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                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                   FORM 10-K


           {X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997

                                       OR

                { } TRANSITION REPORT PURSUANT TO SECTION 13 OR
                 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
              FOR THE TRANSITION PERIOD FROM -------- TO--------

                          COMMISSION FILE NO. 0-20961



                          COMMODORE HOLDINGS LIMITED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                             <C>
                            BERMUDA                     N/A
               (STATE OR OTHER JURISDICTION OF    (I.R.S. EMPLOYER
               INCORPORATION OR ORGANIZATION)    IDENTIFICATION NO.)
</TABLE>


<TABLE>
<S>                                                                   <C>
 4000 HOLLYWOOD BOULEVARD, SUITE 385-S, SOUTH TOWER, HOLLYWOOD, FL       33021
                          (ADDRESS OF PRINCIPAL OFFICES)               (ZIP CODE)
</TABLE>

                                  954-967-2100
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                               ----------------
           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT


                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT

                          COMMON STOCK $.01 PAR VALUE
                                (TITLE OF CLASS)

        REDEEMABLE WARRANTS TO PURCHASE COMMON STOCK AT $6.00 PER SHARE
                                (TITLE OF CLASS)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.  Yes [x] No [ ]


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

     As of December 17, 1997, the aggregate market value of the Common Stock
held by non-affiliates was approximately $13,840,000.

     As of December 17, 1997, the number of shares of Common Stock of the
registrant outstanding was 5,581,933.

                      DOCUMENTS INCORPORATED BY REFERENCE


     Part III--Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
<PAGE>

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                   PART 1                                PAGE
                        -------------------------------------------------------------   -----
<S>                     <C>                                                             <C>
     Item 1.            Business                                                         1
     Item 2.            Description of Properties                                       13
     Item 3.            Legal Proceedings                                               14
     Item 4.            Submission of Matters to a Vote of Security-Holders             14
     Optional Item.     Executive Officers of the Registrant                            14
                                                   PART II
                        -------------------------------------------------------------
     Item 5.            Market for Registrant's Common Equity and Related               15
                        Stockholder Matters
     Item 6.            Selected Financial Data                                         17
     Item 7.            Management's Discussion and Analysis of Financial Condition     18
                        and Results of Operations
     Item 8.            Financial Statements and Supplementary Data                     23
     Item 9.            Changes in and Disagreements with Accountants on                23
                        Accounting and Financial Disclosure
                                                  PART III
                        -------------------------------------------------------------
     Item 10.           Directors and Executive Officers of the Registrant              24
     Item 11.           Executive Compensation                                          24
     Item 12.           Security Ownership of Certain Beneficial Owners and             24
                        Management
     Item 13.           Certain Relationships and Related Transactions                  24
                                                   PART IV
                        -------------------------------------------------------------
     Item 14.           Exhibits, Financial Statement Schedules and Reports on          24
                        Form 8-K
</TABLE>

 

                                       ii
<PAGE>

                                    PART I


ITEM 1. BUSINESS


GENERAL


     Commodore Holdings Limited, a Bermuda exempted company (the "Company"),
was formed in 1995. The Company owns two cruise ships, the S/S Enchanted Isle
(the "Enchanted Isle") and the S/S Universe Explorer (formerly the S/S
Enchanted Seas)(the "Universe Explorer" or the "Enchanted Seas"). The Enchanted
Isle offers Caribbean cruises from New Orleans and the Universe Explorer is
chartered to Sea-Comm, Ltd., a Liberian Corporation ("Sea-Comm"), a joint
venture between the Company and Seawise Foundation Inc. ("Seawise"). Sea-Comm
has space-chartered the vessel to Seawise which operates the educational
"Semester at Sea" program during a portion of the year. Sea-Comm operates
cruises to Alaska and the Caribbean aboard the Universe Explorer during the
balance of the year.


THE COMMODORE ACQUISITION


     THE ACQUISITION AGREEMENTS. The Company entered into definitive agreements
with EffJohn International B.V. ("EffJohn"), which is the parent of Commodore
Cruise Line Limited, a Caymans Island company ("Old Commodore"), Old Commodore,
and its subsidiaries on April 28, 1995 (the "Acquisition Agreements"). Pursuant
to the Acquisition Agreements, the Company acquired the Enchanted Isle and the
Enchanted Seas (the "Cruise Ships"), the trade names "Commodore" and "Commodore
Cruise Line" as well as certain related trade names and trademarks (the
"Trademarks"), substantially all of Old Commodore's existing operations,
certain advance ticket sales, marketing and sales personnel and information and
certain shoreside assets (collectively the "Commodore Assets") from EffJohn and
its subsidiaries. The Commodore Acquisition closed on July 14, 1995 (the
"Commodore Closing").


     The purchase price (the "Purchase Price") for the Commodore Assets was
$33,500,000 payable at the Commodore Closing as follows: $5,000,000 in cash;
$4,000,000 through the Company's issuance of 1,000,000 shares of the Company's
Convertible Series A preference shares (the "Series A Preference Shares") at an
agreed value of $4.00 per share; and $24,500,000 in promissory notes issued by
the Company to EffJohn International Cruise Holdings, Inc. (the "Lender"), an
affiliate of EffJohn. The promissory notes are secured by substantially all of
the assets of the Company's wholly-owned subsidiary, New Commodore Cruise Lines
Limited, a Bermuda company ("New Commodore"), including first preferred ship's
mortgages on both Cruise Ships.


     Pursuant to the Acquisition Agreements, Old Commodore and EffJohn agreed
not to compete with the Company for up to ten years from the date of
acquisition with respect to all routes in and out of the Port of New Orleans,
and for up to eight years from the date of acquisition with respect to all
routes commencing and terminating in any North American port at which port the
Company operates or has publicly announced an intention to operate.


     CUSTOMER DEPOSITS AND THE FMC CERTIFICATES OF FINANCIAL RESPONSIBILITY. As
part of the Commodore Assets, the Company received customer deposits for future
cruises and related items such as hotel and airfare packages. The Company
placed $4,629,000 on deposit with a bank to secure the U.S. Federal Maritime
Commission ("FMC") Certificate of Financial Responsibility in the Event of
Non-Performance of Obligations to Passengers as required by the FMC (the
"Certificate of Financial Responsibility"). The FMC requires companies to
establish a Certificate of Financial Responsibility in amounts and through
methods set by the FMC. Since the Universe Explorer does not depart from any
U.S. port, the Company presently needs to post a bond with the FMC only with
respect to the Enchanted Isle's customer deposits. See "Business--The Joint
Venture."


     THE LOANS. The Lender loaned the Company $24,500,000 for purposes of
acquiring the Cruise Ships. The Loan is secured by substantially all of the
assets of New Commodore including first


                                       1
<PAGE>

preferred ship's mortgages on both Cruise Ships. The Loan bears interest at
LIBOR plus 2% (currently 7.84375%) and was originally to be repaid in 12
semi-annual installments of principal and interest beginning on January 14,
1997. On November 15, 1995, the Company and the Lender amended the terms of the
Loan to require the Company to remit monthly installments of principal and
interest toward the January 14, 1997 payment. Such monthly payment schedule
ended on January 14, 1997. In January, 1997 the loan was amended to provide for
monthly repayment of principal and interest for the remaining term of the loan.
In connection with the Loan, the Company also paid, at the Commodore Closing,
$50,000 of duties, stamp fees and attorneys' fees rendered in connection with
the Commodore Acquisition and the Loan, and an arrangement fee of $100,000 to
the Lender. In the event that the Company is required to withhold income tax on
any interest due to the Lender, the Company has agreed to pay the required
amount to be withheld and pay the Lender the full amount of interest due under
its agreements with the Company.


     The terms of the Loan place certain restrictions on the Company. First, the
Company is not permitted to place any additional liens on any of the Commodore
Assets (including the Cruise Ships) without the prior consent of the Lender.
Second, the Company is prohibited from paying more than 50% of its net profits
as dividends on its common stock, par value $.01 per share (the "Common Stock").
Third, in addition to the foregoing requirement, New Commodore must maintain a
minimum cash balance in its operating accounts of $1 million throughout the term
of the Loan. If the Company fails to meet any of the foregoing requirements or
cure any defaults within the permitted time periods, the Lender could declare
the Company in default under the Loan, and potentially foreclose upon the Cruise
Ships and the Company's other assets.


     SERIES A PREFERENCE SHARES. As part of the consideration for the Commodore
Assets, the Company issued EffJohn 1,000,000 of its Series A Preference Shares.
The holders of the Series A Preference Shares are entitled to a cumulative 7%
dividend on an annual basis. This dividend is payable, in cash, from a maximum
of 10% of New Commodore's net profits for such year with the remaining amount
payable in Preference Shares. EffJohn, as holder of the Series A Preference
Shares, is entitled to elect one member of the Board of Directors of the
Company, as long as it owns at least 125,000 Series A Preference Shares.
EffJohn may convert its Series A Preference Shares into Common Stock of the
Company at any time at a conversion rate equal to the greater of USD $4.00 per
share or a price per share equal to 8 times the Company's earnings per share
for its prior fiscal year. EffJohn may sell to third parties up to a maximum of
approximately 45,000 Series A Preferred Shares in any 90-day period at any time
after the Commodore Closing, subject to compliance with applicable securities
laws. The Company has the option to redeem all or any part of the Series A
Preference Shares at USD $4.00 per share at any time commencing three years
after their issuance.


                                       2
<PAGE>

INDUSTRY OVERVIEW


     Cruise lines compete intensely for consumer disposable leisure time
dollars with other vacation alternatives, such as land based resort hotels and
sightseeing destinations. Public demand for such activities is influenced by
general economic conditions.


     The Company believes that the modern passenger cruise industry has
experienced substantial growth over the past 25 years. The industry has evolved
from a trans-ocean carrier service into a vacation alternative to land-based
resorts and sightseeing destinations. According to CLIA, an industry trade
group, in 1980 approximately 1.4 million North American passengers took cruises
for two days or more. In comparison, the following table sets forth data
regarding industry growth over the past five years.


<TABLE>
<CAPTION>
CALENDAR YEAR              NORTH AMERICAN CRUISE PASSENGERS(1)
------------------------   ------------------------------------
                                      (IN MILLIONS)
<S>                        <C>
                   1990                    3.6
                   1991                    4.0
                   1992                    4.1
                   1993                    4.5
                   1994                    4.5
                   1995                    4.4
                   1996                    4.7
</TABLE>

----------------
(1) SOURCE: CLIA


     The North American cruise industry accounts for approximately 80% of the
world market. According to CLIA, the number of overall industry North American
cruise passengers in 1996 was 6.3% over the 1995 figure, with demand increasing
during 1996. The average growth rate for North American cruise passengers from
1980 through 1996 was approximately 7.6% per year.


     The Company believes that "repeat cruising" is a large source of business
in the cruise industry. Of all passengers who have cruised in the past five
years, CLIA estimates that the average number of cruises per person is 2.4.


     CLIA has estimated that, in 1982, the capacity of cruise ships serving the
North American markets offering voyages of two or more days was approximately
43,848 berths. According to CLIA's most recent estimate, in 1996, the North
American market was served by 37 cruise lines, operating 129 vessels. Aggregate
1996 market capacity is estimated at 110,292 berths, an increase of 4.8% over
the previous year. In addition, an estimated 24 new cruise vessels offering
39,920 additional berths will be added to the market through 1999.


     Numerous industry analysts, as reported in various newspaper articles,
predict a trend toward the continued growth of the large cruise lines and
decline of the smaller ones in the North American cruise industry. The larger
lines such as Carnival Cruise Lines, Royal Caribbean Cruise Lines and Princess
Cruises, with whom the Company competes, have been purchasing new vessels and
thereby adding to their fleets. These larger lines benefit from increased
economies of scale and have historically operated at higher capacity than the
smaller lines. In addition, the smaller lines, such as the Company, own older
ships with fewer amenities. Such ships will require costly renovations and
retrofitting in order to meet new industry safety guidelines. See
"Business--Government Regulation." Industry analysts predict that discounting
of fares will play a large part in cruise ticket sales in response to the
relatively flat growth of the North American market and the substantial
increases in capacity planned over the next few years. Despite the flat demand
in recent years and future increase in capacity, the Company believes that the
cruise industry should continue to represent an attractive growth segment of
the leisure market.


MARKET POSITION


     The cruise industry is generally viewed as the composite of three
partially overlapping segments, differentiated primarily by cruise cost, length
and itinerary. The standard, premium and luxury segments


                                       3
<PAGE>

provide a wide assortment of cruise experiences, appeal to different population
segments and attract varying demographic groupings. CLIA's luxury segment of
the cruise industry represents 10% of the total industry capacity. With list
per diem rates in excess of $400, the Company believes this market caters to
the most affluent segment of the population. Luxury market cruises are
generally ten nights or more. CLIA's premium segment is somewhat more up-scale
than the standard market, but not as up-scale as the luxury segment, and
represents 32% of the total cruise capacity. The Company believes this market
attracts an older, more affluent and experienced clientele, with list per diem
rates in the range of $291-$399 and itineraries which typically range from
seven to 14 days. CLIA's standard market, in which market the Company competes,
is the largest segment within the cruise industry, comprising 55% of
industry-wide capacity. The remaining 3% can be attributed to non-CLIA member
lines. The Company believes the standard market is characterized by affordable,
shorter cruises primarily serving first-time passengers with list per diem
rates generally of $290 or less. Standard market cruises range from three to
ten days in the most popular cruising areas. The Company believes that the
standard segment represents the greatest opportunity for growth, although no
assurance can be given that this will prove to be correct.


     The Company seeks to position itself within the standard market to capture
the first-time cruising passenger with list per diem rates for its Caribbean
cruises that range from $158 - $251. In accordance with industry practice, such
prices may be discounted by the Company. The Company believes that the
Commodore name appeals to both first-time cruising passengers and repeat
passengers due to its presence in the Gulf of Mexico, Caribbean and embarkation
from the Port of New Orleans. The Port of New Orleans is a port offering many
alternatives, particularly for those who prefer to drive, rather than fly, to
begin their cruise vacation.


OPERATING STRATEGIES


     The Company believes that Old Commodore consistently delivered an
innovative, value-oriented standard market cruise product. The Company seeks to
maintain such standard by providing maximum value, emphasizing "old world"
tradition and a friendly and informal atmosphere combined with value and
service.


     Fleet configuration is a primary distinguishing variable in the cruise
industry, differentiating competitors serving a common passenger base. The
Company's vessels are older and smaller than those of most of its competitors.
The Company believes that these smaller vessels enable it to provide value-
oriented service and a more personalized maritime environment than the
Company's giant vessel competitors. The Company believes that good service,
coupled with a reputation for more personalized attention, enable the Company
to command prices comparable to its competitors. Although the Company's older
vessels will probably cost more to operate than new vessels, the Company
believes that its cost savings in debt service payments will more than offset
the higher maintenance and operating expenses. There can be no assurance,
however, that the Company can operate its vessels profitably.


     Both the Universe Explorer and the Enchanted Isle were constructed in the
United States. As a result, the Company may, in the future, be able to change
the flag of the Cruise Ships from that of a foreign country to the U.S. A U.S.
flag vessel may carry passengers between U.S. ports, an option which is
unavailable to foreign flag vessels. If the Company is able to change the flags
of its fleet, and chooses to do so, it could offer seminars at sea and other
off-shore activities between U.S. ports. Companies who choose to provide
seminars or meetings aboard the Company's ships could, under current tax laws,
deduct a portion of the cost of such seminars or meetings, and individual
participants could, under current tax laws and subject to certain limits,
deduct the cost of attending such seminars. The Company has not yet determined
whether it wishes to incur the additional costs associated with operating a
U.S. subsidiary and U.S. flag vessels, which include potential additional
labor, insurance and income tax costs. Accordingly, there can be no assurance
that the Company will change the flags of any of its vessels.


                                       4
<PAGE>

CRUISE OPERATIONS


     MARKETING AND PROMOTION. The Company has committed significant resources
to marketing and promotion through advertising, public relations, and
additional sales personnel. To enhance the Company's awareness in, and coverage
of travel agents and consumer marketplaces, the Company employs a variety of
complementary marketing and promotional programs incorporating media, direct
marketing and sales aids, public relations, special events and strategic
business alliances, with special emphasis on trade and consumer advertising.
The Company has initiated an advertising campaign to reestablish its image as a
provider of value-oriented cruises with high quality service at sea in a larger
geographic region than Old Commodore has solicited in the past few years. This
advertising campaign is based upon travel agent and consumer research and is
placed in media reaching a wider audience than those historically employed. In
the past, Old Commodore advertised mainly in the five-state area around
Louisiana, including Texas. The Company's marketing plan extends such
advertising to include additional states in which residents have historically
purchased the most cruises.


     The Company focuses on consumer and trade advertising, particularly
through the use of newspaper advertising. The Company believes that this media
is equally effective in reaching both consumers and the travel agency trade. In
addition, the Company places advertisements on radio stations and television.
Developing strong cooperative marketing programs directly links travel agent
marketing and promotional efforts to those of the Company.


