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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

(Mark One)

      x

For the fiscal year ended: December 31, 2003

OR

      o

For the transition period from:                               to                               

Commission file number: 0-24464

THE CRONOS GROUP

16, ALLÉE MARCONI, BOÎTE POSTALE 260, L-2120 LUXEMBOURG

Registrant’s telephone number, including area codes:

Securities registered pursuant to Section 12(b) of the Act.

Securities registered pursuant to Section 12(g) of the Act.

Common Shares, $2 par value per share

      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 o

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)     YES o  NO x

      The aggregate market value of voting stock of the registrant held by non-affiliates as of March 24, 2004 (Common Shares) was approximately $41,092,053.

      The number of Common Shares outstanding as of March 25, 2004:

      Portions of the following documents have been incorporated by reference into this report.

The Cronos Group

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INTRODUCTORY NOTE

      Unless the context indicates otherwise, the “Company” means The Cronos Group and, where appropriate, includes its subsidiaries and predecessors, while “Cronos” or the “Group” 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.

      All statements in this report regarding the market for the Company’s container leasing services and the Company’s revenues, expenses, and financial condition, and any statement containing the words “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend” or other similar expressions, constitute forward-looking statements. The actual results of operations may differ materially from those contained in any forward-looking statement. This cautionary statement applies to all forward-looking statements wherever they appear in this report.

      An investment in the common shares of the Company involves a high degree of risk. The principal risks that attend the Company and its business include the following:

	Cronos is heavily dependent upon third-parties to supply it with the capital needed to acquire containers; such capital may not be available to the Group to enable it to expand its fleet of containers.
	The market for the Company’s outstanding common shares is not liquid. The Company’s five largest groups of shareholders control approximately 71% of its outstanding common shares. For 2003, the average daily trading volume in the Company’s shares was 3,410.

      The Group is subject to other risks in the operation of its business. For a discussion of the container leasing industry and the Group’s business, see “Description of Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

      For a discussion of the Group’s legal proceedings, see Item 3 “Legal Proceedings” herein. For a discussion of the Group’s commitments and contingencies, see Note 15, “Commitments and Contingencies”, to the Company’s 2003 Consolidated Financial Statements. For a discussion of the market for the Company’s common shares, see “Market for the Company’s Common Equity and Related Stockholder Matters” herein.

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PART I

      The Company is a limited liability company (société anonyme) organized in Luxembourg with its registered office at 16, Allée Marconi, Boîte 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. The internet address of the Company is www.cronos.com. Cronos Containers Limited, the Company’s principal container leasing subsidiary, is a UK corporation located at The Ice House, Dean Street, Marlow, Buckinghamshire, SL7 3AB, 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 a selling shareholder sold 3,643,000 common shares of the Company in a public offering (the “Public Offering”).

      Cronos is one of the world’s leading lessors (by aggregate TEU capacity) of intermodal marine containers. It owns and manages a fleet of dry cargo, refrigerated, tank and dry freight special 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 the majority of the 30 largest ocean carriers.

          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 × 8’ wide × 8’ 6” high (one TEU) or 40’ long × 8’ wide × 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 constructed to carry a wide variety of cargoes ranging from heavy industrial raw materials to light-weight finished goods. Specialized containers such as refrigerated and tank containers are utilized for the transport of temperature-sensitive goods and for the carriage of liquid cargo. Cellular Palletwide Containers (“CPCs”) provide shipping lines with a container with extra width for the carriage of unitized or palletized cargoes. See “Fleet Profile” herein.

      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, as well as losses due to damage and theft. Efficient movement of containerized cargo between ship and shore reduces the amount of time that a ship must spend in port.

      The logistical advantages and reduced freight rates brought about by containerization have been major catalysts for world trade growth since the late 1960s, resulting in increased demand for containers. The world’s container fleet has grown from an estimated 270,000 TEU in 1969 to approximately 17 million TEU by the end of 2003.

      The container leasing business is cyclical and depends largely upon the volume of world trade.

