tollycraft Yacht Corporation is the successor owner of the
original manufacturer of Tollycraft Yachts.  The stockholders of
Tollycraft Yacht Corporation have formed a new management group
with specific goals including (1) The commitment to maintain
customer and dealer relationships, (2)  Shape maximum customer
confidence,  (3) Invest in updating and redesigning the current
product line,  (4)  Develop a new series of yachts,  (5) 
Streamline management,  (6)  Expand the dealer network. 
Significant expenses have been incurred to date to implement
these goals.

In the fall of 1996 Tollycraft Yacht Corporation is continuing
efforts to raise funds in order to proceed with its business
plan.   The Company is considering various alternatives to
improve its financial position, meet ongoing trade obligations,
pay delinquent tax balances, and fund capital expenditure
requirements including converting current debt to equity through
the issuance of common shares, and the sale of common shares to
raise working capital.  The Company has engaged the services of
professional advisors to perform these investment activities.  In
addition, another supplier of marine engines has expressed an
interest in providing working capital funding for projects that
contain its products. 

Chairman and Chief Executive Officer Peter Hobbs has announced
the organization of the Capital Formation Committee with the
priority goal of generating new capital funding for the Company. 
Mr. Hobbs will be assisted by President and Chief Operating
Officer D.R. Cooley and five additional individuals from the
international investment banking community.

Results of Operations:

The Company has not had sufficient working capital to continue
operations in the third quarter.  In July, the manufacturing
employees and non-essential support staff were laid off and
manufacturing ceased.

Current results reflect the halting of operations in the third
quarter. There was a small amount of manufacturing activity prior
to the closure.  The majority of the manufacturing expenses
incurred are fixed costs relating to plant overhead expenses and
some wages for essential personnel. 

In order to begin production the Company is in need of additional
capital to build production tooling, finance inventory and
provide working capital.  The Company is dependent on external
sources of liquidity until projected levels of production and
improvements in direct costs are achieved which will return the
Company to profitability and a positive cash flow.  A material
commitment for capital expenditures and working capital is
necessary to meet the projected goals.  The expected source for a
majority of the funds is from a private placement stock offering
closely followed by a public stock offering.

During the third quarter of 1996 union employees accepted a
contract effective through June of 1998.  After several weeks of
negotiations, the members passed a contract calling for 1)
average wage reductions of 20%, 2) elimination of certain
holidays, 3) reduction of vacation benefits, 4) employee
contributions to medical plans, and 5) a reduction of work
categories.  The concessions are expected to result in direct
labor savings of approximately 23%.

Management continues to put emphasis on the following steps to
improve the operations of the Company:

1. Increased basic pricing on current models for greater profit
   margins to reflect the higher quality products being
   manufactured.
2. Select new materials to upgrade the quality of interiors while
   emphasizing production efficiency.
3. Complete the design for a new line of yachts to augment the
   current models offered.  The new yachts are engineered for more
   efficient production and priced at greater profit margins.
4. Continue developing relationships with dealers that are
   capable of providing their own inventory financing.
5. Increase the dealer network for nationwide marketing
   capability to increase sales volume and reach economies of scale.
6. Redesign manufacturing processes to make production more
   efficient.
7. Modernize the manufacturing plant for increased capacity and
   efficiency of material flow.
8. Complete the development of a labor tracking system to monitor
   and reduce direct labor costs.

Financial Condition:

During the third quarter of 1996, the Company continued to incur
operating losses of $643,680 which increased the negative net
worth to ($9,418,901).  The cumulative losses of the Company
continue to be financed mainly through current liabilities. 
Current liabilities of $11,632,602 exceed current assets of
$2,149,184 resulting in a current ratio of .18.  Current
liabilities include a revolving credit facility of $3,000,000
from a marine engine supplier to assist financing of
work-in-process inventories and another working capital loan from
a finance company.  The remaining current liabilities are trade
payables, deposits from customers, and accrued payroll related
expenses and undeposited payroll taxes.

The Company has not been able to make timely payments to trade
suppliers and various taxing authorities.  Deferred payment terms
have been negotiated with the taxing authorities and the vast
majority of trade vendors.  Material suppliers have indicated a
willingness to provide the Company with its raw material needs on
a COD basis.

