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

                                 Form 10-KSB

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
ACT OF 1934  For the fiscal year ended December 31, 1997
[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
ACT OF 1934   For the transition period from . . . to . . . .  

Commission file number: 0-21087

Name of small business issuer in its charter): Tollycraft Yacht Corporation

(State or other jurisdiction of incorporation or organization) Nevada 

(I.R.S. Employer Identification No.): 86-0849925

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

(Registrant's telephone number, including area code): (800) 999-9381

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 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. [ ]
 
State issuer's revenues for its most recent fiscal year: $903,235
 
The aggregate market value of the voting and non-voting common equity held by 
non-affiliates was $10,499,891 computed by reference to the average bid and 
asked price of such common equity, as of June 30, 1998, which was $6.1875

The number of shares outstanding of the issuer's common stock, as of December 
31, 1997 was 3,145,383

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

                                    PART I

Item 1.  Description of Business.

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.

Forward Looking and Cautionary Statements

Certain statements contained in this Annual Report may constitute "forward 
looking statements" within the meaning of the Private Securities Litigation 
Reform Act of 1995 ("Reform Act"). The company may also make forward looking 
statements in other reports filed with the Securities and Exchange Commission, 
in materials delivered to stockholders and in press releases. In addition, the 
company's representatives may from time to time make oral forward looking 
statements. Forward looking statements provide current expectations of future 
events based on certain assumptions and include any statement that does not 
directly relate to any historical or current fact. Words such as 
"anticipates," "believes," "expects," "estimates," "intends," "plans," 
"projects," "will be,"and similar expressions, may identify such forward 
looking statements. In accordance with the Reform Act, set forth below are 
cautionary statements that accompany those forward looking statements. Readers 
should carefully review these cautionary statements as they identify certain 
important factors that could cause actual results to differ materially from 
those in the forward looking statements and from historical trends. The 
following cautionary statements are not exclusive and are in addition to other 
factors discussed elsewhere in the company's filings with the Securities and 
Exchange Commission and in materials incorporated therein by reference.  For a 
current discussion of the Company see also "Item 6. Management's Discussion 
and Analysis."

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 cabinet makers 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 boater's 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 - Tollycraft Acquisition Corporation was acquired, in a merger 
transaction, by Child Guard Corporation which concurrently changed its name to 
Tollycraft Yacht Corporation.

1997 - Tollycraft management closes the Washington manufacturing plant and 
begins planning to relocate Corporate offices to Florida and to relocate 
production facilities to an marine oriented industrial complex in Mexico.


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

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.  Gensets are 
manufactured by either ONAN or Northern Lights.

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 are 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.

Every phase of the production process is scrutinized by engineering staff and 
production personnel.  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 62 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 Tollycrafts' 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 which 
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.  Production 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 is planning the purchase of 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.  Additional revenue could 
also be generated by building molds, 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 which 
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.  Annual growth rates in the value 
of manufacturer sales in both 1996 and 1997 have been estimated by Business 
Trend Analysts 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 has 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 which 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 group 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.

Market Promotion

Company tactics designed to help achieve a strategy of promoting Tollycraft 
include the following:

Dealer Manual:  Documentation has been designed to include policies and 
procedures, as well as a selling reference for brokers.  Dealer bulletins are 
issued as needed to keep manuals current.

Plant Tours:  Upon relocation to Mexico, periodic open houses will be 
scheduled with all staff on hand for customers and dealers.

Trade Shows and Conventions:  The Company has been an attendee at major yacht 
and boat shows including Superyachts Northwest, and Ft. Lauderdale, St. 
Petersburg, Seattle, and Miami.

Videos:  Promotional videos are complete for the 57 and 82' series along with 
a complete plant tour.  The Company is currently working on a video for the 
new 57' and 65' lines.

Communication with Dealers:  Sales staff is continually updating each dealer, 
building relationships and helping to sell our products.

Dealer Meeting:  This initiative is focused on creating enthusiasm for our 
organization and building relationships.

Advertising:  The advertising strategy is targeted at new buyers.  Key tactics 
include:

Specification Sheets:  These have been recently reconfigured and now contain 
new designs with current options and new standard equipment pricing.

Brochures:  New brochures have been developed for all lines and are easily 
updated.

Line Drawings:  New computer generated line drawings for brokers and 
advertising have been completed.
Newsletter:  A Tollycraft sponsored quarterly newsletter promoting Tollycraft 
and informing readers of current events has been introduced.  Production cost 
is fully paid for by trade advertising.

Public Relations Media Kits:  Released quarterly to help promote the 
Tollycraft image, inform the press, and generate editorial commentary.
Advertising Campaign:  Designed to involve dealers in co-op advertising and 
increase advertising exposure. 

Customer Support:  Tollycraft believes it is imperative to support existing 
and past Tollycraft owners.  They tend to upgrade their boats periodically and 
a personal recommendation is one of the Company's most effective sales tools.
Rendezvous':  Tollycraft has participated in regional "Tolly Rendezvous" 
gatherings including Northern California, Portland, Seattle and the Great 
Lakes

Factory Visits:  Prospective customers will be encouraged to tour 
manufacturing facilities and meet production staff. 