          Benefits of Leasing

      The container fleets of leasing companies represent approximately 46% of the world’s container fleet with the balance owned predominantly by shipping lines. Shipping lines, which traditionally operate on tight profit

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	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 low 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 minimizing storage costs;
	Leasing provides shipping lines with the flexibility to respond to rapidly changing market opportunities as they arise without relying exclusively on their owned containers.

          Types of Leases — to Ocean Carriers

      Master leases are leases under which a customer may 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 them to pick up and drop off containers where and when needed, subject to restrictions and availability, on pre-agreed terms. Master leases also define the number of containers that may be returned within each calendar month, 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 revenue (including pick-up, drop-off, handling and off-hire revenue) than term leases. Ocean carriers generally use master leases to help 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 commercial terms of master leases are usually negotiated or renewed annually.

      Term leases are for a fixed period of time, typically ranging from three to five years. In most cases, containers cannot be returned prior to the expiration of the lease. Some term lease agreements contain early termination penalties that apply in the event of early redelivery. Term leases provide greater revenue stability to the lessor, but at lower lease rates than master leases. Ocean carriers use term leases to lower their operating costs when they have a need for identified containers for a specified term.

      Direct financing leases are usually long-term in nature, typically ranging from three to seven years, 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 include an element of repayment of capital and therefore are higher than rates charged under either term or master leases.

      The percentage mix of equipment on master, term and direct financing leases varies widely among leasing companies.

      Lease rates depend on several factors including the customer credit rating, type of lease, length of term, type and age of the equipment, equipment replacement costs, interest rates, maintenance provided, and market conditions.

          Company Strategy

      Cronos focuses on optimizing the return on container investment capital by providing flexible master, term and direct financing leases to the world’s top ocean carriers, across a broad range of dry and specialized containers.

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          Lease Profile

      Cronos offers flexible leasing arrangements primarily through master and term leases for dry cargo containers.

      The terms and conditions of the Group’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 Group provides this service to selected customers. Repairs provided under such a plan are carried out by the same depots, under the same procedures, as the 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.

          Customers

      Cronos is not dependent upon any particular customer or group of customers. None of the Group’s customers accounts for more than 10% of its revenue, and the ten largest customers accounted for approximately 43% of the total TEU fleet on-hire. The majority 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 quality.

      The Group may be subject to unexpected loss in rental revenue from container lessees that default under their container lease agreements.

          Fleet Profile

      Cronos focuses on supplying to its customers high-quality containers, manufactured to specifications that exceed ISO standards and designed to minimize repair and operating costs. Cronos operates a fleet of dry cargo, refrigerated, tank and dry freight special containers. Cronos believes that this fleet diversification enables it to broaden its business base with its customers by supplying a wide range of their equipment requirements.

      Dry cargo containers are the most commonly used type of container in the shipping industry. Cronos’ dry cargo containers are constructed of all Corten® steel (i.e., Corten® roofs, walls, doors and undercarriage), which is a high-tensile steel yielding greater damage and corrosion resistance than mild 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 outer walls, while

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      Cronos’ tank containers are constructed and maintained in accordance with strict international codes for the worldwide transport and storage of bulk liquids on both land and sea. These codes include ISO, International Maritime Organization (“IMO”) and American Society of Mechanical Engineers (“ASME”) VIII Pressure Vessel Design Code. The fleet comprises both T4 and T11 type tanks, which can carry highly flammable, corrosive, toxic and oxidizing substances as well as non-hazardous cargoes such as food stuffs and oils. They range in capacity from 17,500 litres to 31,000 litres and are generally insulated and equipped with a heating system (steam or electrical) or, alternatively, a refrigeration system.

      Dry freight specials include CPCs, rolltrailers, open tops and flatracks. Cronos owns the patents for the CPC, a specialized container designed specifically for the carriage of European coastal cargo on metric pallets. The patents expire on a series of dates between 2006 and 2013. CPCs allow for the side-by-side stowage of pallets which is not possible in a standard ISO container, therefore increasing the load capacity per container. Cronos earns CPC licence fee income on the sale of CPCs to third-parties. A rolltrailer is a heavy-duty chassis used for moving cargo onto and off of ships. Cronos entered the rolltrailer market in 1996 when it acquired a Swedish company with a fleet of rolltrailers.

