U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                 FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    FOR FISCAL YEAR ENDED DECEMBER 31, 1998

                        TOLLYCRAFT YACHT CORPORATION
                (Name of small business issuer in its charter)

          Nevada                     0-21087                  86-0849925
(State or other jurisdiction of    (Commission            (I.R.S. Employer 
incorporation or organization)       File No.)            Identification No.)

8201 Peters Road, Suite 1000, Plantation, Florida      33324
(Address of principal executive offices)            (Zip Code)

Registrant's telephone number, including area code: (253) 884-5750 

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

Name of each exchange on which registered: NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE (Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section 
13 or 15(d) of the Exchange Act during the past 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 ...
 
Check if there is no disclosure of delinquent filers in response to Item 405 
of Regulation S-B is not contained in this form, and no disclosure will 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-
KSB or any amendment to this Form 10-KSB. [x]
 
State issuer's revenues for its most recent fiscal year: $ NONE
 
The aggregate market value of the voting and non-voting common equity held by 
non-affiliates was $43,437,483  computed by reference to the average bid and 
asked price of such common equity, as of December 31, 1998, was $6 9/16.

The number of shares outstanding of the issuer's common stock, as of December 
31, 1998 was 8,087,476.

DOCUMENTS INCORPORATED BY REFERENCE: None

Transitional Small Business Disclosure Format (check one): Yes ... No .X.

                         FORWARD-LOOKING STATEMENTS

IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-KSB
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21A OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, AND THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE 
"SAFE HARBOR" PROVISIONS THEREOF. THEREFORE THE COMPANY IS INCLUDING THIS 
STATEMENT FOR THE EXPRESS PURPOSE OF AVAILING ITSELF OF THE PROTECTIONS OF 
SUCH SAFE HARBOR WITH RESPECT TO ALL OF SUCH FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS IN THIS REPORT REFLECT THE COMPANY'S CURRENT VIEWS
WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE
DISCUSSED HEREIN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS. IN THIS REPORT, THE WORDS
"ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE" AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED TO
CONSIDER THE SPECIFIC RISK FACTORS DESCRIBED BELOW AND NOT TO PLACE UNDUE
RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK ONLY 
AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE
THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT MAY
ARISE AFTER THE DATE HEREOF.


                              PART I

Item 1.  Description of Business.

General 

TOLLYCRAFT YACHT CORPORATION was originally incorporated in December 1992 in 
the State of Minnesota as Child Guard Corporation.  The Company changed its 
name from Child Guard Corporation to Tollycraft Yacht Corporation concurrent 
with the merger on January 1, 1996 of Child Guard Corporation and Tollycraft 
Acquisition Corporation, a company registered in the State of Washington.  In 
1994 Tollycraft Acquisition Corporation had purchased substantially all of the 
operating assets of the original Tollycraft Corporation, a Washington 
corporation which was operating under a confirmed Chapter 11 bankruptcy plan 
of reorganization.  On December 12, 1996 the Company changed its state of 
registration from Minnesota and is now duly organized and registered in the 
State of Nevada.

History and Acquisition

Child Guard Corporation was formed in 1992 as a development stage company to 
develop and market a child monitoring device.  The developed product was not 
marketed and in 1995 the Company began merger talks with Tollycraft 
Acquisition Corporation.

Tollycraft as a business entity has existed in various forms since 1936.  The 
original corporation was wholly owned by R.M. Tollefson and was first 
incorporated in the State of Washington in 1936 under the name of Central 
Lumber Company ("CLC").  CLC manufactured fine furniture and cabinetry.  As an 
adjunct to this regular line of business, Mr. Tollefson also produced several 
custom boats for friends and himself.

As the reputation of his boat building talents spread, the demand for custom 
manufactured boats surpassed the demand for furniture and cabinets.  With a 
dedicated group of proficient cabinetmakers and his own expert knowledge of 
yacht design a complete line of wooden cruisers was launched.  Mr. Tollefson 
subsequently transferred the assets of his pleasure boat manufacturing 
operations, "Tollycraft", to CLC in 1955.  Concurrently, the name of CLC was 
changed to Tollycraft Corporation.

For more than fifty years Mr. Tollefson actively designed and built pleasure 
cruisers and yachts to meet the specialized needs of cruising enthusiasts.  
His understanding of the demands of extended voyages came from personal 
experiences on the water cruising yachts, which bear his name.  Suggestions 
gathered from fellow boaters also were incorporated into the many Tollycraft 
models produced over the history of the Company.

A chronological synopsis of "Tollycraft" is as follows:

1932 - Mr. Tollefson, while involved in the cabinets business, started 
building boats for himself.

1936 - Tollycraft commenced pleasure boat manufacturing as a sole 
proprietorship in Kelso, Washington, after building and selling the first boat 
which exhibited the quality he demanded.

1941 - World War II interrupted boat building while Mr. Tollefson served in 
the U.S. Coast Guard.

1946 - Central Lumber Company was incorporated in the State of Washington.

1952 - A fire destroyed Central Lumber Company's plant and equipment; after 
that the company narrowed the scope of its business activities to boat 
manufacturing.

1955 - The assets of the sole proprietorship boat manufacturing operations 
were transferred to Central Lumber Company, Mr. Tollefson's wholly owned 
company; concurrently the name was changed to Tollycraft Corporation.

1958 - Tollycraft built a plant in the Kelso Industrial Park on 14 acres of 
land and commenced operations in the new 65,000 square foot building in 1959.

1967 - Tollycraft Yachts began manufacturing fiberglass hulls starting with 
the conversion of the 24', 28', 30', and 34' wooden hull designs into 
fiberglass.

1970 - The last wooden hull boat was built.  The very successful 34' Sedan was 
the first "keel up" fiberglass design, which sold 194 units in 11 years, and 
set the Tollycraft design trend for the 1970's.

1987 - Mr. Tollefson retired from Tollycraft and took a relaxed role in the 
marine industry as Chairman Emeritus of Tollycraft.  Tollycraft Corporation, a 
then public company, was taken private and merged through a leveraged buyout, 
into Olympic Equities, Inc.  Thereafter, Olympic Equities, Inc. changed its 
name to Tollycraft Yachts Corporation.  As with many leveraged buyouts of the 
1980's, the transaction was ill fated and threatened the long term financial 
stability of the Company.

1989 - A group of investors purchased Tollycraft and provided capital to 
reduce debt and increase working capital for continued operations.  However, 
the economic downturn and the passage of the 10 percent luxury tax caused 
Tollycraft, as well as every other luxury boat builder in the United States, 
to sustain substantial operating losses.  The Company subsequently filed for 
protection under Chapter 11 of the U.S. Bankruptcy Code on November 5,1993.

1994 - A group of investors formed Tollycraft Acquisition Corporation and 
effective June 6, 1994 purchased substantially all of the operating assets of 
the old company.

1996 - January 31, Tollycraft Acquisition Corporation was acquired, in a 
merger transaction, by Child Guard Corporation which concurrently changed its 
name to Tollycraft Yacht Corporation.

1996 - November, Kramfors Unlimited/Peter Hobbs obtained voting control of 
Tollycraft in order to effectively conduct a turn around for the Company.

1997 - Tollycraft management closes the Washington manufacturing plant and 
begins planning to relocate Corporate Offices to Florida and to either 
outsource its production domestically or overseas to Taiwan and/or to relocate 
production facilities to an marine oriented industrial complex in Mexico.

1998 - Tollycraft Board of Directors resolved to convert all debt to equity 
through issuance of preferred shares of capital stock.

Tollycraft enters into joint venture with Yachts of America for production of 
Tollycraft Yachts in Progresso, Yucatan, Mexico.

Business

Tollycraft Yacht Corporation is a builder of high quality cruising motor 
yachts.  The yachts are luxuriously equipped and built with the highest 
structural integrity to ensure safe, long range cruising.  The current line of 
yachts is as follows:

48'  Cockpit Motor Yacht
57'  Pilothouse Walkaround Motor Yacht
57'  Pilothouse Widebody Motor Yacht
65'  Pilothouse Motor Yacht

Current plans for new products include the following:

48' Convertible Motor Yacht
48' Pilothouse Motor Yacht
52' Pilothouse Motor Yacht
54' Convertible Motor Yacht
76' - 82' Pilothouse Motor Yacht

Long-term plans for new products include the following:

30' - 44' 4 models of Motor Yachts
30' - 44' 4 models of Convertible Motor Yachts
92' - 150' Semi-custom and Custom Motor Yacht

Engineering design drawings and plans are completed for the 48' Pilothouse.  A 
hull mold has been built.

Design drawings and plans for the 52', 54', and 76' - 82' models have been 
completed. The hull form for each model has also been tank tested.

All Tollycraft yachts have a 15-year transferable hull warranty, the longest 
and most comprehensive warranty in the industry.  To date, there has never 
been a manufacturing related hull failure.  Tollycraft Yachts are designed for 
owner convenience and overall functionality.  The electrical and mechanical 
systems are laid out and installed for ease of use and maintenance.  
Tollycraft incorporates intelligent engineering, manufacturing integrity, 
quality craftsmanship, and the patented "Quadralift Hull" construction into 
all its vessels, thus ensuring to Tollycraft customers a truly seaworthy 
yacht.

Intelligent Engineering

Recent advancements have been made in controls, steering engines and gears 
designed for use in large motoryachts.  While Tollycraft exercises due caution 
in adopting new systems until they are thoroughly tested and proven, the most 
reliable of these are offered as standard or optional equipment.

State of the art components such as MMC electronic controls, custom AC/ DC 
electrical, central chilled water heating and air conditioning, vacuum bagged 
divinycell cored hull and deck structures, fully integrated electrical panels 
and switches, Hynautic hydraulic steering, fuel distribution manifolds, and 
oil lubricated shaft stuffing boxes are but a few of the advanced systems 
utilized in Tollycraft yachts.

Modern systems are of little benefit however, if they are improperly 
integrated into the complete yacht.  That is why Tollycraft engineers are 
careful to match technology with function.

