Commodore Holdings Ltd – ‘10-K’ for 9/30/96

As of:  Monday, 12/30/96   ·   For:  9/30/96   ·   Accession #:  950170-96-1147   ·   File #:  0-20961

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Annual Report   —   Form 10-K
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 1: 10-K        Annual Report                                         60    294K 
 2: EX-11       Statement re: Computation of Earnings Per Share        1      6K 
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-K

 {X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
 SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996

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 incorporation          (I.R.S. Employer         
or organization)                                      identification No.)       

 4000 HOLLYWOOD BOULEVARD, SUITE 385-S, SOUTH TOWER, HOLLYWOOD, FL 33021
 -----------------------------------------------------------------------
(Address of Principal Offices, including 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 $6.00 PER SHARE
 ---------------------------------------------------------------
(Title of Class)

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

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

As of December 26, 1996, the aggregate market value of the Common Stock held by 
non-affiliates was approximately $11,261,000.                                   

As of December 26, 1996, the number of shares of Common Stock of the registrant 
outstanding was 5,581,933.                                                      

 DOCUMENTS INCORPORATED BY REFERENCE

Part III - Definitive Proxy Statement for the 1997 Annual Meeting of            
Shareholders                                              

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                                TABLE OF CONTENTS                                      

                                     PART I                                      PAGE  
                                     ------                                      ----  

                                                                                       
Item 1.        Business                                                             1  

Item 2.        Properties                                                          14  

Item 3.        Legal Proceedings                                                   15  

Item 4.        Submission of Matters to a Vote of Security-Holders                 16  

Optional Item. Executive Officers of the Registrant                                16  

                                     PART II                                           
                                     -------                                           

Item 5.         Market for Registrant's Common Equity and                              
                Related Stockholder Matters                                        17  

Item 6.         Selected Financial Data                                            17  

Item 7.         Management's Discussion and Analysis of Financial                      
                Condition and Results of Operations                                19  

Item 8.         Financial Statements and Supplementary Data                        23  

Item 9.         Changes in and Disagreements with Accountants on Accounting and        
                Financial Disclosure                                               23  

                                    PART III                                           
                                    --------                                           

Item 10.        Directors and Executive Officers of the Registrant                 23  

Item 11.        Executive Compensation                                             23  

Item 12.        Security Ownership of Certain Beneficial Owners and Management     23  

Item 13.        Certain Relationships and Related Transactions                     23  

                                     PART IV                                           
                                     -------                                           

Item 14.        Exhibits, Financial Statement Schedules and Reports                    
                on Form 8-K                                                        24  


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PART I
------
ITEM 1. BUSINESS                                                                

GENERAL                                                         

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

THE COMMODORE ACQUISITION                                       

THE ACQUISITION AGREEMENTS. The Company entered into definitive 
agreements with EffJohn International B.V. ("EffJohn"), which is the parent of  
Commodore Cruise Line Limited, a Cayman Islands company ("Old Commodore"), Old  
Commodore, and its subsidiaries on April 28, 1995 (the "Acquisition             
Agreements"). Pursuant to the Acquisition Agreements, the Company acquired the  
Enchanted Isle and the Enchanted Seas (the "Cruise Ships"), the trade names     
"Commodore" and "Commodore Cruise Line" as well as certain related trade names  
and trademarks (the "Trademarks"), substantially all of Old Commodore's existing
operations, certain advance ticket sales, marketing and sales personnel and     
information and certain shoreside assets (collectively the "Commodore Assets")  
from EffJohn and its subsidiaries. The Commodore Acquisition closed on July 14, 
1995 (the "Commodore Closing"). The Company purchased all of the Commodore      
Assets "AS IS", and thus did not receive any assurances from, EffJohn as to the 
condition of the Commodore Assets. The Company did, however, have a professional
surveyor survey the Cruise Ships and EffJohn was obligated to deliver them in   
substantially the same condition as each vessel was in at the time of its       
inspection. In addition, EffJohn was obligated to perform specified maintenance 
and repairs on the Enchanted Seas and deliver this vessel to the Company        
following the satisfactory completion of such repairs, as confirmed by the      
vessel's classification society. Each vessel was inspected by its respective    
classification society prior to delivery to the Company and was delivered up to 
its class standards.                                                            

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

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

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

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to post a bond with the FMC only with respect to the Enchanted Isle's customer  
deposits. See "Business - The Joint Venture."                                   

CONSUMABLE ITEMS. The Commodore Assets included an allowance for
consumable items intended for use on board the Cruise Ships in the amount of    
$500,000 per ship. At the Commodore Closing and subsequent thereto, the Company 
and Old Commodore adjusted the Purchase Price to reflect the value of the actual
consumables present on each Cruise Ship.                                        

   DRYDOCK OF ENCHANTED SEAS. As of April 15, 1995, EffJohn caused the
Enchanted Isle to discontinue its cruises from Barbados and delivered the       
Enchanted Isle to New Orleans to replace the Enchanted Seas so that the         
Enchanted Seas could undergo maintenance while at drydock. EffJohn bore all     
costs relating to the termination of the Barbados itinerary as well as all costs
associated with the Enchanted Seas while it remained out of service during      
drydock, including the costs of insurance. EffJohn paid for maintenance and     
repairs to the Enchanted Seas while it was in drydock up to certain agreed upon 
limits. The required repairs are set forth in detail in the Acquisition         
Agreements. Once the repairs were completed, the vessel was returned to New     
Orleans. The Company then refitted the vessel to prepare it for the Semester at 
Sea program.                                                                    

    THE LOANS. The Lender loaned the Company $24,500,000 for purposes of
acquiring the Cruise Ships. The Loan is secured by substantially all of the     
assets of New Commodore including first preferred ship's mortgages on both      
Cruise Ships. The Loan bears interest at LIBOR plus 2% (currently 7.875%) and   
must be repaid in 12 semi-annual installments of principal and interest         
beginning on January 14, 1997. On November 15, 1995, the Company and the Lender 
amended the terms of the Loan to require the Company to remit monthly           
installments of principal and interest toward the January 14, 1997 payment. Such
monthly payment schedule will end on January 14, 1997. In connection with the   
Loan, the Company also paid, at the Commodore Closing, $50,000 of duties, stamp 
fees and attorneys' fees rendered in connection with the Commodore Acquisition  
and the Loan, and an arrangement fee of $100,000 to the Lender. In the event    
that the Company is required to withhold income tax on any interest due to the  
Lender, the Company has agreed to pay the required amount to be withheld and pay
the Lender the full amount of interest due under its agreements with the        
Company.                                                                        

       The terms of the Loan place certain restrictions on the Company. First,
the Company is not permitted to place any additional liens on any of the        
Commodore Assets (including the Cruise Ships) without the prior consent of the  
Lender. Second, the Company is prohibited from paying more than 50% of its net  
profits as dividends on its Common Stock. Third, the Company was required to    
make a monthly payment into a restricted retention account, in an amount        
estimated to pay the next installment of principal and interest under the Loan  
("the monthly retention amount"), divided by the number of months before the    
installment is due. In November 1995, the Company and the Lender amended the    
Loan to temporarily eliminate the segregated account and require the Company to 
pay the monthly retention amount directly to the Lender until January 1997. In  
February 1997, the Company must resume payments of the monthly retention        
amounts. Fourth, in addition to the foregoing requirement, New Commodore must   
maintain a minimum cash balance in its operating accounts of $1 million         
throughout the term of the Loan. If the Company fails to meet any of the        
foregoing requirements or cure any defaults within the permitted time periods,  
the Lender could declare the Company in default under the Loan, and potentially 
foreclose upon the Cruise Ships and the Company's other assets.                 

SERIES A PREFERENCE SHARES. As part of the consideration for the
Commodore Assets, the Company issued EffJohn 1,000,000 of its Series A          
Preference Shares. The Series A Preference Shares are entitled to a cumulative  
7% dividend on an annual basis. This dividend is payable from a maximum of 10%  
of New Commodore's net profits for such year. EffJohn, as holder of the Series A
Preference Shares, is entitled to elect one member of the Board of Directors of 
the Company, as long as it owns at least 125,000 Series A Preference Shares.    
EffJohn may convert its Series A Preference Shares into Common Stock of the     
Company at any time at a conversion rate equal to the greater of USD$4.00 per   
share or a price per share equal to 8 times the Company's earnings per share for
its prior fiscal year. EffJohn may sell to third parties                        

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up to a maximum of approximately 45,000 Series A Preferred Shares in any 90 day 
period at any time after the Commodore Closing, subject to compliance with      
applicable securities laws. The Company has the option to redeem all or any part
of the Series A Preference Shares at USD$4.00 per share at any time commencing  
three years after their issuance.                                               

       SETTLEMENT AGREEMENT. At the Commodore Closing, the Company and EffJohn
entered into a settlement agreement (the "Settlement Agreement") to resolve     
certain issues with respect to repairs to the Cruise Ships and with respect to  
EffJohn's prior agreement to charter the Enchanted Seas. EffJohn agreed to pay  
the Company a total of $535,000 for repairs to be made to the Enchanted Seas,   
which amount was paid in two installments: $460,000 on July 31, 1995, and       
$75,000 on September 15, 1995. EffJohn further agreed to pay the Company $50,000
to offset insurance costs from July 14, 1995 until December 14, 1995, while the 
Enchanted Seas was to be under charter by EffJohn.                              

    Pursuant to the Settlement Agreement, EffJohn also paid $140,000 for
damage to the propeller of the Enchanted Isle. EffJohn also paid $53,750 to the 
Company for the cost of additional fuel required as a result of the lost        
efficiency due to the damaged propeller. The Enchanted Isle was placed in       
drydock for two weeks in February 1996 for such repairs.                        

      With respect to the charter of the Enchanted Seas, EffJohn agreed that
if it did not enter into a bareboat charter for the vessel by September 1, 1995,
it would pay the Company $425,000 within 15 days thereafter. EffJohn did not    
charter the vessel, and paid this sum in fiscal 1995. EffJohn further agreed    
that if it did not enter into a bareboat charter for the vessel by October 15,  
1995, it would pay the Company an additional $425,000. EffJohn paid this        
additional sum to the Company in October 1995.                                  

INDUSTRY OVERVIEW                                               

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

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

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

1990                                         3.6    
1991                                         4.0    
1992                                         4.1    
1993                                         4.5    
1994                                         4.5    
1995                                         4.4    
------------------                                                              
(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 1995 was 1.6% below the 1994 figure. According to CLIA, an 
important portion of the                                                        

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decrease is attributable to some ships offering cruises of short duration       
leaving the U.S. market. The average growth rate for North American cruise      
passengers from 1980 through 1995 was approximately 7.6% per year.              

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

      CLIA has estimated that, in 1982, the capacity of Cruise Ships serving
the North American markets offering voyages of two or more days was             
approximately 43,848 berths. According to CLIA's most recent estimate, in 1995, 
the North American market was served by 39 cruise lines, operating 133 vessels. 
Aggregate 1995 market capacity is estimated at 112,869 berths, an increase of   
7.4% over the previous year. In addition, according to an article in LLOYD'S    
LIST dated February 22, 1996, an estimated 29 new cruise vessels offering 50,000
additional berths will be added to the market by 1998.                          

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

MARKET POSITION                                                 

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

  The Company seeks to position itself within the standard market to
capture the first-time cruising passenger with list per diem rates for its      
Caribbean cruises that range from $84-$208. 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            

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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 will 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, will enable the      
Company to command prices comparable to its competitors. Although the Company's 
older vessels will probably cost more to operate than new vessels, the Company  
believes that its cost savings in debt service payments will more than offset   
the higher maintenance and operating expenses. There can be no assurance,       
however, that the Company can operate its vessels profitably.                   

