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, 1998

                                       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)

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

4000 HOLLYWOOD BOULEVARD, SUITE 385-S, SOUTH TOWER, HOLLYWOOD, FL  33021
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                   (ZIP CODE)

                                  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 $5.67 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 21, 1998, the aggregate market value of the Common Stock
held by non-affiliates was approximately $38,644,713.

         As of December 21, 1998, the number of shares of Common Stock of the
registrant outstanding was 7,439,821.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III--Definitive Proxy Statement for the 1999 Annual Meeting of Shareholders



<PAGE>

                                TABLE OF CONTENTS

                                     PART I

                                                                            PAGE
                                                                            ----
Item 1.         Business                                                      1 
Item 2.         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                         15

                                PART II

Item 5.         Market for Registrant's Common Equity and Related
                Stockholder Matters                                          16
Item 6.         Selected Financial Data                                      17
Item 7.         Management's Discussion and Analysis of Financial Condition    
                and Results of Operations                                    18
Item 7A.        Quantitative and Qualitative Disclosure About Market Risk    24
Item 8.         Financial Statements and Supplementary Data                  24
Item 9.         Changes in and Disagreements with Accountants on      
                Accounting and Financial Disclosure                          24

                               PART III

Item 10.        Directors and Executive Officers of the Registrant           25
Item 11.        Executive Compensation                                       25
Item 12.        Security Ownership of Certain Beneficial Owners and
                Management                                                   25
Item 13.        Certain Relationships and Related Transactions               25

                                PART IV

Item 14.        Exhibits, Financial Statement Schedules and Reports on
                Form 8-K                                                     25

                                       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"), and has chartered a
third ship, the M/V Enchanted Capri (the "Enchanted Capri") (collectively, the
"Cruise Ships"). 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 aboard the Universe Explorer during the balance of
the year. The Company assigned its charter for the Enchanted Capri to Capri
Cruises, a joint venture formed in 1998 by the Company and Isle of Capri
Casinos, Inc. ("Isle of Capri") (formerly Casino America). The Enchanted Capri
offers two- and five-day cruises from the port of New Orleans that emphasize
gaming.

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 Cayman 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 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 paid 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 "EffJohn
Lender"), an affiliate of EffJohn. The promissory notes were 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 the Enchanted Isle and the Universe
Explorer.

         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. The Company also arranged, through a bank in New
England, an escrow account for the purpose of selling cruises from U.S. ports on
the Universe Explorer and on the Enchanted Capri. This FMC escrow arrangement
requires the Company to deposit all monies received for such sailings, plus a
minimum 


<PAGE>

amount as defined by the escrow agreement, in a restricted account, and to
report the balance of the account to the FMC on a weekly basis.

         THE LOANS. The EffJohn Lender loaned the Company $24,500,000 (the
"EffJohn Loan") for purposes of acquiring the Enchanted Isle and the Universe
Explorer. The EffJohn Loan was secured by substantially all of the assets of New
Commodore including a first preferred ship mortgage on the Enchanted Isle. The
EffJohn Loan bears interest at LIBOR plus 2% (currently 7.75%) 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 EffJohn
Lender amended the terms of the EffJohn 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 EffJohn Loan was amended to provide for monthly repayment of principal
and interest for the remaining term of the EffJohn Loan.

         On December 4, 1998, the Company entered into a Loan and Security
agreement with KeyCorp Leasing Co. Inc. ("Key") for $10 million (the "Key
Loan"). The Key Loan is secured by a first preferred ship mortgage on the
Universe Explorer. In conjunction with this loan agreement, the Company entered
into an Interest Rate Swap Agreement with an affiliate of the leasing company,
whereby the interest rate on the loan agreement is fixed at 9.14% over the term
of the Key Loan. The monthly principal payments of the Key Loan are fixed for
the first year at $41,667, and the remainder of the loan is based on an
amortization schedule of 14 years. The remaining unpaid principal and interest
is due on December 4, 2006, the date of maturity. The proceeds from the Key Loan
were used to repay a portion of the EffJohn Loan relating to the Universe
Explorer, and for working capital.

         In the event that the Company is required to withhold income tax on any
interest due to the EffJohn Lender or Key, the Company has agreed to pay the
required amount to be withheld and pay the EffJohn Lender or Key, the full
amount of interest due under its respective agreements with the Company.

         The terms of the EffJohn and Key Loans 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 Enchanted Isle) without the prior
consent of the EffJohn 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, the Key Loan prohibits the Company
from placing any additional liens on the Universe Explorer and requires the
Company to meet certain financial covenants with respect to tangible net worth,
leverage and debt service coverage ratios. If the Company fails to meet any of
the foregoing requirements or cure any defaults within the permitted time
periods, the EffJohn Lender or Key could declare the Company in default under
the applicable loan, and potentially foreclose upon the Enchanted Isle, the
Universe Explorer 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 were entitled
to a cumulative 7% dividend on an annual basis. This dividend was payable, in
cash, from a maximum of 10% of New Commodore's net profits for such year with
the remaining amount payable in Series A Preference Shares. EffJohn, as holder
of the Series A Preference Shares, was entitled to elect one member of the Board
of Directors of the Company, as long as it owned at least 125,000 Series A
Preference Shares. During fiscal 1998, all of the Series A Preference Shares
were sold by EffJohn and subsequently converted into common stock of the Company
at a conversion rate equal to USD $4.00 per share.

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.

                                       2
<PAGE>

         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.

CALENDAR YEAR                   NORTH AMERICAN CRUISE PASSENGERS(1)
-------------                   -----------------------------------
                                            (IN MILLIONS)

         1993                                    4.5
         1994                                    4.5
         1995                                    4.4
         1996                                    4.7
         1997                                    5.1

----------------
(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 1997 was 8.5% over the 1996 figure, with demand
increasing during 1998. The average growth rate for North American cruise
passengers from 1980 through 1997 was approximately 7.9% 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 1998,
the North American market was served by 30 cruise lines, operating 131 vessels.
Aggregate 1998 market capacity is estimated at 138,841 berths, an increase of
17.4% over the previous year. In addition, an estimated 9 new cruise vessels
offering 15,806 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 percentage
of 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.

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 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, 

                                       3
<PAGE>

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 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 $173 - $262. 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 Enchanted Isle and the Universe Explorer from that of a
foreign country to the U.S.A. U.S. flag vessels 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.

CAPRI CRUISES

         In March 1998, the Company chartered a 640-passenger ship, the M/V
Enchanted Capri until January 1, 2003. The Enchanted Capri is a 15,409-ton
cruise ship which was built in 1975, at Wartsila Shipyard in Turku, Finland. The
Enchanted Capri has 241 cabins, including eight suites, and eight passenger
decks. It is 512 feet long and 72 feet wide, and has a cruising speed of over 20
knots. The Enchanted Capri offers full cruise amenities such as a swimming pool,
restaurants, gift shops, bars, lounges, a theater, disco, gym, sauna, beauty
salon, and a full casino.

                                       4
<PAGE>

         In April 1998, the Company entered into a joint venture agreement with
Isle of Capri, the owner of five riverboat and dockside casinos. Pursuant to the
joint venture agreement, subsidiaries of Isle of Capri and the Company formed a
general partnership known as Capri Cruises, to jointly operate the Enchanted
Capri from New Orleans, Louisiana, commencing in June 1998. The Company and Isle
of Capri each own equal portions of Capri Cruises. As a result the Company has
assigned its interest in the Enchanted Capri charter to Capri Cruises. The
Enchanted Capri is operated pursuant to this agreement. The Company operates the
vessel while Isle of Capri manages the casino onboard the vessel as an "Isle of
Capri" casino, including establishing and maintaining the internal controls for
the casino. The Company and Isle of Capri also engage in joint marketing efforts
with the Company marketing the base cruise product and Isle of Capri marketing
the gaming product.

CRUISE OPERATIONS

         ITINERARIES. The Company operates two-, five-, and seven-day cruises
aboard the Enchanted Isle and the Enchanted Capri that originate and end in New
Orleans. The two-day cruise is a "Weekender" cruise with no port calls. The
five-day cruise calls in Playa del Carmen (Mexico), and Cozumel (Mexico) and the
standard seven-day itinerary features calls in Playa del Carmen (Mexico),
Cozumel (Mexico), Grand Cayman (Cayman Islands) and Montego Bay (Jamaica).
Occasionally the Company varies its itineraries on the seven-day route and
offers Key West (Florida) or Roatan/Puerto Cortes (Honduras) instead of Grand
Cayman and Montego Bay. The two- and five-day cruises are operated by the
Enchanted Capri and the seven-day cruises by the Enchanted Isle.

         MARKETING AND PROMOTION. The Company has committed significant
resources to marketing and promotion through advertising, public relations, and
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.

                                       5
<PAGE>

         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.

         CAPRI CRUISES MARKETING. In addition to the Company's cruise marketing,
the Company's partner in Capri Cruises markets the Enchanted Capri to its list
of repeat gaming clients. As is customary in the casino industry, passengers who
have repeatedly gambled high amounts of money are given many complimentary
services, including but not limited to, cabin upgrades, drinks, complimentary
tokens or chips to play in the casino, and in the case of the best customers,
complimentary accommodations.

         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 25 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 static, the European cruise
market has been growing. 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 two of only three 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.

                                       6
<PAGE>

         The Enchanted Capri was originally constructed by the Wartsila Shipyard
in Turku, Finland in 1975. The Enchanted Capri is designed to be a seagoing
resort with restaurant, discotheque, movie theater, full service communication
facilities, jogging courses, workout rooms, numerous bars, pool, sun deck areas
and deck activities. The Enchanted Capri features an "Isle of Capri" 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 Capri 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 $173 to $262, 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 and
the Enchanted Capri 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
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 and the
Enchanted Capri are currently two of only three 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, 9 additional ships
(representing approximately 15,806 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 8.5% during 1997. 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.

                                       7
<PAGE>

THE SEA-COMM 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 operates
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 EffJohn Loan (assuming that the EffJohn Loan had
continued for the Universe Explorer according to its original terms)
attributable to the Universe Explorer. Sea-Comm also earns revenue from the sale
of the other 24% of the cabins (which hold approximately 176 persons) on the
vessel. Seawise has purchased these cabins from Sea-Comm for $1.5 million per
semester during 1999 and 2000, $1.65 million per semester in 2001 and 2002 and
$1.7325 million per semester in 2003 through 2005.

         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 earns revenues from
ticket sales for all cabins and pay fees to WEC and Hemisphere for providing
certain services to Sea-Comm.

         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 

                                       8
<PAGE>

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. In the summer of 1998, Sea-Comm operated, seven
14-day and one 7-day Alaska cruises onboard the Universe Explorer. The Company,
in conjunction with WEC, also offered 7-day cruises beginning in either
Vancouver or Seward, Alaska. In the summer of 1997 Sea-Comm operated seven
14-day Alaska cruises. 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 are Ketchikan, Juneau, Wrangell,
Glacier Bay, Sitka, Yakutat Bay/Hubbard Glacier, Seward, Skagway, and Victoria.

