<PAGE>   1

                                  NY--204796.11
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

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

                  For the fiscal year ended: December 31, 1998

                                       OR

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

        For the transition period from: ______________ to _______________

                         Commission file number: 0-24464

                                THE CRONOS GROUP
             (Exact name of Registrant as specified in its charter)

                 LUXEMBOURG                               NOT APPLICABLE
      (State or other Jurisdiction of                    (I.R.S. Employer
       incorporation or organization)                   Identification No.)

             16, ALLEE MARCONI, BOITE POSTALE 260, L-2120 LUXEMBOURG
               (Address of principal executive offices)(zip code)

              Registrant's telephone number, including area codes:
                                  (352) 453145

                            -------------------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.

           Title of each class                     Name of each exchange
                                                    on which registered

                  None                                Not applicable

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT.

                      Common Shares, $2 par value 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 (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO

        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 BE 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. YES NO X

        THE AGGREGATE MARKET VALUE OF VOTING STOCK OF THE REGISTRANT HELD BY
NON-AFFILIATES AS OF MARCH 26, 1999 (COMMON SHARES) WAS APPROXIMATELY
$33,283,497.

        THE NUMBER OF COMMON SHARES OUTSTANDING AS OF MARCH 29, 1999:

            CLASS                               NUMBER OF SHARES OUTSTANDING
            -----                               ----------------------------

            Common                                     8,858,378

        PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE
INTO THIS REPORT.

                 DOCUMENT                            PARTS IN WHICH INCORPORATED

    REGISTRANT'S PROXY STATEMENT FOR THE                      PART III
    1999 ANNUAL MEETING OF SHAREHOLDERS

<PAGE>   2


                                TABLE OF CONTENTS

                                THE CRONOS GROUP

<TABLE>
<CAPTION>
                                                                                                Page
<S>       <C>                                                                                     <C>
          Introductory Note.......................................................................ii

                                             PART I

Item 1 -- Description of Business..................................................................1
Item 2 -- Properties..............................................................................11
Item 3 -- Legal Proceedings.......................................................................11
Item 4 -- Submission of Matters to a Vote of Security Holders.....................................12

                                            PART II

Item 5 -- Market for the Company's Common Equity and Related Stockholder Matters..................14
Item 6 -- Selected Financial Data.................................................................15
Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations...16
Item 8 -- Financial Statements and Supplementary Data.............................................26
Item 9 -- Changes In and Disagreements With Accountants on Accounting and Financial Disclosure....26

                                            PART III

Item 10 -- Directors and Officers of Registrant...................................................27
Item 11 -- Executive Compensation.................................................................27
Item 12 -- Security Ownership of Certain Beneficial Owners and Management.........................27
Item 13 -- Certain Relationships and Related Transactions.........................................27

                                            PART IV

Item 14 -- Exhibits, Finance Statement Schedules, and Reports of Form 8K..........................28
</TABLE>




                                       i
<PAGE>   3



                                INTRODUCTORY NOTE

        Unless the context indicates otherwise, the "Company" means The Cronos
Group and, where appropriate, includes its subsidiaries and predecessors, while
"Cronos" means The Cronos Group together with its subsidiaries and predecessors.

        "TEU" means twenty-foot equivalent units, the standard unit of physical
measurement in the container industry. All references herein to "$" or "Dollars"
are to United States dollars.

        This report discusses certain forward looking matters that involve risks
and uncertainties that could cause actual results to vary materially from
estimates. Risks and uncertainties include, amongst other things, changes in
international operations, including exchange rate risks, the Company's success
in refinancing its outstanding debt, changes in market conditions for the
Company's container lease operations and the Company's ability to provide
innovative and cost-effective solutions.












                                       ii
<PAGE>   4



                                     PART I

ITEM 1 -- DESCRIPTION OF BUSINESS

        INTRODUCTION

        The Company is a limited liability company (societe anonyme)
incorporated in Luxembourg with its registered office at 16, Allee Marconi,
Boite Postale 260, L-2120 Luxembourg (telephone (352) 453145). The Company is
registered with the Luxembourg Registrar of Companies under registration number
R.C.S. Lux. B. 27489. Cronos Containers Limited, the Company's principal
container leasing subsidiary, is a U.K. corporation located at Orchard Lea,
Winkfield Lane, Winkfield, Windsor, Berkshire, SL4 4RU, England.

        Cronos is the successor to Intermodal Equipment Associates ("IEA") and
Leasing Partners International ("LPI"). IEA began managing and leasing dry cargo
containers in 1978, primarily under master leases. LPI was established in 1983
to manage and lease refrigerated containers. In 1990, LPI acquired IEA and the
companies combined their operations under the new name Cronos. In December 1995
and January 1996, the Company and Barton Holding Ltd., a selling shareholder,
sold in a public offering (the "Public Offering") 3,643,000 Common Shares of the
Company.

        Cronos is one of the world's leading lessors (by aggregate TEU capacity)
of intermodal marine containers in owning and managing a fleet of dry cargo,
refrigerated, tank and other specialized containers. Through an extensive global
network of offices and agents, Cronos leases both its own and other owners'
containers to over 400 ocean carriers and transport operators, including all of
the 20 largest ocean carriers. The Company is currently seeking to refinance
approximately $47.7 million due under the Bank Facility and the Company's other
credit facilities by securing new term debt financing and investment by managed
container owners. Until the refinancing is completed, there is substantial doubt
that the Company will be able to continue as a going concern. See Item 7 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".

        INDUSTRY BACKGROUND

        A marine cargo container is a reusable metal container designed for the
efficient carriage of cargo with a minimum of exposure to loss through damage or
theft. Containers are manufactured to conform to worldwide standards of
container dimensions and container ship fittings adopted by the International
Standards Organization ("ISO") in 1968. The standard container is either 20'
long x 8' wide x 8'6" high (one TEU) or 40' long x 8' wide x 8'6" high (two
TEU). Standardization of the construction, maintenance and handling of
containers allows containers to be picked up, dropped off, stored and repaired
effectively throughout the world. This standardization is the foundation on
which the container industry has developed.

        Standard dry cargo containers are rectangular boxes with no moving
parts, other than doors and are typically made of steel or aluminum. They are
constructed to carry a wide variety of cargoes ranging from heavy industrial raw
materials to light-weight finished goods. Specialized containers include, among
others, refrigerated containers for the transport of temperature-sensitive
goods, tank containers for the carriage of liquid cargo and cellular palletwide
containers ("CPCs") with extra width. Dry cargo containers currently constitute
approximately 83% (in teu) of the worldwide container fleet. Refrigerated
containers and tank containers currently constitute approximately 7% (in teu) of
the worldwide container fleet, with open-tops and other specialized containers
constituting the remaining 10%.

        One of the primary benefits of containerization has been the ability of
the shipping industry to effectively lower freight rates due to the efficiencies
created by standardized intermodal containers. Containers can be handled much
more efficiently than loose cargo and are typically shipped via several modes of
transportation, including truck, rail and ship. Containers require loading and
unloading only once and remain sealed until arrival at the final destination,
significantly reducing transport time, labor and handling costs and losses due
to damage



The Cronos Group                                                               1
<PAGE>   5

and theft. Efficient movement of containerized cargo between ship and shore
reduces the amount of time that a ship must spend in port and reduces the
transit time of freight moves.

        The logistical advantages and reduced freight rates brought about by
containerization have been major catalysts for world trade growth during the
last 25 years, resulting in increased demand for containerization. The world's
container fleet has grown from an estimated 270,000 TEU in 1969 to approximately
12.2 million TEU by mid-1998.

        BENEFITS OF LEASING

        Leasing companies own approximately 47% of the world's container fleet
with the balance owned predominantly by shipping lines. Shipping lines, which
traditionally operate on tight profit margins, often supplement their owned
fleet of containers by leasing a portion of their equipment from container
leasing companies and in doing so, achieve financial and operational benefits.

        Leasing allows the shipping lines to utilize the equipment they need
        without having to make large capital expenditures;

        Leasing offers a shipping line an alternative source of financing in a
        traditionally capital-intensive industry;

        Leasing enables shipping lines to expand their routes and market shares
        at a relatively inexpensive cost without making a permanent commitment
        to support their new structure;

        Leasing allows shipping lines to respond to changing seasonal and trade
        route demands, thereby optimizing their capital investment and storage
        costs.

        TYPES OF LEASES

        FINANCE LEASES are usually long term in nature and require relatively
low levels of customer service. They ordinarily require fixed payments over a
defined period and provide customers with an option to purchase the subject
containers at the end of the lease term. Per diem rates typically include an
element of repayment of capital and therefore are higher than rates charged
under either long-term or short-term leases.

        MASTER LEASES are usually short-term leases under which a customer
reserves the right to lease a certain number of containers as needed under a
general agreement between the lessor and the lessee. Such leases provide
customers with greater flexibility by allowing customers to pick up and drop off
containers where and when needed, subject to restrictions and availability, on
pre-agreed terms. The commercial terms of master leases are negotiated annually.
Master leases also define the number of containers that may be returned within
each calendar month and the return locations and applicable drop-off charges.
Due to the increased flexibility they offer, master leases usually command
higher per diem rates and generate more ancillary fees (including pick-up,
drop-off, handling and off-hire fees) than term leases.

        TERM LEASES are for a fixed period of time and include both long and
short term commitments, with most extending from three to five years. Term lease
agreements may contain early termination penalties that apply in the event of
early redelivery. In most cases, however, equipment is not returned prior to the
expiration of the lease. Term leases provide greater revenue stability to the
lessor, but at lower lease rates than master leases. Ocean carriers use
long-term leases when they have a need for identified containers for a specified
term. Short-term lease agreements have a duration of less than one year and
include one-way, repositioning and round-trip leases. They differ from master
leases in that they define the number and the term of the containers to be
leased. Ocean carriers generally use one-way leases to manage trade imbalances
(where more containerized cargo moves in one direction than another) by picking
up a container in one port and dropping it off at another location after one or
more legs of a voyage.


The Cronos Group                                                               2

<PAGE>   6

        The terms and conditions of the Company's leases provide that customers
are responsible for paying all taxes and service charges arising from container
use, maintaining the containers in good and safe operating condition while on
lease and paying for repairs, excluding ordinary wear and tear, upon redelivery.
Some leases provide for a "damage protection plan" whereby lessees, for an
additional payment (which may be in the form of a higher per diem rate), are
relieved of the responsibility of paying some of the repair costs upon
redelivery of the containers. The Company has historically provided this service
on a limited basis to selected customers. Repairs provided under such plans are
carried out by the same depots, under the same procedures, as are repairs to
containers not covered by such plans. Customers are also required to insure
leased containers against physical damage, loss and against third party
liability for loss, damage, bodily injury or death.

        The percentage of equipment on term leases as compared to master leases
varies widely among leasing companies, depending upon each company's strategy on
margins, operating costs and cash flows.

        Lease rates depend on several factors including the type of lease,
length of term, maintenance provided, type and age of the equipment and market
conditions.

        COMPANY STRATEGY

        Cronos targets operating leases, with an emphasis on master leases for
its dry cargo containers and term leases for refrigerated and tank containers.

        LEASE PROFILE

        Cronos offers flexible leasing arrangements primarily through master
leases on dry cargo containers. Cronos' specialized containers are generally
leased on longer-term leases because the higher cost, value and complexity of
this equipment make it more expensive to redeliver and on-hire frequently.

<TABLE>
<CAPTION>
                                      Percentage of Fleet On-Hire
                                   ---------------------------------
Type of Lease                      Dry cargo    Refrigerated    Tank
-------------                      ---------    ------------    ----
<S>                                   <C>           <C>           <C>
Master............                    76%           39%           9%
Term..............                    16            56           91
Finance...........                     8             5           --
                                     ---           ---          ---
    Total.........                   100%          100%         100%
                                     ===           ===          ===
</TABLE>

        CUSTOMERS

        Cronos currently serves over 400 customers, consisting primarily of
ocean carriers. Cronos supplies containers to all of the 20 largest ocean
carriers worldwide. Cronos is not dependent upon any particular customer or
group of customers. None of the Company's customers accounts for more than 10%
of its revenue and the ten largest customers accounted for approximately 37.6%
of the total TEU fleet-on-hire. Substantially all of Cronos' customers are
billed and pay in United States dollars.

        Cronos sets maximum credit limits for all customers, limiting the number
of containers leased to each customer according to established credit criteria.
Cronos continually tracks its credit exposure to each customer. Cronos' credit
committee meets quarterly to analyze the performance of existing customers and
to recommend actions to be taken in order to minimize credit risks. Cronos uses
specialist third party credit information services and reports prepared by local
staff to assess credit applications.



The Cronos Group                                                               3
<PAGE>   7



        FLEET PROFILE

        Cronos focuses on supplying to its customers high-quality containers,
manufactured to specifications that exceed International Standards Organization
(ISO) standards and designed to minimize repair and operating costs. Cronos
operates primarily dry cargo and refrigerated containers but, since 1993, it has
diversified into tanks and other specialized containers. Cronos believes that
this fleet diversification enables it to increase business with its customers by
supplying a wide range of their equipment requirements.

<TABLE>
<CAPTION>
                                   Cronos Container Fleet (in TEU thousands)
                                                at December 31,
                                 ---------------------------------------------
                                 1994      1995      1996      1997      1998
                                 ----      ----      ----      ----      ----
<S>                              <C>       <C>       <C>       <C>       <C>  
Dry Cargo                        211.5     250.2     322.0     345.9     337.8
Refrigerated                      14.6      14.3      16.2      16.0      14.7
Tank                               0.4       1.0       1.7       2.0       2.0
Roll-Trailer                        --        --       1.7       2.0       2.2
CPCs                                --        --        --       2.4       2.4
Other Dry Freight Specials         0.1       0.1       1.2       1.5       2.3
                                 -----     -----     -----     -----     -----
   Total Fleet                   226.6     265.6     342.8     369.8     361.4
                                 =====     =====     =====     =====     =====
</TABLE>

        Dry cargo containers are the most commonly used type of container in the
shipping industry. Over 95% of Cronos' dry cargo fleet is constructed of all
Corten(R) steel (i.e., Corten(R) roofs, walls, doors and undercarriage), which
is a high-tensile steel yielding greater damage and corrosion resistance than
mild steel. The Company believes that, among its major competitors, it has the
highest percentage of dry cargo containers constructed of all Corten(R) steel.

        Refrigerated containers are used to transport temperature-sensitive
products, such as meat, fruit, vegetables and photographic film. All of Cronos'
refrigerated containers have high-grade stainless steel interiors. The majority
of Cronos' 20' refrigerated containers have high-grade stainless steel walls,
while most of the Company's 40' refrigerated containers are steel framed with
aluminum outer walls to reduce weight. As with the dry cargo containers, all
refrigerated containers are designed to minimize repair and maintenance and
maximize damage resistance. Cronos' refrigerated containers are designed and
manufactured to include the latest generation refrigeration equipment, with the
most recently built units controlled by modular microprocessors. Cronos has not
purchased new refrigerated containers since early 1997 due to the weak
refrigerated container leasing market resulting from oversupply.

        Cronos' tank containers are constructed in compliance with International
Maritime Organization ("IMO") standards and recommendations. The tanks purchased
by Cronos to date have all been IMO-1 type tanks constructed to comply with IMO
recommendations that require specific pressure ratings and shell thicknesses.
These containers are designed to carry highly-flammable materials, corrosives,
toxics and oxidizing substances. They are also capable of carrying non-hazardous
materials and foodstuffs. They have a capacity of 21,000-24,000 litres and are
generally insulated and equipped with steam or electrical heating.

         Dry freight special containers, a small but growing segment of the
world container fleet, include rolltrailers, CPCs, open-top and flatrack
containers. Cronos diversified into dry freight specials in 1996, when it
acquired Intermodal Leasing AB, a Swedish company with a fleet of approximately
800 rolltrailers, a type of heavy-duty chassis used for moving cargo onto and
off ships. Cronos markets this product on a worldwide basis through its network
of offices and agents, and has increased its rolltrailer fleet to 2,200 TEU at
the end of 1998. Cronos owns the patents of the CPC, a specialized container
designed specifically for the carriage of European short sea cargo on
"Europallets". Since 1996, Cronos has added 2,400 TEU of CPCs into its container
fleet.



The Cronos Group                                                               4
<PAGE>   8

        PURCHASING POLICY

        Cronos' purchasing policy is driven by market requirements and
anticipated future demand, including demand generated by trade growth and the
replacement of containers retired from fleets around the world. The Company
believes that the worldwide manufacturing capacity for all container types is
adequate to meet its current and near-term requirements.

        Cronos purchases dry cargo containers from manufacturers in China,
Korea, Taiwan, Indonesia, Thailand, India, Malaysia, Turkey and South Africa as
part of its policy to source container production in locations where it can meet
customer demands most effectively. No single manufacturer supplies more than 30%
of Cronos' annual dry cargo container purchases.

        Cronos' refrigerated containers were purchased mainly from Korean
manufacturers. The majority of its refrigeration units were purchased from
Carrier Transicold, the primary supplier of container refrigeration units in the
United States. To date, all of the Company's tank containers have been purchased
from United Kingdom and South African manufacturers.

        REPAIR AND MAINTENANCE

        All containers are inspected and repaired when redelivered by a
customer, and customers are obligated to pay for all damage repairs, excluding
wear and tear, according to standardized industry guidelines. Depots in major
port areas perform repair and maintenance that is verified by independent
surveyors or the Cronos technical and operations staff.

        Before any repair or refurbishment is authorized on older containers in
the Cronos fleet, the Cronos technical and operations staff reviews the age,
condition and type of container and its suitability for continued leasing.
Cronos compares the cost of such repair or refurbishment with the prevailing
market resale price that might be obtained for that container and makes the
appropriate decision whether to repair or sell the container. Cronos is
authorized to make this decision for most of the owners for whom it manages
equipment and makes these decisions by applying the same standards to the
managed containers as to its own containers.

        MARKET FOR USED CONTAINERS

        Cronos estimates that the period for which a dry cargo or refrigerated
container may be used as a leased marine cargo container ranges from 10 to 15
years. Tank containers generally may be used for 12 to 18 years.

        Cronos disposes of used containers in a worldwide market in which buyers
include wholesalers, mini-storage operators, construction companies and others.
The market for used refrigerated and tank containers is not as stable as the
market for used dry cargo containers. Although a used refrigerated container
will command a higher price than a dry cargo container, a dry cargo container
will achieve a higher percentage of its original price. Historically, the
Company has not derived a material proportion of its revenues from selling used
containers due to the age profile of its fleet.

        OPERATIONS

        Cronos' sales and marketing operations are conducted through Cronos
Containers Limited, a wholly-owned subsidiary based in the United Kingdom, with
support provided by area offices and dedicated agents located in San Francisco,
California; Iselin, New Jersey; Windsor, England; Hamburg; Antwerp; Genoa;
Gothenburg, Sweden; Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de
Janeiro; Shanghai and Auckland.

        Cronos also maintains agency relationships with over 20 independent
agents around the world, who are generally paid a commission based upon revenues
generated in the region or the number of containers that are leased from their
area. These agents are located in jurisdictions where the volume of Cronos
business necessitates



The Cronos Group                                                               5
<PAGE>   9

a presence in the area but is not sufficient to justify a fully-functioning
Cronos office or dedicated agent. Agents provide marketing support to the area
offices covering the region, together with limited operational support.

        In addition, Cronos relies on the services of over 300 independently
owned and operated depots around the world to inspect, repair, maintain and
store containers while off-hire. The Company's area offices authorize all
container movements into and out of the depot and supervise all repairs and
maintenance performed by the depot. The Company's technical staff sets the
standards for repair of the Cronos fleet throughout the world and monitors the
quality of depot repair work. The depots provide a link to the Company's
operations, as the redelivery of a container into a depot is the point at which
the container is off-hired from one customer and repaired in preparation for
re-leasing to the next.

        Cronos' global network is integrated with its computer system and
provides 24-hour communication between offices and agents. The system allows
Cronos to manage and control its fleet on a global basis, providing Cronos with
the responsiveness and flexibility necessary to service the master lease market
effectively. This system is an integral part of Cronos' service, as it processes
information received from the various offices, generates billings to lessees and
generates a wide range of reports on all aspects of the Company's leasing
activities. The system records the life history of each container, including the
length of time on-hire, repair costs, as well as port activity trends, leasing
activity and equipment data per customer. The operations and marketing data is
fully interfaced with Cronos' finance and accounting system to provide revenue,
cost and asset information to management and staff around the world. Cronos
intends to continue to enhance its computer system as needs arise in the future.

        COMPETITION

        Competition among container leasing companies is based upon several
factors, including the location and availability of inventory, lease rates, the
type, quality and condition of the containers, the quality and flexibility of
the service offered and the confidence in and professional relationship with the
lessor. Other factors include the speed with which a leasing company can prepare
its containers for lease and the ease with which a lessee believes it can do
business with a lessor or its local area office. Not all container leasing
companies compete in the same market as some supply only dry cargo containers
and not specialized containers, while others offer only long-term leases. Cronos
has historically targeted three particular markets: the master lease dry cargo
container market, the refrigerated container market and the tank container
market. In recent years, however, the Company has expanded into other
specialized container products and other types of leases.

        Cronos competes with various container leasing companies in the markets
in which it conducts business, including Transamerica Leasing, Genstar Container
Corp. (now GE Seaco), Triton Container International Ltd., Textainer Corp. and
others. In a series of recent consolidations, several major leasing companies,
as well as numerous smaller ones, have been acquired by competitors. Cronos
believes that the current trend toward consolidation in the container leasing
industry will continue, making economies of scale, worldwide operations,
diversity, size of fleet and financial strength increasingly important to the
successful operation of a container leasing business. Additionally, as
containerization grows, customers may demand more flexibility from leasing
companies regarding per diem rates, pick-up and drop-off locations, availability
of containers and other terms.

        Some of Cronos' competitors may have greater financial resources than
Cronos and may be more capable of offering lower per diem rates on a larger
fleet. In Cronos' experience, however, ocean carriers will generally lease
containers from more than one leasing company in order to minimize dependence on
a single supplier.



The Cronos Group                                                               6
<PAGE>   10


        OPERATING SEGMENTS

        Cronos has three operating segments which are determined based on source
of container funding:

        1.  U.S. Public Limited Partnerships

        2.  Other Container Owners

        3.  Owned Containers

        Cronos uses various financing programs within its three segments. These
financing programs enable Cronos to expand its fleet without being dependent
upon any single source of financing. Cronos believes it is important to
diversify its financing sources both by market and type of instrument. This
diversification reduces its reliance on individual financial markets and
provides for a more balanced financing structure.

               The following chart summarizes the composition of the Cronos
fleet (based on original equipment cost) at December 31 of each of the years
indicated:

<TABLE>
<CAPTION>
                                        1994     1995     1996     1997     1998
                                        ----     ----     ----     ----     ----
<S>                                     <C>      <C>      <C>      <C>      <C>
U.S. Public Limited Partnerships....     48%      45%      38%      35%      34%
Other Container Owners .............     28%      34%      29%      40%      41%
Owned Containers ...................     24%      21%      33%      25%      25%
                                        ---      ---      ---      ---      ---
          Total ....................    100%     100%     100%     100%     100%
                                        ===      ===      ===      ===      ===
</TABLE>

        As of December 31, 1998, no single owner (other than as specified above)
held more than 13% of the Cronos fleet (based upon original equipment cost).