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

CRUISE OPERATIONS                                               

MARKETING AND PROMOTION.  The Company has committed significant 
resources to marketing and promotion through advertising, public relations, and 
additional sales personnel. To enhance the Company's awareness in, and coverage 
of travel agents and consumer marketplaces, the Company employs a variety of    
complementary marketing and promotional programs incorporating media, direct    
marketing and sales aids, public relations, special events and strategic        
business alliances, with special emphasis on trade and consumer advertising. The
Company has initiated a new 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  
new 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 new marketing plan extends such       
advertising to at least five additional states in which residents have          
historically purchased the most cruises. These states are California, New York, 
Pennsylvania, New Jersey and Florida.                                           

   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 a strong cooperative marketing programs directly links travel agent  
marketing and promotional efforts to those of the Company.                      

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  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 may use 
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 may also place travel trade advertising via the most popular trade      
publications, expanding the awareness of the Company's product and services.    

     The foregoing marketing strategy requires a significant amount of the
Company's cash resources. In the event that the Company is short on working     
capital, the Company may delay or cancel certain components of the foregoing    
marketing plan.                                                                 

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

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

      RESERVATIONS AND PASSENGER SERVICES. Reservations are taken by trained
reservations sales agents on a computer and software system, capable of         
accepting reservations for a fleet of at least 10 vessels. The Company purchased
this reservations system and software from EffJohn as part of the Commodore     
Assets. Staffing levels are maintained per industry standards to ensure that    
calls are taken promptly. Reservations are the first point of contact for most  
travel agents and, as such, play a key role in the sales process. A full time   
staff of approximately 15 people assist agents in securing passenger            
reservations, arranging flights for air/sea passengers, coordinating ground     
transportation and pre- and post-cruise tour hotel packages. In the event the   
Company does not have sufficient working capital to implement the foregoing     
plan, it may reduce the number of people it employs in reservations.            
Accordingly, there can be no assurance that the Company will be able to maintain
optimum staffing levels.                                                        

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

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      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 28-year history of serving travel agents and passengers with friendly     
service and consistent quality. The Company believes that the Caribbean         
itinerary, intimacy and grace of "old world" service, combined with a Port of   
New Orleans embarkation are significant factors supporting a strong foundation  
for attracting passengers seeking an affordable cruise vacation product. The    
Company's choice of New Orleans as its point of embarkation will allow it access
to passengers who might not otherwise choose to take a cruise. Although not     
considered a traditional cruise port, both the allure of New Orleans as a       
vacation destination, and the convenience for local residents make New Orleans  
an attractive alternative to Florida and New York based cruises. However, since 
Commodore provides one of only 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 cruise      
environment that its passengers expect.                                         

       TICKET REVENUES. New Commodore's cruises are list-priced per person per
day (based on double occupancy) from $135 to $228, 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 from the Enchanted Isle are
derived from certain on-board activities and services operated by the Company   
including, casino gambling, liquor sales in a variety of bars, restaurants,     
lounges and discotheques. 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, the sale of       
photographs to passengers, shore excursions 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              

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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 Dolphin Cruise Line. However, the Enchanted Isle is currently  
one 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 1996, eight additional ships
(representing approximately 14,040 berths) will be placed in service by the     
Company's competitors and eight additional ships (representing approximately    
10,114 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 declined by 2.1% during 1995. 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 1996 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 71% of the available berths. Recent 
statistics indicate that the large cruise lines are growing increasingly larger 
and running at full capacity while the smaller lines, such as the Company's, are
forced to discount. The three largest cruise operators in the North American    
cruise industry are increasing market share by adding new vessels to their      
fleets. Various articles concerning the cruise line industry note that this     
trend is expected to continue for at least the next few years. If this trend    
continues, the Company's ability to compete with these larger operators may be  
substantially impaired.                                                         

THE JOINT VENTURE                                               

        On October 30, 1995, the Company entered into the Agreement with Seawise
establishing Sea-Comm. Pursuant to the Agreement, the Company purchased 50.005% 
of Sea-Comm's Common Stock, and 50% of Sea-Comm's outstanding Preferred Stock.  
Seawise purchased 49.995% of Sea-Comm's Common Stock and 50.0% of Sea-Comm's    
Preferred Stock.                                                                

       The purpose of Sea-Comm is to space charter the Universe Explorer to an
entity who operates the Semester at Sea program, an educational program         
conducted by the Institute for Shipboard Education, a Delaware not-for-profit   
corporation ("ISE"), and the University of Pittsburgh. Seawise has a contract   
with the ISE pursuant to which it has operated the Semester at Sea program      
aboard its own vessel for the last 20 years. In addition, Sea-Comm will operate 
cruises to Alaska (the "Alaska Program") through World Explorer Cruises and     
Tours Inc. ("WEC") and Hemisphere Cruises & Tours, Inc. ("Hemisphere"), during  
summer periods when the Universe Explorer is not being used for the Semester at 
Sea program. Seawise is party to a tripartite agreement with WEC and Hemisphere 
pursuant to which it has operated the Alaska Program for the past 19 years (the 
"Alaska Agreement"). As part of the joint venture, Seawise has assigned its     
rights under the Alaska Agreement to Sea-Comm.                                  

 Pursuant to the Agreement, the Company has chartered the Universe
Explorer to Sea-Comm. Sea-Comm, in turn, has chartered the Universe Explorer to 
Seawise so that it may operate the Semester at Sea program exclusively aboard   
the vessel. In return for such charter, Seawise reimburses Sea-Comm for 76% of  
its operating costs, 100% of food costs and 76% of the principal and interest   
due on the portion of the Loan attributable to the Universe Explorer. Sea-Comm  
also earns revenue from the sale of the other 24% of the cabins on the vessel,  
which hold approximately 176 persons, to non-student passengers. Seawise has    
guaranteed the sale of tickets to 60 non-student passengers on each voyage at   
pre-determined rates during 1996. The number of guaranteed non-student          
passengers increases in subsequent years.                                       

    During a portion of the year when the Semester at Sea program is not
operating (approximately 49 days), Sea-Comm operates the Universe Explorer under
the Alaska Agreement. WEC enjoys certain permits                                

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issued by the U.S. Parks Service to cruise in the Glacier Bay, Alaska area.     
Pursuant to the Alaska Agreement, Sea-Comm will earn revenues from ticket sales 
for all cabins and pay fees to WEC and Hemisphere for providing certain services
to Sea-Comm.                                                                    

    For the use of the Universe Explorer in both the Semester at Sea and
Alaska programs, Sea-Comm has agreed to reimburse the Company for all of its    
operating costs, all food costs and all of the principal and interest due on the
portion of the Loan attributable to the Universe Explorer which is incurred     
during the approximate 320 days each year that the Universe Explorer is under   
charter to Sea-Comm. Seawise also reimbursed the Company for $250,000 in        
expenses it incurred due to the cancellation by the Company of other            
arrangements for the use of the vessel. The Company used approximately $535,000,
which it received from EffJohn pursuant to the Settlement Agreement, to repair  
certain technical items aboard the vessel. The Company paid for the renovations 
to the ship to convert it for use in the Semester at Sea program.               

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

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

       THE SEMESTER AT SEA PROGRAM. The Semester at Sea, which is administered
by the ISE and academically sponsored by the University of Pittsburgh, is a     
program that takes approximately 500 students from colleges and universities    
across the United States and abroad around the world each fall and spring       
semester. Since 1963, over 28,000 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 will travel around the world aboard the Universe      
Explorer and participate in a unique and dynamic learning environment. A limited
number of "non-student passengers" will also participate in each Semester at Sea
voyage.                                                                         

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

   The fall and spring Semester at Sea programs last approximately 100
days. The spring semesters begin in late January or early February and end in   
early May, and fall voyages depart in mid-September and return in mid-December. 
A new summer session was offered in 1996 and lasted approximately 56 days. The  
Universe Explorer stops at nine ports during the regular semesters and seven    
ports during the summer session. The summer 1996 itinerary included the ports of
Ensenada, Mexico; Papeete, Tahiti; Auckland, New Zealand; Sydney, Australia;    
Suva, Fiji; Hilo, Hawaii; and San Diego, California. Ports change with each     
voyage.                                                                         

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

   THE ALASKA PROGRAM. Sea-Comm planned to operate one 7-day and three
14-day Alaska cruises in the summer of 1996 onboard the Universe Explorer. On   
July 27, 1996 a fire broke out aboard the Universe Explorer resulting in the    
cancellation of the remainder of the 7 day cruise, the repatriation of all      
passengers and the cancellation of the first 14-day cruise. The ship returned to
service on August 14, 1996 and operated two 14-day cruises. All Alaska cruises  
begin and end in Vancouver, British Columbia. Ports of call for the 7-day cruise
are Ketchikan, Juneau, Wrangell, and Glacier Bay. The 14-day cruises call at the
same ports as well as Sitka, Yakutat Bay/Hubbard Glacier, Seward, Skagway, and  
Victoria.                                                                       

        WEC has been operating Alaska cruises for 19 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.                               

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

Seawise, on behalf of Sea-Comm, markets Semester at Sea voyages,
primarily through the ISE, to non-student passengers through college alumni     
associations and other education-related groups. Of the 176 berths available for
non-student passengers, Seawise guaranteed that it would procure at least 60    
non-student passengers for each voyage during 1996 at pre-set rates. This number
will increase in subsequent years.                                              

   With respect to the Alaska program, WEC markets its cruises through
travel agents, and, in general, through the same avenues that the Company       
markets its Caribbean cruises.                                                  

WEC's cruise experience can be differentiated from that of its  
competitors both based on the length of the cruise and on its focus. Although   
WEC's Alaska 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.

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

        TICKET REVENUES. The cost of Semester at Sea tuition ranges from $12,580
to $14,880 for standard accommodations during the full semesters, and ranges    
from $6,775 to $8,275 for standard accommodations during the summer semester.   
Such rates are per person and include tuition, passage fare, room, board, and   
student fees. Travel to and from ports of embarkation and debarkation, text     
books, in-country travel, personal expenses and incidental fees are additional. 
Financial aid is available to some students. Because the Semester at Sea is     
operated by Seawise, neither the Company nor Sea-Comm earn revenue from student 
ticket sales. Sea-Comm does, however, earn revenue from ticket sales to         
non-student passengers.                                                         

WEC's Alaska cruises are list-priced per person (based on double
occupancy) from $1,145 to $1,995 for the 7-day cruise and $2,295 to $3,995 for  
the 14 day cruises, excluding commissions to travel agents, which will be paid  
by Sea-Comm. Prices vary depending on size and location of cabin. The cruise    
price includes shipboard accommodations, use of all the shipboard amenities and 
all meals.                                                                      

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

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     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 April 1995   
and the Enchanted Isle was last taken out of service for maintenance in February
1996. This work typically is performed during non-peak periods to minimize      
disruption of the Company's operations and any adverse effect on revenues. To   
the extent practicable, the ship's crew, catering and hotel staff remain with   
the ship during such period and assist in performing maintenance and repair     
work.                                                                           

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

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

SUPPLIERS                                                       

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

EMPLOYEES                                                       

       The Company employs approximately 551 people, of whom approximately 505
serve as officers and crew on the Cruise Ships and approximately 46 are employed
shoreside in various sales and marketing, as well as administrative and         
management positions. Pursuant to the terms of the Commodore Acquisition, the   
Company renewed Old Commodore's contract with the employees who work aboard the 
Enchanted Isle and Universe Explorer for three month renewable terms.           

INSURANCE                                                       

  The Company has procured protection and indemnity coverage and oil
pollution coverage, as well as other coverage through its insurers for the      
Cruise Ships. The Company maintains insurance on the hull and                   

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

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

GOVERNMENT REGULATION                                           

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

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

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

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

  The Company believes that it is in compliance with all regulations
applicable to the Cruise Ships and has the licenses necessary to conduct its    
business, however, there can be no assurance thereof. From time to time,        
legislation and proposed regulations have been introduced which could have an   
impact upon the Company's operations. During recent years, the International    
Convention on Safety of Life at Sea ("SOLAS") has been amended and will, among  
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systems to 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. The       
Company believes that the Cruise Ships comply with the SOLAS 1974 requirements, 
and thus that it will not have to fit them with sprinkler systems and other     
safety equipment until 2005. The Cruise Ships' classification societies and the 
Directorate of Consular and Maritime Affairs of the ships' Flag State (Panama)  
have confirmed that the Cruise Ships meet the SOLAS 1974 requirements. The cost 
of installation of sprinkler systems was estimated to be approximately          
$3,000,000 per vessel; however, due to the extension of the installation        
deadline, the Company believes that it will be able to reduce this estimate.    
The Company is unable to quantify any such reduction at present.                

