Essex Rental Corp.
Essex Rental Corp. (Form: 10-K, Received: 03/31/2009 15:45:43)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 

 
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

¨      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT F 1934
 
Commission File Number:  000-52459
 
ESSEX RENTAL CORP.

 (Exact Name of Registrant as specified in its Charter)
 
 


     
Delaware
 
20-5415048
(State or other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification Nos.)
 
     
1110 Lake Cook Road, Suite 220
Buffalo Grove, Illinois
 
60089
(Address of Principal Executive Offices)
 
(Zip code)
 
Registrants’ telephone number, including area code:     847-215-6500
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
Warrants to purchase shares of Common Stock
Units consisting of one share of Common Stock and one Warrant
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ¨   Yes     þ   No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     ¨   Yes     þ   No
 
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.     þ   Yes     ¨   No
 
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

 
 

 

 

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):
 
             
Large Accelerated Filer  
  ¨
Accelerated Filer  ¨
 
Non-Accelerated Filer   ¨
 
Smaller Reporting Company   þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     þ   No
 
The aggregate market value of the voting and non-voting common equity of the Registrant held by non-affiliates as of June 30, 2008 was $101,659,500.
 
The number of shares of outstanding common stock of the Registrant as of March 27, 2009 was 13,475,275.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s Definitive Proxy Statement with respect to the 2009 Annual Meeting of Stockholders, which is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 
 

 


 

FORM 10-K REPORT INDEX
 
         
 
10-K Part
and Item No.
  
 
  
Page No.
PART I
  
 
  
 
     
Item 1
  
Business
  
1
     
Item 1A
  
Risk Factors
  
11
     
Item 1B
  
Unresolved Staff Comments
  
19
     
Item 2
  
Properties
  
19
     
Item 3
  
Legal Proceedings
  
20
     
Item 4
  
Submission of Matters to a Vote of Security Holders
  
21
     
PART II
  
 
  
 
     
Item 5
  
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  
22
     
Item 6
  
Selected Financial Data
  
24
     
Item 7
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
25
     
Item 7A
  
Quantitative and Qualitative Disclosures About Market Risk
  
43
     
Item 8
  
Financial Statements and Supplementary Data
  
43
     
Item 9
  
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
43
     
Item 9A
  
Controls and Procedures
  
43
     
Item 9B
  
Other Information
  
44
     
PART III
  
 
  
 
     
Item 10
  
Directors, Executive Officers and Corporate Governance of the Registrant
  
44
     
Item 11
  
Executive Compensation
  
44
     
Item 12
  
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
44
     
Item 13
  
Certain Relationships and Related Transactions
  
44
     
Item 14
  
Principal Accountant Fees and Services
  
44
     
PART IV
  
 
  
 
     
Item 15
  
Exhibits and Financial Statement Schedules
  
45


 
 

 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This 2008 Annual Report on Form 10-K contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Such statements can often be identified by the use words such as “believe,” “expect,” “may,” “might,” “will,” “should,” “seek,” “on-track,” “plan,” “intend” or “anticipate,” or the negative thereof or comparable terminology.  In addition, expressions or discussions of our strategy, plans, prospects or future results are forward-looking statements. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties, both known and unknown.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date, and that any such forward-looking statements are not guarantees of future performance.  Our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected or implied by any forward-looking statements. Certain of such risks and uncertainties are discussed below under Item 1A–Risk Factors. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.
 
PART I
 
Essex Rental Corp. (formerly Hyde Park Acquisition Corp.) was incorporated in August 2006 as a blank check company whose objective was to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business.  On October 31, 2008, we acquired Essex Crane Rental Corp., which we refer to as Essex Crane, through the acquisition of substantially all of the ownership interests of Essex Crane’s parent company, Essex Holdings LLC, which we refer to as Holdings.  Essex Crane is a leading provider of lattice-boom crawler crane and attachment rental services and possesses one of the largest fleets of such equipment in the United States.  We conduct our operations through Essex Crane.
 
  As used in this Annual Report, references to “the Company” or  Essex or to “we,” “us” or “our” refer to Essex Rental Corp., together with its consolidated subsidiaries, Holdings and Essex Crane, unless the context otherwise requires.

Business
 
Background

Essex Rental Corp. was incorporated in Delaware on August 21, 2006 as a blank check company whose objective was to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business.  On March 13, 2007, we closed our initial public offering of 11,250,000 units.  Each unit that was offered had a price of $8.00 and consisted of one share of our common stock and one warrant.  Each warrant entitled the holders to purchase one share of our common stock at a price of $5.00.  On March 15, 2007, we consummated the sale of an additional 1,687,500 units which were subject to an over-allotment option granted to EarlyBirdCapital, Inc., the representatives of the underwriters for our initial public offering.  We also sold to EarlyBirdCapital, Inc., for $100, as additional compensation an option to purchase up to a total of 600,000 units at $8.80 per unit.  Laurence S. Levy, chairman of our board of directors, Edward Levy, a member of our board of directors, and Isaac Kier, one of our stockholders, owned a total of 2,812,500 shares of our common stock prior to our initial public offering.  These initial stockholders also purchased a total of 1,500,000 warrants from us for  $1.00 per warrant in a private placement completed concurrently with our initial public offering.  The total proceeds from our initial public offering (including from our private placement of warrants and exercise of the underwriters’ over-allotment option) were $105,000,000.  Upon the closing of the offering, including the over-allotment option and the private placement of warrants, and after deducting the underwriting discounts and commissions and offering expenses, the total net proceeds from the offering were approximately $99,923,651.

 
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Business Combination

On October 31, 2008, we acquired Essex Crane through the acquisition of substantially all of the membership interests of Holdings for a gross purchase price of $210,000,000 less the amount of Essex Crane’s indebtedness outstanding as of the closing (which was refinanced as of the closing date with a credit facility made available to Essex Crane as of the closing date), the $5,000,000 stated value of the membership interests in Holdings not acquired in the acquisition and the amount of certain other liabilities of Essex Crane as of the closing of the acquisition.  The purchase price was subject to adjustment at and after the closing for Essex Crane’s closing date working capital and the dollar amount of crane purchases and sales by Essex Crane as of October 31, 2008. For additional information regarding the gross purchase price paid in the acquisition of Essex Crane, including related transaction expenses, see note 1 to our consolidated financial statements.

The Company funded the net purchase price in the acquisition with proceeds of its initial public offering as well as amounts advanced under a credit facility made available to Essex Crane as of the closing date of the acquisition. In addition, as was required under the Company’s certificate of incorporation, shortly after completion of the acquisition approximately $18,705,000 of the proceeds of the Company’s initial public offering was paid to shareholders who voted against the acquisition of Essex Crane and exercised their conversion rights.

The ownership interests in Holdings that were not acquired by the Company in the acquisition were retained by the management members of Holdings, including Ronald Schad, our Chief Executive Officer, and Martin Kroll, our Chief Financial Officer.  These retained interests are exchangeable at the option of the holder for an aggregate of 632,911 shares of our common stock.  The retained interests do not carry any voting rights and are entitled to distributions from Holdings only if the Company pays a dividend to its stockholders, in which case a distribution on account of the retained interests will be made on an “as exchanged” basis.  Holders of the retained interests have agreed, subject to certain exceptions, not to sell their retained interests in Holdings or their shares of our common stock issuable upon exchange of such retained interests, before October 31, 2010. We have granted certain registration rights to the holders of retained interests with respect to the shares of our common stock issuable upon exchange of the retained interests.