Critical components, such as engines and generator sets (gensets) are matched 
to the specific needs of each vessel and each owner.  Engine selections 
include MAN, Caterpillar, Detroit Diesel and MTU products.  Either ONAN or 
Northern Lights manufacture Gensets.

All fiberglass lay-up schedules are verified by an outside consulting engineer 
and tested by an independent laboratory.  All lamination takes place in a 
controlled environment.  Temperature and humidity conditions are continuously 
monitored and recorded to ensure materials are applied within the 
manufacturer's specifications.  Core materials are vacuum bagged to the 
laminate to ensure proper bonding and structural integrity.

Wiring systems have been redesigned and simplified.  Wire harnesses have been 
developed which meet or exceed all industry standards.  Plug type connectors, 
designed to withstand the marine environment, have been incorporated to ease 
installation and minimize owner maintenance.  All Tollycraft wire harnesses 
are color coded in accordance with NMMA and ABYC specifications.

New products are ergonomically designed.  Line of sight, ease of passage and 
mobility restriction is just a few of the human factors Tollycraft's designers 
consider on every new project.  Primary consideration is given to safety and 
functionality.  Tollycraft's engineering department is committed to product 
excellence.  Every aspect of the final product must function as well as it 
looks.

Engineering staff and production personnel scrutinize every phase of the 
production process.  New techniques and processes are developed and 
implemented to achieve cost savings, quality and product integrity.  
Cooperative efforts maximize the efficiency of both departments.

Product standardization and documentation ensure Tollycraft's ability to 
purchase and manufactured accurately and efficiently. Whenever possible, 
common parts and processes are employed throughout the various models to 
minimize training and maximize productivity.

New Tollycraft yachts feature an impressive list of standard equipment.  In 
addition, many options are available for the customer to choose from.  If 
owners wish to further personalize their yacht, Tollycraft's engineering 
department will create custom designs upon request.  Custom options are not 
inexpensive, but they afford the owner an opportunity to create a truly unique 
and personal yacht while maintaining the advantages and savings of a 
standardized production process.

Manufacturing Integrity

New ideas and designs are worth little if they do not stand up to the 
structural mechanical and electrical integrity that is the foundation for 
Tollycraft cruising yachts' reputation.  Tollycraft's manufacturing integrity 
gives the owner justifiable confidence in his vessel.  Over 60 years of 
building cruising yachts has taught us it takes more than words to instill 
confidence in a skipper who invests his money and the safety of his crew in a 
yacht.

Tollycraft's are known as seaworthy yachts.  Everyday cruising takes the 
yachts into waters that test a hull rigorously and it takes more than a tough 
hull to survive rough sea conditions.  Accordingly, every stringer is 
encapsulated into the hull, every bulkhead is fiberglassed to the hull, every 
wood component is glued and reinforced with screws, and wiring and plumbing 
are fastened every few inches.  Any component, whether purchased or 
manufactured is proven to withstand the rigors of the marine environment.

Dry rot, once the bane of wooden boats, still attacks modern yachts if 
precautions are not taken.  For this reason, Tollycraft uses premium 
straight-grained mahogany for deck, cabinet and bulkhead framing.  This rot 
resistant wood is then encapsulated with fiberglass wherever it might be 
exposed to bilge water.

Engines, generators and other mechanical equipment are securely installed, 
with special strengthening given to areas of extra stress such as rudder posts 
and shaft logs.  The entire mechanical structure is electronically bonded with 
a heavy copper strap that employs a shaft sweep to make positive electrical 
contact to external metal parts.

For strength and waterproofing, the hull deck and cabin structures are bonded 
and screwed through overlapping fiberglass.  Specially designed window frames 
overlap their cabin side openings, which eliminates the possibility of 
leakage.

Decks are cored with closed cell foam for stiffening and to eliminate any 
feeling of resilience underfoot.  Even shower stalls are laid up of heavy 
fiberglass so they don't creak or bend when used by a normal sized adult.

Integrity is much more than a slogan at Tollycraft.  It is the foundation of 
our customers' confidence in our vessels.

The Quadralift Hull

Editors of boating magazines have been exposed to every claim about hull 
design that the mind can dream up.  Naturally they are skeptical when 
reviewing the sea trials on any new hull.  However, almost without exception, 
editors who have tested Tollycraft's have reported that the Quadralift hull 
works as claimed.

Naval Architect Ed Monk Jr., who designed the original "Quadralift" hull for 
the Tollycraft 61' Motor Yacht, won't call his design revolutionary, but 
rather the "latest in hull technology ... the culmination of everything we've 
learned about hulls over the years."

While Quadralift varies from model to model its cupped dual chine separates 
this hull from others.  With the waterline midway between the two chines, the 
Quadralift acts as an effective spray knocker, throwing spray horizontally 
away from the hull.  Deflecting the spray not only delivers a dry ride, but 
increases efficiency by reducing the amount of wetted surface (drag) along the 
hull.

The design of the Quadralift provides extra buoyancy at the bow, permitting a 
finer entry and reducing the tendency to broach in a following sea.  In a 
chop, or at anchor, the Quadralift has a roll dampening effect, and with this 
extra stability comes extra comfort.  But the most dramatic demonstration of 
this remarkable hull comes when you ease the throttles forward and feel your 
Tollycraft rise effortlessly onto plane and handle smoothly at any speed.  A 
nearly full-length keel aids the tracking through turns and gives you 
excellent control during slow speed maneuvering.

Product Line Enhancements

Tollycraft management believes that improvement is a process, not a project 
and should be accomplished on an incremental basis.  Accordingly, key tactics 
supporting this strategy focus on developing and maintaining a process that 
empowers Tollycraft employees, contractors, vendors, dealers and customers to 
provide input for product improvement on a continuous basis.

The Company is planning to expand its existing product line with new 
complementary products.  Existing models have been redesigned and additional 
reengineering for modular assembly will improve the quality of finished 
yachts.  Exterior and interior styling is an ongoing process to provide 
Tollycraft customers with up to date design enhancements.  An additional 
benefit will be lower manufacturing costs.

The most significant enhancement by the Company to its product line will be 
the implementation of a relatively new fiberglass laminating technique named 
for its developers.  SCRIMP (Seeman Composites Resin Infusion Molding Process) 
is a procedure which eliminates 90% of harmful V.O.C. emissions while 
dramatically lowering labor and material costs.  This process allows the skins 
and structural stiffeners of the yacht to be infused in a one step process.  
This method of construction replaces the traditional labor intensive multi-
step multi-layer laminating process previously used by the Company and still 
used by the vast majority of yacht builders within the industry.  The process 
allows dry lay-up of materials resulting in a cleaner, healthier work 
environment.  Exposure to wet resins and accompanying harmful emissions are 
minimized.  Direct labor costs are reduced significantly.  Productions cost 
savings are also realized with reduced expenses for costly protective clothing 
and expensive air handling and emission filtration systems.  Testing by the 
U.S. Navy using standard ASTM tests has shown that the use of SCRIMP based 
manufacturing methods has virtually eliminated detectable voids in finished 
laminates.  This level of quality and structural integrity are inherently 
difficult to obtain using older multi-step layer laminating techniques.

The Company through its joint venture partner, Yachts of America will be 
utilizing a 5 AXIS high speed CNC router system.  This machine would allow the 
production of plugs and molds in 60 days rather than the typical 9 to 15 month 
schedule required when building molds and tooling by hand.  The machine will 
process digital information generated by the Company's CAD system and that of 
outside naval architects and cut a mold or plug with little labor costs 
incurred.  The Company plans on producing molds and plugs for their own use as 
a priority.  Building molds could also generate additional revenue; tooling 
and completed parts for other companies and custom yacht builders.

The Company plans to lead the industry in the production of yachts, molds and 
tooling utilizing these methods.

Industry Analysis and Competition

The U.S. market for pleasure boats has undergone many changes over the last 
decade.  In 1986, 1987 and 1988 sales of pleasure boats skyrocketed by 18.7%, 
28.5%, and 14.9%, respectively.  Consumer confidence was high and U.S. exports 
of pleasure boats were booming.  In total, manufacturers' sales of pleasure 
boats expanded by over 75% in those three years.

Manufacturers' sales of inboard/outdrive boats finished out a six-year growth 
surge with total growth of approximately 160% between 1984 and 1988.  Outboard 
and inboard motorboats also increased, with total manufacturers' sales growth 
of 87.9% and 96.3%, respectively, during the same period.  The only pleasure 
boats that did not benefit from this prosperity were sailboats, a market that 
continued to suffer from declining demand.

The last cyclical downturn in the economy (the recession of 1989-1991) hit the 
industry hard, as a number of factors combined to set the stage for a severe 
slump in manufacturers' sales.  Among the factors significantly impacting the 
market for pleasure boats in the U.S. were the collapse of the financing 
structure of the industry, savings and loan crisis, changing consumer 
confidence in the economy, and fluctuating U.S. pleasure boat exports.

Making matters worse for pleasure boat manufacturers, in 1991 Congress passed 
a 10% luxury tax on all pleasure boats costing more than $100,000.  Although 
this tax was repealed in 1993, the damage was already done.

In 1992 the positive effects of the recovering U. S. economy reached the 
pleasure boat industry.  Consumer confidence in the economy was starting on 
its upward climb towards a significant height in 1993, and banks began to 
loosen the credit restraints on boat loans as interest rates continued to 
decline.  Consumers began to buy new boats again.  Disposable income was up, 
the luxury tax was repealed, and consumers had a rosier outlook on the 
economy.

The market for pleasure boats embarked on its recovery as manufacturers' sales 
increased by 9.8% to $3.1 billion during 1992.  Two more good years followed 
in 1993 and 1994, when sales rose by 11.8% and 9.4%, respectively. In 1995, 
sales in the pleasure boat industry grew faster than they had since 1988, 
increasing by 12.1% to 4.3 billion dollars.  Business Trend Analysts have 
estimated annual growth rates in the value of manufacturers sales in both 1996 
and 1997 at over 4.4 billion dollars.