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

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

TRADEMARK PROTECTION                                            

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

ITEM 2. DESCRIPTION OF PROPERTIES                                               

New Commodore subleases from EffJohn, on a pass thru basis,     
approximately 16,000 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 annual lease payment of           
approximately $13.50 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 $8.22 per square foot.                              

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        The Company also utilizes a pier at the Port of New Orleans, pursuant to
a written agreement, from which one of its Cruise Ships departs, and port       
facilities at various Caribbean locations, pursuant to oral agreements with the 
respective authorities, as is the custom in the Caribbean. The agreement with   
the Port of New Orleans, which was assigned to the Company by Old Commodore,    
permits the Company to operate a vessel from New Orleans for six years          
commencing October, 1992. The Company has priority use of the terminal on       
weekends. In the event the Company does not complete 300 sailings during such   
period (or 50 sailings per year), the Company may extend the agreement for one  
year, pay a predetermined cancellation fee, or place another vessel in service  
in New Orleans. No assurance can be given that the Company will be able to      
continue to use the Caribbean ports under oral agreements, or that if such oral 
agreements are terminated, 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 Lender, the Company, Mr. Mayer and 
others, alleging that due to the tortious acts or breaches of agreements by     
various defendants, he did not receive certain fees and/or commissions to which 
he was allegedly entitled upon the consummation of the sale of the Commodore    
Assets or use of such assets in a joint venture. Mr. Stensby has alleged that he
is entitled to damages as a result of the alleged behavior of the various       
defendants. The Company does not believe that the ultimate resolution of this   
action will have a material adverse effect on its financial condition.          

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      The Company anticipates that it will be subject to claims and suits in
the ordinary course of its business in the future, 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 anticipated claims.     

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

None.                                                                           

OPTIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT                             

The following table sets forth as of December 26, 1996 certain  
information regarding the executive officers of the Company. All executive      
officers serve in their respective positions until their successors are         
appointed.                                                                      

                                                        [Enlarge/Download Table]

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

Jeffrey I. Binder   50   Chairman of the Board since 1995; Chairman of                
                         the Board and a director of Tel-Med, a                       
                         publicly traded company which develops medical               
                         products and provides medical related                        
                         services, since 1991; Chairman of the Board                  
                         and a director of H.P. America, Inc., a                      
                         privately traded holding company which owns                  
                         health maintenance organizations and medical                 
                         practices companies, since 1995; Chairman of                 
                         the Board and a director of JeMJ Financial                   
                         Services, Inc., a private holding company                    
                         since 1989; President and a director of Sector               
                         Associates, Ltd., a public company engaged in                
                         the furniture retail business, from 1989 until               
                         1993.                                                        

Frederick A. Mayer  62   Vice Chairman of the Board and Chief Executive Officer       
                         since 1995; Co-founder and Vice Chairman of Regency Cruises  
                         Inc. ("Regency") between 1985 and 1995; President of         
                         Exprinter International USA, a travel organization,          
                         between 1955 and 1995; Chairman of the Board and President of
                         Marmara Marine, Inc. which owns the S/S United States,       
                         since 1992. In November, 1995 Regency filed for Chapter 11   
                         bankruptcy protection.                                       

James R. Sullivan   59   President since 1995; President of the Sullivan Group,       
                         a marketing consulting company, from 1993 to 1995;           
                         Senior Vice President, Director of Cunard Line Ltd.'s        
                         ("Cunard") Eastern Hemisphere from 1989 to 1993;             
                         Senior Vice President of Sales and Marketing for             
                         Cunard from 1981 to 1989; Vice President of Sales for        
                         Cunard from 1977 to 1981; Vice President of Marketing        
                         from 1973 to 1977.                                           

Alan Pritzker       42   Chief Financial Officer since 1995; Senior Vice              
                         President of Regency from 1989 to 1995;                      
                         Controller of Regency from 1985 to 1989. In November,        
                         1995 Regency filed for Chapter 11 bankruptcy                 
                         protection.                                                  

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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 of the last business day of each quarter between July 16,
1996, when the Company' s securities were first quoted on NNM, and September 30,
1996. Such quotations represent inter-dealer prices, without retail mark-up or  
mark-down or commission, and may not necessarily represent actual transactions. 

            COMMON STOCK

FISCAL YEAR    QUARTERS             HIGH           LOW                          
-----------    --------             ----           ---                          

1996           FOURTH               6 3/4          2 1/2                        

      As of December 23, 1996 there were 100 record holders of the Company's
Common Stock and approximately 1,300 beneficial owners of the Company's Common  
Stock. The closing bid price for the Common Stock on that day was $2.53.        

DIVIDENDS                                                                       

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

     As part of the consideration for the sale of the cruise line, EffJohn
received 1,000,000 7% Cumulative Convertible Redeemable Series A Preferred Stock
at a value of $4.00 per share totaling $4,000,000. The cash payment of the      
dividend is limited to 10% of the Company's net profits for such 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 1996 the Company paid a dividend to the
holders of its Series A preference shares of $31,154 in cash and the issuance of
6,979 Series A Preference Shares.                                               

ITEM 6. SELECTED FINANCIAL DATA                                                 

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

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                                                        [Enlarge/Download Table]

                          (Dollars in thousands, except per share data)                                    

                                                               The Company                                 
                                                                  Period        Pro forma     The Company  
                                        Predecessor                Ended       Year Ended      Year Ended  
                                    Years Ended December 31,    September 30,  September 30,  September 30,
                               ------------------------------   -------------  -------------  -------------
INCOME STATEMENT DATA:             1992        1993      1994      1995 (2)       1995(1)         1996     
                                   ----        ----      ----      --------       -------         ----     
                               (Unaudited)                                      (Unaudited)                
                                                                                                           
Total revenues                  $ 54,368    $ 45,650    $ 41,860   $  7,256      $35,075         $47,817   
Operating expenses                44,229      34,265      28,527      4,941       33,337          35,490   
Selling & administrative                                                                                   
  expenses                        11,114       6,833       6,484      1,664        9,899           7,238   
Depreciation and amortization      5,530       4,903       3,599        198        1,693           1,614   
Interest Expense, net              1,980       1,682       1,294        133        1,933           1,266   
Write-off of goodwill                  -       6,023           -          -            -               -   

Other Income                           -           -           -          -            -             341   

Loss on Vessel Fire                    -           -       1,367          -        1,367             397   

Minority interest in earnings                                                                              
  of consolidated joint venture        -           -           -          -            -             143   

Net earnings (loss) before tax    (8,485)     (8,056)        589        320      (13,154)          2,009   

Provision for taxes                    -           -           -          8            -               -   

Net earnings (loss) before      $ (8,485)   $ (8,056)   $    589   $    312     $(13,154)        $ 2,009   
preferred stock dividend                                                                                   

Provision for preferred                                                                                    
  stock dividend                       -           -           -         60          280             280   

Net earnings (loss) available                                                                              
  for Common Stockholders       $ (8,485)   $ (8,056)   $    589   $    252     $(13,434)        $ 1,729   
                                 =======     =======     =======    =======      =======          ------   

Net earnings (loss) per                                                                                    
  share(3)(4)                         --          --          --       0.06        (2.59)           0.34   
                                 =======     =======     =======    =======      =======          ======   
Average shares outstanding                                                                                 
  (000's)                                                             4,378        5,185           5,440   
                                                                    =======      ========         ======   
OPERATING DATA (Unaudited):                                                                                

Sailings                              98          64          53         11           64              56   
Traffic days(5)                      673         466         371         77          444             583   
Passenger days(6)                452,394     316,157     271,075     53,221      271,171         384,638   
Load factor(7)                     92.21%      92.67%     100.22%     94.81%       83.78%          90.44%  

BALANCE SHEET DATA:                                                                                        
Property and equipment,                                                                                    
  net of depreciation                                   $37,565    $33,085                       $36,147   
Total assets                                            $40,232    $44,097                       $53,285   
Total borrowings                                        $30,020    $24,500                       $24,239   
Total stockholders' equity                                                                                 
  (deficit)                                            ($ 5,585)   $12,519                       $16,196   

--------------------                                                            
(1) Assumes the Commodore Acquisition occurred on October 1, 1994.              
(2) Such period begins April 13, 1995 (date of inception) and ends on September 
 30, 1995; however, the Company commenced cruise operations July 15, 1995,
immediately following the Commodore Closing.                            
(3) Net earnings (loss) per common equivalent share is based upon the weighted  
average number of shares and equivalents outstanding during each period 
after giving effect for dividends on the Series A Preference Shares.    
(4) Earnings per share does not apply to fiscal years 1992-1994 because during  
   such periods the Predecessor was an operating unit of EffJohn International
B.V.                                                                    
(5) Represents the number of sailings, multiplied by the number of days per     
cruise.                                                                 
(6) Represents the number of passengers, multiplied by the number of days of    
their respective cruises.                                               
(7) In accordance with cruise industry practice, total capacity is calculated   
based on double occupancy per cabin even though some cabins accommodate 
three or four passengers. A percentage in excess of 100% indicates that 
    more than two passengers occupied some cabins. Because the Universe Explorer
is space chartered to Seawise during the majority of the year for the   
Semester at Sea program, the load factor during these sailings is not as
material to the Company as it is during normal cruise operations. The   
Company has computed the load factor for the Semester at Sea voyages by 
    including all passengers, including university staff and faculty, as well as
student and adult participants.                                         
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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF                                
FINANCIAL CONDITION AND RESULTS OF OPERATIONS                 

GENERAL                                                                         

  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, liquor sales   
and concession income.                                                          

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

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

With respect to Sea-Comm's operations, the Company earns revenue
primarily from reimbursements from Sea-Comm for all operating costs, food costs 
and all of the principal and interest due on the portion of the Loan            
attributable to the Universe Explorer during the approximately 320 days each    
year the vessel is used in the Semester at Sea and Alaska programs.             

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

                                                        [Enlarge/Download Table]


                                                 PREDECESSOR           THE COMPANY        THE COMPANY    
                               PREDECESSOR      AND THE COMPANY          FOR THE            FOR THE      
                           FOR THE YEAR ENDED     PRO FORMA           PERIOD ENDED         YEAR ENDED    
                           DECEMBER 31, 1994   SEPTEMBER 30, 1995  SEPTEMBER 30, 1995  SEPTEMBER 30, 1996
                           ------------------  ------------------  ------------------  ------------------
                                                  (Unaudited)                                            
                                                                                                         
Revenues                       100.00%              100.00%             100.00%            100.00%       

Expenses:                                                                                                
    Operating                   68.1                 95.1                68.1               74.2         
    Selling and                                                                                          
    Administrative              15.5                 28.2                23.0               15.1         
    Depreciation and                                                                                     
    Amortization                 8.6                  4.8                 2.7                3.4         
Loss on Vessel Fire(1)           3.3                  3.9                   -                  -         
                                 ---                 ----                ----               ----         
      Total                     95.5                132.0                93.8               92.7%        

Operating Income (loss)          4.5                (32.0)                6.2                7.3%        

Other Income (Expenses)         (3.1)                (5.5)               (1.8)              (3.1%)       

Net Earnings (Loss)                                                                                      
before Provision for Pre-                                                                                
ferred Stock Dividend            1.4%               (37.5%)               4.4%               4.2%        
                                 ===                 ====                ====               ====         

---------                                                                       
(1)  The Company has included the fiscal 1996 loss from the fire on the Universe
Explorer as Other Income (Expense).                                   
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       Due to its New Orleans point of embarkation, the Company's revenues are
more seasonal than other cruises with similar itineraries that depart from      
Florida ports. The greatest demand for the Company's cruises occurs in June     
through August, and demand from February through May and November through       
December is also very good. The Company's slowest months are January, September 
and October.                                                                    

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

     The results of operations for the year ended December 31, 1994 are of
the Predecessor. The Company's fiscal year ends on September 30. As a result,   
the results of operations for the pro forma year ended September 30, 1995       
include the fourth calendar quarter of 1994, which is also included in the      
December 31, 1994 fiscal year. The pro forma 1995 fiscal year includes results  
of operations of the Predecessor from October 1, 1994 until July 14, 1995, and  
those of the Company for the balance of such fiscal year. Old Commodore operated
two vessels during the 1995 fiscal year. Old Commodore operated the Enchanted   
Seas primarily on the New Orleans itinerary during fiscal 1995 and placed this  
vessel in drydock just prior to the Commodore Closing. Concurrently therewith,  
Old Commodore placed the Enchanted Isle on the New Orleans itinerary.           