Mailing List:  The Company is currently updating the last five years of 
Tollycraft owners by hull number and plans to market directly to them.
Show Leads:  Computer listings of prospective clients are sent to dealers 
across the country during and after each boat show with active follow up by 
the Company's marketing staff.

Internet:  A full featured web site including photos and specifications of the 
entire product line and 360 degree video tours of yacht interiors is planned. 
 The site will also include dealer information, complete Company profile and 
investor relations sections.

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.

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.  (See "Item 6. 
 Management's Discussion and Analysis").

Negotiations are currently underway to relocate manufacturing facilities to 
Mexico.  Corporate headquarters and administrative offices are planned for a 
location in southern Florida.

Item 3.  Legal Proceedings.

Preston Gates & Ellis, LLP v. Tollycraft
Cowlitz County, Washington
Judgement entered December 15, 1997 in the amount of $81,639.04.  Judgement 
recorded in Multnomah County, Oregon

D & C Lemmons v. Tollycraft
Cowlitz County, Washington
Stipulated Judgement in the amount of $291,048.00
Tollycraft believes it has a substantial 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.

Key Bank v. Tollycraft, Cleveland Municipal Court
Judgement entered for charge back on a merchant service account in the amount 
of $5,945.00

Kenneth N. Findley and Island Dreamer, Inc. v. Tollycraft Yacht Corporation
125th Judicial District, Harris County, Texas
Original File Date: 1995
Claim for breach of express and implied warranties resulting from water damage 
caused by plugged drains and associated loss of market value. Default judgment 
set aside.  Amended petition relief sought in the amount of $100,000 plus 
three times actual damages and legal costs..  Set for trial on August 24, 
1998.

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.

Southard v. Tollycraft Yacht Corporation
U.S. District Court
Claim for age discrimination and wrongful discharge.  Settlement discussions 
are in process.

Stuart Yacht Builders, Inc. v. Tollycraft
19th Judicial district for Marion County Florida
Judgement entered in the amount of $8,872.09

Clark's Marine Services, Inc. v. Tollycraft
Cowlitz County Superior Court
Stipulated Judgement for $50,000 has been entered.  Companion case shall be 
dismissed with prejudice and without costs

Phil Gentile v. Tollycraft
Cowlitz County District Court
Complaint for breach of contract and negligence in the amount of $15,000.  A 
Notice of Appearance has been entered.  Trial date set for August 13, 1998.  
Settlement negotiations are continuing.

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

None

                                                                              
                                   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 listed on the NASDAQ Bulletin Board under the 
symbol TLLR.

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, mark-down 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

1996		
March 31            9 3/8    11
June 30             6        11
September 30        6        11
December 31         6        11


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

As of December 31, 1997, the closing bid price of the Company's common shares 
was $ 5 5/8.  As of December 31, 1997, there were 389 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.

Item 6. Management's Discussion and Analysis.

The following narration outlines a program for Tollycraft Yacht Corporation to 
continue as a builder of luxury motor yachts.  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, including unpredictable delays or 
difficulties, 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.  (See also "Item 1. Description of Business.  - Forward Looking and 
Cautionary Statements")

In July of 1996 due to the absence of profitable operations, the Company 
significantly reduced manufacturing activities and laid-off most non-essential 
administrative staff.  In August of 1997 manufacturing activities were 
discontinued.  Since that time Tollycraft management has concentrated it's 
efforts on relocating production facilities to the Gulf Coast of Mexico and 
moving administrative offices to a location in southern Florida.  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 to purchase 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.
? Consolidated and dramatically improved the dealer organization.  
Currently Tollycraft's dealer organization has floor plan financing 
available to them of over $20,000,000.
? Generated a backlog of $30,000,000 in orders for new yachts.
 
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. 

Additional Information:

During the third quarter of 1997 the Company experienced an attempt by its 
landlord to take over the Company through a forced liquidation.  The property 
owner, who had been a member of the Company's "Capital Formation Committee", 
had agreed to accept stock in Tollycraft Yacht Corporation for his lease 
payments.  On July 2, 1997 the Company was served with a "Writ of 
Restitution" for failure to make payments under the terms of the lease.  
Prior to serving the Company with the "Writ", the landlord notified certain 
key vendors, customers, and debtors of his intentions for the takeover.

On the day of the court hearing for the Writ of Restitution, the landlord 
produced a document whereby Tollycraft Yacht Corporation and its officers 
would agree not to sue him for tortuous interference as a direct result of his 
actions.  The document also required that Tollycraft not file a class action 
shareholder lawsuit against him, again as a result of his actions.  Tollycraft 
Yacht Corporation and its officers opted to not sign any such agreement 
indicating it would not be in the best interest for the Company or its 
shareholders.  In August, 1997 the Company vacated the manufacturing plant and 
surrendered the property to the landlord.  For a short time, a reduced level 
of operations were relocated to a nearby warehouse to complete the then 
current active construction contract.  