         WEC has been operating Alaska cruises for 21 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. In the winter of 1998, Sea-Comm operated one
8-day Caribbean and one 14-day Caribbean cruise. These cruises began and ended
in Nassau, Bahamas. Ports of call for the 8-day cruise were Playa Del
Carmen/Cozumel (Mexico), Grand Cayman (Cayman Islands) and Ocho Rios (Jamaica).
Ports of call for the 14-day cruise were Ocho Rios (Jamaica), Cartagena
(Columbia), a partial transit of the Panama Canal, Puerto Limon (Costa Rica) and
Playa Del Carmen/Cozumel (Mexico). At present there are no future plans for
Caribbean cruises on the Universe Explorer.

         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 space charter and agreed-upon payments for the balance of
the cabins ), its revenue does not vary materially based on the number of
students or adult passengers aboard the vessel. As a result, marketing to
passengers is not of material importance to Sea-Comm.

         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 

                                       9
<PAGE>

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.

         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 ship.
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
$14,980 for double occupancy, to $17,980 for single occupancy 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.

         WEC's Alaska cruises are list-priced per person (based on double
occupancy) from $2,095 to $3,695 for its 14-day cruises and from $1,345 to
$2,395 for its 7-day cruise, excluding commissions to travel agents, which will
be paid by Sea-Comm. WEC's winter 1998 Caribbean cruises were 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 were 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. At present there are no future plans
for Caribbean cruises on the Universe Explorer.

         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 

                                       10
<PAGE>

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 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. The Enchanted Capri was out of service for approximately 3 months prior to
her delivery to the Company on June 3, 1998. In addition, the ship was stopped
for ten days in June 1998 for additional startup work. 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.

         Due to the age of the Enchanted Isle and the Universe Explorer, 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 872 people, of whom approximately 794
serve as officers and crew on the Cruise Ships and approximately 78 are employed
shoreside in various sales and marketing, as well as administrative and
management positions.

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

                                       11
<PAGE>

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 any 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, $60,000 and $40,000 per day of lost
service for the Enchanted Isle, Universe Explorer and Enchanted Capri,
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,
Universe Explorer and Enchanted Capri. Such coverage has no limitation, but is
subject to a deductible equal to $50,000, $10,000 and $23,000, 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 and Enchanted Capri have an escrow account
established pursuant to the rules and regulations of the FMC. The Universe
Explorer operated seven sailings from a U.S. port in Alaska in the summer of
1998. Deposits collected for these sailings were deposited in the escrow account
until the sailings operated. The Enchanted Capri sails from a U.S. port and has
its deposits placed in escrow as well. The Company reports the balances weekly
to both the escrow agent and to the FMC.

GOVERNMENT REGULATION

         The Company's vessels are registered in Panama and the Bahamas, and are
subject to regulations issued by Panama and the Bahamas, 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 Cruise Ships will be inspected at least annually by the
Panamanian and Bahamian 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 

                                       12
<PAGE>
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 Universe Explorer and the Enchanted Isle
classification societies and the Directorate of Consular and Maritime Affairs of
the ships' Flag State (Panama) have confirmed that such ships meet the SOLAS
1974 requirements. The Enchanted Capri, which was built in 1975, was built in
compliance with SOLAS 1974 requirements. The cost of installation of sprinkler
systems is estimated to be approximately $3,000,000 per vessel. 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 carried out additional work to
the Universe Explorer in January 1998, in order to have that vessel in full
compliance with U.S. Coast Guard interpretations of the SOLAS requirements as
well.

         In January 1999, the Company will place the Universe Explorer in
drydock primarily for the installation of a sprinkler system aboard the vessel.
In order to comply with SOLAS, a sprinkler system must be installed aboard each
of the Company's vessels on or before October 1, 2005. The installation of the
sprinkler system aboard the Universe Explorer is expected to be completed in
February 1999 at which time the ship will commence the Spring 1999 Semester at
Sea voyage.

         In 1993, SOLAS was amended to adopt the "International Safety
Management Code" (the "ISM Code"). The ISM Code provides an international
standard for the safe management and operations of ships and for pollution
prevention. The ISM Code became mandatory for passenger vessel operators on July
1, 1998. All of the Company's vessels have obtained the required certificates
demonstrating compliance with ISM Code.

         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
respect to the ship construction subsidies, the Enchanted Isle and the Universe
Explorer 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.

         The Cruise Ships maintain the standards of design, construction and
maintenance appropriate to their trades and are operated and maintained under
the continuous maintenance survey system of the American Bureau of Shipping,
Lloyds Register of Shipping and Det Norske Veritas, 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. 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
                                       13
<PAGE>

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.

         To provide for additional office space due to the addition of Capri
Cruises, the Company has leased, from an unaffiliated third party, approximately
3,300 square feet of office space, at a price of $12.00 per square foot until
June 2000.

         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 1998 was
approximately $55,000. The Company ceased paying for the New York, New York
space in June, 1998.

         The Company also utilizes a pier at the Port of New Orleans, pursuant
to a written agreement, from which two of its Cruise Ships depart, 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, as amended, which was assigned to the Company by Old
Commodore, permits the Company to operate a vessel from New Orleans until April
9, 2002. The Company has priority use of the terminal on weekends. 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.

ITEM 3. LEGAL PROCEEDINGS

         In October 1995, Kristian Stensby filed an action in the Circuit Court
in Dade County, Florida against EffJohn, the EffJohn 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 court has entered summary judgment in favor of
the Company, Mr. Mayer and all other defendants except EffJohn on all counts
alleged by Mr. Stensby except the unfair competition and tortious interference
counts. The court is considering the Company's renewed motion for summary
judgment on these remaining two counts. The court is expected to rule on this
motion within the next 60 days. 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.

                                       14
<PAGE>


OPTIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth as of December 17, 1998 certain
information regarding the executive officers of the Company. All executive
officers serve in their respective positions until their successors are
appointed.


NAME                       AGE      POSITION AND PRINCIPAL BUSINESS EXPERIENCE
----                       ---      -------------------------------------------

Jeffrey I. Binder          52       Chairman of the Board since 1995; Chairman
                                    of the Board of Tel-Med, a company which
                                    developed medical products and provided
                                    medical related services, from 1991 to
                                    1997; Chairman of the Board and a
                                    director of H.P. America, Inc., a
                                    privately traded holding company which
                                    owns medical practice companies, since
                                    1995; Chairman of the Board and a
                                    director of JeMJ Financial Services,
                                    Inc., a private holding company since
                                    1989.

Frederick A. Mayer         64       Vice Chairman of the Board and Chief
                                    Executive Officer since 1995; Co-founder and
                                    Vice Chairman of Regency Cruises Inc.
                                    ("Regency") between 1984 and April 1995;
                                    President of Exprinter International USA, a
                                    travel organization, between 1969 and 1995;
                                    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          61       President since 1995; Business and Marketing
                                    consultant 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              44       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.

                                       15
<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 October 1, 1996, and
September 30, 1998. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.


                                              COMMON STOCK
                                              ------------
         FISCAL YEAR       QUARTERS        HIGH             LOW
         -----------       --------        ----             ---
         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
         1998              First           3 7/8             2 1/8
                           Second          5 11/16           2 5/8
                           Third           6 11/16           4 3/8
                           Fourth          6 3/8             4


As of December 21, 1998 there were 45 record holders of the Company's Common
Stock and approximately 1,403 beneficial owners of the Company's Common Stock.
The closing bid price for the Common Stock on that day was $6.25.

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 EffJohn
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 was limited to 10% of the Company's net profits for such
year. The remaining portion of the dividend, if any, was payable in Series A
Preference Shares based on a value of $4.00 per share. In fiscal years 1998 and
1997, the Company paid a dividend to the holders of its Series A Preference
Shares of $228,325 and $200,949 in cash and 14,825 and 20,251 Series A
Preference Shares, respectively. In fiscal 1998, all of the Series A Preference
Shares were converted to Common Stock.

                                       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 Consolidated
Financial Statements and the Notes thereto included in Item 14 herein.
<TABLE>
<CAPTION>
                                                PREDECESSOR            THE COMPANY     PRO FORMA    
                                          ----------------------       ------------   ------------
                                                   YEAR                PERIOD ENDED    YEAR ENDED
                                             ENDED DECEMBER 31,        SEPTEMBER 30,  SEPTEMBER 30,
                                          ----------------------       ------------   ------------
                                                    1994                  1995(2)       1995(1)   
                                                   ------                -------       --------   
                                                                                      (UNAUDITED)
                                            (DOLLARS IN THOUSANDS, EXCEPT PER
                                                    SHARE DATA)
<S>                                              <C>                   <C>   
INCOME STATEMENT DATA:
Total revenues                                   $  41,860             $   7,256     $  35,075
Operating expenses                                  28,527                 4,941        33,337
Selling & administrative expenses                    6,484                 1,664         9,899
Depreciation and amortization                        3,599                   198         1,693
Interest Expense, net                                1,294                   133         1,933
Write-off of goodwill                                 --                    --            --   
Other Income                                          --                    --            --   
Loss on Vessel Fire                                  1,367                  --           1,367
Minority interest share of (earnings)
loss of consolidated joint venture                    --                    --            --   
Minority interest share of loss
 of unconsolidated joint venture        

Net earnings (loss) before tax                         589                   320       (13,154)
Provision for taxes                                   --                       8          --   
Net earnings (loss) before
 preferred stock dividend                              589                   312       (13,154)
Provision for preferred stock
dividend                                              --                      60           280
Net earnings (loss) available for
 Common Stockholders                             $     589             $     312     $ (13,434)
Net earnings (loss) per share -         
Basic(4)                                         $    --               $    0.06     $   (2.59)
Average shares outstanding - Basic      
(000's)                                                                    4,378         5,185    
Net earnings (loss) per share -
Diluted(3)(4)                                    $    --               $    0.06     $    --   
Average shares outstanding
Diluted(000's)                                        --                   4,378         5,185
OPERATING DATA (UNAUDITED):
Sailings                                                53                    11            64
Traffic days(5)                                        371                    77           444
Passenger days(6)                                  271,075                53,221       271,171
Load factor(7)                                      100.22%                94.81%        83.78%
BALANCE SHEET DATA
Property and equipment, net of

Depreciation                                     $  37,565             $  33,085               

Total assets                                     $  40,232             $  44,097               

Total borrowings                                 $  30,020             $  24,500               

Total stockholders' equity (deficit)             $  (5,585)            $  12,519               


                                                 THE COMPANY             
                                            -----------------------------------
                                                YEARS ENDED              
                                                SEPTEMBER 30,            
                                             1996          1997           1998 
INCOME STATEMENT DATA:                      ------         ------        -------
<S>                                         <C>            <C>           <C>   
Total revenues                           $  47,817      $  57,977     $  63,128
Operating expenses                          35,490         46,140        46,072
Selling & administrative expenses            7,238          7,513         8,715
Depreciation and amortization                1,614          2,108         2,216
Interest Expense, net                        1,266          1,359         1,250 
Write-off of goodwill                         --             --            --
Other Income                                   341              6            79
Loss on Vessel Fire                            397           --            --
Minority interest share of (earnings)
loss of consolidated joint venture            (143)         1,420             7
Equity in net loss of unconsolidated
 joint venture                                                             (769)