       Prior to such time in fiscal 1995, Old Commodore operated the Enchanted
Isle for 73 days on a Barbados itinerary, and before that, chartered the vessel 
to a company that operated it as a floating hotel in St. Petersburg, Russia. All
of these activities occurred during fiscal 1995. The Company, however, operated 
only one vessel on the New Orleans itinerary during its 1995 fiscal year. As a  
result of the differences in the number of ships operated, the itinerary served,
and the use of each ship by each of Old Commodore and the Company, a comparison 
of the 1995 fiscal year to the 1994 fiscal year may not be representative of the
Company's future performance. The historical operating results for the          
Predecessor were prepared by management from the books and records of Old       
Commodore. Revenues and ship operating expenses are specifically those of the   
Cruise Ships. However, Old Commodore operated up to five ships during the period
since January 1, 1994. As a result, administration and marketing expenses were  
commingled and have been allocated to the Predecessor based on the number of    
traffic days of all of Old Commodore's ships. This may not be indicative of     
actual expenses which would have been incurred in connection with the operation 
of one ship by the Company. In addition, the Predecessor's depreciation expenses
vary from those of the Company primarily due to its higher cost basis on the    
vessels. Accordingly, such expenses are not comparable.                         

RESULTS OF OPERATIONS                                                           

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

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

     The Company's operating expenses increased by $2,153,117, or 6.5%, in
fiscal 1996 compared to pro forma 1995. This increase was due to increased      
revenues in fiscal 1996, the termination of the Predecessor's Barbados          
itinerary, which operated for only 73 days during pro forma 1995, and the       
relatively lower operating costs for the Semester at Sea program, which does not
offer luxury cruise cuisine or luxury cabin services. As a percentage of        
revenue, operating expenses represented 74.2% of revenues in fiscal 1996, as    
compared to 95.1% of revenue in pro forma 1995. This decline of expenses as a   
percentage of revenue illustrates the relatively lower operating expenses of the
Semester-at-Sea program as compared to luxury cruise service provided by the    
Predecessor during pro forma 1995, as well as the higher cost of food and       
services that the Predecessor incurred while operating the Barbados itinerary,  
compared to the cost for similar products and services in New Orleans. As a     
result of the drydock costs incurred in fiscal 1996 on the Enchanted Isle, the  
Company expects that the amortization of these costs will result in higher      
operating costs in fiscal 1997 versus fiscal 1996.                              

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

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

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

PRO FORMA FOR THE YEAR ENDED SEPTEMBER 30, 1995, COMPARED TO THE YEAR ENDED     
DECEMBER 31, 1994                                                               

       Revenues decreased by $6,785,649, or 16.2%, for fiscal 1994 compared to
pro forma 1995 primarily due to (i) an 11.9% reduction in the number of         
passengers carried as well as a reduction in the average rate per passenger on  
the Company's New Orleans itinerary, and (ii) low load factors and average rates
on Old Commodore's Barbados itinerary.  This decrease was partially offset by   
the receipt of $425,000 in pro forma 1995 from the cancellation of a charter    
agreement. The Company received an additional cancellation fee of $425,000 in   
fiscal 1996, but does not anticipate that it will receive such fees in future   
years. See "Business - The Commodore Acquisiton - Settlement Agreement." The    
load factor for the New Orleans itinerary decreased to 89.54% in pro forma 1995 
from 100.23% in 1994.                                                           

      The Company's operating expenses increased by $4,809,500, or 16.9%, in
pro forma 1995 compared to fiscal 1994. This increase was due to a fire on the  
Enchanted Isle on December 28, 1994, the termination of Old Commodore's Barbados
itinerary, which operated for only 73 days in 1995, as well as increased        
competition in the New Orleans market. The Barbados itinerary was cancelled in  
April 1995, in connection with the Commodore Acquisition.                       

       Marketing, selling and administrative expenses increased by $3,414,416,
or 52.7%, in pro forma 1995 from fiscal 1994 due to a variation in the way Old  
Commodore and the Company attribute such expenses. Given that the Company       
acquired the vessels in the fourth quarter of pro forma 1995, the full effect of
such variations is not reflected herein.                                        

       Depreciation and amortization decreased by $1,905,975, or 53.0%, in pro
forma 1995 compared to fiscal 1994 due to the difference in cost basis of the   
assets acquired by the Company as compared to Old Commodore. Interest expenses  
increased by $639,960 from fiscal 1994 to pro forma 1995 due to the Company's   
acquisition of Commodore Cruise Line and the financing procured to consummate   
the acquisition.                                                                

LIQUIDITY AND CAPITAL RESOURCES                                                 

       The Company's working capital deficiency was $2,931,658 and $919,779 at
September 30, 1996 and 1995, respectively. The Company's working capital        
deficiency at September 30, 1996 and 1995 was primarily due to the inclusion, in
non-current assets, of a $4,629,000 deposit securing the Company's FMC bond. The
corresponding liability, customer deposits, which was $5,839,360 and $4,344,657 
at September 30, 1996 and 1995 respectively, is included in current liabilities.
The Company also received working capital from the proceeds of its public       
offering in 1996 and its private offering in 1995. The decrease in the Company's
working capital, in fiscal 1996, was primarily due to the inclusion of          
$2,277,095, the current portion of its long-term debt, in current liabilities.  

       Cash flows from operations provided $3,567,649 and $661,137, for fiscal
1996 and 1995, respectively. Cash flows for fiscal 1996 consisted primarily of  
increases in accounts payable, customer deposits, due to related party and      
accrued liabilities.                                                            

    At September 30, 1996, the Company owed $24,239,155 to the Lender in
connection with the Commodore Acquisition. The Loan is secured by substantially 
all of the assets of New Commodore, including preferred ships mortgages on both 
Cruise Ships, and bears interest at LIBOR plus 2%. The Loan must be repaid in 12
semi-annual installments of principal and interest beginning January 14, 1997.  
On November 15, 1995, the Company and the Lender amended the terms of the Loan  
to require the Company to remit monthly installments of principal and interest  
toward the January 14, 1997 payment. Such monthly payment schedule will end on  
January 14, 1997. In the event that the Company is required to withhold income  
tax on any amounts due to the Lender, the Company has agreed to pay the required
amount to be withheld and pay the Lender the full amount of interest due under  
its agreements with the Company.                                                

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       The terms of the Loan place certain restrictions on the Company. First,
the Company is not permitted to place any additional liens on any of its assets 
(including the Cruise Ships) without the prior consent of the Lender. Second,   
the Company is prohibited from paying more than 50% of its net profits as       
dividends. Third, beginning in February 1997, the Company must make monthly     
payments into a restricted retention account in an amount estimated to pay the  
next installment of principal and interest under the Loan, divided by the number
of months before the next installment is due. In addition to the foregoing, New 
Commodore must maintain a minimum cash balance in its operating accounts of $1  
million. Recently, the Lender notified the Company that it believes the Company 
has violated certain covenants in the Loan, including the requirement that the  
Company maintain $1 million in its operating accounts. The Lender has not       
declared the Company to be in default under the Loan. The Company believes that 
it is in compliance with the Loan covenants, and, to the extent it may not have 
been in compliance with the $1 million cash balance requirement in the past,    
that such violation has been cured.                                             

      The Universe Explorer was in drydock between the Commodore Closing and
January 1996. Because the Company received charter cancellation fees for        
charters scheduled between the Commodore Closing and December 1995, the time the
vessel was out of service did not have an adverse effect on the Company's fiscal
1996 revenues. In November 1995, the Company began to prepare the vessel for use
in the Semester at Sea program. The Company used approximately $535,000, which  
it received from EffJohn, to repair certain technical items aboard the vessel.  
The Company also paid for the renovations to the ship to convert it for use in  
the Semester at Sea program. The Company anticipates that the Universe Explorer 
will be placed in drydock for maintenance and repairs during fiscal 1997. The   
Company plans to schedule the drydock between Semester at Sea voyages so that it
will not lose any operating days. The cost of the maintenance and repairs is    
expected to be paid out of cash from operations.                                

  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, 1996 the Company had an insurance 
receivable balance of $2,470,525.                                               

The Enchanted Isle was sent to drydock in February 1996 for     
approximately two weeks to repair its propeller and complete certain other      
repairs. EffJohn reimbursed the Company for approximately $140,000 of such      
costs. The time the vessel was out of service for such repairs did not have a   
material adverse effect on the Company's fiscal 1996 net income. The Enchanted  
Isle is not expected to be sent to drydock during fiscal 1997.                  

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.        

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             

  The Financial Statements and related notes are included in Item 14
herein. See Index to Financial Statements contained in Item 14.                 

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

None.                                                           

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 1997 Annual Meeting of Shareholders (the "1997 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 1997 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 1997 Proxy Statement is incorporated   
herein by reference.                                                            

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

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The information set forth under the caption "Transactions with Management and   
Others" in the 1997 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 1996.

(c) Exhibits                                                                    

EXHIBITS              DESCRIPTION OF EXHIBIT                                    

3a     Memorandum of Association of the Company, as amended*                

3b     By-Laws*                                                             

4a     Form of Common Stock Certificate***                                  

4b     Series A Preference Share Terms*                                     

4c     Form of Warrant Certificate***                                       

4d     Form of Warrant Agent Agreement**                                    

4e     Form of Underwriter's Warrant Agreement**                            

10a     Employment Agreement dated May 3, 1995 between                        
the Company and Jeffrey I. Binder*                            

10b     Employment Agreement dated May 3, 1995 between                        
New Commodore and Frederick A. Mayer, as amended*             

10c     Employment Agreement dated May 3, 1995 between                        
New Commodore and James R. Sullivan, as amended*              

10d     Employment Agreement dated May 3, 1995 between                        
New Commodore and Alan Pritzker, as amended*                  

10e     USD$ 24,000,000 Loan Facility Agreement, dated July 14,               
1995 among the Lender, Almira, Azure, New Commodore and       
the Company*                                                  

10f     Agreement for the Sale and Purchase of the Business and               
Assets of Old Commodore dated April 29, 1995 between          
Old Commodore, EffJohn and New Commodore*                     

10g     Master Agreement dated May 28, 1995 between EffJohn, BCS,             
ACS, Old Commodore, New Commodore and the Company*            

10h     1995 Stock Option Plan*                                               

10i     Joint Venture Agreement dated October 30, 1995 between                
the Company, Seawise and Sea-Comm*                            

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10j     Management Services Agreement dated July 5, 1995 between              
New Commodore and IMC**                                       

10k     Sublease for Office Space at 4000 Hollywood Boulevard                 
dated June 30,  1995 between EffJohn and New Commodore**      

10l     Software Agreement between Reservations Technology, Inc.              
and New Commodore**                                           

10m     Sublease of computer equipment and software between Old               
Commodore and New Commodore (IBM Sublease)**                  

10n     Assignment of Financing and Berthing Agreement dated June             
29, 1995 between New Commodore and Old Commodore as           
consented to by the Board of Commissioners of the Port of     
New Orleans**                                                 

10o     Warrant Certificate for 250,000 Shares of Common Stock of             
the Company dated July 14, 1995 in favor of JeMJ Financial    
Services, Inc.**                                              

10p     Warrant Certificate for 250,000 Shares of Common Stock of             
the  Company  dated July 14, 1995 in favor of Jeffrey         
and Rosalie Binder**                                          

10q     Warrant Certificate for 250,000 shares of Common Stock of             
the Company dated October 30, 1995 in favor of Seawise**      

10r     First Priority Panamanian Mortgage on the Enchanted Seas              
dated July 14, 1995 between Azure and the Lender**            

10s     First Priority Panamanian Mortgage on the Enchanted Isle              
dated  July 14, 1995 between Almira and the Lender**          

10t     First Priority Charge over the shares of Azure dated                  
July 14, 1995 between the Lender and New Commodore**          

10u     First Priority Charge over the shares of Almira dated                 
July 14, 1995 between the Lender and New Commodore**          

10v     First Priority Tripartite Deed in respect of the Enchanted            
Seas dated July 14, 1995 between the Azure, New Commodore     
and the Lender**                                              

10w     First Priority Tripartite Deed in respect of the Enchanted            
Isle dated July 14, 1995 between the Almira, New Commodore    
and the Lender**                                              

10x     Form of Custody Agreement and Power of Attorney for Sale              
of Common Stock of the Company***                             

11     Computation of Earnings per share of Common Stock                    

21     Subsidiaries of the Company*                                         
24     Power of Attorney (included on signature page)                       
27     Financial Data Schedule****                                          

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

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SIGNATURES

In accordance with 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 in the State of Florida on the 26th day of December, 1996. 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.                    