        All containers, whether owned or managed, are leased as part of a single
global fleet, without regard to ownership. No customer generates 10% or more of
a segment's revenues. The Company evaluates the performance of its operating
segments based on operating profit or loss. Substantially, all of the Group's
lease revenue is earned on containers used in global trade routes. This revenue
is deemed to be earned based on the physical location of the containers while on
lease. Accordingly, the Group believes that it does not possess discernible
geographic reporting segments as defined in Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". See Note 2 to the 1998 Consolidated Financial Statements.

        Segment revenues from external customers, operating profit or loss and
total assets are disclosed in the Company's Financial Statements and are
incorporated herein by reference.

        U.S. PUBLIC LIMITED PARTNERSHIPS

        Cronos has been raising capital through its investment syndication
activities since 1979 through the organization and sponsorship of public limited
partnership offerings. To date Cronos has sponsored 16 of these public limited
partnerships. Cronos has raised over $478 million from over 37,000 investors,
providing the means to purchase 181,000 TEU of dry cargo containers, 3,500 TEU
of refrigerated containers and 300 TEU of tank containers. A majority of the
limited partners in a partnership can remove the general partner, thereby
terminating the agreement with Cronos.

        As an operating company, Cronos believes that its substantial experience
in the container leasing industry has been integral to the successful
syndication of public limited partnerships. However, no public offerings have
been made in the U.S. since early 1997. The Company is currently seeking to
refinance approximately $47.7



The Cronos Group                                                               7
<PAGE>   11

million of indebtedness. See Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources". In addition, since early 1997 the Company has been the subject of an
investigation by the U.S. Securities and Exchange Commission. See Item 3 --
"Legal Proceedings". The Company's ability to offer additional investor programs
will likely require a satisfactory resolution of these matters.

        The U.S. Public Limited Partnerships provide compensation to Cronos
consisting of the following fees and commissions:

        -  Syndication commissions: equal to 10% of the gross proceeds from the
           offering, of which approximately 8% is paid to independent
           broker-dealers;

        -  Acquisition fees: equal to 5.0% of the original cost of equipment
           purchased by the partnerships, recognized over a 12-year period;

        -  Base management fees: equal to 7% of gross lease revenue for
           operating leases and 2% of gross lease revenue for direct financing
           leases;

        -  General partner share: equal to 5% of distributable cash generated by
           the partnerships' operating activities;

        -  Incentive fees: equal to 15% of distributable cash after the limited
           partners have received a return of their adjusted capital
           contributions and distributions in an amount equal to a cumulative
           compounded rate between 8 to 10% per annum (depending on the
           program);

        -  Sales proceeds fees: equal to a 25% share of container sales proceeds
           after limited partners have received a return equal to their adjusted
           capital contribution plus 8% per annum for the leveraged programs;
           and

        -  Reimbursed administrative expenses: for certain overhead and
           operating expenses.

        Management and acquisition fees, as well as syndication commissions
(representing amounts earned on the sale of Limited Partnership interests)
earned by the Company, were $15.0 million, $12.0 million, and $11.3 million for
the years ended December 31, 1996, 1997 and 1998, respectively.



The Cronos Group                                                               8
<PAGE>   12



        OTHER CONTAINER OWNERS

        In addition to U.S. Public Limited Partnerships, Cronos manages
containers pursuant to agreements negotiated directly with corporations,
partnerships and private individuals located in Europe, Asia, the United States
and South Africa. Cronos' obligations to investors in the partnerships and the
investor programs are substantially similar. The terms of the agreements vary
from 1 to 15 years. The agreements generally contain provisions which permit
earlier termination under certain conditions upon 60-90 days' notice. Under the
agreements with Other Container Owners, the container owner can generally
terminate the agreement if average payments by Cronos are less than a certain
percentage (specified in each agreement) of total capital invested. Cronos
believes that early termination is unlikely in normal circumstances.

        These management agreements generally provide compensation to Cronos
consisting of management fees between 5% and 20% of the net lease revenue
generated by the containers. Cronos also earns an acquisition fee of
approximately 2.5% to 5.0% of the aggregate original equipment cost of the
equipment managed for the owners where Cronos has negotiated the purchase of the
equipment. In certain cases, an incentive fee may also be earned. Acquisition
fees under the investor programs are generally recognized in Cronos' income
statements over periods ranging from 7 to 15 years.

        Total fees earned by the Company were $7.4 million, $7.3 million and
$7.4 million for the years ended December 31, 1996, 1997 and 1998, respectively.

        All of the containers managed for these owners are combined into pools
with containers of similar age and type and are managed pursuant to generally
similar management agreements. Occasionally an owner will have its own pool, due
to the size of its fleet or to differences in the structure or terms of the
management agreement. The owners of the containers in each pool share revenues
and expenses, which are allocated pro rata in order to minimize the effect of
possible over-utilization or under-utilization of any particular containers.
Pooling was designed to minimize conflicts of interest and promote
administrative convenience.

        Revenues and expenses are allocated among owners based upon the
aggregate original equipment cost of the containers owned by each owner and the
number of days that such containers were in the pool, compared to the total
aggregate original equipment cost of all containers in the pool and the total
number of days in the period.

        OWNED CONTAINERS

        Cronos uses various forms of debt funding to finance its owned fleet
including bank loans, private placements, and capital leases. Container
ownership provides the Company with the ability to generate lease revenues over
the life of the container, matched with relatively fixed costs of interest and
depreciation expenses. Most of the Company's long term debt facilities have
principal maturities of less than seven years, after which containers financed
under such facilities provide increased cash flows. In general, the Company
believes that container ownership is more profitable over the life of the
container when compared to the corresponding profits generated from container
management. However, unlike container management, container ownership can often
require an initial cash investment in order to secure cost effective debt
financing. Until the Company completes its short term debt refinancing,
additional investment in container ownership will be restricted. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

        Cronos also owns containers on a temporary basis until such time that
the containers are sold to its U.S. Limited Partnerships and Other Container
Owner Programs. Most containers targeted for transfer to managed programs are
purchased new by Cronos, and sold to a managed container owner within six
months. This strategy allows Cronos more flexibility to negotiate and buy
containers strategically, based on market conditions and later sell these
containers to third party owners after the initial lease profile is established
for a particular group of containers. Cronos also intends to use managed
container programs to help it refinance containers held under short-term debt
agreements, some of which it has completed in the first quarter of 1999.



The Cronos Group                                                               9
<PAGE>   13


ENVIRONMENTAL

        Countries that are signatories to the Montreal Protocol on the
environment agreed in November 1992 to restrict the use of environmentally
destructive refrigerants, banning production (but not use) of chlorofluorocarbon
compounds ("CFCs") beginning in January 1996. CFCs are used in the operation,
insulation and manufacture of refrigerated containers. All of Cronos'
refrigerated containers purchased since June 1993 use non-CFC refrigerant gas in
the operation and insulation of the containers, although a reduced quantity of
CFCs is still used in the container manufacturing process. The replacement
refrigerant used in the Company's new refrigerated containers may also become
subject to similar governmental regulations. Depending on market pressures and
future governmental regulations, many of the Company's refrigerated containers
may require retrofitting with non-CFC refrigerants. Cronos' technical staff has
cooperated with refrigeration manufacturers in conducting investigations into
the most effective and economical retrofit plan. In the future, the Company may
bear the costs related to retrofitting its Owned Containers, which constitute
approximately 25% of its total refrigerated container fleet. Cronos believes
that any such further expenses, should they be required, would not be material
to its financial position or results of operations. In addition, refrigerated
containers that are not retrofitted may command lower prices in the used
container market.

EMPLOYEES

        As of December 31, 1998, Cronos had 139 employees worldwide, 32 were
located in the United States, 80 in Europe and 27 in Asia. None of Cronos'
employees are covered by a collective bargaining agreement.

<TABLE>
<CAPTION>
                        Executive Officers of the Company
                        ---------------------------------
        Name                        Position                           Age
        ----                        --------                           ---
<S>                                 <C>                                <C>
        Dennis J. Tietz             Chief Executive Officer            46
        Peter J. Younger            Chief Financial Officer            42
        Stephen J. Brocato          President of Leasing Division      46
</TABLE>

               A brief summary of the recent business and professional
experience of each executive officer is set forth below:

        DENNIS J. TIETZ. Mr. Tietz, 46, was elected Chief Executive Officer of
The Cronos Group in December 1998 and Chairman of the Board of Directors in
March 1999. Since 1986, Mr. Tietz has been responsible for the organization and
marketing and after-market support of investment programs managed by Cronos
Capital Corp. ("CCC"), a subsidiary of the Company. Mr. Tietz was a regional
manager for CCC, responsible for various container leasing activities in the
U.S. and Europe from 1981 to 1986. Prior to joining CCC in December 1981, Mr.
Tietz was employed by Trans Ocean Leasing Corporation as Regional Manager based
in Houston, with responsibility for all leasing and operational activities in
the U.S. Gulf. Mr. Tietz holds a B.S. degree in Business Administration from San
Jose State University and is a Registered Securities Principal with the National
Association of Securities Dealers ("NASD").

        PETER J. YOUNGER. Mr. Younger, 42, was elected Chief Financial Officer
of The Cronos Group in March, 1997, and is based in the United Kingdom. Mr.
Younger was appointed Vice President and Controller of Cronos in 1991. He joined
IEA in 1987 and served as Director of Accounting and Vice President and
Controller, based in San Francisco. Prior to 1987, Mr. Younger was a certified
public accountant and a principal with the accounting firm of Johnson, Glaze and
Co. in Salem, Oregon. Mr. Younger holds a B.S. degree in Business Administration
from Western Baptist College.



The Cronos Group                                                              10
<PAGE>   14

        STEPHEN J. BROCATO. Mr. Brocato, 46, was elected President of the
Leasing Company's container division in June 1997, and is based in the United
Kingdom. Mr. Brocato has held various positions since joining Cronos including,
Vice President - Corporate Affairs and Director of Marketing - Refrigerated
Containers for Cronos in North and South America. Prior to joining Cronos, Mr.
Brocato was a Vice President for ICCU Containers from 1983 to 1985 and was
responsible for dry cargo container marketing and operations for the Americas.
From 1981 to 1983, he was Regional Manager for Trans Ocean Leasing Ltd. On March
31, 1999 Mr. Brocato resigned from his position as President of the Leasing
Company's container division and has left the Company to pursue other interests.


INSURANCE

        Cronos' lease agreements typically require lessees to obtain insurance
to cover all risks of physical damage and loss of the equipment under lease, as
well as public liability and property damage insurance. However, the precise
nature and amount of the insurance carried by each ocean carrier varies from
lessee to lessee.

        In addition, Cronos has purchased secondary insurance effective in the
event that a lessee fails to have adequate primary coverage. This insurance
covers liability arising out of bodily injury and/or property damage as a result
of the ownership and operation of the containers, as well as insurance against
loss or damage to the containers, loss of lease revenues in certain cases and
costs of container recovery and repair in the event that a customer goes into
bankruptcy. Cronos believes that the nature and amounts of its insurance are
customary in the container leasing industry and subject to standard industry
deductions and exclusions.

ITEM 2 -- PROPERTIES

        Cronos owns the real property known as Orchard Lea, located west of
London, England. Orchard Lea consists of a 22,000 square foot office building on
four acres of land. Orchard Lea is the head office of Cronos' container leasing
operations. It is subject to a mortgage and other liens and encumbrances. Cronos
leases approximately 12,160 square feet of office space in San Francisco,
California, where its U.S. Limited Partnership activities are based. Cronos also
conducts container leasing operations from offices in Iselin, New Jersey;
Hamburg; Antwerp; Genoa; Gothenburg, Sweden; Hong Kong; Singapore; Sydney;
Tokyo; Rio de Janeiro; Shanghai and Auckland, generally under shorter term
leases of varying durations. The containers owned and managed by Cronos are
described under Item 1--"Description of Business - Company Strategy - Fleet
Profile, Operating Segments - U.S. Public Limited Partnerships, Other Container
Owners and Owned Containers", above. As of December 31, 1998, Cronos owned
50,487 TEU dry cargo containers, 7,537 TEU refrigerated containers, 671 TEU tank
containers, 2,419 TEU CPC containers and 2,309 TEU of other specialized
equipment. As of December 31, 1998, Cronos managed a total of 287,339 TEU dry
cargo containers, 7,165 TEU refrigerated containers, 1,341 TEU tank containers
and 2,171 TEU of other specialized equipment.

ITEM 3 -- LEGAL PROCEEDINGS

        In February 1997, as reported in the Company's Form 6-K, Arthur Andersen
resigned as auditors to The Cronos Group and its subsidiaries and related
partnerships. In connection with its resignation, Arthur Andersen also prepared
a report pursuant to Section 10A of the Securities Exchange Act of 1934 citing
its inability to obtain what it considered to be adequate responses to its
inquiries primarily regarding the payment of $1.5 million purportedly in respect
of professional fees relating to the proposed strategic alliance referred to in
Note 17 to the 1998 Consolidated Financial Statements.

        The Securities and Exchange Commission ("SEC"), a United States
regulatory agency, subsequently commenced an investigation of the Company. The
SEC's investigation can result in several types of civil or administrative
sanctions against the Company and individuals associated with the Company,
including the



The Cronos Group                                                              11
<PAGE>   15

assessment of monetary penalties against the Company. Actions taken by the SEC
do not preclude additional actions by any other federal, civil or criminal
authorities or by other regulatory organizations or by third parties.

        The SEC's investigation is continuing, and some of the Company's present
and former officers and directors and others associated with the Company have
given testimony. However, no conclusion of any alleged wrongdoing by the Company
or any individual has been communicated to the Company by the SEC. Accordingly,
management has not reached a conclusion regarding any possible liability of the
Company.

        Since 1983, the Company has managed equipment for Austrian entities
sponsored by various Contrin companies. Contrin was formed in 1976 by Mr Rudolf
J. Weissenberger, a former Chief Executive Officer, Chairman and Director of the
Company. Subsequently, Mr Palatin, a former Chief Executive Officer, Chairman
and Director of the Company, joined Mr Weissenberger in the ownership and
management of Contrin. Mr Axel Friedberg, a former non-executive Director of the
Company from 1997 to March 1999, served as legal counsel to Mr Weissenberger and
some of the Contrin entities. Mr Weissenberger and Mr Palatin terminated their
respective positions with Contrin in 1991. Since then, Cronos has continued to
manage equipment for Contrin under Management Agreements.

        Certain of the Contrin entities were liquidated in 1996 with alleged
losses to the investors in some of the Austrian entities that had provided
financing. Investigations that involved allegations of fraudulent dealings in
respect of Contrin were initiated against various persons and entities in the
Provincial Court of Vienna, Austria (Criminal Division) upon the complaint of
certain of the Contrin companies. In September 1997 the Provincial Court of
Vienna entered a temporary injunction that froze a payment being made by Cronos
Containers NV of 4,617,835 Austrian schillings (approximately $0.36 million)
pending the outcome of further legal proceedings. In December 1997 the Vienna
Court of Appeal (Criminal Division) sustained the temporary injunction. In its
opinion, the Court of Appeal noted that, upon motion of the Public Prosecutor,
investigations were then pending against, among others, Mr Palatin. The Court
also said that investigations were being initiated against additional persons,
including Mr Weissenberger and Mr Friedberg. Mr Palatin and Mr Friedberg have
since been formally charged. Such investigations, which are still pending, have
not resulted in any actions being taken against Mr Weissenberger, who has
informed the Company that he does not believe that there is any valid basis for
any such actions to be taken against him.

        In May 1998, Mr Palatin was taken into custody by Austrian governmental
authorities pending further hearings on the allegations of fraud in connection
with various Contrin transactions. See Notes 17 and 21 to the 1998 Consolidated
Financial Statements. In June 1998, the Company's Board of Directors removed Mr
Palatin from his position as Chief Executive Officer. Mr Palatin resigned from
the Board of Directors on July 3, 1998.

        In response to actions taken by Contrin, the Company terminated certain
of its Management Agreements with the various Contrin entities in 1998.
Discussions are taking place between Contrin and the Company and it is possible
these agreements may be reinstated.

        Based on the information available to it, the Company considers that
prudent provision has been made in the 1997 and 1998 Financial Statements for
all matters concerning Contrin. See Note 17 to the Company's 1998 Consolidated
Financial Statements for additional information.

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

        The annual meeting of shareholders was held on October 29, 1998. The
following is a summary of the matters voted on at the meeting:

        Resolution 1: to receive and approve the reports of the independent
auditor and of the Board of Directors; votes for 2,502,708; votes against
1,340,140; abstentions 1,075,200. Consequently, the resolution was passed.



The Cronos Group                                                              12
<PAGE>   16

        Resolution 2: to ratify the appointment by the Board of Directors of Mr
Maurice Taylor on July 9, 1998 to fill a vacancy on the Board; votes for
2,502,508; votes against 1,339,140; abstentions 1,076,400. Consequently, Mr
Taylor's appointment by the Board of Directors was ratified.

        Resolution 3: to approve the Consolidated and Unconsolidated Financial
Statements of the Company for the year ended December 31, 1997; votes for
2,173,108; votes against 1,340,940; abstentions 1,404,000. Consequently, the
Consolidated and Unconsolidated Financial Statements of the Company for the year
ended December 31, 1997 were approved.

        Resolution 4: to discharge the Board of Directors (other than Mr
Palatin) pursuant to Article 74 of the Company Law (August 10, 1915) for the
execution of their mandate for the year ended December 31, 1997; votes for
2,496,098; votes against 1,343,000; abstentions 1,078,950. Consequently, the
discharge as proposed was granted.

        Resolution 5: election of Directors

<TABLE>
<CAPTION>
                                                      Votes
                                      --------------------------------------
Nominee                     Term            For       Against    Abstentions
-------                     ----            ---       -------    -----------
<S>                         <C>       <C>           <C>            <C>      
E. A. Eriksen               2001        487,371     3,352,277      1,078,400
R. J. Weissenberger         2001      2,160,208     1,586,440      1,171,400
M. Taylor                   2001      2,500,608       913,890      1,503,550
N. Walker                   2001        708,010     1,337,840      2,872,198
</TABLE>

Mr Friedberg and Mr Ernst Otto Nedelmann continued to serve as Directors
following the meeting.

        Resolution 6: to rescind the authorization granted at the 1997 annual
meeting of shareholders of the Company to pay out dividends of up to 35% of
consolidated net earnings for the year ended December, 31 1996; votes for
3,732,958; votes against 106,040; abstentions 1,079,050. Consequently, the
authorization was rescinded.

        Resolution 7: to approve the appointment of Moore Stephens S.a.r.l. as
the Company's independent auditor for the fiscal year 1998 and to authorize the
Directors to fix the independent auditors remuneration; votes for 3,499,348;
votes against 343,000; abstentions 1,075,700. Consequently, Moore Stephens
S.a.r.l was reappointed.

        Resolution 8: to approve any dividends and allocate the results for the
year ended December 31, 1997; votes for 2,169,008; votes against 1,673,840;
abstentions 1,075,200.
Consequently, it was decided not to pay dividends.



The Cronos Group                                                              13
<PAGE>   17



                                     PART II

ITEM 5 -- MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        As at March 29, 1999, there were outstanding 8,858,378 Common Shares.
They were held of record by 16 holders, including five non-U.S. persons holding
an aggregate of 2,857,017 shares.

        Prior to December 1995, there was no trading market for the Company's
Common Shares. Since the Company's Public Offering, the Common Shares have been
quoted and traded over-the-counter on the NASDAQ National Market System under
the symbol "CRNSF". In March 1999 the Company announced that it would comply
with the reporting requirements applicable generally to U.S. public companies
and would therefore trade under the symbol "CRNS". There is no trading market
for the Common Shares outside the United States. The table below shows the high
and low reported bid prices for the Common Shares on the NASDAQ National Market
System for the last two years for the quarterly periods ending on the dates
indicated. Bid prices are market quotations and reflect inter dealer prices,
without retail mark up, mark down or commission and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
                                       Price Range             Trading Volume
                                        (Dollars)           (# of Common Shares)
                                    High         Low
                                    ----         ---
<S>                                 <C>         <C>               <C>      
March 31, 1997                      7.375       2.750             2,704,887
June 30, 1997                       6.875       4.000             1,833,200
September 30, 1997                  8.125       6.250             1,671,623
December 31, 1997                   7.375       4.500             1,092,334
March 31, 1998                      7.250       5.125             1,397,942
June 30, 1998                       7.125       5.000               552,233
September 30, 1998                  5.969       4.875             1,101,394
December 31, 1998                   6.625       3.375               297,081
February 28, 1999                   5.938       3.500               137,290
</TABLE>

        There are currently no Luxembourg foreign exchange control restrictions
on the payment of dividends on the Common Shares or on the conduct of Cronos'
operations. In addition, there are no limitations on holding or voting
applicable to foreign holders of Common Shares, imposed by law, by the Company's
Articles of Incorporation or otherwise, other than those restrictions which
apply equally to Luxembourg holders of Common Shares. The company is, under a
credit agreement, restricted in declaring or making dividend distributions
except in the case where such declarations or distributions are made solely and
limited to an amount equal to 35% of Consolidated Net Earnings of any year. No
dividend declarations have been made by the Company since its Initial Public
Offering in December 1995.

        The following summary of the material Luxembourg tax consequences is not
a comprehensive description of all of the tax considerations that are applicable
to the holders of Common Shares, and does not deal with the tax consequences
applicable to all categories of holders, some of which may be subject to special
rules.

        Under present Luxembourg law, as long as the Company maintains its
status as a holding company, no income tax, withholding tax (including with
respect to dividends), capital gains tax or estate inheritance tax is payable in
Luxembourg by shareholders in respect of the Common Shares, except for
shareholders domiciled, resident (or, in certain circumstances, formerly
resident) or having a permanent establishment in Luxembourg. The reciprocal tax
treaty between the United States and Luxembourg limiting the rate of any
withholding tax is therefore inapplicable.



The Cronos Group                                                              14
<PAGE>   18



ITEM 6 -- SELECTED FINANCIAL DATA

        The following table sets forth consolidated financial information for
the Company as of and for the periods noted. The balance sheet and income
statement data for the five years ended December 31, 1998, have been derived
from the consolidated financial statements of the Company. The table should be
read in conjunction with Item 7--"Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the 1998 Consolidated
Financial Statements and related notes thereto included elsewhere in this Annual
Report. The Company is facing material financial uncertainties in connection
with its refinancing that may cause this data not to be indicative of future
financial condition or results of operations.