As a result of the Writ being served, Cowlitz County filed a notice of 
distraint on August 22, 1997 for the non payment of personal property tax.  
This prompted the IRS to also begin proceeding against the Company for unpaid 
taxes and withholdings.  Vera Corporation, the senior secured debt holder for 
Tollycraft, has filed a notice to the taxing authorities informing them of 
their right to any of the assets of Tollycraft based on their UCC filing.  
Cowlitz County subsequently filed a release of distraint on the assets on 
October 17, 1997.  Negotiations continue with the Internal Revenue Service and 
other creditors.

In December 1997, the landlord of Tollycraft Yacht Corporation seized some of 
the tangible assets of the Company including inventories, machinery and 
equipment, hull molds and miscellaneous office equipment.  The items were 
subsequently auctioned under a landlord's lien.  The Company believes based on 
statute and case law and has been advised by counsel that the landlords lien 
had expired and that there are several superior liens to any such landlord 
lien.  Consequently, the landlord had no legal authority to seize and sell the 
assets.  Both the landlord and the attorney for the landlord were notified 
prior to the sale.  The Company will vigorously pursue all of its legal 
remedies in this case.

Tollycraft's Future:

Tollycraft Yacht Corporation, in its various business forms, has been 
manufacturing high quality watercraft for over 63 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.

Relocation of Corporate Headquarters:

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. 
At this time a location in Miami is available with sufficient infrastructure 
which will allow the Company to establish its offices including 
administration, sales and marketing, engineering, purchasing and a 
Warranty/Service Center.  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. 

For marketing, the Company will continue utilizing the existing dealer network 
and is also considering a strategic alliance with a major franchised yacht 
broker.  This broker anticipates 50 major yacht dealerships across the United 
States and the rest of the world.  Each franchisee would be required to carry 
an inventory of Tollycraft vessels.  This could create a great deal of demand 
for Tollycraft's products.
 
Relocation of Manufacturing and Production:

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.  Existing manufacturing facilities are available.
5. An approximate 50% reduction in the burdened costs of comparable        
facilities in the U.S.

Tollycraft Yacht Corporation is currently negotiating with the owners of three 
existing marine manufacturing facilities as possible joint venture partners or 
acquisition candidates.  The three proposed joint venture partners have over 
50 years of experience building and repairing commercial vessels.  The focus 
of the negotiations is for the Mexican companies to provide the following:

? Manufacturing space in an existing industrial park
? 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

Depending on the structure of the proposed agreements Tollycraft Yacht 
Corporation projects a fully burdened labor rate of $2.50 to $5.00 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.

The Company plans to build 30' 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.  

The management of Tollycraft are 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.

Toward this goal, the Company has 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. 
The Company also plans on issuing preferred shares of its stock to convert 
substantially all currently existing debt to equity and to repay all vendors 
and noteholders at 100%.  This will leave the Company debt free with a 
positive equity section and funding for operations.

Results of Operations:

The Company operated at a greatly reduced capacity during the entire year.  
This is attributed to continuing unprofitable operations and the resulting 
lack of working capital caused by the losses.  In August, the Company ceased 
all manufacturing activity.  The last yacht completed was shipped in 
September. 

During the year ended December 31, 1997, the Company incurred a net loss of 
$(3,041,401) which included excess plant capacity charges of $482,393.  For 
the year ended December 31, 1996, the net loss was $(11,633,426).  The Company 
also incurred a negative cash flow from operations of $(893,012) for the year 
ended December 31, 1997.  This compares to a negative cash flow from 
operations of $(1,312,053) for 1996.

The Company's continuing operating losses are 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 and ($577,691) 1996.  There was a 
minor amount of manufacturing activity during the year.  However, the majority 
of the manufacturing expenses incurred during the year 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.
? Purchase CNC equipment to lower costs and expedite manufacturing of 
molds and tooling and production of finished yachts.
? Implement new SCRIMP laminating process to reduce labor and material 
production costs.

Financial Condition:

The Company's internally generated cash flow has not been sufficient to 
finance its operations.  The cumulative losses of the Company continue to be 
financed through current liabilities.  Current liabilities of $12,821,893 
exceed current assets of $407,281.  Current liabilities include a revolving 
line-of-credit from a marine engine supplier.  The loan is now unsecured as 
work-in-process inventories were liquidated in partial payment of the 
outstanding balance.  Other current liabilities include working capital loans 
from finance companies, trade payables, advance deposits from customers, 
accrued payroll and related expenses, and undeposited payroll taxes and 
penalties.

During the year ended December 31, 1997 the Company issued convertible 
promissory notes that totaled $654,976.  The notes are convertible at the 
option of the Company into Units.  Each Unit is 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.  
As of December 31, 1997 the Company had not made a conversion election and 
continues to carry the debt on its books.

The Company has not made timely payments to its creditors.  Deferred payment 
terms were negotiated with most creditors however the suspension of production 
activities has caused all payment agreements to be suspended.  During the 
short periods of production trade vendors and material suppliers have provided 
the Company with its raw material needs on a COD basis.  The Company does not 
expect any difficulties in obtaining raw materials once financing is obtained 
and production returns to a regular level.