                                                        [Enlarge/Download Table]


           SIGNATURE                            TITLE                             DATE         
           ---------                            -----                             ----         
                                                                                               

/S/ JEFFREY I. BINDER                    Chairman of the Board               December  26, 1996
-----------------------------                                                                  
Jeffrey I. Binder                                                                              

/S/ FREDERICK A. MAYER                 Vice-Chairman of the Board            December  26, 1996
-----------------------------         (Principal Executive Officer)                            
Frederick A. Mayer                                                                             

/S/ JAMES R. SULLIVAN                          President                     December 26, 1996 
-----------------------------                                                                  
James R. Sullivan                                                                              

/S/ ALAN PRITZKER                      Vice President, Finance and           December 26, 1996 
-----------------------------            Chief Financial Officer                               
Alan Pritzker                  (Principal Financial and Accounting Officer)                    

/S/ RALPH V. DE MARTINO                         Director                     December 26, 1996 
-----------------------------                                                                  
Ralph V. De Martino                                                                            

/S/ MARK J. MAGED                               Director                     December 26, 1996 
-----------------------------                                                                  
Mark J. Maged                                                                                  

/S/ ARNOLD ADOLPHUS FRANCIS, Q.C.               Director                     December 26, 1996 
-----------------------------                                                                  
Arnold Adolphus Francis, Q.C.                                                                  

/S/ A. ROBERT MILLER                            Director                     December 26, 1996 
---------------------------------                                                              
A. Robert Miller                                                                               

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                          INDEX TO FINANCIAL STATEMENTS                                                   

                                                                                                     PAGE 
                                                                                                     ---- 

                                                                                                          
Commodore Holdings Limited and Subsidiaries                                                               

     Report of Independent Certified  Public Accountants............................................. F-2 

     Consolidated Balance Sheets - September 30, 1996 and 1995....................................... F-3 

     Consolidated Statements of Earnings - Year Ended September 30, 1996 and                              
       Period From April 13, 1995 through September 30, 1995......................................... F-4 

     Consolidated Statement of Stockholders' Equity - September 30, 1996............................. F-5 

     Consolidated Statements of Cash Flows - Year Ended September 30, 1996 and                            
       Period From April 13, 1995 through September 30, 1995......................................... F-6 

     Notes to Consolidated Financial Statements...................................................... F-8 

S/S Enchanted Seas and S/S Enchanted Isle (Predecessor Company)                                           

     Report of Independent Certified Public Accountants.............................................. F-23

     Combined Balance Sheet December 31, 1994........................................................ F-24

     Combined Statements of Operations - Years Ended December 31, 1993, 1994,                             
       Period From January 1 through July 14, 1995................................................... F-25

     Combined Statements of Operating Units' Equity - Year Ended December 31, 1993,                       
       1994, Period From January 1 through July 14, 1995............................................. F-26

     Combined Cash Flow Statements Years Ended December 31, 1993, 1994,                                   
       Period From January 1 through July 14, 1995................................................... F-27

     Notes to Consolidated Financial Statements...................................................... F-29

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 REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors                                                              
Commodore Holdings Limited and Subsidiaries                                     

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

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

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

Miami, Florida                                                                  
December 18, 1996                                                               

                                          /s/ GRANT THORNTON LLP

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                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES                            

                           CONSOLIDATED BALANCE SHEETS                                    

                                  SEPTEMBER 30,                                           

                                     ASSETS                                               

                                                                     1996           1995  
                                                               -------------  ------------
                                                                                          
Current assets                                                                            

   Cash and cash equivalents                                   $   3,476,165  $  3,274,993
   Restricted cash                                                 1,412,907       363,462
   Trade and other receivables                                       328,812        79,069
   Insurance claim receivable                                      2,470,525            - 
   Due from affiliate                                                 42,921       456,878
   Inventories                                                     1,830,241       691,001
   Prepaid expenses                                                2,463,842       592,664
   Other current assets                                               76,290       700,000
                                                               -------------  ------------
            Total current assets                                  12,101,703     6,158,067

Property and equipment, net                                       36,147,435    33,085,209

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

Other assets                                                         406,667       225,000
                                                               -------------  ------------
                                                               $  53,284,805  $ 44,097,276
                                                               =============  ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY                                

Current liabilities                                                                       

   Current portion of long-term debt                           $   2,277,095  $          -
   Accounts payable                                                5,767,110     1,868,415
   Accrued liabilities                                               723,251       228,142
   Due to affiliate                                                  249,631             -
   Customer and other deposits                                     5,839,360     4,344,657
   Accrued interest                                                   76,914       412,672
   Capital lease obligations                                              -        223,960
                                                               -------------  ------------
            Total current liabilities                             14,933,361     7,077,846

Long-term debt                                                    21,962,060    24,500,000

Minority interest in subsidiary                                      193,018             -

Stockholders' equity                                                                      

   Preferred stock - authorized 10,000,000 shares of $.01 par                             
     value; issued 1,006,979 in 1996 and 1,000,000 in 1995            10,070        10,000
   Common stock - authorized 100,000,000 shares of $.01 par                               
     value; issued 5,581,933 in 1996 and 4,931,933 in 1995            55,819        49,319
   Paid-in capital                                                13,868,526    12,148,576
   Retained earnings                                               2,261,951       311,535
                                                               -------------  ------------
            Total stockholders' equity                            16,196,366    12,519,430
                                                               -------------  ------------

                                                               $  53,284,805  $ 44,097,276
                                                               =============  ============

The accompanying notes are an integral part of these statements.                

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                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES                               

                       CONSOLIDATED STATEMENTS OF EARNINGS                                   

                                                                                 PERIOD FROM 
                                                                               APRIL 13, 1995
                                                                                  (DATE OF   
                                                                                 INCEPTION)  
                                                                YEAR ENDED        THROUGH    
                                                               SEPTEMBER 30,    SEPTEMBER 30,
                                                                     1996           1995     
                                                               -------------    ----------   
                                                                                             

Revenues                                                      $   47,816,881  $    7,255,830 

Expenses                                                                                     

   Operating                                                      35,489,713       4,940,637 
   Marketing, selling and administrative                           7,238,148       1,664,478 
   Depreciation and amortization                                   1,613,668         197,926 
                                                               -------------    ------------ 
                                                                  44,341,529       6,803,041 
                                                               -------------    ------------ 
Operating income                                                   3,475,352         452,789 

Other income (expense)                                                                       

   Other income(expense)                                             340,641              -  
   Interest income                                                   382,101          79,054 
   Interest expense                                               (1,648,276)       (211,849)
   Minority interest in earnings of                                                          
     consolidated joint venture                                     (143,023)             -  
   Loss on vessel fire                                              (397,310)             -  
                                                               -------------    -----------  
                                                                  (1,465,867)       (132,795)
                                                               -------------    ------------ 
            Earnings before provision for                                                    
              income taxes and provision for                                                 
              preferred stock dividend                             2,009,485         319,994 

Provision for income taxes                                                -            8,459 
                                                               -------------    ------------ 

            Net earnings before provision                                                    
              for preferred stock dividend                         2,009,485         311,535 

Provision for preferred stock dividend                               280,000          60,000 
                                                               -------------    ------------ 

            Net earnings available for                                                       
              common stockholders                              $   1,729,485    $    251,535 
                                                               =============    ============ 

Earnings per share                                             $        0.34    $       0.06 
                                                               =============    ============ 

Weighted average number of common                                                            
  stock outstanding                                                5,439,590       4,377,593 
                                                               =============    ============ 

The accompanying notes are an integral part of these statements.                

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                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES                                                                      

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                                                                     

                               SEPTEMBER 30, 1996                                                                                   

                                         PREFERRED STOCK                COMMON STOCK                                                
                                   ---------------------------   -------------------------     ADDITIONAL                           
                                       NUMBER                      NUMBER                        PAID-IN      RETAINED              
                                      OF SHARES    PAR VALUE      OF SHARES     PAR VALUE        CAPITAL      EARNINGS    TOTAL     
                                   ------------    ---------     ----------     ---------      -----------    --------- --------    
                                                                                                                                    

Balance at April 13, 1995 (date                                                                                                     
  of inception)                             -         $   -              -       $     -       $         -    $     -   $         - 

Issuance of common stock and                                                                                                        
  preferred stock (Note B)          1,000,000        10,000      4,931,933         49,319       12,148,576          -    12,207,895 

Net earnings                                -             -              -              -                -    311,535       311,535 
                                      -------        ------        -------         ------          -------    -------    ---------- 

Balance at September 30, 1995       1,000,000         10,000     4,931,933         49,319       12,148,576    311,535    12,519,430 

Net proceeds of initial public offering                                                                                             
  (Note B)                                  -              -       650,000          6,500        1,692,104          -     1,698,604 

Preferred stock dividend (Note F)       6,979             70             -              -           27,846    (59,069)      (31,153)

Net earnings                                -              -             -              -                -  2,009,485     2,009,485 
                                      -------         ------       -------         ------          -------   --------       --------
2,009,485                                                                                                                           

Balance at September 30, 1996       1,006,979    $    10,070     5,581,933    $    55,819   $13,868,526    $2,261,951  $ 16,196,366 
                                   ==========    ===========   ===========    ===========   ===========    ==========  ============ 

The accompanying notes are an integral part of these statements.                