<TABLE>
<CAPTION>
                                                                        Year Ended December 31,

                                                          1994        1995        1996        1997          1998
                                                        --------    --------    --------    ---------     ---------
                                                             (in thousands, except per share data)
<S>                                                     <C>         <C>         <C>         <C>           <C>      
INCOME STATEMENT DATA:
Gross lease revenue ...............................     $124,658    $150,429    $154,011    $ 160,848     $ 157,546
Commissions, fees and other operating income.......        5,667       6,942       7,460        5,545         4,955
Interest income ...................................          255       1,329       1,333        1,685         1,154
Equity in earnings of affiliates ..................        1,445       1,895       1,397           --            --
Gain on conversion of investment in affiliate......           --          --       5,260          321            --
                                                        --------    --------    --------    ---------     ---------
TOTAL REVENUES AND NON-OPERATING INCOME ...........      132,025     160,595     169,461      168,399       163,655
                                                        --------    --------    --------    ---------     ---------
Direct operating expenses .........................       23,783      26,938      34,535       34,217        35,318
Payments to container owners ......................       62,288      77,073      72,894       73,945        75,527
Depreciation and amortization .....................        8,711      10,676      14,258       19,033        18,714
Selling, general and administrative expenses.......       20,148      24,133      23,834       22,683        21,164
Financing and recomposition expenses(1)(2) ........        1,900          --       2,149        7,384         5,375
Interest expense ..................................        8,229      11,238      11,368       17,758        15,718
Provision against amounts receivable from
related parties(3) ................................           --          --          --        4,733            --
Provision against available for sale
securities(4) .....................................           --          --          --           --         1,500
Impairment losses(5) ..............................           --          --          --       11,668         6,500
                                                        --------    --------    --------    ---------     ---------
TOTAL EXPENSES ....................................      125,059     150,058     159,038      191,421       179,816
                                                        --------    --------    --------    ---------     ---------
EARNINGS (LOSS) BEFORE INCOME TAXES ...............        6,966      10,537      10,423      (23,022)      (16,161)
Income taxes ......................................        3,031       3,175       2,441           --           306
                                                        --------    --------    --------    ---------     ---------
NET INCOME (LOSS) .................................        3,935       7,362       7,982      (23,022)      (16,467)
                                                        --------    --------    --------    ---------     ---------
Preferred dividends ...............................          900         856          --           --            --
                                                        --------    --------    --------    ---------     ---------
Earnings available for common shares ..............     $  3,035    $  6,506    $  7,982    $ (23,022)    $ (16,467)
                                                        --------    --------    --------    ---------     ---------
Earnings (loss) per common share ..................     $   0.58    $   1.21    $   0.90    $   (2.60)    $   (1.86)
                                                        --------    --------    --------    ---------     ---------
Dividends per common share ........................     $    .19    $     --    $     --    $      --     $      --
                                                        --------    --------    --------    ---------     ---------
Shares used in per share calculations(6) ..........        5,215       5,383       8,853        8,858         8,858
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents .........................     $  7,493    $ 24,243    $ 17,278    $  14,455     $   9,281
Total assets ......................................      222,337     266,485     399,301      327,145       279,979
Long-term debt and capital lease obligations.......       93,578      89,600     141,435       88,682        61,195
Total debt and capital lease obligations ..........      109,696     106,620     198,989      171,399       148,466
Shareholders' equity ..............................       53,186      85,349      95,576       73,713        56,087
</TABLE>

(1)  In 1994, $1.9 million ($.37 per share) of costs incurred in preparation for
     the Company's Public Offering were written off because the offering,
     originally planned for the summer of 1994, was postponed for more than 90
     days. These costs were non-deductible for tax purposes.



The Cronos Group                                                              15
<PAGE>   19

(2)  In 1996, 1997 and 1998 the Company incurred costs in connection with
     certain financing and other transactions and the restructuring of the Board
     of Directors and other employee positions. Costs incurred and accrued were
     charged to the income statement where the Company determined that no future
     benefit would be derived from such costs.

(3)  As of December 31, 1997 the Company provided $4.7 million against a loan
     and associated interest to the then Chairman due to concern over its
     collectability and the Company's ability to exercize the pledge over shares
     put up as collateral for the loan.

(4)  As of December 31, 1998 the Company provided $1.5 million against the
     escrow holding certain Transamerica shares pending final determination of
     post-closing reports and adjustments.

(5)  As of December 31, 1997 and 1998 the Company recorded accounting charges
     relating to the impairment of certain long-lived assets as required by the
     Statement of Financial Accounting Standards 121.

(6) Weighted average number of shares outstanding during the year.


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

        The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the 1998 Consolidated
Financial Statements and the notes thereto and the other financial and
statistical information appearing elsewhere in this Annual Report. The 1998
Consolidated Financial Statements have been prepared in accordance with US
Generally Accepted Accounting Principles.

        GENERAL

        The Company generates revenues by leasing to ocean carriers marine
containers that are owned either by third-party container owners or by the
Company itself. These leases, which generate most of the Company's revenues, are
generally operating leases.

        The segment information presented in Note 2 of the Notes to the
Company's 1998 Consolidated Financial Statements relates to the portions of the
Company's fleet owned by the Company itself ("Owned Containers") or by the
Company's managed container programs, U.S. Public Limited Partnerships ("U.S.
Limited Partnerships") and Other Container Owners ("Other Container Owners") and
together with U.S. Limited Partnerships, "Managed Container Owners". Owned
Containers include containers held for resale, the financing costs of which are
borne by the Company prior to the sale of such containers to Managed Container
Owners, and are accounted for in the Owned Container segment. The Company bears
the risk of ownership with respect to containers in Owned Containers but not
with respect to the majority of containers in the Managed Container Owners
segments, although the Company bears the risk that the management agreements
could be terminated, resulting in the removal of the corresponding managed
containers from the fleet. At December 31, 1998, approximately 34%, 41% and 25%
of the Company's fleet (by original equipment cost) was related to U.S. Limited
Partnerships, Other Container Owners and Owned Containers, respectively.

        All containers, whether owned or managed, are operated as part of a
single fleet. The Company has discretion over which ocean carriers, container
manufacturers and suppliers of goods and services it deals with. Since the
Company's management agreements with the Managed Container Owners meet the
definition of leases in Statement of Financial Accounting Standards No. 13, they
are accounted for in the Company's financial statements as leases under which
the container owners are lessors and the Company is lessee. The agreements with
container owners generally provide that the Company will make payments to the
container owners based upon the rentals collected from ocean carriers after
deducting direct operating expenses and a management fee. Substantially all
payments to container owners are therefore contingent upon the leasing of the
containers by the Company to ocean carriers and the collection of lease rentals.
Minimum lease payments on the minority of



The Cronos Group                                                              16
<PAGE>   20

agreements which have fixed payment terms are presented in note 14(c) of the
notes to the Company's 1998 Consolidated Financial Statements. Substantially all
payments to container owners represent a percentage of the rentals collected
from the ocean carriers to whom containers are leased by the Company.

        Gross lease revenue represents revenue from operating leases, excluding
billings in advance. These amounts are billed in U.S. dollars on a monthly
basis. Amounts due under master leases are calculated by the Company at the end
of each month and billed approximately 6 to 8 days thereafter. Amounts due under
short-term and long-term leases are set forth in the respective lease agreements
and are generally payable monthly. Changes in gross lease revenue depend
primarily upon fleet growth, utilization rates and average per diem rates.

        The Company has expanded its fleet since December 31, 1994 from 226,600
TEU to 361,400 TEU at December 31, 1998. Between 1994 and 1998 the owned and
managed fleets have grown from 36,700 TEU to 63,400 TEU and from 189,900 TEU to
298,000 TEU, respectively. During this period, the Company added containers
having an original equipment cost of $233 million and $135 million,
respectively, net of disposals, to its owned and managed fleet, increasing the
total original equipment cost of the fleet to $991 million. During 1997 and 1998
the ability of the Company to purchase new equipment for both the owned and
managed fleets was constrained by the levels of finance available to the
company.

        Utilization of the Company's containers declined in 1996 as a result of
the increasing fleet size, an oversupply of containers in the industry,
relatively slow growth in world trade and increased competition. During 1997,
utilization experienced steady growth due to marketing efforts and improved
inventory management. In 1998, utilization declined reflecting the deteriorating
economic position in Asian, South American and other markets.

        The Company's average per diem rates have fallen consistently throughout
1996, 1997 and 1998. This reflects the rationalization in the global shipping
industry and the resultant lowering of freight rates.

        Commissions, fees and other operating income includes acquisition fees
relating to the Company's managed container programs, syndication fees relating
to the Company's limited partnership offerings, income from direct financing
leases (principally containers leased under lease-purchase arrangements), fees
from the disposal of used containers and miscellaneous other fees and income.
This item is affected by the size of new managed programs, the purchase price of
containers purchased for new managed programs, the number and value of direct
financing leases and income from disposals of used containers. Although
acquisition fees are generally received in cash at the inception of a managed
container program and are non-refundable, they are amortized in the income
statement on a straight-line basis over the period of the managed container
agreement to which they relate.

        Direct operating expenses are direct costs associated with leasing
containers, both owned and managed. These expenses include depot costs such as
repairs, maintenance, handling and storage, non-depot expenses such as
insurance, agent fees and repositioning costs, and other expenses such as
provisions for doubtful accounts and legal costs. Direct operating expenses are
affected primarily by fleet size and utilization. The majority of direct
operating expenses relate to off-hire containers, and therefore these costs are
sensitive to the quantity of off-hire containers as well as the frequency at
which containers are re-delivered.

        Payments to container owners reflect the amounts due to Managed
Container Owners, computed in accordance with the terms of the individual
agreements.

        Selling, general and administrative expenses include all employee and
office costs, professional fees and computer systems costs.

        Operating profit or loss includes items directly attributable to
specific containers in each of the Company's operating segments, as well as
items not attributable to any specific container but instead are allocated
across operating segments. Items directly attributable to operating segments
include gross lease revenues, direct



The Cronos Group                                                              17
<PAGE>   21

operating costs, payments to container owners, container interest and
depreciation expense. Indirect items allocated across segments include selling,
general and administrative expenses, interest, depreciation and impairment
charges on the Company's non-container assets.

        RESULTS OF OPERATIONS

        The following chart represents certain key performance measurements,
expressed as a percentage of gross lease revenue:

<TABLE>
                                                     Year Ended December 31,
                                                   ----------------------------
                                                   1996        1997        1998
                                                   ----        ----        ----
<S>                                                <C>         <C>         <C> 
                                                      %           %           %
Direct operating expenses                          22.4        21.3        22.4
Selling, general and administrative expenses       15.5        14.1        13.4
Depreciation and amortization(1)                    9.3        11.8        11.9
Interest expense                                    7.4        11.0        10.0
</TABLE>


(1)  Depreciation and amortization in 1996 includes the amortization of goodwill
     on the acquisition of capital stock of an affiliate. In the income
     statement data, this amortization is netted in calculating equity in
     earnings of affiliates.

        YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

        During 1998, the size of the total fleet decreased by 8,400 TEU
representing disposals of 11,200 TEU net of new container production of 2,800
TEU. Total new container production in 1998 represented an investment of $9.8
million compared with $92.0 million in 1997. Approximately $3.8 million, or 39%,
of the new container investment before disposals related to dry cargo
containers, compared to $68.0 million, or 74%, in 1997. Of the remaining new
container purchases, $2.7 million was invested in flatracks, $2.0 million was
invested in roll-trailers and $1.3 million in tank containers.

        Approximately 85% of new container investment in 1998 was financed
within the Managed Container Owners segments, compared to 69% in 1997. The
remaining balance of 15% in 1998 and 31% in 1997 was financed within the Owned
Container segment by operating cash flow and borrowings.

        Based on current market conditions and expected new container prices in
1999, the Company intends to allocate the majority of its 1999 production
funding to new dry cargo containers, and the balance to dry freight specials and
tank containers. The majority of new funding in 1999 is expected to come from
the Other Container Owner segment, most of which is expected to be used for new
production, with the balance targeted to purchase used containers currently
owned by the Company.

        Operating profit, see Note 2 to the 1998 Consolidated Financial
Statements, from U.S. Limited Partnerships declined by approximately $0.3
million, or 11%, from $2.2 million in 1997 to $1.9 million in 1998 due to lower
net lease revenues generated from a smaller fleet size, offset partially by
lower allocations of selling, general and administrative expenses.

        Other Container Owners generated an operating loss of $0.7 million in
1998, compared to an operating profit of $0.9 million in 1997. Increased net
lease revenues resulting from an increased fleet size, were offset by higher
allocations of selling, general and administrative expenses and an allocation of
impairment losses in 1998 of $0.8 million related to the Company's real property
in England. Operating profit before allocations of indirect items increased
slightly due to a larger fleet under management. The Company expects this trend
to continue in



The Cronos Group                                                              18
<PAGE>   22

1999, both from the funding for new containers purchases, as well as for used
containers currently owned by the Company. In the first quarter of 1999, third
party container owners purchased approximately $14.4 million in container assets
from the Company. The Company anticipates additional transactions of this kind
throughout the first half of 1999. In all cases, the assets will continue to be
managed by the Company as part of its Other Container Owner programs.

        Owned Containers generated a loss from operations in 1998 of $8.1
million compared to a loss of $6.3 million in 1997. Lower net lease revenues
resulting from a softer leasing market as well as a smaller owned fleet and
higher interest rates on container debt contributed to the decline in this
segment's performance. Additionally, the Company took an impairment charge of
$4.5 million in 1998 on selected refrigerated and dry containers, in
anticipation of a sale of these assets to various third party investor programs
in the first half of 1999. These sales reflect the Company's strategy of
refinancing its short term debt and reducing the Company's cost of debt
financing. In 1997 the Company booked a $7.4 million impairment charge to write
down the carrying value of refrigerated containers.

        Total allocations of selling, general and administrative expenses
between all segments in 1999 are expected to decline as a result of the
Company's announced restructuring program.

        Gross lease revenue decreased by approximately 2% in 1998, primarily due
to lower average utilization rates on dry containers, a smaller average
refrigerated container fleet and lower average per diem rates on most product
types. Gross lease revenue from dry cargo containers decreased by 2% in 1998 and
represented approximately 73% of the overall total, unchanged from 1997.
Refrigerated container gross lease revenue declined by $2.8 million, or 9%, to
$29.9 million in 1998 due to a reduction in average fleet size following a
program of targeting uneconomic equipment for disposal during the year.
Refrigerated container gross lease revenue represented 19% of the overall total
compared to 20% in 1997. Gross lease revenue from tank containers increased by
$1.2 million to $8.3 million, an increase of 17% over 1997, due to improved
utilization and a higher average fleet size. The roll-trailer fleet contributed
$2.9 million, or 2%, to total gross lease revenue in 1998 compared to $2.8
million, or 2%, in 1997.

        Commissions, fees and other operating income decreased to $5.0 million
in 1998, a decrease of $0.6 million, or 11%, over 1997. This was primarily due
to reduced income from direct financing leases which was partly offset by
increased fees from the disposal of containers and increased property rental
income.

        Direct operating expenses increased to $35.3 million in 1998, an
increase of $1.1 million, or 3%, over 1997. Reductions in storage,
repositioning, handling and agent costs were more than offset by increases in
repair costs and in charges in respect of dry cargo and refrigerated container
legal expenses and doubtful accounts. Dry container storage costs decreased by
$1.0 million, or 10%, to $8.9 million reflecting stronger exchange rates and the
negotiation of lower storage rates in several locations. As a percentage of
gross lease revenue, direct operating expenses increased to 22% in 1998 from 21%
in 1997.

        Payments to container owners increased to $75.5 million in 1998, an
increase of $1.6 million, or 2%, over the prior year. Payments to Other
Container Owners were $43.6 million in 1998, an increase of $6.1 million, or
16%, over 1997 due to a higher average fleet size which more than offset lower
average dry utilization and per diem rates. The increase in the average fleet
size was mainly due to transactions involving the sale of equipment from the
Owned to the Other Container Owner segment in the second half of 1997 together
with new container production. Payment to US Limited Partnerships decreased by
$4.6 million to $31.9 million, a 12% decrease compared to 1997. The $6.6 million
reduction in gross lease revenue for the segment was caused by lower average
utilization and per diem rates and a smaller dry container fleet which more than
offset a $1.3 million reduction in direct operating expenses. The US Limited
Partnership fleet declined from 138,600 TEU at December 1997 to 128,700 TEU at
December 1998 as a result of the disposal of older container equipment including
sales of equipment to the Other Container Owner segment. At December 1998, the
managed container fleet comprised 75% of the total fleet by original equipment
cost which was almost unchanged from 1997.



The Cronos Group                                                              19
<PAGE>   23

        Depreciation and amortization decreased slightly to $18.7 million in
1998, a reduction of $0.3 million, or 2%, compared to 1997, due to a lower
average Owned Container fleet which was partly offset by an increase in the
depreciation charge for refrigerated containers following a change in the
depreciation policy at the beginning of 1998.

        Selling, general and administrative expenses were $21.2 million in 1998,
compared to $22.7 million in 1997, a decrease of $1.5 million, or 7%, due to
lower manpower, professional service and communication costs.

        Financing and recomposition expenses decreased to $5.4 million in 1998,
a reduction of $2.0 million, or 27%. During 1998, $3.4 million of charges were
incurred in respect of professional and financing fees together with a $2.0
million provision in connection with a restructuring plan. Charges incurred
during 1997 comprised a $3.4 million provision against a contingent liability
(see Notes 3 and 17 to the 1998 Consolidated Financial Statements) and $4.0
million of costs in respect of professional and financing fees.

        Interest expense decreased to $15.7 million in 1998, a decrease of $2.0
million, or 12%, over 1997 due to a lower average debt balance which was partly
offset by a higher average interest rate. The average debt balance was $160.9
million in 1998 compared to $185.1 million in 1997, a decrease of $24.2 million.
The reduction in the average debt balance was due to debt repayments of $22.1
million from operating cash during 1998 together with container sales from the
Owned Container fleet to the managed container fleet in the second half of 1997.

        Provision against available for sale securities represented a $1.5
million charge to reduce the anticipated proceeds from investment securities
presently held in escrow accounts.

        Impairment losses of $6.5 million in 1998 comprised a $4.5 million
charge in respect of container equipment and a $2.0 million adjustment to record
a property at estimated market value.

        Income taxes of $0.3 million in 1998 represented charges against profits
arising in European and Asian marketing offices. There was no income tax charge
in 1997.

        YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

        During 1997, the Company added 27,000 TEU of dry and special purpose
containers to the fleet, compared with 77,200 TEU in 1996, net of disposals.
This represented an investment of $92.0 million in new containers in 1997
compared with $253.0 million in 1996. Approximately 74% of the new container
investment before disposals related to dry cargo containers, compared to 81% in
1996. Refrigerated container investment was $10.0 million in 1997 compared to
$50.0 million in 1996. Of the remaining new container purchases, $6.0 million
was invested in tank containers, $4.0 million was invested in palletwide
containers, $2.0 million was invested in roll-trailers and $1.0 million in
flatracks.

        Approximately 69% of new container investment in 1997 was financed
within the Managed Container Owners segments, compared to 50% in 1996. The
remaining balance of 31% in 1997 and 50% in 1996 was financed within the Owned
Container segment by operating cash flow and borrowings.

        Operating profit, see Note 2 to the 1998 Consolidated Financial
Statements, for US Limited Partnerships decreased by $0.1 million, or 3%,
compared to 1996. Net lease revenue net of payments to US Limited Partnerships
was $2.4 million, or 19%, lower than prior year due to a reduced fleet size and
lower per diem rates which were partly offset by improved utilization. The
allocation of indirect items decreased by $2.9 million, or 23%, reflecting lower
commissions on the sale of limited partnership units and a decrease in selling,
general and administrative expense allocations. Operating profit for Other
Container Owners increased by $0.3 million, or 55%. Net lease revenue net of
payments to container owners increased by $0.3 million, or 5%, due to a higher
average fleet size under management and improved utilization which was partly
offset by lower per diem rates. The average fleet size increased as a result of
investment in new containers during 1997 and purchases of containers from the
Owned Container segment in the second half of 1997. The Owned Container segment



The Cronos Group                                                              20
<PAGE>   24

experienced an operating loss of $6.3 million compared to an operating profit of
$6.3 million in 1996 as a result of increased interest and depreciation charges
and a charge in respect of a reduction in the carrying value of refrigerated
containers of $7.4 million.

        Gross lease revenue increased to $160.8 million in 1997, an increase of
$6.8 million, or 4%, due to the expanded fleet size under management and higher
average utilization on dry containers which were partly offset by lower average
per diem rates. Dry cargo containers comprised 71% of the total fleet by
original equipment cost compared to 70% in 1997. Gross lease revenue from this
product type in 1997 remained unchanged from 1996, comprising 73% of the overall
total. Gross lease revenue from tank containers increased by $1.8 million to
$7.1 million, an increase of 34% over 1996. The roll-trailer fleet contributed
$2.8 million, or 1.7%, to total gross lease revenue in 1996.

        Commissions, fees and other operating income decreased to $5.5 million
in 1997, a decrease of $1.9 million, or 26%, over 1996. This was due to lower
fees from the disposal of containers and lower syndication commissions resulting
from a reduction in the sale of U.S. Limited Partnership units.

        Gain on conversion of investment in affiliate was $0.3 million in 1997
compared to $5.3 million in 1996. The gain resulted from the conversion of the
investment in Trans Ocean Limited in 1996. See Note 9 to the 1998 Consolidated
Financial Statements.

        Direct operating expenses decreased to $34.2 million in 1997, a
reduction of $.3 million, or 1%, over 1996. Lower repositioning expenses
reflecting the continuing improvement in the dry container market were partly
offset by higher storage and handling costs and an increased provision for
doubtful accounts. Although storage and handling costs decreased in each quarter
in 1997 as dry utilization improved, the total cost for 1998 was $1.0 million
higher than in 1996. As a percentage of gross lease revenue, direct operating
expenses decreased to 21.3% in 1997 from 22.4% in 1996.

        Payments to container owners increased to $73.9 million in 1997, an
increase of $1 million, or 1%, over the prior year. Payments to Other Container
Owners was $37.5 million in 1997, an increase of $4.9 million over 1996 due to a
higher average fleet size and higher dry utilization which more than offset
reduced per diem rates. Payment to US Limited Partnerships decreased by $3.9
million to $36.5 million, a 10% decrease compared to the prior year. The
decrease in average fleet size and reduction in per diem rates more than offset
the improvement in dry utilizations. The size of the total managed container
fleet increased from 242,700 TEU at December 31, 1996 to 303,100 TEU at December
31, 1997, an increase of 60,400 TEU, or 25%.

        Depreciation and amortization increased to $19.0 million in 1997, an
increase of $4.8 million, or 33%, over 1996, due to a higher average Owned
Container fleet.

        Selling, general and administrative expenses were $22.7 million in 1997,
compared to $23.8 million in 1996, a decrease of $1.1 million, or 5%, due to
lower employee costs and lower commissions paid on the sale of limited
partnership units, partly offset by higher professional fees.

        Financing and recomposition expenses increased to $7.4 million in 1997,
an increase of $5.2 million over the prior year due to a $3.4 million provision
against a contingent liability (see Notes 3 and 17 to the 1998 Consolidated
Financial Statements) and higher levels of professional fees incurred in
connection with certain financing and other transactions.

        Interest expense increased to $17.8 million in 1997, an increase of $6.4
million, or 56%, over 1996 due to higher average debt balances, a higher average
interest rate and increased loan fees. The average debt balance was $185.1
million in 1997 compared to $129.0 million in 1996, an increase of $56.1
million, reflecting a higher 1997 beginning debt position as a result of
significant additions to the Owned Container fleet in the second half of 1996.
The total debt balance decreased by $32.1 million between June 30, 1997 and
September 30, 1997 as a result of container sales from the Owned Container fleet
to the managed container fleet. The conversion of the Group's primary revolving
credit facility to a term loan resulted in a higher interest rate and increased
loan fees.