Net earnings (loss) before tax
 and preferred stock dividend                2,009          2,283         4,193
Provision for taxes                           --             --            --
Net earnings (loss) before
 preferred stock dividend                    2,009          2,283         4,193
Provision for preferred stock
dividend                                       280            280           170
Net earnings (loss) available for
 Common Stockholders                     $   1,729      $   2,003     $   4,023
Net earnings (loss) per share -      
Basic(3)(4)                              $    0.31      $    0.36     $    0.64
Average shares outstanding - Basic   
(000's)                                      5,582          5,582         6,296
Net earnings (loss) per share -
Diluted(3)(4)                            $    0.29      $    0.33     $    0.54
Average shares outstanding
Diluted(000's)                               6,849          6,876         7,937
OPERATING DATA (UNAUDITED):
Sailings                                        56             63            63
Traffic days(5)                                569            690           675
Passenger days(6)                          384,638        479,386       492,254
Load factor(7)                               92.66%         95.30%       100.04%
BALANCE SHEET DATA
Property and equipment, net of

 Depreciation                            $  36,147      $  37,193     $  38,296

Total assets                             $  53,285      $  53,118     $  59,137

Total borrowings                         $  24,239      $  21,230     $  18,137

Total stockholders' equity (deficit)     $  16,196      $  18,341     $  24,589

<FN>
(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 to the dilutive common stock equivalents, the dividends on the
Series A Preference Shares, and interest expense on convertible debentures.

(4) Earnings per share do not apply to fiscal year 1994 because during such
period 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 (excluding Enchanted Capri).

(6) Represents the number of passengers, multiplied by the number of days of
their respective cruises (excluding Enchanted Capri).

(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.
</FN>
</TABLE>

                                       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 and Enchanted
Capri 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 EffJohn Loan attributable
to the Universe Explorer (assuming such EffJohn Loan was still in existence)
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.

         With respect to Capri Cruises, the Company earns income from the profit
or loss of the Capri Cruises venture as a whole. Because the Company owns
exactly half of Capri Cruises, it accounts for its interest in Capri Cruises
using the equity method and does not consolidate the revenues and expenses of
the venture in its consolidated financial statements. Instead, such financial
statements are prepared independently and the Company includes an appropriate
line item for the net income or loss from this unconsolidated joint venture in
its financial statements.

                                       18
<PAGE>


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

                                             THE COMPANY
                                             -----------

                                      YEARS ENDED SEPTEMBER 30,
                                      -------------------------

                                      1998      1997      1996
                                     ------    ------    ------
Revenues                             100.0%    100.0%    100.0%

Expenses:
  Operating                           73.0%     79.6%     74.2%
  Selling and Administrative          13.8%     13.0%     15.1%
  Depreciation and Amortization        3.5%      3.6%      3.4%

    Total                             90.3%     96.2%     92.7%

Operating Income                       9.7%      3.8%      7.3%

Other Income (Expense)(1)             -3.1%      0.1%     -3.1%

Net Earnings before
  Provision for Preferred
  Stock Dividend                       6.6%      3.9%      4.2%


(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.

RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 1998, COMPARED TO YEAR ENDED SEPTEMBER 30, 1997

         Revenues increased by $5,150,990, or 8.9%, for fiscal 1998 compared to
fiscal 1997, primarily due to higher passenger yields and an eight day charter,
on the Company's New Orleans itinerary. Revenues also increased during fiscal
1998 due to the increase in load factors for the Alaska program which increased
from approximately 75% in fiscal 1997 to approximately 96% in fiscal 1998. The
increased loads yielded higher revenues.

         The Company's operating expenses decreased by $68,144, in fiscal 1998
compared to fiscal 1997. As a percentage of revenue, operating expenses
represented 73% of revenues in fiscal 1998, as compared to 79.6% of revenue in
fiscal 1997. The primary reason for the decrease in operating expenses as a
percentage of revenue is a result of the 8.9% increase in revenues, as a
majority of the Company's operating expenses are fixed costs.

         Marketing, selling and administrative expenses increased by $1,201,718,
or 16.0%, in fiscal 1998 compared to fiscal 1997. The higher expenses were
primarily due to increased salary and related expenses. Additionally,
the Company operated more WEC Alaska and Caribbean cruises during fiscal 1998
than in fiscal 1997, which required additional advertising and promotional
expenses.

                                       19
<PAGE>

     Depreciation and amortization increased by $107,526, or 5.1%, in fiscal
1998 compared to fiscal 1997, due to the additional capital expenditures
incurred by the Company in conjunction with meeting its SOLAS requirements on
its two owned vessels. Interest expense, net, decreased by $108,952 or 8.0% from
fiscal 1997 to fiscal 1998 due to lower outstanding principal amounts on the
Company's loans.

     Seawise's interest in the Company's Sea-Comm joint venture is reflected in
the $7,056 and $1,420,154 line item for "Minority interest share in loss of
consolidated joint venture" for fiscal 1998 and 1997, respectively. Sea-Comm
lost $14,113 during fiscal 1998 as compared to $2,840,592 during fiscal 1997.
The decline in such loss was primarily due to the increase in load factors
for the Alaska program which increased from approximately 75% in fiscal 1997 to
approximately 96% in fiscal 1998. The increased loads yielded higher revenues
and a better net result. Seawise, through its minority interest, absorbs
approximately 50% of the Company's loss on the Sea-Comm joint venture.

         The Company accounts for the Capri Cruises joint venture under the
equity method. The Company's 50% investment in Capri Cruises resulted in a net
loss of $768,928 for the period ended September 30, 1998. These losses were due
to costs related to the start up operation, including losses related to the late
delivery of the vessel and other expenses for which Capri Cruises was not
contractually responsible. The Company expects Capri Cruises to become
profitable in the future, however, Capri Cruises is expected to continue to
incur losses, on a declining basis, in the near future as it defines its market.
Such losses, if significant, could have a material impact on the Company's
operations.

     The provision for preferred stock dividend decreased from $280,000 in
fiscal 1997 to $170,000 in fiscal 1998 as a result of the conversion of all of
the Company's Series A Preference Shares into Common Stock during fiscal 1998.

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 130 (SFAS 130), "Reporting Comprehensive
Income," and No. 131 (SFAS 131), "Disclosures About Segments of an Enterprise
and Related Information." These statements are effective for fiscal years
commencing after December 15, 1997. The Company will be required to comply with
the provisions of these statements in fiscal 1999. The Company does not expect
these new standards to have a material impact on its consolidated financial
statements and/or disclosures.

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

     Revenues increased by $10,159,854, or 21.2%, 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 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 $10,650,034, or 30.0%, 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 79.6% 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.

                                       20
<PAGE>

     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
$286,046 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.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's working capital deficiency was $10,426,227 and $8,387,670
at September 30, 1998 and 1997, respectively. The Company's working capital
deficiency at September 30, 1998 and 1997 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 $7,741,365 and $5,674,811
at September 30, 1998 and 1997, respectively, is included in current
liabilities. The primary reason for the increase in the Company's working
capital deficiency from fiscal 1997 is the Company's investment in Capri Cruises
and capital expenditures in Sea-Comm.

         Cash flows from operations provided $7,752,166, $7,202,564 and
$3,467,649, for fiscal 1998, 1997 and 1996, respectively. Cash flows for fiscal
1998 consisted primarily of increases in unearned revenues due to the addition
of the Enchanted Capri to the Company's fleet and collection of the insurance
claim receivable, and was partially offset by increases in restricted cash,
prepaid expenses, and amounts due to/from affiliates.

         The Company's cash flow used in investing activities in fiscal 1998
exceeded the fiscal 1997 outlay by $2,313,012. The primary reason for the
increase was the Company's investment of $2 million in Capri Cruises.
Additionally, the Company continued its planned capital expenditures in
connection with the maintenance of its vessels.

         The Company's cash flow used by financing activities decreased by
$1,350,471, from fiscal 1997 to fiscal 1998 primarily due to the net proceeds
received from the issuance of its convertible subordinated debentures.

         At September 30, 1998, the Company owed $16,837,583 to the EffJohn
Lender in connection with the Commodore Acquisition. The EffJohn Loan was
secured by substantially all of the assets of New Commodore, including preferred
ships mortgages on both the Enchanted Isle and Universe Explorer, and bears
interest at LIBOR plus 2% (7.75% at September 30, 1998). In January 1997 the
Company and the EffJohn Lender amended the EffJohn Loan to provide for monthly
payments of interest and principal for the duration of the EffJohn Loan.

         On December 4, 1998, the Company borrowed $10 million under the new
Key Loan Agreement. In conjunction with this loan agreement, the Company entered
into an Interest Rate Swap Agreement with an affiliate of Key, whereby the
interest rate on the Key Loan is fixed at 9.14% over the term of the loan. The
monthly principal payments of the Key Loan are fixed for the first year at
$41,667, and the remainder of the loan is based on an amortization schedule of
14 years. The remaining unpaid principal and interest is due on December 4,
2006, the date of maturity. The proceeds from the Key Loan, which is secured by
a first preferred ship's mortgage on the Universe Explorer, were used to repay a
portion of the EffJohn Loan and for working capital.

         In the event that the Company is required to withhold income tax on any
amounts due to the EffJohn Lender or Key, the Company has agreed to pay the
required amount to be withheld and pay the EffJohn Lender or Key the full amount
of interest due under its agreements with the Company.

         The terms of the EffJohn and Key Loans place certain restrictions on
the Company. First, the Company is not permitted to place any additional liens
on any of its assets (including the Enchanted Isle) without the prior consent of
the EffJohn Lender. Second, the Company is prohibited from paying more than 50%
of its net profits as dividends. The Key Loan also prohibits the Company from
placing any additional liens on the Universe Explorer and requires that the
Company meet certain financial covenants.

                                       21
<PAGE>


         On April 22, 1998, the Company borrowed $1.5 million on an unsecured
basis, from an unrelated third party. The Company repaid a portion of this
amount in August 1998 and renewed the loan for the balance of $1.3 million. This
amount was paid in full in December 1998. The interest on the loan was 10% per
annum.

     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, 1998 and 1997 the Company had an insurance
receivable balance of $-0- and $305,038, respectively.

         In December, 1997 the Company sold $2,150,000 of its 7% convertible
subordinated debentures that were due on December 31, 2003. The Company sold
these debentures at a 20% discount. In May, 1998 the Company exercised its right
to demand conversion of the debentures into 537,500 shares of common stock at
$4.00 per share. The net proceeds to the Company were approximately $1,580,000,
after deducting brokers' commissions and expenses of the offering. The Company
capitalized approximately $812,000 of the discount and expenses of the offering
to deferred interest expense and offset the unamortized balance of approximately
$753,000 against stockholders' equity upon conversion.