Overall growth in manufacturers' sales of pleasure boats over the next ten 
years is projected at 6.9% annually.  Business Trend Analysts expects the 
total manufacturers' market for pleasure boats to climb to just above $7.746 
billion by 2006.  The following table shows the annual sales of such boats:

U.S. MANUFACTURERS' SALES OF PLEASURE BOATS ($ Millions)

Year          Value
1986         $3,406
1987         $4,378
1988         $5,029
1989         $4,775
1990         $3,894
1991         $2,840
1992         $3,118
1993         $3,487
1994         $3,813
1995         $4,274
1996         $4,439
1997 E       $4,677
1998 E       $4,905
2006 P       $7,746

E - Estimate
P - Projection

Source:  The U.S. Market for Pleasure Boats, @ Business Trend Analysts Inc., 
1998

Primary Competitors

Tollycraft's primary competition can be divided into two categories, Domestic 
and Foreign

Domestic:  Tollycraft's main competition is from Hatteras, Viking, and, to a 
lesser extent, Bertram, Sea Ray, Ocean and Carver.  Hatteras is the perceived 
market leader, on the East Coast (including the Great Lakes and Gulf of 
Mexico) and its dealer network is very strong.  They have a full line of 
yachts both in the cruiser and yacht fisher segments.  Hatteras' yachts are 
priced anywhere from 10 to 20 percent higher than Tollycraft on the East 
Coast.

Foreign:  Tollycraft has competition from the Taiwanese manufactured Ocean 
Alexander and to a lesser extent, various Canadian manufacturers.  These 
competitors have built a reputation for emulating Tollycraft's products using 
extremely cheap labor and trying to under price and undercut Tollycraft's 
market on the West Coast.  The offshore competitors basically sell a lower 
quality product for a lower price.  In addition, Canadian competitors reappear 
with the cyclical swings of the Canadian dollar.  These include Sunship by 
Westbay, and Queenship.  Tollycraft competes well against these manufacturers.

The Company believes that foreign competition is the greatest challenge to 
increasing current market share.  From 1991 to 1997, imports of pleasure boats 
into the United States have increased from $212,496,000 to $1,177,003,000 
respectively.  Foreign companies all have significantly lower labor rates and 
overall manufacturing costs.  Some receive financial support from governments. 
 Although a majority of the products offered by foreign competitors are 
substandard, some manufacturers are increasing their quality every year.  

Competitive Advantage

Tollycraft's primary competitive advantage results from the high quality of 
its product.  The Company has never had a manufacturing related hull failure 
and customers have shown themselves willing to pay a premium for this quality. 
 Tollycraft's products have historically had a high resale value and have 
proven to be a good investment for customers.  

Tollycraft Yacht Resale Values

1988 Model Year - Resale Value as of March 1998

Model                    Resale Price*   1988 Price    Percent
30' Sport Cruiser            $65,000       96,500        67%
34' Sport Sedan              117,550      170,390        69%
34' Sundeck Cruiser          131,600      171,290        77%
40' Sundeck Motor Yacht      159,700      175,530        91%
40' Sport Sedan              203,700      259,330        79%
44' Cockpit Motor Yacht      230,150      268,570        86%
53' Motor Yacht              454,550      563,406        81%
57' Cockpit Motor Yacht      536,800      636,206        84%
61' Pilothouse Motor Yacht   669,150      741,410        90%

Average resale value as a percent of original sales price after 10 years 80%.

* (NADA Average)
  Source: NADA Appraisal Guide

Tollycraft's Prospects within the Industry

Sales of large luxury motor yachts have rebounded significantly since the 
repeal of the luxury tax.  Tollycraft's plan is to position itself for this 
continued growth.  Changing U.S. demographics will also help expand the 
customer base for Tollycraft yachts (see the Tollycraft Customer profile 
section that follows).  The Company expects to do more than maintain its share 
of the growing market.

An article in Powerboat reports, "The Consumer Resource for the Powercraft 
Owner reported in its feature article that Tollycraft is tops in owner 
satisfaction: Tollycraft scored an A+ in overall satisfaction and a 90 percent 
would buy again index...  The highest marks so far in Powerboat Reports 
Ownership Survey...  Not one Tollycraft owner was dissatisfied enough to say 
he wouldn't consider buying another...This is unmatched in other surveys.  
Tollycraft managed to show itself a winner in both quality and value 
categories.  Overall satisfaction scored an impressive A+, easily outranking 
all other boats in Powerboat Reports' survey."

Customer Profile

Tollycraft's customers typically have an annual income of $150,000 or higher, 
with a net worth of $500,000 or more.  Based on these figures, the average 
potential Tollycraft customer, nationwide, has the following profile 
(Mendelsohn Media Research, Inc., New York, 1991 annual survey of affluent 
households.):

Age: 48.4 years old Number of homes owned: 1.8
Value of principal residence: $363,200
Value of other real estate owned: $223,000

In addition, 45 percent have assets in their business or profession, with the 
mean value of their equity being $312,303.  Only 12 percent of the homeowners 
have a home mortgage.  
(U.S. Department of Commerce Survey of Income and Program Participation, 
households with net worth over $500,000)

Changing U.S. demographics mean that the large "baby boom" generation is 
entering the average age of Tollycraft's customers resulting in a greater 
number of qualified, potential customers in the coming decade.  Resident 
population in the 35 to 54 year old age groups has been growing at a very 
strong rate.  Since 1994 it has been the largest age category in the country. 
 In 1980 there were 48.5 million people between the ages of 35 and 54 
accounting for 21.4% of the population.  By 1998 the number is estimated to 
grow to 78.9 million people representing 29.2% of the U.S. population.  In the 
year 2000 this segment will top 81.7 million people.

Distribution Network

Tollycraft is currently represented by 5 dealers in 10 locations: Seattle, 
Portland, California, Michigan, and Florida (6).  Representation is being 
targeted in Toronto, San Francisco, Cape Cod, Chicago, New York, and 
Annapolis.  Once the domestic dealer network is established the Company will 
also seek international representation for its products.

Intellectual Property and Royalties

The Company has the following trademarks: 
"TOLLYCRAFT" (Stylized), U. S. Trademark Registration # 855,456
"QUADRALIFT" and Design, U. S. Trademark Registration # 1,514,520
"T and Design", U. S. Trademark Registration # 855,455

The Company has the following patent: 
Yacht, Serial No. 444,604, Filing Date: April 2, 1991, Patent No. D315, 892; 
Expires: April 2, 2005.  The loss of said patent, at the time of its 
expiration, would not have a significant impact on the business of the 
Company.


Item 2.  Description of Property.

Tollycraft Yacht Corporation has signed a Joint Venture Agreement with Yachts 
of Americas, a Mexico Corporation to produce the yachts in a new 100,000 
square foot facility presently being designed for Tollycraft.  The building 
will be situated on 8 acres located in a new marine business park.  The site 
has 240 feet of waterfront and will feature wharfs as well as a rail system 
for the loading and hauling of vessels up to 150'.

Prior to August 1997, the Company leased manufacturing and office space in an 
industrial park in Kelso, Washington.  The plant facilities included two 
buildings totaling 180,000 square feet. In September the Company shipped out 
all finished goods and ceased domestic production.  The Company returned 
possession of the Washington facilities to the property owner.  


Item 3.  Legal Proceedings.

D & C Lemmons v. Tollycraft
Cowlitz County, Washington
Stipulated Judgement in the amount of $291,048.00
Tollycraft believes it has a substantial offsetting claim against D & C 
Lemmons for unlawfully conducting a landlord's lien foreclosure.  Based upon 
the law regarding landlord liens, the Company has been advised by counsel that 
it has a strong chance of success in its claim against D&C Lemmons.

Larry and Vicki Castello v. Searock, Inc., d/b/a The Allied Marine Group, 
Tollycraft Yachts, and D.R. Cooley, individually.
17th Judicial Circuit Court, Broward County, Florida
Original File Date: October 11, 1996
Claim for treble damages in excess of $2,700,000 plus attorney fees and costs 
for failure to deliver a 57-foot yacht as scheduled.  Answers by all 
Defendants have been filed and motions to dismiss have been filed and heard.  
No decision has been rendered on the Defendants Motion to Dismiss.

Dennis Pursley v. Tollycraft Yacht Corporation and 35 others
San Diego Superior Court, San Diego County, California
Claim for intentional misrepresentation, sale of security not qualified for 
sale, and fraudulent transfer. While Mr. Pursley is a shareholder and a note 
holder in Tollycraft, he was never contacted by any of the 35 defendants to 
invest in the Company.  Mr. Pursley's funds all came via the solicitation of 
his own registered stockbroker who was with a licensed brokerage firm.  It is 
interesting to note that neither the broker nor the firm has been named as 
defendants in the suit.  The Company believes the suit has no merit and will 
defend itself vigorously.


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

No matter was submitted to a vote of security holders during the fourth 
quarter of the fiscal year.


                              PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

The Company's common stock has been traded in the over-the-counter market 
since 1993. It is currently is traded in the over-the-counter market and is 
quoted on the OTC Electronic Bulletin Board (symbol "TLLR") maintained by 
NASDAQ. The market for TLLR's Common Stock has often been sporadic and 
limited.

The following table sets forth the high and low bid prices for the Company's 
common stock as reported by NASDAQ during the past two years and current year. 
The prices reflect interdealer quotations, without retail markup, markdown or 
commissions and may not represent actual transactions.

On December 9, 1996, the Company's security holders approved a 25 for 1 
reverse stock split.  The amounts in the table set forth below have been 
restated for comparative purposes to reflect the associated change in value 
caused by the reverse split.

                    Low      High
                    Bid      Bid

1997
March 31            7        11
June 30             4         4
September 30        4         5
December 31         5 5/8     5 5/8

1998
March 31             5 1/4     7 3/4
June 30              6         6 5/8
September 30         2 49/50   4 5/16
December 31          6 1/8     7

As of December 31, 1998, the closing bid price of the Company's common shares 
was $6 9/16.  As of December 31, 1998, there were 190 holders of record of the 
Company's shares.