The Cronos Group                                                              21
<PAGE>   25

        Provision against amounts receivable from related parties of $4.7
million in 1997 represents an adjustment in respect of outstanding loans and
unpaid interest. See Note 21 to the 1998 Consolidated Financial Statements.

        Impairment losses of $11.7 million were recorded in 1997 in respect of
certain long-lived assets in accordance with Statement of Financial Account
Standards No. 121. A $7.4 million impairment loss was recognized in respect of
refrigerated container equipment to record the assets at fair value. A $4.3
million adjustment in respect of goodwill reflects the impairment of the Group's
ability to organize future public limited partnerships in the U.S. See Note 3 to
the 1998 Consolidated Financial Statements.

        Income taxes: there was no income tax charge in 1997 reflecting the loss
before income taxes. In 1996 the charge was $2.4 million representing an
effective tax rate as a percentage of earnings before income taxes of 23.4%.

        LIQUIDITY AND CAPITAL RESOURCES

        The funding sources available to the Company and its consolidated
subsidiaries include operating cash flow and borrowings. The Company's operating
cash flow is derived from lease revenues generated by the Company's fleet and
fee revenues from its managed container programs. The Company's working capital
requirements generally relate to day-to-day fleet support and servicing the
current portion of long-term debt outstanding. The parent company derives all of
its operating income and cash flow from its subsidiaries. Dividends of $4.4
million and $3.2 million were paid to the parent company by its subsidiaries
during 1996 and 1998, respectively.

        The Company purchases new containers for its own account and for resale
to its managed container programs. In recent years the Company has purchased
containers to take advantage of strategic purchasing and leasing opportunities.
These containers are held for periods of up to six months by the Company until
sold to one of the programs. If they are not sold, the Company retains them for
its own account. The Company believes that this activity allows the Company to
take advantage of opportunistic buying and increases the likelihood that the
containers will already be generating revenues at the time they are acquired by
the managed container programs, thereby providing managed container programs
with more attractive container prices and operating performance. The Company is
not obligated to continue this activity in the future. During 1997 and 1998 its
ability to purchase new containers was limited by the reduced levels of
financing available to the Company.

        Cash from Operating Activities. Net cash provided by operating
activities was $19.1 million and $15.2 million in 1996 and 1998, respectively.
Net cash used by operating activities was $20.6 million in 1997. The net cash
generated in 1996 reflected earnings from operations together with a decrease in
new container equipment for resale of $6.4 million. The net cash used in 1997
reflected a payment to container manufacturers of $26.4 million together with
the addition of new container equipment for resale of $6.7 million. The net cash
generated in 1998 reflected cash generated from operations and $7.9 million of
proceeds from new container equipment for sale.

        Cash for Investing Activities. The Company uses cash for investing
activities to acquire containers for its owned fleet, to purchase property and
other assets related to the operation of its worldwide office network and on
occasion to acquire subsidiaries and other investments. Net cash used for
investing activities was $121.2 million and $1.4 million in 1996 and 1998,
respectively. Net cash provided by investing activities was $44.6 million in
1997. Included in cash paid in 1996 was $3.4 million relating to the acquisition
of Intermodal Management AB and Intermodal Leasing AB, operators of a fleet of
roll-trailers and other roll-on roll-off terminal handling equipment. Also
included in cash paid in 1996 was $142.6 million relating to the purchase of
owned container equipment, $26.4 million relating to the purchase of container
equipment leased out under a lease purchase agreement, recorded in the Company's
balance sheet as Investment in direct financing leases, and $1.5 million in
respect of professional fees relating to a proposed strategic alliance. See Note
21 to the 1998 Consolidated Financial Statements. Cash received in 1996 related
to proceeds from the sale of container equipment of $36.4



The Cronos Group                                                              22
<PAGE>   26

million, and proceeds from the conversion and subsequent sale of the investment
in Trans Ocean Limited of $19.3 million. Included in cash paid in 1997 was $38.7
million relating to the purchase of owned container equipment and $3.7 million
relating to loans made to the then Chairman. See Note 21 to the 1998
Consolidated Financial Statements. Cash received in 1997 related to proceeds
from the sale of container equipment of $61.5 million and proceeds from the sale
of an investment in finance lease equipment of $25.1 million made in 1996. Also
included in cash received in 1997 was the return of $1.5 million paid by the
Company purportedly in respect of professional fees relating to a proposed
strategic alliance. Cash payments in 1998 included acquisitions of roll-trailer
and computer equipment of $1.6 million and $1.1 million respectively. Cash
receipts in 1998 included $1.1 million in respect of container equipment to a
third party container owner.

        Cash from Financing Activities. The Company uses cash from financing
activities to fund capital acquisition requirements and short-term purchasing
requirements of new containers held for resale. Net cash provided by financing
activities was $95.1 million in 1996. Net cash used by financing activities was
$26.7 and $19.0 million in 1997 and 1998, respectively. Included in the net cash
provided in 1996 was $2.1 million in net proceeds from the exercizing of options
on 243,000 shares by the underwriters following the Company's Public Offering.
In 1998, net cash used by financing activities included $22.1 million of debt
and capital lease repayments from operating cash.

        Capital Resources

        In 1993, the Company entered into a Credit Agreement with a group of
banks for which Fleet Bank, N.A. acts as Agent. This Credit Agreement, as
subsequently amended, is herein called the "Bank Facility". All borrowings under
the Bank Facility are secured by container equipment purchased with funds drawn
under it. The Bank Facility imposes certain financial covenants on the Company,
including requirements not to exceed a specific leverage ratio and to maintain a
minimum consolidated tangible net worth, a minimum debt service coverage ratio,
a fixed charge coverage ratio and other earnings related covenants.

        An Amended and Restated Credit Agreement was executed in June 1997,
subject to various actions being taken by the Company including the provision of
additional collateral. This Agreement was further amended in July 1997 and
converted the facility to a term loan, payable in instalments, with a final
maturity date of May 31, 1998. This Agreement was again amended in December 1997
to amend the covenants relating to maintenance of various financial ratios.

        The Company did not repay the Bank Facility at the amended maturity date
of May 31, 1998. On June 30, 1998, the Company entered into a Third Amendment to
the Bank Facility (the "Third Amendment"). Under the Third Amendment, the
remaining principal amount of approximately $36.8 million was to be amortized in
varying monthly instalments, beginning July 31, 1998 and ending January 8, 1999,
including a payment of approximately $27.2 million on September 30, 1998. These
instalments were subject to acceleration upon the occurrence of an event of
default. Interest was payable monthly at a rate per annum equal to 2.5% over the
higher of (i) Fleet Bank's prime rate or (ii) the Federal Funds Rate plus 50
basis points. Also, under the Third Amendment, the Company agreed to provide the
Banks with a security interest in certain shares of Transamerica Corporation
when they are released to the Company under a 1996 escrow agreement. See Note 9
to the 1998 Consolidated Financial Statements.

        The principal payments due under the Third Amendment on September 30,
1998 and January 8, 1999 were not made. The balance outstanding on the facility
at December 31, 1998 was $33.1 million. In the first three months of 1999, the
Group repaid $7.3 million of the Bank Facility leaving an outstanding balance of
$25.8 million. In March 1999, the Company and the Banks entered into a
Forbearance Agreement and Fourth Amendment to the Bank Facility with a final
maturity date of September 1999 and with varying principal payments due between
April and September. The Fourth Amendment became effective as of March 31, 1999
subject to the satisfaction thereafter of various conditions.

        In connection with the July 1997 amendment, the Company assigned to the
Banks as additional collateral certain promissory notes of Mr Palatin, together
with certain shares of the Company's stock that had been pledged



The Cronos Group                                                              23
<PAGE>   27

by Mr Palatin as collateral for the promissory notes. See Note 14 to the
Company's 1998 Consolidated Financial Statements. Mr Palatin has defaulted on
these notes and the Banks have notified the Company of their intention,
depending on market conditions, to exercize their rights to sell all or part of
1,463,636 shares under the collateral assignment in order to satisfy, to the
extent of the net proceeds, Mr Palatin's obligations under these notes. Any
resulting payments on these notes will reduce the Company's obligations under
the Bank Facility.

        In December 1994 the Company borrowed $20.0 million under a Note
Purchase Agreement with Sun Life Insurance Company of America ("Sun").
Initially, the loan became due and payable in equal quarterly instalments ending
January 2003. However, during 1997 the Company was not in compliance with a
financial ratio covenant, and on November 1, 1997, the Agreement was amended, in
exchange for a waiver, to provide that the loan would become due and payable on
May 31, 1998. The Company did not repay the $13.9 million balance of the loan on
that date. In July 1998, the Company agreed and executed an Amendment to the
Note Purchase Agreement with the current holders of the Notes (as assignees of
Sun). Under the Amendment, 70% of the principal amount became due and payable on
September 30, 1998 and the balance on January 31, 1999. Prepayments were
required in the event of certain issuances of stock, sales of assets or
refinancings by the Company. Interest was payable monthly at the Citibank, N.A.
prime rate plus 2%.

        The Company did not make the principal payments due on September 30,
1998 and January 31, 1999 and the balance outstanding under the facility at
December 31, 1998 was $13.9 million. A second Amendment to the Note Purchase
Agreement has been executed in January 1999 which extends the final maturity
date to September 1999 and also provides for interim principal payments to be
made in April and July. $1.2 million was repaid in February 1999 in lieu of the
April payment.

        In March 1999, the Company agreed an amendment to a $20.0 million short
term revolving credit facility which had a maturity date of March 31, 1999,
under which $10.3 million was outstanding at December 31, 1998. The amendment
converted the facility to a short term loan with a final maturity date of
November 1999 and with varying principal payments due between April and
November.

        The directors believe they are taking the necessary action to secure
alternative sources of finance and believe that refinancing will be arranged to
meet the Company's amended payment obligations.

        Excluding the Bank Facility and the Sun Life Notes, as of December 31,
1998, the Company had total debt outstanding of $101.5 million secured by
specific containers and the headquarters of the Company's container leasing
operations. During the year ended December 31, 1998, interest rates on this debt
ranged from 6.6% to 9.8% and as of December 31, 1998, the debt bore an average
interest rate of 8.3% per annum. To the extent these facilities include
financial covenants, they are generally less restrictive than those imposed
under the Bank Facility. At December 31, 1998 the Company was not in compliance
with various financial covenants with various lenders. Waivers of the covenant
breaches have been received.

        The Company manages equipment for third-party container owners and also
owns containers. Managed container programs have allowed the Company to expand
its fleet significantly without the capital expenditures required for container
ownership. Although container ownership may be more profitable for the Company
than the managed container programs over the life of the container, the managed
programs provide the company with revenue that is less sensitive to declines in
utilization and per diem rates.

        Capital Expenditures and Commitments

        Capital expenditures for containers in 1996, 1997 and 1998 were $142.6
million, $38.7 million and $1.8 million, respectively. Other capital
expenditures in 1996, 1997 and 1998 were $0.7 million, $0.6 million and $1.1
million, respectively. During the year ended December 31, 1996, the Company
advanced $5.5 million to the then Chairman of the Group, of which $5.5 million
was outstanding as of December 31, 1996. In January 1997, the Company advanced a
further $3.7 million. As at December 31, 1997, no payments had been received
against these loans. See Item 13 -- "Certain Relationships and Related
Transactions" and Note 21 of the Notes to the 1998 Consolidated Financial
Statements. In October 1996, $1.5 million was placed into an escrow account,



The Cronos Group                                                              24
<PAGE>   28

purportedly in respect of professional fees relating to a proposed strategic
alliance. This alliance did not take place and the escrow funds were released to
the Company in January 1997. See Item 13 -- "Certain Relationships and Related
Transactions " below and Note 21 to the 1998 Consolidated Financial Statements.

        The Company intends to refinance $47.7 million of amounts due under the
Bank Facility and the Company's other credit facilities by securing new term
debt financing and new investments by managed container owners. See "Liquidity
and Capital Resources - Capital Resources" above and Note 14 to the 1998
Consolidated Financial Statements. Until the refinancing has been completed,
there is substantial doubt that the Company will be able to continue as a going
concern.

        YEAR 2000

        The Company's computer systems are currently undergoing modifications in
order to render the systems ready for the year 2000. The Company has completed a
detailed inventory of all software and hardware systems and has identified all
components which need to be modified. The Company has completed all the
necessary changes and is now performing the required tests in a dedicated year
2000 environment. The Company anticipates that all testing will be completed by
mid 1999. The company has contacted all of its critical business suppliers and
has been advised that their systems are year 2000 compliant. Expenses associated
with addressing the year 2000 issues are being recognized as incurred.
Management has not yet assessed the year 2000 compliance expense but does not
anticipate the costs incurred to date or to be incurred in the future to be in
excess of $0.5 million. The Company believes it will be able to resolve any
major year 2000 issues.

        The company is aware of the implications of a year 2000 computer system
failure and is currently in the process of developing its contingency plans.
Whilst management believe the possibility of a year 2000 system failure to be
remote, if the Company's internal systems, or those of its critical business
suppliers fail, the Company's consolidated financial position, liquidity or
results of operations may be adversely affected.

        The company has assessed the introduction of a single European Currency,
the Euro, and believes that it will not be materially affected. In the past, the
effects of inflation on administrative and operating expenses have been largely
offset by the Company's ability to increase the operational economies of scale
through expansion of the fleet.

        INFLATION

        Management believes that inflation has not had a material adverse effect
on the Company's results of operations.

ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        This item should be read in conjunction with and by reference to Note 15
of the notes to the 1998 Consolidated Financial statements.

        Interest rate risk: outstanding borrowings are subject to interest rate
risk. At December 31, 1998 65% of total borrowings had floating interest rates.
The Company performed an analysis of borrowings with variable interest rates to
determine their sensitivity to interest rate changes. In this analysis, the same
change was applied to the current balance outstanding leaving all other factors
constant. It was found that if a 10% increase was applied to market rates, the
expected effect would be to reduce annual cash flows by $0.8 million.

        Exchange rate risk: substantially all of the Company's revenues are
billed and paid in U.S. dollars and approximately 79% of costs in 1998 were
incurred and paid in U.S. dollars. Of the remaining costs, approximately 81% are
individually small, unpredictable and incurred in various denominations and thus
are not suitable for cost effective hedging. From time to time, Cronos hedges a
portion of the expenses that are predictable and are principally in U.K. pounds
sterling. In addition, almost all of the Company's container purchases are paid
for in U.S. dollars.



The Cronos Group                                                              25
<PAGE>   29

        As exchange rates are outside of the control of the Company, there can
be no assurance that such fluctuations will not adversely effect its results of
operations and financial condition. By reference to 1998, it is estimated that
for every 10% fall in value of the US dollar, the effect would be to reduce cash
flows by $1.9 million in any similar year.

ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed in this Item 8 are set forth herein beginning on
page F1.

Report of Independent Public accountants

Consolidated Balance Sheets - At December 31, 1997 and 1998

Consolidated Statements of Income for the Years Ended December 31, 1996, 1997
and 1998

Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1996, 1997 and 1998

Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1997 and 1998

Notes to Consolidated Financial Statements

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

        In February 1997, as reported in the Company's Form 6-K, Arthur Andersen
resigned as auditors to The Cronos Group and its subsidiaries and related
partnerships. See Item 3 -"Legal Proceedings".

        Arthur Andersen did not permit the inclusion of their audit report to
the 1995 Consolidated Financial Statements for The Cronos Group in the form 20-F
for the year ended December 31, 1997.

        In April 1997, Moore Stephens were appointed as auditors to The Cronos
Group and its primary subsidiaries and related partnerships.

        In the Audit Report to the 1997 Consolidated Financial Statements, Moore
Stephens drew attention to the fact that The Cronos Group was negotiating the
refinancing of certain loans and was not in compliance with the terms of an
escrow agreement. Moore Stephens advised that this and other factors raised
substantial doubt that the Group would be able to continue as a going concern.

        In the Audit Report to the 1998 Consolidated Financial Statements, Moore
Stephens drew attention to the fact that The Cronos Group was negotiating the
refinancing of certain loans. Moore Stephens advised that these conditions raise
substantial doubt that the Group will be able to continue as a going concern.

        In addition, Moore Stephens drew attention to certain notes to the 1997
and 1998 Consolidated Financial Statements relating to Financing and
recomposition expenses, Items affecting fourth quarter results of operations,
Commitments and contingencies and Related party transactions. Moore Stephens
advised that allegations had been made which could result in the Group becoming
defendants in lawsuits alleging various financial improprieties in the operation
of certain third party Austrian investment entities and their sponsoring
companies.



The Cronos Group                                                              26
<PAGE>   30



                                    PART III

ITEM 10 -- DIRECTORS AND OFFICERS OF REGISTRANT

        Information required by this Item 10 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934. Information relating to the registrant's executive officers is set forth
on page 10 herein.

ITEM 11 -- EXECUTIVE COMPENSATION

        Information required by this Item 11 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934.

ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Information required by this Item 12 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Information required by this Item 13 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934.




The Cronos Group                                                              27
<PAGE>   31



                                     PART IV

ITEM 14 -- EXHIBITS, FINANCE STATEMENT SCHEDULES, AND REPORTS OF FORM 8K

<TABLE>
<CAPTION>
Number  Exhibit                                                                        Page
------  -------                                                                        ----
<S>     <C>                                                                            <C>
3.1     Coordinated Articles of Incorporation (designated in the Company's
        Annual Report on Form 20-F for the year ended December 31, 1997 (File
        No. 0-24464) as exhibit 1.1)
10.1    Amended and Restated Credit Agreement, dated as of June 24, 1997, by and
        among Cronos Containers N.V., Cronos Containers Ltd., Cronos Equipment
        Ltd., Cronos Containers Inc., Cronos Capital Corp., and Cronos Equipment
        (Bermuda) Limited, as joint and several borrowers, each of the banks
        that is or may become a party thereto, Fleet Bank, N.A., as agent for
        the banks, and The Cronos Group, as guarantor (the "Credit Agreement")
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.2)
10.2    First Amendment to the Credit Agreement, dated as of July 14, 1997
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.3)
10.3    Second Amendment to the Credit Agreement, dated as of December 3, 1997
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.4)
10.4    Third Amendment to the Credit Agreement, dated as of June 30, 1998
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.5)
10.5    Confirmation of Guaranties, Agreement and Power of Attorney by the
        Cronos Group, dated June 30, 1998, pertaining to the Credit Agreement.
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.6)
10.6    Deed in lieu of foreclosure relating to shares given as collateral to the
        Palatin loans.                                                                 E1
10.7    Forbearance Agreement and Fourth Amendment to Amended and Restated
        Credit Agreement dated March 31, 1999.                                         E6
10.8    Note Purchase Agreement among Cronos Equipment (Bermuda) Limited, The
        Cronos Group and Sun Life Insurance Company of America, dated as of
        December 29, 1994 (the "Sun Agreement") (designated in the Company's
        Annual Report on Form 20-F for the year ended December 31, 1997 (File
        No. 0-24464) as exhibit 1.7)
10.9    Amendment to the Sun Agreement, dated as of November 1, 1997 (designated
        in the Company's Annual Report on Form 20-F for the year ended December
        31, 1997 (File No. 0-24464) as exhibit 1.8)
10.10   Second Amendment to the Sun Agreement dated as of January 26, 1999.            E14
10.11   The Cronos Group Management Equity Investment Plan, dated as of
        July 25, 1994.                                                                 E22
10.12   Lambert Confirmation, Acknowledgement and Consent of Collateral Assignment     E39
10.13   Amendment to the Revolving Credit Facility between Cronos Containers
        Limited and China International Marine Containers (Group) Company
        Limited, dated March 24, 1999                                                  E43
10.14   Employment Agreement dated August 14, 1998, between Cronos and
        Eivind A Eriksen.                                                              E44
10.15   Employment Agreement dated January 24, 1996, between Cronos and
        Stephan M Palatin.                                                             E60
10.16   Employment Agreement dated May 20, 1998, between Cronos and Admico SA.         E69
10.17   Employment Agreement dated July 1, 1998, between Cronos and Peter J Younger.   E73
10.18   Employment Agreement dated August 25, 1998, between Cronos and
        Stephen J Brocato.                                                             E80
10.19   Employment Agreement dated December 11, 1998, between Cronos and
        Dennis J Tietz                                                                 E119
21.1    List of principal wholly-owned subsidiaries at December 31, 1998               E159
27.     Financial Data Schedule                                                        
</TABLE>



The Cronos Group                                                              28
<PAGE>   32



                                   SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        THE CRONOS GROUP


Date: April 8, 1999                     By:  /s/ D J Tietz
                                             Dennis J. Tietz
                                             Chairman of the Board and
                                             Chief Executive Officer

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

<TABLE>
<CAPTION>
SIGNATURE                           TITLE                               DATE
---------                           -----                               ----
<S>                                 <C>                                 <C>    
By    /s/ D J Tietz                 Chairman of the Board and           April 8, 1999
      Dennis J. Tietz               Chief Executive Officer
                                    (Principal Executive Officer)


By    /s/ P J Younger               Chief Financial Officer and         April 8, 1999
      Peter J. Younger              Chief Accounting Officer
                                    (Principal Financial and
                                     Accounting Officer)


By    /s/ C Tharp                   Director                            April 8, 1999
      Charles Tharp


By    /s/ M Taylor                  Director                            April 8, 1999
      Maurice Taylor


By    /s/ E O Nedelmann             Director                            April 9, 1999
      Ernst-Otto Nedelmann
</TABLE>







The Cronos Group                                                              29
<PAGE>   33



               THE CRONOS GROUP



               Consolidated financial statements December 31, 1998
               together with report of independent public accountants















                                                                             F-1
<PAGE>   34



Report of independent public accountants



To the Shareholders and Board of Directors of The Cronos Group:


We have audited the accompanying consolidated balance sheets of The Cronos Group
(a Luxembourg holding company) as of December 31, 1997 and 1998, and the related
consolidated statements of income, cash flows and shareholders' equity for the
three years ended December 31, 1996, 1997 and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Cronos Group as of December 31, 1997 and 1998 and the consolidated results of
their operations and their cash flows for the years ended December 31, 1996,
1997 and 1998 in conformity with generally accepted accounting principles in the
United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 14 to
the consolidated financial statements, The Cronos Group is currently negotiating
the refinancing of a loan of approximately $25.8 million, which had a final
maturity date of January 8, 1999 and loans of $12.7 million and $9.2 million
which have final maturity dates of September 30 and November 30, 1999,
respectively, to permit the realization of assets and the liquidation of
liabilities in the ordinary course of business. The Company cannot predict what
the outcome of the negotiations will be. These conditions raise substantial
doubt that the group will be able to continue as a going concern. Management
plans in respect of this matter are also described in note 14. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

We draw attention also to notes 1r, 3, 17 and 21 in the financial statements.
Allegations have been made which may result in the Group becoming defendants in
lawsuits alleging various financial improprieties in the operation of certain
third party Austrian investment entities and their sponsoring companies.