Long-term debt of $1,390,833 (including current maturities) is
mainly obligations assumed by in exchange for miscellaneous
machinery and equipment as well as the molds and tooling
necessary to manufacture the current line of yachts.  Management
believes the book value of these assets is significantly
understated when considering replacement cost values and the
potential earnings capability of the tooling.

There were no significant capital expenditures during the third
quarter of 1996.  In prior quarters a significant amount of
capital was invested in the construction of molds and tooling for
a new 48' pilothouse motoryacht.  This new yacht design is
planned to improve manufacturing processes and contribute a
larger gross margin to the product mix.  Funds for these capital
expenditures have been provided through current operations with a
corresponding increase in current debt.  In order to establish
the Company as a viable competitor in the industry, management
has established an aggressive time schedule to upgrade existing
molds and tooling and manufacture additional molds and tooling
for the newly designed line of yachts.  Total capital
expenditures necessary for completion of the product line upgrade
and expansion is approximately $2,650,000.  The Company is
dependent on external sources of funding to complete the plan.


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

All legal proceedings referenced involve Tollycraft Acquisition
Corporation ("TAC").

Tollycraft Yachts Corp., Bankruptcy Case No. 93-34273T, United
States Bankruptcy Court for the Western District of Washington at
Tacoma.  
Litigation surrounding payment of claim for attorney fees
allegedly incurred by Transamerica Commercial Financial Corp. in
the bankruptcy case involving the predecessor company.  Ruling in
favor of Transamerica has been appealed to the 9th circuit
Bankruptcy appellate Panel.  The parties have finalized a
settlement.

Christine Marie Trujillo v. Tollycraft Yachts.
Litigation in Superior Court of Washington for Cowlitz County
Claim for sexual harassment and wrongful termination.  Complaint
asks for unspecified sum in special damages for lost wages,
benefits and expenses and general damages for 
emotional distress and attorney fees.  Default judgment awarded
for $22,210.

Kenneth N. Findley, Jr. and Island Dreamer, Inc. v. Tollycraft
Yachts, Inc.  District Court of Harris County Texas.
Complaint filed under the Texas Consumer Protection Act on March
21, 1996 alleges deceptive trade practices and breach of express
warranties.  Plaintiff claims loss of value of $100,000 and 
reasonable attorney fees.  Suit filed for maximum damages allowed
ammounting to two times the actual damages under $1,000 and three
times the actuall damages over $1000.  the case evolved from a $975 
warranty claim submitted by the owner of a yacht.  Company management 
denied reimbursement of the claim.  Trial set for December 9, 1996 
is being continued.

Item 2. Changes in Securities

None

Item 3. Defaults upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

The Regulation S transaction previously authorized by the Company
has been consummated with the tendering of 5,000,000 common
shares by the Company for the purchase of a fund certificate from
Gemini Capital Fund, 202 St. George's Building, 2 Ice House
Street, Suite 202, Central Hong Kong, for $2,000,000.  This
certificate matures in 24 months for US cash.

Effective November 1, 1996, the Company entered into a Consulting
Agreement with Kramfors Limited of 202 St. George's Building, 2
Ice House Street, Suite 202, Central Hong Kong.  Kramfors will
provide advice, consultation and services through its personnel
situated in USA and under the control of Mr. Peter Hobbs, at the
request of the Company.  The Company shall pay to Kramfors
compensation to be determined via an option agreement based on
performance, such to be executed within thirty days of the
agreement.

Effective November 8, 1996, Peter D. Hobbs assigned all rights,
interests, burdens, and benefits described in the Voting Trust
Agreement to Kramfors Limited.

Item 6. Exhibits and Reports on Form 8-K

    (a) Exhibits

(9) Assignment of Voting Trust Agreement
(10) Material Contract - Consulting Agreement

    (b) Reports on Form 8-K.
    
No 8-K reports were filed during this quarter.