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                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES                               

                      CONSOLIDATED STATEMENTS OF CASH FLOWS                                  

                                                                                PERIOD FROM  
                                                                               APRIL 13, 1995
                                                                                  (DATE OF   
                                                                                 INCEPTION)  
                                                                YEAR ENDED        THROUGH    
                                                               SEPTEMBER 30,   SEPTEMBER 30, 
                                                                    1996            1995     
                                                               -------------   ----------    
                                                                                             
Cash flows from operating activities:                                                        

   Net earnings                                                $   2,009,485   $    311,535  
   Adjustments to reconcile net income to net cash                                           
     provided by operating activities:                                                       

      Depreciation of property and equipment                       1,581,519        197,926  
      Amortization of deferred dry-dock                              804,678         41,667  
      Amortization of organization cost                               16,729             -   
      (Increase) decrease in operating assets                                                
         Restricted cash                                          (1,049,445)      (363,462) 
         Investments - restricted                                         -      (4,629,000) 
         Trade and other receivables                                (249,743)       (79,069) 
         Insurance receivable                                     (2,470,525)                
         Due from affiliate                                          413,957       (375,950) 
         Inventory                                                (1,139,241)        69,271  
         Prepaid expenses and other current assets                (2,052,147)      (934,330) 
         Other assets                                               (200,000)      (225,000) 
      Increase (decrease) in operating liabilities                                           
         Accounts payable                                          3,898,697      1,868,415  
         Accrued liabilities                                         495,109        228,141  
         Due to affiliate                                            249,631             -   
         Advance deposits                                          1,494,703      4,344,657  
         Accrued interest                                           (335,758)       206,336  
                                                               -------------   ------------  
            Net cash provided by operating activities              3,467,649        661,137  

Cash flows from investing activities:                                                        

   Capital expenditures                                           (4,642,139)      (672,960) 
   Decrease in capital leases obligation                            (223,960)       (53,079) 
   Cost of acquisition, net of cash acquired                              -      (4,868,000) 
   Increase in minority interest                                     193,018             -   
                                                               -------------   -----------   
            Net cash used in investing activities                 (4,673,081)    (5,594,039) 

Cash flows from financing activities:                                                        

   Principal payments on debt                                       (260,847)            -   
   Net proceeds from initial public offering                       1,698,604             -   
   Proceeds from initial issuance of common stock                          -      8,207,895  
   Dividends paid                                                    (31,153)            -   
                                                               -------------   -----------   
            Net cash provided by financing activities              1,406,604      8,207,895  
                                                               -------------   ------------  

Net increase in cash and cash equivalents                            201,172      3,274,993  

Cash and cash equivalents at beginning of period                   3,274,993             -   
                                                               -------------   ------------  

Cash and cash equivalents at end of period                     $   3,476,165   $  3,274,993  
                                                               =============   ============  

                                                                                 (continued) 

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                   COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES                              

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED                           

                                                                               PERIOD FROM  
                                                                              APRIL 13, 1995
                                                                                  (DATE OF  
                                                                                 INCEPTION) 
                                                                YEAR ENDED        THROUGH   
                                                               SEPTEMBER 30,  SEPTEMBER 30, 
                                                                     1996           1995    
                                                               -------------  ----------    
                                                                                            
Supplemental disclosure of cash flow information:                                           

   Cash paid during the period for interest                    $   1,601,933  $         -   
                                                               =============  ===========   
   Cash paid during the period for taxes                       $          -   $         -   
                                                               =============  ===========   

Supplemental schedule of noncash investing and financing activities:            

In April 1996, the Company  issued 6,979 shares of its Series A preference
shares in partial payment of its preferred share dividend.                

   As part of the purchase price of acquisition (see Note A), the Company issued
notes payable totalling $24,500,000 and 1,000,000 shares of redeemable    
preferred convertible stock totalling $4,000,000.                         

   In 1995, the Company capitalized $206,336 of accrued interest to property and
equipment.                                                                

In 1995, the Chairman of the Board and a company he controls, paid        
approximately $1,000,000 of the Company's costs in exchange for 1,000,000 
shares of the Company's common stock.                                     

Simultaneously to the acquisition, the Company assumed a capital lease    
obligation of $277,039 from a related party (See Note H). The Company     
recorded $277,039 in equipment and $277,039 in capital lease obligations. 

The accompanying notes are an integral part of these statements.                

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 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 SEPTEMBER 30, 1996 AND 1995

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
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%. The accounts of Sea-Comm are consolidated into the   
   accounts of CHL and its subsidiaries with the minority interest in Sea-Comm
presented separately.                                                   

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

ACQUISITION OF COMMODORE CRUISE LINE                                    

    On July 14, 1995, the Company completed an acquisition, through the purchase
  of the assets, of Commodore Cruise Lines Limited, a business consisting of
    two ships, certain shoreside assets, trademarks, passenger lists and advance
ticket sales, from EffJohn International B.V. ("EffJohn"). The Company  
completed the transaction, for a total consideration of $33,500,000 by  
  paying $5,000,000 in cash, entering into a loan agreement with EffJohn for
$24,500,000 and granting EffJohn 1,000,000 7% Cumulative Convertible    
  Redeemable Series A Preferred Stock at an agreed value of $4.00 per share.
   Of the $33,500,000 purchase price, $31,600,000 was allocated to the vessels
   and the remaining $1,900,000 was allocated to cash, inventory, prepaids and
shoreside assets.                                                       

   At the closing, EffJohn transferred to the Company approximately $5,300,000
    of cash representing the balance of customer deposits outstanding for future
   sailings. Additionally, the Company reimbursed EffJohn for certain advances
made prior to the closing and paid EffJohn fees and expenses totaling   
$150,000.                                                               

                                                                     (continued)

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 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued                 

ACQUISITION OF COMMODORE CRUISE LINE - Continued                        

 The operations of the Enchanted Isle from July 15, 1995 through September
30, 1995, are included in the accompanying financial statements. The    
Universe Explorer was undergoing significant renovations and had no     
operations for that period, and began operations in January 1996.       

JOINT VENTURE                                                           

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

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.                                                          

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. In addition, the Company received         
  non-recurring charter cancellation fees of $425,000 in September 1995, and
$425,000 in October 1995.                                               

CASH AND CASH EQUIVALENTS                                               

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

                                                                     (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued                 

RESTRICTED CASH                                                         

    As part of the loan agreement with EffJohn, the Company is required to place
 approximately $181,731 each month in a retention account to be applied to
  the first principal and interest payment due in January 1997. At September
 30, 1995, this amounted to $363,462. In November 1995, the loan agreement
   was amended to pay the monthly retention amount directly to the lender, and
   accordingly, the balance of the retention account was paid to the lender in
November 1995.                                                          

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

INVENTORIES                                                             

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

DRY-DOCKING                                                             

   Costs associated with the dry-docking of the vessels are charged to prepaid
    expenses when incurred and expensed over the estimated period until the next
 scheduled dry-dock (not to exceed two years). Prepaid dry-docking cost of
   $1,512,550 (2 ships) and $358,333 (1 ship) are recorded in prepaid expenses
    as of September 30, 1996 and September 30, 1995, respectively. These amounts
 are net of related accumulated amortization of $846,345 and $41,667 as of
September 30, 1996 and September 30, 1995, respectively.                

STOCK OPTIONS                                                           

Options granted under the Company's Stock Option Plans are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related   
   interpretations. In November 1995, the Financial Accounting Standards Board
   issued Statement 123, "Accounting for Stock-Based Compensation," which will
   require additional proforma disclosures for companies that will continue to
account for employee stock options under the intrinsic value method     
  specified in APB 25. The Company plans to continue to apply APB 25 and the
only effect of adopting Statement 123 for the issuance of employee stock
options in fiscal 1997 will be the new disclosure requirement.          

                                                                     (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

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, 1996 and September 30, 1995 and revenues and expenses during
the periods then ended. 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.                                                      

OTHER CURRENT ASSETS                                                    

As of September 30, 1995, other current assets represents primarily a   
   $700,000 deposit securing the Company's Federal Maritime Commission ("FMC")
Bond for the Enchanted Seas.                                            

 Commencing in fiscal 1996, the Universe Explorer is not scheduled to sail
from any U.S. Ports. As a result, an FMC Bond is not required.          

PROPERTY AND EQUIPMENT                                                  

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

INVESTMENTS - RESTRICTED                                                

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

ADVERTISING COSTS                                                       

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

                                                                     (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

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                                                      

   Net earnings per common equivalent share is based upon the weighted average
    number of shares and equivalents outstanding during each period after giving
effect for dividends on the Series A Preference Stock. Stock options and
warrants are considered common stock equivalents unless their inclusion 
would be anti-dilutive, as calculated under the modified treasury stock 
method. This method was used as the number of shares of common stock    
obtainable on exercise of stock options and warrants, in the aggregate, 
exceeded 20 percent of the number of common shares outstanding.         

The weighted average number of common and common equivalent shares      
   outstanding for the period years ended September 30, 1996 and September 30,
 1995 is 5,439,590 and 4,377,593, respectively. The calculation also gives
 retroactive effect (as if to the beginning of the period) to those shares
issued to founders at par value.                                        

RECLASSIFICATIONS                                                       

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

NOTE B - INITIAL PUBLIC OFFERING AND COMMON STOCK                               

   On July 16, 1996, the Company completed its Initial Public Offering ("IPO")
    of 500,000 shares of common stock and warrants to purchase 500,000 shares of
common stock. On August 16, 1996, the Underwriter exercised its         
  over-allotment option and purchased an additional 150,000 shares of common
stock and warrants to purchase 75,000 shares of common stock from the   
Company.                                                                
                                                                     (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE B - INITIAL PUBLIC OFFERING - Continued                                    

The warrants issued are exercisable only in pairs with two warrants     
    entitling the registered holder to purchase one share of common stock for $6
per share. The warrants are exercisable for a period of four years      
   commencing one year from the date of issuance, subject to prior redemption.
  The warrants may be redeemed by the Company on 25 days' notice at any time
    after one year from the date of issuance for $.05 per warrant if the closing
bid price of the common stock exceeds $9.00 per share for 20 consecutive
trading days ending not more then 15 days prior to the date of any      
redemption notice. The IPO resulted in net proceeds to the Company of   
   approximately $1.7 million after expenses of approximately $1.3 million. In
connection with this offering, the Company granted the underwriters a   
  warrant to purchase 100,000 units at $7.36 per unit. A unit represents one
share of common stock and a warrant to purchase one-half share of common
stock for $6 per share. This warrant expires in July 2001. The Company's
  common stock and warrants are listed on the NASDAQ National Market and are
traded under the symbols CCLNF and CCLWF, respectively.                 

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

NOTE C - PROPERTY AND EQUIPMENT                                                 

                                                    1996            1995
                                                  ------------    ------------

              Vessels$                              37,086,479   $  32,479,296
              Equipment and other                      840,401         803,839
                                                  ------------   -------------

                                                    37,926,880      33,283,135

               Accumulated depreciation              (1,779,445)       (197,926)
                                                  ------------   -------------

                                                  $ 36,147,435   $  33,085,209
                                                  ============   =============

 The Company capitalized interest in fixed assets of $294,776 and $206,336
for the year ended and period ended September 30, 1996 and September 30,
1995, respectively.                                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE D - INVENTORIES                                                            

                                                    1996            1995
                                                   ------------    -------------

               Food, beverage and supplies         $  1,558,038    $     482,273
               Fuel                                     272,203          208,728
                                                   ------------    -------------

                                                   $  1,830,241    $     691,001
                                                   ============    =============

NOTE E - LONG-TERM DEBT                                                         

LONG-TERM DEBT                                                          

    In July, 1995 the Company entered into a loan agreement with an affiliate of
   EffJohn (the "Lender") in the amount of $24,500,000. The loan is secured by
  first preferred ship mortgages on both the Enchanted Isle and the Universe
Explorer. The loan bears interest at LIBOR plus 2% and is payable in 18 
 monthly principal and interest payments of $181,731 through January 1997.
  Commencing in July 1997, the remaining principal balance will be repaid in
   11 semi-annual principal installments of $2,196,206, plus accrued interest,
and the Company must remit monthly payments into a restricted retention 
   account in an amount estimated to pay the next installment of principal and
 interest under the loan, dividend by the number of months before the next
installment is due.                                                     

   In the event that the Company is required to pay 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, 1996 on     
long-term debt are as follows:                                          

                     1997                         $    2,277,095
                     1998                              4,392,412
                     1999                              4,392,412
                     2000                              4,392,412
                     2001                              4,392,412
                     Thereafter                        4,392,412
                                                  --------------

                                                  $   24,239,155
                                                  ==============
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE F - PREFERRED STOCK                                                        

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

  In fiscal 1996, the Company paid a dividend to the holders of its Series A
 Preference Shares. The Company issued 6,979 Series A Preference Shares in
 partial payment of the dividend and paid, in cash, an additional $31,154.