No dividends have been declared with respect to the Company's common shares 
since inception.  The Company is not likely to pay any dividends in the 
foreseeable future.  The Company intends to reinvest any earnings in its 
operations.

During the year ended December 31, 1997, the Company sold 22,120 Units in a 
private offering to accredited investors in accordance with Rule 505 
promulgated under the Securities Act.  Each Unit was priced at $5.00 with 
selling agent/finders fees of $.50 deducted therefrom.  Each Unit consists of 
one common share, one "C" warrant exercisable until March 5, 1998 for one 
common share at $6.00 and one "D" warrant exercisable until March 5, 1999 for 
one common share at $8.00.  The proceeds were used for general working 
capital.

On June 29, 1998, the Board of Directors of Tollycraft Yacht Corporation 
resolved to convert all debt, secured and unsecured, to equity through the 
issuance of capital stock.

The Company will issue up to 1,500,000 shares of its authorized 5,000,000 
preferred shares of its capital stock proportionately to all debt holders of 
record as of June 29, 1998.  Each preferred share to carry a series of 
warrants convertible to one share of the Corporations common stock as follows:
"A" warrants exercisable at $2.25 after 12 months,
"B" warrants exercisable at $2.00 after 24 months,
"C" warrants exercisable at $1.25 after 36 months,


Item 6. Management's Discussion and Analysis or Plan of Operation.

The following narration outlines a program for Tollycraft Yacht Corporation to 
continue as a builder of luxury motor yachts, and also to be an attractive 
investment for the capital markets. It contains certain forward-looking 
statements within the meaning of the Private Litigation Reform Act of 1995 
with respect to the financial condition, results of operations and business of 
the company.  These forward-looking statements involve certain risks and 
uncertainties, and as such may involve known and unknown risks, uncertainties 
and other factors which may cause the actual results, performance or 
achievements of the company to be materially different from any future 
results, performance or achievements express or implied by such 
forward-looking statements.  Such forward-looking statements speak only as of 
the date of this document.  The company expressly disclaims any obligation or 
undertaking to release publicly any updates or revisions to any 
forward-looking statements contained herein to reflect any change in the 
company's expectations with regard thereto or any change in events, conditions 
or circumstances on which any such statement is based. 

Since August of 1997 and throughout 1998 the company was continued its efforts 
in relocating their manufacturing facilities to Merida, Yucatan, Mexico and 
its corporate administrative and sales offices to Plantation, Florida.  The 
Company was not involved with manufacturing activities. For a more complete 
discussion of the Company's relocation plans see the Sections entitled 
"Relocation of Corporate Headquarters" and "Relocation of Manufacturing and 
Production".  

The Company has also redesigned existing yachts, added complementary models to 
the product line and developed manufacturing systems and procedures to greatly 
reduce total costs of yacht construction.  

Improvements are outlined as follows:

- Consolidated existing yacht models so the Company produces yachts that 
have an acceptable profit margin.
- Designed and tested new yacht models that enhance the existing product 
line and have a projected profit margin of at least 20%
- Developed production sequencing, staging, tasking, and man loading 
systems that management believes will greatly increase production 
efficiency and overall quality of the yachts while reducing direct costs
- Developed a management information system that will track labor and 
material costs for each yacht under construction and produce internal 
reports for proper control of production costs
- Identified key personnel positions with necessary experience to 
implement and manage improved production methods
- Identified subcontractors who are capable of supplying major pre-
manufactured components.  Component manufacturing and modular 
construction techniques will greatly reduce direct labor costs and 
overall costs of construction
- Prepared to implement environmentally safe SCRIMP laminating process for 
additional labor and material cost savings
- Developed plan through Yachts of the Americas, it's joint venture 
partner in Mexico, to utilize CNC router equipment to dramatically speed 
up design and construction of molds and tooling at significantly lower 
costs
- Redesigned and upgraded interior fit and finish of the yachts and 
modernized mechanical and electrical systems in all models.
- Prior to plant shutdown, generated a backlog of $30,000,000 in orders 
for new yachts at prices up to 40% higher than ever before charged in 
the history of the Company.  These prices have been realized while only 
increasing the direct cost of the yachts by a modest 10%

The internal and external costs of developing these improvements to 
Tollycraft's product line and manufacturing processes have been expensed when 
incurred in prior financial periods. 

Relocation of Corporate Headquarters to Florida

In recent years, 80% of the larger yachts produced by the Company have been 
sold to clients located on the East Coast.  The majority of these yachts were 
delivered into Florida.  Florida is well known throughout the world as "The 
Yacht Capital of the World".  

Tollycraft Yacht Corporation has announced that the Company's corporate 
headquarters will be relocated from southwest Washington to southern Florida. 
This southern Florida location will give Tollycraft a much needed presence 
where high demand exists for yachts of Tollycraft quality.  An office in this 
area will also give the Company access to some of the most talented marketing, 
engineering, design, and administrative employees in the industry. 

Relocation of Manufacturing and Production to Mexico

In the past, the Company's manufacturing employees have been organized under a 
union contract.  Even with concessions negotiated in the most recent labor 
contract, research has determined that existing contract rates are still among 
the highest in the industry.  With thousands of man-hours required to produce 
each vessel, Tollycraft's yachts would become some of the most expensive 
yachts to produce in their class.  With retail prices increased to cover these 
costs it became evident that Tollycraft must reduce costs or price itself out 
of existence.

The most significant costs savings available to Tollycraft Yacht Corporation 
will result from the Company's planned relocation of it's manufacturing 
facilities from southwest Washington to a marine oriented industrial complex 
in Progresso, Mexico.  Tollycraft has been exploring several international 
locations and has selected Progresso, Mexico over other sites considered for 
several reasons.

1.  Location on the Gulf of Mexico and proximity to Florida
2.  The availability of an adequately trained work force 
3.  The area work force has a labor rate equivalent of $1.051 to $2.50 US  
    dollars per hour
4.  Governmental and investor support to develop facilities to Tollycraft 
    specifications.
5.  An approximate 50% reduction in the burdened costs of comparable       
    facilities in the U.S

Joint Venture

Once the decision was made to relocate the Company to Mexico under NAFTA, 
Tollycraft then needed to determine whether a Joint Venture with an existing 
boat builder was going to be a viable option. Unfortunately after almost 6 
months it was determined that either the candidates were to weak financially 
or lacked the sophistication to be able to go forward with such a project. 
Instead a group of Mexican businessmen put together a company called Yachts 
of the Americas, S.A. de C.V. and with Tollycraft's expertise and name have 
acquired land and are building a state of the art manufacturing facility to 
begin and attract production from not just Tollycraft but other USA yacht 
manufacturers. 

Tollycraft Yacht Corporation has signed a Joint Venture Agreement with "Yachts 
of the Americas" a Mexican Corporation to produce its vessels in Progreso, 
Mexico.  The vessels will be produced in a new 100,000-sq. ft. facility 
presently being designed for Tollycraft.  The building will be situated on * 
acres located in a new marine business park that is presently being developed 
by the Governor of the State of Yucatan.  The property comes with 240 feet of 
waterfront that will feature an all-concrete wharf as well as a rail system 
for the launching and haul out of vessels up to 150' in length.  The joint 
venture partners will provide the following:
   - Construct manufacturing space in a new marine orientated to Tollycraft 
     specifications.
   - Locate and prescreen the local work force to fill required production 
     hourly and salaried positions with adequately trained workers
   - Fund manufacturing labor costs and provide payroll and other 
     administrative functions relating to the local work force as well as 
     obtain all necessary government permits

Tollycraft Yacht Corporation projects a fully burdened labor rate of $4.00 to 
$8.00 US per hour.  Fully burdened labor rates include hourly and salaried 
employees in the Mexico facilities, manufacturing facilities costs, 
electricity and utilities, Mexico MRO expenses, communication, and travel 
expenses.  This compares to Tollycraft's previous fully burdened labor rate at 
its closed U.S. facility of approximately $27.00 per labor hour.  It is 
anticipated that the Mexican joint venture will fund all of the direct labor 
and costs of the production buildings in Mexico.

As part of the joint venture agreement, 2,000,000 shares of Tollycraft Yacht 
Corporation common stock was issued to Yachts of America.  Yachts of America 
have credited the company $2,000,000 in prepaid manufacturing costs.

The Company plans to build 39' to 125' yachts in Mexico, with the yachts being 
built to the same standards of quality control as the products previously 
manufactured by Tollycraft.  Materials used in construction would remain the 
same quality, with a majority of the materials being shipped from the United 
States.  Major savings would result from lower direct labor costs as well as 
cost reductions in general and administrative expenses.  In addition, this 
will allow the Company to broaden its product line and again offer smaller 
Tollycraft vessels that had previously been discontinued because domestic 
manufacturing costs became prohibitive.  

While the electronic, auto, appliance and textile industries have been part of 
NAFTA and have had plants for years in Mexico this is a first for a premier 
yacht builder.  Tollycraft vessels have long enjoyed an excellent reputation 
for quality this move will more then insure that it will enjoy a reputation as 
an excellent value as well.

Results of Operations

During the year ended December 31, 1998, the Company incurred a net loss of 
$(1,150,783) which consisted primarily of general and administrative expenses 
of $523,581 and interest expense of $504,718. For the year ended December 31, 
1997, the net loss was $(3,041,401).  Included in the net loss in 1997 was 
interest expense of $1,000,491, which compares to interest expense in 1998 
considering that substantially all of the Company's debt was converted to 
preferred stock in July 1998.  The Company also incurred a negative cash flow 
from operations of $(2,054) for the year ended December 31, 1998.  The 
negative cash flow from operations $(893,012) for the year ended December 31, 
1997.