     The Company places a strong emphasis on collateral development and
distribution to key producing travel agents for the Company. The Company
believes that detailed descriptions of the Company's ships, services,
itineraries and activities, pre- and post-cruise land package opportunities and
various elements of the product programs, are a significant factor in
converting the initial interest of consumers into actual cruise sales. The
Company uses direct marketing to target past passengers and various affinity
organizations. The Company views past Commodore passengers and leisure
travelers using travel organizations as persons with a high propensity to
cruise with the Company. The Company also places travel trade advertising via
the most popular trade publications, expanding the awareness of the Company's
product and services.


     TRAVEL AGENCY RELATIONSHIPS. The Company sells cruise vacations in the
United States and Canada almost exclusively through the travel agency
distribution system. According to CLIA, an estimated 95% of cruise packages are
sold with the assistance of travel agents, who normally receive commissions in
the range of 10-20% of the sale. Additional commission incentives are made
available for volume producers that consistently support the cruise line. In
order to maintain personal contact with travel agency owners, managers and
front-line retail agents, the Company maintains a field sales staff, supported
by an in-house service staff.


     The Company's cruises, consistent with industry trends, are marketed to
passengers via travel agents in the United States. Well informed travel
agencies are therefore crucial to the Company's effort in maintaining and
expanding its customer base. Accordingly, the Company places considerable
emphasis on its contacts with travel agencies and fostering goodwill towards
the Company's products, maximizing this efficient and productive relationship,
although there can be no assurance that the Company will succeed in its
efforts.


     REVENUES AND PASSENGER SERVICES. Reservations are taken by trained
reservations sales agents on a computer and software system, capable of
accepting reservations for a fleet of at least 10 vessels. The Company
purchased this reservations system and software from EffJohn as part of the
Commodore Assets. Staffing levels are maintained per industry standards to
ensure that calls are taken promptly. Reservations are the first point of
contact for most travel agents and, as such, play a key role in the sales
process. A full- time staff of approximately 15 people assist agents in
securing passenger reservations, arranging flights for air/sea passengers,
coordinating ground transportation and pre- and post-cruise tour hotel
packages.


     INTERNATIONAL SALES. The Company intends to devote a portion of its sales
resources to developing sales from the European and Latin American
marketplaces. Although the North American market is


                                       5
<PAGE>

static, the European cruise market has been growing. According to industry
publications, in 1995 the European cruise market reached 1 million passengers,
up from 300,000 in 1988. Europe is, by far, the largest market outside of North
America, with Germany and the U.K. comprising the largest constituent parts.
Management has begun discussions with several major European travel operators.
The Company's President, Mr. Sullivan, has substantial previous experience
developing the cruise market in England. The Company is also considering
expanding its sales to Latin America, which is also a significant resource for
potential passengers to the Company due to an established network of tour
operators.


     MARKET PRESENCE. The Company intends to continue to expand Commodore's
image as an operator of value-oriented cruises in the standard market. The
selection of a cruise line for travel agents and passengers depends upon the
reputation of the line and recommendations. The Company believes that Commodore
has a 29-year history of serving travel agents and passengers with friendly
service and consistent quality. The Company believes that the Caribbean
itinerary, intimacy and grace of "old world" service, combined with a Port of
New Orleans embarkation are significant factors supporting a strong foundation
for attracting passengers seeking an affordable cruise vacation product. The
Company's choice of New Orleans as its point of embarkation will allow it
access to passengers who might not otherwise choose to take a cruise. Although
not considered a traditional cruise port, both the allure of New Orleans as a
vacation destination, and the convenience for local residents make New Orleans
an attractive alternative to Florida and New York based cruises. However, since
Commodore provides one of only two regularly scheduled cruises from New
Orleans, New Commodore will continue to devote significant resources to develop
consumer awareness and acceptance.


     FACILITIES, ON-BOARD SERVICES AND PROGRAMS. The Enchanted Isle was
originally constructed by Ingals Shipbuilding Corporation in the United States
in 1958 and was most recently refurbished in 1994. The Enchanted Isle is
designed to be a seagoing resort with restaurants, discotheques, movie
theaters, libraries, reading rooms, full service communication facilities,
jogging courses, aerobic classes, workout rooms, numerous bars, two pools, sun
deck areas and deck activities. The Enchanted Isle has a complete casino with
various gaming opportunities. Entertainment is provided nightly and includes
shipboard productions of Broadway show tunes and Las Vegas-style revues, as
well as performances by a variety of celebrity entertainers. In addition, all
passengers may take shore excursions provided at various ports-of-call,
including guided tours, visits to local attractions and free time to explore on
their own. Although the Enchanted Isle may not be as modern, as large, or
contain all the amenities of newer ships, the Company believes that it provides
the type of cruise environment that its passengers expect.


     TICKET REVENUES. New Commodore's cruises are list-priced per person per
day (based on double occupancy) from $158 to $251, excluding commissions to
travel agents. The Company offers discounts, particularly during off-season
periods, as is the practice in the industry. Prices vary depending on size and
location of cabin and the time of year in which the trip occurs. The cruise
price includes shipboard accommodations, use of all of the shipboard amenities
and all meals.


     ON-BOARD AND OTHER REVENUES. Revenues onboard the Enchanted Isle are
derived from certain on-board activities and services operated by the Company
including, casino gambling, liquor sales in a variety of bars, restaurants,
lounges and discotheques and shore excursions. Additional revenue is earned
from pre- and post-cruise packages in each vessels' point of embarkation. The
Company also earns concession revenue from sales at duty-free shops, gift
shops, art auctions, the sale of photographs to passengers and from the beauty
salon.


     COMPETITION. Competition in the industry in which the Company competes is
intense. The Company competes with other cruise ship lines in the standard
segment that offer the same type of products in several markets and land-based
resorts, many of which have significantly greater financial resources and
experience, and are more well known than the Company. The Company also competes
for consumer disposable leisure time dollars with other vacation alternatives
such as land based resort hotels and sight-seeing destinations, in addition to
approximately 25 other cruise lines operating in the standard segment. In
addition, public demand for such activities is influenced by general economic


                                       6
<PAGE>

conditions. The Company operates in the Caribbean where its principal
competitors are Carnival Cruise Lines, Royal Caribbean Cruise Lines, Norwegian
Cruise Lines and Premier Cruise Line. However, the Enchanted Isle is currently
one of only two regularly scheduled cruise vessels, including one Carnival
Cruise Lines ship, that embarks passengers from the Port of New Orleans.


     According to CLIA, prior to the end of 1999, 15 additional ships
(representing approximately 20,602 berths) will be placed in service by the
Company's competitors and 14 additional ships (representing approximately
19,318 berths) will be placed in service by other cruise lines in the North
American market. The number of ships which will be retired from service during
the next two years cannot accurately be predicted. In addition, CLIA reported
that cruise demand increased by 6.3% during 1996. While there can be no
assurance that the cruise ship industry will not experience an imbalance
between supply and demand following the introduction of such additional
capacity, the aforementioned currently known level of capacity increases
through 1997 is lower on a percentage increase basis than the industry
experienced over the past 12 years.


     Competition in the standard cruise market is highly concentrated, with
three companies accounting for an estimated 43% of the available berths. Recent
statistics indicate that the large cruise lines are growing increasingly larger
and running at full capacity while the smaller lines, such as the Company's,
are forced to discount. The three largest cruise operators in the North
American cruise industry are increasing market share by adding new vessels to
their fleets. Various articles concerning the cruise line industry note that
this trend is expected to continue for at least the next few years. If this
trend continues, the Company's ability to compete with these larger operators
may be substantially impaired.


THE JOINT VENTURE


     On October 30, 1995, the Company entered into the Agreement with Seawise
establishing Sea-Comm. Pursuant to the Agreement, the Company purchased 50.005%
of Sea-Comm's Common Stock, and 50% of Sea-Comm's Preferred Stock. Seawise
purchased 49.995% of Sea-Comm's Common Stock and 50% of Sea-Comm's Preferred
Stock.


     The purpose of Sea-Comm is to space charter the Universe Explorer to an
entity who operates the Semester at Sea program, an educational program
conducted by the Institute for Shipboard Education, a Delaware not-for-profit
corporation ("ISE"), and the University of Pittsburgh. Seawise has a contract
with the ISE pursuant to which it has operated the Semester at Sea program
aboard its own vessel for the last 20 years. In addition, Sea-Comm will operate
cruises to Alaska (the "Alaska Program") through World Explorer Cruises and
Tours Inc. ("WEC") and Hemisphere Cruises & Tours, Inc. ("Hemisphere"), during
summer periods when the Universe Explorer is not being used for the Semester at
Sea program. Seawise is party to a tripartite agreement with WEC and Hemisphere
pursuant to which it has operated the Alaska Program for 20 years (the "Alaska
Agreement"). As part of the joint venture, Seawise has assigned its rights
under the Alaska Agreement to Sea-Comm.


     Pursuant to the Agreement, the Company has chartered the Universe Explorer
to Sea-Comm. Sea-Comm, in turn, has chartered the Universe Explorer to Seawise
so that it may operate the Semester at Sea program exclusively aboard the
vessel. In return for such charter, Seawise reimburses Sea-Comm for 76% of its
operating costs, 100% of food costs and 76% of the principal and interest due
on the portion of the Loan attributable to the Universe Explorer. Sea-Comm also
earns revenue from the sale of the other 24% of the cabins on the vessel, which
hold approximately 176 persons, to non-student passengers. Seawise has
guaranteed the sale of tickets to 66 non-student passengers on each voyage at
pre-determined rates during 1997. The number of guaranteed non-student
passengers increases in subsequent years.


     During the summer when the Semester at Sea program is not operating,
Sea-Comm operates the Universe Explorer under the Alaska Agreement. WEC enjoys
certain permits issued by the U.S. Parks Service to cruise in the Glacier Bay,
Alaska area. Pursuant to the Alaska Agreement, Sea-Comm will earn revenues from
ticket sales for all cabins and pay fees to WEC and Hemisphere for providing


                                       7
<PAGE>

certain services to Sea-Comm. Between the fall and spring semesters, Sea-Comm
also operates Caribbean cruises and earns revenue in a similar manner to the
Alaska Program.


     Sea-Comm is managed by a board of directors, which consists of five
people, three of which are appointed by the Company and two of which are
appointed by Seawise. Two of the Company's executive officers, Messrs.
Frederick A. Mayer and Alan Pritzker, the Company's Chief Executive Officer and
Chief Financial Officer, respectively, act as directors of Sea-Comm. Mr. Mayer
and Mr. Pritzker also act as Sea-Comm's President and Secretary, respectively.
Sea-Comm's Treasurer was appointed by Seawise.


     Pursuant to the Agreement, the Company granted Seawise warrants to
purchase 250,000 shares of the Company's Common Stock. The warrants are
presently exercisable at $6.00 per share and expire on January 7, 2001.


     THE SEMESTER AT SEA PROGRAM. The Semester at Sea, which is administered by
the ISE and academically sponsored by the University of Pittsburgh, is a
program that takes approximately 500 - 650 students from colleges and
universities across the United States and abroad around the world each fall and
spring semester. Since 1963, over 29,000 students have studied and traveled to
60 countries around the world through this program. Seawise operated the
Semester at Sea program for the first time aboard the Universe Explorer in the
Spring of 1996. The first Semester at Sea voyage operated by Seawise sailed on
February 3, 1996 on a 100-day around the world voyage with approximately 580
students. Semester at Sea gives students an opportunity to broaden their
horizons through educated travel. Students travel around the world aboard the
Universe Explorer and participate in a unique and dynamic learning environment.
A limited number of "non-student passengers" also participate in each Semester
at Sea voyage.


     Students can choose from approximately 50 lower and upper division courses
in a variety of disciplines, including such offerings as anthropology, biology,
English, geology, history, fine arts, music, political science, religious
studies and theater arts. A number of one-credit courses are also available.
Non-student passengers may also attend courses. Courses are accredited by the
University of Pittsburgh and are fully transferable to most institutions.
Students are required to enroll in a minimum of 12 semester credits during the
fall and spring semesters and two courses, or 6 credits, during the summer
semester. Each program includes a mandatory three-credit core course which
provides an overview of the culture, environment, geography, history and
politics of the regions visited.


     The fall and spring Semester at Sea programs last approximately 100 days.
The spring semesters begin in late January or early February and end in early
May, and fall voyages depart in mid-September and return in mid-December. Ports
change with each voyage.


     While in port, students take advantage of field trips which provide both
structured and informal activities enabling them to observe, interact and
participate in the local culture. Students may also choose to travel
independently. Excursions typically include university visits, cultural
performances, visits to archeological sites, museums, orphanages and rural
areas. Students are also frequently given opportunities to interact with
students and faculty at local universities. Stays in port typically range from
two to six days.


     THE ALASKA PROGRAM. Sea-Comm operated, in the summer of 1997 seven 14-day
Alaska cruises onboard the Universe Explorer. An eighth cruise was planned but
was canceled to allow time for various renovations to the vessel necessary for
SOLAS compliance. See "Government Regulation." In the summer of 1996 Sea-Comm
planned to operate one 7-day and three 14-day Alaska cruises onboard the
Universe Explorer. On July 27, 1996 a fire broke out aboard the Universe
Explorer resulting in the cancellation of the remainder of the 7 day cruise,
the repatriation of all passengers and the cancellation of the first 14-day
cruise. The ship returned to service on August 14, 1996 and operated two 14-day
cruises. All Alaska cruises begin and end in Vancouver, British Columbia. Ports
of call for the 7-day cruise are Ketchikan, Juneau, Wrangell, and Glacier Bay.
The 14-day cruises call at the same ports as well as Sitka, Yakutat Bay/Hubbard
Glacier, Seward, Skagway, and Victoria.


                                       8
<PAGE>

     WEC has been operating Alaska cruises for 20 years. The Company believes
that Sea-Comm's operation of WEC's established program offers a unique
opportunity to cruise to Alaska due to its unmatched educational seminars and
over 40 optional shore excursions. Although the Alaska program is not part of
the Semester at Sea program, the 15,000 volume library remains on board the
Universe Explorer in place of a casino. The passengers are free to use the
library to enhance the presentations by guest lecturers or simply to relax and
enjoy a quiet place to read. Passengers are also offered unique presentations
and educational lectures by guest professors and nature experts from around the
world. These presentations provide information about the art, culture, geology
and history of the ports-of-call and the region in general. The Company
believes that Sea-Comm is the only operator of Alaska cruises that offers
educational seminars in conjunction with a cruise experience.


     THE CARIBBEAN PROGRAM. Sea-Comm operated, in the winter of 1997 two 14-day
Caribbean cruises onboard the Universe Explorer. These cruises began and ended
in Nassau, Bahamas. Ports of call were Playa Del Carmen/Cozumel (Mexico),
Puerto Cortes (Honduras), Puerto Limon (Costa Rica), Cristobal (Panama),
Cartagena (Columbia) and Ocho Rios (Jamaica). In the winter of 1998, Sea-Comm
will operate one 8-day Caribbean and one 14-day Caribbean cruise. These cruises
will begin and end in Nassau, Bahamas. Ports of call for the 8-day cruise are
Playa Del Carmen/Cozumel (Mexico), Grand Cayman (Cayman Islands) and Ocho Rios
(Jamaica). Ports of call for the 14-day cruise are Ocho Rios (Jamaica),
Cartagena (Columbia), a partial transit of the Panama Canal, Puerto Limon
(Costa Rica) and Playa Del Carmen/Cozumel (Mexico).


     MARKETING AND PROMOTION. The ISE promotes the Semester at Sea program
through its own network. The ISE recruits campus volunteers on over 200
campuses in the United States and abroad and such volunteers distribute
brochures and respond to questions from interested students. In addition, the
ISE maintains a list of Semester at Sea alumni and encourages such persons to
recruit students for the program. Because of the way Sea-Comm earns revenue
from the Semester at Sea program (through a charter), its revenue does not vary
materially based on the number of students aboard the vessel. As a result,
marketing to student passengers is not of material importance to Sea-Comm.


     Seawise, on behalf of Sea-Comm, markets Semester at Sea voyages, primarily
through the ISE, to non-student passengers through college alumni associations
and other education-related groups. Of the 176 berths available for non-student
passengers, Seawise guaranteed that it would procure at least 66 non-student
passengers for each voyage during 1997 at pre-set rates. This number will
increase in subsequent years.


     With respect to the Alaska and Caribbean programs, WEC markets its cruises
through travel agents, and, in general, through the same avenues that the
Company markets its Caribbean cruises. WEC's cruise experience can be
differentiated from that of its competitors both based on the length of the
cruise and on its focus. Although WEC's cruises feature all of the cuisine,
entertainment and services that cruise passenger have come to expect, they
offer a unique educational undercurrent, which WEC promotes as a unique
adventure for the body and soul. The Universe Explorer features an extensive
library in place of the casino and allows passengers to study the ports the
ship visits in depth if they so desire.