/s/ Moore Stephens


Moore Stephens
St. Pauls House
Warwick Lane
London EC4P 4BN

April 8, 1999




                                                                             F-2
<PAGE>   35






THE CRONOS GROUP

Consolidated income statements
For the years ended December 31, 1996, 1997 and 1998 (US dollar amounts in
thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                   Notes     1996         1997           1998

<S>                                                 <C>    <C>          <C>            <C>      
GROSS LEASE REVENUE                                        $154,011     $ 160,848      $ 157,546
Commissions, fees and other operating income:
- US Limited Partnerships                                     1,941         1,384          1,347
- other related parties                             21          132            20             --
- unrelated parties                                           5,387         4,141          3,608
Interest income:
- other related parties                             21          460           824             --
- unrelated parties                                             873           861          1,154
Equity in earnings of affiliates                              1,397            --             --
Gain on conversion of investment in affiliate:
- realized                                           9        1,621           321             --
- unrealized                                         9        3,639            --             --
                                                           --------     ---------      ---------
TOTAL REVENUES AND NON-OPERATING INCOME                     169,461       168,399        163,655
                                                           --------     ---------      ---------

Direct operating expenses                                    34,535        34,217         35,318
Payments to container owners:
- US Limited Partnerships                                    40,338        36,478         31,922
- other related parties                             21        3,985            --             --
- unrelated parties                                          28,571        37,467         43,605
Amortization of intangible assets                   11          489           742            683
Depreciation                                                 13,769        18,291         18,031
Selling, general and administrative expenses                 23,834        22,683         21,164
Financing and recomposition expenses                1r        2,149         7,384          5,375
Interest expense                                             11,368        17,758         15,718
Provision against amounts receivable from           21           --         4,733             --
related parties
Provision against available for sale securities     3, 9         --            --          1,500
Impairment losses                                   1u, 3        --        11,668          6,500
                                                           --------     ---------      ---------
TOTAL EXPENSES                                              159,038       191,421        179,816
                                                           --------     ---------      ---------
EARNINGS (LOSS) BEFORE INCOME TAXES                          10,423       (23,022)       (16,161)
Income taxes                                         4        2,441            --            306
                                                           --------     ---------      ---------
NET INCOME (LOSS)                                             7,982       (23,022)       (16,467)

Other comprehensive income, net of tax:
Unrealized holding gain (loss) on available for
sale security                                        9           --         1,159         (1,159)
                                                           --------     ---------      ---------
COMPREHENSIVE INCOME (LOSS)                                $  7,982     $ (21,863)     $ (17,626)
                                                           ========     =========      ========= 
EARNINGS (LOSS) PER COMMON SHARE (BASIC
AND DILUTED)                                               $   0.90     $   (2.60)     $   (1.86)
                                                           ========     =========      ========= 
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.




                                                                             F-3
<PAGE>   36

THE CRONOS GROUP

Consolidated balance sheets
December 31, 1997 and 1998

(US dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                             Notes            1997         1998
<S>                                                          <C>          <C>          <C>   
ASSETS
Cash and cash equivalents                                                 $ 14,455     $  9,281

Amounts due from lessees (net)                               1j, 5          40,383       33,215

Amounts receivable from container owners, including
amounts due from related parties of $7,311 and $7,738
at December 31, 1997 and 1998, respectively                    6             8,402       10,265

New container equipment for resale                             7             8,202          315

Net investment in direct financing leases, including
amounts due within twelve months of $1,726 and $1,365 at
December 31, 1997 and 1998, respectively                       8             4,991        3,504

Investments, including investments in related parties of
$220 and $55 at December 31, 1997 and 1998, respectively      3, 9           4,282        1,458

Container equipment, net of accumulated depreciation of
$44,980 and $59,640 at December 31, 1997 and 1998,
respectively                                                  3, 10        192,766      168,243

Property and other equipment, net of accumulated
depreciation of $9,040 and $10,139 at December 31, 1997
and 1998, respectively                                                      16,141       13,273

Intangible assets                                             3, 11         14,771       14,088
Other amounts receivable from related parties (net)            21            5,500        5,500
Other assets including prepayments                             12           17,252       20,837
                                                                          --------     --------
TOTAL ASSETS                                                              $327,145     $279,979
                                                                          ========     ========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.





                                                                             F-4
<PAGE>   37

THE CRONOS GROUP

Consolidated balance sheets (continued)
December 31, 1997 and 1998

(US dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                             Notes            1997        1998
<S>                                                          <C>          <C>          <C>   
LIABILITIES AND SHAREHOLDERS' EQUITY

Amounts payable to container owners, including amounts
payable to related parties of $15,484 and $13,287 at
December 31, 1997 and 1998, respectively                       13         $ 31,020     $ 31,314

Amounts payable to container manufacturers                                   7,594          101

Other amounts payable and accrued expenses                                  20,066       23,159

Debt and capital lease obligations, including amounts
due within twelve months of $82,717 and $87,271
at December 31, 1997 and 1998, respectively                    14          171,399      148,466

Income taxes                                                                 3,487        3,110

Deferred income taxes                                           4            4,832        4,975

Deferred income and unamortized acquisition fees               16           15,034       12,767
                                                                          --------     --------
TOTAL LIABILITIES                                                          253,432      223,892
                                                                          --------     --------

Commitments and contingencies                                  17               --           --

SHAREHOLDERS' EQUITY

Common shares, par value $2 per share (25,000,000 shares
authorized; shares issued and outstanding, 8,858,378)          18           17,717       17,717

Additional paid-in capital                                   18,20          49,154       49,108

Share subscriptions receivable                                 19             (169)        (123)

Accumulated other comprehensive income                          9            1,159           --

Retained earnings

- restricted                                                   20            1,772        1,772

- unrestricted                                                               4,080      (12,387)
                                                                          --------     --------
TOTAL SHAREHOLDERS' EQUITY                                                  73,713       56,087
                                                                          --------     --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                $327,145     $279,979
                                                                          ========     ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.





                                                                             F-5
<PAGE>   38

THE CRONOS GROUP

Consolidated statements of cash flows
For the years ended December 31, 1996, 1997 and 1998

(US dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                      Notes         1996       1997        1998
<S>                                                    <C>     <C>         <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                              $   7,982   $(23,022)   $(16,467)
Adjustments to reconcile net income to net cash
provided by operating activities:
- impairment losses                                     3             --     11,668       6,500
- provision against available for sale securities       3             --         --       1,500
- depreciation and amortization of intangible assets              14,258     19,033      18,714
- increase (decrease) in unamortized acquisition fees                305     (1,322)     (1,907)
- provision for losses on accounts receivable                      1,080      2,245       4,062
- (gain) loss on disposal of fixed assets                           (582)       129          (1)
- gain on conversion of investment in affiliate                   (5,260)      (321)         --
- share of undistributed income of affiliates                       (774)        --          --
- increase (decrease) in current and deferred
  income taxes                                                       482        837        (234)
- (increase) decrease in new container equipment                   6,425     (6,717)      7,887
  for resale
- (increase) decrease in amounts receivable:
  - US Limited Partnerships                                        2,096        458        (427)
  - other related parties                              21             --      3,909          --
  - unrelated parties                                             (7,240)    (5,327)         75
- increase (decrease) in amounts payable and
  accrued expenses:
  - US Limited Partnerships                                       (3,578)     1,902      (2,197)
  - other related parties                              21         (1,512)      (747)         --
  - unrelated parties                                              5,456    (23,369)     (2,266)
                                                               ---------   --------    --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                  19,138    (20,644)     15,239
                                                               ---------   --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of container equipment                                 (142,609)   (38,724)     (1,822)]
Purchase of property and other equipment                            (692)      (598)     (1,052)
Purchase of investment in related parties               9           (310)       (39)         --
Purchase of intangible asset                           11         (2,086)       (11)         --
Purchase of subsidiary undertaking (net of cash
  acquired)                                            11         (3,386)        --          --
Investment in finance lease equipment                   8        (26,419)    (2,443)         --
Issue of notes to related parties                      21         (2,000)    (3,700)         --
Proceeds from sales of container equipment                        36,419     61,495       1,155
Proceeds from sales of property and other equipment                   50         --         325
Proceeds from sale of investment                        9         19,288      1,953          --
Proceeds from sale of investment in finance lease
  equipment                                                           --     25,121          --
Repayment of note by related parties                   21            511      1,500          --
                                                               ---------   --------    --------
NET CASH (USED) PROVIDED FOR INVESTING ACTIVITIES               (121,234)    44,554      (1,394)
                                                               ---------   --------    --------
</TABLE>




                                                                             F-6
<PAGE>   39

THE CRONOS GROUP

Consolidated statements of cash flows (continued)
For the years ended December 31, 1996, 1997 and 1998

(U.S. dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                      Notes         1996       1997        1998
<S>                                                    <C>     <C>         <C>         <C>      
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of common shares                                 18          2,111         --          --
Share subscriptions received                                         134         --          --
Proceeds from issuance of term debt                              227,475     62,141       3,109
Repayments of term debt and capital lease
  obligations                                                   (139,589)   (93,874)    (22,128)
Cash deposits (restricted)                                         5,000      5,000          --
                                                               ---------   --------    --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES                  95,131    (26,733)    (19,019)
                                                               ---------   --------    --------
NET DECREASE IN CASH AND CASH EQUIVALENTS                         (6,965)    (2,823)     (5,174)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    24,243     17,278      14,455
                                                               ---------   --------    --------
CASH AND CASH EQUIVALENTS AT END OF YEAR                       $  17,278   $  14,455   $  9,281
                                                               =========   =========   ========

Supplementary disclosure of cash flow information:

Cash paid during the year for:
- interest                                                     $  11,099   $  17,605   $  16,402
- income taxes                                                     1,829         492         786

Cash received during the year for:
- interest                                                         1,129       1,272       1,092
- income taxes                                                       806       1,329         229

Non-cash investing and financing activities:
- container equipment acquired under capital lease                 4,999       4,143          --
- container equipment acquired but unpaid at December 31          27,426          --          --
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.





                                                                             F-7
<PAGE>   40

THE CRONOS GROUP

Consolidated statements of shareholders' equity
For the years ended December 31, 1996, 1997 and 1998

(US dollar amounts in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                          Accumulated
                                           Additional           Share           other     Retained
                                  Common      paid-in   subscriptions   comprehensive     earnings       Retained          Total
                                  shares      capital      receivable          income   restricted       earnings  shareholders'
                                (note 18)    (note 20)       (note 19)        (note 9)    (note 20)  unrestricted         equity

<S>                              <C>          <C>               <C>            <C>          <C>          <C>             <C>    
BALANCE, DECEMBER 31, 1995       $17,231      $47,679           $(404)         $   --       $1,723       $ 19,120        $85,349
Net income                                                                                                  7,982          7,982
MEIP receipts                                                     134                                                        134
MEIP lapses                                       (27)             27                                                         --
Issue of common shares               486        1,625                                                                      2,111
Transfer to legal reserve                         (49)                                          49                            --
                                 -------      -------           -----          ------       ------       --------        -------
BALANCE, DECEMBER 31, 1996        17,717       49,228            (243)             --        1,772         27,102         95,576
Net loss                                                                                                  (23,022)       (23,022)
MEIP lapses                                       (74)             74                                                        --
Unrealized holding                                                                                                    
gain on available                                                                                                     
for sale security                                                               1,159                                      1,159
                                 -------      -------           -----          ------       ------       --------        -------
BALANCE, DECEMBER 31, 1997        17,717       49,154            (169)          1,159        1,772          4,080         73,713
Net loss                                                                                                  (16,467)       (16,467)
MEIP lapses                                      (46)              46                                                         --
Change in unrealized                                                                                                  
holding gain on available                                                                                             
for sale security                                                              (1,159)                                    (1,159)
                                 -------      -------           -----          ------       ------       --------        -------
BALANCE, DECEMBER 31, 1998       $17,717      $49,108           $(123)         $   --       $1,772       $(12,387)       $56,087
                                 -------      -------           -----          ------       ------       --------        -------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.







                                                                             F-8
<PAGE>   41

THE CRONOS GROUP

Notes to consolidated financial statements
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)  Nature of operations

The principal activity of The Cronos Group (the "Company") and its subsidiaries
(together, the "Group") is the leasing to ocean carriers of marine containers
which are owned either by third party container owners or by the Group.

The Group provides a worldwide service and, accordingly, has significant foreign
operations and assets in key shipping locations, particularly in the United
States, Europe and Asia.

The Group enters into agreements with third party container owners to manage the
leasing of their containers to ocean carriers. These agreements have taken two
principal forms. Under the first form, the Group organizes public limited
partnerships in the United States and purchases and manages containers on their
behalf. Under the second form, the Group enters into agreements with third
parties that provide for the Group to purchase and manage containers for such
third parties. Although the provisions of the agreements vary, they all permit
the Group to use the containers together with containers owned by the Group as
part of a single fleet, which the Group endeavours to operate without regard to
ownership. The Group has discretion over which ocean carriers, container
manufacturers and suppliers of goods and services it may deal with. Since the
agreements with container owners meet the definition of leases in Statement of
Financial Accounting Standards ("SFAS") No. 13, they are accounted for as leases
under which the container owners are lessors and the Group is lessee.

The terms of the agreements vary from 1 to 15 years. Containers generally have
an expected useful economic life of 12 to 15 years. The agreements generally
contain provisions which permit earlier termination under certain conditions
upon 60-90 days' notice. For the US Limited Partnerships, a majority of the
limited partners in a partnership can remove the general partner, thereby
terminating the agreement with the Group. Under the agreements with third
parties, the container owner can generally terminate the agreement if average
payments by the Group are less than a certain percentage (specified in each
agreement) of total capital invested. The Group believes that early termination
is unlikely in normal circumstances.

The agreements generally provide that the Group will make payments to the
container owners based upon the rentals collected from ocean carriers after
deducting direct operating expenses and the Group's management fee.
Substantially all payments to container owners are therefore contingent upon the
leasing of the containers by the Group to ocean carriers and the collection of
lease rentals. Minimum lease payments on the minority of agreements which have
fixed payment terms are disclosed in note 14(c). Substantially all payments to
container owners represent a percentage of the rentals collected from the ocean
carriers to whom containers are leased by the Group.

The Group also leases containers from lessors under capital leases. The cost and
book value of assets acquired under capital leases together with the minimum
lease payments representing interest and principal are shown in note 14.


<PAGE>   42

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

a)  Nature of operations (continued)

The Group leases containers to ocean carriers generally under master leases for
dry cargo containers and term leases (mostly 2 to 5 years) for refrigerated and
other specialized containers. Master leases do not specify the exact number of
containers to be leased or the term that each container will remain on hire but
allow the ocean carrier to pick up and drop off containers at various locations
specified in the lease agreement. Lease rentals, which are generally based upon
the number of containers used by the ocean carrier and the applicable per diem
rate, are therefore all contingent rentals. Receivables in respect of containers
on lease up to the end of an accounting period are included in the balance
sheet.

Since all future rentals are contingent on the number of containers used, there
are no minimum lease rentals applicable to master leases, and accordingly no
analysis of minimum lease rentals is provided in these financial statements.

Term leases provide the ocean carriers with specified container equipment
throughout the term of the lease. The rentals are based upon the number of
containers leased, the applicable per diem rate and the length of the lease,
irrespective of the number of days during which the ocean carrier actually uses
the containers. The minimum lease rentals for term leases are shown in note 5.

b)  Basis of accounting

The Group's accounting records are maintained in United States dollars and the
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States.

The financial statements for the year ended December 31, 1998 reflect compliance
with Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting
Comprehensive Income" and SFAS 131 "Disclosures about Segments of an Enterprise
and Related Information".

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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Generally accepted accounting principles also contemplate the continuation of
the Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business. The company is
presently involved in negotiations with regard to refinancing certain financial
obligations. Details of the anticipated arrangements are given in note 14.

In addition to the satisfactory renegotiation of certain financial obligations,
management is undertaking a restructuring program in order to reduce selling,
general and administrative expenses and increase operational efficiency. In this
regard a $2,000 financing and recomposition charge has been incurred in December
1998 (note 3(b) ii).


<PAGE>   43

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

b)  Basis of accounting (continued)

There can be no assurances that management's plans to secure adequate
refinancing will be successful. Should the group be unable to refinance its
loans, then the Directors will have to consider discontinuing the operation of
or selling the business. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
that the Company cannot continue in existence.

c)  Principles of consolidation

The Company is incorporated in Luxembourg.

The consolidated financial statements include the accounts of the Company and
its subsidiaries all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated on consolidation.

d)  Gross lease revenue

Gross lease revenue represents invoices to customers for operating leases of
marine containers excluding advance billings.

e)  Commissions, fees and other operating income

This comprises acquisition fees, syndication commissions, income on direct
financing leases, income from the Group's limited partner interest in US Limited
Partnerships and other income.

Acquisition fees represent amounts received and receivable from third party
container owners when the Group enters into an agreement and begins to manage
new container equipment on their behalf. They are generally non-refundable and
are amortized in the income statement on a straight-line basis over the period
of the agreements to which they relate.

Syndication commissions represent amounts earned on the sale of US Limited
Partnership interests and are recognized at the time of sale.

f)  Advertising costs

Advertising costs, included in selling, general and administrative expenses, are
expensed as incurred, and amounted to $290, $225 and $34 for the years ended
December 31, 1996, 1997 and 1998, respectively.

g)  Income taxes

Income taxes are accounted for using the asset and liability method. Under this
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying the statutory tax rate to the difference
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred income taxes of a change in tax
rates is recognized in income in the period of enactment.



<PAGE>   44

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

h)  Earnings per common share

Earnings per share data have been calculated in accordance with SFAS No. 128.

Basic earnings per share represent the amount of earnings for the period
available to each share of common stock outstanding during the reporting period
and have been calculated by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during each of the
periods.

Earnings per share have been computed based on a weighted average of 8,853,067,
8,858,378 and 8,858,378 common shares outstanding during the years ended
December 31, 1996, 1997 and 1998, respectively.

The fair value of the Group's common shares has been determined to be below the
average exercize price of options outstanding under the Management Equity
Investment Plan ("MEIP"). Accordingly there is no dilution caused by the MEIP.
However, the MEIP could potentially dilute basic earnings per share in the
future.

i)  Cash equivalents

Cash equivalents are highly liquid debt instruments purchased with original
maturities of three months or less. The carrying value approximates fair value.
Cash and cash equivalents are maintained in accounts which, at times, may exceed
federally insured limits. No losses have been experienced in such accounts and
management believes it is not exposed to any significant credit risk. The group
places its cash equivalents in investment grade, short term debt instruments and
limits the amount of credit exposure to any one commercial issuer.

j)  Amounts due from lessees

Amounts due from lessees represent gross lease revenue due from customers, less
allowance for doubtful accounts of $3,106 and $4,446 at December 31, 1997 and
1998, respectively. Allowance for doubtful accounts comprises specific amounts
provided against known potentially doubtful accounts plus a general allowance.
The general allowance was $639 and $600 at December 31, 1997 and 1998,
respectively. Invoices representing advance billings are included in both
Amounts due from lessees and Deferred income.

k)  New container equipment for resale

New container equipment for resale represents new containers purchased by the
Group with an intent to resell to third party container owners. Such sales are
usually made at original cost to the Group, and accordingly no gain or loss
arises. Where gains or losses on such sales occur, they are recognized at the
date of sale, because under the agreements with container owners the Group
retains less than substantially all of the remaining use of the containers. Such
gains are included within Commissions, fees and other operating income.

Containers not sold to container owners within six months of purchase are
transferred to the Group's long term ownership of container equipment.
Depreciation is then calculated from the original date of acquisition. The
amount of depreciation which would have been provided on container equipment for
resale, had it been transferred to long term ownership at the balance sheet
date, is immaterial to the Net income/(loss) in all periods presented.

Rentals received on new container equipment for resale are included within Gross
lease revenue. Container orders are placed with manufacturers based on the
identified level of internal and external financing and the projected capacity
in the leasing market.

<PAGE>   45

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

k)  New container equipment for resale (continued)

New container equipment for resale is stated at the lower of original unit cost
or net realizable value.

l)  Leases

i.  Group as lessor

Operating leases with customers. The Group enters into leases with customers,
principally as lessor in operating leases. Operating lease rentals are
recognized as gross lease revenue on the basis of invoices issued to customers
in accordance with the lease agreement.

Direct financing leases with customers. The Group has entered into direct
financing leases as lessor for container equipment owned by the Group. The net
investment in direct financing leases represents the receivables due from
lessees net of unearned income. Unearned income is amortized to give a constant
return on capital over the lease term.

ii. Group as lessee

Capital leases. Assets held under capital leases are initially reported at the
fair value of the asset categorized within container equipment, with an
equivalent liability categorized as capital lease obligations. The asset is
depreciated over its expected useful life. Finance charges are allocated to
accounting periods over the lease term in accordance with the actuarial method.

Operating leases. Payments by the Group to container owners are charged to the
income statement in each period based upon the amounts paid and payable under
the agreements with container owners, which generally are contingent upon the
lease rentals collected from ocean carriers, direct operating expenses and
management fees due to the Group in respect of the containers specified in each
agreement.

Other operating lease rentals are charged to the income statement on a
straight-line basis over the lease term.

m)  Investments, including investments in related parties

i.  Investment securities

Investment securities are classified as either available for sale or trading
securities. Available for sale securities are reported at fair market value with
unrealized gains and losses included in Stockholders' Equity as Accumulated
other comprehensive income. Trading securities are reported at fair market value
with unrealized gains and losses reported in earnings.

ii. Investment in US Limited Partnerships

Investment in US Limited Partnerships represents the Group's general and limited
partner interests in partnerships in which a subsidiary company, Cronos Capital
Corp., acts as a general partner. These are accounted for on the equity basis.


<PAGE>   46

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

m)  Investments, including investments in related parties (continued)

iii. Investments in affiliated companies

The investments in affiliated companies are stated at cost plus the Group's
equity in the undistributed earnings of the affiliates since the date of
acquisition or investment, less the amortization, where applicable, of the
excess of the purchase price over the fair value of net assets acquired
("goodwill"). Goodwill is amortized over an original period of 40 years.

n)  Container equipment

Container equipment is carried at cost less accumulated depreciation.
Depreciation is provided to write off the cost, less estimated residual value,
of containers, both owned by the Group and acquired under capital leases, on a
straight-line basis over their expected useful life.

Refrigerated container equipment is depreciated over a useful life of 12 years
to a residual value of 15%, with effect from January 1, 1998, following an
impairment review undertaken at December 31, 1997. Previously, refrigerated
container equipment was depreciated over a useful life of 15 years to a residual
value of 10%. The impact of the change in depreciation policy has been to
increase the depreciation charge for the year ended December 31, 1998 by $1,300
($0.15) per share.