         In January 1999, the Company will take the Universe Explorer out of
service primarily for the installation of a sprinkler system aboard the vessel.
The installation of the sprinkler system, which will bring the ship into
compliance with SOLAS work to be completed on or before October 1, 2005, is
expected to be completed in February 1999. The cost of the installation of the
sprinkler system is estimated at $4.2 million. The Company expects to pay for
such costs with the proceeds of the Key Loan and the proceeds of additional
financings to be obtained by the Company with the assistance of its joint
venture partner, Seawise. The Company expects to service such additional debt
through payments that will be received by the Company, from Seawise, that become
due pursuant to an agreement between the Company and Seawise.

         During fiscal 1999, the Company anticipates that it may also require
additional capital for acquisitions of additional vessels or new business
opportunities. Although the Company has entered into a non-binding letter of
intent to form one joint venture to operate a vessel between San Diego,
California and Rosarito, Baja California, Mexico, the Company has not entered
into a definitive agreement for such business opportunity or any other proposed
venture, and thus cannot estimate the amount of capital it may require
for this venture, if it proceeds, or for any other business opportunity
preliminarily under consideration by the Company. In the event the Company
proceeds with any additional business opportunities, it anticipates that the
capital requirements therefore will be funded from cash from operations or from
financings arranged in connection therewith.

         With respect to the Company's existing operations, the Company expects
to fund the operating cash needs for such operations, such as the Company's new
Capri Cruises venture, from cash flow from its established operations until such
ventures become profitable. Capri Cruises suffered certain unanticipated
expenses during its initial operations as a result of the failure of the other
party to the charter to meet certain of its contractual obligations associated
with the delivery of the vessel. The Company plans to pursue claims for its
losses against such party. In addition, Capri Cruises is continuing to
experience losses related to its start-up as it defines its market. The Company
expects that such losses will decline as Capri Cruises establishes its market
niche. Half of such losses will be funded by the Company's partner, Isle of
Capri. There can be no assurances that Capri Cruises' losses will not have a
material adverse effect on the Company.

YEAR 2000

         The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or a miscalculation, causing
disruptions of operations, including,

                                       22
<PAGE>

among other things, temporary inability to process transactions, send invoices,
or engage in similar normal business activities.

         Due to the expansion of the Company's business, the Company has
recently purchased a new AS400 for its reservations system, along with the
operating systems, that are the latest versions available. The Company also
installed new workstations for most of its non-reservations staff. The equipment
was installed after the Company's fiscal year end and will be included in
capital expenditures in the first quarter of fiscal 1999. Additionally, the
Company is in the process of installing a new general ledger and accounts
payable system that will be fully functional by the second quarter of fiscal
1999. The Company has undertaken various initiatives intended to ensure that its
computer equipment and software will function properly with respect to dates in
the Year 2000 and thereafter. The Company has already evaluated its on-board
point of sale computer equipment and reservations computer software and made the
changes and upgrades necessary, based on the opinion of the consultants and
vendors it has hired for such purpose, to assure that such equipment will
function properly in the Year 2000. The Company believes that it has identified
all Year 2000 problems with respect to its own computer equipment and software.

         The Company has also contacted some of its significant vendors,
customers and service providers, including its technical manager, to determine
the extent to which such entities are vulnerable to Year 2000 issues and whether
the products and services purchased from or by such entities are Year 2000
compliant. A mailing to the balance of the Company's significant vendors and
follow-up mailing to significant vendors and service providers that did not
initially respond, or whose responses were deemed unsatisfactory by the Company,
will be conducted in January 1999. The response from the Company's initial
inquiries have not yielded enough information for the Company to determine
whether such vendors and service providers will be Year 2000 compliant on a
timely basis.

         The Company has incurred an immaterial amount in costs associated
with the identification and remediation of its Year 2000 issues as it has
reprogrammed its reservations system using in-house personnel. The cost of the
new AS400 system, internal network of workstations and the accounts
payable/general ledger system is approximately, $162,000, $55,000 and $50,000,
respectively. If there exist other Year 2000 issues that the Company has not
identified, or if the Company's vendors and service providers fail to identify
and remediate their Year 2000 issues on a timely basis, there can be no
assurance that the Year 2000 issue will not have a material adverse effect on
the Company's operations or its relationships with its customers, vendors and
service providers.

         The Company has not yet begun a comprehensive analysis of the
operational problems and costs (including the loss of revenues) that would be
reasonably likely to result from the failure of the Company and certain of its
significant vendors and service providers to complete efforts necessary to
achieve Year 2000 compliance on a timely basis. A contingency plan has not been
developed for dealing with the most reasonably likely worst case scenario, and
such scenario has not yet been clearly identified. The Company plans to complete
such analysis and contingency planning during its 1999 fiscal year.

         The costs of the Company's Year 2000 identification, assessment, and
remediation and the dates upon which the Company will complete various actions
are based upon management's best estimates. There can be no assurance that these
estimates will prove to be accurate and actual results could differ materially
from those currently anticipated. Specific factors that could cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 issues and the ability of the Company to
require its vendors and service providers to thoroughly identify, assess and
remediate their Year 2000 issues. In addition, variability of definitions of
"compliance with Year 2000" may lead to different levels of compliance by the
Company, its vendors and service providers. No assurance can be given that the
Company and its significant vendors and service providers will be Year 2000
compliant on a timely basis, or that a partial lack of compliance will not lead
to claims against the Company, the magnitude of which are not currently
estimable. No assurance can be given that such claims will not have a material
adverse effect on the Company's results of operations.

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.

                                       23
<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Company's major market risk exposure is to changing interest rates.
The Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate instruments, with respect to both its
liquid assets and its debt instruments.

         The Company maintains a portion of its cash and cash equivalents,
including its deposit to secure its FMC Certificate of Financial
Responsibility, which equals $4,629,000, in financial instruments with original
maturities of three months or less. These financial instruments are subject to
interest rate declines. An immediate decline of 10% in interest rates would
reduce the Company's annual interest income by $52,000.

         The Key Loan is a variable rate loan; however, the Company has
purchased interest rate protection for such loan in the form of an interest rate
swap. As a result, although the Key Loan bears interest at the prime rate plus
80 basis points, the interest rate swap provides that the rate shall effectively
be fixed at 9.14% over the term of the loan. The EffJohn Loan bears interest at
LIBOR plus 2%, and thus is affected by changes in interest rates. In the event
that interest rates increased by 10%, the Company's interest obligation would
increase by $65,000, $39,000, $22,000 and $6,000, respectively, in each of its
fiscal years 1999, 2000, 2001, and 2002.

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.

                                       24
<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 1999 Annual Meeting of Stockholders (the "1999 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 1999 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 1999 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 1999 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 1998.

(c) Exhibits

EXHIBIT
 NUMBER          DESCRIPTION OF EXHIBIT
--------         -----------------------
3a               Memorandum of Association of the Company, as amended (1)
3b               Bye-Laws (1)
4a               Form of Common Stock Certificate (2)
4b               Form of Warrant Certificate (3)
4c               Form of Warrant Agent Agreement (3)
4d               Form of Underwriter's Warrant Agreement (3)

                                       25
<PAGE>

4e              Stockholder Rights Plan (4) 
4f              Assignment and Assumption of Underwriter's Warrant Agreement
10a             Employment Agreement dated May 3, 1995 between the Company and
                Jeffrey I. Binder (1)
10b             Employment Agreement dated May 3, 1995 between New Commodore and
                Frederick A. Mayer, as amended (1)
10c             Employment Agreement dated May 3, 1995 between New Commodore and
                James R. Sullivan, as amended (1)
10d             Employment Agreement dated May 3, 1995 between New Commodore and
                Alan Pritzker, as amended (1)
10e             USD $24,500,000 Loan Facility Agreement, dated July 14, 1995
                among the EffJohn Lender, Almira, Azure, New Commodore and the
                Company (1)
10f             1995 Stock Option Plan (1)
10g             Joint Venture Agreement dated October 30, 1995 between the
                Company, Seawise and Sea-Comm (1)
10h             Management Services Agreement dated July 5, 1995 between New
                Commodore and IMC (3)
10i             Sublease for Office Space at 4000 Hollywood Boulevard dated June
                30, 1995 between EffJohn and New Commodore (3)
10j             Software Agreement between Reservations Technology, Inc. and New
                Commodore (3)
10k             Sublease of computer equipment and software between Old
                Commodore and New Commodore (IBM Sublease) (3)
10l             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 (3)
10m             Warrant Certificate for 250,000 Shares of Common Stock of the
                Company dated July 14, 1995 in favor of JeMJ Financial Services,
                Inc. (3)
10n             Warrant Certificate for 250,000 Shares of Common Stock of the
                Company dated July 14, 1995 in favor of Jeffrey I. and Rosalie
                Binder (3)
10o             Warrant Certificate for 250,000 shares of Common Stock of the
                Company dated October 30, 1995 in favor of Seawise (3)
10p             First Priority Panamanian Mortgage on the Enchanted Isle dated
                July 14, 1995 between Almira and the EffJohn Lender (3)
10q             First Priority Charge over the shares of Almira dated July 14,
                1995 between the EffJohn Lender and New Commodore (3)
10r             First Priority Tripartite Deed in respect of the Enchanted Isle
                dated July 14, 1995 between Almira, New Commodore and the 
                EffJohn Lender (3)
10s             Second Amendment to Employment Agreement by and between New
                Commodore and Frederick Mayer dated May 3, 1997 (5)
10t             First Amendment to Employment Agreement by and between the
                Company and Jeffrey I. Binder dated July 15, 1997 (6)
10u             First Amendment to USD $24,500,000 Loan Facility Agreement dated
                December 4, 1998 among the EffJohn Lender, Azure, Almira, New 
                Commodore and the Company
10v             Modification Agreement dated December 4, 1998 among Sea-Comm,
                Seawise, WEC, HCT, Azure, New Commodore and the Company
10w             Extension of the Financing and Berthing Agreement between New
                Commodore and the Port of New Orleans dated August 24, 1998
10x             Restated Warrant Certificate for 520,455 Shares of Common Stock
                of the Company dated October 15, 1998 in favor of Jeffrey I. and
                Rosalie Binder
10y             Restated Warrant Certificate for 545,455 Shares of Common Stock
                of the Company dated April 15, 1998 in favor of JeMJ Financial
                Services, Inc.
10z             First Preferred Marine Mortgage dated December 4, 1998 executed
                by Azure in favor of KeyCorp
10aa            Assignment of Mortgage in respect of the Enchanted Isle
10bb            Charter Agreement dated March 9, 1998 between Cruise Charter,
                Ltd. And Commodore Cruises Limited, as amended (7)
10cc            Joint Venture Agreement of Capri Cruises dated April 17, 1998
                between Commodore

                                       26
<PAGE>

                Cruises Limited and Isle of Capri Corporation(7)
10dd            Promissory Note dated April 22, 1998 (7)
10ee            Loan and Security Agreement dated December 4, 1998 between Azure
                and KeyCorp
10ff            Promissory Note dated December 4, 1998 between Azure and
                KeyCorp 
10gg            ISDA Master Agreement dated December 4, 1998 between Azure and
                KeyCorp, and the Schedule and Confirmation thereto
10hh            Corporate Guaranty Agreement dated December 4, 1998 between the
                Company and KeyCorp
21              Subsidiaries of the Company
24              Power of Attorney (included on signature page)
27              Financial Data Schedule (8)

(1)   Incorporated by reference to the Company's Registration Statement on Form
      S-1 (No. 333-01270) filed on February 12, 1996.