     FACILITIES, ON-BOARD SERVICES AND PROGRAMS. The Universe Explorer is a
23,900 gross ton registered vessel, which has nine passenger decks and a
capacity for approximately 860 passengers in 363 cabins. During the Semester at
Sea program, the shipboard campus consists of classrooms with closed circuit
television capabilities, a student union, a theater, a 15,000 volume core
library, study lounges, and a cafeteria, in addition to standard facilities of
any oceangoing vessel. Living areas are supervised by a support team which
includes a complete student life staff. The physical set-up on the Universe
Explorer has been specifically designed for academic ventures and includes
classrooms with blackboards, not substantially different from land-based
campuses. A closed-circuit video system further supports classroom instruction.
At the students' disposal are also a computer lab, exercise room, swimming
pool, campus store, snack bar, and a sports deck for volleyball, basketball and
aerobics. Laundry facilities and satellite phone calls and faxes are also
available on board. Cabins are available in double, triple and quadruple
occupancy for students and single and double occupancy for non-students.


                                       9
<PAGE>

     The amenities on the Universe Explorer during the Semester at Sea program;
however, are not necessarily the same as those aboard the Enchanted Isle. There
are no formal dinners (except on a few special occasions), no ballroom and no
professional entertainers. However, the program staff includes an adult
coordinator who organizes a program of activities specifically geared for the
student/adult community. Cabin stewards provide daily limited cleaning and
linen services and all meals are served cafeteria-style for students, faculty
and staff. Attire is generally casual. The Universe Explorer houses 4 lounges
and 2 bars available for students, with alcoholic beverage service limited to
beer and wine, and an additional 2 lounges for faculty, staff and adult
passengers, which serve a full range of alcoholic beverages.


     During the months when the Universe Explorer sails on its Alaska or
Caribbean itinerary, it is easily transformed back into a luxury cruise chip.
Classrooms are restored to lounges and dining areas, and the crew resumes
formal meals, maid service and room service. In addition, the ship features all
of the amenities and entertainment offered by the Company's other Cruise Ship,
the Enchanted Isle, except for casino gambling. Even during the Alaska or
Caribbean programs, the Universe Explorer retains its substantial library
offering passengers the opportunity to learn all about the ports they will
visit during their voyage.


     TICKET REVENUES. The cost of Semester at Sea tuition ranges from $12,980
to $14,980 for standard accommodations during the full semesters. Such rates
are per person and include tuition, passage fare, room, board, and student
fees. Travel to and from ports of embarkation and debarkation, text books,
in-country travel, personal expenses and incidental fees are additional.
Financial aid is available to some students. Because the Semester at Sea is
operated by Seawise, neither the Company nor Sea-Comm earn revenue from student
ticket sales. Sea-Comm does, however, earn revenue from ticket sales to
non-student passengers.


     WEC's Alaska cruises are list-priced per person (based on double
occupancy) from $1,895 to $3,595 for its 14-day cruises and from $1,050 to
$1,795 for its 7-day cruise, excluding commissions to travel agents, which will
be paid by Sea-Comm. WEC's Caribbean cruises are list-priced per person (based
on double occupancy) from $1,445 to $3,095 for its 14-day cruise and from $825
to $1,770 for its 8-day cruise, excluding commissions to travel agents, which
will be paid by Sea-Comm. Prices vary depending on size and location of cabin.
The cruise price includes shipboard accommodations, use of all the shipboard
amenities and all meals.


     ON-BOARD AND OTHER REVENUES. Sea-Comm earns revenues from the Universe
Explorer during the Semester at Sea program from beverage and snack bar sales
and miscellaneous services. While the vessel is used in the Alaska and
Caribbean programs, Sea-Comm earns on-board revenue from certain on-board
activities and services including beverage sales in a variety of bars,
restaurants and lounges, and shore excursions. Additional concession revenue is
earned from gift shop sales, beauty salon and the sale of photographs to
passengers.


     COMPETITION. Seawise is the exclusive operator of the Semester at Sea
program. To the Company's knowledge, there is no other entity which operates a
similar shipboard educational program. Seawise competes for student passengers
with operators of land-based international educational programs, such as
semesters abroad. With respect to adult passengers, Sea-Comm competes with long
cruise providers, such as freighters with passenger accommodations and world
cruises, and to a lesser degree with traditional world cruises and land-based
vacation alternatives.


     With respect to the Alaska program, Sea-Comm competes with other cruise
operators who operate cruises to this region. Some of these operators carry
passengers from Canadian ports to Alaska and then return them by air, while
other operators carry passengers on a round trip voyage. Sea-Comm also competes
for consumer disposable leisure time dollars with other vacation alternatives.


SHIP MAINTENANCE AND OPERATION


     In addition to routine maintenance and repairs performed on an ongoing
basis, a vessel is generally taken out of service once every two or three years
for a period ranging from one to two weeks, during


                                       10
<PAGE>

which time more substantial maintenance work, repairs and improvements are
performed in drydock. The Universe Explorer was last taken out of service for
maintenance in June 1997 and the Enchanted Isle was last taken out of service
for maintenance in October 1997. This work typically is performed during
non-peak periods to minimize disruption of the Company's operations and any
adverse effect on revenues. To the extent practicable, the ship's crew,
catering and hotel staff remain with the ship during such period and assist in
performing maintenance and repair work.


     The Company placed the Universe Explorer in drydock for the purpose of
carrying out the repairs detailed in the Settlement Agreement at the Commodore
Closing. All such repairs were performed at EffJohn's expense. While the
Universe Explorer was in drydock, the Enchanted Isle operated on the itinerary
previously served by the Universe Explorer. Following the completion of the
repairs, the Universe Explorer commenced operations for Sea-Comm.


     Due to the age of the Cruise Ships, they are expected to require more
maintenance than new vessels. In addition, they are more likely to break down
and be removed from service at unscheduled times, which could result in loss of
revenue for the Company.


SUPPLIERS


     The Company purchases air transportation, bunker and diesel fuel, food and
related products and hotel supplies from independent suppliers and does not
expect difficulties in obtaining adequate supplies of these items. The Company
is not dependent upon any one supplier for its needs.


EMPLOYEES


     The Company employs approximately 574 people, of whom approximately 524
serve as officers and crew on the Cruise Ships and approximately 50 are
employed shoreside in various sales and marketing, as well as administrative
and management positions. Pursuant to the terms of the Commodore Acquisition,
the Company renewed Old Commodore's contract with the employees who work aboard
the Enchanted Isle and Universe Explorer for three month renewable terms.


INSURANCE


     The Company has procured protection and indemnity coverage and oil
pollution coverage, as well as other coverage through its insurers for the
Cruise Ships. The Company maintains insurance on the hull and machinery of the
Cruise Ships in an amount equal to the greater of 100% of the market value of
the ship, as such value is agreed upon with the insurer and the mortgage holder
of the vessel, or 120% of the outstanding amount of the Loan on the vessel.
Coverage for hull and passenger interests (which includes earnings and
increased value) is maintained in amounts related to the value of the ship and
its anticipated revenues. In addition, the Company maintains war risk insurance
on the ship in amounts in excess of the market value of the ship as agreed upon
with the insurer. War risk insurance includes protection against liability
claims by passengers and crew, as well as other indemnity risks for which
coverage would be excluded under the Company's protection and indemnity
coverage by reason of war exclusion clauses.


     The Company also maintains coverage on the Cruise Ships in various amounts
for the loss of revenue in the event that either such vessel is unable to
operate during scheduled cruise periods as a result of an accident, mechanical
failure, or certain additional covered perils. In such event, the Company's
insurance would pay up to $53,000 and $60,000 per day of lost service for the
Enchanted Isle and Universe Explorer, respectively, up to a maximum of 90 days,
subject to a 15-day deductible. The Company has established insurance coverage
in connection with liability for death or injury to passengers and crew with
respect to the Enchanted Isle and the Universe Explorer. Such coverage has no
limitation, but is subject to a deductible equal to $50,000 and $10,000
respectively, per occurrence. The Company also provides a guaranty in respect
of liability for non-performance of transportation as required by the FMC with
respect to the Enchanted Isle. The Universe Explorer does not sail from U.S.
ports, and as such, the Company is not required to maintain such coverages for
this vessel.


                                       11
<PAGE>

GOVERNMENT REGULATION


     The Company's vessels are registered in Panama, and are subject to
regulations issued by Panama, including regulations issued pursuant to
international treaties governing the safety of the ships and its passengers.
The country of registry conducts periodic inspections to verify compliance with
these regulations.


     Every five years, the Cruise Ships are subject to an inspection of the
hull structure and plating. In addition, ships operating out of U.S. ports are
subject to control verification by the U.S. Coast Guard for compliance with
international treaties, and by the U.S. Public Health Service for sanitary
conditions. The Universe Explorer and The Enchanted Isle will be inspected at
least annually by the Panamanian authorities and quarterly by the U.S. Coast
Guard, and on a regular basis by the U.S. Public Health Service. The Company
believes that the Cruise Ships are in substantial compliance with all
applicable regulations and that they have the licenses necessary to conduct
their business.


     The Company has obtained certificates from the FMC relating to its ability
to meet obligations to passengers for non-performance of cruises. The Company
received certain passenger deposits as part of the Commodore Assets necessary
to obtain this certificate. In the future, the Americans with Disabilities Act
("ADA") may be applied to the Cruise Ships to make the Cruise Ships more
accessible to disabled persons. The Company cannot project how the ADA will be
applied to the Cruise Ships or the costs of compliance.


     The Company is also subject to various U.S. laws and regulations relating
to environmental protection. Under such laws and regulations, the Company is
prohibited from, among other things, discharging materials, such as
petrochemicals and plastics, into the waterways. The Company has obtained
insurance against the costs of oil pollution occasioned at, or in transit to,
sea. The financial costs relating to U.S. environmental laws and regulations
are not expected to have a material adverse impact on the Company's results of
operations, financial condition or liquidity.


     The Company believes that it is in compliance with all regulations
applicable to the Cruise Ships and has the licenses necessary to conduct its
business, however, there can be no assurance thereof. From time to time,
legislation and proposed regulations have been introduced which could have an
impact upon the Company's operations. During recent years, the International
Convention on Safety of Life at Sea ("SOLAS") was amended and requires that
most passenger vessels, not fitted with sprinkler systems, install such systems
and other safety arrangements, including the addition of smoke detector
systems, low-location lighting and enclosed escape stairwells by October 1997.
In the event a vessel meets certain requirements under SOLAS as amended through
1974, but without reference to any subsequent amendments thereto ("SOLAS
1974"), it will not be required to be fitted with a sprinkler system and other
safety equipment until on or before October 1, 2005. The Cruise Ships are not
currently fitted with any sprinkler systems and comply with the SOLAS 1974
requirements, and thus the Company will not have to fit them with sprinkler
systems and other safety equipment until 2005. The Cruise Ships' classification
societies and the Directorate of Consular and Maritime Affairs of the ships'
Flag State (Panama) have confirmed that the Cruise Ships meet the SOLAS 1974
requirements. The cost of installation of sprinkler systems was estimated to be
approximately $3,000,000 per vessel, however with the deadline extended until
October 1, 2005 the Company expects to revise its estimate downward but is
unable at present to revise its estimate. The Company installed on both the
Universe Explorer and the Enchanted Isle the systems and safety arrangements
(other than sprinkler systems) required by SOLAS in June 1997 and October 1997,
respectively. The Company will carry out additional work to the Universe
Explorer in January 1998, estimated to cost approximately $400,000, in order to
have that vessel in full compliance with U.S. Coast Guard interpretations of
the SOLAS requirements as well.


     There have been efforts in prior Congresses to adopt bills that would
apply United States labor laws to non-resident alien crew of foreign registered
ships sailing from U.S. ports and to exclude certain foreign-built ships from
U.S. ports if they received construction subsidies of a particular type. With


                                       12
<PAGE>

respect to the ship construction subsidies, the Cruise Ships are U.S. built and
thus would be at risk to such legislation only if it were to apply to
conversion and maintenance work performed on the vessels in foreign countries.
The application of U.S. labor laws to foreign-registered passenger ships would
have a very substantial impact on the cruise industry as a whole and the
Company cannot predict the implications on its operations. Such proposed
legislation is not presently under consideration by the 104th Congress.


     The Cruise Ships have been built and they maintain the standards of
design, construction and maintenance appropriate to their trades and they are
operated and maintained under the continuous maintenance survey system of the
American Bureau of Shipping and Lloyds Register of Shipping, respectively. In
order for the Company to insure the Cruise Ships, it must comply with the
survey and maintenance requirements of each ship's respective classification
society. The cost of such required maintenance for older vessels, such as the
Cruise Ships, could be high.


TRADEMARK PROTECTION


     At the Commodore Closing, the Company acquired domestic and foreign
trademark registrations relating to the name "Commodore" and the distinctive
Commodore logo. Pursuant to the Acquisition Agreement, the Company agreed to
allow EffJohn to use the name Commodore in connection with a class of ferry
service it provides. The Company does not believe that such use will materially
interfere with its proposed use of the Trademarks. The Company believes such
trademarks are widely recognized throughout North America, although it has not
independently verified this belief. The Company has not recorded the assignment
of certain of the foreign Trademarks due to the costs involved and the
potentially limited benefit of certain of such Trademarks, and has not yet
determined whether it will do so. As a result, there can be no assurance that
the Trademarks do not or will not violate the proprietary rights of others,
that the Trademarks would be upheld if challenged or that the Company would not
be prevented from using the Trademarks, any of which could have an adverse
effect on the Company. In addition, there can be no assurance that the Company
will have the financial resources necessary to enforce or defend the
Trademarks. The Company is not aware of any actions against the Trademarks and
has not received any notice or claims of infringement in respect of the
Trademarks.


ITEM 2. DESCRIPTION OF PROPERTIES


     New Commodore subleases from EffJohn, on a pass through basis,
approximately 14,194 square feet of office space in Hollywood, Florida. The
sublease terminates in June 2000. The Company uses such space for its
administrative and management operations. The Company has subleased, to an
unaffiliated third party, approximately 4,100 square feet of office space, at a
price of $12.00 per square foot until June 2000. The annual lease payment of
approximately $14.44 per square foot does not include taxes, utilities, or
certain other operating costs. The base rent will increase by 4% each year
during the term of the lease. Taxes, utilities and operating costs amount to
approximately an additional $8.82 per square foot.


     The Company also pays a portion of the rent for office space in Miami,
Florida and New York, New York used by its Chairman and Chief Executive
Officer, respectively. The aggregate amount of such rent for fiscal 1997 was
approximately $64,000.


     The Company also utilizes a pier at the Port of New Orleans, pursuant to a
written agreement, from which one of its Cruise Ships departs, and port
facilities at various Caribbean locations, pursuant to oral agreements with the
respective authorities, as is the custom in the Caribbean. The agreement with
the Port of New Orleans, which was assigned to the Company by Old Commodore,
permits the Company to operate a vessel from New Orleans for six years
commencing October, 1992. The Company has priority use of the terminal on
weekends. In the event the Company does not complete 300 sailings during such
period (or 50 sailings per year), the Company may extend the agreement for one
year, pay a predetermined cancellation fee, or place another vessel in service
in New Orleans. No assurance can be given that the Company will be able to
continue to use the port of New Orleans or its Caribbean ports, or that the
Company will be able to locate acceptable substitute ports.


                                       13
<PAGE>

ITEM 3. LEGAL PROCEEDINGS


     In October 1995, Kristian Stensby filed an action in the Circuit Court in
Dade County, Florida against EffJohn, the Lender, the Company, Mr. Mayer and
others, alleging that due to the tortious acts or breaches of agreements by
various defendants, he did not receive certain fees and/or commissions to which
he was allegedly entitled upon the consummation of the sale of the Commodore
Assets or use of such assets in a joint venture. Mr. Stensby has alleged that
he is entitled to damages as a result of the alleged behavior of the various
defendants. The Company does not believe that the ultimate resolution of this
action will have a material adverse effect on its financial condition.


     The Company is subject to claims and suits in the ordinary course of its
business, including those arising from personal injury to its passengers. The
Company believes that it has obtained insurance in the proper types and amounts
to cover such claims.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS


     None.


OPTIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT


     The following table sets forth as of December 17, 1997 certain information
regarding the executive officers of the Company. All executive officers serve
in their respective positions until their successors are appointed.


<TABLE>
<CAPTION>
NAME                    AGE    POSITION AND PRINCIPAL BUSINESS EXPERIENCE
--------------------   -----   --------------------------------------------------------------------------
<S>                    <C>     <C>
Jeffrey I. Binder       51     Chairman of the Board since 1995; Chairman of the Board and a
                               director of Tel-Med, a publicly traded company which develops medical
                               products and provides medical related services, since 1991; Chairman of
                               the Board and a director of H.P. America, Inc., a privately traded
                               holding company which owns health maintenance organizations and
                               medical practice companies, since 1995; Chairman of the Board and a
                               director of JeMJ Financial Services, Inc., a private holding company
                               since 1989; President and a director of Sector Associates, Ltd., a public
                               company engaged in the furniture retail business, from 1989 until 1993.
Frederick A. Mayer      63     Vice Chairman of the Board and Chief Executive Officer since 1995;
                               Co-founder and Vice Chairman of Regency Cruises Inc. ("Regency")
                               between 1985 and April 1995; President of Exprinter International
                               USA, a travel organization, between 1955 and 1995; Chairman of the
                               Board and President of Marmara Marine, Inc. which owns the S/S
                               United States, since 1992. In November 1995, Regency filed for Chapter
                               11 bankruptcy protection.
James R. Sullivan       60     President since 1995; President of the Sullivan Group, a marketing
                               consulting company, from 1993 to 1995; Senior Vice President, Director
                               of Cunard Line Ltd.'s ("Cunard") Eastern Hemisphere from 1989 to
                               1993; Senior Vice President of Sales and Marketing for Cunard from
                               1981 to 1989; Vice President of Sales for Cunard from 1977 to 1981;
                               Vice President of Marketing and Sales for Cunard's hotel division from
                               1973 to 1977.
Alan Pritzker           43     Chief Financial Officer since 1995; Senior Vice President of Regency
                               from 1989 to May 1995; Controller of Regency from 1985 to 1989. In
                               November 1995 Regency filed for Chapter 11 bankruptcy protection.
</TABLE>

 

                                       14
<PAGE>

                                    PART II


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


     The Common Stock of the Company is traded on the Nasdaq National Market
("NNM") under the symbol CCLNF.