Long-term debt of $1,606,436 (including current maturities) are mainly 
obligations assumed in exchange for plant machinery and equipment as well as 
molds and tooling necessary to manufacture the current line of yachts.  As 
explained more fully in the Company's audited financial statements, the value 
of these assets have been impaired by the activities of the Company's 
landlord.

There were no significant capital expenditures during the year ended December 
31, 1997.  In the prior year approximately $310,000 was invested in the 
construction of molds and tooling for a new 48' pilothouse motor yacht.  This 
new yacht design is planned to improve manufacturing processes and contribute 
a larger gross margin to the product mix.  

Funds for the capital expenditures and financing of the operating losses were 
provided by a corresponding increase in current liabilities.  In order to 
establish the Company as a viable competitor in the industry, management has 
established an aggressive time schedule to upgrade existing molds and tooling 
and manufacture additional molds and tooling for the newly designed line of 
yachts.  Total capital expenditures necessary for completion of the product 
line upgrade and expansion is approximately $2,650,000.  The Company is 
dependent on external sources of funding to complete the plan.

In order to begin production at regular capacity the Company is in need of 
additional capital to build production tooling, finance inventory and provide 
working capital.  The Company is dependent on external sources of liquidity 
until projected levels of production and improvements in direct costs 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, private placement investment offerings and a future 
public stock offering.  There can be no assurance that the anticipated 
aforementioned improvements in operations can be achieved or additional 
financing or equity capital may be obtained by the Company on acceptable 
terms.

Environmental Matters

The Company is subject to environmental laws and regulations as well as 
stringent cleanup requirements.  The Company does not anticipate any adverse 
environmental responsibility for closing manufacturing operations in 
Washington.

Year 2000 Compliance

The Company does not anticipate that year 2000 compliance will be a 
significant operational issue.  Existing computer software will most likely be 
replaced in the transfer of the corporate office and manufacturing facilities 
to Florida and Mexico, respectively.

Item 7.  Financial Statements.

Timothy L. Steers
Certified Public Accountant, LLC
The River Forum
4380 S.W. Macadam, Suite 520
Portland, Oregon 97201
Phone: 503-274-6277
Fax: 503-274-6278
E-Mail: tlscpa@worldnet.att.net

                      REPORT OF INDEPENDENT AUDITOR

To the Stockholders
Tollycraft Yacht Corporation

I have audited the accompanying balance sheet of Tollycraft Yacht Corporation 
as of December 31, 1997, and the related statements of operations, changes in 
net capital deficiency, and cash flows, for the year 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 audit.  The financial statements of Tollycraft Yacht Corporation as of 
December 31, 1996, were audited by other auditors whose report, dated October 
2, 1997, included an explanatory paragraph on the methodology of the valuation 
of the Company's work-in-process inventory; an explanatory paragraph that 
described the change in the Company's method of accounting for revenue 
recognition; and an emphasis paragraph on the Company's ability to continue as 
a going concern.

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

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

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

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern.  As described in Note 2 to the 
financial statements, the Company has a working capital deficit, a net capital 
deficiency, and a net loss for the year that raise substantial doubt about the 
Company's ability to continue as a going concern.  Management's plans in 
regard to these matters are also described in Note 2.  The accompanying 
financial statements do not include any adjustments that might result from the 
outcome of this uncertainty.


                                                       /s/
April 28, 1998
Portland, Oregon

TOLLYCRAFT YACHT CORPORATION
Balance Sheets
December 31, 1997 and 1996

                                                  1,997       1,996
ASSETS

Current assets:
Cash                                              2,199         677
Accounts receivable                               4,280      32,000
Raw material inventories                        303,508     288,313
Work-in-process inventories                      96,909   1,867,999
Prepaid expenses                                    385       7,749
Total current assets                            407,281   2,196,738

Equipment, net                                2,478,855   2,731,394
Other asset                                     382,000     274,594

                                              3,268,136   5,202,726

LIABILITIES AND NET CAPITAL DEFICIENCY

Current liabilities:
Checks issued in excess of bank deposits    $                 2,569
Notes payable                                 6,898,033   7,195,747
Accounts payable                              1,346,311   1,404,075
Accrued payroll and payroll related liabilit  2,759,710   2,776,741
Other accrued liabilities                       768,212     952,695
Customer deposits                               598,000     678,000
Long-term debt, due within one year             451,627     940,601
Total current liabilities                    12,821,893  13,970,428

Long-term debt                                1,154,809     534,289
Net deferred tax liabilities                    222,542     124,184

Commitments and contingencies

Net capital deficiency:
Common stock, no par value; authorized 100,000,000
shares, issued and outstanding 3,145,383 shares
in 1997 (2,781,854 shares in 1996)            4,366,171   2,829,703
Retained deficit                            (15,297,279)(12,255,878)
Net capital deficiency                      (10,931,108) (9,426,175)