(2)   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.

(3)   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.

(4)   Incorporated by reference to the Company's Current Report on Form 8-K
      filed on October 29, 1998.

(5)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended June 30, 1996.

(6)   Incorporated by reference to the Company's 1997 Annual Report on Form
      10-K for the year ended September 30, 1997.

(7)   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the quarter ended June 30, 1998.

(8)   Included only in electronic filing.

                                       27
<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 29, 1998
---------------------------------
Jeffrey I. Binder

/s/ FREDERICK A. MAYER                       Vice-Chairman of the Board         December 29, 1998
---------------------------------            (Principal Executive Officer)
Frederick A. Mayer

/s/ JAMES R. SULLIVAN                        President                          December 29, 1998
---------------------------------
James R. Sullivan

/s/ ALAN PRITZKER                            Vice President, Finance and        December 29, 1998
---------------------------------            Chief Financial Officer
Alan Pritzker                                (Principal Financial and 
                                             Accounting Officer)

                                             Director                           December __, 1998
---------------------------------
Ralph V. De Martino

/s/ MARK J. MAGED                            Director                           December 29, 1998
---------------------------------
Mark J. Maged

/s/ ARNOLD ADOLPHUS FRANCIS, Q.C.            Director                           December 29, 1998
---------------------------------
Arnold Adolphus Francis, Q.C.

/s/ GORDON HILL                              Director                           December 29, 1998
---------------------------------
Gordon Hill
</TABLE>

                                       
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS
                                                                           PAGE
                                                                           -----
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
  Report of Independent Certified Public Accountants   .................... F-2
  Consolidated Balance Sheets--September 30, 1998 and 1997   .............. F-3
  Consolidated Statements of Earnings-- Years Ended September 30, 1998,
   1997 and 1996........................................................... F-4
  Consolidated Statement of Stockholders' Equity--September 30, 1998  ..... F-5
  Consolidated Statements of Cash Flows-- Years Ended September 30, 1998,
     1997 and 1996 ........................................................ F-6
  Notes to Consolidated Financial Statements  ............................. F-8

                                       F-1

<PAGE>


                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Commodore Holdings Limited and Subsidiaries

We have audited the accompanying consolidated balance sheets of Commodore
Holdings Limited and Subsidiaries as of September 30, 1998 and 1997 and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1998. 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, 1998 and 1997 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended September 30, 1998 in conformity with generally
accepted accounting principles.

/s/ Grant Thornton LLP

Miami, Florida
December 4, 1998

                                       F-2


<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                  SEPTEMBER 30,

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                      1998                1997  
                                                                             ----------------    ---------------
<S>                                                                          <C>                 <C>
Current assets
    Cash and cash equivalents                                                $      3,172,022    $     3,530,563
    Restricted cash                                                                 2,326,261            191,273
    Trade and other receivables                                                       481,623            321,191
    Insurance claim receivable                                                             -             305,038
    Due from affiliates                                                             1,061,050             71,294
    Inventories                                                                     1,465,593          1,870,128
    Prepaid expenses                                                                2,865,124          3,050,353
    Other current assets                                                               76,933             76,290
                                                                             ----------------    ---------------
               Total current assets                                                11,448,606          9,416,130

Property and equipment, net                                                        38,296,368         37,193,102

Investment in Joint Venture                                                         1,481,072                 - 

Long-term receivable-affiliates                                                     2,549,524          1,517,913

Investments restricted                                                              4,629,000          4,629,000

Other assets                                                                          732,187            361,667
                                                                             ----------------    ---------------

                                                                             $     59,136,757    $    53,117,812
                                                                             ================    ===============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
    Current portion of long-term debt                                        $      4,392,408    $     4,392,408
    Note payable                                                                    1,300,000                 - 
    Accounts payable                                                                6,457,312          5,512,270
    Accrued liabilities                                                               710,192          1,576,504
    Due to affiliates                                                               1,200,622            574,873
    Customer and other deposits                                                     7,741,365          5,674,811
    Accrued interest                                                                   72,934             72,934
                                                                             ----------------    ---------------
               Total current liabilities                                           21,874,833         17,803,800

Long-term debt                                                                     12,445,175         16,837,582

Minority interest in subsidiary                                                       227,622            135,037

Stockholders' equity
    Preferred stock - authorized 10,000,000 shares of $.01 par
      value; issued 0 in 1998 and 1,027,230 in 1997                                        -              10,272
    Common stock - authorized 100,000,000 shares of $.01 par
      value; issued 7,264,821 in 1998 and 5,581,933 in 1997                            72,648             55,819
    Additional paid-in capital                                                     16,347,682         14,012,051
    Retained earnings                                                               8,168,797          4,263,251
                                                                             ----------------    ---------------
               Total stockholders' equity                                          24,589,127         18,341,393
                                                                             ----------------    ---------------

                                                                             $     59,136,757    $    53,117,812
                                                                             ================    ===============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       F-3



<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS

                            YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>

                                                                       1998              1997              1996 
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>
Revenues                                                        $  63,127,725     $  57,976,735    $  47,816,881

Expenses
    Operating                                                      46,071,603        46,139,747       35,489,713
    Marketing, selling and administrative                           8,715,152         7,513,434        7,238,148
    Depreciation and amortization                                   2,215,772         2,108,246        1,613,668
                                                                -------------     -------------    -------------
                                                                   57,002,527        55,761,427       44,341,529
                                                                -------------     -------------    -------------

Operating income                                                    6,125,198         2,215,308        3,475,352

Other income (expense)
    Other income                                                       79,498             6,396          340,641
    Interest income                                                   436,485           483,214          382,101
    Interest expense                                               (1,686,139)       (1,841,818)      (1,648,276)
    Minority interest share of loss (earnings)
      of consolidated joint venture                                     7,056         1,420,154         (143,023)
    Equity in net (loss) of unconsolidated
      joint venture                                                  (768,928)               -                - 
    Loss on vessel fire                                                    -                 -          (397,310)
                                                                -------------     -------------    --------------

                                                                   (1,932,028)           67,946       (1,465,867)
                                                                -------------     -------------    -------------
               Earnings before provision for
                 income taxes and provision for
                 preferred stock dividend                           4,193,170         2,283,254        2,009,485

Provision for income taxes                                                 -                 -                - 
                                                                -------------     -------------    -------------
               Net earnings before provision
                 for preferred stock dividend                       4,193,170         2,283,254        2,009,485

Provision for preferred stock dividend                                170,000           280,000          280,000
                                                                -------------     -------------    -------------
               Net earnings available for
                 common stockholders                            $   4,023,170     $   2,003,254    $   1,729,485
                                                                =============     =============    =============

    Earnings per share - Basic                                  $         .64     $         .36    $         .31
                                                                =============     =============    =============

    Earnings per Share - Diluted                                $         .54     $         .33    $         .29
                                                                =============     =============    =============

</TABLE>

The accompanying notes are an integral part of this statement.

                                       F-4


<PAGE>

                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                   PREFERRED STOCK                      COMMON STOCK
                                          -------------------------------    --------------------------------      ADDITIONAL
                                              NUMBER                             NUMBER                              PAID-IN  
                                             OF SHARES         PAR VALUE        OF SHARES         PAR VALUE          CAPITAL  
                                          -------------     -------------    -------------     -------------    --------------
<S>                                       <C>               <C>              <C>               <C>              <C>           
Balance at September 30, 1995                 1,000,000     $      10,000        4,931,933     $      49,319    $   12,148,576

Net proceeds of initial public offering              -                 -           650,000             6,500         1,692,104

Preferred stock dividend (Note G)                 6,979                70               -                 -             27,846

Net earnings                                         -                 -                -                 -                 - 
                                          -------------     -------------    -------------     -------------    --------------
Balance at September 30, 1996                 1,006,979            10,070        5,581,933            55,819        13,868,526

Fair value of options to nonemployees                -                 -                -                 -             62,722

Preferred stock dividend (Note G)                20,251               202               -                 -             80,803

Net earnings                                         -                 -                -                 -                 - 
                                          -------------     -------------    -------------     -------------    --------------
Balance at September 30, 1997                 1,027,230            10,272        5,581,933            55,819        14,012,051

Fair value of options to nonemployees                -                 -                -                 -            276,751

Preferred stock dividend (Note G)                14,825               148               -                 -             59,151

Conversion of preferred stock
 to common stock (Note G)                    (1,042,055)          (10,420)       1,042,055            10,420                - 

Conversion of subordinated
 debentures to common stock (Note F)                 -                 -           537,500             5,375         1,391,597

Exercise of employee stock options                   -                 -             3,333                34             9,132

Issuance of common stock (Note G)                    -                 -           100,000             1,000           599,000

Net earnings                                         -                 -                -                 -                 - 
                                          -------------     -------------    -------------     -------------    --------------
Balance at September 30, 1998                        -      $          -         7,264,821     $      72,648    $   16,347,682
                                          =============     =============    =============     =============    ==============

<CAPTION>
                                            RETAINED
                                            EARNINGS              TOTAL
                                          -------------     ---------------
<S>                                       <C>               <C>
Balance at September 30, 1995             $     311,535     $    12,519,430

Net proceeds of initial public offering              -            1,698,604

Preferred stock dividend (Note G)               (59,069)            (31,153)

Net earnings                                  2,009,485           2,009,485
                                          -------------     ---------------
Balance at September 30, 1996                 2,261,951          16,196,366

Fair value of options to nonemployees                -               62,722

Preferred stock dividend (Note G)              (281,954)           (200,949)

Net earnings                                  2,283,254           2,283,254
                                          -------------     ---------------
Balance at September 30, 1997                 4,263,251          18,341,393

Fair value of options to nonemployees                -              276,751

Preferred stock dividend (Note G)              (287,624)           (228,325)

Conversion of preferred stock
 to common stock (Note G)                            -                   - 

Conversion of subordinated
 debentures to common stock (Note F)                 -            1,396,972

Exercise of employee stock options                   -                9,166

Issuance of common stock (Note G)                    -              600,000

Net earnings                                  4,193,170           4,193,170
                                          -------------     ---------------
Balance at September 30, 1998             $   8,168,797     $    24,589,127
                                          =============     ===============
</TABLE>

The accompanying notes are an integral part of this statement.