                  [Signatures]

In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


Tollycraft Yacht Corporation
    (Registrant)


Date: November 25, 1996



____/s/________________________
D.R. Cooley
President
Chief Operating Officer



___/s/_________________________
William H. Lee
Controller

                                 EXHIBIT 9

                     ASSIGNMENT OF TOLLYCRAFT YACHT
                                    
                         VOTING TRUST AGREEMENT 
                                BETWEEN 
                             PETER D. HOBBS
                                  AND 
                         TOLLYCRAFT SHAREHOLDERS

     This Assignment, entered into this day, the 8th of November,
1996, by and between Peter D. Hobbs ("Assignor"), whose address
is 10650 Scripps Ranch Boulevard, Suite 220, San Diego, CA 92131,
and Kramfors Limited ("Assignee"), whose address is 2 Ice House
Street, Suite 202, Central Hong Kong.

FOR AND IN CONSIDERATION OF the mutual promises and benefits to
be derived by the parties, they do hereby agree to the following:

1. Assignor entered into a contract dated October 14, 1996 with
Thomas L. Eden, E.M. Morgan, Ty Eden, Tracy Eden, Aja Lesh, Peter
Rapid Corp., Playco Inc., Roy G. Getty, Tonny Tulleners, Dale
Buteyn, Jr., David Tubbs, and James O'Keefe, a copy of which is
attached to this and incorporated.

2. Assignor hereby assigns all rights, interests, burdens, and
benefits described in the contract to Assignee. 

3. Assignor warrants that the contract is still in full effect
and has not been modified except as indicated n writing. 
Assignor agrees to indemnify and hold harmless the Assignee from
all claims resulting from Assignor's failure to perform under the
contract prior to the date of the assignment.

4. Assignee agrees to perform all the duties and obligations
called for under the contract.  Assignee agrees to indemnify and
hold the Assignor harmless from all claims which may result from
Assignee's failure to perform under this contract.

5. This contract binds the parties and all successors.

     The parties have signed this Agreement on the date first
above written.


                                                              
Victoria Tribble, Witness     Peter D. Hobbs
                                EXHIBIT 10

                           CONSULTING AGREEMENT

THIS AGREEMENT, made and effective as of 1st November 1996, by
and between Tollycraft Yacht Corporation of 2200 Clinton Avenue,
Kelso, Washington 98626, USA (hereinafter referred to as "Tolly")
and Kramfors Limited of 202 St. George's Building, 2 Ice house
Street, Hong Kong (hereinafter referred to as "Kramfors").

                                 RECITALS

Tolly is engaged in the business of building and marketing high-
quality motor yachts. 

Kramfors has extensive experience in corporate finance, corporate
reconstructions and capital raising and wishes to provide
services for Tolly for a fee.

                                 AGREEMENT

1) Term

The respective duties and obligations of the parties hereto shall
commence with effect from 1st November, 1996 and shall continue
for a period of two (2) year from that date, or until terminated
pursuant to Article 6 hereof.  Failure to terminate this
consulting agreement shall be treated, by the parties hereto, as
a continuation of said agreement, on al of the terms, provisions,
and conditions thereof for an additional periods of one (1) year
each for a maximum of five (5) additional years.  Either party
may terminate this agreement by giving 180 days written notice
prior to the expiration of the second one (1) year period. 

2) Duties of Consultant

Kramfors will provide advice, consultation and services through
its personnel situated in USA and under the control of Mr. Peter
Hobbs, at the request of Tolly.

3) Compensation

Tolly shall pay to Kramfors compensation to be determined via an
option agreement based on performance, such to be executed within
thirty days of this agreement.

4) Out of Pocket Expenses

Kramfors shall absorb all normal costs incidental to services
provided under this agreement other than exceptional items which
shall be agreed to in advance by Tolly (such agreement not to be
unreasonably withheld):

(a) Economy class air transportation, hotel and subsistence
expenses for Kramfors personnel provided at the request of Tolly
in connection with services rendered to Tolly.

(b) Any substantial or unusual out-of-pocket expenses incurred by
Kramfors at the request of Tolly and its performance of duties
under this agreement. 

Tolly shall pay such expenses promptly on receipt of statement
from Kramfors.

5) Exclusivity of Consultation

Kramfors hereby covenants as follows:

(a) Kramfors, its principals, officers, directors, advisers,
affiliates and employees shall not during, the term of this
agreement or at any time thereafter, divulge to or reveal to any
person, firm or corporation, or in any way use for the benefit of
anyone other than Tolly, any secrets, formulae, designs, customer
lists, contracts and/or any information whatsoever relating to
Tolly, its subsidiaries and associates, except as such are
generally known to the public.