      During 2003, the size of the Group’s total fleet, both owned and managed, increased by a net 10,800 TEU, representing new container acquisitions of 38,300 TEU and disposals of 27,500 TEU. The total cost of new container acquisitions for the total fleet in 2003 was $64.8 million.

          Operating Segments

      Cronos has three operating segments, which are determined based on the source of container funding for the Group’s container fleet acquisitions:

      1. Container Equity Programs (“Container Equity Programs”),

      2. Other Managed Container Programs (“Other Managed Container Programs”), and

      3. Owned Containers (“Owned Containers”).

      Lease agreements with Container Equity Programs & Other Managed Container Programs. The majority of agreements with Container Equity Programs and Other Managed Container Programs (collectively “Managed Container Programs”) are in the form of a master lease, under the terms of which, the Group is not liable to make any payments to the Managed Container Programs until such time as the containers have been placed on lease to an ocean carrier. The agreements generally provide that the Group will make payments to the Managed Container Programs based upon the rentals collected from ocean carriers after deducting direct operating expenses and the income earned by the Group for managing the containers.

      Although all containers, regardless of the source of funding or ownership, are leased as part of a single global fleet, management separately monitors its performance through Container Equity Programs, Other Managed Container Programs and Owned Containers operations.

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

      As of December 31, 2003, no single owner, other than the Group, owned more than 13% of the Cronos fleet (based on original equipment cost).

      One customer, Mediterranean Shipping Company S.A. (“MSC”), accounted for 11% of gross lease revenue of the Container Equity Programs operating segment in the year ended December 31, 2003. MSC is a private company based in Switzerland and is ranked as the second largest container liner operator in the world.

      The Group evaluates the performance of its operating segments based on segment profit or loss. Gross lease revenue is deemed to be earned based on the physical location of the containers while on lease and, as substantially all of the Group’s lease revenue is earned on containers used in global trade routes, the Group believes that it does not possess discernible geographic reporting segments as defined in Statement of Financial Accounting Standards (“SFAS”) No. 131.

      Segment revenues from external customers, segment profit or loss and total assets are disclosed in the Group’s Financial Statements and are incorporated herein by reference. See Note 3 to the 2003 Consolidated Financial Statements.

          Container Equity Programs

      This segment comprises the US limited partnership programs (the “US Limited Partnership Programs”) and the joint venture program (the “Joint Venture Program”). See “Material Off-Balance Sheet Arrangements, Transactions and Obligations” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

      Segment profits earned from the Container Equity Programs were $4.1 million, $3.6 million, and $5.1 million for the years ended December 31, 2003, 2002 and 2001, respectively (see Note 3 to the 2003 Consolidated Financial Statements). In addition, the Group recognized its share in the equity of the Joint Venture Program of $1.5 million and $0.3 million for the years ended December 31, 2003 and 2002, respectively.

      US Limited Partnership Programs: Cronos raised capital through investment syndication activities from 1979 to 1997 by organizing and sponsoring limited partnership public offerings. Cronos sponsored sixteen public limited partnerships and 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.

      The US Limited Partnership Programs provide compensation to Cronos, the general partner, consisting of the following fees and commissions:

	•	Acquisition fees represent a once-off fee equal to 5% of the original cost of equipment acquired by the partnerships. Such fees are amortized for accounting purposes by Cronos, in the statement of operations on a straight-line basis over the period of the agreement to which they relate;
	•	Management fees equal to 7% of gross lease revenue;
	•	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);
	•	Reimbursed administrative expenses for certain overhead and operating expenses;

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	•	General partner share equal to 5% of distributable cash generated by the partnerships’ operating activities and 1% of distributions from sales proceeds.