                                       F-5

<PAGE>



                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>

                                                                     1998              1997             1996  
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>     
Cash flows from operating activities:
    Net earnings                                                $   4,193,170     $   2,283,254    $   2,009,485
    Adjustments to reconcile net earnings to net
      cash provided by operating activities:
       Depreciation of property and equipment                       2,170,772         2,081,910        1,581,519
       Amortization of deferred dry-dock                            1,521,474         1,283,269          804,678
       Amortization of organization cost                               45,000            45,000           16,729
       Fair value of options to nonemployees                          221,799            62,722               - 
       Undistributed equity in loss of joint venture                  768,928                -                -
       (Increase) decrease in operating assets
          Restricted cash                                          (2,134,988)        1,221,634       (1,049,445)
          Trade and other receivables                                (160,432)            7,621         (249,743)
          Insurance claim receivable                                  305,038         2,165,486       (2,470,525)
          Due from affiliates                                        (777,756)          (28,373)         413,957
          Inventories                                                 404,535           (39,886)      (1,139,241)
          Prepaid expenses and other current assets                (1,576,408)       (1,869,780)      (2,052,147)
          Other assets                                                     -                 -          (200,000)
       Increase (decrease) in operating liabilities
          Accounts payable                                            945,043           245,160        3,898,697
          Accrued liabilities                                        (866,312)           87,834          495,109
          Due to affiliates                                           625,749          (174,758)         249,631
          Customer and other deposits                               2,066,554          (164,549)       1,494,703
          Accrued interest                                                 -             (3,980)        (335,758)
                                                                -------------     -------------    -------------
               Net cash provided by operating
                 activities                                         7,752,166         7,202,564        3,467,649

Cash flows from investing activities:
    Capital expenditures                                           (3,274,038)       (2,362,158)      (4,642,139)
    Long-term receivable - affiliates                              (1,031,611)       (1,517,913)              - 
    Decrease in capital leases obligation                                  -                 -          (223,960)
    Investment in joint venture                                    (2,038,000)               -                - 
    (Decrease) increase in minority interest                           92,585           (57,981)         193,018
                                                                -------------     -------------    -------------
               Net cash used in investing activities               (6,251,064)       (3,938,052)      (4,673,081)

Cash flows from financing activities:
    Principal payments on debt                                     (4,592,407)       (3,009,165)        (260,847)
    Proceeds from exercise of employee stock options                    9,166                -                - 
    Proceeds from issuance of note payable                          1,500,000                -                - 
    Proceeds from initial public offering                                  -                 -         1,698,604
    Proceeds from issuance of subordinated debentures, net          1,451,923                -                - 
    Preferred stock dividends paid                                   (228,325)         (200,949)         (31,153)
                                                                -------------     -------------    -------------
               Net cash (used in) provided by
                 financing activities                              (1,859,643)       (3,210,114)       1,406,604
                                                                -------------     -------------    -------------

Net (decrease) increase in cash and cash equivalents                 (358,541)           54,398          201,172

Cash and cash equivalents at beginning of period                    3,530,563         3,476,165        3,274,993
                                                                -------------     -------------    -------------
Cash and cash equivalents at end of period                      $   3,172,022     $   3,530,563    $   3,476,165
                                                                =============     =============    =============
                                                                                                       (continued)

</TABLE>

                                      F-6

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                            YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>

                                                                       1998              1997             1996  
                                                                -------------     -------------    -------------
<S>                                                             <C>               <C>              <C>
Supplemental disclosure of cash flow information:
    Cash paid during the period for interest                    $   1,686,139     $   1,845,798    $   1,601,933
                                                                =============     =============    =============
    Cash paid during the period for taxes                       $          -      $          -     $          - 
                                                                =============     =============    =============

</TABLE>

Supplemental schedule of noncash investing and financing activities:

    In March 1998, the Company issued 100,000 shares of common stock to acquire
    a leasehold interest in a vessel. The market value of the common stock at
    the date of issuance was $600,000.

    In January 1998, January 1997 and April 1996, the Company issued 14,825,
    20,251 shares and 6,979 shares, respectively of its Series A preference
    shares in partial payment of its preferred share dividend.

    In May 1998, the Company exercised its right to demand conversion of
    $2,150,000 of convertible debentures. As a result, the debentures were
    converted into 537,500 shares of the Company's common stock.

    During fiscal 1998, all of the Series A preference shares were converted to
    1,042,055 shares of the Company's common stock.

The accompanying notes are an integral part of this statement.

                                      F-7

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 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. The Company reflects its investments in its 50%-owned joint
     venture at cost plus/(minus) its equity in undistributed net
     earnings/(loss).

     SEA-COMM

     Sea-Comm has chartered the Universe Explorer to Seawise for 200 days per
     year for an educational program. 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 onboard revenues and the sale of the 24%
     of the cabins on the vessel. Seawise has purchased these cabins from
     Sea-Comm for $3 million per year. During the summer, Sea-Comm operates the
     Universe Explorer in Alaska and during the winter, in the Caribbean.

                                                                     (continued)
                                      F-8

<PAGE>

                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     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.

     RESTRICTED CASH

     In fiscal 1998, the Company entered into an escrow agreement whereas the
     Company maintains certain advance passenger deposits in an escrow account
     until the completion of the associated voyage. In addition, commencing in
     November 1996, the Company had entered into an agreement with a credit card
     processor which requires a chargeback reserve account that equals
     approximately 2.5% of the Company's Visa/Master card deposits. The amounts
     in the escrow account and the reserve account are classified as restricted
     cash.

     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 $1,502,442 and $1,439,658 net of accumulated amortization of $2,743,703
     and $1,222,229 are recorded in prepaid expenses as of September 30, 1998
     and 1997, respectively.

                                       F-9
                                                                     (continued)
<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     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, 1998 and September 30, 1997 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
     affiliates 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 original 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 has placed $4,629,000 on deposit with a bank, securing its
     Federal Maritime Commission (FMC) Certificate of Financial Responsibility
     (FMC Certificate) for the Enchanted Isle (see Note H).

     ADVERTISING COSTS

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

                                      F-10

<PAGE>

                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     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

     The Company adopted Financial Accounting Standards No. 128 (FAS 128),
     "Earnings Per Share" in fiscal 1998. FAS 128 requires dual presentation of
     basic and diluted earnings per share on the face of the statement of
     earnings as well as the restatement of prior periods presented.

     Basic net earnings per share equals net earnings divided by the weighted
     average shares outstanding during the year. The computation of diluted net
     earnings per share includes dilutive common stock equivalents in the
     weighted average shares outstanding. The reconciliation between the
     computation is as follows:

<TABLE>
<CAPTION>

                                        NET
                                     EARNINGS -        BASIC          BASIC         DILUTED        DILUTED
         FISCAL YEAR ENDED              BASIC          SHARES          EPS           SHARES          EPS 
         -----------------           ----------      ---------    -----------       ---------    -----------
<S>                                  <C>             <C>          <C>               <C>          <C>
               1998                   4,023,170      6,295,516    $       .64       7,936,528    $       .54

               1997                   2,003,254      5,581,933    $       .36       6,875,856    $       .33

               1996                   1,729,485      5,581,933    $       .31       6,849,102    $       .29

</TABLE>

     Included in diluted shares are common stock equivalents relating to
     options, warrants and preferred stock of 1,641,012, 1,293,923, and
     1,267,169 for fiscal 1998, 1997 and 1996 respectively. Added back to
     net earnings for diluted EPS purposes is the provision for preferred
     stock dividends of $170,000, $280,000 and $280,000 for the years ended
     September 30, 1998, 1997 and 1996, respectively, as well as interest
     expense on convertible debentures of approximately $58,000 for the year
     ended September 30, 1998. Warrants to purchase 1,063,799 shares of the
     Company's common stock ranging from a per share exercise price of $4.75
     to $7.05, which were outstanding during fiscal 1998, were not included
     in the computation of diluted EPS because the warrants' exercise prices
     were greater than the annual average market price of the common shares.
     These warrants are all exercisable as of September 30, 1998. In
     addition, in October 1998 and December 1998, the Company issued
     warrants to purchase 50,000 and 81,633 shares of common stock for $5.45
     and $6.13 per share (Note M) which were not included in the computation
     of diluted EPS.
                                                                     (continued)


                                      F-11



<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     RECLASSIFICATIONS

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

     NEW ACCOUNTING PRONOUNCEMENTS

     In June 1997, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standard No. 130 (SFAS 130), "Reporting Comprehensive
     Income," and No. 131 (SFAS 131), "Disclosures About Segments of an
     Enterprise and Related Information." These statements are effective for
     fiscal years commencing after December 15, 1997. The Company will be
     required to comply with the provisions of these statements in fiscal 1999.
     The Company does not expect these new standards to have a material impact
     on its consolidated financial statements and/or disclosures.

     LONG-LIVED ASSETS

     The Company adopted Statement of Financial Accounting Standard No. 121
     (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
     Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived
     assets and certain identifiable intangible assets to be held and used, or
     disposed of, be reviewed for impairment whenever events or changes in
     circumstances indicate that the carrying amount of an asset may not be
     recoverable. During fiscal 1998 and 1997, the Company determined that none
     of its long-lived assets had been impaired, and therefore the Company did
     not adjust the carrying amounts of such assets.

     STOCK OPTIONS

     The Company has elected to account for employee stock options and
     warrants under the intrinsic value method of APB Opinion 25 and
     related Interpretations and therefore is not required to recognize
     compensation expense for employee stock options and warrants.
     Commencing October 1, 1996, the Company accounts for options and
     warrants issued to non-employees, under SFAS 123, Accounting for Stock
     Based Compensation.


                                      F-12

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE B - INVESTMENT IN JOINT VENTURE

     In March 1998, the Company chartered the M/V Enchanted Capri (formerly the
     Island Holiday) for a period ending on January 1, 2003. In April 1998, the
     Company entered into a joint venture agreement for a joint venture (Capri
     Cruises) with Isle of Capri Casinos, Inc., the owner and operator of five
     riverboat and dockside casinos. The Company assigned its rights under the
     Enchanted Capri charter agreement to Capri Cruises. Pursuant to the
     agreement, Isle of Capri Casinos, Inc. and the Company will jointly operate
     cruises in strategic markets. The Company is accounting for the joint
     venture under the equity method.

     A condensed summary of the assets and liabilities and results of operations
     of the joint venture follows:

<TABLE>
<CAPTION>

                                                                    AS OF
                                                                 SEPTEMBER 30,
                                                                     1998
                                                                 -------------
<S>                                                              <C>        
                  Current assets                                 $   2,734,677
                  Property and equipment, net                        3,973,519
                  Other assets                                         865,299
                                                                 -------------
                               Total assets                      $   7,573,495
                                                                 =============
                  Current liabilities                            $   4,298,871
                  Other liabilities                                    312,480

                  Partners' capital accounts                         2,962,144
                                                                 -------------
                               Total liabilities and
                                 partners' capital               $   7,573,495
                                                                 =============
</TABLE>

<TABLE>
<CAPTION>
                                                                  PERIOD FROM
                                                                   APRIL 16,
                                                                      1998
                                                                    THROUGH
                                                                  SEPTEMBER 30,
                                                                      1998
                                                                 --------------
<S>                                                              <C>
                  Revenues                                       $  6,165,937
                  Expenses                                          7,703,793
                                                                 ------------
                  Net loss                                       $  1,537,856
                                                                 ============
</TABLE>

                                                                     (continued)

                                      F-13
<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE B - INVESTMENT IN JOINT VENTURE - Continued

     The joint venture incurred a net loss of $1,537,856 for the period ended
     September 30, 1998. If the joint venture continues to incur losses, it
     could have a significant impact on the Company's operations.