For additional information on our acquisition of Essex Crane and related transactions, see Note 1 to the Company’s consolidated financial statements.

Business

Overview

We currently conduct substantially all of our operations through Essex Crane.

Essex Crane is a leading provider of lattice-boom crawler crane and attachment rental services and possesses one of the largest fleets of such equipment in the United States.  Over more than 48 years of operation, Essex Crane has steadily grown from a small, family-owned crane rental company to an industry leader with national capabilities.
 
Essex Crane’s fleet size currently stands at more than 350 crawler cranes and attachments which are made available to clients in any location in the US and Canada. The fleet of crawler cranes and attachments is diverse by lift capacity, allowing Essex Crane to meet the crawler crane and attachment requirements of its engineering and construction firm customer base. Essex Crane primarily rents its crawler cranes and attachments “bare,” meaning without an Essex Crane-supplied operator, and charges its customers for certain transportation costs and repair costs while the equipment is on rent. This business model allows Essex  Crane to leverage its concentrated crawler expertise and to minimize headcount and operating costs.
 
Essex Crane’s team of sales, marketing and maintenance professionals, through a network of four main service centers, three smaller service locations and several remote storage yards, serves a variety of customers engaged in construction projects related to power generation, petro-chemical facilities, refineries, water treatment and purification, bridges, highways, hospitals, shipbuilding and commercial construction. Essex Crane has significantly diversified its end-markets in recent years to minimize over-exposure to any one sector of the construction segment. Essex Crane’s end-markets are characterized by large construction projects with longer-lead times. Management believes that these longer lead times, coupled with 6-18 month contracts, provide them better visibility over future project pipelines and revenues.

 
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Products and Services
 
Our principal products and services are described below.
 
Equipment Rental .   We offer for rent 28 models of crawler crane and attachment rental equipment on a monthly basis. The attachments are rented separately and either increase the lifting capacity or the reach capabilities of the base crawler crane.  Crawler cranes are long-lived assets with actual lives of 50 years when properly maintained. The weighted-average age of our fleet was 17 years at December 31, 2008 as compared to 18 years at December 31, 2007.
 
Used Equipment Sales . We routinely sell used rental equipment and invest in new equipment in order to manage the mix, composition and size of our fleet. We also sell used equipment in response to customer demand for this equipment. The rate at which we replace used equipment with new equipment depends on a number of factors, including changing general economic conditions, growth opportunities and the need to adjust fleet mix to meet customer requirement and demand.
 
Transportation Service and Other Revenue . We also offer transportation and repair and maintenance services and sell parts mainly for equipment that is owned by Essex Crane. Our target customers for these types of ancillary services are our current rental customers as well as those who purchase used equipment from us.
 
US Crawler Crane Rental Industry
 
The US crawler crane rental industry is a niche component of the broader equipment rental sector. According to the Rental Equipment Register and the American Rental Association, the US equipment rental sector has grown from a minor industry in 1982 to an industry generating over $30 billion in annual revenues in 2008. Driving this growth has been an increase in crane and attachment penetration rates with engineering and construction firms, the result of a fundamental shift in contractor preferences to rent versus purchase equipment based on the following factors:

 
·
a focus on their core construction services businesses rather than equipment ownership;
  
·
access to a broader pool of equipment through rental; and
  
·
an efficient use of capital as rental equipment has minimal equipment downtime compared to owned equipment, which reduces servicing and storage costs between projects.
     
Within the equipment rental industry, crawler cranes have characteristics that differentiate them from other rental equipment and other cranes. The following table summarizes what our management believes are key differentiators between crawler cranes and the equipment portfolios of other equipment rental companies:

 
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Equipment Type

   
Crawler cranes
 
Other cranes
(all terrain, rough terrain,
tower and truck)
 
Small equipment
(e.g., aerial work platforms,
backhoes, etc.)
Economic life
 
50 years with proper maintenance due to higher strength steel percentage content
 
15-30 years due to higher relative machinery percentage content
 
Often 10 years or less
             
Typical Projects
 
Large infrastructure components requiring heavy lifts: bridges, power plants, municipal infrastructure
 
Range from residential condominium to large infrastructure
 
Range from single house builds to large construction projects
             
End markets
 
Primarily large infrastructure and industrial
 
Residential construction to large infrastructure
 
Residential construction to large infrastructure
             
Residual value
 
High
 
Medium
 
Medium to low
 
Within the US crawler crane rental sector operators either provide cranes “bare” or “manned.” Bare rental involves the provision of cranes without an operator, the crane being operated by an employee of the customer. Bare rental is suited to construction firms with adequately trained staff to operate the heavy machinery. Manned rental involves the provision of an operator with the crawler crane and is often suited to end customers unable or unwilling to provide an operator of their own. Manned rental involves the maintenance of adequate staffing levels to ensure equipment can be rented as required. Essex Crane operates a bare rental model.
 
Operations
 
Essex Crane is a national provider of crawler crane and attachment rentals with more than 350 crawler cranes and attachments in it fleet. Revenue is driven through a range of activities including:
 
 
·
crawler crane and attachment rental;
  
·
repair and maintenance services;
  
·
equipment transportation services; and
  
·
used equipment sales.
 
Crawler crane and attachment rental . Essex Crane maintains one of the largest fleets of crawler cranes and attachments in North America. Pro forma rental revenues generated from the rental of cranes and attachments were $61.8 million in 2008 or approximately 72.5% of total pro forma revenue. Equipment is rented to customers under contract, with an average length of nine months (contracts range from 6-18 months in general), which specifies a constant monthly rate for each piece of equipment over the period of the contract. In 2008, Essex Crane’s average monthly crane rental rate was $21,382 and crane utilization was 72.5% on the “days” basis (or 77.0% if calculated using the “hits” method).  For a discussion of the “hits” and “days” methods of measuring crane utilization, see “Fleet Overview” below.
 
Once Essex Crane and a potential customer communicate regarding the customer’s need for a bare lattice boom crawler crane rental, Essex Crane confirms that an appropriate crane is available. Essex Crane then prepares and delivers a written rental quote to the customer. The customer reviews the quote and, if acceptable, places an order.

 
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Essex Crane’s on-line, real time information system provides visibility of the entire crane rental fleet for the sales team including cranes lease information and expected availability. All sales team quote and order activity is also available on the same information system and viewable by appropriate sales, operations, and management personnel.
 
Upon a review of the order including a check of the customer’s credit and continued crane availability, an order confirmation and a lease are sent to the customer. Once a signed lease and other required documentation (including insurance certificates) are received, the order is authorized for shipment to the customer. Essex Crane’s operations team sees both the quote and order activity and responds appropriately to confirm the readiness of the required crane for shipment to the new rental, but does not begin shipping it until the lease is authorized. Once the crane is delivered to the customer’s site, an Essex Crane representative inspects the crane with the customer and an inspection report is signed verifying that the crane was correctly delivered in accordance with the lease agreement. Rental for the equipment usually begins when the first major item for the crane is shipped to the customer and the rental ends when the last major item of the crane is returned to Essex Crane’s designated location.
 
Repair and maintenance services . Essex Crane’s contracts have provisions that provide for the customer to assume responsibility to maintain the equipment to manufacturer’s specifications throughout the contract period. Essex Crane may provide maintenance and repair services to customers during the contract rental period and will invoice the customer for any work carried out (to the extent such work is the customer’s responsibility). Pro forma revenues from such repair and maintenance services totaled $6.9 million in 2008 or approximately 8.1% of pro forma total revenue. While a piece of equipment is not rented, Essex Crane assumes responsibility to ensure that its equipment is compliant with all the manufacturer’s specifications and other regulations.
 