                                              3,268,136   5,202,726

 TOLLYCRAFT YACHT CORPORATION
Statements of Operations
Years ended December 31, 1997 and 1996

                                                  1,997       1,996
Net sales                                       903,235   3,993,517

Cost of sales                                 1,304,248   4,571,208

Gross margin                                   (401,013)   (577,691)

Excess plant capacity                           482,393   1,755,861

Selling expenses                                 87,332     559,317

General and administrative expenses             508,938   1,001,232

Nonrecurring excess costs over net assets ac          -     727,893

Operating income                             (1,479,676)(10,621,994)

Other income (expenses):
Interest expense, net                        (1,000,491)   (950,081)
Nonrecurring restructuring of debt             (463,138)          -
Gain on sale of assets                                -      11,290
Other                                               262       5,080
Total other income (expenses)                (1,463,367)   (933,711)

Loss before provision for income taxes       (2,943,043)(11,555,705)

Provision for income taxes - deferred            98,358      77,721

Net loss                                     (3,041,401)(11,633,426)



Net loss per share                              (.99)         (4.11)

<TABLE>
TOLLYCRAFT YACHT CORPORATION
Statements of Net Capital Deficiency
Years ended December 31, 1997 and 1996
<S>                                         <C>           <C>          <C>           <C>        
                                            Common stock  Common stock    Retained   Net capital
                                                 Shares        Amount      deficit    deficiency
Balance at
31-Dec-95                                     6,107,061       635,110     (630,445)        4,665

Stock issued for Tollycraft
Acquisition Corporation                      66,221,143     2,194,593       -          2,194,593

Effect of 1-for-25 stock split              (69,546,350)          -         -            -

Effect of accounting change                           -           -           7,993        7,993

Net loss                                              -           -    (11,633,426)  (11,633,426)

Balance at
31-Dec-96                                     2,781,854     2,829,703  (12,255,878)   (9,426,175)

Shares issued for
equipment at $6.00 per share                     24,356       146,136         -          146,136

Shares issued for prepaid
professional services at
$6.00 per share                                  60,000       360,000         -          360,000

Shares issued in exchange for
notes payable                                    56,000       228,000         -          228,000

Shares issued for cash
at $6.00 per share                              130,055       802,332         -          802,332

Shares issued to employees                       93,118           -          -              -

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

Balance at
31-Dec-97                                     3,145,383    4,366,171   (15,297,279)  (10,931,108)
</TABLE>

 TOLLYCRAFT YACHT CORPORATION
Statements of Cash Flows
Years ended December 31, 1997 and 1996

                                                  1,997       1,996
Cash flows from operating activities:
Net loss                                     (3,041,401)(11,633,426)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization                   542,645     374,515
Gain on sale of assets                                -     (11,290)
Nonrecurring excess cost over net assets acq          -   6,727,893
Nonrecurring restructuring of debt              463,138           -
Changes in assets and liabilities, net of effects from
purchase of Tollycraft Acquisition Corporation:
Accounts receivable                              27,720      (3,224)
Inventories                                     361,066    (254,650)
Prepaid expenses                                  7,364     231,774
Checks issued in excess of bank balances        (22,569)     22,569
Accounts payable                                (57,764)    693,858
Accrued liabilities                             808,431   1,784,207
Customer deposits                               (80,000)    678,000
Deferred income taxes                            98,358      77,721
                                               (893,012) (1,312,053)
Cash flows from investing activities:
Proceeds from sale of assets                          -      14,305
Purchase of equipment                           (19,712)   (309,533)
Payment for purchase of Tollycraft Yacht
Corporation, net of cash required                            19,879
                                                (19,712)   (275,349)
Cash flows from financing activities:
Proceeds from notes payable                           -   3,360,044
Repayment of notes payable                            -  (1,728,649)
Repayment of long-term debt                        (386)    (43,460)
Proceeds from issuance of convertible notes payable
and debentures                                  112,300           -
Proceeds from sale of common stock              802,332              -
                                                914,246   1,587,935
Net increase in cash                              1,522         533
Cash at beginning of year                           677         144

Cash at end of year                               2,199         677


TOLLYCRAFT YACHT CORPORATION
Notes to Financial Statements
December 31, 1997

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 ($343,000 during 1996).  
Supplemental disclosure of noncash investing and financing activities 
are as follows:

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-process inventories in lieu of 
payment for notes payable in 1997.
Issuance of $29,958 of long-term debt for equipment acquired in 1997.
Issuance of $228,000 of notes payable for professional services 
received in 1996.
Issuance of $2,194,593 of common stock for acquisition of Tollycraft 
Acquisition Corporation in 1996.

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 lives 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 ($103,000 for 
1996).

Pension and profit sharing plans: 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.  There 
were no contributions made to the plan for 1997 or 1996.

Collective bargaining arrangements: Substantially all of the Company's 
non-management employees are covered by collective bargaining 
agreements.  If the Company and the production workers are unable to 
agree on a new contract prior to expiration of the current contract, a 
work stoppage may occur that could adversely affect results of 
operations.