Dry cargo and other specialized container equipment is depreciated over a useful
life of 15 years to a residual value of 10%.

o)  Property and other equipment

Property and other equipment are carried at cost less accumulated depreciation.
Depreciation is provided to write off the cost, less estimated residual value,
of each asset on a straight-line basis over its expected useful life.
Depreciation periods are as follows:

<TABLE>
<S>                                     <C>     
Properties                              50 years
Property improvements                   25 years
Other equipment                         3-7 years
Land is not depreciated.
</TABLE>


p)  Intangible assets

i.  Intermodal Equipment Associates

The intangible asset comprises the excess of the purchase price over the fair
value of the net assets ("goodwill") of Intermodal Equipment Associates, a
wholly owned subsidiary, acquired in 1990. Goodwill is amortized on a straight
line basis over an original period of 40 years. At December 31, 1997, an
impairment charge was recorded to write off part of the value of the intangible
asset (note 3) in accordance with SFAS 121.

ii. Intermodal Management AB & Intermodal Leasing AB (together "Interlease")

The intangible asset includes the goodwill acquired with the purchase of the
wholly owned subsidiary Intermodal Management AB and its subsidiary Intermodal
Leasing AB in August 1996. The acquired goodwill is amortized on a straight line
basis over a period of 40 years.




<PAGE>   47

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

p)  Intangible assets (continued)

iii. Cellular Palletwide Container (CPC) & Slimwall CPC patents

The Group acquired the patent rights relating to the Cellular Palletwide
Container ("CPC"), the Slimwall CPC and the intellectual property of Cargo Unit
Containers Limited ("CUC") in August 1996. The Group also acquired the business
of CUC which markets CPCs and controls the manufacturing licences for CPCs. The
goodwill acquired is amortized on a straight line basis over a period of 40
years. The cost of the patents is amortized on a straight line basis over a
period of between 4 - 40 years depending on the patent type as follows:


<TABLE>
<S>                                                              <C>  
              CPC patents                                        4 - 12 years
              Cargo Unit Containers Limited - patents            11 - 17 years
              Cargo Unit Containers Limited - trademark          40 years
</TABLE>

q)  Translation of foreign currencies

Substantially all the Group's revenue is denominated in US dollars as are a
significant proportion of total costs, including container purchases.
Accordingly, the functional currency of the Group is the US dollar, the currency
in which the financial statements are prepared.

Transactions denominated in other currencies are translated into US dollars and
recorded at the rate of exchange at the date of the transaction. Balances
denominated in other currencies are translated into US dollars at the rate of
exchange on the balance sheet date. Exchange differences arising are charged or
credited to the income statement.

r)  Financing and recomposition expenses

In 1996, costs, which were incurred and accrued by the Group in connection with
its initial public offering ("IPO") of common shares, were charged to Additional
paid-in capital and set off against the proceeds of the IPO, as shown in note
20.

In 1997, the Group made an adjustment of $3,400 in respect of a contingent
liability (note 17). This amount was included in Other amounts payable and
accrued expenses at December 31, 1997 and 1998, respectively.

In 1996, 1997 and 1998 the Group incurred and accrued costs in connection with
certain financing and other transactions, the restructuring of the Board of
Directors, senior management and other employee positions. Costs incurred and
accrued were charged to the income statement, where the Group determined that no
future benefit would be derived from such costs.








<PAGE>   48

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

s)  Management Equity Investment Plan ("MEIP")

Amounts received and receivable for the purchase of options under the
contractual arrangements of the MEIP are included within Additional paid-in
capital when the commitment is made by the key employee. Amounts receivable for
the purchase of options are offset against Share subscriptions receivable within
Shareholders' equity.

During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective for fiscal years beginning after December 15, 1995. The
Group continues to account for the MEIP under APB (Accounting Practices Board)
Opinion No. 25, "Accounting for Stock Issued to Employees" under which no
compensation cost has been recognized. As required by SFAS 123, the Group has
made the required disclosures in relation to proforma Net income/(loss) and
Earnings/(loss) per share, as shown in note 19.

t)  Financial instruments-derivatives

The Group enters into interest rate swap transactions from time to time to hedge
a portion of its exposure to floating interest rates. These transactions involve
the conversion of floating rates over the life of the transactions without an
exchange of underlying principal. The differential is accrued as interest rates
change and recognized as an adjustment to interest expense. The related amount
receivable from or payable to counterparties is included in accrued interest
expense. The fair values of the interest rate swaps are recognized in the
financial statements.

The Group enters into forward exchange contracts from time to time, typically
covering an average period of approximately 5 months, to hedge a portion of its
expenses, which are paid in U.K. Sterling. Realized and unrealized gains and
losses on foreign currency hedging transactions that are designated and
effective as hedges of firm identifiable foreign currency commitments are
deferred and recognized in income over the period of the hedged transaction. No
such transactions were undertaken during 1998.

The group has not entered into any speculative derivative contracts.

u)  Asset impairment

Certain long-term assets of the Group are reviewed when changes in circumstances
require as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". Management considers assets to be impaired if the carrying
value of the asset exceeds the future projected cash flows from related
operations (undiscounted and without interest charges). When impairment is
deemed to exist, the assets are written down to fair value or projected
discounted cash flows from related operations. Management also re-evaluates the
period of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. In accordance with SFAS 121, the
Group recorded impairment losses of $0, $11,668 and $6,500 for the years ended
December 31, 1996, 1997 and 1998, respectively (note 3).





<PAGE>   49

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

v)  New pronouncements

In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and how it is designated. A variable cash flow hedge of a forecasted
transaction is initially recorded as comprehensive income and subsequently
reclassified into earnings when the forecasted transaction affects earnings.
Gains and losses from foreign currency exposure hedges are reported in other
comprehensive income as part of the cumulative translation adjustment. Gains and
losses from fair value hedges are recognized in earnings in the period of any
changes in the fair value of the related recognized asset or liability or firm
commitment. Gains and losses on derivative instruments that are not designated
as a hedging instrument are recognized in earnings in the period of change. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999, and should not be applied retroactively to financial statements
for prior periods.

While the Company does enter into interest rate swaps to hedge a portion of its
exposure to floating interest rates and enters into forward exchange contracts
to hedge a portion of its expenses which are paid in U.K. Sterling, it does not
currently record its derivative instruments as assets or liabilities and does
not measure such instruments at fair value. The Company is assessing the impact
that SFAS No. 133 will have in accounting for its derivative transactions and
hedging activities.








<PAGE>   50

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


2   OPERATING SEGMENT DATA

Segment information is provided in the tables below:

<TABLE>
<CAPTION>
                                                                            Other
                                                       US Limited       container            Owned
                                                     Partnerships          owners       containers            Total
<S>                                                      <C>             <C>             <C>              <C>      
YEAR ENDED DECEMBER 31, 1996

Items directly attributable to operating segments:
 - gross lease revenue                                   $ 69,088        $ 48,218        $  36,705        $ 154,011
 - direct operating expenses                              (15,703)        (10,602)          (8,230)         (34,535)
                                                         --------        --------        ---------        ---------
   Net lease revenue                                       53,385          37,616           28,475          119,476
 - payments to container owners                           (40,338)        (32,556)              --          (72,894)

 - commissions, fees and other operating income             1,941           2,326            3,193            7,460
 - depreciation                                                --              --          (12,277)         (12,277)
 - interest expense                                            --              --           (8,978)          (8,978)
                                                         --------        --------        ---------        ---------
Operating profit before indirect items                     14,988           7,386           10,413           32,787

Indirect allocations:
 - interest income                                             --             225            1,108            1,333
 - depreciation                                              (669)           (467)            (356)          (1,492)
 - interest expense                                          (278)           (193)            (147)            (618)
 - selling, general and administrative expenses           (11,786)         (6,379)          (4,700)         (22,865)
                                                         --------        --------        ---------        ---------
Operating profit                                         $  2,255        $    572        $   6,318        $   9,145
                                                         ========        ========        =========        =========
Segment assets                                           $ 33,141        $ 17,754        $ 285,551        $ 336,446
Expenditure for segment assets                           $    439        $    307        $ 173,820        $ 174,566

YEAR ENDED DECEMBER 31, 1997

Items directly attributable to operating segments:

 - gross lease revenue                                   $ 61,235        $ 54,179        $  45,434        $ 160,848
 - direct operating expenses                              (14,153)        (11,377)          (8,687)         (34,217)
                                                         --------        --------        ---------        ---------
   Net lease revenue                                       47,082          42,802           36,747          126,631
 - payments to container owners                           (36,478)        (37,467)              --          (73,945)

 - commissions, fees and other operating income             1,384           1,919            2,242            5,545
 - depreciation                                                --              --          (16,686)         (16,686)
 - interest expense                                            --              --          (16,628)         (16,628)
 - impairment losses                                           --              --           (7,368)          (7,368)
                                                         --------        --------        ---------        ---------
Operating profit before indirect items                     11,988           7,254           (1,693)          17,549

Indirect allocations:
 - interest income                                             --             480            1,205            1,685
 - depreciation                                              (611)           (541)            (453)          (1,605)
 - interest expense                                          (315)           (279)            (234)            (828)
 - selling, general and administrative expenses            (8,878)         (6,028)          (5,109)         (20,015)
                                                         --------        --------        ---------        ---------
Operating profit                                         $  2,184        $    886        $  (6,284)       $  (3,214)
                                                         ========        ========        =========        ========= 
Segment assets                                           $ 29,429        $ 19,531        $ 221,925        $ 270,885
Expenditure for segment assets                           $    228        $    201        $  43,036        $  43,465
</TABLE>



<PAGE>   51

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


2   OPERATING SEGMENT DATA (CONTINUED)

<TABLE>
<CAPTION>
                                                                         Other
                                                    US Limited       container            Owned
                                                  Partnerships          owners       containers            Total
<S>                                                   <C>             <C>             <C>              <C>      
YEAR ENDED DECEMBER 31, 1998

Items directly attributable to operating segments:
 - gross lease revenue                                $ 54,677        $ 63,013        $  39,856        $ 157,546
 - direct operating expenses                           (12,820)        (14,325)          (8,173)         (35,318)
                                                      --------        --------        ---------        ---------
   Net lease revenue                                    41,857          48,688           31,683          122,228
 - payments to container owners                        (31,922)        (43,605)              --          (75,527)

 - commissions, fees and other operating income          1,347           2,349            1,259            4,955
 - depreciation                                             --              --          (16,403)         (16,403)
 - interest expense                                         --              --          (15,124)         (15,124)
 - impairment losses                                        --              --           (4,500)          (4,500)
                                                      --------        --------        ---------        ---------
Operating profit before indirect items                  11,282           7,432           (3,085)          15,629

Indirect allocations:
 - interest income                                          --             584              570            1,154
 - depreciation                                           (565)           (651)            (412)          (1,628)
 - interest expense                                       (206)           (238)            (150)            (594)
 - selling, general and administrative income           (7,884)         (7,023)          (4,516)         (19,423)
 - impairment losses                                      (694)           (800)            (506)          (2,000)
                                                      --------        --------        ---------        ---------
Operating profit                                      $  1,933        $   (696)       $  (8,099)       $  (6,862)
                                                      ========        ========        =========        ========= 
Segment assets                                        $ 23,872        $ 21,121        $ 183,822        $ 228,815
Expenditure for segment assets                        $    365        $    421        $   2,088        $   2,874
</TABLE>


Reconciliation of operating profit for reportable segments to earnings before
taxes:

<TABLE>
                                                                     1996            1997            1998
<S>                                                              <C>             <C>             <C>      
Operating profit                                                 $  9,145        $ (3,214)       $ (6,862)
Equity in earnings of affiliate                                     1,397              --              --
Gain on conversion of investment in affiliate                       5,260             321              --
Unallocated amounts:
 - interest expense                                                (1,772)           (302)             --
 - selling, general and administrative expenses                      (969)         (2,668)         (1,741)
Amortization of intangibles                                          (489)           (742)           (683)
Financing and recomposition expenses                               (2,149)         (7,384)         (5,375)
Provisions against amounts receivable from related parties             --          (4,733)             --
Provision against available for sale securities                        --              --          (1,500)
Impairment losses                                                      --          (4,300)             --
                                                                 --------        --------        --------
Earnings (loss) before income taxes                              $ 10,423        $(23,022)       $(16,161)
                                                                 ========        ========        ======== 
</TABLE>






<PAGE>   52

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


2   OPERATING SEGMENT DATA (CONTINUED)

Reconciliation of assets for reportable segments to total assets:

<TABLE>
<CAPTION>
                                               1996           1997           1998
<S>                                        <C>            <C>            <C>     
Total assets for reportable segments       $336,446       $270,885       $228,815
General corporate assets                     62,855         56,260         51,164
                                           --------       --------       --------
Total assets                               $399,301       $327,145       $279,979
                                           ========       ========       ========
</TABLE>


The segments shown above depict the different forms of agreements entered into
by the Group with third party container owners and represent different levels of
profitability and risk to the Group. Although there are a number of different
forms of agreements, they fall into two principal categories - those with US
Limited Partnerships and those with Other Container Owners. Owned containers are
those in which the Group has the risk of ownership and which are financed by the
Group's own capital resources, debt facilities and capital leases, and include
new container equipment for resale.

All revenues and expenses that are specifically identifiable to the containers
within each segment are allocated to that segment. The Group manages a number of
different container products, revenue details on which are given below.
Individual product revenues have been aggregated within the operating segments
reported. A significant portion of the selling, general and administrative
expenses relating to the operation of the entire container fleet is not
identified to segments. Since the Group operates the container fleet as a
homogenous unit, these expenses have been allocated on the basis of the gross
lease revenue in each segment.

Revenues from external customers by product comprised:

Gross lease revenue

<TABLE>
<CAPTION>
                                   1996           1997           1998
<S>                            <C>            <C>            <C>     
Dry cargo containers           $112,015       $117,094       $114,373
Refrigerated containers          34,808         32,675         29,901
Tanks                             5,245          7,054          8,269
Other container products          1,943          4,025          5,003
                               --------       --------       --------
Total                          $154,011       $160,848       $157,546
                               ========       ========       ========
</TABLE>

No single lessee accounted for 10% or more of total revenues in the years ended
December 31, 1996, 1997 and 1998, respectively.


Almost all of the Group's lease revenue is earned on containers used by its
customers in global trade routes. Accordingly, the Group believes that it does
not possess discernible geographic reporting segments as defined in Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information".





<PAGE>   53

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


3   ITEMS AFFECTING FOURTH QUARTER RESULTS OF OPERATIONS

In the fourth quarters of 1997 and 1998 the Group recorded asset impairment and
other charges, the aggregate of which was to reduce 1997 and 1998 net income by
$19,801 ($2.24 per share) and $11,500 ($1.30 per share), respectively. There
were no such charges in the fourth quarter of 1996.


a)  Impairment losses

In December 1997 and 1998, the Group recorded charges relating to the impairment
of certain long-lived assets as required by SFAS 121.


Impairment losses comprised:

<TABLE>
<CAPTION>
                                 1996          1997         1998
<S>                               <C>       <C>           <C>   
Container equipment               $--       $ 7,368       $4,500
Goodwill                           --         4,300           --
Property                           --            --        2,000
                                  ---       -------       ------
Total                             $--       $11,668       $6,500
                                  ===       =======       ======
</TABLE>

i.  Container equipment

In December 1997, in response to market information, management conducted a
review of the carrying value of refrigerated containers. The review concluded
that the carrying value of the equipment was greater than the undiscounted
future cash flows. In accordance with SFAS 121, an impairment loss of $7,368 was
recognized to record the assets at fair value. A study of refrigerated container
disposals was undertaken in order to determine fair value.

In December 1998, in response to proposed asset sales to third party container
owners, management concluded that the carrying value of certain refrigerated and
dry cargo containers was not recoverable. An impairment charge of $4,500 was
recognized to record the assets at fair value.

ii. Goodwill

At December 31, 1997 management concluded that the ability of the Group to
organize future public limited partnerships was impaired by the continuing SEC
investigation (note 17). Accordingly, a $4,300 impairment charge was recorded to
write off the element of the carrying value of the unamortized portion of
goodwill, relating to the acquisition of Intermodal Equipment Associates in
1990, attributed by the directors to the public limited partnership fund raising
capacity of the business.

iii. Property

In December 1998, management concluded that the carrying value of a property
exceeded fair value. An impairment charge of $2,000 was recorded to state the
asset at fair value in accordance with SFAS 121. Independent valuations were
used to determine fair value.


<PAGE>   54

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


3   ITEMS AFFECTING FOURTH QUARTER RESULTS OF OPERATIONS (CONTINUED)

b) Other adjustments

i. Related party loans and contingent liabilities

In December 1997, charges of $4,733 and $3,400 were made in respect of related
party loans (note 21) and contingent liabilities (note 17) respectively.


ii. Restructuring program

During 1998, the Group announced a restructuring program, which will reorganize
the Group's key activities into three divisions:

      - Leasing
      - Capital Markets and Investor Services
      - Finance and Administration

This program, which commenced in December 1998 will be substantially completed
by June 1999 and anticipates the termination of 15 employees. In December 1998,
the Group recorded a $2,000 Financing and recomposition charge in respect of
termination and related costs. The first phase of this program was implemented
in December 1998, with the internal replacement of the Chief Executive Officer
and with the redundancy of the Chief Operating Officer. In January and February
1999, the Group made termination payments totalling $220.

iii. Financing transactions

In December 1998, the Group made provision for $1,500 of fees in connection with
the extension of certain loan facilities. The fees, which are payable between
February and September 1999, were included in Other amounts payable and accrued
expenses at December 31, 1998.

iv. Available for sale securities

In February 1999, management was advised that there were claims outstanding
against certain of the Transamerica shares held in escrow (note 9ii and 9iii). A
provision of $1,500 has been made in this regard.


<PAGE>   55

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


4   INCOME TAXES

The provision for income taxes comprises:

<TABLE>
<CAPTION>
                                          1996           1997         1998
<S>                                    <C>            <C>               <C>
Current taxes:
Federal                                $(1,707)       $   585           $-
State                                     (149)             3           --
Withholding                                 23             --           --
Foreign                                 (1,386)           928          309
                                       -------        -------        -----
                                        (3,219)         1,516          309
                                       -------        -------        -----
Share of affiliate tax                     623             --           --
                                       -------        -------        -----

Deferred taxes:

Federal                                  1,942         (1,316)          (3)
State                                      157            (20)          --
Withholding                               (562)            37           --
Foreign                                  3,500           (217)          --
                                       -------        -------        -----
                                         5,037         (1,516)          (3)
                                       -------        -------        -----
Total provision for income taxes       $ 2,441        $    --        $ 306
                                       =======        =======        =====
</TABLE>

Differences between the provision for taxes that would be computed at the US
statutory rate and the actual tax provision were:

<TABLE>
<CAPTION>
                                                          1996           1997           1998
<S>                                                    <C>            <C>            <C>     
Expected US federal provision                          $ 3,418        $(7,827)       $(5,495)
Foreign income not subject to US corporate taxes        (2,630)         7,135          5,341
Tax impact of net loss carried forward                      --             --            516
State taxes (net of Federal tax benefit)                    19            (56)            --
Share of state and foreign taxes of affiliate               69             --             --
Foreign corporate taxes                                  2,099            711            309
Other foreign taxes                                         39             --             --
Tax on unremitted retained earnings of                    (562)            37             --
subsidiaries
Other                                                      (11)            --           (365)
                                                       -------        -------        -------
Actual tax provision                                   $ 2,441        $    --        $   306
                                                       =======        =======        =======
</TABLE>


<PAGE>   56

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


4   INCOME TAXES (CONTINUED)

Temporary differences giving rise to the net deferred income tax liability as of
the balance sheet date were:

<TABLE>
<CAPTION>
                                                                  1997           1998
<S>                                                            <C>            <C>    
Assets
Acquisition fees                                               $ 3,098        $ 3,098
Other                                                              165            197
                                                               -------        -------
Total deferred income tax assets                                 3,263          3,295
                                                               -------        -------

Liabilities
Depreciation                                                     7,932          8,327
Partnership income taxable in different periods for book         2,219          2,171
and tax purposes
Unremitted retained earnings of subsidiaries                       133            265
Losses carried forward                                          (2,189)        (3,723)
Adjustment for deferred tax allowances not recognized               --          1,230
                                                               -------        -------
Total deferred income tax liabilities                            8,095          8,270
                                                               -------        -------
Net deferred income tax liabilities                            $ 4,832        $ 4,975
                                                               =======        =======
</TABLE>

Tax losses have arisen in US entities. As of December 31, 1998 the deferred tax
asset associated with these losses carried forward will expire as follows:

<TABLE>
<S>                                                               <C>   
1999                                                              $   --
2000                                                                  --
2001                                                                  50
2002                                                                  75
2003                                                                  49
2004 and thereafter                                                3,549
                                                                  ------
Total                                                             $3,723
                                                                  ======
</TABLE>

The Group has a potential deferred income tax liability for tax arising on
unremitted retained earnings of certain subsidiaries. Upon remittance of such
earnings to the parent company, tax may be withheld by certain jurisdictions in
which the Group operates. The directors have considered the Group's remittance
intentions in arriving at the related provision for deferred income taxes. The
total potential amount of such deferred income taxes not provided at December
31, 1997 and 1998 was $422 and $303, respectively, based on unremitted earnings
for which provision has been made of $8,435 and $6,061 respectively.


<PAGE>   57

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


5   AMOUNTS DUE FROM LESSEES

Amounts due from lessees represent gross lease revenue due but not paid by ocean
carriers.


As of December 31, 1998 the minimum lease rentals collectable in future years
under term operating leases were:

<TABLE>
<S>                                                                   <C>    
1999                                                                  $24,838
2000                                                                   15,975
2001                                                                    8,661
2002                                                                    3,959
2003                                                                    2,716
2004 and thereafter                                                     1,988
                                                                      -------
Total                                                                 $58,137
                                                                      =======
</TABLE>


6   AMOUNTS RECEIVABLE FROM CONTAINER OWNERS

Amounts receivable from container owners comprise:


<TABLE>
<CAPTION>
                                                            1997          1998
<S>                                                       <C>          <C>    
Amounts due from unrelated parties                        $1,091       $ 2,527
Amounts due from related parties
- US Limited Partnerships                                  7,311         7,738
                                                          ------       -------
                                                          $8,402       $10,265
                                                          ======       =======
</TABLE>


7   NEW CONTAINER EQUIPMENT FOR RESALE

Activity during the year in new container equipment for resale was:

<TABLE>
<CAPTION>
                                                           1996          1997         1998
<S>                                                   <C>            <C>           <C>    
Beginning of year                                     $   7,910      $  1,485      $ 8,202
Container purchases                                     137,755        34,959          671
Container disposals
- sold to container owners                              (58,328)      (28,242)      (8,558)
- transferred to long term ownership of container
  equipment                                             (85,852)           --           --
                                                      ---------      --------      -------
End of year                                           $   1,485      $  8,202      $   315
                                                      =========      ========      =======
</TABLE>




<PAGE>   58

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


8   NET INVESTMENT IN DIRECT FINANCING LEASES

The Group, as lessor, has entered into various leases of equipment that qualify
as direct financing leases.