Equipment transportation services . Essex Crane does not have an in-house fleet of vehicles to transport its cranes and attachments to and from project sites and instead out-sources transportation to third party providers. Essex Crane charges a fee for arranging transportation services from its nearest storage yard with the required equipment to the construction location. In 2008, pro forma transportation revenue was $8.2 million or about 9.6% of pro forma total revenue.
 
Used equipment sales . Given the size of its crane fleet and the various types of crawler cranes, Essex Crane sells pieces of used equipment both domestically and internationally to construction or other rental companies. Sales of equipment are discretionary and based on a variety of factors including, but not limited to, a piece of equipment’s orderly liquidation value, age, rental yield, perceived demand in the marketplace and the impact of a sale on Essex Crane’s rental businesses and cash flow.
 
Fleet Overview
 
Essex Crane’s fleet consists of over 350 lattice boom crawler cranes and attachments manufactured solely by  Manitowoc and Liebherr. The fleet has a maximum lifting capacity ranging from 100 to 440 tons and includes a range of different aged equipment. As of December 31, 2008, Essex Crane’s fleet’s average lifting capacity was 230 tons and average age was 17 years (weighted based on orderly liquidation value). Essex Crane owns all of its crawler cranes and attachments and does not lease any of these items from third parties.
 
Essex Crane’s management has employed a strategy of increasing the average lifting capacity of the crawler crane fleet by selling lower capacity models and investing in higher capacity models. This has resulted in average lifting capacity growing from approximately 177 tons in 2003 to approximately 230 tons as of December 31, 2008. Attachments are rented by customers to enhance the lifting capacity and reach of cranes. While Essex Crane’s cranes have lifting capacities of up to 440 tons, its attachments increase the capacity to up to a total of 660 tons. Management has employed this strategy as it believes larger cranes are more applicable to larger construction projects, are less readily substitutable with other equipment, receive above average utilization rates and provide attractive rental rate returns. While this strategy has resulted in a shrinking of the total number of cranes in the fleet since 2003, average rental rate and utilization have grown significantly over the same period.
 

 
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Essex Crane measures equipment utilization using what are referred to as the “hits” method and the “days” method. In the hits method, a piece of equipment on rent for anytime in a month counted as a utilization hit. This meant that if a piece of equipment were on rent for one day in a month it would be treated the same in the utilization statistic as a piece of equipment on rent for the entire month. Our management believes that the “hits” utilization measurement has a less direct correlation with equipment rental revenue.

In 2002, Essex Crane implemented a new enterprise resource software application, or ERP System, which fully integrated Essex Crane’s operational and financial data.  Upon implementation of the ERP System, Essex Crane began to measure utilization using the method referred to as the “days” method. Our management believes that this method, while it may reflect lower utilization rates than the “hits” method, is the most accurate method for measuring equipment utilization and correlates the most closely with rental revenue. Under this method, a real time report is generated from the ERP system for each piece of equipment on rent in a period. The report includes the number of days each piece of equipment was on rent on a particular lease and the base monthly rental rate. The total number of days on rent of all pieces of equipment provides the numerator for determining utilization. The denominator is all equipment rental assets owned times the number of days in the month. The “days” method is the utilization measurement currently used by Essex Crane, and we anticipate that the “days” method will be the basis for future disclosure of utilization rates for Essex Crane’s cranes and attachments.
 
The following table outlines utilization rates (calculated using the “days” and “hits” methods) and monthly rental rates for the fleet over time:
 
     
Avg. Monthly Crane
     
Avg. Crane
Utilization Rate
     
Avg. Monthly Attachment
     
Avg. Attachment
Utilization Rate
 
Year
   
Rental Rate
     
Days
     
Hits
     
Rental Rate
     
Days
     
Hits
 
2006
  $ 13,779       68.9 %     72.6 %   $ 8,039       34.9 %     38.9 %
2007
  $ 16,266       72.1 %     76.3 %   $ 14,243       24.6 %     27.3 %
2008
  $ 21,382       72.5 %     77.0 %   $ 16,051       42.0 %     44.2 %
 
 
Lattice boom crawler cranes have long useful economic lives, often up to 50 years or more. This is longer than other types of cranes and equipment in the lifting market space. Our management believes this is due to the relatively high value of the crane’s structural steel (including its boom) as it relates to the total value of the crane. These structural steel items are complex fabrications with high replacement value made from high tensile strength steel. Properly maintained these components retain their value over the life of the crane with minimal ongoing expense.
 
At the conclusion of each rental, the rented equipment is thoroughly inspected in accordance with requirements set by the original equipment manufacturer and OSHA. If maintenance or repairs are required, they are scheduled and completed prior to the next rental. At the start or the next rental, another inspection is made to assure that the equipment is in a rent ready condition and compliant with the inspection requirements. Essex Crane has extensive capabilities to perform major repair and reconditioning of the cranes and attachments. This type of activity is done on an as-needed basis to assure that the equipment provides a high level of availability (uptime) when on rent.
 
Essex Crane maintains a direct relationship with Manitowoc and Liebherr, its two principle crane suppliers. Essex Crane has developed strong long-term relationships with these suppliers.

 
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Sales and Marketing
 
Over its operating history, Essex Crane has expanded its infrastructure of service centers and storage yards to key geographical locations across the United States in order to serve customers in a timely and efficient manner. Essex Crane currently operates 14 service centers and storage yards giving it the ability to service customers throughout North America. Essex Crane employs a sales and marketing team of 13 people across the country, each of whom covers a specific geographic region and reports directly to a senior management executive. Rather than segmenting the fleet by geography or salesperson, the fleet is allocated based upon factors such as rental financial return, customer mix and project mix. As such, each salesperson is highly incentivized to optimize the fleet’s financial returns and sales mix.

Essex Crane markets itself to potential customers through advertising, promotion, membership in construction trade associations and attendance at various meetings and trade shows. In addition Essex Crane’s web site was designed with the goal of being very useful to engineers and designers who determine how a construction project will be built, as well as equipment and project managers who are responsible for the selection of the cranes that will be used to complete the project. Essex Crane’s management believes that Essex Crane’s web site accomplishes this goal by providing more comprehensive crawler crane information regarding the capacities and specifications than may be readily available from other sources.
 
Essex Crane’s sales team uses its extensive relationships with customers and potential users of large lattice boom crawler cranes to identify potential crane rental opportunities. This, combined with Essex Crane’s reputation and brand value, contributes significantly to its sales activity. In recent years, Essex Crane has enhanced this traditional method of lead generation with two lead-generation sales systems. The lead generation systems used by Essex Crane to collect information regarding construction activity from a variety of public records, including building permits. This information is then electronically sorted and filtered, using Essex Crane’s input to focus on jobs that most likely will require a large lattice boom crawler crane. This output is sent directly to the regional sales manager on the Essex Crane sales team who is responsible for the geographic area in which the project will be built. Essex Crane’s management believes that these methods provide a high degree of market visibility and awareness to Essex Crane’s sales team and management.
 
Essex Crane operates a customized rental information management system through which detailed operational and financial information is made available on a daily basis. The system is also used to maintain a detailed database of publicly announced construction projects on which crawler crane equipment will be required. Management and sales personnel use this information to closely monitor business activity by piece of equipment closely, looking at customer trends and proactively responding to changes in the heavy lift marketplace. Essex Crane believes that its disciplined fleet management process, with its focus on project duration and lead time, as well as customer demand, enables Essex Crane to maximize utilization and rental rates.
 