     The other party to the vessel charter failed to deliver the vessel free of 
     claims from its creditors. Capri Cruises has settled certain of these 
     claims and plans to pursue collection from the other party. While the 
     Company does not expect additional claims to be presented, there can be no
     assurance that additional claims will not arise. The Company believes that
     this will not have a significant future impact on the its operations.

     The Company performs certain administrative services on behalf of Capri
     Cruises. As a result, the Company charges certain expenses related to
     these administrative services to Capri Cruises. For the year ended
     September 30, 1998, the Company charged approximately $239,000 to Capri
     Cruises which is included as part of other income on the consolidated
     statement of earnings.

NOTE C - PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>

                                                                   1998                1997
                                                              ---------------     ---------------
<S>                                                           <C>                 <C>            
                  Vessels                                    $     42,637,121     $    39,165,024
                  Equipment and other                               1,211,572           1,083,007
                  Construction in progress                            470,000             765,983
                                                              ---------------     ---------------
                                                                   44,318,693          41,014,014
                  Accumulated depreciation                         (6,022,325)         (3,820,912)
                                                              ---------------     ---------------
                                                              $    38,296,368     $    37,193,102
                                                              ===============     ===============
</TABLE>

NOTE D - INVENTORIES

<TABLE>
<CAPTION>
                                                                   1998                1997      
                                                              ---------------     ---------------
<S>                                                           <C>                 <C>
                  Food, beverage and supplies                 $     1,296,780     $     1,645,735
                  Fuel                                                168,813             224,393
                                                              ---------------     ---------------
                                                              $     1,465,593     $     1,870,128
                                                              ===============     ===============
</TABLE>


NOTE E - DEBT

     NOTE PAYABLE

     On April 22, 1998, the Company borrowed $1.5 million on an unsecured basis,
     from an unrelated third party. As of September 30, 1998, the unpaid
     balance of this note was $1.3 million. This amount was paid in full in
     December 1998. The interest on the outstanding loan is 10% per annum. In
     connection with these loans, the Company issued the lender warrants to
     purchase 50,000 shares of the Company's common stock at an exercise price
     of $5 per share. These warrants are exercisable commencing on April 22,
     1999 and expire on April 23, 2003.
                                                                     (continued)

                                      F-14
<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE E - DEBT - Continued

     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 the Enchanted Isle and the
     Universe Explorer. The loan bears interest at LIBOR plus 2% per annum
     (7.75% at September 30, 1998). Commencing in February 1997, the remaining
     principal balance is due in monthly principal installments of $366,034,
     plus accrued interest, continuing until maturity, in July 2002.

     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, 1998 on
     long-term debt, are as follows:

                                    1999         $       4,392,408
                                    2000                 4,392,408
                                    2001                 4,392,408
                                    2002                 3,660,359
                                                 -----------------
                                                 $      16,837,583
                                                 =================

     On December 4, 1998, the Company borrowed $10 million under a Loan and
     Security Agreement with a leasing company. In conjunction with this loan
     agreement, the Company entered into an Interest Rate Swap Agreement with an
     affiliate of the leasing company, whereas the interest rate on the loan
     agreement is fixed at 9.14% over the term of the loan. This financial
     instrument was not entered into for trading or speculative purposes, but
     rather as an interest rate hedge. The Company has not purchased any other
     derivative financial instruments. The monthly principal payments of the
     loan are fixed at $41,667 for the first 12 months, at which time the
     remaining monthly principal and interest payments are fixed at $97,166,
     with the remaining unpaid principal and interest due on December 4, 2006,
     the date of maturity. The proceeds from this loan was used to repay
     the $8,418,792 loan to Effjohn secured by the Universe Explorer and for
     working capital. This new loan is secured by a first mortgage on the
     Universe Explorer. The terms of this loan requires the Company to comply
     with certain loan covenants, including certain restrictions on future
     borrowings. The revised minimum required principal payments as of
     September 30, 1998 as if this new loan agreement was entered into as of
     September 30, 1998 are as follows:
                                                                     (continued)

                                      F-15
<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE E - DEBT - Continued

              1999                               $       2,571,207
              2000                                       2,582,778
              2001                                       2,576,336
              2002                                       2,244,606
              2003                                         451,827
              Thereafter                                 7,992,038
                                                 -----------------
                                                 $      18,418,792
                                                 =================

NOTE F - CONVERTIBLE DEBT

     In December 1997, the Company sold $2,150,000 of 7% convertible
     subordinated debentures due December 31, 2003, at a 20% discount. In May
     1998, the Company exercised its right to demand conversion of the
     debentures into 537,500 shares of the Company's common stock. As a result
     of this transaction, the Company's long-term debt decreased by $2.15
     million and stockholders' equity increased by approximately $1.4 million,
     after deducting approximately $753,000 of deferred financing costs.

NOTE G - STOCKHOLDERS' EQUITY

     COMMON STOCK

     In June 1998, the Company issued 100,000 shares of common stock to acquire
     a leasehold interest in M/V Enchanted Capri.

     COMMON STOCK PURCHASE RIGHTS PLAN

     In September 1998, the Company implemented a Common Stock Purchase
     Rights Plan and declared a dividend of one Common Stock Purchase Right
     ("Right") for each share of the Company's common stock outstanding. The
     dividend is payable as of November 2, 1998 to stockholders of record on
     that date and for each share of the Company's common stock issued
     during the term of the plan. Each Right entitles the registered holder
     to purchase from the Company one share of common stock at a per share
     price of $28.34, subject to certain adjustments. The Rights are not
     exercisable or transferable, apart from the Company's common stock,
     until after a person or group acquires, or has the right to acquire,
     beneficial ownership of 15 percent or more of the Company's common
     stock or announces a tender or exchange offer to acquire ownership of
     30 percent or more of the Company's common stock. The Rights will
     expire in November 2008, unless earlier redeemed by the Company at the
     option of the Company for $.01 per Right. (continued)

     In the event that the Rights are not redeemed, become exercisable, and any
     person, group of affiliated or associated persons becomes an acquiring
     person, as defined by the agreement, the holder of a Right (other than an
     acquiring person, whose Rights will be void) will have the right to
     receive, upon payment of the exercise price, that number of shares of
     common stock having a market value at the time of the transaction equal to
     two times the exercise price.

                                      F-16
<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE G - STOCKHOLDERS' EQUITY - Continued

     PREFERRED STOCK

     As part of the consideration for the sale of the cruise line, EffJohn
     received 1,000,000 shares of 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.

     In fiscal 1998, 1997 and 1996 the Company paid a dividend to the holders of
     its Series A preference shares. The Company issued 14,825, 20,251 and
     6,979, respectively, of Series A preference shares in partial payment of
     the dividend and paid, in cash, an additional $228,325, $200,949 and
     $31,153, respectively. During fiscal 1998, all the Series A preference
     shares were sold by the original holders and converted to 1,042,055 shares
     of the Company's common stock.

     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 "non-
     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. (continued)

                                      F-17

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE G - STOCKHOLDERS' EQUITY - Continued

     STOCK OPTION PLAN - Continued

     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 1998, stock options to
     purchase 3,333 shares of common stock were exercised and stock options to
     purchase 13,000 shares of common stock were cancelled. 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.

     During fiscal 1998, the Company issued warrants to purchase 454,952 shares
     of common stock to unrelated third parties. The warrants were issued with
     exercise prices ranging from $3.30 to $5.00 per share. The total fair value
     of the options, as determined under SFAS 123, was $337,521; $209,521 of
     which was recorded as part of marketing, selling and administrative
     expenses in fiscal 1998.

     In fiscal 1998, certain antidilutive provisions of existing warrant
     agreements were triggered as a result of the issuance of additional
     warrants during the year, as well as the conversion of the convertible debt
     into common stock. As a result of these transactions, the number of
     outstanding warrants as well as the related exercise prices of certain of
     the warrants were adjusted, resulting in the issuance of additional
     warrants to purchase 604,709 shares of the Company's common stock, 590,910
     of the 604,709 of additional shares were issued at an exercise price of
     $2.75 per share, while the remaining shares were issued at exercise prices
     ranging from $5.67 - $7.05 per share. In addition to the additional shares
     issued, the exercise price of warrants to purchase 500,000 shares of the
     Company's common stock was adjusted from $6 per share to $2.75 per share.

     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
     remaining $12,278 was recorded as part of marketing, selling and
     administrative expenses in fiscal 1998.
                                                                     (continued)

                                      F-18

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE G - STOCKHOLDERS' EQUITY - Continued

     STOCK OPTION PLAN - Continued

     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 SFAS 123, the Company's net
     earnings and earnings per share would have changed to the pro forma amounts
     below.

<TABLE>
<CAPTION>
                                                         1998                1997                 1996    
                                                   ---------------     ---------------    ----------------
<S>                                                <C>                 <C>                <C>
         Net earnings, available for
           common stockholders
              As reported                          $     4,023,170     $     2,003,254           1,729,485
              Pro forma                            $     3,491,761     $     1,912,201           1,717,485

         Basic earnings per share
              As reported                          $           .64     $           .36    $            .31
              Pro forma                            $           .55     $           .34    $            .31

         Diluted earnings per share
              As reported                          $           .54     $           .33    $            .29
              Pro forma                            $           .47     $           .32    $            .29
</TABLE>

     The above pro forma disclosures may not be representative of the effects on
     reported net earnings for future years as certain options vest over several
     years and the Company may continue to grant options and warrants 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 1998, fiscal 1997, and fiscal 1996,
     respectively: dividend yield of 0.0 percent for all years; expected
     volatility ranging from 53% to 58% for the fiscal 1998 grants and 38% for
     the fiscal 1997 and 1996 grants; risk-free interest rates of 5.5%; and
     expected holding periods of 2-6 years.
                                                                     (continued)
                                      F-19

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996


NOTE G - STOCKHOLDERS' EQUITY - Continued

     STOCK OPTION PLAN - Continued

     A summary of the status of the Company's fixed stock options and warrants
     as of September 30, 1998 and 1997, and changes during the years ending on
     those dates is as follows:

<TABLE>
<CAPTION>
                                                   SEPTEMBER 30, 1998                    SEPTEMBER 30, 1997     
                                          ---------------------------------     --------------------------------
                                                               WEIGHTED -                           WEIGHTED -
                                                                AVERAGE                              AVERAGE
                                             SHARES         EXERCISE PRICE         SHARES        EXERCISE PRICE 
                                          -----------       ---------------     -----------      ---------------
<S>                                       <C>               <C>                 <C>              <C>     
     Outstanding at beginning of
       year                                 2,318,000         $    4.57           1,800,000        $    5.10
     Granted                                1,059,661         $    3.18             536,000        $    2.75
     Exercised                                 (3,333)        $    2.75                 -                 - 
     Expired                                       -                                    -                 - 
     Cancelled                                (13,000)        $    2.75            (18,000)        $    2.75
                                          -----------                           ----------
     Outstanding at end of year             3,361,328         $    3.67          2,318,000         $    4.57

     Options exercisable at end
       of year                              2,884,829                            1,584,584
     Weighted average fair value
       of options and warrants
       granted during the year            $      1.75                           $      .89

</TABLE>

     The following information applies to options outstanding at September 30,
1998:

<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 - $1.00           325,000        4.08 years           $     1.00           325,000    $         1.00

     $2.75 - $4.00         1,972,549        5.78 years           $     2.88         1,546,030    $         2.81

     $4.75 - $7.05         1,063,779        3.33 years           $     5.96         1,013,799    $         5.89
                           ---------                                                ---------
                           3,361,328                                                2,884,829
                           =========                                                =========
</TABLE>
                                                                     (continued)


                                      F-20

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE G - STOCKHOLDERS' EQUITY - Continued

     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. In fiscal 1998,
     certain antidilusion provisions, as defined by the warrant agreement, were
     triggered. As a result, the Company issued an additional 11,671 warrants,
     and the exercise price of all of the outstanding warrants was adjusted to
     $5.67 per share.