      Joint Venture Program: Cronos established the Joint Venture Program in 2002 with a current lender to the Company. The Joint Venture Program provides compensation to Cronos consisting of the following fees:

	•	Acquisition fees equal to 1.25% of the original cost of equipment acquired by the Joint Venture Program. Such fees are paid on or about the date of the equipment purchase and are amortized for accounting purposes by Cronos, in the statement of operations on a straight-line basis over the period of the agreement to which they relate;
	•	Management fees equal to 8% of net lease revenue;
	•	Disposition fees equal to 5% of the excess of the disposal proceeds over the net book value of the container disposed.

          Other Managed Container Programs

      Cronos manages containers pursuant to agreements negotiated directly with corporations, partnerships and private individuals located in Europe, the United States and South Africa. The terms of the agreements vary from 1 to 15 years and take two principal forms.

      Under the first form of agreement, Cronos generally earns compensation equal to gross lease revenue less direct operating expenses less the payment to the Managed Container Programs (the “Managed Containers”), computed in accordance with the terms of each individual agreement. In certain cases, Cronos may also earn an incentive fee.

      Under the second form of agreement, the container owner is entitled to a fixed payment for a specified term (see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein).

      Segment profits earned by the Group from Other Managed Container Programs were $1.6 million, $0.4 million and $1.4 million for the years ended December 31, 2003, 2002 and 2001, respectively (see Note 3 to the 2003 Consolidated Financial Statements).

          Owned Containers

      Cronos uses various forms of debt funding to finance its owned fleet including bank loans and capital leases. Container ownership provides the Group with the ability to generate lease revenues over the life of the container, matched with related interest and depreciation expenses. From time to time, Cronos also owns containers on a temporary basis until such time that the containers are sold to the Container Equity Programs and Other Managed Container Programs. Most containers identified for sale to Managed Container Programs are purchased new by Cronos, and sold to owners of Managed Container Programs within six months. This strategy allows Cronos more flexibility to negotiate and buy containers strategically, based on market conditions. In addition, Cronos may on occasion own equipment that has been acquired specifically for resale to third-parties that does not enter the Cronos managed fleet.

      Assets that are funded by capital lease are initially reported at the fair value of the asset categorized within container equipment, with an equivalent liability reported as capital lease obligations. Container equipment is depreciated over its expected useful life. Finance charges are reported over the lease term in accordance with the effective interest method and are recorded as interest expense.

      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. Since then, the environmental impact of CFCs has become increasingly prominent. On January 1, 2001, it became illegal for environmentally destructive refrigerants to be handled, other than for disposal, in most of the countries that are members of the European Union. 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

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      As of December 31, 2003, Cronos had 75 employees worldwide; 40 were located in Europe, 20 in the United States and 15 in Asia and Australia combined. None of Cronos’ employees is covered by a collective bargaining agreement.

      Cronos’ acquisition policy for the total fleet is driven by capital availability, market requirements and anticipated future demand, including demand generated by trade growth and the replacement of containers retired around the world. The Group believes that the worldwide manufacturing capacity for all container types is adequate to meet its current and near-term requirements.

      In recent years, China has emerged as the primary location for almost all types of container manufacturing. Refrigeration units, which represent approximately half of the cost of a refrigerated container, are purchased from the two the primary suppliers of container refrigeration units headquartered in the United States who have manufacturing plants in the Far East, United States and Europe. These units are shipped to the container manufacturer for installation into the container.

      All of the tank containers in the Cronos fleet have been purchased from manufacturers based in the United Kingdom, South Africa, Belgium and China.

      All containers are inspected and repaired when redelivered by customers who are obligated to pay for all damage repairs, excluding wear and tear, according to standardized industry guidelines. As described under “Description of Business — Lease Profile” some customers enter into a damage protection plan. Depots in major port areas perform repair and maintenance work that is verified by either 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 review 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 the decision by applying the same standards to the managed containers as to its own containers.

      Cronos estimates that the period for which most containers will be used in the Group fleet as a leased marine cargo container ranges from 12 to 15 years.

      Cronos disposes of used containers in a worldwide secondary market in which buyers include wholesalers, mini-storage operators, construction companies and others. The market for used containers generally depends on new container prices, the quantity of containers targeted for disposal and the overall lease market for containers at a particular location.