Customers and end markets
 
Essex Crane serves a variety of customers throughout North America, many of which are large engineering and construction firms focused on large infrastructure and infrastructure-related projects that require significant lifting capacity and high mechanical reliability. Approximately 40% of Essex Crane’s revenues are generated by large public works projects and 35% of revenues are derived from repair and maintenance assignments as opposed to new building. Because of the scale and duration of these projects, contract periods range from 6-18 months and average approximately nine months. This provides us with substantial future revenue visibility and project lead generation times. Essex Crane’s revenue generation model and customer base can be contrasted to other equipment rental companies that provide lighter lifting equipment (such a low capacity cranes or equipment such a scissor lifts) that are commonly rented for shorter periods of time and generally serve residential and smaller commercial construction projects.
 
Essex Crane’s end-markets incorporate construction and repair and maintenance projects in the following key sub-sectors:
  
·
industrial /marine – offshore facilities, marine facilities and other industrial facilities;
  
·
power – power plants, cogeneration power and wind power;
  
·
transportation – bridges, roads and canals;
  
·
petrochemicals – offshore platforms, refineries, petrochemical plants and pipelines;
  
·
sewer and water – sewers, treatment plants and pumping plants; and
  
·
general building - sports arenas, hospitals, commercial and residential.
 

 
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Our management believes that demand for its crawler cranes has increased over the last two years as a result of the growth in spending on infrastructure and other key end-markets in the US during such time. Essex Crane’s 12-month revenue backlog grew from approximately $23.4 million at December 31, 2006 to approximately $33.5 million at December 31, 2007 and is approximately $30.3 million at December 31, 2008. As of December 31, 2008, Essex Crane’s estimated revenue backlog stood at approximately 49% of its pro forma 2008 revenue. During the quarter ended December 31, 2008, Essex Crane’s backlog was impacted by uncertainty in the end markets in which Essex Crane’s customers operate caused by declining economic conditions and available credit.
 
Strategy
 
Our management anticipates that the following longer-term market trends will increase demand for lattice boom crawler cranes and attachments in the future and over longer periods:

  
·
Increased levels of infrastructure spending, including the construction of major bridges, airports and water treatment facilities;
  
·
Increased demand for electric power will require construction of additional power plants, including potential for nuclear plants;
  
·
Continued higher energy costs will increase construction activity to improve and expand efficiencies and capacities at refineries, offshore production suppliers, and petrochemical facilities;
  
·
Increased environmental awareness will increase demand for construction of alternative energy sources such as wind power, and clean air requirements including SO2 scrubbers and ash precipitators;
  
·
Continued tendency for contractors to rent larger lattice boom crawler cranes rather than own their own equipment; and
 
·
Modular construction methods, including pre-fabrication, will continue to increase because of potential cost savings and site efficiencies.
 
Increase market share and pursue profitable growth opportunities. Through its fleet size, geographically dispersed service centers and storage yards, which allow Essex Crane to provide equipment for projects throughout the United States and, to a lesser extent, Canada and Mexico, and track record of customer service, Essex Crane intends to take advantage of these trends in order to maximize the opportunities for profitable growth within the North American crawler crane rental market by:

 
·
optimizing fleet allocation across geographic regions, customers and end-markets to maximize utilization and rental rates;
  
·
leveraging Essex Crane’s leading fleet size and composition across the country to increase its customer base and share of its existing customer base’s spending in the sector;
  
·
continuing to align incentives for local sales people and managers with both profit and growth targets;
  
·
pursuing selected acquisitions of other smaller, more regionally focused crawler crane rental fleets or companies complementary to existing operations;
  
·
expanding used equipment sales by positioning used cranes for refurbishment and re-sale; and
  
·
establishing and maintaining existing relationships with international market players and crane manufacturers for future equipment purchase and sale opportunities.
 
Further drive profitability, cash flow and return on capital . Our management believes there are significant opportunities to further increase the profitability of Essex Crane’s operations by:

 
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·
continuing to re-position the fleet by selling older, lighter tonnage cranes and purchasing newer, heavier lifting cranes that command higher margins and are in greater demand due to their ability to service large infrastructure-related projects;
  
·
actively managing the quality, reliability and availability of Essex Crane’s fleet and offering superior customer service in order to support a competitive pricing strategy;
  
·
evaluating each new potential rental contract opportunity based on strict return guidelines and allocating its fleet accordingly;
  
·
using Essex Crane’s size and national market presence to achieve economies of scale in capital investment; and
  
·
leveraging Essex Crane’s extensive customer relationships and success in selling used equipment.
 
Competition
 
The heavy lift equipment rental industry is highly fragmented throughout North America, with a variety of smaller companies, many of which are family-owned, operating on a regional or local scale. Companies that have a national focus generally provide heavy lift rental services across a spectrum of crane types such as all-terrain, truck and tower cranes as well as crawlers. Essex Crane is the only national crane rental services company that focuses exclusively on lattice-boom crawler cranes and attachments. Its fleet of over 350 cranes and attachments is one of the largest crawler crane fleets in North America. Essex Crane’s principal competitors include ALL Erection & Crane Rental, Lampson International, Maxim Crane Works, M.D. Moody & Sons and AmQuip Crane Corp. Some of these competitors operate nationally and others are regional. Most of our competitors do not focus exclusively on the  North American crawler crane market.

We believe that there are four key factors differentiating Essex Crane from its competitors:

 
·
crawler crane focus – Essex Crane is solely focused on heavy lift crawler cranes dedicated to infrastructure and other large construction projects. Other companies also focus on other crane types with lower lift capacities;

 
·
national capabilities – some competitors offer national service capabilities, however most are regional players. Our management believes that a national presence provides the ability to fully service engineering and construction firms with a similar national footprint;
 
 
·
“bare” rental – Essex Crane does not rent its equipment with an operator. While some other operators also rent equipment bare, generally equipment is rented with an operator; and
 
 
·
outsourced transport – unlike many of its competitors, Essex Crane does not operate an in-house transport department. In management’s view, this allows Essex Crane to focus on core competencies and removes the need for capital investment in truck fleets and associated infrastructure.
 
Competition in the heavy lift equipment rental segment is intense and is defined by equipment availability, reliability, service and price. Our management believes that Essex Crane’s extensive crawler crane and attachment fleet, national presence and sales force, client relationships and equipment allocation and management systems provide Essex Crane with a good scale and competitive positioning within the industry relative to its peers.
 
Risk of Loss and Insurance
 
The operation of lattice boom crawler cranes includes risks such as a mechanical and structural failures, physical damage, property damage, operator overload or error, equipment loss, or business interruptions. Essex Crane primarily rents its cranes and attachment on a “bare” lease and seldom supplies the operator or performs the routine scheduled maintenance on the equipment. Essex Crane requires the lessee to supply a primary insurance policy covering the loss of the equipment and general liability for claims initiated by an accident, storm, fire or theft. Essex Crane also requires that it be named as an additional insured and the loss payee on the lessee’s insurance policy. Essex Crane’s lease agreement also requires the lessee to indemnify Essex Crane for any injury, damage and business interruption caused by the crane or the attachment while it is being leased. Essex Crane maintains secondary insurance coverage for any claim not covered by the lessee’s insurance, however, Essex Crane cannot guarantee that its insurance or the insurance of its customers will cover all claims or risks or that any specific claim will be paid by an insurer.