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 form the Company's differences 
for recording warranty reserves for financial statement purposes.  
Deferred tax assets also result 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 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 
for 1997 was 3,074,699 (2,828,219 in 1996).  Convertible notes, 
debentures, options and warrants are not considered common stock 
equivalents, as the affect would be anti-dilutive.

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.

Reclassifications: Certain amounts in 1996 have been reclassified in the 
accompanying financial statements to conform to the 1997 presentation.

2.  Continued operations

As shown in the accompanying financial statements, the Company has 
incurred recurring net losses from operations, is past due on several 
liabilities, and, as of December 31, 1997, the Company's current 
liabilities exceeded its current assets by approximately $12,400,000 and 
its total liabilities exceeded its total assets by approximately 
$10,900,000.  These factors, among others, indicate that the Company may 
be unable to continue in existence without obtaining additional 
financing and ultimately achieving profitability.

The Company is currently in the process of raising additional equity 
capital and management is actively negotiating for new office and 
manufacturing facilities.  The Company is seeking to relocate their 
manufacturing operations to Eastern Mexico, which is closer to the 
geographic area most served by the Company.  Management believes that 
the efficiencies expected to be achieved by relocating to Mexico through 
lower operating overhead, together with the equity capital will enable 
the Company to achieve profitability.

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.  The accompanying financial statements do not include any 
adjustments relating to the recoverability and classification of 
recorded asset amounts or the amounts and classification of liabilities 
that might be necessary should the Company be unable to continue in 
existence as the outcome of management's plans are uncertain.

3.  Other assets
Other assets consists of the following at December:
	1997	1996
Prepaid consulting services	$360,000	$            -
Deferred finance costs	-	252,594
Product rights not used in operations	  22,000	  22,000
Total other assets	$382,000	$274,594

4.  Equipment

Equipment consists of the following at December 31:
	1997	1996
Manufacturing equipment	$    486,126	$   354,480
Office furniture and fixtures	391,020	376,320
Molds and patterns	2,888,444	2,878,942
Vehicles	      39,958	               -
	3,805,548	3,609,742
Less accumulated depreciation	(1,326,693)	   (878,348)
Equipment, net	$  2,478,855	$2,731,394

Depreciation expense for 1997 was approximately $448,000 ($375,000 for 
1996).


5.  Notes payable
Notes payable consists of the following at December 31:
	1997	1996
Note payable to Caterpillar Financial Services
Corporation under an expired line-of-credit agree-
ment, interest payable monthly at a variable rate
(which was 10.5% per annum at December 31,
1997), secured by substantially all assets.	$2,341,760	$3,000,000

Note payable to Vera Corporation under an expired
line-of-credit agreement, interest is payable
monthly at a rate of 12% per annum, secured
by substantially all assets.	3,444,792	3,055,317

Note payable to Commercial Factors of Portland, Inc.
under an expired line-of-credit agreement, interest
payable monthly at a variable rate (which was 12%
at December 31, 1997), secured by substantially
all assets.	150,993	133,969

Note payable to California Factors & Finance under
an expired line-of-credit agreement, interest is
payable monthly at 12.0% per annum, secured by
substantially all assets.	$   313,958	$   278,461

Note payable to Voyager Select IPO Fund, borrowings
bear interest at 24% per annum, was due April 1997,
secured by certain equipment, convertible into common
stock of the Company at a conversion price equal to
50% of the closing bid price of the common stock on
the conversion date.	646,530	508,219
Notes payable to individuals for services rendered.	       -	   228,000
	$6,898,033	$7,195,747

6.  Other accrued liabilities
Other accrued liabilities consists of the following at December 31:
	1997	1996
Property taxes	$  53,462	$  34,212
Estimated liabilities for warranties	109,688	116,844
Interest	345,689	339,032
Excise taxes	53,209	48,671
Other	206,164	413,936
Total other accrued liabilities	$768,212	$952,695

7.  Long-term debt
Long-term debt consists of the following at December 31:
	1997	1996
Non-interest bearing note payable to supplier,
was due June 1996, secured by inventories	$     19,090	$     19,090

8% note payable to the Internal Revenue
service, payable in semi-annual installments
of $70,646 including interest, 
was due July 1996	                        314,503	314,503


8% note payable to the Washington State Labor
and Industries Division, payable in semi-annual
payments of $2,219 including interest, was due
July 1996	$       9,878	$       9,878

8% note payable to Transamerica, payable in
monthly installments of $3,500 including interest,
was due July 1996, secured by personal property,
inventories and accounts receivable	50,000	50,000

Non-interest bearing note payable to supplier,
payable monthly installments of $1,032, due
June 1999, secured by inventories	50,884	50,884

8% note payable to Cowlitz County, payable in
monthly installments of $160 including interest,
due June 1999, secured by personal property	7,874	7,874

Non-interest bearing notes payable to suppliers,
due July 1999, discounted at an interest rate	509,056	426,236

Non-interest bearing unsecured note payable to
vendor, due July 1999, discounted at an interest
rate of 8%	94,254	88,469