The minimum lease receivables under these direct financing leases, net of
unearned income, are collectable as follows:

<TABLE>
<CAPTION>
                              Net lease        Unearned       Total lease
                            receivables    lease income           rentals
<S>      <C> <C>                 <C>             <C>               <C>   
December 31, 1997                $4,991          $1,074            $6,065
                                 ======          ======            ======

December 31, 1998:

- 1999                           $1,365          $  430            $1,795
- 2000                            1,216             208             1,424
- 2001                              322              78               400
- 2002                              261              49               310
- 2003                              290              20               310
- 2004 and thereafter                50              --                50
                                 ------          ------            ------
Total                            $3,504          $  785            $4,289
                                 ======          ======            ======
</TABLE>


9   INVESTMENTS, INCLUDING INVESTMENTS IN RELATED PARTIES

Investments comprise:

<TABLE>
<CAPTION>
                                                            1997        1998
<S>                                                       <C>         <C>   
Investment in US Limited Partnerships                     $  220      $   55
Investment securities available for sale:
- cost                                                     2,903       1,403
- unrealized holding gain                                  1,159           -
                                                          ------      ------
                                                          $4,282      $1,458
                                                          ======      ======
</TABLE>


i. Investment in US Limited Partnerships

The Group has a general partnership investment and a further limited partnership
investment in ten sponsored funds. These general and limited partner investments
are accounted for on the equity basis. The subsidiary of the Company which acts
as a general partner maintains insurance against liability for bodily injury,
death and property damage for which a partnership may be liable, and may be
contingently liable for uninsured obligations of the partnerships.


<PAGE>   59

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


9   INVESTMENTS, INCLUDING INVESTMENTS IN RELATED PARTIES (CONTINUED)

ii. Investments in affiliated companies

The activity in the investments in affiliated companies was:

<TABLE>
<CAPTION>
                                                    1996      1997      1998
<S>                                             <C>            <C>       <C>
Beginning of year                               $ 17,691       $ 2       $--
Share of undistributed income for the year         1,002        --        --
Amortization of goodwill                            (228)       --        --
Disposal of investment                           (18,562)       --        --
Other                                                 99        (2)      $--
                                                --------       ---       ---
End of year                                     $      2       $--       $--
                                                ========       ===       ===
</TABLE>


As of December 31, 1995, the investments in affiliated companies comprised an
interest of approximately 24% in Trans Ocean Limited ("TOL"), a container
leasing company incorporated in Delaware, United States and an interest,
purchased in 1994 for $2, of approximately 49% in Hinderton Limited
("Hinderton"), a container investment company incorporated in the Isle of Man.

In 1996, following an Agreement and Plan of Merger between Transamerica
Corporation ("Transamerica") and TOL, the Group was entitled to receive 19.23
Transamerica shares for each TOL common share it held. Of these Transamerica
shares, the Group sold 251,882 in October 1996 for a consideration of $19,288.
The total gain on conversion of the TOL shares recognized in 1996 was $5,260, of
which $1,621 was realized.

Following the final determination of the initial escrow fund, 21,989 shares were
released to the Group and sold for a consideration of $1,953 in May 1997
resulting in a realized gain of $321. As of December 31, 1998, a further 47,196
shares remain held in escrow pending final determination of post-closing reports
and adjustments in 1999 (note 9iii).

In December 1996 the equity interest in Hinderton was exchanged for subordinated
debt, that was to earn interest equivalent to 50% of the net profit of
Hinderton. No interest has been earned in any of the periods presented. In 1998
the subordinated debt was assigned to Hinderton for a nominal consideration.

The Group has a management agreement covering the operation of containers owned
by Hinderton, under which management and acquisition fees are receivable. The
revenue earned with respect to this agreement was not material in any of the
periods presented.



<PAGE>   60

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


9   INVESTMENTS, INCLUDING INVESTMENTS IN RELATED PARTIES (CONTINUED)

iii. Investment securities

Investment securities: the available for sale balance of $1,403 represents
12,326 shares in Transamerica, which are on deposit in escrow accounts pending
resolution of withholding tax issues, following the conversion of the TOL shares
disclosed above, together with the estimated fair value of the additional 47,196
Transamerica shares held in escrow at December 31, 1998 (note 9ii). The Group
has agreed to provide a bank group with a security interest in respect of the
Transamerica shares when they are released to the Group (note 14(a)). The
estimated fair value of the shares is based on the number of shares anticipated
to be released from the escrow funds, valued at the closing rate at the balance
sheet date. In February 1999, the Group was advised that claims, which are being
challenged, have been made against the escrow funds, which hold the 47,196
shares, for amounts in excess of the value of the shares held. In this regard,
the Group recorded a charge to reduce the carrying value of the investment
securities by $1,500, in addition to which a charge of $1,159 has been incurred
in respect of an unrealized holding gain. There is a reasonable possibility that
the estimated realizable value of these shares could change within one year of
the date of these financial statements.

10  CONTAINER EQUIPMENT

The activity in container equipment for the years ended December 31, 1997 and
1998 was:

<TABLE>
<S>                                                                   <C>      
COST
Balance, December 31, 1996                                            $ 276,174
Additions                                                                42,867
Disposals                                                               (73,927)
Impairment loss (note 3)                                                 (7,368)
                                                                      ---------
Balance, December 31, 1997                                              237,746
Additions                                                                 1,822
Disposals                                                                (7,185)
Impairment loss (note 3)                                                 (4,500)
                                                                      ---------
Balance, December 31, 1998                                            $ 227,883
                                                                      =========
ACCUMULATED DEPRECIATION
Balance, December 31, 1996                                               33,831
Expense                                                                  16,686
Disposals                                                                (5,537)
                                                                      ---------
Balance, December 31, 1997                                               44,980
Expense                                                                  16,403
Disposals                                                                (1,743)
                                                                      ---------
Balance, December 31, 1998                                            $  59,640
                                                                      =========
BOOK VALUE
December 31, 1997                                                     $ 192,766
                                                                      =========
December 31, 1998                                                     $ 168,243
                                                                      =========
</TABLE>

The depreciation expense in 1996 was $12,601




<PAGE>   61

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


11  INTANGIBLE ASSETS

The activity in the intangible assets was: 

<TABLE>
<CAPTION>
                                    Patents        Goodwill            Total
<S>                                 <C>            <C>              <C>     
COST
Balance, December 31, 1996          $ 2,085        $ 20,119         $ 22,204
Additions                                11             412              423
Impairment loss (see note 3)             --          (4,300)          (4,300)
                                    -------        --------         --------
Balance, December 31, 1997            2,096          16,231           18,327
Additions                                --              --               --
                                    -------        --------         --------
Balance,  December 31, 1998         $ 2,096        $ 16,231         $ 18,327
                                    =======        ========         ========

ACCUMULATED AMORTIZATION
Balance, December 31, 1996          $    62        $  2,752         $  2,814
Expense                                 188             554              742
                                    -------        --------         --------
Balance, December 31, 1997              250           3,306            3,556
Expense                                 188             495              683
                                    -------        --------         --------
Balance,  December 31, 1998         $   438        $  3,801         $  4,239
                                    =======        ========         ========

BOOK VALUE
December 31, 1997                   $ 1,846        $ 12,925         $ 14,771
                                    =======        ========         ========

December 31, 1998                   $ 1,658        $ 12,430         $ 14,088
                                    =======        ========         ========
</TABLE>

The amortization expense in 1996 was $489.

i.  Goodwill

Goodwill arose on the acquisition in 1990 of Intermodal Equipment Associates and
the acquisition in 1996 of Intermodal Management AB. At December 31, 1997, the
Group recorded an impairment loss of $4,300 against the unamortized portion of
goodwill relating to the acquisition of Intermodal Equipment Associates.


The Group acquired Intermodal Management AB and its subsidiary Intermodal
Leasing AB in August 1996. Goodwill arose on the acquisition of $4,644 (1997 -
$412, 1996 - $4,232).


ii. Patents

The Group acquired the patent rights relating to the Cellular Palletwide
Container ("CPC") and the Slimwall CPC and the business of Cargo Unit Containers
Limited in August 1996. The total consideration paid for the patents and
business assets was $2,096.





<PAGE>   62

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


12  OTHER ASSETS

At December 31, 1998 other assets includes the following items:

i. In 1997 and 1998 non interest bearing loan notes of $6,766 and $539,
respectively, were received in part consideration for respective asset sales to
a third party container owner of $25,800 and $3,914. The loan notes fall due for
repayment after certain other loan notes due to third parties have been repaid
from funds generated from containers managed by the Group. It is anticipated
that the loan notes will not be repaid until 2006 at the earliest. The Group
owns one share of $1 in the third party container owner, which has a share
capital of $12,000 and has the option to acquire 75% of the container owning
company for $1 in August 2006.

ii. At December 31, 1997 and 1998 an amount of $1,598 was held in escrow in
connection with a container sale to a third party container owner during 1997
(note 17).

iii. Amounts of $3,613 and $3,704 were held as retention deposits by financial
institutions in connection with long term funding transactions at December 31,
1997 and 1998 respectively. These amounts will be released on dates between 2000
and 2005 in accordance with the terms of the funding transactions (note 14(a)).

iv. At December 31, 1997 and 1998 deposits of $743 and $4,450, respectively,
were held in escrow accounts in respect of amounts due to third party container
owners (note 17).

v. At December 31, 1997 and 1998 an amount of $793 was held in escrow in respect
of the sale in December 1996 of Cronos Investments B.V. (note 17).

13  AMOUNTS PAYABLE TO CONTAINER OWNERS

Amounts payable to container owners comprise:

<TABLE>
<CAPTION>
                                                          1997          1998
<S>                                                    <C>           <C>    
Amounts due to unrelated parties                       $15,536       $18,027
Amounts due to related parties:
- US Limited Partnerships                               15,484        13,287
                                                       -------       -------
                                                       $31,020       $31,314
                                                       =======       =======
</TABLE>


<PAGE>   63

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


14  DEBT AND LEASE OBLIGATIONS

Debt and capital lease obligations comprise:


<TABLE>
<CAPTION>
                                                           1997          1998
<S>                                                    <C>            <C>    
Debt
- long term                                            $ 66,038       $49,687
- current                                                77,648        74,820
Obligations under capital leases
- long term                                              22,644        11,508
- current                                                 5,069        12,451
                                                       --------      --------
                                                       $171,399      $148,466
                                                       ========      ========
</TABLE>


a)  Debt

Debt comprises:

<TABLE>
<CAPTION>
                                                           1997          1998
<S>                                                    <C>           <C>     
Long term debt:

Revolving credit                                       $ 16,189      $ 15,134
Term loans
- fixed rate                                             45,356        39,980
- variable rate                                          82,141        69,393
                                                       --------      --------
                                                        143,686       124,507
Less: current maturities of long term debt               77,648        74,820
                                                       --------      --------
                                                       $ 66,038      $ 49,687
                                                       ========      ========
</TABLE>

Bank loans are secured by the Group's container equipment and property, with
instalments payable through 2004 and with interest rates fixed or floating
dependent upon the facilities. The weighted average interest rates for the years
ended December 31, 1996, 1997 and 1998 were 8.1%, 8.5% and 9.0%, respectively.


The Group has entered into interest rate swap agreements to effectively fix the
rates on $20,625 of floating rate long term debt until 1999 (note 15).


As of December 31, 1998 the estimated fair value of fixed rate long term debt
was $37,625 (1997 - $46,946) for which the carrying value was $39,980 (1997 -
$45,356). The fair value of fixed rate long term debt has been calculated using
the market rates prevailing at December 31, 1998.





<PAGE>   64

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


14  DEBT AND LEASE OBLIGATIONS (CONTINUED)

a)  Debt (continued)

As of December 31, 1998 the Group had $133,332 of term facilities (including
capital lease financing) under which $133,332 was outstanding. In addition, as
of such date, the Group had available lines of credit of $27,500 under short
term revolving credit facilities, under which $15,134 was outstanding. Interest
rates under these facilities ranged from 6.6% to 10.2%. The terms of these
facilities extend to various dates up to 2005. In March 1999, the Group agreed
an amendment to a $20,000 short term revolving credit facility which had a
maturity date of March 31, 1999, under which $10,334 was outstanding at December
31, 1998. The amendment converted the facility to a short term loan with a final
maturity date of November 1999 and with varying principal payments due between
April and November. In the first three months of 1999, the Group made repayments
of $1,100.

The Group is subject to quarterly loan covenants which include financial
covenants relating to minimum tangible net worth, leverage, interest and fixed
charge coverage, earnings and debt service, and other covenants relating to the
filing of quarterly unaudited financial statements and annual audited financial
statements together with a limitation on dividend distributions to 35% of
retained earnings after tax.

At December 31, 1998 the Group was in breach of loan covenants relating to
interest coverage, fixed charge coverage, minimum tangible net worth, earnings
and debt service with five institutions representing 31% of debt and lease
obligations. Waivers have been received in respect of the breaches at December
31, 1998.

Following negotiations in 1997 with the banks providing the Group's primary
revolving credit facility, under which $73,500 was outstanding as of December
31, 1996, an Amended and Restated Credit Agreement was executed in June 1997,
subject to various actions being taken by the Group, primarily relating to the
provision of additional collateral. This Agreement was further amended in July
1997 and the provisions of the Agreement and its Amendment converted the
facility (the "Bank Facility") to a term loan, payable in instalments with a
final maturity date of May 31, 1998. The terms of the Agreement and its
Amendment also provided for additional security over shares in the subsidiary of
the Group that owns the head office of the Group's container leasing operations.
They also provided for the loans to Mr S M Palatin (a former Chairman and
director) of $5,900 and $3,700 to be restructured as obligations of Mr S M
Palatin to another subsidiary of the Group, together with the pledge to this
subsidiary company of 2,030,303 Common Shares beneficially owned by him in The
Cronos Group, as security for these loans (note 21). They further provided for
the assignment of these loans to the lending banks, together with the pledge of
1,000,000 shares and the assignment of the rights of the Group in respect of the
other 1,030,303 shares. The Group did not repay the Bank Facility at the amended
maturity date of May 31, 1998.

On June 30, 1998 the Group entered into a third amendment (the "Third
Amendment") to the Bank Facility. Under the Third Amendment, the remaining
principal amount of $36,800 was due to be amortized in varying monthly amounts
commencing on July 31, 1998 with $26,950 due on September 30, 1998 and a final
maturity date of January 8, 1999.

Under the Third Amendment, the Group agreed to provide the banks with a security
interest in certain shares of Transamerica Corporation when they are released to
the Group under a 1996 Escrow Agreement (note 9).


<PAGE>   65

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


14  DEBT AND LEASE OBLIGATIONS (CONTINUED)

a)  Debt (continued)

The principal payments due under the Third Amendment on September 30, 1998 and
January 8, 1999 were not made. The balance outstanding on the facility at
December 31, 1998 was $33,110. In the first three months of 1999, the Group
repaid $7,279 of the Bank Facility leaving an outstanding balance of $25,831.

In March 1999, the Group agreed a fourth amendment (the "Fourth Amendment") to
the Bank Facility under which, the final maturity date will be September 1999.
The Fourth Amendment became effective as of March 31, 1999 subject to the
satisfaction thereafter of various conditions, including the delivery of the
Group's audited financial statements for 1998, together with various legal
opinions and other loan documentation by April 15, 1999.

Prior to the agreement of the Fourth Amendment, the principal bank, under the
Bank Facility, secured title to 463,636 shares previously held by Lambert
Business Inc ("Lambert"). This is discussed more fully in note 21vii.

As at May 31, 1998, the Group owed $13,900 principal amount under a Note
Purchase Agreement which became due and payable on May 31, 1998. In July 1998,
the Group agreed and executed an Amendment to the Note Purchase Agreement with
the holders of the Notes under which 70% of the principal amount was due and
payable on September 30, 1998 and the balance on January 31, 1999. Neither of
these principal payments were made and the balance outstanding under the
facility at December 31, 1998 was $13,900. An amendment to the Note Purchase
Agreement has been executed in 1999 which extends the final maturity date to
September 1999 and also provides for interim principal payments to be made in
April and July. In February 1999, the Group made a $1,200 repayment, in lieu of
the April payment, leaving an outstanding balance of $12,700.

The directors are taking the necessary action to secure alternative sources of
finance and are confident that refinancing will be arranged to meet these
amended repayment obligations. Failure to meet revised lending terms would allow
the lenders to declare a default. The declaration of default would result in
further defaults with other lenders under loan agreement cross-default
provisions. Should a default of the term loans be declared, the Group may be
unable to continue as a going concern.

As of December 31, 1998, based, as management anticipates, on the satisfactory
implementation of the revised loan terms as outlined above, the annual
maturities of debt were:

<TABLE>
<S>                                                            <C>     
1999                                                           $ 74,820
2000                                                              7,217
2001                                                              7,179
2002                                                             12,496
2003                                                              7,345
2004 and thereafter                                              15,450
                                                               --------
Total                                                          $124,507
                                                               ========
</TABLE>



<PAGE>   66

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


14  DEBT AND LEASE OBLIGATIONS (CONTINUED)

b)  Capital lease obligations

The cost and net book value of assets acquired through capital leases was
$43,158 and $29,878, respectively, at December 31, 1998 ($43,341 and $31,303,
respectively, at December 31, 1997). Amortization in respect of these leases is
included in depreciation expense. The aggregate capital lease obligations are
secured by container equipment.

As of December 31, 1998, based, as management anticipates, on the satisfactory
implementation of the revised loan terms as outlined in 14(a) above, the minimum
lease payments under capital leases representing interest and principal were:

<TABLE>
<CAPTION>
                                                                  Capital lease
                                          Principal     Interest    obligations
<S>                                         <C>           <C>           <C>    
1999                                        $12,451       $1,147        $13,598
2000                                          2,050          803          2,853
2001                                          1,495          661          2,156
2002                                          1,776          545          2,321
2003                                          1,733          414          2,147
2004 and thereafter                           4,454          359          4,813
                                            -------       ------        -------
Total                                       $23,959       $3,929        $27,888
                                            =======       ======        =======
</TABLE>


c)  Operating leases

i.  Group as lessee

The Group leases container equipment, computer equipment and office space under
operating leases.

Rental expense for containers, substantially all of which is contingent as
described in note 1(a), is shown in the income statement as Payments to
container owners. Rental expense for those leases which carry fixed payment
terms was $3,829, $4,023, and $4,023 for the years ended December 31, 1996, 1997
and 1998, respectively.

Rental expense for computer equipment and office space was $1,595, $1,548 and
$1,593 for the years ended December 31, 1996, 1997 and 1998, respectively.

As of December 31, 1998, based, as management anticipates, on the satisfactory
implementation of the revised loan terms as outlined in 14(a) above, future
minimum lease payments under these non-cancellable operating leases were:

<TABLE>
<S>                                                            <C>    
1999                                                           $ 5,771
2000                                                             5,293
2001                                                             4,982
2002                                                             4,833
2003                                                             4,704
2004 and thereafter                                              6,717
                                                               -------
Total                                                          $32,300
                                                               =======
</TABLE>



<PAGE>   67

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


14  DEBT AND LEASE OBLIGATIONS (CONTINUED)

c)  Operating leases (continued)

ii. Group as lessor

The Group sub-leases containers to ocean carriers under operating leases, as
described in note 1(a). The Group also sub-leases office space and earned
revenue of $278, $88 and $211 for the years ended December 31, 1996, 1997 and
1998, respectively.

Rental income from sub-leasing containers owned by third party container owners
to ocean carriers was $117,306, $115,414 and $117,690 for the years ended
December 31, 1996, 1997 and 1998, respectively. These amounts are included in
Gross lease revenue in the income statement.

Future sub-lease rentals for containers leased under operating leases to ocean
carriers under non-cancellable term leases are included in the amounts shown in
note 5.

d)  Going concern

As indicated in note 1(b), these financial statements have been prepared on a
going concern basis which contemplates the realization of assets and settlement
of liabilities in the normal course of business. Negotiations for refinancing
are continuing and are detailed in this note. There can be no assurances that
management's plans to secure adequate refinancing will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.

15  FINANCIAL INSTRUMENTS-DERIVATIVES

The Group has entered into a limited number of interest rate swap agreements to
reduce the impact of changes in interest rates on its floating rate long term
debt. As of December 31, 1998 the notional principal amount outstanding under
these agreements was $20,625. The agreements were with major commercial banks
and expire in 1999.

The Group is exposed to credit risk in the event of non-performance by the other
parties to the interest rate swap agreements. The Group does not anticipate
non-performance by these counterparties.

As of December 31, 1998 the fair value of the agreements was a net payable of
$91 (1997 - $206), which is included in Other amounts payable and accrued
expenses, for which the carrying value was $20,625 (1997 - $24,269). The fair
value has been calculated using the market rate prevailing at December 31, 1998.

Interest expense includes charges in respect of interest rate swap agreements of
$223, $149 and $243 for the years ended December 31, 1996, 1997 and 1998
respectively.


<PAGE>   68

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


16  DEFERRED INCOME AND UNAMORTIZED ACQUISITION FEES

Deferred income and unamortized acquisition fees comprise:

<TABLE>
<CAPTION>
                                                          1997          1998
<S>                                                    <C>           <C>    
Advance billings                                       $ 3,041       $ 2,681
Unamortized acquisition fees                            11,993        10,086
                                                       -------       -------
                                                       $15,034       $12,767
                                                       =======       =======
</TABLE>


The recognition of unamortized acquisition fees is not contingent upon the
performance or continuation of any of the agreements to which they relate. On
the termination of an agreement, any unamortized fees are recognized
immediately. As of December 31, 1998 unamortized acquisition fees are scheduled
to be recognized as follows:

<TABLE>
<S>                                                                <C>    
1999                                                               $ 2,065
2000                                                                 1,933
2001                                                                 1,672
2002                                                                 1,273
2003                                                                 1,085
2004 and thereafter                                                  2,058
                                                                   -------
Total                                                              $10,086
                                                                   =======
</TABLE>


17  COMMITMENTS AND CONTINGENCIES (TO BE READ IN CONJUNCTION WITH NOTE 21)

i.  Commitments

At December 31, 1998 the Group had commitments under operating leases for office
space and equipment which were not material.

The group had no outstanding orders in respect of container equipment at
December 31, 1998.

ii. Contingencies - general

At December 1998, the Group had $1,598 held in escrow following the sale in
August 1997 of $15,974 of containers to an existing container owner. In March
1999, this amount was repaid to the Group in return for a corporate guarantee
under the terms of which the Group may be liable to pay $1,598 to the container
owner if a qualified audit opinion is issued for either of the years ended
December 31, 1998 and 1999, respectively.

The Group has deposited $360 in a bank account under the control of Austrian
Courts. This deposit is intended to fulfil liabilities regarding the operation
of certain containers once the proper recipients have been determined and is
discussed further in iv below.


<PAGE>   69

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


17  COMMITMENTS AND CONTINGENCIES (CONTINUED)

ii. Contingencies - general (continued)

The Group has deposited a further $4,090 in escrow bank accounts in order to
fulfil liabilities in respect of specified containers once certain issues have
been resolved. In February, 1999 the Group released $2,703 of the escrow
deposits. This matter is discussed further in iv below.

At December 31, 1998, Other assets included an amount of $793 which was held in
escrow, in respect of the sale in December 1996 of Cronos Investments B.V., the
release of which was dependant on the agreement of the 1992 to 1996 tax filings.
In February 1999 the Dutch tax authorities issued final assessments in respect
of these years. The Group received an initial payment of $619 and expects to
receive a further payment of $42 in final settlement of the escrow fund.