(b) Upon the termination of this agreement, Kramfors will deliver
to and surrender to Tolly any documents, papers, letters of any
kind or nature whatever in its possession or the possession of
any of its independent contractors and advisers pertaining to the
business of Tolly or to Tolly's methods, formulae, customers,
contracts, prices and expiration dates of contracts and at no
time will Kramfors or others make copies of the same for itself
or for the use of any person, firm or corporation other than
Tolly.

(c) Kramfors agrees that while they remain a consultant to Tolly,
its subsidiaries and associates, Kramfors, its principals,
officers, directors, affiliates, advisers and employees shall not
promote, advise or engage in the same or similar business of that
of Tolly, its subsidiaries and associated companies within the
market of Tolly, its subsidiaries and associated companies or
become interested in (which shall include but not be limited to
becoming an employee, partner, officer, director, shareholder,
lender or guarantor) any other business or venture engaged in the
same business of Tolly, its subsidiaries and associated companies
within the markets served by Tolly, including the marketing and
exploitation of related products, nor during said period shall
attempt to divert from Tolly, its subsidiaries and associated
companies any business whatsoever.

(d) Notwithstanding the provisions of Paragraphs 5(a) and 5(c),
Kramfors reserves the right to provide its consultancy services
to other customers while respecting the confidentiality of
Tolly's business information.


6) Termination

This Agreement may be terminated forthwith:

(a) By Kramfors if any payment under Article 3 hereof is in
arrears for thirty (30) days; or

(b) By Kramfors if Tolly discontinues business, becomes
insolvent, appoints a receiver, goes into liquidation, or in the
event of a merger, consolidation or transfer of Tolly's assets in
which Tolly is not the surviving corporation; or

(c) By either party if the other shall assign or transfer their
duties in violation of Article 7 hereof; or

(d) By any party if any other party persists in breach of its
agreement for fifteen (15) days after due notice thereof has been
given, but such termination shall not prejudice Kramfor's rights
to receive money due it under this Agreement at the time of
cancellation.

7) Assignment or Delegation

Any assignment or delegation of this agreement or transfer of the
rights or obligations granted or undertaken hereunder without the
prior written consent of both parties shall be void.

8) Entire Agreement

The terms and conditions herein contained constitute the entire
agreement between the parties.  This Agreement shall supersede
all other agreements, contracts, and communications, either oral
or written, between the parties hereto with respect to the
subject matter hereof.

9) Not a Joint Venture

It is agreed and understood that this consulting Agreement
neither creates a partnership nor a joint venture between the
parties, nor shall it be construed as creating such a partnership
or joint venture.

10) Non-Waiver of Rights

No waiver by either party hereto of any one or more defaults by
the other in the performance of any provision of this Agreement
shall operate or be construed as a waiver of any future default
or defaults, whether of a like or different character.

11) Notices, Etc.

All notices, consents, approvals, or other notifications required
by the parties to this Agreement shall be deemed served if sent
by telex, facsimile or mail, addressed to such other party at the
address given below or at such other address as such party shall
notify the other.

(a) Notices, etc. required hereunder shall be sent to Tolly at:
     2200 Clinton Avenue
     Kelso
     Washington 98626
     USA
     Fax: 360-423-2607
     Tel: 360-423-5160

(b) Notices, etc. required hereunder shall be sent to Kramfors
at:
     Suite 02-204 St. George's Building 
     2 Ice House Street
     Central
     Hong Kong
     Fax: 852-2810-6467
     Tel: 85-2525-7287

12) Disputes

In the event that either party may institute litigation in any
competent jurisdiction to enforce the terms and provisions of
this Agreement, the prevailing party shall recover all associated
costs of the proceeding including reasonable attorney's fees.

13) Governing Law

This Agreement shall be binding on and shall be for the benefit
of the parties hereto and their respective successors and
assigns, and shall e governed by the laws of USA and the parties
thereto submit to the non-exclusive jurisdiction of the courts of
California.

IN WITNESS WHEREOF, the parties have executed this Agreement all
as of the date and the year first above written.


Tolly               Witness



By:                             


Kramfors       Witness



By:                               
     GFSL Nominees Limited
     Directorq