In 1997, the Company's continuing operating loss was a reflection of an 
inadequate gross profit margin and low sales volume resulting from the 
suspension of manufacturing operations at the beginning of the third quarter. 
Gross Margins were ($401,013) for the year ended 1997.  In 1997, there was a 
minor amount of manufacturing activity.  The majority of the manufacturing 
expenses incurred during 1997 were fixed costs relating to plant overhead 
expenses and some wages for essential personnel.  These costs have been 
identified as "Excess plant capacity" on the Statement of Operations.  
Administrative overhead costs have been reduced to minimum requirements.

Management has emphasized the following areas to improve the operations of the 
Company:

- Relocate manufacturing operations to the Yucatan Peninsula area of 
Mexico which will result in a projected 80% reduction in labor costs.
- Relocate administrative offices to southern Florida.
- Increase basic pricing on each yacht to improve gross margins and 
reflect the improved product being manufactured.
- Redefine manufacturing processes to produce yachts more efficiently 
and with greater profit margins.
- Select new materials to continue upgrading the quality of each yacht 
while emphasizing production efficiency.
- Implement a labor tracking information system to monitor and reduce 
direct labor costs.
- Design a new line of yachts to augment the current models offered.  
The new yachts will utilize updated manufacturing techniques and have 
greater profit margins.
- Develop relationships with dealers that are able to provide their own 
inventory financing.
- Increase the dealer network to increase sales volume and reach 
economies of scale.
- Utilize CNC equipment to lower costs and expedite manufacturing of 
molds and tooling and production of finished yachts.
- Implements new SCRIMP laminating process to reduce labor and material 
production costs.

Tollycraft Yacht Corporation, in its various business forms, has been 
manufacturing high quality watercraft for over 64 years.  In that period of 
time the Company has produced some of the finest motor yachts available.  
However, historically unprofitable operations and the circumstances 
surrounding the Company's manufacturing facilities and landlord, require 
Tollycraft management to make significant changes to the way it does business.

Financial Condition

The management of Tollycraft is continuing efforts to raise funds in order to 
proceed with this business plan. Alternatives being considered to improve the 
Company's financial position include converting current debt to equity through 
the issuance of preferred shares and the sale of common shares to raise 
working capital.

In June 1998, the Company offered each debtor one share of preferred stock for 
each $10 of debt they were owed.  Notes payable, accounts payable, accrued 
liabilities, and long-term debtors were offered this conversion.  The offering 
required a majority of the debtors to agree to the terms of the conversion.  
In July 1998, a majority of the debtors agreed tot he offering and, 
accordingly, all of the then outstanding debt was converted to preferred 
stock.  The Company is in the process of authorizing and issuing the preferred 
stock.

In 1998, the Company converted substantially all of its liabilities to 
preferred stock.  As of December 31, 1998, the Company's current assets 
equaled $400,562.  In 1997, the Company's internally generated cash flow has 
not been sufficient to finance its operations.  The cumulative losses of the 
Company continued to be financed through current liabilities.  Current 
liabilities of $12,821,893 exceed current assets of $407,281.

As part of the "turnaround process" it had always been recognized that after 
the final decision was made as to the location of the facility then the next 
crucial step had to be the clean up of the balance sheet and the financial 
obligations. The company had a stockholders deficit in 1997 of $10,931,108.00. 
With a plan to reduce costs and the ability to produce boats at a profitable 
level has been achieved the next step was to be able to attract working 
capital preferably in the form of equity.  There were only a limited number of 
options available. With no net worth and a staggering debt the options were to 
either filing a Chapter 11 or because of the fact that Tollycraft is a 
publicly held company a plan be put into effect that would convert the debt to 
equity. It was decided that even under a Chapter 11 filing  a plan would 
include a debt conversion to equity.  As a consequence management decided to 
proceed with the conversion on its own. Because Tollycraft is a publicly held 
company it was and is not the same as if the conversion were to take place 
with a privately held company. The shares being offered were in the form of 
Units that carry a preferred share with a value of $10.00 and additional 
options for the holder of the units or shares on specific dates into the 
future. These units/shares will be registered and it is the intent of the 
company to have them trading as soon as possible. While a creditor may want 
liquidity the units/shares were set up to be an attractive investment for 
investors. The holders of the shares on dates 12, 24 and 36 months from the 
original issue date are entitled to acquire common shares (see below). This is 
a way to attract long term investors so that liquidity if so desired could be 
gained by the creditors within a short period of time. Over this time frame 
additional value will be added to the company as it begins production at 
profitable levels. Trading of the units/preferred shares would have minimal 
impact on the common. With the majority of the creditors representing the 
largest amount of the debt the Board of Directors on June 29th, 1998 resolved 
that all debt, secured and unsecured convert to equity through the issuance of 
capital stock.

Despite the Company's past difficulties in making timely payments to its 
creditors, the Company does not expect any difficulties in obtaining raw 
materials once production returns to a regular level.

There were no significant capital expenditures for equipment during the year 
ended December 31, 1998 and 1997.
 
In order to begin production at regular capacity the Company continues to be 
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 and production efficiencies 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 sales and 
production goals.  The expected source for a majority of the funds is from 
financing provided by joint venture production partners for Mexico 
manufacturing activities. There can be no assurance that the Company can 
achieve the anticipated aforementioned improvements in operations on 
acceptable terms.

In 1997 the Company signed an Investment Banking Agreement with Lloyd Wade 
Securities of Dallas, Texas, for a Private Placement of $2,500,000 to provide 
the necessary capital for Tollycraft to go forward with its plans.
 
Tollycraft Yacht Corporation management feels that the Company is in the best 
position possible in recent history.  Marketing efforts will begin again in 
the spring of 1999.  The new manufacturing facilities are expected to be 
operational by early summer 1999 when the Company expects to begin 
manufacturing once again.  The months ahead will set the course for the next 
decade of Tollycraft Yachts.  It is the goal of management to have a company 
that is very profitable, debt free, and for the first time have a surplus of 
cash in the bank.

Year 2000 Compliance

The Company is aware of the issues associated with the programming code in 
existing computer systems as the Year 2000 approaches. The "Year 2000" problem 
is concerned with whether computer systems will properly recognize date 
sensitive information when the year changes to 2000. Systems that do not 
properly recognize such information could generate erroneous data or cause a 
system to fail. The Year 2000 problem is pervasive and complex as the computer 
operation of virtually every company will be affected in some way.

The Company, like most owners of computer software, will be required to modify 
significant potions of its software so that it will function properly in the 
Year 2000. Preliminary estimates of the total costs to be incurred by the 
Company to resolve this problem range from $5,000 to $10,000. Maintenance or 
modification costs will be expensed as incurred, while the costs of new 
software will be capitalized and amortized over the software's useful life.

Since the Company mainly uses third party "off-the-shelf" software, it does 
not anticipate a problem in resolving the Year 2000 problem in a timely 
manner. The Company is currently taking steps to ensure that its computer 
systems and services will continue to operate on and after January 1, 2000. 
However, there can be no assurance that Year 2000 problems will not occur with 
respect to the Company's computer systems. Furthermore, the Year 2000 problem 
may impact other entities with which the Company transacts business, and the 
Company cannot predict the effect of the Year 2000 problem on such entities or 
the resulting effect on the Company. The cost to be incurred by the Company 
related to externally maintained systems is expected to be minimal. 


Item 7.  Financial Statements.

The financial statements required by this item begin immediately 
following the exhibit pages of this report.


Item 8.  Changes In and Disagreements With Accountants on Accounting and 
Financial Disclosure.

There were no changes or disagreements with our accounting firm.


                              PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons; 
Compliance with 16(a) of the Exchange Act.

Peter D. Hobbs         53          Chairman, Chief Executive Officer,         
                                   Secretary, Director

D.R. Cooley            43          President, Chief Operating Officer
                                   Chief Financial Officer, Director

Peter Hobbs: Involved in investment banking and capital raising since 1972.  
Worked for several overseas companies actively involved in raising capital for 
both domestic and overseas entities.  One of these companies presently 
controls the majority of voting stock of Tollycraft.

D.R. Cooley: Held positions in business and finance with responsibility in 
investment banking, financing, and management of closely held businesses since 
1977.  Experienced in manufacturing entities, management buyouts, and turn 
around activities.  

Compliance with 16(a) of the Exchange Act.  Federal securities laws require 
the Company's directors, certain of its officers, and persons owning 
beneficially more than ten percent (10%) of a registered class of the 
Company's equity securities, to file initial reports of ownership and reports 
of changes in ownership with the Commission.  The Company is required to 
disclose any failure of persons, who at any time during the fiscal year, were 
directors, officers required to report, or more than ten percent (10%) 
beneficial owners, to file timely those reports during the fiscal year.  The 
Company undertakes the responsibility to file all required reports on behalf 
of its directors and officers.  To the Company's knowledge, based solely upon 
information furnished to the Company by its directors and certain of its 
officers, during the fiscal year ended December 31, 19196, all of the 
Company's directors, officers required to report, and greater than ten percent 
(10%) beneficial owners made all such filings on a timely basis. 


Item 10.  Executive Compensation.

<TABLE>

<CAPTION>
SUMMARY COMPENSATION TABLE
 
                                                                        Long 
Term Compensation
                                                           ---------------------
----------------------------
 
                           Annual Compensation                    Awards                
Payouts
                   -------------------------------------   ---------------------
----------------------------
(a)               (b)    (c)         (d)          (e)        (f)          (g)          
(h)        (i)
<S>               <C>    <C>         <C>          <C>        <C>          <C>          
<C>        <C>                       
                                                  Other                   
Securities
Name                                              Annual     Restricted   Under-                   
All Other
and                                               Compen-       Stock     lying           
LTIP      Compen-
Principal         Fiscal                          sation      Award(s)    
Options/      Payouts     sation
Position          Year   Salary ($)   Bonus ($)     ($)          ($)      SARs 
(#)        ($)         ($)

Peter D. Hobbs     1998   ---
Chairman, Chief    1997   ---
Executive Officer  1996   ---
Secretary

D.R. Cooley        1998   $48,000 (1)             $60,000*
President,         1997   $96,000      $--
Chief Executive    1996   $96,000      $--                                
$120,000      $40,000
Officer, Chief
Financial Officer 

</TABLE>

(1)  Accrued at $8,000 per month from January through June 1998.
 *  20,000 shares of common stock valued at $3.00 per share.