NOTE G - COMMITMENTS AND CONTINGENCIES                                          

EMPLOYMENT AGREEMENTS                                                   

In May 1995, the Company signed employment agreements with four of its  
 executive employees 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.                                                              
                                                                     (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE G - COMMITMENTS AND CONTINGENCIES - Continued                              

LITIGATION                                                              

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

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

FEDERAL MARITIME COMMISSION BOND                                        

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

PREMISES                                                                

As part of its acquisition, the Company agreed to the assignment, by    
EffJohn, of its rights to leases for approximately 16,000 square feet of
    office space in Hollywood, Florida where the Company maintains its corporate
  headquarters. Additionally, the Company's computerized reservations system
hardware was subleased to the company by EffJohn (See Note H).          

Future minimum annual lease commitments at September 30, 1996 are as    
follows:                                                                        

                  1997                     $       228,282
                  1998                             236,120
                  1999                             244,268
                  2000                             187,920
                                           ---------------

                                           $       896,590
                                           ===============
                                                                   (continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE G - COMMITMENTS AND CONTINGENCIES - Continued                              

PREMISES - Continued                                                    

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

PORT OF NEW ORLEANS                                                     

   As part of the acquisition, the Company had EffJohn assign it the rights to
    an agreement with the Port of New Orleans. The agreement committed Commodore
Cruise Lines Limited to operate a vessel from New Orleans for six years 
    commencing on October 5, 1992 for which the Company received priority use of
the cruise terminal on Saturdays and Sundays.                           

    In the event the Company does not complete a total of 300 required sailings,
it may at its option:                                                   

      a)   extend the term of the agreement up to one additional year before
expiration of the agreement;                          

      b)   pay a cancellation fee equivalent to the Port's principal balance
        remaining on the capital  expenditures of $895,000 incurred to
construct the terminal at the Port; or                

c)   place another vessel in service in New Orleans.            

    The Company had its commitment reduced for each call of other cruise vessels
at the terminal. At September 30, 1996, the Company's commitment was    
approximately $100,000. The Company expects that its commitment will be 
completed within the next six months.                                   

                                                                     (continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE G - COMMITMENTS AND CONTINGENCIES - Continued                              

STOCK OPTION PLAN                                                       

 In 1995, the Company adopted a Stock Option Plan (the "Plan") pursuant to
 which 500,000 shares of Common Stock have been reserved for issuance upon
 exercise of options designated as "incentive stock options" or "qualified
   options" within the meaning of Section 422A of the Internal Revenue Code of
    1986, as amended (the "Code"). The purpose of the Plan is to encourage stock
   ownership by certain officers and employees of the Company, and give them a
greater personal interest in the success of the Company. The Plan is    
administered by the Board of Directors of the Company, or a committee   
 appointed by the Board of Directors, which determines among other things,
the persons to be granted options under the Plan, the number of shares  
 subject to each option and the option price. As of September 30, 1996 and
 September 30, 1995, none of the options reserved under the Plan have been
  issued. 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.                                 

WARRANTS                                                                

 As part of the Company's IPO in July 1996, the Company issued warrants to
purchase  625,000  shares of common stock at $6 per share (See Note B). 

   In October 1995, the Company issued 250,000 warrants with an exercise price
  of $6.00 per share to the Seawise Foundation. The warrants are exercisable
for a period of five (5) years commencing on January 7, 1996.           

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE G - COMMITMENTS AND CONTINGENCIES - Continued                              

SOLAS                                                                   

During recent years, Safety of Life at Sea (SOLAS) standards have been  
amended and will among other things, require most passenger vessels not 
fitted with sprinkler systems to install such systems and other safety  
arrangements, including the addition of smoke detectors systems,        
   low-location lighting and 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. The Company's ships are not currently fitted with any sprinkler   
systems or the other required safety arrangements. The Company's ships  
 comply with SOLAS 1974 requirements. The Company believes that the future
   costs of complying with these requirements will be approximately $1,500,000
  to meet the October 1, 1997 deadline related to other safety arrangements.

EMPLOYEE BENEFIT PLAN                                                   

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

NOTE H - RELATED PARTIES                                                        

The Chairman of the Board personally and through a company he controls, 
  invested approximately $1,000,000 in the Company by funding its cash needs
 prior to and during its formation in exchange for 1,000,000 shares of the
Company's common stock.                                                 

    Several of the Company's shareholders are principals in International Marine
Carriers (IMC), a vessel manager employed by the Company to manage the  
   Enchanted Isle and the Universe Explorer at a rate of $585,000 and $219,000
    per annum, respectively. During the years ended September 30, 1996 and 1995,
the management fees amounted to $804,000 and $130,235, respectively. The
management agreements expire in fiscal 1997.                            

                                                                     (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE H - RELATED PARTIES - Continued                                            

The Company used several bank facilities, primarily for credit card     
 processing and deliveries of cash to and from the Company's vessels, that
 belong to affiliates of EffJohn. Accordingly, the Company has reflected a
net receivable from EffJohn under the heading due from affiliate. During
fiscal 1996, the Company arranged for its own processing services.      

 The Company and EffJohn entered into an agreement that amended certain of
the conditions of the original sale of the cruise line from EffJohn.    
    Originally EffJohn was to charter the Universe Explorer for up to six months
    at which time the Company would put the Universe Explorer back into service.
   EffJohn, in this agreement, agreed to fix certain technical deficiencies in
both the Universe Explorer and the Enchanted Isle and agreed to pay the 
  Company charter fees if EffJohn did not charter the vessel in July 1995 or
  in October 1995. The amount of the charter fee received is included on the
Company's statement of operations under Revenues (See Note A).          

 As part of the original acquisition agreement, it was agreed that EffJohn
    would sub-charter the Universe Explorer to an unrelated third party, and the
  Company would receive 50% of the charter income. In July 1995, the Company
   and EffJohn were informed that the sub-charterer had reneged on their offer
    for the Universe Explorer. Accordingly, the Company and EffJohn entered into
    a settlement agreement whereby, EffJohn agreed that if it did not re-charter
the vessel by September 1, 1995, it would pay the Company a $425,000    
   cancellation fee, and if it did not charter the vessel by October 15, 1995,
    it would pay the Company an additional $425,000 cancellation fee. As EffJohn
   did not charter the vessel, the Company received $425,000 in September 1995
   from EffJohn, and recorded these damages as part of operating income in the
1995 statement of earnings. In October 1995, the Company received the   
remaining $425,000 and is recorded as operating income in fiscal 1996.  

Simultaneously to the acquisition, the Company entered into a sublease  
    agreement with Commodore Cruise Line Limited to lease an IBM AS/400 computer
system. The lease is treated as a capital lease for financial statement 
   purposes, and the obligation is $223,960 at September 30, 1995. The related
cost of $277,039 is recorded in property and equipment at September 30, 
1995. The obligation was paid in full in 1996.                          

                                                                     (continued)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE H - RELATED PARTIES - Continued                                            

Sea-Comm operates cruises to Alaska through World Explorer Cruises and  
   Tours, Inc. (WEC). Sea-Comm and WEC are parties to an agreement whereby the
    Universe Explorer enjoys certain permits issued by the U.S. Parks Service to
    cruise in the Glassier 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, 1996 the Company
   has a liability to WEC of $249,631, which is included in due to affiliates.

NOTE I - INCOME TAXES                                                           

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

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

NOTE J- LOSS ON FIRE                                                            

  On July 27, 1996, the Universe Explorer had a fire on-board which resulted
  in the death of five crew members and loss of revenue. The majority of the
losses by 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, the Company has an insurance
    receivable balance of $2,470,525 at September 30, 1996. In 1996, the Company
incurred a loss of $397,310 related to the fire.                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 SEPTEMBER 30, 1996 AND 1995

NOTE K - SUBSEQUENT EVENTS                                                      

WARRANTS                                                                

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, subject to  
  adjustment in certain events as defined by the Warrant Agreement, of $2.75
per share. The warrants are not exercisable until November 22, 1997 and 
  expire on November 21, 2001. However, the warrants will become exercisable
   immediately upon the existence of certain events, as defined by the Warrant
Agreement.                                                              

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INDEPENDENT AUDITORS' REPORT

The Board of Directors                                                          
EffJohn International B.V.:                                                 

  We have audited the accompanying combined balance sheet of the S/S
Enchanted Seas and S/S Enchanted Isle, (operating units of EffJohn International
B.V.), as of December 31, 1994, and the related statements of operations,       
operating units' equity and cash flows for the period from January 1, 1995      
through July 14, 1995 and for each of the years in the two-year period ending   
December 31, 1994. 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
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 combined financial position of the S/S Enchanted Seas
and S/S Enchanted Isle, (operating units of EffJohn International B.V.), as of  
December 31, 1994, and the results of its operations and its cash flows for the 
period from January 1, 1995 through July 14, 1995 and for each of the years in  
the two-year period ended December 31, 1994 in conformity with generally        
accepted accounting principles.                                                 

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

                            /s/  KPMG Peat Marwick LLP

Fort Lauderdale, Florida                                                        
May 7, 1996                                                                     

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

                             COMBINED BALANCE SHEET                                     
                                DECEMBER 31, 1994                                       

                                     Assets                                             

                                                                                        
Current assets:                                                                         

Cash and cash equivalents.................................................. $   824,870 
    Restricted cash........................................................     234,966 
    Accounts receivable:                                                                

       Trade...............................................................     138,351 
       Other...............................................................     525,699 
                                                                            ----------- 
                                                                                664,050 
                                                                            ----------- 
    Inventories                                                                 728,363 
    Prepaid expenses and other current assets                                   215,431 
                                                                            ----------- 
          Total current assets                                                2,667,680 
                                                                            ----------- 
Property and equipment                                                       60,324,248 

       Less accumulated depreciation and amortization                       (22,759,478)
                                                                            ----------- 
                                                                             37,564,770 
                                                                            ----------- 
                                                                            $40,232,450 
                                                                            =========== 
                     Liabilities and Operating Units' Equity                            

Current liabilities:                                                                    

    Due to affiliates...................................................... $10,564,903 
    Passenger deposits.....................................................   5,231,861 
    Current maturities of affiliate long-term debt.........................   7,713,546 
                                                                            ----------- 
          Total current liabilities........................................  23,510,310 
    Affiliate long-term debt...............................................  22,306,802 
                                                                            ----------- 
          Total liabilities................................................  45,817,112 
                                                                            ----------- 
    Operating units' equity................................................  (5,584,662)
                                                                            ----------- 
    Commitments and contingencies..........................................         --- 
                                                                            ----------- 
          Total liabilities and operating units' equity                     $40,232,450 
                                                                            =========== 

See accompanying notes to combined financial statements.

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

                            STATEMENTS OF OPERATIONS                                          

           FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND FOR THE                         
                  PERIOD FROM JANUARY 1, 1995 TO JULY 14, 1995                                

                                                                               FOR THE PERIOD 
                                                     YEAR ENDED DECEMBER 31,      JANUARY 1   
                                                 ---------------------------  THROUGH JULY 14,
                                                    1993           1994             1995      
                                               -----------------------------------------------
                                                                                              
Revenues:                                                                                     

    Passengers fares......................     $31,660,394     $26,493,185      $  13,241,158 
    Port charges..........................       3,450,607       3,313,599          1,926,605 
    On board revenues.....................       8,015,525       7,531,592          3,972,362 
    Charter revenue.......................       2,420,000       4,511,224                --- 
    Miscellaneous revenues................         103,530          10,813                --- 
                                               -----------     -----------      ------------- 
          Total revenues..................      45,650,056      41,860,413         19,140,125 
                                               ------------    -----------      ------------- 
Operating expenses:                                                                           
    Technical and running costs...........      16,951,387      14,201,427         11,188,132 
    Ships operating expenses..............      14,258,345      12,368,986          6,771,538 
    Repairs and maintenance...............       3,055,405       1,956,683          2,168,105 
                                               -----------     -----------      ------------- 
          Total operating expenses........      34,265,137      28,527,096         20,127,775 
                                               -----------     -----------      ------------  
          Gross profit (loss).............      11,384,919      13,333,317           (987,650)
Other operating expenses:                                                                     

    Administrative expenses...............       4,664,866       3,798,194          3,175,947 
    Marketing expenses....................       2,168,286       2,685,976          2,704,143 
    Depreciation and amortization.........       4,902,487       3,599,234          1,910,413 
    Loss on vessel fire...................            ----       1,367,347                --- 
                                               -----------     -----------      ------------- 
           Operating income (loss)........        (350,720)      1,882,566         (8,778,153)
Other income (expense):                                                                       
    Interest income.......................          33,984          68,921             41,317 
    Interest expense......................      (1,716,329)     (1,362,336)        (2,232,347)
    Write-off of goodwill.................      (6,023,118)           ----               ---- 
    Loss on sale of assets................             ---            ----         (6,123,866)
                                               -----------     -----------      ------------- 
                                                (7,705,463)     (1,293,415)        (8,314,896)
                                               -----------     -----------      ------------- 
          Net income (loss)...............     $(8,056,183)    $   589,151      $ (17,093,049)
                                               ============    ===========      ============= 

See accompanying notes to combined financial statements.