      Cronos’ sales and marketing operations are conducted through Cronos Containers Limited (“CCL”), a wholly-owned subsidiary based in the United Kingdom. CCL is supported in this role by area offices and dedicated agents located in San Francisco, New Jersey, Antwerp, Genoa, Hamburg, Gothenburg, Singapore, Hong Kong, Sydney, Tokyo, Taipei, Seoul, Rio de Janeiro, Shanghai and Madras.

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      Cronos also maintains agency relationships with 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 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 approximately 300 independently owned and operated depots around the world to inspect, repair, maintain and store containers while off-hire. The Group’s area offices authorize all container movements into and out of the depot and supervise all repairs and maintenance performed by the depot. The Group’s technical staff set the standards for repair of the Cronos fleet throughout the world and monitor the quality of depot repair work. The depots provide a link to the Group’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 customer.

      Cronos’ global network is integrated with its computer system and provides 24-hour communication between offices, agents and depots. The system allows Cronos to manage and control its global fleet by providing the responsiveness and flexibility necessary to service the leasing 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 produces a wide range of reports on all aspects of the Group’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.

      In recent years, Cronos and other lessors have developed certain internet-based applications. For Cronos, these applications allow customer access to make on-line product inquiries. The Group is continuing to develop this side of its business and will introduce other internet options as suitable applications are identified.

      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, the availability of suitable financing and the professional relationship between the customer and 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.

      Cronos competes with various container leasing companies in the markets in which it conducts business. The container leasing companies essentially comprises three broad groups. The first group includes five leasing companies that control almost 70% of the total leased fleet. The second group, which includes Cronos, controls approximately 20% of the total leased fleet. The third group includes the smaller, more specialized fleet operators.

      Some of Cronos’ competitors 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 generally lease containers from several leasing companies in order to minimize dependence on a single supplier.

      Economies of scale, worldwide operations, diversity, size of fleet and financial strength are increasingly important to the successful operation of a container leasing business. Additionally, as containerization continues to grow, and regions such as China, South America and the Indian sub-continent generate an increasing volume of containerized cargo, customers may demand more flexibility from leasing companies, particularly regarding the structure of leases, per diem rates, pick-up and drop-off locations, and the availability of containers.

      Cronos believes it has created a strategic advantage due to its product and funding diversity, allowing it to develop a wider customer portfolio and lower risk profile.

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      Cronos’ lease agreements typically require ocean carriers 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 revenue in certain cases and cost 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.

      Cronos leases approximately 6,300 square feet of office space near London, England, where its container leasing operations are conducted. Cronos also leases approximately 6,700 square feet of office space in San Francisco, California, where its Managed Container Program activities are based. Cronos also conducts its container leasing operations from smaller offices that are leased in New Jersey, Genoa, Gothenburg, Hamburg, Hong Kong, Singapore and Sydney.

      The containers owned and managed by Cronos are described under Item 1 — “Description of Business”. As of December 31, 2003, Cronos owned 89,384 TEU of dry cargo containers, 6,077 TEU of refrigerated containers, 11,379 TEU of CPCs, 2,115 TEU of rolltrailers, 756 TEU of tank containers, and 1,547 TEU of other specialized equipment. The majority of Owned Containers are financed by debt and capital lease obligations. Under the terms of the debt agreements, the containers act as collateral for the outstanding loan balance. For assets financed by capital lease facilities, although the Group takes all the risks and rewards of ownership, the lessor retains title to the equipment until the capital lease obligation has been discharged and any purchase options have been exercised by the Group. As of December 31, 2003, Cronos managed a total of 281,114 TEU of dry cargo containers, 6,221 TEU of refrigerated containers, 1,914 TEU of tank containers, 1,730 TEU of CPCs, 728 TEU of rolltrailers, and 2,831 TEU of other specialized equipment.