PRICE RANGE OF SECURITIES


     The following table reflects the high and low closing bid prices for the
Company's Common Stock during each quarter between July 16, 1996, when the
Company' s securities were first quoted on NNM, and September 30, 1997. Such
quotations represent inter-dealer prices, without retail mark-up or mark-down
or commission, and may not necessarily represent actual transactions.



<TABLE>
<CAPTION>
                                         COMMON STOCK
                                       -----------------
FISCAL YEAR                QUARTERS      HIGH      LOW
-----------------------   ----------   --------   ------
<S>                       <C>          <C>        <C>
                 1996     Fourth       6 3/4      2 1/2
                 1997     First        4 1/4      2 1/4
                          Second       4 5/8      2 1/4
                          Third        3 13/32    2
                          Fourth       3 1/16     2 1/16
</TABLE>

     As of December 17, 1997 there were 87 record holders of the Company's
Common Stock and approximately 1,100 beneficial owners of the Company's Common
Stock. The closing bid price for the Common Stock on that day was $3.19.


DIVIDENDS


     The Company has not declared any dividends on its Common Stock since its
inception, and has no present intention of paying any dividends on its Common
Stock in the foreseeable future. Pursuant to the terms of the Series A
Preference Shares, the Company is required to pay the holders of the Series A
Preference Shares a cumulative dividend equal to 7% per annum before it may pay
dividends on the Common Stock. In addition, pursuant to the terms of the Loan,
the Company is prohibited from paying more than 50% of its net profits as
dividends on its Common Stock.


     As part of the consideration for the sale of the Commodore Assets, EffJohn
received 1,000,000 Series A Preference Shares at an agreed value of $4.00 per
share. See "Item 1. Business--the Commodore Acquisition." The cash portion of
the dividend is limited to 10% of the Company's net profits for such year. The
remaining portion of the dividend, if any, is payable in Series A Preference
Shares based on a value of $4.00 per share. In fiscal years 1997 and 1996, the
Company paid a dividend to the holders of its Series A Preference Shares of
$200,949 and $31,153 in cash and 20,251 and 6,979 Series A Preference Shares,
respectively.


OFFERING


     On July 16, 1996 the U.S. Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-1 (No. 333-01270),
which represented the Company's initial public offering of securities. After
exercise of the over-allotment option, the Company's initial public offering
(the "Offering") consisted of 650,000 Units (the "Units") which were sold for
$4.60 per Unit. Each Unit consisted of one share of the Company's Common Stock
and one warrant (the "Warrant"), which entitles the holder to purchase one-half
share of Common Stock at a price of $6.00 per share. The underwriter for the
Offering was First Hanover Securities, Inc.


     In connection with the Offering, the Company incurred expenses of
approximately $1,300,000 (approximately $378,000 were paid prior to the
effective date of the Offering and approximately $922,000 were paid


                                       15
<PAGE>

after completion of the Offering). The Company did not make any payments for
expenses, directly or indirectly, to directors or officers of the Company. From
the net proceeds of approximately $2,118,000, the Company used approximately
$1,759,000 for improvements to vessels and approximately $359,000 for the
purchase and installation of machinery and equipment. None of the proceeds of
the Offering were paid to officers, directors or persons owning more than 10% of
any class of securities of the Company.


                                       16
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA


     The following is a summary of the Company's financial information extracted
from the indicated year-end audited Combined or Consolidated Financial
Statements of the S/S Enchanted Seas and the S/S Enchanted Isle, operating units
of EffJohn (the "Predecessor"), and the Company, and is qualified in its
entirety by the detailed financial information appearing in the Combined and
Consolidated Financial Statements and the Notes thereto included in Item 14
herein.



<TABLE>
<CAPTION>
                                                 PREDECESSOR          THE COMPANY      PRO FORMA           THE COMPANY
                                                    YEARS             PERIOD ENDED    YEAR ENDED      YEARS ENDED SEPTEMBER
                                               ENDED DECEMBER 31,    SEPTEMBER 30,   SEPTEMBER 30,              30,
                                            ------------------------ --------------- --------------- ------------------------
                                              1993        1994          1995(2)         1995(1)        1996       1997
                                            ----------- ------------ --------------- --------------- ----------- ------------
                                                                                      (UNAUDITED)
                                                              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>         <C>          <C>             <C>             <C>         <C>
INCOME STATEMENT DATA:
Total revenues  ...........................  $ 45,650    $ 41,860       $  7,256       $   35,075     $ 47,817    $  56,321
Operating expenses ........................    34,265      28,527          4,941           33,337       35,490       44,484
Selling & administrative expenses .........     6,833       6,484          1,664            9,899        7,238        7,513
Depreciation and amortization  ............     4,903       3,599            198            1,693        1,614        2,108
Interest Expense, net .....................     1,682       1,294            133            1,933        1,266        1,359
Write-off of goodwill .....................     6,023          --             --               --           --
Other Income ..............................        --          --             --               --          341            6
Loss on Vessel Fire   .....................        --       1,367             --            1,367          397           --
Minority interest share of (loss) earnings
 of consolidated joint venture ............        --          --             --               --         (143)       1,420
Net earnings (loss) before tax ............    (8,056)        589            320          (13,154)       2,009        2,283
Provision for taxes   .....................        --          --              8               --           --           --
Net earnings (loss) before
 preferred stock dividend   ...............    (8,056)        589            312          (13,154)       2,009        2,283
Provision for preferred stock dividend  ...        --          --             60              280          280          280
Net earnings (loss) available for
 Common Stockholders  .....................  $ (8,056)   $    589       $    252       $  (13,434)    $  1,729    $   2,003
Net earnings (loss) per share(3)(4)  ......        --          --       $   0.06       $    (2.59)    $   0.34    $    0.35
Average shares outstanding (000's)   ......                                4,378            5,185        5,440        5,802
OPERATING DATA (UNAUDITED):
Sailings  .................................        64          53             11               64           56           63
Traffic days(5) ...........................       466         371             77              444          569          690
Passenger days(6)  ........................   316,157     271,075         53,221          271,171      384,638      479,386
Load factor(7)  ...........................     92.67%     100.22%         94.81%           83.78%       92.66%       95.30%
BALANCE SHEET DATA:
Property and equipment, net of
 depreciation   ...........................              $ 37,565       $ 33,085                      $ 36,147    $  37,193
Total assets ..............................              $ 40,232       $ 44,097                      $ 53,285    $  53,118
Total borrowings   ........................              $ 30,020       $ 24,500                      $ 24,239    $  21,230
Total stockholders' equity (deficit) ......              $ (5,585)      $ 12,519                      $ 16,196    $  18,341
</TABLE>

---------------
(1) Assumes the Commodore Acquisition occurred on October 1, 1994.
(2) Such period begins April 13, 1995 (date of inception) and ends on September
    30, 1995; however, the Company commenced cruise operations July 15, 1995,
    immediately following the Commodore Closing.
(3) Net earnings (loss) per common equivalent share is based upon the weighted
    average number of shares and equivalents outstanding during each period
    after giving effect for dividends on the Series A Preference Shares.
(4) Earnings per share does not apply to fiscal years 1993-1994 because during
    such periods the Predecessor was an operating unit of EffJohn
    International B.V.
(5) Represents the number of sailings, multiplied by the number of days per
    cruise.
(6) Represents the number of passengers, multiplied by the number of days of
    their respective cruises.
(7) In accordance with cruise industry practice, total capacity is calculated
    based on double occupancy per cabin even though some cabins accommodate
    three or four passengers. A percentage in excess of 100% indicates that
    more than two passengers occupied some cabins. Because the Universe
    Explorer is space chartered to Seawise during the majority of the year for
    the Semester-at-Sea program, the load factor during these sailings is not
    as material to the Company as it is during normal cruise operations. The
    Company has computed the load factor for the Semester at Sea voyages by
    including all passengers, including university staff and faculty, as well
    as student and adult participants.


                                       17
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


GENERAL


     The following is an analysis of the Company's results of operation,
liquidity and capital resources. To the extent that such analysis contains
statements which are not of a historical nature, such statements are
forward-looking statements, which involve risks and uncertainties. These risks
include competing in a saturated industry against modern and larger fleets; the
ability of the Company to obtain additional financing for the acquisition of
additional ships; a high percentage of debt on assets owned by the Company, the
potential for additional governmental regulations; the need for expensive
upgrades and/or maintenance to aging vessels; general economic factors in
markets where the Company operates; and other factors discussed in the
Company's filings with the Securities and Exchange Commission.


     With respect to the Company's cruise operations, the Company earns
revenues primarily from: (i) the sale of passenger tickets, which include
accommodations, meals, substantially all shipboard activities, and airfare and
hotel packages, if applicable; and (ii) the sale of goods and services on board
the Cruise Ships including, but not limited to, casino gambling (Enchanted Isle
only), liquor sales and concession income.


     The Company's operating expenses include travel agency commissions,
shipboard costs of goods sold and all shipboard operating expenses, including
food, fuel, port charges, crew wages and benefits, cabin consumables,
entertainment, ship insurance, ship maintenance expenses, vessel management
fees and transportation and lodging (airfare, hotel, and transfer costs), if
applicable. Travel agency commissions, passenger food, port charges and air
transportation and hotel lodging expenses generally vary directly with the
number of passengers while most of the shipboard operating expenses are fixed
per voyage.


     The Company's marketing, selling and administrative expenses include media
advertising, brochures and promotional materials, costs of the Company's direct
sales force and related selling activities, all shoreside activities such as
reservations, inventory control, air transportation coordination, human
resources, finance and information technology. Other income (expense) includes
interest expense and interest income. The majority of the Company's
transactions are in U.S. dollars.


     With respect to Sea-Comm's operations, the Company earns revenue primarily
from reimbursements from Sea-Comm for all operating costs, food costs and all of
the principal and interest due on the portion of the Loan attributable to the
Universe Explorer during the approximately 320 days each year the vessel is used
in the Semester at Sea and Alaska programs. As the majority owner of Sea-Comm,
the Company includes all of Sea-Comm's revenues and expenses in its consolidated
financial statements and makes an appropriate entry to account for the minority
interest of its partner. Because the Semester at Sea program is operated by
Seawise pursuant to a charter, the income and losses of the Semester at Sea
program are substantially realized by Seawise, not Sea-Comm. With respect
to the Alaska and Caribbean WEC programs, however, all income and losses are
borne by Sea-Comm.


                                       18
<PAGE>

     The following table presents statements of operations data as a percentage
of total revenues:



<TABLE>
<CAPTION>
                                                                                               THE COMPANY
                                              PREDECESSOR           THE COMPANY            FOR THE YEAR ENDED
                                            AND THE COMPANY        FOR THE PERIOD             SEPTEMBER 30,
                                               PRO FORMA               ENDED           ---------------------------
                                           SEPTEMBER 30, 1995    SEPTEMBER 30, 1995      1996          1997
                                           -------------------   -------------------   ------------   ------------
<S>                                        <C>                   <C>                   <C>            <C>
Revenues  ..............................         100.00%               100.00%            100.00%        100.00%
Expenses:
 Operating   ...........................          95.1 %                68.2 %             74.2 %         79.0 %
 Selling and Administrative ............          28.2 %                22.9 %             15.1 %         13.3 %
 Depreciation and Amortization .........           4.8 %                 2.7 %              3.4 %          3.8 %
Loss on Vessel Fire (1)  ...............           3.9 %                   --                 --             --
                                                 ------                ------             ------         ------
  Total   ..............................         132.0 %                93.8 %             92.7 %         96.1 %
Operating Income (loss)  ...............         (32.0 %)                6.2 %              7.3 %          3.9 %
Other Income (Expense)   ...............         ( 5.5 %)              ( 1.8 %)           ( 3.1 %)         0.1 %
Net Earnings (Loss) before Provision for
  Preferred Stock Dividend  ............         (37.5 %)                4.4 %              4.2 %          4.1 %
                                                 ======                ======             ======         ======
</TABLE>

----------------
(1) The Company has included the fiscal 1996 loss from the fire on the Universe
    Explorer as other income (expense).


     Due to its New Orleans point of embarkation, the Company's revenues are
more seasonal than other cruises with similar itineraries that depart from
Florida ports. The greatest demand for the Company's cruises occurs in June
through August, and demand from February through May and November through
December is also very good. The Company's slowest months are January, September
and October.


     The Company's operations began on July 15, 1995, following the Commodore
Closing. For the two and one-half months ended September 30, 1995, revenues
from the operation of one cruise vessel were $7,256,000 including charter
cancellation fees of $425,000. In January 1996, the Company placed its second
vessel into service. As a result, for the year ended September 30, 1997,
revenues from the operation of two cruise vessels increased to $47,817,000,
which included charter cancellation fees of $425,000.


     The Company's fiscal year ends on September 30. The pro forma 1995 fiscal
year includes results of operations of the Predecessor from October 1, 1994
until July 14, 1995, and those of the Company for the balance of such fiscal
year. Old Commodore operated two vessels during the 1995 fiscal year. Old
Commodore operated the Enchanted Seas primarily on the New Orleans itinerary
during fiscal 1995 and placed this vessel in drydock just prior to the
Commodore Closing. Concurrently therewith, Old Commodore placed the Enchanted
Isle on the New Orleans itinerary.


     Old Commodore also operated the Enchanted Isle for 73 days on a Barbados
itinerary during the 1995 fiscal year. The Company, however, operated only one
vessel on the New Orleans itinerary during its 1995 fiscal year. However, Old
Commodore operated up to five ships during the period since January 1, 1993. As
a result, administration and marketing expenses were commingled and have been
allocated to the Predecessor based on the number of traffic days of all of Old
Commodore's ships. This may not be indicative of actual expenses which would
have been incurred in connection with the operation of one ship by the Company.
 


RESULTS OF OPERATIONS


YEAR ENDED SEPTEMBER 30, 1997, COMPARED TO YEAR ENDED SEPTEMBER 30, 1996


     Revenues increased by $8,504,287, or 17.8%, for fiscal 1997 compared to
fiscal 1996, primarily due to the number of ships operated each month by the
Company during these periods. During fiscal 1997, the Company operated for
approximately 23 ship-months as compared to approximately 20 ship-months


                                       19
<PAGE>
for fiscal 1996. "Ship-months" are the aggregate number of months in which the
Company's ships operated during a fiscal year. Revenues also increased during
fiscal 1997 due to the Company's operation of the Alaska program for a total of
98 days during fiscal 1997, which generated greater revenues than the summer
Semester at Sea voyage (57 days) and Alaska program (32 days) operated in
fiscal 1996. Despite this increase, the load factors for the Alaska program
declined from approximately 100% in fiscal 1996 to approximately 75% in fiscal
1997. Finally, the Company has experienced greater load factors during fiscal
1997 on its New Orleans itinerary than in fiscal 1996. The increased loads
yielded higher revenues.

     The Company's operating expenses increased by $8,994,467, or 25.3%, in
fiscal 1997 compared to fiscal 1996. This increase was due to increased traffic
and passenger days in fiscal 1997, and lower load factors and relatively higher
operating costs for the Alaska and Caribbean programs, which offers luxury
cruise cuisine and luxury cabin services. As a percentage of revenue, operating
expenses represented 79.0% of revenues in fiscal 1997, as compared to 74.2% of
revenue in fiscal 1996. As a result of the prepaid drydock costs incurred in
fiscal 1996, the amortization of these costs resulted in higher operating costs
of $1,283,269 in fiscal 1997 versus $804,678 in fiscal 1996.

     Marketing, selling and administrative expenses increased by $275,286, or
3.8%, in fiscal 1997 compared to fiscal 1996. The higher expenses were due to
the Company operating more WEC Alaska and Caribbean cruises during fiscal 1997
than in fiscal 1996 which resulted in higher marketing costs for the Company
than it incurred when the Semester at Sea program operated its summer semester.
Such increase was partially offset by lower marketing costs for the Company's
New Orleans itinerary.

     Depreciation and amortization increased by $494,578, or 30.7%, in fiscal
1997 compared to fiscal 1996, due to the additional capital expenditures
incurred by the Company in conjunction with meeting its SOLAS requirements on
the two vessels as well as a full year of depreciation on the Universe Explorer
which was in operation for approximately 8 months in fiscal 1996 versus 11
months in fiscal 1997. Interest expense, net, increased by $92,429 or 7.3% from
fiscal 1996 to fiscal 1997 due to the Company's capitalization, in fiscal 1996,
of approximately 3.5 months of interest incurred with respect to the Universe
Explorer, which had not yet been placed in service.