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

                      STATEMENTS OF OPERATING UNITS' EQUITY                             

                          YEAR ENDED DECEMBER 31, 1994                                  

                                                                                        
Balance at December 31, 1992..............................................  $(8,714,121)
    Net loss..............................................................   (8,056,183)
    Capital contributions - forgiveness of affiliate debt.................   10,596,491 
                                                                            ------------

Balance at December 31, 1993..............................................   (6,173,813)
    Net income............................................................      589,151 
                                                                            ------------

Balance at December 31, 1994..............................................   (5,584,662)
    Net loss..............................................................  (17,093,050)
                                                                            ------------

Balance at July 14, 1995.................................................. $(22,677,712)
                                                                           =============

See accompanying notes to combined financial statements.

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

                              CASH FLOW STATEMENTS                                              

                 FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994                                 
            AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JULY 14, 1995                            

                                                                                 FOR THE PERIOD 
                                                     YEAR ENDED DECEMBER 31,        JANUARY 1   
                                                  ----------------------------  THROUGH JULY 14,
                                                     1993            1994             1995      
                                                  ---------       ---------     ----------------
                                                                                                
Net income (loss)........................       $(8,056,183)  $    589,151      $(17,093,049)   
Depreciation and amortization............         4,902,487      3,599,234         1,910,413    
Loss on sale of assets...................              ----           ----         6,123,866    
Amortization of deferred drydock.........         1,778,407      1,116,367         1,254,921    

Write-off of goodwill....................         6,023,118           ----              ----    
Changes in:                                                                                     
    Restricted cash......................            (1,158)       (10,404)           234,965   
    Accounts receivable..................          (293,573)        15,621           (625,476)  
    Inventories..........................           398,952       (231,094)          (371,637)  
    Prepaids and other assets............          (128,267)       (10,145)           215,431   
    Passenger deposits...................         1,794,478       (676,606)        (5,231,861)  
    Due to/from affiliates...............           836,339      4,076,254          2,299,934   
                                                -----------    -----------      -------------   
      Net cash (used in) provided by operations   7,254,600      8,468,378        (11,282,493)  
                                                -----------    -----------      -------------   
    Proceeds from sale of assets.........           149,415         42,000          5,000,000   
    Capital expenditures.................        (1,177,642)    (2,508,024)        (1,448,017)  
                                                ------------   ------------     -------------   
      Net cash provided by (used in) investing                                                  
          activities.....................        (1,028,227)    (2,466,024)         3,551,983   
                                                ------------   -----------      -------------   
    Proceeds from debt...................         1,021,272        184,126          8,985,735   
    Repayments of debt...................        (7,943,713)    (5,800,202)        (1,127,551)  
                                                -----------    -----------      -------------   
      Net cash provided by (used in) financing                                                  
          activities.....................        (6,922,441)    (5,616,076)         7,858,184   
                                                -----------    -----------      -------------   
    Net change in cash and cash equivalents..      (696,068)       386,278            127,674   
    Beginning cash and cash equivalents......     1,134,660        438,592            824,870   
                                                -----------    -----------      -------------   
      Ending cash and cash equivalents....... $     438,592    $   824,870      $     952,544   
                                              =============    ===========      =============   

See accompanying notes to combined financial statements.

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

CASH FLOW STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND FOR THE PERIOD FROM JANUARY 1, 1995 TO JULY 14, 1995

Supplemental cash flow disclosure:                                              

The following summarizes non-cash activities related to the sale of the         
Company's assets:                                                               

  Vessels.................................................     $(36,500,000)
 Inventories.............................................        1,100,000
  Liabilities incurred....................................       (2,023,866)
 Promissory note received................................       24,500,000
 Preferred stock received................................        4,000,000
 Cash received...........................................        5,000,000
                                                              ------------

 Loss on sale of assets..................................    $   6,123,866
                                                             =============

See accompanying notes to combined financial statements.

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

NOTES TO COMBINED FINANCIAL STATEMENTS

 DECEMBER 31, 1993 AND 1994, JULY 14, 1995

(1)     BUSINESS ORGANIZATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   

(A)    BUSINESS ORGANIZATION                                    

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

 Brasil owned the cruise vessel S/S Enchanted Seas ("Seas"), which
operated primarily in the Caribbean markets out of New Orleans, Louisiana.      
Argentina owned the cruise vessel S/S Enchanted Isle ("Isle"), which operated   
out of San Diego to Mexico through April 1993, in the Caribbean market out of   
Barbados and out of New Orleans in 1995 and also operated as a hotel in St.     
Petersburg, Russia from May 1993 through August 1994. Both vessels were operated
and managed by Commodore Cruise Line Limited ("Commodore"), a wholly-owned      
subsidiary of EffJohn. Commodore also operates or operated the vessels Caribe 1,
Crown Monarch, Crown Jewel and Crown Dynasty.                                   

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

(B)    REVENUE AND EXPENSE RECOGNITION                          

   Passenger ticket revenue, onboard revenues and related expenses are
recognized as earned when voyages are completed. Fares received from customers  
for future voyages are recorded as liabilities. Onboard revenues consist of     
income from concession agreements (note 9), casino, bar operation and shore tour
activities.                                                                     

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

  Certain expenses common to vessels operated by Commodore have been
allocated to the Seas and Isle, primarily based on a pro rata share of the      
number of traffic days of each vessel. Allocated expenses consist principally of
marketing and advertising, shore payroll, benefits, and other administrative    
costs. See note 6 as to allocation of interest expense.                         

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

(C)    INVENTORIES                                              

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

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

NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED

(D)    PROPERTY AND EQUIPMENT                                   

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

(E)    INCOME TAXES                                             

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

(F)    CASH AND CASH EQUIVALENTS                                

        Cash includes purser funds, casino cash and bank account used solely for
the Seas and Isle. The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.                 

(G)     DUE TO AFFILIATES                                       

       Due to affiliates consists principally of amounts owed to Commodore and
EffJohn for various operating and administrative activities. Commodore manages  
certain cash disbursements, including payments to vendors. Cash balances and    
transactions recorded through operating cash accounts used by Commodore for the 
operations of vessels are reflected in due to affiliates.                       

(H)    RESTRICTED CASH                                          

        The Company placed $234,966 on deposit with a bank to secure a letter of
credit with a United States government agency.                                  

(I)    USE OF ESTIMATES                                         

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

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

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

(3)     LIQUIDITY                                                               

 The Company's current liabilities exceed current assets and total
liabilities exceed total assets. Although the Company recognized a profit in    
1994, it incurred losses in 1995 and 1993 and has received capital contributions
and                                                                             

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

NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED

loans from EffJohn to cover its operating cash needs. The parent company of     
EffJohn has agreed to provide additional cash advances or obtain external       
financing. if required, in 1996. The Company and EffJohn will remain            
economically dependent on its parent for additional advances until it achieves  
sustained profitable operations.                                                

(4)     INVENTORIES                                                             

At December 31, 1994, inventories consist of:                   

                                                1994
                                                ----
Food, beverage and supplies .....................  $633,952     
Fuel ............................................    94,411     
                                              --------
                                              $728,363
                                              ========

(5)     PROPERTY AND EQUIPMENT                                                  

At December 31, 1994, property and equipment consist of:        

                                                                 ESTIMATED
                                                  1994          USEFUL LIVES
                                                  ----          ------------
Vessels......................................   $53,839,340         15 years    
Equipment....................................     2,957,367       3 to 5 years  
Dry/Wet docking..............................     3,527,541          2 years    
                          ------------
                           $60,324,248
                          ============

   Depreciation expense for the years ended December 31, 1993 and 1994 and for
the period January 1 through July 14, 1995 amounted to $3,586,654, $3,567,550   
and $1,771,035, respectively.                                                   

(6)     AFFILIATE LONG-TERM DEBT                                                

       EffJohn provides financing to the vessels operated by Commodore through
external loans obtained from third parties. Debt amounts have been allocated to 
the Seas and Isle based on acquisition debt, funding of capital improvements and
working capital needs. Debt repayments and interest expense have been allocated 
based on a pro rata share of outstanding debt and capital contributions made by 
EffJohn. Certain debt incurred by EffJohn to fund the Company is secured by the 
Seas and the Isle. Interest rates on the external debt range from 4.18 percent  
to 7.82 percent.                                                                

      The allocated minimum annual repayment requirements as of December 31,
1994, are as follows:                                                           

                                                             LONG-TERM
       YEAR ENDING DECEMBER 31,                               DEBT,  AFFILIATE
       ------------------------                               ----------------
      1995.................................................      $ 7,713,546
      1996.................................................        7,215,243
      1997.................................................        6,436,345
      1998.................................................        4,841,173
      Thereafter...........................................        3,814,041
                                                                ------------
                                                                 $30,020,348
                                                                ============

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

NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED

(7)     WRITE OFF OF GOODWILL                                                   

      The Company recorded goodwill in 1989 resulting from the excess of the
purchase cost of the Company over fair market value of net assets acquired,     
which was amortized over ten years on a straight-line basis. The Company        
continually evaluated the existence of goodwill impairment on the basis of      
whether goodwill was fully recoverable from projected, undiscounted net cash    
flows. In 1993, in connection with the anticipated sale of the vessels, the     
Company determined that goodwill no longer had continuing value based on the    
expected future cash flows from the sale of the vessel and from operations.     
Accordingly, the Company recorded a charge to income in the accompanying        
statement of operations sufficient to fully write-off all goodwill.             

(8)     COMMITMENTS AND CONTINGENCIES                                           

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

(9)    CONCESSION AGREEMENTS                                                  

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

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

(10)    FIRE LOSS ON THE ISLE                                                   

     On December 28, 1994, a fire occurred on the S/S Enchanted Isle.  The
Company incurred expenses for damages arising out of the incident of            
approximately $1.4 million. The loss is included in other operating expenses in 
the accompanying statement of operations for the year ended December 31, 1994.  

(11)    CHARTER REVENUE                                                         

From May 1993 through August 1994, the Isle was chartered to an 
affiliated company and operated as a hotel in St. Petersburg, Russia. Charter   
revenue received amounted to $2,420,000 and $4,036,224 and in 1993 and 1994,    
respectively. Charter revenue from a third-party amounted to $475,000 in 1994.  

F-32

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
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		10/1/06		46
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		11/22/97		50
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Filed on:		12/30/96
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For Period End:		9/30/96		1		49
		8/16/96		40
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		7/27/96		12		49
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		6/18/96		27					S-1/A
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		11/15/95		4		23
		10/30/95		10		27
		10/15/95		5		48
		9/30/95		20		48
		9/15/95		5
		9/1/95		5		48
		7/31/95		5
		7/15/95		20		41
		7/14/95		3		59
		7/5/95		27
		6/30/95		27
		6/29/95		27
		5/28/95		26
		5/3/95		26
		4/29/95		26
		4/28/95		3
		4/15/95		4
		4/13/95		20		36
		1/18/95		36
		1/1/95		51		56
		12/31/94		21		60
		12/28/94		23		60
		10/1/94		20		22
		1/1/94		22
		12/31/93		29		59
		12/31/92		54
		10/5/92		45
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