Option Grants

There were no option grants in 1998.The following table shows information 
regarding grants of stock options in 1996 to the executive officers named in 
the Summary Compensation Table. 

There were no stock option and SARs exercised by the named executive officers 
during 1998.

The table shows the aggregate number of unexercised options and SARs that were 
exercisable and unexercisable as of December 31, 1998, and the values of "in-
the-money" stock options and SARs on December 31, 1998, which represent the 
positive difference between the market price of the Company's Common Stock and 
the exercise price of such options/SARs.

AGGREGATED FISCAL YEAR-END OPTION VALUES

                Number of Unexercised           Value of Unexercised
                Options Held At                 In-The-Money Options At
                December 31, 1998               December 31, 1998 (3)

Name            Exercisable   Unexercisable     Exercisable  Unexercisable

Peter D. Hobbs  ...

D.R. Cooley     120,000 (1)   0                 (3)          (3)
                 40,000 (2)   0                 (3)          (3)

Footnotes
 (1) Stock Option Agreement, adjusted for reverse split, expires 24 months 
after the debt owed by the Company to Vera Corporation is fully paid and no 
longer outstanding or is bargained, sold, assigned, transferred or conveyed to 
a third party, and written notice from the Company of such payoff or transfer 
is given to the Optionee.
 (2) Incentive Stock Option Agreement, adjusted for reverse split, exercisable 
as follows:  (1.1) Up to 10,000 shares at $9.25 per share, which is the fair 
value at the  time this  option is granted, on or before 12/31/96; (1.2) Any 
unexercised shares issuable pursuant to Section 1.1 herein and up to 10,000 
additional shares, all at $12.50 per share on or before 12/31/97; (1.3) Any 
unexercised shares issuable pursuant to Sections 1.1 and 1.2 herein and up to 
10,000 additional shares, all at 50% of the bid price of the stock as quoted at 
the time notice of exercise is given, on or before 12/31/98; (1.4) Any 
unexercised shares issuable pursuant to Sections 1.1, 1.2, and 1.3 herein and 
up to 10,000 additional shares, all at 50% of the bid price of the stock as 
quoted at the time notice of exercise is given, on or before 12/31/99.
 (3) There were no option/SAR exercises in last fiscal year and FY-End 
Option/SAR Values are $0 since the options are not "in-the-money".


Item 11.  Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth, as of December 18, 1998, the stock ownership of 
each Named Executive Officer (see Item 10), directors, all executive officers 
and directors of the Company as a group, and of each person known by the 
Company to be a beneficial owner of 5% or more of its Common Stock. Except as 
otherwise noted, each person listed below is the sole beneficial owner of the 
shares and has sole investment and voting power of such shares. No person 
listed below has any option, warrant or other right to acquire additional 
securities of the Company except as otherwise noted.

Name and                Amount and
Address of              Nature of
Beneficial              Beneficial              Percent
Owner                   Ownership               of Class

Peter D. Hobbs          1,448,431 (1)           17.9%
7825 Fay Ave.#200
La Jolla, CA 92037

D.R. Cooley                20,000                0.02%
8201 Peters Road #1000 
Plantation, FL 33324

Named Officers and      1,468,431               17.9%
Directors As a Group

(1) As Voting Trustee on behalf of Kramfors Limited, 2 Ice House Street, Suite 
202, 
Central Hong Kong. 


Item 12.  Certain Relationships and Related Transactions.

Peter D. Hobbs, Chairman, Secretary, Director of the Company is also an 
employee of Kramfors Limited.  Kramfors Limited has identified Mr. Hobbs as 
the voting trustee of 17.9% of the common shares of the Company.

During 1998, Corporate Developers of America provided consulting and management 
services 
to Tollycraft Yacht Corporation.  Mr. Hobbs is the Executive Director of 
Corporate Developers 
of America.


Item 13.  Exhibits and Reports on Form 8-K.

   (a) Exhibit Table.

2 Plan of Acquisition, reorg. (3)

3.1 Articles of Incorporation (3)

3.2 By-Laws (3)

5 Instruments defining the rights of security holders (4)

9.1 Voting Trust Agreement (2)

9.2 Assignment of Voting Trust Agreement (5)

10.1 1996 Employee Stock Option Plan (3)

10.2 Consulting Agreement between Tollycraft and Kramfors Limited (5)

10.3 Incentive Stock Option Agreement between Tollycraft and D.R. Cooley (1)

10.4 Stock Option Agreement between Tollycraft and D.R. Cooley (1)

10.5 ASSEMBLY (MAQUILA) AND TECHNICAL ASSISTANCE AGREEMENT (*)

10.6 AGREEMENT FOR PAYMENT OF TAX OBLIGATIONS (*)

21 Subsidiaries of the registrant (*)

23 Consent of experts and counsel (*)

24 Power of attorney (*) 

27 Financial Data Schedule (*)
____________________

(*) Filed herewith.

(1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB 
for the fiscal  year ended December 31, 1997.

(2) Incorporated by reference to the Registrant's Current Report on Form 8-K as 
filed electronically on October 28, 1996.

(3) Incorporated by reference to the Registrant's Current Report on Form 8-K/A 
as filed electronically on February 20, 1997.

(4) Incorporated by reference to the Registrant's Registration Statement on 
Form 10-SB as filed electronically on July 23, 1996. 

(5) Incorporated by reference to the Registrant's Quarterly Report for the 
period ended September 30, 1996 on Form 10-QSB as filed electronically on 
November 27, 1996.

   (b) Reports on Form 8-K filed during the quarter ended December 31, 1998.

None.


                        TOLLYCRAFT YACHT CORPORATION
                           FINANCIAL STATEMENTS
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
                                  WITH 
                       REPORT OF INDEPENDENT AUDITOR

                        TOLLYCRAFT YACHT CORPORATION
                   Years ended December 31, 1998 and 1997
                                  Contents

                                                                       Page
Report of Independent Auditor                                           1

Financial Statements:
   Balance sheets                                                       2
   Statements of operations                                             3
   Statement of changes in stockholders' equity (deficit)               4
   Statements of cash flows                                             5
Notes to financial statements                                      6 - 13



Timothy L. Steers
Certified Public Accountant, LLC
the River Forum
4380 S.W. Macadam, Suite 520
Portland, Oregon 97201-6403
Phone: 503/274-6296
Fax: 503/274-6297
E-mail: steerscpa@aol.com

                       REPORT OF INDEPENDENT AUDITOR


To the Stockholders
Tollycraft Yacht Corporation


I have audited the accompanying balance sheets of Tollycraft Yacht Corporation 
as of December 31, 1998 and 1997, and the related statements of operations, 
changes in stockholders' equity (deficit), and cash flows for the years then 
ended.  These financial statements are the responsibility of the Company's 
management.  My responsibility is to express an opinion on these financial 
statements based on my audits.

I conducted my audits in accordance with generally accepted auditing 
standards.  Those standards require that I plan and perform the audits 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.  I believe that my audits provide a reasonable basis 
for my opinion.

In my opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Tollycraft Yacht Corporation 
as of December 31, 1998 and 1997, and the results of its operations and its 
cash flows for the years then ended in accordance with generally accepted 
accounting principles.

As more fully described in Note 12, the Company's previous landlord has seized 
certain work-in-process inventories, raw material inventories, and equipment. 
 No adjustments have been made in the accompanying financial statements for 
this event, as the outcome of this matter is uncertain.


                                                      /s/
March 26, 1999


TOLLYCRAFT YACHT CORPORATION
Balance Sheets

                                                     December 31	

                                              1998                 1997
         ASSETS
Current assets:
   Cash                                       $       145          $    2,199
   Accounts receivable                                  -               4,280
   Raw material inventories                       303,508             303,508
   Work-in-progress inventories                    96,909              96,909
   Prepaid expenses                                     -                 385
     Total current assets                         400,562             407,281

Equipment, net                                  2,374,292           2,478,855

Other assets                                    2,382,000             382,000

                                            $   5,156,854       $   3,268,136


        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
 Notes Payable                              $          -        $   6,898,033
 Accounts payable                                      -            1,346,311
 Accrued payroll and payroll liabilities               -            2,759,710
 Other accrued liabilities                             -              768,212
 Customer deposits                                     -              598,000
 Long-term debt, due within one year                   -              451,627
        Total current liabilities                      -           12,821,893

Long-term debt                                                      1,154,809

Net deferred tax liabilities                          30,498          222,542

Commitments and contingencies

Stockholders' equity (deficit):
 Preferred stock to be issued                     11,616,300                -
Common stock, no par value; authorized 
100,000,000 shares, issued and outstanding 
8,087,476 shares in 1998 (3,145,383 shares 
in 1997)                                           9,654,206         4,366,171
 Retained deficit                                (16,444,150)      (15,297,279)
       Stockholders' equity (deficit)              4,826,356       (10,931,108)
                                               $   5,156,854     $   3,268,136

See accompanying notes.


TOLLYCRAFT YACHT CORPORATION
Statements of Operations

                                                   Years ended December 31 
                                                     1998              1997

Net sales                                      $        -        $    903,235

Cost of sales                                           -           1,304,248

Gross margin                                                         (401,013)

Excess plant capacity                                   -             482,393

Selling expenses                                                      87,332

General and administrative expenses                  519,669          508,938

Operating loss                                      (519,669)      (1,479,676)

Other income (expense):
 Interest expense, net                              (504,718)      (1,000,491)
 Loss on disposal of assets                          (14,528)             -
 Nonrecurring restructuring of debt                                  (463,138)
 Other                                                      -             262
         Total other income (expense)               (519,246)      (1,463,367)

Loss before provision for income taxes            (1,038,915)      (2,943,043)
 
Provision for income taxes - deferred                107,956           98,358

Net loss                                         $(1,146,871)     $(3,041,401)

Net loss per common share                        $     (.229)          (.989)

See accompanying notes.