     Seawise's interest in the Company's Sea-Comm joint venture is reflected in
the $1,420,154 and $(143,023) line item for "Minority interest share in loss
(earnings) of consolidated joint venture" for fiscal 1997 and 1996 respectively.
Sea-Comm lost $2,840,592 during fiscal 1997 as compared to net earnings of
$286,074 in fiscal 1996. This loss was due primarily to the decreased load
factors during the WEC programs operated by Sea-Comm in fiscal 1997. As a result
of losses sustained during the Caribbean and Alaska programs, Seawise, through
its minority interest, absorbs approximately 50% of the Company's loss on these
programs.

     In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share", which changes the
method for reporting earnings per share. The statement is effective for
financial statement periods ending after December 15, 1997. The Company has not
determined the impact, if any, of adopting the new standard.

YEAR ENDED SEPTEMBER 30, 1996, COMPARED TO PRO-FORMA YEAR ENDED SEPTEMBER 30,
1995

     Revenues increased by $12,742,117, or 36.3%, for fiscal 1996 compared to
proforma 1995, primarily due to the number of ships operated each month by the
Company compared to the predecessor. During fiscal 1996, the Company operated
for approximately 20 ship-months as compared to approximately 15 ship-months
for the Predecessor during proforma 1995. "Ship-months" are the aggregate
number of months in which the Company's ships operated during a fiscal year.
Revenues also increased during fiscal 1996 due to the Company's operation of
the Semester at Sea and Alaska programs, which generated greater revenues than
the Predecessor's short-lived Barbados itinerary, which was deemed a failure.
Finally, the Company has experienced greater load factors during fiscal 1996 on
its New Orleans itinerary than did the Predecessor in proforma 1995. The
increased loads yielded higher revenues.

     The Company's operating expenses increased by $2,153,117, or 6.5%, in
fiscal 1996 compared to proforma 1995. This increase was due to increased
revenues in fiscal 1996, the termination of Old Commodore's Barbados itinerary,
which operated for only 73 days in proforma 1995, and the relatively lower
operating costs for the Semester at Sea program, which does not offer luxury
cruise cuisine or

                                       20
<PAGE>

luxury cabin services. As a percentage of revenue, operating expenses
represented 74.2% of revenues in fiscal 1996, as compared to 95.1% of revenue
in proforma 1995. This decline of expenses as a percentage of revenue
illustrates the relatively lower operating expenses of the Semester-at-Sea
program as compared to luxury cruise service provided by the Predecessor during
proforma 1995, as well as the increased cost of food and services that the
Predecessor incurred while operating the Barbados itinerary, compared to the
cost for similar products and services in New Orleans. 


     Marketing, selling and administrative expenses decreased by $2,660,438, or
26.9%, in fiscal 1996 compared to proforma 1995. The higher expenses which the
Predecessor incurred in proforma 1995 related primarily to the termination of
the Barbados itinerary, the additional cost of airfare for cruise passengers to
Barbados, and the termination of Old Commodore's cruise operations in
conjunction with the Commodore Acquisition.


     Depreciation and amortization decreased by $79,591, or 4.7%, in fiscal
1996 compared to proforma 1995, due to the difference in cost basis of the
assets acquired by the Company as compared to Old Commodore. Interest expense,
net, decreased by $667,200 or 34.5% from proforma 1995 to fiscal 1996 due to
the Company's capitalization of approximately 3.5 months of interest incurred
with respect to the Universe Explorer, which was not yet placed in service.


     Seawise's interest in the Company's Sea-Comm joint venture is reflected in
the $143,023 line item for "Minority interest in earnings of consolidated joint
venture." The Sea-Comm joint venture was formed in fiscal 1996; consequently,
no comparable line item exists for proforma 1995.


LIQUIDITY AND CAPITAL RESOURCES


     The Company's working capital deficiency was $7,987,670 and $2,831,658 at
September 30, 1997 and 1996, respectively. The Company's working capital
deficiency at September 30, 1997 and 1996 was primarily due to the inclusion,
in non-current assets, of a $4,629,000 deposit securing the Company's FMC bond.
The corresponding liability, customer deposits, which was $5,674,811 and
$5,839,360 at September 30, 1997 and 1996 respectively, is included in current
liabilities. The decrease in the Company's working capital, in fiscal 1997, was
also due to the increase in the current portion of long-term debt from
$2,277,095 in fiscal 1996 to $4,392,408 in fiscal 1997. The Company also
received working capital from the proceeds of its public offering in 1996 and
its private offering in 1995.


     Cash flows from operations provided $6,802,564, $3,467,649 and $661,137,
for fiscal 1997, 1996 and 1995, respectively. Cash flows for fiscal 1997
consisted primarily of decreases in restricted cash, due to a change in credit
card processor, and collection of a large portion of the insurance claim
receivable as well as increases in prepaid expenses, accounts payable and
accrued liabilities.


     At September 30, 1997, the Company owed $21,229,990 to the Lender in
connection with the Commodore Acquisition. The Loan is secured by substantially
all of the assets of New Commodore, including preferred ships mortgages on both
Cruise Ships, and bears interest at LIBOR plus 2%. In January 1997 the Company
and the Lender amended the Loan to provide for monthly payments of interest and
principal for the duration of the Loan. In the event that the Company is
required to withhold income tax on any amounts due to the Lender, the Company
has agreed to pay the required amount to be withheld and pay the Lender the
full amount of interest due under its agreements with the Company.


     The terms of the Loan place certain restrictions on the Company. First,
the Company is not permitted to place any additional liens on any of its assets
(including the Cruise Ships) without the prior


                                       21
<PAGE>

consent of the Lender. Second, the Company is prohibited from paying more than
50% of its net profits as dividends. In addition to the foregoing, New
Commodore must maintain a minimum cash balance in its operating accounts of $1
million.


     On July 27, 1996, the Universe Explorer had a fire on-board, which
resulted in the death of five crew members and loss of revenues during the
17-day period the ship was out of service. The majority of the losses by the
passengers and crew, damage to the hull and machinery of the vessel and loss of
hire is covered by the Company's insurance policies, subject to applicable
deductibles. As a result, as of September 30, 1997 and 1996 the Company had an
insurance receivable balance of $305,038 and $2,470,525, respectively.
The Company expects to collect the balance of the receivable in fiscal 1998.

     The Universe Explorer was in drydock in the third quarter of fiscal 1997
to effect the necessary repairs and modifications to comply with the SOLAS
requirements for the vessel. The Enchanted Isle was sent to drydock, for
similar modifications, during the beginning of fiscal 1998. The Company will
carry out additional work to the Universe Explorer in January 1998, estimated
to cost approximately $400,000, in order to have that vessel in full compliance
with U.S. Coast Guard interpretations of the SOLAS requirements as well.


     During fiscal 1998, the Company plans to make certain capital improvements
to each of the Cruise Ships. These improvements, some of which have already been
completed, are expected to cost approximately $2.8 million. The Company had
accrued approximately $765,000 at September 30, 1997 toward such improvements.
The Company intends to fund these costs from cash from operations.


     During fiscal 1998, the Company will also continue to explore the possible
acquisition of additional vessels. In this regard, in November 1996, the
Company commenced a private offering (the "Private Offering") of up to $3.8
million in principal amount of 7% convertible debentures (the "Debentures").
The Company is offering the Debentures for sale on a "best efforts basis"
directly and through certain selected broker-dealers at a purchase price equal
to 80% of the face value of such Debentures. The Debentures are convertible
into shares of Common Stock of the Company at the option of the holder thereof
based on the average closing sale price of the Common Stock for the five
trading days immediately prior to conversion, but in no event less than $3.131
or more than $4.00 per share. The Debentures are also convertible at the option
of the Company, provided the Common Stock trades above a certain price for a
specified period. The Company has agreed to register the shares of Common Stock
issuable upon conversion of the Debentures, under the Securities Act of 1933,
as amended (the "Securities Act"). As of December 17, 1997, the Company had
closed on subscriptions for $1,975,000 in Debentures, which generated
approximately $1,400,000 in proceeds to the Company after deducting brokerage
commissions and expenses of the Private Offering. The Debentures being offered
will not be or have not been registered under the Securities Act and are being
offered pursuant to the exemption from registration afforded by Regulation D
under the Securities Act.


     The Company plans to apply the proceeds from the Private Offering towards
the purchase of additional vessels and for general working capital purposes.
The Company is currently in preliminary negotiations regarding the purchase of
several different vessels and has not yet reached an agreement in principle
regarding the purchase of any specific vessel. In the event the Company reaches
such an agreement, it anticipates that such purchase will require additional
debt or equity financing, which the Company will attempt to procure at such
time.


     The Company's net income is largely exempt from United States income taxes
pursuant to the terms of a certain international shipping exemption. Such
exemption requires, among other things, that 80% of the value of the Company's
capital stock be traded on certain securities exchanges or markets. At present,
the Company believes that it meets the requirements of such exemption because
its Common Stock is traded on the NNM. Whether the Company meets the 80%
requirement, however, also depends on the value of the Company's Common Stock
compared to the value of the Series A Preference Shares, which are not traded
on NNM and cannot be included in the 80% determination. In the event the value
of the Common Stock should decline, the Company could become ineligible for the
 


                                       22
<PAGE>

international shipping exemption, which would cause its income to be subject to
United States income taxes. Such an event would have a material adverse effect
on the Company. As part of the Private Offering, the Company has agreed to
register the Common Stock into which the Debentures are convertible. As a
result, the Company believes that many of the holders of the Debentures will
convert their Debentures into Common Stock. Such additional issuances of Common
Stock should assist the Company in continuing to meet the requirements of the
international shipping exemption.


INFLATION


     The impact of inflation on the Company's operations has not been
significant to date. There can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operations.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


     See Item 14(a) hereof.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE


     None.

                                       23
<PAGE>

                                   PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


     The information concerning the directors of the Company set forth under
the caption "Election of Directors" in the definitive Proxy Statement of the
Company for its 1998 Annual Meeting of Shareholders (the "1998 Proxy
Statement") is incorporated herein by reference.


     Information concerning the executive officers of the Company is included
in Part I herein under the caption "Executive Officers of the Registrant."


ITEM 11. EXECUTIVE COMPENSATION


     The information set forth in the 1998 Proxy Statement under the caption
"Compensation of Officers" and "Board of Directors--Compensation" is
incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     The information set forth under the caption "Principal Stockholders and
Security Ownership of Management" in the 1998 Proxy Statement is incorporated
herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     The information set forth under the caption "Transactions with Management
and Others" in the 1998 Proxy Statement is incorporated herein by reference.



                                    PART IV


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


(a)  1. Financial Statements


     See "Index to Financial Statements" on Page F-1.


     2. Financial Statement Schedules


     All schedules have been omitted because they are not applicable or the
required information is shown in the financial statements herein.


(b) Reports on Form 8-K


     No reports on Form 8-K were filed during the fourth quarter of Fiscal
1997.

                                       24
<PAGE>

(c) Exhibits


<TABLE>
<CAPTION>
 EXHIBIT
NUMBER                                        DESCRIPTION OF EXHIBIT
--------   --------------------------------------------------------------------------------------------
<S>        <C>
 3a        Memorandum of Association of the Company, as amended *
 3b        Bye-Laws *
 4a        Form of Common Stock Certificate ***
 4b        Series A Preference Share Terms **
 4c        Form of Warrant Certificate **
 4d        Form of Warrant Agent Agreement **
 4e        Form of Underwriter's Warrant Agreement **
10a        Employment Agreement dated May 3, 1995 between the Company and Jeffrey I. Binder *
10b        Employment Agreement dated May 3, 1995 between New Commodore and Frederick A.
           Mayer, as amended *
10c        Employment Agreement dated May 3, 1995 between New Commodore and James R.
           Sullivan, as amended *
10d        Employment Agreement dated May 3, 1995 between New Commodore and Alan Pritzker, as
           amended *
10e        USD$ 24,000,000 Loan Facility Agreement, dated July 14, 1995 among the Lender, Almira,
           Azure, New Commodore and the Company *
10f        Agreement for the Sale and Purchase of the Business and Assets of Old Commodore dated
           April 29, 1995 between Old Commodore, EffJohn and New Commodore *
10g        Master Agreement dated May 28, 1995 between EffJohn, BCS, ACS, Old Commodore, New
           Commodore and the Company *
10h        1995 Stock Option Plan *
10i        Joint Venture Agreement dated October 30, 1995 between the Company, Seawise and
           Sea-Comm *
10j        Management Services Agreement dated July 5, 1995 between New Commodore and IMC **
10k        Sublease for Office Space at 4000 Hollywood Boulevard dated June 30, 1995 between
           EffJohn and New Commodore **
10l        Software Agreement between Reservations Technology, Inc. and New Commodore **
10m        Sublease of computer equipment and software between Old Commodore and New
           Commodore (IBM Sublease) **
10n        Assignment of Financing and Berthing Agreement dated June 29, 1995 between New
           Commodore and Old Commodore as consented to by the Board of Commissioners of the
           Port of New Orleans **
10o        Warrant Certificate for 250,000 Shares of Common Stock of the Company dated July 14,
           1995 in favor of JeMJ Financial Services, Inc. **
10p        Warrant Certificate for 250,000 Shares of Common Stock of the Company dated July 14,
           1995 in favor of Jeffrey and Rosalie Binder **
10q        Warrant Certificate for 250,000 shares of Common Stock of the Company dated October 30,
           1995 in favor of Seawise **
10r        First Priority Panamanian Mortgage on the Enchanted Seas dated July 14, 1995 between
           Azure and the Lender **
10s        First Priority Panamanian Mortgage on the Enchanted Isle dated July 14, 1995 between
           Almira and the Lender **
10t        First Priority Charge over the shares of Azure dated July 14, 1995 between the Lender and
           New Commodore **
10u        First Priority Charge over the shares of Almira dated July 14, 1995 between the Lender and
           New Commodore **
10v        First Priority Tripartite Deed in respect of the Enchanted Seas dated July 14, 1995 between
           the Azure, New Commodore and the Lender **
10w        First Priority Tripartite Deed in respect of the Enchanted Isle dated July 14, 1995 between
           the Almira, New Commodore and the Lender **
</TABLE>

                                       25
<PAGE>


<TABLE>
<CAPTION>
 EXHIBIT
NUMBER                                  DESCRIPTION OF EXHIBIT
--------   --------------------------------------------------------------------------------
<S>        <C>
10x        Form of Custody Agreement and Power of Attorney for Sale of Common Stock of the
           Company ***
10y        Second Amendment to Employment Agreement by and between New Commodore Cruise
           Lines Limited and Frederick Mayer dated May 3, 1997 ****
10z        First Amendment to Employment Agreement by and between Commodore Holdings
           Limited and Jeffrey I. Binder dated July 15, 1997
11         Computation of Earnings per share of Common Stock
21         Subsidiaries of the Company *
24         Power of Attorney (included on signature page)
27         Financial Data Schedule *****
</TABLE>

----------------
    * Incorporated by reference to the Company's Registration Statement on Form
      S-1 (No. 333-01270) filed on February 12, 1996.
   ** Incorporated by reference to Amendment No. 1 to the Company's
      Registration Statement on Form S-1 (No. 333-01270) filed on May 28, 1996.
  *** Incorporated by reference to Amendment No. 2 to the Company's
      Registration Statement on Form S-1 (No. 333-01270) filed on June 18,
      1996.
 **** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended June 30, 1997
***** Included only in electronic filing


                                       26
<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hollywood, Florida on the 23rd day of December, 1997. The registrant and each
person whose signature appears below hereby authorizes and appoints Frederick
A. Mayer as attorney-in-fact to sign and file on behalf of the registrant and
each such person in each capacity below, any and all amendments to this report.
 


                                        COMMODORE HOLDINGS LIMITED


                                        By /s/ FREDERICK A. MAYER
                                           ------------------------------------
                                           Frederick A. Mayer, Vice-Chairman


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



<TABLE>
<CAPTION>
               SIGNATURE                              TITLE                      DATE
---------------------------------------   -----------------------------   ------------------
<S>                                       <C>                             <C>
/s/ JEFFREY I. BINDER                     Chairman of the Board           December 23, 1997
---------------------------------------
Jeffrey I. Binder

/s/ FREDERICK A. MAYER                    Vice-Chairman of the Board      December 23, 1997
---------------------------------------   (Principal Executive
Frederick A. Mayer                        Officer)

/s/ JAMES R. SULLIVAN                     President                       December 23, 1997
---------------------------------------
James R. Sullivan

/s/ ALAN PRITZKER                         Vice President, Finance and     December 23, 1997
---------------------------------------   Chief Financial Officer
Alan Pritzker                             (Principal Financial and
                                          Accounting Officer)

/s/ RALPH V. DE MARTINO                   Director                        December 23, 1997
---------------------------------------
Ralph V. De Martino

/s/ MARK J. MAGED                         Director                        December 23, 1997
---------------------------------------
Mark J. Maged

/s/ ARNOLD ADOLPHUS FRANCIS, Q.C.         Director                        December 23, 1997
---------------------------------------
Arnold Adolphus Francis, Q.C.