 
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Government Regulation
 
Federal, state and local authorities subject Essex Crane’s facilities and operations to requirements relating to environmental protection, occupational safety and health and many other subjects. These requirements, which can be expected to change and expand in the future, impose significant capital and operating costs on Essex Crane’s business.
 
The environmental laws and regulations govern, among other things, the discharge of substances into the air, water and land, the handling, storage, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. Environmental laws also impose obligations and liability for the investigation and cleanup of properties affected by hazardous substance spills or releases. Essex Crane can be subject to liability for the disposal of substances which it generates and for substances disposed of on property which it owns or operates, even if such disposal occurred before its ownership or occupancy. Accordingly, Essex Crane may become liable, either contractually or by operation of law, for investigation, remediation and monitoring costs even if the contaminated property is not presently owned or operated by Essex Crane, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. In addition, because environmental laws frequently impose joint and several liability on all responsible parties, Essex Crane may be held liable for more than its proportionate share of environmental investigation and cleanup costs. Contamination and exposure to hazardous substances can also result in claims for damages, including personal injury, property damage, and natural resources damage claims. Some of Essex Crane’s properties contain, or previously contained, above-ground or underground storage tanks and/or oil-water separators. Given the nature of Essex Crane’s operations (which involve the use and disposal of petroleum products, solvents and other hazardous substances for fueling and maintaining its cranes, attachments and vehicles) and the historical operations at some of its properties, Essex Crane may incur material costs associated with soil or groundwater contamination. Under environmental and safety laws, Essex Crane may be liable for, among other things, (i) the costs of investigating and remediating contamination at our sites as well as sites to which we sent hazardous wastes for disposal or treatment regardless of fault and (ii) fines and penalties for non-compliance. We incur ongoing expenses associated with the performance of appropriate investigation and remediation activities at certain of our locations.
 
Essex Crane’s operations are also subject to federal, state and local laws and regulations pertaining to occupational safety and health, most notably standards promulgated by OSHA. Essex Crane is subject to various OSHA regulations that primarily deal with maintaining a safe work-place environment. OSHA regulations require Essex Crane, among other things, to maintain documentation of work-related injuries, illnesses and fatalities and files for recordable events, complete workers compensation loss reports and review the status of outstanding worker compensation claims, and complete certain annual filings and postings. Essex Crane may be involved from time to time in administrative and judicial proceedings and investigation with these governmental agencies, including inspections and audits by the applicable agencies related to its compliance with these requirements.   

Customers
 
Our customer base is highly diversified and ranges from Fortune 500 companies to small businesses and homeowners. Our largest customer accounted for less than 10 percent of our revenues in 2008 and our top 5 customers accounted for less than 16% percent of our revenues in 2008. Historically, we have typically retained over 60% percent of our customer base year-over-year while adding new customers as we grow our revenues.

 
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Our customer base varies by branch and is determined by several factors, including the equipment mix and marketing focus of the particular branch as well as the business composition of the local economy. Our customers include:
 
 
 
construction companies that use equipment for constructing and renovating commercial buildings, warehouses, industrial and manufacturing plants, office parks, airports, residential developments and other facilities;
 
 
 
industrial companies—such as manufacturers, refineries, chemical companies, paper mills, railroads, ship builders, off-shore fabricators and utilities, including wind farms—that use equipment for plant maintenance, upgrades, expansion and construction;
 
 
 
municipalities that require equipment for a variety of purposes; and
 
 
 
repair and maintenance to major renovation projects for owners of commercial and industrial facilities, such as power companies.
 
Our business is somewhat seasonal, with demand for our rental equipment tending to be lower in the winter months.
 
Suppliers
 
Our strategic approach with respect to our suppliers is to maintain the minimum number of suppliers per category of equipment that can satisfy our anticipated volume and business requirements. This approach is designed to ensure the terms we negotiate are competitive and that there is sufficient product available to meet anticipated customer demand. We utilize a comprehensive selection process to determine our equipment vendors. We consider product capabilities and industry position, product liability history and financial strength.
 
We have been making ongoing efforts to consolidate our vendor base in order to further increase our purchasing power. We estimate that our largest supplier accounted for approximately 24.6% of our 2008 total purchases, including equipment for rental, and that our 2 largest suppliers accounted for approximately 43.3% of such purchases. We believe we have sufficient alternative sources of supply available for each of our equipment.

Seasonality
 
     Although our business is not significantly impacted by seasonality, the demand for our rental equipment tends to be lower in the winter months. The level of equipment rental activities are directly related to commercial and industrial construction and maintenance activities.  Therefore, equipment rental performance will be correlated to the levels of current construction activities. The severity of weather conditions can have a temporary impact on the level of construction activities.
 
Employees

As of December 31, 2008 Essex Crane had 128 employees, four of which are senior management, 16 of which are other corporate office staff, nine of which are operational key management and 11 of which are employed in the sales and marketing team. Approximately seven of Essex Crane’s staff are affiliated with trade unions.  Essex Crane has not experienced in the last 10 years any work stoppage as a result of issues with labor or with unions and believes that its relationship with its employees is good. There is not currently a campaign by any union to organize additional employees of Essex Crane.  
 
Availability of Information
 
We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
 
Risk Factors
 
Our business may be adversely affected by changing economic conditions beyond our control, including decreases in construction or industrial activities.
 
The heavy crane rental industry’s revenues are closely tied to conditions in the end markets in which Essex Crane’s customers operate and more broadly to general economic conditions. Essex Crane’s products are used primarily in infrastructure-related projects and other non-residential construction projects in a variety of industries (including the power, transportation infrastructure, petrochemical, municipal construction and industrial and marine industries). Consequently, the economic downturn, and particularly the weakness in Essex Crane’s end markets may lead to a significant decrease in demand for its equipment or depress equipment rental and utilization rates and the sales prices for equipment we sell.  During periods of expansion in Essex Crane’s end markets, Essex Crane generally has benefited from increased demand for its products. Conversely, during recessionary periods in its end markets, Essex Crane has been adversely affected by reduced demand for its products. Weakness in Essex Crane’s end markets, such as a decline in non-residential construction, infrastructure projects or industrial activity, may in the future lead to a decrease in the demand for Essex Crane’s equipment or the rental rates or prices it can charge. Factors that may cause weakness in Essex Crane’s end markets include but are not limited to:

 
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·
slowdowns in non-residential construction in the geographic regions in which Essex Crane operates;
 
·
reductions in corporate spending for plants, factories and other facilities; and
 
·
reductions in government spending on highways and other infrastructure projects.
 
Future declines in non-residential construction, infrastructure projects and industrial activity could adversely affect Essex Crane’s operating results by decreasing its revenues and profit margins.  Continued weakness or further deterioration in the non-residential construction and industrial sectors caused by these or other factors could have a material adverse effect on our financial position, results of operations and cash flows in the future and may also have a material adverse effect on residual values realized on the disposition of our rental fleet.  Declines in Essex Crane’s order backlog should be considered as an indication of a decline in the strength of the non-residential construction markets.

The current worldwide economic downturn may have an adverse impact on our business and financial condition in ways that we currently cannot predict.

The current worldwide economic downturn — which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide and concerns that the worldwide economy may enter into a prolonged recessionary period — make it increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand trends, which could reduce the utilization rate of our fleet.  Alternatively, this forecasting difficulty could cause a shortage of equipment available for rental that could result in an inability to satisfy demand for our products and a loss of market share.

Fluctuations in the stock market, as well as general economic and market conditions, may impact the market price of our common stock.