<TABLE>
TOLLYCRAFT YACHT CORPORATION
<CAPTION>
Statements of Changes in Stockholders' Equity (Deficit)

Years ended December 31, 1998 and 1997

                             Preferred stock   Common stock           Retained       
Stockholders'
                             to be issued    Shares     Amount        deficit        
equity (deficil)
<S>                          <C>             <C>        <C>           <C>            
<C> 
Balance at
December 31, 1996                            2,781,854  $2,829,703    
($12,255,878   $ (9,426,175)

Common shares issued
for equipment at $6.00
per share                                       24,356     146,136                        
146,136

Common shares issued
for prepaid professional
services at $6.00 per
share                                           60,000     360,000                        
360,000

Common shares issued
in exchange for debt                            56,000     228,000                        
228,000

Common shares issued for
cash at $6.00 per share                        130,055     802,332                        
802,332

Common shares issued
to employees                                    93,118

Net loss                                                                
(3,041,401)    (3.041.401)

Balance at
December 31, 1997                            3,145,383   4,366,171     
(15,297,279)   (10,931,168)

Common shares issued
in exchange for prepaid
manufacturing at $1 .O0
per share                                    2,000,000   2,000,000                      
2,000,000

Common shares issued
in exchange for debt                         3,000,000   3,103,903                      
3,103,903

Common shares issued
in exchange for debt at
$3.00 per share                                  8,044      24,132                         
24,132

Common shares issued
in exchange for services
at $3.00 per share                              53,333     160,000                        
160,000

Preferred shares to be
issued in exchange for
debt                              11,616,300                                           
11,616,300

Common shares
cancelled                                     (119,284)

Net loss                                                            (1,146,871)        
(1,146,871)

Balance at
December 31, 1998                $11.616.300 8,087,476 $9,654,206  $(16,444,150)       
$ 4.826.356

</TABLE>

See accompanying notes.


TOLLYCRAFT YACHT CORPORATION
Statements of Cash Flows
                                                  Years ended December 31
                                                     1998         1997
Cash flows from operating activities:
Net loss                                          $(1,146,871) $(3,041,401)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization                          65,160      542,645
Loss on disposal of assets                             14,528
Nonrecurring restructuring of debt                                 463,138
Changes in assets and liabilities:
Accounts receivable                                     4,280       27,720
Inventories                                                        361,066
Prepaid expenses                                          385        7,364
Checks issued in excess of bank balances                           (22,569)
Accounts payable                                      952,508      (57,764)
Accrued liabilities                                                808,431
Customer deposits                                                  (80,000)
Deferred income taxes                                 107.956       98.358

                                                      (2,054)     (893,012)

Cash flows from investing activities - purchase of equipment       (19,712)

Cash flows from financing activities:                     -  
 Repayment of long-term debt                              -            (386)
 Proceeds from issuance of convertible notes payable
   and debentures                                                   112,300
 Proceeds from sale of common stock                                 802,332
                                                                    914,246

Net increase (decrease) in cash                        (2,O54)        1,522

Cash at beginning of year                               2,199           677

Cash at end of year                                       145        $2,199

See accompanying notes.


TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

1.	Nature of business and summary of significant accounting policies
Nature of business: Tollycraft Yacht Corporation, (the "Company") is 
engaged in the manufacture and distribution of luxury motor yachts.  The 
Company grants credit to its customers.  The ability to collect its 
accounts receivable is affected by economic fluctuations in the 
geographic areas served by the Company.

Cash flows: For statement of cash flow purposes, cash paid for interest 
during 1997 was approximately $1,000.  Supplemental disclosure of 
noncash investing and financing activities are as follows:

Issuance of $2,000,000 of common stock in exchange for prepaid 
manufacturing. 
Issuance of $24,132 of common stock in exchange for accrued pension 
contributions.
Issuance of $3,103,903 of common stock in exchange for the accrued 
liabilities and long-term debt of the Internal Revenue Service.
Issuance of $160,000 of common stock in exchange for services during 1998.
Conversion of $11,616,300 of notes payable, accounts payable, accrued 
liabilities and long-term debt for preferred stock to be issued.
Issuance of $360,000 of common stock for prepaid professional services in 
1997.
Issuance of $146,136 of common stock for equipment in 1997.
Conversion of $228,000 of notes payable into common stock in 1997.
Exchange of $1,394,829 of work-in-progress inventories in lieu of 
payment for notes payable in 1997.
Issuance of $29,958 of long-term debt for equipment acquired in 1997.

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

Equipment: Equipment is carried at cost.  Additions and improvements to 
jigs, patterns and molds are capitalized.  Depreciation is computed 
using the straight-line method over the estimated useful lived of the 
assets, which range from three to ten years.

Revenue recognition: Revenue is recognized upon completion, shipment and 
title transfer of each yacht.  Accordingly, revenue and costs of 
individual yachts are included in operations in the year during which 
they are completed.

Estimated warranties: The Company records a warranty accrual at the time 
of sale for estimated claims, based on actual claims experience.  There 
is a general one-year parts and labor warranty to the original owner for 
defects in all Tollycraft built hulls, desk bridges, stringers and 
bulkheads.

Advertising: The Company expenses the cost of advertising as incurred.  
Advertising expenses for 1997 was approximately $3,000.

TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

1.	Summary of significant accounting policies (continued)
Pension and profit sharing plan: Union employees of the Company 
participate in a pension plan, which qualifies under Section 401 (k) of 
the Internal Revenue Code.  The Company is required by the union 
contract to make annual contributions of $.05 per labor hour.  The 
Company contributed $24,132 to the plan in 1998.  No contributions were 
made to the plan in 1997.  The Company is in the process of terminating 
the pension and profit sharing plans.

Income taxes: Income taxes are accounted for and reported using an asset 
and liability approach.  Deferred income tax assets and liabilities are 
computed annually for differences between the financial statement and 
tax bases of assets and liabilities that will result in taxable or 
deductible amounts in the future based on enacted tax laws and rates 
applicable to the periods in which the differences are expected to 
effect taxable income.
	
Valuation allowances are established when necessary to reduce deferred 
tax assets to the amount expected to be realized.  Income tax expense is 
the tax payable or refundable for the period plus or minus the change 
during the year in deferred tax assets and liabilities.

Deferred tax assets result principally from the Company's differences 
for recording warranty reserves for financial statement purposes and 
from net operating losses not yet utilized for tax purposes.  Valuation 
allowances have been provided for those deferred tax assets as their 
utilization are uncertain.  Deferred tax liabilities result principally 
from the use of accelerated depreciation for tax purposes.
	
Net loss per common share: Net loss per share is computed by dividing 
net loss by the weighted average number of common shares outstanding 
during the period.  The weighted average number of common stock shares 
outstanding was 5,018,273 for 1998 (3,074,699 for 1997).  Preferred 
stock to be issued and convertible notes, debentures, options and 
warrants are not considered common stock equivalents, as the affect 
would be anti-divutive.

Significant risks and uncertainties: The process of preparing financial 
statements in conformity with generally accepted accounting principles 
requires the use of estimates and assumptions regarding certain types of 
assets, liabilities, revenues and expenses. Management of the Company 
has made certain estimates and assumptions regarding the reserve for 
warranty expenses, costs of work-in-process inventory, contingent 
liabilities regarding their inventories and equipment, and federal 
penalties on unpaid payroll taxes.  Such estimates and assumptions 
primarily relate to unsettled transactions and events as of the date of 
the financial statements.  Accordingly, upon settlement, actual results 
may differ from estimated amounts.

TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

2. Operations
The Company has devoted substantial efforts during 1998 in relocating 
their corporate administrative and sales offices to Plantation, Florida, 
its manufacturing facilities to Merida, Yucatan, Mexico and 
restructuring debt, rather than in the marketing and manufacturing of 
luxury motor yachts.  Management believes that the efficiencies expected 
to be achieved by relocating to the Eastern United States, which is 
closer to the geographic area most served by the Company, and the lower 
operating overhead expected by relocating their manufacturing to Mexico 
will enable the Company to achieve profitably.  The Company expects the 
construction of their new manufacturing plant to be completed by the 
third quarter of fiscal 1999.  At that time the Company will be able to 
commence manufacturing again.  Marketing efforts will begin in the 
spring of 1999.

The accompanying financial statements have been prepared on a basis of 
going concern, which basis contemplates the realization of assets and 
the satisfaction of liabilities as they become due through continuing 
operations.  No adjustments have been made to the accompanying financial 
statements should the Company be unable to continue in existence, as the 
outcome of management's plan is uncertain.