Non-interest bearing unsecured note payable to
a related party, due July 1999, discounted at
an interest rate of 8%	56,901	51,206

11.5% contract payable to GMAC, payable in
monthly installments of $668 including interest,
due June 2002, secured by vehicle	29,572	-

10% debentures payable, interest payable in
semi-annual payments for 4 years.  The
debentures are convertible into common stock
of the Company at a rate of $.75 per share	18,700	17,000

Convertible notes payable to individuals, due
at various times, bearing variable interest
rates based on Wall Street prime plus 1%.	   445,724	   439,750
	$1,606,436	$1,474,890
Total long-term debt	$1,606,436	$1,474,890
Less amount due within one year	   451,627	   940,601
	$1,154,809	$   534,289 

Maturities of long-term debt for each of the years ending subsequent to 
December 31, 1998 are as follows:

Years ending December 31:
1999	$   672,924
2000	6,417
2001	7,159
2002	3,884
Thereafter	     464,425
	$1,154,809

8.  Deferred income taxes
Net deferred tax liabilities consists of the following at December 31:
	1997	1996
Deferred tax assets:
Net operating loss carryovers	$ 6,634,626	$ 5,635,699
Other	        7,928	        7,928
	6,642,554	5,643,627

Deferred tax liabilities:
Depreciation	(225,479)	(127,121)
Other	       (4,991)	       (4,991)
	(230,470)	(132,112)
Valuation allowance for deferred tax asset	(6,634,626)	(5,635,699)
Net deferred tax liabilities	$   (225,542)	$   (124,184)

The Company had net operating loss carryovers as of December 31, 1997 of 
approximately $19,500,000 ($16,600,000 for 1996) 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 and $2,900,000 in 2013.

9.  Major customers
The Company distributes its yachts through a select group of dealers 
nationwide.  Sales to one of these dealers in 1997 represented 100% of 
sales (three largest dealers represented 57%, 24% and 11% in 1996.)

10.  Stock options

In 1996 the Board of Directors approved an employee stock option plan, 
known as the 1996 Employee Stock Option Plan, and reserved 600,000 
shares of common stock for issuance to key employees under the plan.  In 
1997 the Company granted options to purchase an aggregate of 360,000 
shares of common stock under the 1996 Employee Stock Option Plan.  The 
options exercise price is $6.00 per share and 45,000 shares were 
exercisable until September 1997 and 315,000 shares are exercisable over 
five years and expire in February 2002.  As of December 31, 1997, there 
were 240,000 shares available for grant; there were 315,000 shares 
exercisable at $6.00 per share, which aggregates $1,890,000, if fully 
exercised.

In January 1996, 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 and no longer outstanding.

On that same date, an officer of the Company was 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 price equal to 50% of the bid price on the date exercised 
per share by December 31, 1998; any unexercised shares and up to 10,000 
additional shares at a 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, 1997, 20,000 shares of the 
Company's common stock was exercisable at an aggregate purchase price of 
$217,500.

In June 1996, key persons of the Company were granted options to 
purchase an aggregate of 3,800 shares of common stock at a price equal 
to 50% of the bid price on the date exercised per share, and exercisable 
over two years from the date of grant.  As of December 31, 1997, 3,800 
shares of the Company's common stock were exercisable.

11.  Common stock
In a private placement, the Company offered up to $3,000,000 of 
convertible promissory notes payable.  The notes are convertible, at the 
option of the Company into "units".  A unit entitles the holder to 
purchase one restricted share of common stock of the Company, one "A" 
warrant to purchase one share of common stock of the Company exercisable 
until January 15, 1997 at $4.00 per share, and one "B" warrant to 
purchase one share of common stock of the Company exercisable until 
January 15, 1998 at $6.00 per share.  The rate of conversion equals 50% 
of the average public bid price of the Company's common stock for the 10 
days preceding the call provision.  As of December 31, 1997, the Company 
had issued $550,350 of notes payable net of $104,626 of deferred 
financing cost.  In February 1997, the Company announced its intention 
to exercise their call provision and extended the exercise date of the 
"A" warrants to January 15, 1998 and of the "B" warrants to January 
15, 1999.

In February 1997, the Board of Directors authorized the issuance of 
600,000 units at $5.00 per unit, aggregating $3,000,000.   Each unit 
consists of one share of common stock, one "C" warrant to purchase one 
share of common stock at $6.00 per share of the Company exercisable 
until March 5, 1998, and one "D" warrant to purchase one share of 
common stock at $8.00 per share of the Company exercisable until March 
5, 1999.  There were no shares exercisable at December 31, 1997.

In 1997, management of the Company entered into agreements with Lloyd 
Wade Securities, Inc. to provide investment banking and advisory 
services and to assist with the offering of up to $3,000,000 of its 
common stock.

In December 1996, the Board of Directors authorized a 1-for-25 reverse 
stock split of the Company's common stock.  All share amounts in the 
accompanying financial statements have been adjusted to reflect this 
stock split.