The market price of our common stock has been and may continue to be subject to significant fluctuations in response to general economic changes and other factors including, but not limited to:

 
·
variations in our quarterly operating results or results that vary from investor expectations;
 
 
·
changes in the strategy and actions taken by our competitors, including pricing changes;
 
 
·
securities analysts’ elections to not to cover our common stock, or, if analysts do elect to cover our common stock, changes in financial estimates by analysts, or a downgrade of our common stock or of our sector by analysts;
 
 
·
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
 
 
·
loss of a large supplier;
 
 
·
investor perceptions of us and the equipment rental and distribution industry;
 

 
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·
our ability to successfully integrate acquisitions and consolidations; and
 
 
·
national or regional catastrophes or circumstances and natural disasters, hostilities and acts of terrorism.
 
Broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, the stock market in recent years has experienced price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as general economic and market conditions, including to those listed above and others, may harm the market price of our common stock.
 
We are dependent upon key personnel whose loss may adversely impact Essex Crane’s business and our results of operations.
 
We depend on the expertise, experience and continued services of Essex Crane’s senior management employees, especially Ronald Schad, Essex Crane’s and the Company’s President and Chief Executive Officer, Martin Kroll, Essex Crane’s and the Company’s Chief Financial Officer and Essex Crane’s Senior Vice President, William Erwin, Essex’s Vice President Operations and Customer Support and William O’Rourke, Essex Crane’s Vice President Sales and Account Management.  Mr. Schad has acquired specialized knowledge and skills with respect to Essex Crane and its operations and most decisions concerning the business of Essex Crane will be made or significantly influenced by him. The loss of Mr. Schad, Mr. Kroll, Mr. Erwin or Mr. O’Rourke or other senior management employees, or an inability to attract or retain other key individuals, could materially adversely affect us.  We seek to compensate and incentivize our key executives, as well as other employees, through competitive salaries and bonus plans, but there can be no assurance that these programs will allow us to retain key employees or hire new key employees. As a result, if Messrs. Schad, Kroll, Erwin, and/or O’Rourke were to leave Essex Crane, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivity while any such successors obtain the necessary training and experience. In connection with the acquisition, we entered into three-year employment agreements with each of Messrs. Schad, Kroll, Erwin and O’Rourke. However, there can be no assurance that the terms of these employment agreements will be sufficient to retain Messrs. Schad, Kroll, Erwin and/or O’Rourke.

Essex Crane’s dependence on a small number of crane manufacturers poses a significant risk to our business and prospects.
 
Essex Crane’s crane fleet has historically been comprised of only Manitowoc and Liebherr crawler cranes. Given Essex Crane’s reliance on two manufacturers for its entire fleet of crawler cranes, and limited alternative sources of crawler cranes, if either of these manufacturers were unable to meet expected manufacturing timeframes due to, for example, natural disasters or labor strikes, Essex Crane may experience a significant increase in lead times to acquire new equipment or may be unable to acquire such equipment at all. Any inability to acquire the model types or quantities of new equipment on a timely basis to replace older, less utilized equipment would adversely impact our future financial condition or results of operations.
 
In addition, Essex Crane has developed strong relationships with Manitowoc and Liebherr. There can be no assurance that Essex Crane will be able to maintain its relationships with these suppliers. Termination of Essex Crane’s relationship with these suppliers could materially and adversely effect our business, financial condition or results of operations if such termination resulted in Essex Crane being unable to obtain adequate rental and sales equipment from other sources in a timely manner or at all.
 
The cost of new equipment Essex Crane uses in its rental fleet is increasing, which may cause Essex Crane to spend significantly more for replacement equipment, and in some cases we may not be able to procure equipment at all due to supplier constraints.

Essex Crane’s business model is capital intensive and requires significant continual investment in new cranes to meet customer demand. As a result, our financial condition and results of operations may be significantly impacted by a material change in the pricing of new cranes acquired by Essex Crane. Such changes may be driven by a number of factors which include, but are not limited to:

 
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·
steel prices – due to the high tensile steel component of the cranes, significant changes in the price of steel can materially change the cost of acquiring a crane;

 
·
global demand – the market for crawler cranes is global and significant growth in overseas demand for cranes could materially increase the cost of new cranes regardless of US economic conditions;

 
·
US economy – overall inflationary conditions in the US may impact the operating costs of one of Essex Crane’s key crane suppliers and therefore impact crane pricing for customers such as Essex Crane; and

 
·
currency fluctuations – as one of Essex Crane’s principal suppliers is based in Europe, devaluation of the US dollar (as compared to the Euro) may materially increase the cost of acquiring cranes and attachments; conversely, inflation of the value of the US dollar may adversely affect Essex Crane’s revenues from international sales of used cranes and attachments.

While Essex Crane can manage the size and aging of its fleet generally over time, eventually it must replace older equipment in its fleet with newer models.  We would be adversely impacted if Essex Crane were unable to procure crawler cranes to allow it to replace our older and smaller capacity crawler cranes over time as anticipated.

If we are unable to obtain additional capital as required, we may be unable to fund the capital outlays required for the success of our business, including those relating to purchasing equipment and to acquiring new rental locations.

Our ability to compete, sustain our growth and expand our operations through new locations largely depends on access to capital. If the cash we generate from Essex Crane’s business, together with cash on hand and cash that we may borrow under Essex Crane’s new credit facility is not sufficient to implement our growth strategy and meet our capital needs, we will require additional financing. However, we may not succeed in obtaining additional financing on terms that are satisfactory to us or at all. In addition, our ability to obtain additional financing is restricted by Essex’s  new credit facility, which became effective upon the closing of our acquisition of Essex. If we are unable to obtain sufficient additional capital in the future, we may be unable to fund the capital outlays required for the success of our business, including those relating to purchasing cranes and attachments and to new service locations or storage yards. Furthermore, any additional indebtedness that we do incur may make us more vulnerable to economic downturns and may limit their ability to withstand competitive pressures.

If we are successful in our efforts to expand our operations, through new locations, acquisitions or additional equipment such expansion may result in risks and costs associated with business start-up and integration.
 
The opening of new service locations or storage yards or the completion of any future acquisitions of other equipment rental companies may result in significant start-up or transaction expenses and risks associated with entering new markets in which we have limited or no experience. New service locations and storage yards require significant up-front capital expenditures and may require a significant investment of our management’s time to successfully commence operations. New locations may also require a significant amount of time to provide an adequate return on capital invested, if any. In addition, in the event that Essex Crane were to acquire different types of cranes and attachments than those it currently rents, or different classes of rental equipment, there can be no assurance that our customers would choose to rent such items from us or would do so at such rates or on such terms, that would be acceptable to us.
 

 
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Our ability to realize the expected benefits from any future acquisitions of other equipment rental companies depends in large part on our ability to integrate and consolidate the new operations with our existing operations in a timely and effective manner. In addition, we may fail or be unable to discover certain liabilities of any acquired business, including liabilities relating to noncompliance with environmental and occupational health and safety laws and regulations. Any significant diversion of management’s attention from our existing operations, the loss of key employees or customers of any acquired business, or any major difficulties encountered in opening new locations or integrating new operations could have an adverse effect on our business, financial condition or results of operations.
 
The crane rental industry is competitive.
 
The crane rental industry is highly fragmented and is served by companies who focus almost exclusively on crane and lifting equipment rental. Essex Crane competes directly with regional, and local crane rental companies and a limited number of national crane rental companies (including ALL Erection & Crane, Lampson International and Maxim Crane Works). There can be no assurance that Essex Crane will not encounter increased competition from existing competitors or new market entrants (including a newly-formed competitor created by consolidating several existing regional competitors) that may be significantly larger and have greater financial and marketing resources.
 