3. Other assets
Other assets were as follows at December 31:
                                                  1998              1997
Prepaid manufacturing expenses                 $2,000,000     $         -
Prepaid consulting services                       360,000         360,000
Product rights not used in operations              22,000          22,000
      Total other assets                       $2,382,000      $2,382,000

4. Equipment
Equipment were as follows at December 31:
                                                   1998             1997
Manufacturing equipment                      $    486,126    $    486,126
Office furniture and fixtures                     391,575         391,020
Molds and patterns                              2,888,444       2,888,444
Vehicles                                                -          39,958
                                                3,766,145       3,805,548
Less accumulated depreciation                  (1,391,853)     (1,326,693)

Equipment, net                                $ 2,374,292     $ 2,478,855



TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

5. Notes payable
Notes payable were as follows at December 31:
                                             1998            1997
Note payable to Caterpillar Financial 
Services
Corporation.                                $         -    $2,341,760
Note payable to Vera Corporation.                     -     3,444,792
Note payable to Commercial Factors of
Portland, Inc.                                        -       150,993
Note payable to California Factors & 
Finance.                                              -       313,958
Note payable to Voyager Select IPO Fund.              -       508,219
Total notes payable                         $         -    	$6,898,033

6.	Other accrued liabilities
Other accrued liabilities were as follows at December 31:
                                           		1998	         	
	1997	
Property taxes	                              $         -	     $  53,462
Estimated liabilities for warranties	                  -       	109,688
Interest	                                              -       	345,689
Excise taxes	                                          -	        53,209
Other	                                                 -       	206,164
Total other accrued liabilities             	$         -      	$768,212

7.	Long-term debt 
Long-term debt were as follows at December 31:
                                           		1998	         	
	1997	
Non-interest bearing note payable to 
supplier.	                                   $         -	    $     19,090
8% note payable to the Internal Revenue
Service.	                                              -         	314,503
8% note payable to the Washington State
Labor, and Industries Division.	                       -	           
9,878
8% note payable to Transamerica.	                      -          	50,000
Non-interest bearing note payable to 
supplier.	                                             -	          50,884
8% note payable to Cowlitz County,
Washington.	                                           -           	7,874
Non-interest bearing note payable to 
suppliers.	                                            -         	509,056
Non-interest bearing unsecured note 
payable to vendor.                    	                -	          94,254
	                                            $         -	      
$1,055,539

TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

7.	Long-term debt (continued)
                                           		1998	            
	1997	
                                            	$         -	      $1,055,539
Non-interest bearing unsecured note 
payable to a related party.                            -           56,901
11.5% contract payable to GMAC.                       	-           
	7,874
10% convertible debenture payable.                    	-          	18,700
Convertible notes payable to individuals.	             -	         445,724
                                                      	-       
	1,606,436
Less amount due within one year	                       -	         
451,627
Total Long-term debt	$                                 -	      $1,154,809

8.	Income taxes
Net deferred tax liabilities were as follows at December 31:
                                             	  	1998	            1997
	Deferred tax assets:
Net operating loss carryovers	               $ 6,983,795	     $ 6,634,626
Other	                                                 -	           7,928
                                              	6,983,795	       6,642,554
Valuation allowance for deferred tax 
assets	                                       (6,983,795)	     
(6,634,626)
                                                      	-	           
7,928
Deferred tax liabilities:
Depreciation	                                   (330,498)       
	(225,479)
Other	                                                 -	          (4,991)
                                            	   (330,498)	       
(230,470)
	
Net deferred tax liabilities	               $   (330,498)   	$   (222,542)

The Company had net operating loss carryovers as of December 31, 1998 of 
approximately $20,540,000 ($19,510,000 for 1997) available to offset 
future taxable income, if any.  In the event of ownership changes 
aggregating 50% or more in any three-year period, the amount of loss 
carryovers that become available for utilization in any year may be 
limited.  If not utilized against future taxable income, the tax loss 
carryovers will expire $3,100,000 in 2010; $2,000,000 in 2011; 
$11,500,000 in 2012; $2,910,000 in 2013; and $1,030,000 in 2014.

9.	Major customers
The Company distributes its yachts through a select group of nationwide 
dealers.  Sales to one of these dealers in 1997 represented 100% of net 
sales.


TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

10.	Stock options
The Company has an employee stock option plan and has reserved 600,000 
shares of common stock for issuance to key employees under the plan.  
Options are generally granted at an exercise price approximating fair 
market value on the date of grant and are exercisable over a five-year 
period.

Outstanding options were as follows at December 31:
                                                         Shares	
                                                   1998          1997	
Outstanding options at beginning of year           315,000             -
Options granted                                          -       360,000
Options exercised                                        -             -
Options expired                                          -       (45,000)
Options outstanding at end of year                 315,000       315,000
Common shares available for grant                  240,000       240,000
Expiration dates                                   02/2002       02/2002
Average per share exercise price                     $6.00         $6.00
Aggregate amount if fully exercised             $1,890,000    $1,890,000

An officer of the Company was granted an option to purchase 120,000 
shares of common stock at $9.25 per share, exercisable over a period of 
two years beginning on the date the note payable with Vera Corporation 
is fully paid.

This same officer has been granted an option to purchase 40,000 shares 
of common stock exercisable as follows: up to 10,000 shares at $9.25 per 
share by December 31, 1996; any unexercised shares and up to 10,000 
additional shares at $12.50 per share by December 31,1997; any 
unexercised shares and up to 10,000 additional shares at a per share 
price equal to 50% of the bid price on the date exercised by December 
31,1998; any unexercised shares and up to 10,000 additional shares at a 
per share price of 50% of the bid price on the date exercised per share 
by December 31,1999.  Any unexercised shares expire on December 31,1999. 
 As of December 31, 1998, no shares had been exercised and 30,000 shares 
of the Company's common stock was exercisable at a minimum aggregate 
purchase price of $217,500.

11. Capital stock
The Company is authorized to issue 5,000,000 shares of no stated value 
preferred stock.


TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

11.	Capital stock (continued)
In June 1998, the Company offered each debtor one share of preferred stock 
of the Company for each ten dollars of debt they were owed.  Notes payable,
accounts payable, accurued liabilities, convertible promissory notes payable,
and other long-term debtors were offered the conversion.  The offering 
required a majority of the debtors to agree to the terms of the conversion.
In July 1998, a majority of the debtors agreed to the offering and, 
accordingly, all of the then outstanding debt was converted to preferred 
stock.  The Company is in the process of authorizing and issuing the 
preferred stock.

In October 1998, the Company entered into an "Agreement for Payment of 
Tax Obligations" with a Mexican corporation known as Grupo Clima S.A 
DE C.V. ("Grupo").  Under the agreement, the Company issued 3,000,000 
shares of the common stock to Grupo.  In exchange, Grupo has agreed to 
satisfy all of the claims with the Federal, State of Washington, Cowlitz
County, Washington, and any local taxing authorities against the Company.
Grupo intends to negotiate a settlement with each of the taxing 
authorities, sale the common stock and use the proceeds to satisfy the
tax claims, and obtain a full release of liability for the Company and
any of its officers.  Under the agreement, no additional shares may be
issued should the amount of the claims exceed the proceeds form the sale 
of the common stock, nor is Grupo obligated to return to the Company any 
proceeds in excess of the aggregate calims.  The Company may be 
contingently iliable for some or all of the taxing authorities claims 
should Grupo not be able to obtain a full release of liability for the 
Company and any of its officers.

In 1997, in a private placement, the Company issued $550,350 of notes 
payable net of $104,626 of deferred financing costs.  In 1998, the
Company converted the notes payable to preferred stock as part of the
debt conversion.

12.	Commitment and contingencies
In September 1998, the Company entered into an agreement with a 
Mexican corporation known as Yachts of the Americas' S.A. DE C.V.
("Yachts of the Americas").  Under the agreement, Yachts of the
Americas has agreed to build a manufacturing plant and facilities
and to manufacture boats and luxury motor yachts in strict compliance
with the specifications of the Company.  The plant and all machinery
it builds or purchaes will remain in the ownership of Yachts of the 
Americas.  The primary reason for entering into this agreement by the 
Company and Yachts of the Americas is to take advantage of the NAFTA
treaty benefits between the two countries.  The Company expects to be
more competitive in the United States markets as a results of this 
manufacturing agreement.

TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1998

12.	Commitment and contingencies (continued)
During 1998, the Company issued to Yachts of the Americas, 2,000,000
shares of its common stock in accorance with the agreement.  In 
exchange, Yachts of Americas has agreed to provide to the Company 
$2,000,000 of future manufacturing services at their cost plus 20%.

In October 1997, the previous landlord of the building in which the 
Company leased its office and manufacturing facilities seized 
substantially all of the Company's personal property consisting of all 
work-in-process inventories, raw material inventories and all 
manufacturing equipment, office furniture and fixtures, and molds and 
patterns for failure to pay rent under their lease agreement.  The 
landlord also filed a claim against the Company for approximately 
$291,000.  In December 1997, the landlord held a lien foreclosure sale 
and sold all personal property it had seized.  

The company believes it has a substantial claim against the landlord for 
unlawfully conducting a landlord's lien foreclosure sale at a time after 
the landlord's lien had expired.  The Company also believes that certain 
equipment; molds and patterns sold had preferential liens against them. 
 Based on a third party appraisal, the value of the molds and patterns 
alone was approximately $5,900,000.  The Company is vigorously pursuing 
the matter and believes it has a reasonable possibility of a favorable 
outcome.  No adjustments have been made in the accompanying financial 
statements for any gain or loss contingency, as the outcome of the 
matter is uncertain.

In February 1997, the Company entered into a retainer agreement relating 
to legal services for securities matters with compensation at a rate of 
$6,000 per month payable either in common stock of the Company 
registered with the Securities and Exchange Commission under Regulation 
S-8, if available, and valued at the lowest bid price during the month 
payable, or in restricted common stock valued at 50% of the lowest bid 
during the month payable.

                              POWER OF ATTORNEY

The Registrant and each person whose signature appears below hereby authorizes 
D.R. Cooley, the agent for service named in this Report, with full power to 
act alone, to file one or more amendments to this Report, which amendments may 
make such changes in this Report as such agent for service deems appropriate, 
and the Registrant and each such person hereby appoints such agent for service 
as attorney-in-fact, with full power to act alone, to execute in the name and 
in behalf of the Registrant and any such person, individually and in each 
capacity stated below, any such amendments to this Report.

                                [SIGNATURES]

In accordance with Section 13 or 15(d) 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)


By: /s/_______________________________
    Peter D. Hobbs, Chairman, Chief
    Executive Officer, Secretary


By: /s/_______________________________
    D.R. Cooley, President, 
    Chief Operating Officer
    Chief Financial Officer 

Date: 4-21-98

 
In accordance with the Exchange Act, this report has been signed below by the 
following persons on behalf of the registrant and in the capacities and on the 
dates indicated.
 
Signature                             Title                Date 

/s/_______________________________                         4-21-98
D.R. Cooley                           President, Chief
                                      Operating Officer,
                                      Chief Financial
                                      Officer, Director

/s/_______________________________                         4-21-98
Peter D. Hobbs                        Chairman, Chief
                                      Executive Officer,
                                      Secretary, Director