                   The Contrin Settlement

      The Group manages containers for investment entities collectively known as “Contrin” in its Other Managed Container Programs. Approximately 1% (measured by TEUs) of the Group’s fleet of containers is owned by Contrin. As previously reported by Cronos, since August 2000 the Group has been defending three lawsuits brought by Contrin, one in Luxembourg and two in the United Kingdom. On November 17, 2003, the Group and Contrin settled their differences and entered into a Settlement Agreement (the “Settlement Agreement”). The Group reported the settlement in a Form 8-K report filed with the Securities and Exchange Commission on November 26, 2003, and filed a copy of the Settlement Agreement as an exhibit to the report. Reference is made to the Form 8-K report for a complete description of the settlement.

      The Group has secured two judgments against its former chairman, Stefan M. Palatin, from the UK courts aggregating approximately $2.3 million, and has secured two charging orders (the “Cronos Charging Orders”), in the nature of liens, to enforce the judgments against Mr. Palatin’s beneficial interest in an estate located in Amersham, England (the “Amersham Estate”). The Group has brought an action (the “Foreclosure Action”) in the UK courts seeking to foreclose the Cronos Charging Orders and obtain an order of sale of the Amersham Estate to satisfy the judgments secured against Mr. Palatin.

      Under the Settlement Agreement, Contrin agreed to file a civil action against Mr. Palatin in Austria for recovery of $2.6 million, plus interest and costs. This civil action follows Mr. Palatin’s criminal conviction in Austria, affirmed on appeal, for, among other things, defrauding Contrin of the $2.6 million. Contrin had sought recovery of these monies from the Group in Contrin’s Luxembourg lawsuit filed against the Group, now settled as part of the settlement with Contrin. Contrin agrees, if it secures a final judgment (the “Austrian Judgment”) against Mr. Palatin in Austria, to register the Austrian Judgment in the UK and to assign the Austrian Judgment to the Group for collection against the Amersham Estate. On or about November 28,

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      If the Amersham Estate is foreclosed upon in satisfaction of the Cronos Charging Orders and any Austrian Judgment secured by Contrin against Mr. Palatin, the parties agree that the first $4.85 million of net foreclosure proceeds from the sale of the Amersham Estate and attributable to the Cronos Charging Orders and/or Austrian Judgment will be allocated and paid to Contrin, with the balance of foreclosure proceeds allocated and paid to Cronos in satisfaction of the remaining unsatisfied amount, if any, of the Cronos Charging Orders.

      The Settlement Agreement provides for Cronos to pay Contrin a total of $3.5 million if the Group is unable to foreclose the Cronos Charging Orders against the Amersham Estate by the third anniversary of the effective date of the settlement (December 17, 2006). In addition if the net proceeds of foreclosure of the Amersham Estate in satisfaction of the Cronos Charging Orders and any charging order obtained by the Group to enforce the Austrian Judgment total less than $3.5 million then the Group agrees to make up the difference.

      The Settlement Agreement provides for Cronos to pay Contrin a total of $2.8 million (not $3.5 million) if the Group forecloses the Cronos Charging Orders against the Amersham Estate by December 17, 2006, and, by the date of foreclosure, Contrin has not secured a lien on the Amersham Estate in aid of its action against Mr. Palatin in Austria or a charging order against the Amersham Estate to satisfy any Austrian Judgment it secures. In this case, should the net proceeds of foreclosure of the Amersham Estate in satisfaction of the Cronos Charging Orders total less than $2.8 million then the Group agrees to make up the difference.

      The Settlement Agreement specifies an installment payment plan under which Cronos paid Contrin $0.3 million in November 2003 and $0.250 million in February 2004 and requires further payments of $0.450 million on or before January 3, 2005, $0.250 million on or before April 4, 2005, $0.250 million on or before July 4, 2005, $0.250 million on or before October 3, 2005 and $0.250 million on or before January 4, 2006. The balance of $1.5 million is due on or before November 17, 2006.