Our management believes that rental rates, fleet availability and size and quality are the primary competitive factors in the crane rental industry. From time to time, Essex Crane or its competitors may attempt to compete aggressively by lowering rental rates or prices or offering more favorable rental terms. Competitive pressures could adversely affect our revenues and operating results by decreasing Essex Crane’s market share or depressing the rental rates. To the extent Essex Crane lowers rental rates offers different rental terms or increases its fleet in order to retain or increase market share, Essex Crane’s operating margins would be adversely impacted.
 
Our status as a public company may be a competitive disadvantage.
 
We are and will continue to be subject to the disclosure and reporting requirements of applicable US securities laws and, if our securities are listed on The NASDAQ Capital Market or another national exchange, will be subject to the NASDAQ or such other exchange’s rules. Many of Essex Crane’s principal competitors are not subject to these disclosure and reporting requirements or the NASDAQ or such other exchange rules. As a result, we may be required to disclose certain information and expend funds on disclosure and financial and other controls that may put Essex Crane at a competitive disadvantage to its principal competitors.
 
Essex Crane may encounter substantial competition in its efforts to expand its operations.
 
An element of Essex Crane’s growth strategy is to continue to expand by opening new service centers and equipment storage yards. The success of Essex Crane’s growth strategy depends in part on identifying sites for new locations at attractive prices. Zoning restrictions may in the future prevent Essex Crane from being able to open new service centers or storage yards at sites it has identified.  We may also encounter substantial competition in our efforts to acquire other crane rental companies, which may limit the number of acquisition opportunities and lead to higher acquisition costs.

Our internal controls over financial reporting may be deficient in certain respects and require remedial measures in order to ensure our ability to comply with financial reporting laws and regulations and to publish accurate financial statements.
 
Our internal controls over financial reporting may be deficient in certain respects and such deficiencies could adversely affect our ability to record, process, and summarize and report financial data consistent with the assertions of management in the financial statements.  Any failure to effectively address any such deficiency could disrupt our ability to process key components of our result of operations and financial condition timely and accurately and cause us to fail to meet our reporting obligations under rules of the Securities and Exchange Commission.

 
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The crane rental industry has inherent operational risks that may not be adequately covered by Essex Crane’s insurance.
 
Essex Crane may not be adequately insured against all risks and there can be no assurance that its insurers will pay a particular claim. Even if its insurance coverage is adequate to cover its losses, Essex Crane may not be able to timely obtain a replacement crane in the event of a loss. Furthermore, in the future, Essex Crane may not be able to obtain adequate insurance coverage at reasonable rates for its fleet. Essex Crane’s insurance policies will also contain deductibles, limitations and exclusions which, although management believes are standard in the heavy lift crane rental industry, may nevertheless increase its costs. Moreover, certain accidents or other occurrences may result in intangible damages (such as damages to reputation) for which insurance may not provide an adequate remedy.
 
Essex Crane may not be able to renew its insurance coverage on terms favorable to it that could lead to increased costs in the event of future claims.
 
When Essex Crane’s current insurance policies expire, it may be unable to renew such coverage upon terms acceptable to it, if at all. If Essex Crane is able to renew Essex Crane’s coverage it expects that the premium rates and deductibles may increase as a result of general rate increases for this type of insurance as well as its historical claims experience and that of Essex Crane’s competitors in the industry. If we cannot obtain insurance coverage, it could adversely affect Essex Crane’s business by increasing its costs with respect to any claims. Additionally, existing or future claims may exceed the level of Essex Crane’s present insurance, and its insurance may not continue to be available on economically reasonable or desirable terms, if at all.
 
Essex Crane may not be able to generate sufficient cash flows to meet its debt service obligations.
 
Essex Crane’s ability to make payments on its indebtedness will depend on its ability to generate cash from its future operations.  As of December 31, 2008, Essex Crane has a revolving credit facility which provides for an aggregate debt facility of $190 million of which $137 million is outstanding.  This facility is secured by a first priority lien on all of Essex Crane’s assets and, in the event of default, the lenders generally would be entitled to seize the collateral. In the event of a prolonged economic downturn, Essex Crane’s business may not generate sufficient cash flow from operations or from other sources sufficient to enable it to repay its indebtedness and to fund its other liquidity needs, including capital expenditure requirements and may not be able to refinance any of its indebtedness on commercially reasonable terms, or at all. If Essex Crane cannot service or refinance its indebtedness, we may have to take actions such as asset divestitures, seeking additional equity or reducing or delaying capital expenditures, any of which could have an adverse effect on our operations. Additionally, Essex Crane may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.
 
In the event we incur further debt obligations in relation to acquisitions, or for any other purpose, the exposure to the risks outlined above will increase accordingly.

Essex Crane’s loan agreements contain restrictive covenants that will limit Essex Crane’s corporate activities.
 
Essex Crane’s loan agreements impose operating and financial restrictions that will limit Essex Crane’s ability to:
 
 
·
create additional liens on their assets;
 
·
make investments and capital expenditures above a certain threshold;
 
·
incur additional indebtedness;
 
·
engage in mergers or acquisitions;
 
·
pay dividends or redeem outstanding capital stock;
 
·
sell any of Essex Crane’s cranes or any other assets outside the ordinary course of business; and
 
·
change its business.


 
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Essex Crane will need to seek permission from its lender in order for Essex Crane to engage in some corporate actions. Essex Crane’s lender’s interests may be different from those of Essex Crane, and no assurance can be given that Essex Crane will be able to obtain its lender’s permission when needed. This may prevent Essex Crane from taking certain actions that are in its best interest.
 
Essex Crane is subject to numerous environmental laws and regulations that may result in its incurring unanticipated liabilities, which could have an adverse effect on its operating performance.

Federal, state and local authorities subject Essex Crane’s facilities and operations to requirements relating to environmental protection. These requirements can be expected to change and expand in the future, and may impose significant capital and operating costs on Essex Crane’s business.
 
Environmental laws and regulations govern, among other things, the discharge of substances into the air, water and land, the handling, storage, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. If Essex Crane violates environmental laws or regulations, it may be required to implement corrective actions and could be subject to civil or criminal fines or penalties. There can be no assurance that Essex Crane will not have to make significant capital expenditures in the future in order to remain in compliance with applicable laws and regulations or that Essex Crane will comply with applicable environmental laws at all times. Such violations or liability could have an adverse effect on our business, financial condition and results of operations. Environmental laws also impose obligations and liability for the investigation and cleanup of properties affected by hazardous substance spills or releases. Essex Crane can be subject to liability for the disposal of substances which it generates and for substances disposed of on property which it owns or operates, even if such disposal occurred before its ownership or occupancy. Accordingly, Essex Crane may become liable, either contractually or by operation of law, for investigation, remediation and monitoring costs even if the contaminated property is not presently owned or operated by Essex Crane, or if the contamination was caused by third parties during or prior to Essex Crane’s ownership or operation of the property. In addition, because environmental laws frequently impose joint and several liability on all responsible parties, Essex Crane may be held liable for more than its proportionate share of environmental investigation and cleanup costs. Contamination and exposure to hazardous substances can also result in claims for damages, including personal injury, property damage, and natural resources damage claims. Some of Essex Crane’s properties contain, or previously contained, above-ground or underground storage tanks and/or oil-water separators. Given the nature of Essex Crane’s operations (which involve the use and disposal of petroleum products, solvents and other hazardous substances for fueling and maintaining its cranes, attachments and vehicles) and the historical operations at some of its properties, Essex Crane may incur material costs associated with soil or groundwater contamination. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to remediation liabilities or other claims that may be material.