     In March 1998, the Company issued warrants to purchase a total of 25,000
     shares of the Company's common stock to three nonemployees at an exercise
     price of $4 per share. These warrants are exercisable commencing on March
     2, 1998 and expire on March 2, 2003.

     In February 1998, the Company issued warrants to purchase a total of
     300,000 shares of the Company's common stock to certain nonemployees at an
     exercise price of $3.30 per share. These warrants are exercisable
     commencing on February 18, 1999 and expire on February 17, 2003.

     In December 1997, the Company issued warrants to purchase a total of 54,952
     shares of the Company's common stock to certain nonemployees at an exercise
     price of $3.76 per share. These warrants are exercisable commencing on
     December 24, 1997 and expire on December 15, 2002. In November 1998,
     warrants to purchase 25,000 shares of the Company's common stock were 
     exercised by certain of these warrant holders.

     In July 1998, the Company issued warrants to purchase 25,000 shares of the
     Company's common stock to an unrelated third party at an exercise price of
     $4.75 per share. These warrants are exercisable commencing on July 10, 1998
     and expire on July 9, 2003.

     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 fiscal 1998, certain antidilutive
     provisions, as defined by the warrant agreement, were triggered. As a
     result, the Company issued an additional 590,910 warrants, and the exercise
     price of all of the outstanding warrants was adjusted to $2.75 per share.

                                                                     (continued)

                                      F-21



<PAGE>

                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE G - STOCKHOLDERS' EQUITY - Continued

     WARRANTS - Continued

     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 are all exercisable as of
     September 30, 1998.

     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 were exercisable on November 22, 1997 and expire on
     November 21, 2001. In November 1998, all of these warrants were exercised.

     The number of shares to be purchased and the exercise price of each of the
     above warrants are subject to adjustment in certain events as defined by
     the warrant agreement.

NOTE H - 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.
                                                                     (continued)

                                      F-22
<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE H - COMMITMENTS AND CONTINGENCIES - Continued

     FEDERAL MARITIME COMMISSION CERTIFICATES OF FINANCIAL RESPONSIBILITY

     In order to operate a passenger cruise vessel from U.S. ports, the Company
     is required to obtain an FMC Certificate. The Company placed $4,629,000 on
     deposit with a bank to secure the FMC Certificate in the event of
     non-performance of obligations to passengers of the Enchanted Isle as
     required by the FMC. The FMC requires companies to establish a Certificate
     of Financial Responsibility in amounts and through methods set by the FMC.
     The Company also arranged, through a bank in New England, an escrow account
     for the purpose of selling cruises from U.S. ports on the Universe Explorer
     and on the Enchanted Capri. This FMC escrow arrangement requires the
     Company to deposit all monies received for such sailings, plus a minimum
     cash amount as defined by the escrow agreement.

     ADVANCE DEPOSITS RELATED TO THE ENCHANTED CAPRI

     NCCL acts as the sole operating and ticketing agent for the Enchanted
     Capri. Accordingly, the Company maintains all of the Enchanted Capri
     advance passenger deposits until the completion of the voyages, at which
     time, the amounts are remitted to Capri Cruises. As of September 30, 1998,
     the Company has $1,918,699 of advance deposits related to future sailings
     onboard the Enchanted Capri.

     PREMISES

     The Company leases office space under noncancellable, operating leases.

     Future minimum annual lease commitments at September 30, 1998 are as
     follows:

                       1999                $          284,039
                       2000                           224,812
                       2001                            26,784
                       2002                            20,489
                       2003                             5,363
                                           ------------------
                                           $          561,487
                                           ==================

     Rental and lease expense for the years ended September 30, 1998,
     1997 and 1996, amounted to approximately $450,000, $442,000 and
     $417,000, respectively.

                                                                     (continued)
                                      F-23

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE H - COMMITMENTS AND CONTINGENCIES - Continued

     SAFETY OF LIFE AT SEA

     During recent years, Safety of Life at Sea (SOLAS) standards have been
     amended and required among other things, that 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 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 1974 requirements and are not currently
     fitted with any sprinkler systems.

     In January 1999, the Company will take the Universe Explorer out of service
     primarily for the installation of a sprinkler system aboard the vessel. The
     installation of the sprinkler system, which will bring the ship into
     compliance with SOLAS work to be completed on or before October 1, 2005, is
     expected to be completed in February 1999. The cost of the installation of
     the sprinkler system is estimated at $4.2 million.

     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.
     The amounts charged to earnings for this plan during the three years ended
     September 30, 1998, were not significant.

NOTE I - RELATED PARTIES

     Sea-Comm operates cruises to Alaska through World Explorer Cruises and
     Tours, Inc. (WEC). WEC and Seawise may be deemed to be under common
     control. 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, 1998 and 1997, the
     Company has a receivable due from WEC of $1,140,306 and $471,294,
     respectively, of which $400,000 is included in long-term
     receivable-affiliates and the remaining amount is included in due from
     affiliates.
                                                                     (continued)

                                      F-24

<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE I - RELATED PARTIES - Continued

     The Company advanced Capri Cruises certain amounts during the year and pays
     certain expenses on their behalf. As of September 30, 1998 and 1997, the
     amount due from Capri Cruises was $511,235 and $0, respectively. This
     receivable is included in due from affiliates.

     During fiscal 1998 and 1997, the Company received a series of unsecured
     loans totaling $500,000 and $574,873, respectively, from Seawise, its joint
     venture partner as well as capital contributions totaling $99,990 and
     $1,362,173, respectively. The interest rate on these loans is 8% per annum
     and these loans have no set maturity date. The liability of $1,074,873 and
     $574,873 related to the loans is recorded as part of Due to Affiliates as
     of September 30, 1998 and 1997, respectively. Also included in Due to
     Affiliates is a payable of $125,749 due to WEC as of September 30, 1998.


     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 1999. As
     of September 30, 1998 and 1997, the related receivable from Seawise is
     $2,149,524 and $1,117,913, respectively, and is included in long-term
     receivable affiliates.

NOTE J - 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. 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.
                                                                     (continued)
                                      F-25
<PAGE>


                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        SEPTEMBER 30, 1998, 1997 AND 1996

NOTE J - INCOME TAXES - Continued

     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 K - 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 $0 and $305,038 at September 30, 1998 and
     1997, respectively. In 1996, the Company incurred a loss after insurance of
     $397,310 related to the fire.

NOTE L - SUMMARIZED QUARTERLY FINANCIAL DATA FOR
              1998 AND 1997 (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>
     1998
     Revenues                $    11,529        $    13,857       $   19,631         $  18,111       $    63,128
     Operating income                403                840            3,267             1,615             6,125
     Net earnings
       available
       for common
       stockholders                  111                563            2,410               939             4,023
     Earnings per
       share - diluted               .02                .10              .36               .06               .54

     1997
     Revenues                $    12,234        $    13,773       $   14,218         $  17,752       $    57,977
     Operating income                466                 87              585             1,077             2,215
     Net earnings
       available
       for common
       stockholders                  105                 96              623             1,179             2,003
     Earnings per
       Share - diluted               .04                .03              .11               .15               .33

</TABLE>


                                      F-26
<PAGE>


NOTE M - SUBSEQUENT EVENT

     In October 1998, in connection with the implementation of the Common Stock
     Purchase Rights Plan, the Company issued warrants to purchase a total of
     50,000 shares of the Company's common stock to certain nonemployees at an
     exercise price of $5.45 per share. These warrants are exercisable
     commencing on October 1, 1998 and expire on September 30, 2003.

     In December 1998, in connection with entering into the new Loan and
     Security Agreement, the Company issued warrants to purchase a total of
     81,633 shares of the Company's common stock to certain nonemployees at an
     exercise price of $6.13 per share. These warrants are exercisable
     commencing on December 4, 1998 and expire on December 4, 2003.

                                      F-27

<PAGE>

EXHIBIT
 NUMBER          DESCRIPTION OF EXHIBIT
--------         -----------------------

4f              Assignment and Assumption of Underwriter's Warrant Agreement

10u             First Amendment to USD $24,500,000 Loan Facility Agreement dated
                December 4, 1998 among the EffJohn Lender, Azure, Almira, New
                Commodore and the Company

10v             Modification Agreement dated December 4, 1998 among Sea-Comm,
                Seawise, WEC, HCT, Azure, New Commodore and the Company

10w             Extension of the Financing and Berthing Agreement between New
                Commodore and the Port of New Orleans dated August 24, 1998

10x             Restated Warrant Certificate for 520,455 Shares of Common Stock
                of the Company dated October 15, 1998 in favor of Jeffrey I. and
                Rosalie Binder

10y             Restated Warrant Certificate for 545,455 Shares of Common Stock
                of the Company dated April 15, 1998 in favor of JeMJ Financial
                Services, Inc.

10z             First Preferred Marine Mortgage dated December 4, 1998 executed
                by Azure in favor of KeyCorp

10aa            Assignment of Mortgage in respect of the Enchanted Isle

10ee            Loan and Security Agreement dated December 4, 1998 between Azure
                and KeyCorp

10ff            Promissory Note dated December 4, 1998 between Azure and
                KeyCorp

10gg            ISDA Master Agreement dated December 4, 1998 between Azure and
                KeyCorp, and the Schedule and Confirmation thereto

10hh            Corporate Guaranty Agreement dated December 4, 1998 between the
                Company and KeyCorp

21              Subsidiaries of the Company

27              Financial Data Schedule