/s/ GORDON HILL                           Director                        December 23, 1997
---------------------------------------
Gordon Hill
</TABLE>


                                       27
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                      PAGE
                                                                                      -----
<S>                                                                                   <C>
 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
   Report of Independent Certified Public Accountants   ...........................    F-2
   Consolidated Balance Sheets--September 30, 1997 and 1996   .....................    F-3
   Consolidated Statements of Earnings-- Year Ended September 30, 1997, Year Ended
      September 30, 1996 and Period From April 13, 1995 (Date of Inception)
      through September 30, 1995...................................................    F-4
   Consolidated Statement of Stockholders' Equity--September 30, 1997  ............    F-5
   Consolidated Statements of Cash Flows-- Year Ended September 30, 1997,
      Year Ended September 30, 1996 and Period From April 13, 1995 
      (Date of Inception) through September 30, 1995  .............................    F-6
   Notes to Consolidated Financial Statements  ....................................    F-8
 S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (PREDECESSOR COMPANY)
   Report of Independent Certified Public Accountants   ...........................   F-20
   Combined Statement of Operations-- Period From January 1 through July 14, 1995..   F-21
   Combined Statement of Operating Units' Equity-- Period From January 1 through
      July 14, 1995 ...............................................................   F-22
   Combined Statement of Cash Flows-- Period From January 1 through July 14, 1995..   F-23
   Notes to Combined Financial Statements..........................................   F-25
</TABLE>

 

                                      F-1
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Commodore Holdings Limited and Subsidiaries



     We have audited the accompanying consolidated balance sheets of Commodore
Holdings Limited and Subsidiaries as of September 30, 1997 and 1996 and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years ended September 30, 1997 and 1996 and for the period from
April 13, 1995 (date of inception), through September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.


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


     In our opinion, the financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of
Commodore Holdings Limited and Subsidiaries as of September 30, 1997 and 1996
and the consolidated results of their operations and their consolidated cash
flows for the years ended September 30, 1997 and 1996 and for the period from
April 13, 1995 (date of inception), through September 30, 1995 in conformity
with generally accepted accounting principles.




                                        /s/ Grant Thornton LLP


Miami, Florida
December 3, 1997
 

                                      F-2
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS




<TABLE>
<CAPTION>
                                                                                  SEPTEMBER 30,
                                                                           ----------------------------
                                                                              1997            1996
<S>                                                                        <C>             <C>
                                           ASSETS
Current assets:
 Cash and cash equivalents .............................................    $ 3,530,563     $ 3,476,165
 Restricted cash  ......................................................        191,273       1,412,907
 Trade and other receivables  ..........................................        321,191         328,812
 Insurance claim receivable   ..........................................        305,038       2,470,525
 Due from affiliate  ...................................................        471,294          42,921
 Inventories   .........................................................      1,870,128       1,830,241
 Prepaid expenses ......................................................      3,050,353       2,463,842
 Other current assets   ................................................         76,290          76,290
                                                                            -----------     -----------
  Total current assets  ................................................      9,816,130      12,101,703
Property and equipment, net   ..........................................     37,193,102      36,147,435
Long-term receivable-affiliate   .......................................      1,117,913              --
Investments restricted  ................................................      4,629,000       4,629,000
Other assets   .........................................................        361,667         406,667
                                                                            -----------     -----------
                                                                            $53,117,812     $53,284,805
                                                                            ===========     ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Current portion of long-term debt  ....................................    $ 4,392,408     $ 2,277,095
 Accounts payable ......................................................      5,512,270       5,767,110
 Accrued liabilities ...................................................      1,576,504         723,251
 Due to affiliate ......................................................        574,873         749,631
 Customer and other deposits  ..........................................      5,674,811       5,839,360
 Accrued interest ......................................................         72,934          76,914
                                                                            -----------     -----------
  Total current liabilities   ..........................................     17,803,800      14,933,361
Long-term debt .........................................................     16,837,582      21,962,060
Minority interest in subsidiary  .......................................        135,037         193,018
Stockholders' equity
 Preferred stock--authorized 10,000,000 shares of $.01 par value; issued
   1,027,230 in 1997 and 1,006,979 in 1996   ...........................         10,272          10,070
 Common stock - authorized 100,000,000 shares of $.01 par value; issued
   5,581,933 in 1997 and 1996 ..........................................         55,819          55,819
 Paid-in capital  ......................................................     14,012,051      13,868,526
 Retained earnings   ...................................................      4,263,251       2,261,951
                                                                            -----------     -----------
  Total stockholders' equity  ..........................................     18,341,393      16,196,366
                                                                            -----------     -----------
                                                                            $53,117,812     $53,284,805
                                                                            ===========     ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF EARNINGS





<TABLE>
<CAPTION>
                                                                                                   PERIOD FROM
                                                                                                  APRIL 13, 1995
                                                                                                     (DATE OF
                                                                                                    INCEPTION)
                                                               YEAR ENDED        YEAR ENDED          THROUGH
                                                              SEPTEMBER 30,     SEPTEMBER 30,      SEPTEMBER 30,
                                                                  1997              1996               1995
                                                              ---------------   ---------------   ---------------
<S>                                                           <C>               <C>               <C>
Revenues   ................................................    $ 56,321,168      $ 47,816,881       $7,255,830
Expenses
 Operating ................................................      44,484,180        35,489,713        4,940,637
 Marketing, selling and administrative   ..................       7,513,434         7,238,148        1,664,478
 Depreciation and amortization  ...........................       2,108,246         1,613,668          197,926
                                                               ------------      ------------       ----------
                                                                 54,105,860        44,341,529        6,803,041
                                                               ------------      ------------       ----------
Operating income ..........................................       2,215,308         3,475,352          452,789
Other income (expense)
 Other income (expense)   .................................           6,396           340,641               --
 Interest income ..........................................         483,214           382,101           79,054
 Interest expense   .......................................      (1,841,818)       (1,648,276)        (211,849)
 Minority interest share of loss (earnings) of consolidated
   joint venture ..........................................       1,420,154          (143,023)              --
 Loss on vessel fire   ....................................              --          (397,310)              --
                                                               ------------      ------------       ----------
                                                                     67,946        (1,465,867)        (132,795)
                                                               ------------      ------------       ----------
  Earnings before provision for income taxes and
    provision for preferred stock dividend  ...............       2,283,254         2,009,485          319,994
Provision for income taxes   ..............................              --                --            8,459
                                                               ------------      ------------       ----------
  Net earnings before provision for preferred stock
    dividend  .............................................       2,283,254         2,009,485          311,535
Provision for preferred stock dividend   ..................         280,000           280,000           60,000
                                                               ------------      ------------       ----------
  Net earnings available for common stockholders  .........    $  2,003,254      $  1,729,485       $  251,535
                                                               ============      ============       ==========
Earnings per share  .......................................    $        .35      $       0.34       $     0.06
                                                               ============      ============       ==========
Weighted average number of common stock outstanding  ......       5,801,755         5,439,590        4,377,593
                                                               ============      ============       ==========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY




<TABLE>
<CAPTION>
                                              PREFERRED STOCK          COMMON STOCK      
                                          ----------------------- ----------------------- ADDITIONAL                                
                                           NUMBER                  NUMBER                  PAID-IN      RETAINED                    
                                          OF SHARES   PAR VALUE   OF SHARES   PAR VALUE    CAPITAL      EARNINGS        TOTAL       
                                          ----------- ----------- ----------- ---------  ------------- ------------- ---------------
<S>                                       <C>         <C>         <C>         <C>        <C>           <C>           <C>            
Balance at September 30, 1995   ......... 1,000,000     $10,000   4,931,933     $49,319  $12,148,576    $  311,535    $12,519,430   
Net proceeds of initial public                                                                                                      
 offering (Note B)  .....................        --          --     650,000       6,500    1,692,104            --      1,698,604   
Preferred stock dividend (Note F)  ......     6,979          70          --          --       27,846       (59,069)       (31,153)  
Net earnings  ...........................        --          --          --          --           --     2,009,485      2,009,485   
                                          ---------     -------   ---------     -------  -----------    ----------    -----------   
Balance at September 30, 1996   ......... 1,006,979      10,070   5,581,933      55,819   13,868,526     2,261,951     16,196,366   
Fair value of options to                                                                                                            
 nonemployees ...........................        --          --          --          --       62,722            --         62,722   
Preferred stock dividend (Note F)  ......    20,251         202          --          --       80,803      (281,954)      (200,949)  
Net earnings  ...........................        --          --          --          --           --     2,283,254      2,283,254   
                                          ---------     -------   ---------     -------  -----------    ----------    -----------   
Balance at September 30, 1997   ......... 1,027,230     $10,272   5,581,933     $55,819  $14,012,051    $4,263,251    $18,341,393   
                                          =========     =======   =========     =======  ===========    ==========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                                   PERIOD FROM
                                                                                                  APRIL 13, 1995
                                                                                                     (DATE OF
                                                                                                    INCEPTION)
                                                               YEAR ENDED        YEAR ENDED          THROUGH
                                                              SEPTEMBER 30,     SEPTEMBER 30,      SEPTEMBER 30,
                                                                  1997              1996               1995
                                                              ---------------   ---------------   ---------------
<S>                                                           <C>               <C>               <C>
Cash flows from operating activities:
 Net earnings .............................................    $  2,283,254      $  2,009,485      $    311,535
 Adjustments to reconcile net earnings to net cash
   provided by operating activities:
  Depreciation of property and equipment ..................       2,081,910         1,581,519           197,926
  Amortization of deferred dry-dock   .....................       1,283,269           804,678            41,667
  Amortization of organization cost   .....................          45,000            16,729                --
  Fair value of options to nonemployees  ..................          62,722                --                --
  (Increase) decrease in operating assets
   Restricted cash  .......................................       1,221,634        (1,049,445)         (363,462)
   Investments - restricted  ..............................              --                --        (4,629,000)
   Trade and other receivables  ...........................           7,621          (249,743)          (79,069)
   Insurance claim receivable   ...........................       2,165,486        (2,470,525)               --
   Due from affiliate  ....................................        (428,373)          413,957          (375,950)
   Inventory  .............................................         (39,886)       (1,139,241)           69,271
   Prepaid expenses and other current assets   ............      (1,869,780)       (2,052,147)         (934,330)
   Other assets  ..........................................              --          (200,000)         (225,000)
  Increase (decrease) in operating liabilities
   Accounts payable .......................................         245,160         3,898,697         1,868,415
   Accrued liabilities ....................................          87,834           495,109           228,141
   Due to affiliate .......................................        (174,758)          249,631                --
   Customer and other deposits  ...........................        (164,549)        1,494,703         4,344,657
   Accrued interest .......................................          (3,980)         (335,758)          206,336
                                                               ------------      ------------      ------------
    Net cash provided by operating activities  ............       6,802,564         3,467,649           661,137
Cash flows used in investing activities:
 Capital expenditures  ....................................      (2,227,206)       (4,642,139)         (672,960)
 Long-term receivable--affiliate   ........................      (1,117,913)               --                --
 Decrease in capital leases obligation   ..................              --          (223,960)          (53,079)
 Cost of acquisition, net of cash acquired  ...............              --                --        (4,868,000)
 (Decrease) increase in minority interest  ...............          (57,981)          193,018                --
                                                               ------------      ------------      ------------
    Net cash used in investing activities   ...............      (3,538,052)       (4,673,081)       (5,594,039)
Cash flows from financing activities:
 Principal payments on debt  ..............................      (3,009,165)         (260,847)               --
 Net proceeds from initial public offering  ...............              --         1,698,604                --
 Proceeds from initial issuance of common stock   .........              --                --         8,207,895
 Preferred stock dividends paid ...........................        (200,949)          (31,153)               --
                                                               ------------      ------------      ------------
    Net cash (used in) provided by financing activities   .      (3,210,114)        1,406,604         8,207,895
                                                               ------------      ------------      ------------
Net increase in cash and cash equivalents   ...............          54,398           201,172         3,274,993
Cash and cash equivalents at beginning of period  .........       3,476,165         3,274,993                --
                                                               ------------      ------------      ------------
Cash and cash equivalents at end of period  ...............    $  3,530,563      $  3,476,165      $  3,274,993
                                                               ============      ============      ============
</TABLE>

                                                                     (continued)
 

                                      F-6
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED





<TABLE>
<CAPTION>
                                                                                         PERIOD FROM
                                                                                        APRIL 13, 1995
                                                                                           (DATE OF
                                                                                          INCEPTION)
                                                     YEAR ENDED        YEAR ENDED          THROUGH
                                                    SEPTEMBER 30,     SEPTEMBER 30,      SEPTEMBER 30,
                                                        1997              1996               1995
                                                    ---------------   ---------------   ---------------
<S>                                                 <C>               <C>               <C>
Supplemental disclosure of cash flow information:
 Cash paid during the period for interest  ......     $1,845,798        $ 1,601,933           $--
                                                      ==========        ===========           =========
 Cash paid during the period for taxes .........      $       --        $        --           $--
                                                      ==========        ===========           =========
</TABLE>

Supplemental schedule of noncash investing and financing activities:


     In January 1997 and April 1996, the Company issued 20,251 shares and 6,979
shares, respectively of its Series A preference shares in partial payment of
its preferred share dividend.


        The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          SEPTEMBER 30, 1997 AND 1996


NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


ORGANIZATION


     Commodore Holdings Limited ("CHL") and its wholly-owned subsidiary New
Commodore Cruise Lines Limited ("NCCL") were organized under the laws of
Bermuda on April 13, 1995. Almira Enterprises Inc. ("Almira") and Azure
Investments Inc. ("Azure"), owners of the cruise vessels Enchanted Isle and
Universe Explorer, formerly known as the Enchanted Seas (the "Vessels"),
respectively, were organized under the laws of the Republic of Panama on
January 18, 1995 and are the wholly-owned subsidiaries of NCCL.


     In October 1995, the Company entered into a joint venture agreement with
the Seawise Foundation ("Seawise"), a Liberian Corporation. The Company has
chartered the Universe Explorer to Sea-Comm, Ltd., a Liberian Corporation
("Sea-Comm") formed pursuant to the joint venture agreement, for a fee
equivalent to all operating costs plus principal and interest on its ship
mortgage. The Company owns 50.005% of Sea-Comm and Seawise owns the remaining
49.995%.


     CHL, NCCL, Almira, Azure and Sea-Comm are collectively referred to as the
"Company".


PRINCIPLES OF CONSOLIDATION


     The consolidated financial statements include the accounts of CHL, its
wholly-owned subsidiaries and majority owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.


JOINT VENTURE


     Sea-Comm has chartered the Universe Explorer to Seawise. The terms of the
charter provide that Seawise has the use of 76% of the cabins in exchange for
payment of 76% of the operating costs, including 76% of the labor, 100% of food
costs and 76% of the principal and interest due on the Company's ship mortgage.
Sea-Comm will earn additional revenue from the sale of the 24% of the cabins on
the vessel and onboard revenues. Seawise had guaranteed the sale of 60 adult
cabins on each voyage in addition to the 76% of the cabins they will purchase.
In fiscal 1997, the passenger guarantee was increased from 60 to 66.


REVENUE AND EXPENSE RECOGNITION


     Deposits received on sales of passenger cruises are recorded as customer
deposits and are recognized, together with revenues from shipboard activities
and all associated direct costs of a voyage upon completion of voyages with
durations of 10 days or less and on a pro rata basis for voyages in excess of
10 days.


CASH AND CASH EQUIVALENTS


     The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

                                      F-8
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)


CASH AND CASH EQUIVALENTS--(CONTINUED)

     In February 1996, the Company's credit card processor established a
chargeback reserve account. At September 30, 1996, the balance of this reserve
account totaled $1,412,907. In November 1996, the Company entered into an
agreement with a new credit card processor in which the chargeback reserve
account will equal 2.5% of the Company's Visa/Master card deposits.


INVENTORIES


     Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first out method.


DRY-DOCKING


     Costs associated with the dry-docking of the vessels are charged to
prepaid expenses when incurred and expensed over the estimated period until the
next scheduled dry-dock (not to exceed two years). Prepaid dry-docking cost of
$1,439,658 and $1,512,550 net of accumulated amortization of $1,222,229 and
$846,345 are recorded in prepaid expenses as of September 30, 1997 and
September 30, 1996, respectively.


MANAGEMENT ESTIMATES


     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
September 30, 1997 and September 30, 1996 and revenues and expenses during the
reporting periods. The actual outcome of the estimates could differ from these
estimates made in the preparation of the financial statements.


FAIR VALUE OF FINANCIAL INSTRUMENTS


     The carrying value of cash and cash equivalents, trade receivables, and
accounts payable approximate fair value due to the short term maturities of
these instruments. The carrying value of the long-term receivable affiliate
approximates fair value as the interest rate earned on the receivable
approximates the current market rate.


PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Significant vessel refurbishing
costs are capitalized as additions to the vessel, while costs of repairs and
maintenance are charged to expense as incurred. Depreciation has been provided
using the straight-line method over useful lives of 18 years after a reduction
for the estimated salvage value for vessels and five to ten years for furniture
and fixtures, improvements, and other property and equipment.


INVESTMENTS--RESTRICTED

     The Company placed $4,629,000 on deposit with a bank, securing its Federal
Maritime Commission ("FMC") Bond for the Enchanted Isle (see Note G).