The Group does not believe it has any other contingent liabilities, other than
as disclosed in note 14 and as set forth below.

iii. Contingency - SEC investigation

In February 1997, as reported in the Company's Form 6-K, Arthur Andersen
resigned as auditors to The Cronos Group and its subsidiaries and related
partnerships. In connection with its resignation, Arthur Andersen also prepared
a report pursuant to Section 10A of the Securities Exchange Act 1934 ("the Act")
citing its inability to obtain what it considered to be adequate responses to
its enquiries primarily regarding the payment of $1,500 purportedly in
connection with an obligation to pay professional fees relating to a proposed
strategic alliance. This sum was returned to the Group in January 1997. See also
note 21 in this regard. To date current management has been unable to obtain an
adequate explanation of the facts and circumstances with respect to this payment
and its return.

The Securities and Exchange Commission ("SEC"), a United States regulatory
agency, subsequently commenced an investigation of the Company in or about
February 1997. The SEC's investigation could result in one or more of civil,
judicial and administrative proceedings against both the Company and certain
individuals, including the assessment of monetary penalties by the SEC against
the Company. Actions taken by the SEC do not preclude additional actions by any
other federal, civil, criminal authorities, by other regulatory organisations or
by other parties.

Based on the limited information available to it, the Company believes that the
investigation by the SEC may relate to possible violations of the federal
securities laws that could include but are not limited to the following
sections: S10b and Rule 10b-5 thereunder, of the Act, (pertaining to the
anti-fraud provisions); S10A of the Act, (pertaining to audit notification
requirements in the event the independent public accountant detects or otherwise
becomes aware of information indicating that an illegal act has or may have
occurred); S13(a) and 13(b) (2) (A) of the Act, (pertaining to the filing of
periodical and other reports with the SEC and pertaining to the implementation
of a system of internal accounting controls, respectively).

The SEC's investigation is still ongoing and some of the present and former
officers and directors and others associated with the Company have given
testimony. However, no conclusion of any alleged wrong doing by the Company or
any individual has been communicated to the Company by the SEC. Accordingly,
management has not reached a conclusion regarding any possible liability of the
Company.


<PAGE>   70

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


17  COMMITMENTS AND CONTINGENCIES (CONTINUED)

iv. Contingencies - Austrian allegations (see also note 21)

Since 1983, as described in the prospectus dated December 7, 1995, a subsidiary
company has managed containers for Austrian investment entities, including
limited and unlimited partnerships and companies, sponsored by companies owned
by Contrin Holding S.A., a Luxembourg holding company ("Contrin"), and for that
company itself. Mr S M Palatin has been a director of Contrin. During 1994,
ownership of the companies sponsoring these entities was transferred by Contrin
to Barton Holding Ltd, a Bahamian company, which has owned preferred shares in
the Company ("the former preferred shareholder"). Further details regarding
Barton Holding Ltd ("Barton") and transactions involving that company are given
in note 21.

Some participants in a number of the aforementioned Austrian investment entities
have made allegations to the Company and Austrian government authorities
regarding the conduct of the investment entities, the sponsoring companies and
companies alleged to be connected to Mr S M Palatin and regarding Mr S M Palatin
himself.

Firstly it is alleged, broadly, that not all container management income due to
participants in these investment entities ("third parties") has been received by
them.

In this connection, a bank account to which $360 was transferred by the Group,
following instructions which may have been falsified, regarding a purported cash
distribution to Austrian investment entities, is under the control of the
Austrian courts which will determine the recipients of the funds. Management
consider that no liability arises as a consequence of making this transfer as
the funds are under the control of the Austrian courts which will determine the
correct recipients of the funds. In March 1999, the Group together with the
Austrian investment entities have applied to the Austrian courts for the release
of the funds to the Austrian investment entities.

Moreover, Austrian courts have initiated investigations against Mr S M Palatin
and additional persons, including Mr R J Weissenberger, a former Chairman and
director, and Mr A Friedberg, a former director. Mr S M Palatin and Mr A
Friedberg have since been formally charged. Such investigations have not
resulted in any actions being taken against Mr R J Weissenberger and he has
informed the Company that he does not believe that there is any valid basis for
any such actions to be taken against him.

Management have been unable to obtain definitive information regarding the
relationships suggested in the allegations by the third parties.

Secondly, it is alleged that funds may have been remitted to the Group which
were not deposited in a Group bank account and are not reflected in the Group's
accounting records. Specifically, it is alleged that Mr S M Palatin acknowledged
receipt of funds in the amount of $2,600 during the year ended December 31,
1995, yet it appears that these funds were received into a non-Group bank during
the year ended December 31, 1994. Previous to these allegations, the Company's
current management was not aware of the receipt of the $2,600, nor was it aware
of Mr S M Palatin's acknowledgement. The Group has determined that a $400
distribution, to third party investors, was paid by the Group in December 1994,
into the same bank account into which the $2,600 was apparently deposited.
Management is investigating these allegations and is continuing to seek
definitive information regarding the non-Group bank account and the receipt and
disbursement of the $2,600.


<PAGE>   71

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


17  COMMITMENTS AND CONTINGENCIES (CONTINUED)

iv. Contingencies - Austrian allegations (continued)

Thirdly, claims relate to alleged transactions between third parties and
companies alleged to be connected to Mr S M Palatin, involving the purchase and
sale of containers in a manner designed to secure a tax mitigation advantage to
those third parties. It is alleged that sums remain owing to the third parties
by one or more of these companies in connection with the pre-arranged trading in
containers. It is the view of management that the Group was not involved in
these transactions, that the Group has no access to the records of the alleged
transactions and, so far as the Group has managed the containers, the Group has
acted in accordance with instructions from authorised representatives of the
third parties. Management has been unable to quantify the extent, if any, that
the Group might be held to be liable should the claims prove to be
substantiable. The mechanisms, if any, and jurisdictions for initiation of any
claims are also unclear.

Certain of the companies which have sponsored Austrian investment entities have,
under the terms of the relevant management agreement, arranged for examination
of Group records appertaining to the management of containers owned by those
investment entities. Some enquiries were made by representatives of the third
parties. Management is not aware of any unresolved issues in this respect.

In response to the actions taken by Contrin, the Group terminated certain of its
management agreements with Contrin entities in 1998. Discussions are taking
place between Contrin and the Group and it is anticipated that these agreements
will be reinstated.

Management consider that prudent provision has been made in these financial
statements for the matters in this connection. Details of the provision are
given in notes 1r and 3.

v.  Contingencies - Arbitration

Under the terms of the relevant management agreement an arbitration process was
commenced on or around February 1997 by one of the companies which had sponsored
Austrian entities in respect of distributions made, by the Group, through its
Austrian attorney. In December 1998, the arbitration panel found that the
management agreements with the Austrian investment entities were valid. The
Group has made provision for anticipated legal expenses arising from the
arbitration.

vi. Contingencies and commitments - overall

There is a reasonable possibility that a material change could occur in respect
of commitments and contingencies within one year of the date of these financial
statements.


<PAGE>   72

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


18  COMMON SHARES AND INITIAL PUBLIC OFFERING

The common shares of the Company are publicly traded on the National Association
of Securities Dealers Automated Quotation System (NASDAQ), following the
Company's initial public offering in December 1995.

As part of the initial public offering the underwriters were granted options at
$10 per share, exercizable by January 7, 1996, to purchase up to an additional
510,000 shares for the purposes of covering over-allotments. On January 7, 1996,
the underwriters exercized 243,000 of these options. The remaining 267,000
options lapsed.

During 1997 and 1998 there were no changes to the number of issued common
shares.

<TABLE>
<CAPTION>
                                                   1996            1997           1998
<S>                                           <C>             <C>            <C>      
Common shares outstanding:
At beginning of year                          8,615,378       8,858,378      8,858,378
New common shares issued                        243,000              --             --
                                            -----------       ---------      ---------
At end of year                                8,858,378       8,858,378      8,858,378
                                            ===========       =========      =========

Proceeds of the offering:
Sale price of shares issued                 $     2,430       $      --      $      --
Underwriting discounts and commissions             (170)             --             --
Expenses of issuance and distribution              (149)             --             --
                                            -----------       ---------      ---------
Net proceeds                                $     2,111       $      --      $      --
                                            ===========       =========      =========

</TABLE>


All common shares rank equally in respect of shareholder rights.

19  MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP")

In November 1994, the Group introduced the MEIP for key employees of the Group.
A total of 440,000 common shares have been reserved for issuance under the MEIP.
As of December 31, 1998 outstanding options to acquire 156,600 common shares
were held by 20 employees. The main terms of the plan are as follows:

i. The MEIP consists of option units comprising four separate options, each
option granting the right to the key employee to acquire an equal number of
common shares at four different exercize prices. The key employee must pay an
option price to acquire each option. The exercize price for each option was
determined at the date of grant.

ii. Each option vested 25% in the years ended December 31, 1995 and 1996,
respectively. Options may only be exercized in units of each of the four
options. At December 31, 1998 options were exercizable over 81,000 shares.



<PAGE>   73

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


19  MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP") (CONTINUED)

iii. Members of the MEIP may only exercize vested options within seven years of
November 25, 1994, the date of grant. No options were granted in 1996 and 1997.
Unexercized options will expire thereafter. As of December 31, 1998 unexercized
options have a remaining contractual life of 2 years, 11 months.

The granting of the options did not result in additional compensation for the
key employees who joined the plan for the year ended 31 December, 1998. As of
December 31, 1998, the options are estimated to have a nil value based on the
share price at that date and the exercize prices. Total compensation cost
recognized in the income statement for stock-based employee compensation was
nil.

As of December 31, 1998, outstanding unpaid options amounts to $123, included as
Share Subscriptions Receivable within Shareholders' Equity. The cost of each
option and the associated exercize price at the beginning and end of the current
period are as follows:

<TABLE>
<CAPTION>
                           Number          Number
                        of shares       of shares  Option price  Exercize price
                     at January 1  at December 31     Per share       per share
<S>                       <C>             <C>             <C>            <C>   
Option 1                   53,250          39,150         $1.43          $14.30
Option 2                   53,250          39,150         $1.56          $15.60
Option 3                   53,250          39,150         $1.69          $16.90
Option 4                   53,250          39,150         $1.82          $18.20
                          -------         -------
Total                     213,000         156,600
                          =======         =======
</TABLE>


The options purchased by key employees represent a potential ownership interest,
on a fully diluted basis, of 2.4% of common shares. Options over 56,400 shares
lapsed during the year as a result of eligible employees leaving the group.

20  RETAINED EARNINGS - RESTRICTED

On an annual basis, Luxembourg law requires appropriation of an amount equal to
at least 5% of Net income to a legal reserve until such reserve equals 10% of
the stated capital in respect of the outstanding common and preferred shares.
This reserve is not available for dividends. In 1995, following the sale of the
common shares in the initial public offering, an amount of $1,062 was
transferred from Additional paid-in capital to increase the legal reserve to the
required 10% of stated capital. A further amount of $49 was transferred from
Additional paid-in capital following the exercize of the underwriters options
and the issuance of 243,000 additional shares in January 1996 (note 18). At
December 31, 1997 and 1998, the legal reserve represented 10% of the stated
capital in respect of outstanding common shares. Accordingly, no appropriation
to the legal reserve was required for either year.



<PAGE>   74

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


21. RELATED PARTY TRANSACTIONS (TO BE READ IN CONJUNCTION WITH NOTE 17)

The Group had the following transactions with related parties during the three
years ending December 31, 1998:

i. In 1996 the Group had management agreements with a limited number of
companies in which Mr S M Palatin, or the former preferred shareholder, Barton
Holding Ltd ("Barton") held an interest. These agreements were entered into on
terms similar to other management agreements. The net revenue retained by the
Group with respect to these agreements approximated 1% of Total revenues.

ii. In December 1994, payments amounting to $500 were reported as a distribution
to third parties in Austria (see note 17). Subsequent investigations by
management indicate that, of this, a remittance of $400 was made to the bank
account that received the $2,600 referred to in note 17; management has
requested necessary information which may be subject to confidentiality
considerations of the jurisdiction. Current management have seen both
instructions and a receipt for this amount from an authorised representative of
the third parties and is continuing to seek definitive information regarding
title and conduct of this non-Group bank account.

iii. At December 31, 1995, other assets included a loan to a director of $511.
The loan carried interest at a rate of 10% and was repaid in the amount of $279
in January 1996 and the balance of $232 in September 1996.

iv. As part of organising the US public limited partnerships the Group purchases
containers for resale to these partnerships. For the years ended December 31,
1996, 1997 and 1998 containers amounting to $48,107, $2,623 and $0 respectively,
were purchased and resold. These transactions were entered into on normal
commercial terms.

v. During 1998, an ocean carrier in which a director of the Company was a non
executive director ceased trading. At December 31, 1998, a specific provision of
$553, representing the total amount due from the lessee of $1,153 less expected
insurance proceeds, was included in the allowance for doubtful accounts.

vi. During the years ended December 31, 1997 and 1998, payments of $97 and $150,
respectively, were made to a non executive director of the Company in respect of
legal fees.

vii. As of January 1, 1996, $4,723 was outstanding under a unsecured loan
agreement with Barton, the former preferred shareholder. This amount bore
interest at 9% and was repayable in instalments on March 31, 1996 and June 30,
1996.

In February 1996 the Group entered into an agreement with Mr S M Palatin, under
which Mr S M Palatin purportedly guaranteed the performance by Barton of its
obligations under the loan agreement, including repayment of interest and
principal according to the terms prescribed in the agreement. Mr S M Palatin's
guarantee purports to pledge 1,030,303 Common Shares owned by him in The Cronos
Group; the owner of record of these shares was Lambert Business Inc incorporated
under the laws of Panama.

The prospectus dated December 7, 1995 specifies that Barton is an unaffiliated
company; the Group has received no notification of a change in this regard.


<PAGE>   75

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


21. RELATED PARTY TRANSACTIONS (CONTINUED)

In April 1996, the Group advanced $500 to Mr S M Palatin. This advance bore
interest at 9% per annum and was repayable by June 30, 1996. On June 30, 1996,
principal and interest on the Group's loan to Barton in the amount of $4,950
came due, but no repayment thereon was received.

In August 1996, the Company and Mr S M Palatin entered into a new Loan Agreement
and related Pledge Agreement, each dated as of July 1, 1996, pursuant to which
Mr S M Palatin borrowed $5,461 from the Company which was used to repay the
principal and interest due on June 30, 1996, on the loan to Barton and the $500
advance.

This loan bore interest at 9% per annum and matured on December 30, 1996. The
1,030,303 Common Shares remained pledged as security for this loan and all other
obligations of Mr S M Palatin to the Group existing at that date. No repayments
have been made since the inception of this loan. In July 1997, in connection
with the execution of the Amended and Restated Credit Agreement and the
Amendment thereto, relating to the Group's primary revolving credit facility,
this loan was revised in the amount of $5,900, representing principal and
interest due on the original loan, and was assigned to a subsidiary of the
Group, together with all the Company's rights in respect of this loan, including
the collateral rights concerning the purported pledge of 1,030,303 Common Shares
(note 14(a)). As of December 31, 1996, the fair value of this loan was $5,461.
December 31, 1997 was agreed as the revised repayment date for the loan, but no
principal or interest payments have been received. Management did not seek to
enforce the pledge following conflicting advice as to the feasibility of this
action and in particular, the powers of the Board of Lambert to prevent the
enforcement of the pledge, the sale of the shares without defect in title, or
the realisation of proceeds of sale for the benefit of the Group. As previously
disclosed, Mr R J Weissenberger had an interest in the shares of Lambert. In
March 1999, in connection with the negotiation of the Fourth Amendment (note
14(a)), title to 463,636 shares in the Company held by Lambert has been granted
as security to the Bank Facility. Title to the remaining 566,667 shares has been
taken by Mr R J Weissenberger to discharge his interest.

As indicated below, a provision of $4,733 was made in December 1997 against Mr S
M Palatin's outstanding loans and unpaid interest in view of these
circumstances.

The Company has engaged legal counsel to provide advice and commence legal
action, if appropriate, against former officers or directors if it is determined
that they engaged in any misfeasance or improper self-dealing. A special
committee has been appointed to work with counsel in this regard and also in the
recovery of balances due by Mr S M Palatin including interest.

In October 1996, $1,500 was paid by the Group purportedly in respect of an
obligation regarding professional fees relating to a proposed strategic
alliance. This alliance did not take place and the funds were repaid to the
Group in January 1997, as described in note 17iii above. To date no adequate
explanation of the facts and circumstances with respect to this payment and its
return has been forthcoming. At December 31, 1996 this amount was included
within amounts advanced to Mr S M Palatin.


<PAGE>   76

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


21  RELATED PARTY TRANSACTIONS (CONTINUED)

In January 1997, the Group advanced an amount of $3,700 to Mr S M Palatin under
the same terms as the Loan Agreement dated July 1, 1996. This loan bore interest
at 9% per annum and was secured by a further pledge of 1,000,000 Common Shares
beneficially owned by him in The Cronos Group. This loan was replaced in July
1997 by a new loan in like amount from a subsidiary of the Group to Mr S M
Palatin, pursuant to the Amended and Restated Credit Agreement and the Amendment
thereto (see note 14). This new loan bore interest at 9% per annum and was
secured, together with all other obligations of Mr S M Palatin to this
subsidiary company, by the pledge of 1,000,000 shares. The loan was due to be
repaid on October 31, 1997, but no interest or principal payments were received.
Consequently title to the 1,000,000 shares was established by the banks
providing certain of the Group's term loans which totalled $33,110 at December
31, 1998 (note 14(a)). As of December 31, 1998 no interest or principal payments
have been received.

Interest of $460 and $824 was credited on these loans during the years ended
December 31, 1996 and 1997, respectively. During 1998, additional interest of
$864 became due under Mr S M Palatin's outstanding loans. This amount has not
been recognized in income.

viii. In May 1998, the then Chairman, Mr S M Palatin, was taken into custody in
Austria in connection with continuing investigations into alleged offences. In
July 1998, he resigned as Chief Executive Officer, Chairman and from all other
positions within the Group. The Group has retained $240 in respect of
outstanding payroll for Mr S M Palatin which will be held as possible settlement
against any claims.

In view of these circumstances and the doubt concerning the Board's ability to
exercize the pledge over the remaining 1,030,303 shares, a provision of $4,733,
including unpaid interest, was made on December 31, 1997 against Mr S M
Palatin's outstanding loans and unpaid interest. At December 31, 1997 and 1998,
respectively, the fair value of Mr S M Palatin's loans was $5,500. In March
1999, title to 463,636 of the 1,030,303 shares was granted as security to the
Bank facility.

ix. In 1998, the Group identified amounts totalling $232 which were paid in
respect of professional services during 1997 and 1998 and have since been
attributed to Mr S M Palatin. Such costs were included in Financing and
recomposition expenses in the years in which they were incurred. The Group
intends to seek recovery of these costs.

x. Amounts of $283, $618 and $436 were paid for services provided under the
terms of an information technology agreement with a company, to which Mr S M
Palatin has indicated he is related, for the years ended December 31, 1996, 1997
and 1998, respectively.


<PAGE>   77

THE CRONOS GROUP

Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)


21  RELATED PARTY TRANSACTIONS (CONTINUED)

xi. As indicated in note 17, it has been asserted by a representative of Contrin
that Mr S M Palatin has financial and other interests in companies that were
involved in the trading of containers with participants in certain Austrian
investment entities. The relationship or otherwise between these companies and
the Group cannot be substantiated by management at present. The public records
regarding these companies do not disclose their beneficial ownership. One of the
companies in question, Transocean Equipment Manufacturing and Trading Limited,
has been separately registered in the same name in both the United Kingdom and
the Isle of Man and has been regarded by management as a subsidiary of Contrin
and is so characterised in certain commercial correspondence. Contrin, through
three management companies, administered the Austrian investment entities.
Transocean Equipment Manufacturing and Trading Limited is in liquidation in the
United Kingdom and the Group has received a request for information from the
liquidator in respect of its trading transactions with that company.




<PAGE>   78




<TABLE>
<CAPTION>
Number                         Exhibit Index                                          Page
------                         -------------                                          ----
<S>     <C>                                                                            <C>
3.1     Coordinated Articles of Incorporation (designated in the Company's
        Annual Report on Form 20-F for the year ended December 31, 1997 (File
        No. 0-24464) as exhibit 1.1)
10.1    Amended and Restated Credit Agreement, dated as of June 24, 1997, by and
        among Cronos Containers N.V., Cronos Containers Ltd., Cronos Equipment
        Ltd., Cronos Containers Inc., Cronos Capital Corp., and Cronos Equipment
        (Bermuda) Limited, as joint and several borrowers, each of the banks
        that is or may become a party thereto, Fleet Bank, N.A., as agent for
        the banks, and The Cronos Group, as guarantor (the "Credit Agreement")
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.2)
10.2    First Amendment to the Credit Agreement, dated as of July 14, 1997
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.3)
10.3    Second Amendment to the Credit Agreement, dated as of December 3, 1997
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.4)
10.4    Third Amendment to the Credit Agreement, dated as of June 30, 1998
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.5)
10.5    Confirmation of Guaranties, Agreement and Power of Attorney by the
        Cronos Group, dated June 30, 1998, pertaining to the Credit Agreement.
        (designated in the Company's Annual Report on Form 20-F for the year
        ended December 31, 1997 (File No. 0-24464) as exhibit 1.6)
10.6    Deed in lieu of foreclosure relating to shares given as collateral to the
        Palatin loans.                                                                 E1
10.7    Forbearance Agreement and Fourth Amendment to Amended and Restated
        Credit Agreement dated March 31, 1999.                                         E6
10.8    Note Purchase Agreement among Cronos Equipment (Bermuda) Limited, The
        Cronos Group and Sun Life Insurance Company of America, dated as of
        December 29, 1994 (the "Sun Agreement") (designated in the Company's
        Annual Report on Form 20-F for the year ended December 31, 1997 (File
        No. 0-24464) as exhibit 1.7)
10.9    Amendment to the Sun Agreement, dated as of November 1, 1997 (designated
        in the Company's Annual Report on Form 20-F for the year ended December
        31, 1997 (File No. 0-24464) as exhibit 1.8)
10.10   Second Amendment to the Sun Agreement dated as of January 26, 1999.            E14
10.11   The Cronos Group Management Equity Investment Plan, dated as of
        July 25, 1994.                                                                 E22
10.12   Lambert Confirmation, Acknowledgement and Consent of Collateral Assignment     E39
10.13   Amendment to the Revolving Credit Facility between Cronos Containers
        Limited and China International Marine Containers (Group) Company
        Limited, dated March 24, 1999                                                  E43
10.14   Employment Agreement dated August 14, 1998, between Cronos and
        Eivind A Eriksen.                                                              E44
10.15   Employment Agreement dated January 24, 1996, between Cronos and
        Stephan M Palatin.                                                             E60
10.16   Employment Agreement dated May 20, 1998, between Cronos and Admico SA.         E69
10.17   Employment Agreement dated July 1, 1998, between Cronos and Peter J Younger.   E73
10.18   Employment Agreement dated August 25, 1998, between Cronos and
        Stephen J Brocato.                                                             E80
10.19   Employment Agreement dated December 11, 1998, between Cronos and
        Dennis J Tietz                                                                 E119
21.1    List of principal wholly-owned subsidiaries at December 31, 1998               E159
27.     Financial Data Schedule                                                        
</TABLE>



The Cronos Group