12.  Commitments and contingencies
In October 1997, the 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 just the molds and 
patterns sold was approximately $5,900,000.  The Company intends to 
vigorously defend 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 
price during the month payable.

13.  Subsequent events

In February 1998, the Company reserved 2,000,000 shares of its common 
stock for sale in connection with a proposed agreement for the 
relocation of its manufacturing facility to Yucatan, Mexico.


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

The partner in charge of the Company's account at Isler & Company, the 
Company's former accountant, formed his own auditing firm.  The Company has 
elected to continue its relationship with the partner in charge of its 
account.  Accordingly, effective June 29, 1998 the Company's accountant was 
changed from Isler & Company, CPA's to Timothy L. Steers, CPA, LLC.

The principal accountant's report on the financial statements for 1997 and 
1996 contain a paragraph on the Company's ability to continue as a going 
concern

The decision to change accountants was approved by the board of directors. 

There are no disagreements with either 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

All officers are elected by the Board of Directors and serve until the next
election of officers in conjunction with the annual meeting of the 
stockholders as provided in the By-laws.

Peter D. Hobbs has been the Chairman and a Director of the Company and its 
predecessors since 1996.  He has been involved in investment banking and 
capital raising since 1972. Mr. Hobbs was previously a director of Travis 
Industries, Inc.  He has 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 has been the President of the Company and its predecessors since 
1994, and a Director since 1996.  He has 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, 1997, 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, except for the 
following: D.R. Cooley.


Item 10.  Executive Compensation.

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

Peter D. Hobbs     1997   ...
Chairman, Chief    1996   ...
Executive Officer  1995   ...
Secretary

D.R. Cooley        1997   96,000                 9,000 (1)
President,         1996   96,000                 9,000 (1)            160,000 (2)
Chief Executive    1995   96,000                 9,000 (1)
Officer, Chief 
Financial Officer 

(1) Pertains to a $750 per month automobile allowance.
(2) Pertains to 1996 Option Grants (See hereinbelow.)

1996 Option Grants.  The following table shows information regarding grants of 
stock options in 1996 to the executive officers named in the Summary 
Compensation Table. 

                          Individual Grants

(a)	            (b)	             (c)	             (d)	           (e)
                Number of        % of Total
                Securities       Options/SARs
                Underlying       Granted to       Exercise
                Options/SARs     Employees        or Base        Expiration
Name            Granted (#)	     In Fiscal Year	  Price ($/Sh)   Date

Peter D. Hobbs  ...             
				
D.R. Cooley	   120,000	          50%	             9.25/Share    variable (1)
              	 40,000	          50%	             9.25/Share	   12/31/99 (2)

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.

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".

There was no compensation paid in the last fiscal year for services as a 
director of the Company.

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

The table below sets forth the only entities known to the Company to be the 
beneficial owner of more than five percent of the outstanding Common Stock of 
the Company.
  
Name and                Amount and
Address of              Nature of
Beneficial              Beneficial              Percent
Owner                   Ownership               of Class

Kramfors Limited,       1,448,431               46%
2 Ice House Street,     Option to
Suite 202,              acquire,
Central Hong Kong       voting power*

*subject to a Voting Trust Agreement wherein Peter D. Hobbs is voting trustee 
on behalf of Kramfors Limited.

The following table sets forth the number of shares of Common Stock of the 
Company beneficially owned at December 31, 1997, by each director, by each of 
the executive officers included in the Summary Compensation Table, and by all 
directors and executive officers of the Company as a group, and the percentage 
of the outstanding shares of Common Stock so owned by each such person and 
such group.

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

Peter D. Hobbs          1,448,431               46%
                        Voting Trustee

D.R. Cooley                     0                0%

Total                   1,448,431               46%

Item 12.  Certain Relationships and Related Transactions.

Peter D. Hobbs, Chairman, Secretary, Director:  
Mr. Hobbs is an employee of Kramfors Limited.  Kramfors Limited has identified 
Mr. Hobbs as the voting trustee of 46% of the common shares of the Company.

During 1996 and 1997, 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 (6)

10.4 *Stock Option Agreement between Tollycraft and D.R. Cooley (6)

21 Subsidiaries of the registrant (1)

23 Consent of experts (1)

24 Power of attorney (1) 

27 Financial Data Schedule (1)
____________________

(1) Filed herewith.

(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.

(6) Incorporated by reference to the Registrant's Annual Report for the period 
ended December 31, 1996 on Form 10-KSB as filed electronically on November 19, 
1997.

*Compensatory plan or arrangement.

   (b) No reports on Form 8-K were filed during the quarter ended December 31, 
1997.

                              POWER OF ATTORNEY

The Registrant and each person whose signature appears below hereby authorizes 
Peter D. Hobbs, 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: August 26, 1998
 
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/_______________________________                        8-26-98
D.R. Cooley                           President, Chief
                                      Operating Officer,
                                      Chief Financial
                                      Officer, Director

/s/_______________________________                        8-26-98
Peter D. Hobbs                           Chairman, Chief
                                      Executive Officer,
                                      Secretary, Director

</TABLE>