                                      F-9
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

ADVERTISING COSTS


     Advertising costs are expensed as incurred and are included in marketing,
selling and administrative expenses.


INCOME TAXES


     Deferred tax assets and liabilities are recorded based on the difference
between the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes. In addition, the current or deferred tax
consequences of a transaction are measured by applying the provisions of
enacted tax laws to determine the amount of taxes payable currently or in
future years.


EARNINGS PER SHARE


     Net earnings per common equivalent share is based upon the weighted
average number of shares and equivalents outstanding during each period after
giving effect for dividends on the Series A Preference Stock. Stock options and
warrants are considered common stock equivalents unless their inclusion would
be anti-dilutive, as calculated under the treasury stock method.


     The weighted average number of common and common equivalent shares
outstanding for the periods ended September 30, 1997, 1996, and 1995 is
5,801,755, 5,439,590 and 4,377,593, respectively.


RECLASSIFICATIONS


     Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.


NEW ACCOUNTING PRONOUNCEMENT


     In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", which changes the
method for reporting earnings per share. The statement is effective for
financial statement periods ending after December 15, 1997. The Company has not
yet determined the impact, if any, of adopting the new standard.


ACQUISITION COSTS


     The Company is currently in preliminary negotiations related to the
potential acquisition of several different ships. As of September 30, 1997, the
Company has incurred approximately $288,000 of costs related to these potential
acquisitions. These costs have been capitalized and are included in prepaid
expenses. In connection with one of the preliminary negotiations the Company's
CEO is an officer of the seller.


NOTE B--INITIAL PUBLIC OFFERING AND COMMON STOCK


     On July 16, 1996, the Company completed its Initial Public Offering
("IPO") of 500,000 shares of common stock and warrants to purchase 500,000
shares of common stock. On August 16, 1996, the

                                      F-10
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE B--INITIAL PUBLIC OFFERING AND COMMON STOCK--(CONTINUED)

Underwriter exercised its over-allotment option and purchased an additional
150,000 shares of common stock and warrants to purchase 75,000 shares of common
stock from the Company.

     The warrants issued are exercisable only in pairs with two warrants
entitling the registered holder to purchase one share of common stock for $6
per share. The warrants are exercisable for a period of four years commencing
one year from the date of issuance, subject to prior redemption. The warrants
may be redeemed by the Company on 25 days' notice at any time after one year
from the date of issuance for $.05 per warrant if the closing bid price of the
common stock exceeds $9.00 per share for 20 consecutive trading days ending not
more then 15 days prior to the date of any redemption notice.

     The IPO resulted in net proceeds to the Company of approximately $1.7
million after expenses of approximately $1.3 million. In connection with this
offering, the Company granted the underwriters a warrant to purchase 100,000
units at $7.36 per unit. A unit represents one share of common stock and a
warrant to purchase one-half share of common stock for $6 per share. This
warrant expires in July 2001. The Company's common stock and warrants are
listed on the NASDAQ National Market and are traded under the symbols CCLNF and
CCLWF, respectively.

     In 1995, the Company issued 3,431,933 shares of Common Stock for a total
consideration of approximately $3,012,000 which was used to finance the
start-up of the Company. On July 15, 1995, the company closed on its private
placement of equity having sold 1,500,000 shares of its common stock for net
proceeds of approximately $5,196,000.


NOTE C--PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                             1997              1996
                                          ---------------   ---------------
<S>                                       <C>               <C>
       Vessels ........................    $ 39,165,024      $ 37,086,479
       Equipment and other ............       1,083,007           840,401
       Construction in progress  ......         765,983                --
                                           ------------      ------------
                                             41,014,014        37,926,880
                                           ------------      ------------
       Accumulated depreciation  ......      (3,820,912)       (1,779,445)
                                           ------------      ------------
                                           $ 37,193,102      $ 36,147,435
                                           ============      ============
</TABLE>

     The Company capitalized interest of $-0- and $294,776 for the years ended
September 30, 1997 and September 30, 1996, respectively.

NOTE D--INVENTORIES

<TABLE>
<CAPTION>
                                                1997           1996
                                             ------------   -----------
<S>                                          <C>            <C>
       Food, beverage and supplies  ......    $1,645,735     $1,558,038
       Fuel ..............................       224,393        272,203
                                              ----------     ----------
                                              $1,870,128     $1,830,241
                                              ==========     ==========
</TABLE>

NOTE E--LONG-TERM DEBT

LONG-TERM DEBT

     In July, 1995 the Company entered into a loan agreement with an affiliate
of EffJohn (the "Lender") in the amount of $24,500,000. The loan is secured by
first preferred ship mortgages on both

                                      F-11
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE E--LONG-TERM DEBT--(CONTINUED)


LONG-TERM DEBT--(CONTINUED)

the Enchanted Isle and the Universe Explorer. The loan bears interest at LIBOR
plus 2% per annum (7.84% and 7.88% at September 30, 1997 and 1996,
respectively). Commencing in February 1997, the remaining principal balance is
due in 66 monthly principal installments of $366,034, plus accrued interest.


     In the event that the Company is required to withhold tax on any interest
due to the Lender, the Company has agreed to pay the required amount to be
withheld and pay the Lender the full amount of interest due. The loan agreement
includes covenants as defined, including a requirement that the Company
maintain a minimum amount of $1,000,000 in the operating bank accounts.


     The minimum required principal payments as of September 30, 1997 on
long-term debt are as follows:


<TABLE>
<S>                  <C>
1998  ............    $ 4,392,408
1999  ............      4,392,408
2000  ............      4,392,408
2001  ............      4,392,408
2002  ............      3,660,358
                      -----------
                      $21,229,990
                      ===========
</TABLE>

NOTE F--PREFERRED STOCK


     As part of the consideration for the sale of the cruise line, EffJohn
received 1,000,000 7% Cumulative Convertible Redeemable Series A Preferred
Stock at a value of $4.00 per share totaling $4,000,000. The cash payment of
the dividend is limited to 10% of the Company's net profits for each year. The
remaining portion of the dividend, if any, is payable in preferred stock based
on a value of $4.00 per share. At September 30, 1996 and September 30, 1995,
dividends in arrears amounted to approximately $280,000 and $60,000,
respectively. EffJohn may convert its Series A Preference Shares into Common
Stock of the Company at any time at a conversion rate equal to the greater of
USD$4.00 per share or a price per share equal to 8 times the Company's earnings
per share for its prior fiscal year. EffJohn may sell to third parties up to a
maximum of approximately 45,000 Series A Preferred Shares in any 90 day period
at any time after the Commodore Closing, subject to compliance with applicable
securities laws. The Company has the option to redeem all or any part of the
Series A Preference Shares at USD$4.00 per share at any time commencing three
years after their issuance. In July 1996, the Company completed an initial
public offering, and the Company's common stock and warrants began trading on
the NASDAQ National Market (See Note B). In accordance with the Preferred Stock
Agreement, the redemption rights of the preferred shareholders terminated when
the Company's common stock was first listed on the NASDAQ. As a result of the
completion of the offering, the Company has applied retroactive treatment to
the preferred stock and reflected the preferred stock as part of stockholders'
equity at September 30, 1997 and September 30, 1996.


     In fiscal 1997, the Company paid a dividend to the holders of its Series A
preference shares. The Company issued 20,251 Series A preference shares in
partial payment of the dividend and paid, in cash, an additional $200,949.

                                      F-12
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE F--PREFERRED STOCK--(CONTINUED)

     In fiscal 1996, the Company paid a dividend to the holders of its Series A
Preference Shares. The Company issued 6,979 Series A Preference Shares in
partial payment of the dividend and paid, in cash, an additional $31,153.


NOTE G--COMMITMENTS AND CONTINGENCIES


EMPLOYMENT AGREEMENTS


     In May 1995, the Company signed employment agreements with four of its
executive officers with terms ranging from 2 - 5 years. These agreements
contain provisions for compensation, benefits, and covenants not-to-compete for
the longer of one year from termination, or the unexpired term of the
agreement. In May 1997, the Company renewed three of the agreements with terms
ranging from a month to month basis through five years, and extended the
Chairman of the Board's contract by two years.


LITIGATION


     In October 1995 the Company, along with its vice-chairman and EffJohn were
named in a lawsuit brought by an individual who had made an offer to buy the
cruise line from EffJohn in 1993. The Company believes that it has no liability
in this case and that the lawsuit is frivolous. The Company is vigorously
defending itself in this lawsuit and management believes that this case will
not have a material impact on the Company's results of operations or financial
position.


     The Company is subject to other legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability, if any, with respect to these actions will either
be covered by insurance or will not materially affect the financial position of
the Company.


FEDERAL MARITIME COMMISSION BOND


     In order to operate a passenger cruise vessel from U.S. ports, the Company
is required to post a bond with the FMC. The amount of the bond is $4,629,000.
To guarantee its FMC Bonds, the Company has deposited funds in favor of the
Company's Protection and Indemnity Club, the Steamship Mutual Underwriting
Association (Bermuda) Limited, which has in turn issued its guaranty to the FMC
(See Note A).


PREMISES


     The Company leases office space under noncancellable, operating leases.

                                      F-13
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE G--COMMITMENTS AND CONTINGENCIES--(CONTINUED)


PREMISES--(CONTINUED)

     Future minimum annual lease commitments at September 30, 1997 are as
follows:


<TABLE>
<S>                        <C>
1998  ..................    $236,120
1999  ..................     244,268
2000  ..................     187,920
                            --------
                            $668,308
                            ========
</TABLE>

     Rental and lease expense for the years ended September 30, 1997 and 1996
and the period ending September 30, 1995 amounted to approximately $442,000,
$417,000 and $75,000, respectively.


STOCK OPTION PLAN


     In 1995, the Company adopted a Stock Option Plan (the "Plan") pursuant to
which 500,000 shares of Common Stock have been reserved for issuance upon
exercise of options designated as "incentive stock options" or "qualified
options" within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"). The purpose of the Plan is to encourage stock
ownership by certain officers and employees of the Company, and give them a
greater personal interest in the success of the Company. The Plan is
administered by the Board of Directors of the Company, or a committee appointed
by the Board of Directors, which determines among other things, the persons to
be granted options under the Plan, the number of shares subject to each option
and the option price. On October 1, 1996, the Company issued to its employees
options to purchase 326,000 shares of the Company's common stock at $2.75 per
share. The options vest at variable rates based on each employee's length of
service, and expire on October 1, 2006. During fiscal 1997, none of the stock
options were exercised and stock options to purchase 18,000 shares of the
Company's common stock were cancelled. In fiscal 1997, the Company issued to
its nonemployee directors options to purchase a total of 60,000 shares of the
Company's common stock at $2.75 per share. The options vest over 3 years and
expire in July 2007.


     Prior to October 1, 1996, the Company accounted for stock options and
warrants under APB Opinion 25 and related Interpretations. Commencing October
1, 1996, the Company accounts for non-qualified options issued to
non-employees, under SFAS 123, Accounting for Stock Based Compensation.


     During fiscal 1997, the Company issued warrants to purchase 150,000 shares
of common stock to an outside consultant. The warrants were issued with an
exercise price of $2.75 per share. The total fair value of the options, as
determined under SFAS 123, was $75,000, $62,722 of which was recorded as part
of marketing, selling and administrative expenses in fiscal 1997.


     The exercise price of all options granted by the Company to its employees
equals or exceeds the market price of the Company's common stock at the date of
the grant. Accordingly, no compensation expense has been recognized.


     Had compensation cost for the Stock Option Plan and non-qualified options
to employees been determined based on the fair value of the options at the
grant dates consistent with the method of

                                      F-14
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE G--COMMITMENTS AND CONTINGENCIES--(CONTINUED)


STOCK OPTION PLAN--(CONTINUED)

SFAS 123, the Company's net earnings and earnings per share would have changed
to the pro forma amounts below. Disclosure of such amounts is not required for
the period from April 13, 1995, (date of inception) through September 30, 1995
and accordingly is not presented below.


<TABLE>
<CAPTION>
                                   1997           1996
                                ------------   -----------
<S>                             <C>            <C>
   Net income
    As reported  ............    $2,003,254     $1,729,485
    Pro forma ...............    $1,912,201     $1,717,485
   Primary earnings per share
    As reported  ............    $      .35     $      .34
    Pro forma ...............           .33            .34
</TABLE>

     The above pro forma disclosures may not be representative of the effects
on reported net income for future years as certain options vest over several
years and the Company may continue to grant options to employees.


     The fair value of each option grant is estimated on the date of grant
using the binomial option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1997 and fiscal 1996, respectively:
dividend yield of 0.0 percent for all years; expected volatility of 38%;
risk-free interest rates of 5.5%; and expected holding periods of 3-6 years.


     A summary of the status of the Company's fixed stock options and warrants
as of September 30, 1997 and 1996, and changes during the years ending on those
dates is as follows:


<TABLE>
<CAPTION>
                                                   SEPTEMBER 30, 1997                SEPTEMBER 30, 1996
                                            --------------------------------   ------------------------------
                                                              WEIGHTED-                         WEIGHTED-
                                                               AVERAGE                           AVERAGE
                                              SHARES        EXERCISE PRICE      SHARES        EXERCISE PRICE
                                            -------------   ----------------   ------------   ---------------
<S>                                         <C>             <C>                <C>            <C>
   Outstanding at beginning
    of year   ...........................   1,800,000            $5.10             825,000         $4.03
   Granted ..............................     536,000            $2.75             975,000         $6.00
   Exercised  ...........................          --               --                  --            --
   Expired ..............................          --               --                  --            --
   Cancelled  ...........................     (18,000)           $2.75                  --            --
                                            ----------                             -------
   Outstanding at end of year   .........   2,318,000            $4.57           1,800,000         $5.10
   Options exercisable at
    end of year  ........................   1,584,584                              750,000
   Weighted average fair value of options
    and warrants granted during
    the year  ...........................   $     .89                           $      .24
</TABLE>


                                      F-15
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE G--COMMITMENTS AND CONTINGENCIES--(CONTINUED)


STOCK OPTION PLAN--(CONTINUED)

     The following information applies to options outstanding at September 30,
1997:



<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                       ---------------------------------------------------   -----------------------------
                                        WEIGHTED-
                                         AVERAGE            WEIGHTED-                        WEIGHTED-
     RANGES OF                          REMAINING            AVERAGE                          AVERAGE
  EXERCISE PRICES       SHARES       CONTRACTUAL LIFE     EXERCISE PRICE      SHARES       EXERCISE PRICE
--------------------   -----------   ------------------   ----------------   -----------   ---------------
<S>                    <C>           <C>                  <C>                <C>           <C>
       $1.00-$2.75       843,000           6.68           $2.08                109,584          $2.75
             $6.00     1,475,000           4.07           $6.00              1,475,000          $6.00
                       ---------                                             ---------
                       2,318,000                                             1,584,584
                       =========                                             =========
</TABLE>

WARRANTS


     As part of the Company's IPO in July 1996, the Company issued warrants to
purchase 725,000 shares of common stock at $6 per share (See Note B).


     In October 1995, the Company issued a warrant to purchase 250,000 shares
of common stock at an exercise price of $6.00 per share to the Seawise
Foundation. The warrants are exercisable for a period of 5 years commencing on
January 7, 1996.


     In July 1995, the Company issued 250,000 warrants to a company controlled
by the Chairman of the Board and 250,000 warrants to the Chairman of the Board.
These warrants have an exercise price of $6.00 per share and are exercisable
through July 14, 2002.


     In May 1995, certain employees were issued warrants to acquire a total of
325,000 shares of the Company's common stock. These warrants were issued with
an exercise price of $1.00 per share and become exercisable at various future
dates and expire in the year 2002.


     In October 1996, the Company issued 150,000 warrants to an outside
consultant. The warrants entitle the holder to purchase up to 150,000 shares of
the Company's common stock at an initial exercise price of $2.75 per share. The
warrants are not exercisable until November 22, 1997 and expire on November 21,
2001. However, the warrants will become exercisable immediately upon the
existence of certain events, as defined by the Warrant Agreement.


     The exercise price of these warrants are subject to adjustment in certain
events as defined by the warrant agreement.


SAFETY OF LIFE AT SEA


     During recent years, Safety of Life at Sea (SOLAS) standards have been
amended and will among other things, require most passenger vessels not fitted
with sprinkler systems to install such systems and other safety arrangements,
including the addition of smoke detectors systems, low-location lighting and

                                      F-16
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE G--COMMITMENTS AND CONTINGENCIES--(CONTINUED)


SAFETY OF LIFE AT SEA--(CONTINUED)

enclosed escape stairwells by October 1, 1997. In the event a vessel meets the
SOLAS 1974 requirements, it will not be required to be fitted with a sprinkler
system until on or before October 1, 2005. In fiscal 1997, the ships were
fitted with the safety arrangements required by SOLAS and thus currently comply
with SOLAS requirements. The Company's ships met the SOLAS 1994 requirements
and are not currently fitted with any sprinkler systems.


     The Company will do additional work to the Universe Explorer in January
1998, estimated to cost approximately $400,000, in order to have the vessel in
full compliance with U.S. Coast Guard interpretations of the SOLAS requirements
as well.