      Each payment reduces, dollar for dollar, the Company’s obligation to pay Contrin $3.5 million (or $2.8 million, as the case may be), and will count as a credit (i.e., a reduction) to Contrin’s entitlement to $4.85 million of net foreclosure proceeds from the sale of the Amersham Estate. If foreclosure of the Cronos Charging Orders against the Amersham Estate occurs before any of these payments is due, then the Group’s obligation to make the remaining payment(s) is excused.

      Under the Settlement Agreement an escrow account will be established with an independent bank or trust company in London for deposit of the proceeds from foreclosure of the Amersham Estate as a result of the enforcement of the Cronos Charging Orders and any charging order obtained to enforce the Austrian Judgment. The Company shall deposit to the escrow account the proceeds of any foreclosure of the Amersham Estate in response to the Cronos Charging Orders, generally after subtracting (and, subject to its obligation to pay by the third anniversary of the settlement, $3.5 million, as described above, retaining) therefrom the amount of any installments made by the Group to Contrin as described in the preceding two paragraphs.

      By the terms of the Settlement Agreement, Contrin has agreed to dismiss the three actions it has brought against the Group and releases the Group from all claims asserted by Contrin in the three actions. Other than for the express obligations undertaken by the Group under the Settlement Agreement, the Group denies all liability to Contrin by reason of the claims asserted by Contrin in the three actions, and the Settlement Agreement is explicit that nothing in the Settlement Agreement is to be deemed an admission of, or evidence of, any wrongdoing or liability on the part of the Group.

      The Company calculated that the present value of the total $3.5 million future cash payments under the Settlement Agreement installment payment plan, discounted using an appropriate risk-free interest rate, was $3.3 million. As discussed herein, the Group made the first installment payment of $0.3 million in November 2003. In addition, the Group had previously recorded a reserve of approximately $3 million against the Contrin claims. Interest will be charged to the Company’s income statement over the period for performance of the Settlement Agreement using the effective interest rate method.

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      Valuation of the Amersham Estate. In connection with the Foreclosure Action brought by the Group against Mr. Palatin to foreclose the Cronos Charging Orders against the Amersham Estate, the Group secured an independent valuation of the Amersham Estate. The firm that conducted the valuation was not able to conduct an on-site inspection of the Amersham Estate and therefore based its valuation upon publicly available information about the Estate and sales of comparable properties. The firm valued the Amersham Estate within the range of 3 million British Pounds to 4 million British Pounds (at current exchange rates, the equivalent of approximately US $5.5 million to US $7.3 million). The land records of the county in which the Amersham Estate is located do not disclose any mortgage or other indebtedness encumbering the Amersham Estate.

      No assurance can be given that the Group will be successful in foreclosing the Cronos Charging Orders against the Amersham Estate, that the sales price achieved from any such foreclosure would exceed (or equal) the valuation of the Estate of between 3 million British Pounds and 4 million British Pounds, or that the net proceeds of any such foreclosure would be sufficient to satisfy the Cronos Charging Orders and/or any Austrian Judgment secured by Contrin against Mr. Palatin.

      Palatin Bankruptcy. On or about December 9, 2003, a creditor of Mr. Palatin initiated a bankruptcy proceeding against him in Austria. The bankruptcy filing has stayed Contrin’s prosecution of its civil action against Mr. Palatin. While the bankruptcy filing requires the Group to serve the bankruptcy trustee with notice of the Group’s Foreclosure Action in the UK, the Group does not believe that the bankruptcy will effect a stay of prosecution of the Foreclosure Action. The Group is working cooperatively with Contrin in an attempt to minimize the impact of the Palatin bankruptcy on the implementation of the settlement.

      Not Applicable

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PART II

Item 5 — Market for the Company’s Common Equity and Related Stockholder Matters

      As of March 25, 2004, there were outstanding 7,260,080 common shares. They were held of record by approximately 481 holders.

      Prior to December 1995, there was no trading market for the Company’s common shares. Subsequent to the Company’s public offering, the common shares were 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 US 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 closing prices for the common shares on the Nasdaq National Market System for the last two years for the quarterly periods indicated. Closing prices are market quotations and reflect inter-dealer prices, without retail mark up, mark down or commission and may not necessarily represent actual transactions.