EMPLOYEE BENEFIT PLAN


     Effective October 1, 1996, the Company joined a group Retirement and
Savings Plan. The Plan is a defined contribution plan under Section 401(k) of
the Internal Revenue Service Code covering all eligible employees of the
Company. Employees who have attained the age of 21 are eligible to become
participants on the first day of the calendar month following the year of
service in which they have worked a minimum of 1,000 hours. The Company may
contribute a discretionary matching contribution equal to a percentage of the
employee's contribution. This percentage may vary from year to year.


NOTE H--RELATED PARTIES


     Several of the Company's shareholders are principals in V. Ships Marine,
Ltd. (V. Ships) formerly International Marine Carriers, a vessel manager
employed by the Company to manage the Enchanted Isle and the Universe Explorer
at a rate of $585,000 and $219,000 per annum, respectively. The management
agreements expire in fiscal 1997. In addition, the Company has an accounts
payable of $305,943 to V. Ships as of September 30, 1997. These agreements were
extended under the same terms through December 31, 1997. The Company is in the
process of negotiating the new agreements.


     Sea-Comm operates cruises to Alaska through World Explorer Cruises and
Tours, Inc. (WEC). Sea-Comm and WEC are parties to an agreement whereby the
Universe Explorer enjoys certain permits issued by the U.S. Parks Service to
cruise in the Glacier Bay Alaska area. Pursuant to this agreement, Sea-Comm
earns all revenues and pays all of WEC's marketing and overhead expenses in
conjunction with the Alaska cruises. As of September 30, 1997, the Company has
a receivable due from WEC of $471,294, which is included in due from
affiliates, and as of September 30, 1996, the Company has a liability to WEC of
$249,631, which is included in due to affiliates.


     During fiscal 1997, the Company received a series of loans totaling
$574,873 from Seawise, its joint venture partner as well as capital
contributions totaling $1,362,173. The interest rate on these loans is 8% per
annum and have no set maturity date.


     As part of the joint venture agreement with Seawise (Note A), the Company
is entitled to be reimbursed by Seawise for certain improvements made to the
Universe Explorer. The terms of the reimbursement is based on the joint venture
agreement. The first payment is not required until fiscal

                                      F-17
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996


NOTE H--RELATED PARTIES--(CONTINUED)

1999. As of September 30, 1997 and 1996, the related receivable from Seawise is
$1,117,913 and $-0-, respectively, and is recorded as long-term receivable
affiliate.


NOTE I--INCOME TAXES


     Certain entities are exempt from U.S. corporate income tax on U.S. source
income from their international shipping operations if (i) their countries of
incorporation exempt shipping operations of U.S. persons from income tax (the
"Incorporation Test") and (ii) they meet the "Ultimate Owner Test." A foreign
company meets the Ultimate Owner Test if its stock is primarily and regularly
traded on a U.S. stock exchange or on a stock exchange in a foreign country
that exempts U.S. persons from tax on shipping earnings. The Company is
involved in international shipping operations which meet the Incorporation Test
because the Company and its subsidiaries are incorporated in Bermuda and
Panama, respectively which provide the required exemption to U.S. persons
involved in shipping operations, and the Company believes it meets the Ultimate
Owner Test due to its stock being primarily and regularly traded on the NASDAQ
National Market (See Note B). The issue of residence is, however, inherently
factual and cannot be determined with certainty. The Company is subject to U.S.
income tax on its U.S. source income that is not from the international
operation of a ship.


     However, because there are no regulations to date interpreting this
exemption and because satisfying the requirements under the exemption depends
upon meeting certain factual tests, there is no assurance that the Company will
continue to qualify for the tax exemption.


     Based on the foregoing, the Company expects most of its income to remain
exempt from United States income taxes. Also, as the earnings from shipping
operations are derived from sources outside of Panama, such earnings are not
subject to Panamanian taxes. Bermuda imposes no income tax on corporations.


NOTE J--LOSS ON FIRE


     On July 27, 1996, the Universe Explorer had a fire on-board which resulted
in the death of five crew members and loss of revenue. The majority of the
losses by passenger and crew, damage to the hull and machinery of the vessel
and loss of hire is covered by the Company's insurance policies, subject to
applicable deductibles. As a result, the Company has an insurance receivable
balance of $305,038 and $2,470,525 at September 30, 1997 and 1996,
respectively. In 1996, the Company incurred a loss after insurance of $397,310
related to the fire.

                                      F-18
<PAGE>

                  COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

                          SEPTEMBER 30, 1997 AND 1996
NOTE K--SUMMARIZED QUARTERLY FINANCIAL DATA FOR 1997 AND 1996 (UNAUDITED)



<TABLE>
<CAPTION>
                                               FIRST         SECOND      THIRD       FOURTH
                                              QUARTER       QUARTER     QUARTER     QUARTER      YEAR
                                              -----------   ---------   ---------   ---------   --------
                                                   (IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
<S>                                           <C>           <C>         <C>         <C>         <C>
   1997
   Revenues  ..............................    $12,234      $13,773     $14,218     $16,096      $56,321
   Operating income   .....................        466           87         585       1,077        2,215
   Net earnings available for common
    shareholders   ........................        105           96         623       1,179        2,003
   Earnings per share .....................        .04          .03         .11         .17          .35
   1996
   Revenues  ..............................    $ 7,689      $11,485     $15,164     $13,478      $47,817
   Operating income (loss)  ...............        (70)         902         789       1,855        3,475
   Net earnings (loss) available for common
    shareholders   ........................        (19)         155         414       1,180        1,730
   Earnings per share .....................         --          .03         .03         .28          .34
</TABLE>

NOTE L--SUBSEQUENT EVENT


     In November 1997, the Company commenced a private debt offering. The
Company's intent is to issue up to $3.8 million of 7% convertible subordinated
debentures.

                                      F-19
<PAGE>

                         INDEPENDENT AUDITORS' REPORT



The Board of Directors
 EffJohn International B.V.:


     We have audited the accompanying combined statement of operations,
operating units' equity and cash flow of the S/S Enchanted Seas and S/S
Enchanted Isle (operating units of EffJohn International B.V.), for the period
from January 1, 1995 through July 14, 1995. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audit.


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


     In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined results of their
operations and their cash flows of the S/S Enchanted Seas and S/S Enchanted
Isle (operating units of EffJohn International B.V.), for the period from
January 1, 1995 through July 14, 1995 in conformity with generally accepted
accounting principles.


     As discussed in note 3, the Company and EffJohn International B.V. have
incurred significant accumulated losses and a working capital deficit. The
Company and EffJohn International B.V. will remain economically dependent on
its parent for additional advances until they achieve profitable operations.



                                        /s/ KPMG Peat Marwick LLP


Fort Lauderdale, Florida
May 7, 1996
 

                                      F-20
<PAGE>

                              S/S ENCHANTED SEAS
                            AND S/S ENCHANTED ISLE
                (OPERATING UNITS OF EFFJOHN INTERNATIONAL B.V.)
                       COMBINED STATEMENT OF OPERATIONS

           FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JULY 14, 1995




<TABLE>
<CAPTION>
Revenue:
<S>                                      <C>
 Passenger fares .....................    $   13,241,158
 Port charges ........................         1,926,605
 On board revenue   ..................         3,972,362
                                          --------------
   Total revenue .....................        19,140,125
                                          ==============
Operating expenses:
 Technical and running costs .........        11,188,132
 Ship's operating expenses   .........         6,771,538
 Repairs and maintenance  ............         2,168,105
                                          --------------
   Total operating expenses  .........        20,127,775
                                          --------------
   Gross loss ........................          (987,650)
                                          --------------
Other operating expenses:
 Administrative expenses  ............         3,175,947
 Marketing expenses ..................         2,704,143
 Depreciation and amortization  ......         1,910,413
                                          --------------
   Operating loss   ..................        (8,778,153)
                                          --------------
Other income (expense):
 Interest income .....................            41,317
 Interest expense   ..................        (2,232,347)
 Loss on sale of assets   ............        (6,123,866)
                                          --------------
                                              (8,314,896)
                                          --------------
   Net loss   ........................    $  (17,093,049)
                                          ==============
</TABLE>

            See accompanying notes to combined financial statements.


                                      F-21
<PAGE>

                              S/S ENCHANTED SEAS
                            AND S/S ENCHANTED ISLE
                (OPERATING UNITS OF EFFJOHN INTERNATIONAL B.V.)
                 COMBINED STATEMENT OF OPERATING UNITS' EQUITY


           FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JULY 14, 1995




<TABLE>
<S>                                    <C>
Balance at December 31, 1994  ......       (5,584,662)
 Net loss   ........................      (17,093,050)
                                          -----------
Balance at July 14, 1995   .........    $ (22,677,712)
                                        =============
</TABLE>

            See accompanying notes to combined financial statements.

                                      F-22
<PAGE>

                              S/S ENCHANTED SEAS
                            AND S/S ENCHANTED ISLE
                (OPERATING UNITS OF EFFJOHN INTERNATIONAL B.V.)
                       COMBINED STATEMENT OF CASH FLOWS

           FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JULY 14, 1995




<TABLE>
<S>                                                    <C>
Net loss  ..........................................    $ (17,093,049)
Depreciation and amortization  .....................        1,910,413
Loss on sale of assets   ...........................        6,123,866
Amortization of deferred drydock  ..................        1,254,921
Changes in:
 Restricted cash   .................................          234,965
 Accounts receivable  ..............................         (625,476)
 Inventories .......................................         (371,637)
 Prepaids and other assets  ........................          215,431
 Passenger deposits   ..............................       (5,231,861)
 Due to/from affiliates  ...........................        2,299,934
                                                        -------------
   Net cash used in operations .....................      (11,282,493)
                                                        -------------
 Proceeds from sale of assets  .....................        5,000,000
 Capital expenditures ..............................       (1,448,017)
                                                        -------------
   Net cash provided by investing activities  ......        3,551,983
                                                        -------------
 Proceeds from debt   ..............................        8,985,735
 Repayments of debt   ..............................       (1,127,551)
                                                        -------------
   Net cash provided by financing activities  ......        7,858,184
                                                        -------------
 Net change in cash and cash equivalents   .........          127,674
 Beginning cash and cash equivalents ...............          824,870
                                                        -------------
   Ending cash and cash equivalents  ...............    $     952,544
                                                        =============
</TABLE>

            See accompanying notes to combined financial statements.


                                      F-23
<PAGE>

                              S/S ENCHANTED SEAS
                            AND S/S ENCHANTED ISLE
                (OPERATING UNITS OF EFFJOHN INTERNATIONAL B.V.)
                 COMBINED STATEMENT OF CASH FLOWS--(CONTINUED)

           FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JULY 14, 1995




<TABLE>
<S>                                  <C>
Supplemental cash flow disclosure:
The following summarizes non-cash activities related to
the sale of the Company's assets:
 Vessels  ........................    $ (36,500,000)
 Inventories .....................       (1,100,000)
 Liabilities incurred ............       (2,023,866)
 Promissory note received   ......       24,500,000
 Preferred stock received   ......        4,000,000
 Cash received  ..................        5,000,000
                                      -------------
 Loss on sale of assets  .........    $  (6,123,866)
                                      =============
</TABLE>

            See accompanying notes to combined financial statements.

                                      F-24
<PAGE>

                              S/S ENCHANTED SEAS
                             AND S/S ENCHANTED ISLE
                (OPERATING UNITS OF EFFJOHN INTERNATIONAL B.V.)

                     NOTES TO COMBINED FINANCIAL STATEMENTS

           FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JULY 14, 1995


(1) BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


(A) BUSINESS ORGANIZATION


     Brasil Caribean Shipping, Inc. ("Brasil") and Argentina Caribean Shipping
Inc. ("Argentina"), both Panamanian corporations, are wholly-owned subsidiaries
of EffJohn International B.V. ("EffJohn"), a Dutch corporation. EffJohn is
ultimately owned by Silja OY AB, a Scandinavian publicly held entity.


     Brasil owned the cruise vessel S/S Enchanted Seas ("Seas"), which operated
primarily in the Caribbean markets out of New Orleans, Louisiana. Argentina
owned the cruise vessel S/S Enchanted Isle ("Isle"), which operated out of San
Diego to Mexico through April 1993, in the Caribbean market out of Barbados and
out of New Orleans in 1995 and also operated as a hotel in St. Petersburg,
Russia from May 1993 through August 1994. Both vessels were operated and
managed by Commodore Cruise Line Limited ("Commodore"), a wholly-owned
subsidiary of EffJohn. Commodore also operated the vessels Caribe I, Crown
Monarch, Crown Jewel and Crown Dynasty.


     These financial statements have been prepared on a combined basis
representing the activities of Brasil and Argentina and the revenue and direct
and allocated expenses of Commodore from operations of the Seas and the Isle.
The combined operations are herein referred to as the "Company." All material
intercompany balances and transactions have been eliminated in combination.


(B) REVENUE AND EXPENSE RECOGNITION


     Passenger ticket revenue, onboard revenue and related expenses are
recognized as earned when voyages are completed. Fares received from customers
for future voyages are recorded as liabilities. Onboard revenue consist of
income from concession agreements (note 6), casino, bar operation and shore
tour activities.


     Travel agent commissions, air transportation and land excursions costs,
and onboard cost of sales and expenses are included in ships operating expenses
in the accompanying combined financial statements.


     Certain expenses, common to vessels operated by Commodore, have been
allocated to the Seas and Isle, primarily based on a pro rata share of the
number of traffic days of each vessel. Allocated expenses consist principally
of marketing and advertising, shore payroll, benefits, and other administrative
costs. See note 4 as to allocation of interest expense.


     Management believes that the methodology used in allocating expenses is
reasonable. As all expenses of EffJohn have been subject to allocation,
management believes that the expenses of the Company would not be materially
different on a stand alone basis.


(C) INVENTORIES


     Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.

                                      F-25
<PAGE>

                              S/S ENCHANTED SEAS
                             AND S/S ENCHANTED ISLE
                (OPERATING UNITS OF EFFJOHN INTERNATIONAL B.V.)

              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

           FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JULY 14, 1995


(1) BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES--(CONTINUED)

(D) PROPERTY AND EQUIPMENT


     Vessels, property and equipment are recorded at cost. Major renewals and
improvements, which extend the useful lives of the assets, are capitalized.
Drydocking costs are deferred and amortized over 24 months.


(E) INCOME TAXES


     The operations of the Isle and Seas are not subject to U.S. income taxes
due to an international shipping exemption and no income taxes in the country
of incorporation. Accordingly, no provision for income taxes has been recorded.
 


(F) USE OF ESTIMATES


     The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.


(2) SALE OF THE SEAS AND THE ISLE AND RELATED ASSETS


     On July 14, 1995, the Company sold the Seas and the Isle, certain
shoreside assets, trademarks, passenger lists and advanced ticket sales to
Commodore Holdings Limited and Subsidiaries, an unrelated entity. Total
proceeds received for the transaction were $33,500,000, which consisted of
$5,000,000 in cash, a loan made to the purchasers of $24,500,000 and 1,000,000
shares of 7 percent cumulative convertible redeemable Series A Preferred Stock
at value of $4.00 per share. The loss associated with this sale was $6,123,866.
 


(3) LIQUIDITY


     The Company's current liabilities exceed current assets and total
liabilities exceed total assets. It incurred losses in 1995 and 1993 and has
received capital contributions and loans from EffJohn to cover its operating
cash needs. The parent company of EffJohn has agreed to provide additional cash
advances or obtain external financing. if required, in 1996. The Company and
EffJohn will remain economically dependent on its parent for additional
advances until it achieves sustained profitable operations.


(4)  AFFILIATE LONG-TERM DEBT


     EffJohn provides financing to the vessels operated by Commodore through
external loans obtained from third parties. Debt amounts have been allocated to
the Seas and the Isle based on acquisition debt, funding of capital
improvements and working capital needs. Debt repayments and interest expense
have

                                      F-26
<PAGE>

                              S/S ENCHANTED SEAS
                             AND S/S ENCHANTED ISLE
                (OPERATING UNITS OF EFFJOHN INTERNATIONAL B.V.)

              NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

           FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JULY 14, 1995


(4)  AFFILIATE LONG-TERM DEBT--(CONTINUED)

been allocated based on a pro rata share of outstanding debt and capital
contributions made by EffJohn. Certain debt incurred by EffJohn to fund the
Company is secured by the Seas and the Isle. Interest rates on the external
debt range from 4.18 percent to 7.82 percent.


(5) COMMITMENTS AND CONTINGENCIES


     The Company is a defendant in various lawsuits incidental to its
operation. Such claims are generally covered by insurance, less a deductible
payable by the Company. In the opinion of management, the ultimate resolution
of these matters will not have a material effect on the Company's financial
position, results of operations or liquidity.


(6) CONCESSION AGREEMENTS


     The Company had entered into concession agreements with independent third
parties for the operations of the gift shop, beauty shop and photography
services.


     Fringe revenues from concessions were computed based upon information
contained in each specific agreement. Generally, such agreements call for
payments to the Company based upon number of passengers or a percentage of
sales.

                                      F-27
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT                             DESCRIPTION
-------                             -----------

10z            First Amendment to Employment Agreement by and between
               Commodore Holdings Limited and Jeffrey I. Binder dated
               July 15, 1997

11             Computation of Earnings per share of Common Stock

27             Financial Data Schedule