Environmental requirements may become stricter or be interpreted and applied more strictly in the future. In addition, Essex Crane may be required to indemnify other parties for adverse environmental conditions that are now unknown to us. These future changes or interpretations, or the indemnification for such adverse environmental conditions, could result in environmental compliance or remediation costs not anticipated by us, which could have a material adverse effect on our business, financial condition or results of operations.
 
Essex Crane is subject to numerous occupational health and safety laws and regulations that may result in its incurring unanticipated liabilities, which could have an adverse effect on its operating performance.
 
Essex Crane’s operations are subject to federal, state and local laws and regulations pertaining to occupational safety and health, most notably standards promulgated by the Occupational, Safety and Health Administration, or OSHA. Essex Crane is subject to various OSHA regulations that primarily deal with maintaining a safe work-place environment. OSHA regulations require Essex Crane, among other things, to maintain documentation of work-related injuries, illnesses and fatalities and files for recordable events, complete workers compensation loss reports and review the status of outstanding worker compensation claims, and complete certain annual filings and postings. Essex Crane may be involved from time to time in administrative and judicial proceedings and investigation with these governmental agencies, including inspections and audits by the applicable agencies related to its compliance with these requirements.

 
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To date, Essex Crane’s compliance with these and other applicable safety regulations has not had a material effect on its, Holdings’ or our results of operations or financial condition. Essex Crane’s failure, however, to comply with these and other applicable requirements in the future could result in fines and penalties to Essex Crane and require it to undertake certain remedial actions or be subject to a suspension of its business, which, if significant, could materially adversely effect our business or results of operations. Moreover, Essex Crane’s mere involvement in any audits and investigations or other proceedings could result in substantial financial cost to us and divert our management’s attention. Several recent highly-publicized accidents involving cranes (none of which involved cranes or attachments provided by Essex Crane) could result in more stringent enforcement of work-place safety regulations, especially with respect to companies which rent older cranes and attachments. Additionally, future events, such as changes in existing laws and regulations, new laws or regulations or the discovery of conditions not currently known to Essex Crane, may give rise to additional compliance or remedial costs that could be material.
 
Safety requirements may become stricter or be interpreted and applied more strictly in the future. These future changes or interpretations could have a material adverse effect on our business, financial condition or results of operations.

There are a substantial number of shares of our common stock available for resale in the future that may cause a decrease in the market price of our common stock.
 
In connection with our acquisition of Essex Crane, Holdings issued its Class A Membership Interests to members of Essex Crane’s senior management.  Such membership interests may be exchanged for up to an aggregate of 632,911 shares of our common stock, subject to certain adjustments. We have granted registration rights to Essex Crane’s senior management with respect to the shares of our common stock issuable upon exchange of the retained interests, which entitle Essex Crane’s senior management to file a registration statement with respect to such shares under certain circumstances, including upon demand after the October 31, 2010.  We also expect to file a registration statement with respect to the 1,272,500 shares of our common stock held by Kirtland Capital Company III LLC and Kirtland Capital Partners III LP following the listing of our common stock on the NASDAQ Capital Market or another national securities exchange.

In addition, warrants to purchase an aggregate of 15,037,500 shares of our common stock issued to our initial stockholders, purchasers in our initial public offering and EarlyBirdCapital, Inc. became exercisable upon the closing of the acquisition of Essex Crane.  All of our common stock issuable upon exercise of the warrants will be available for resale upon exercise. Lastly, 2,812,500 shares of our common stock purchased by our initial stockholders prior to our initial public offering will be released from escrow on October 31, 2009, or earlier if we  engage in a transaction resulting in our stockholders having the right to exchange their shares for cash or other securities, and will be eligible for resale in the public market subject to compliance with applicable law. Our initial stockholders are entitled to demand that we  register the resale of their shares of common stock at any time after the date on which their shares are released from escrow.

The presence of this additional number of shares of common stock eligible for trading in the public market may have an adverse effect on the market price of our common stock. In addition, upon exchange of the retained interests for our common stock or exercise of warrants to purchase our common stock, the equity interests of our stockholders, as a percentage of the total number of the outstanding shares of common stock, and the net book value of the shares of our common stock will be significantly diluted.
 
If we are unable to receive a listing of our securities on NASDAQ or another national securities exchange, then it may be more difficult for our stockholders to sell their securities.
 
Shares of our common stock, warrants and units are currently traded in the over-the-counter market and quoted on the OTCBB. We applied to have our common stock, warrants and units included on The NASDAQ Capital Market. There can be no assurance that the listing of our common stock, warrants or units on the NASDAQ Capital Market will be obtained. If we are unable to receive a listing or approval of trading of our securities on NASDAQ or another national securities exchange, then it may be more difficult for its stockholders to sell their securities.

 
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We may issue shares of our common stock and preferred stock to raise additional capital, including to complete a future business combination, which would reduce the equity interest of our stockholders.
 
Our amended and restated certificate of incorporation authorizes the issuance of up to 40,000,000 shares of common stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. We currently have 11,171,333 authorized but unissued shares of our common stock available for issuance (after appropriate reservation for the issuance of shares upon full exercise of our outstanding warrants, employee stock options and unit purchase options, and the number of shares issuable upon exchange of the retained interests) and all of the 1,000,000 shares of preferred stock available for issuance. Although we currently have no other commitments to issue any additional shares of our common or preferred stock, we may in the future determine to issue additional shares of our common or preferred stock to raise additional capital for a variety of purposes, including to complete a future acquisition. The issuance of additional shares of our common stock or preferred stock may significantly reduce the equity interest of stockholders and may adversely affect prevailing market prices for our common stock.
  
Unresolved Staff Comments
 
None.
 
Item 2.
Properties
   
Essex Crane leases its headquarters at 1110 Lake Cook Road, Suite 220, Buffalo Grove, Illinois 60089, which consists of 6,680 square feet of office space. In addition, Essex Crane currently owns the following properties :
 
 
·
Essex Crane owns a service center located at 2039 Fulton Springs Road, Alabaster, Shelby County, Alabama 35007. Land area totals 400,752 square feet and building area totals 28,575 feet.
 
 
·
Essex Crane owns a satellite service center located at 14133 Weld County Road 9.5 Longmont, Weld County, Colorado. The land area of the property totals 409,900 square feet and building area totals 16,000 square feet.
 
 
·
Essex Crane owns a service center located at 5315 Causeway Boulevard Tampa, Hillsborough County, Florida 33619. Gross land area totals 204,732 square feet and building area totals 18,604 square feet.
 
 
·
Essex Crane owns a service center located at 303 Peach Lane Arcola, Fort Bend County, Texas 77583. Gross land   area totals 710,681 square feet and building area totals 36,342 square feet.
 
In addition, Essex Crane leases the following properties throughout the United States:
 
 
·
Satellite service center comprising 33,500 square feet of outside storage space located at 6048 193rd Avenue SW, Rochester, Washington 98579.
 
 
·
Satellite service center comprising 74,476 square feet of outside storage space located at 1072 Harrisburg Pike, Carlisle, PA 17103.
 
 
·
Service Center comprising 6,000 square feet of warehouse space and approximately three acres of outside storage space located at 15060 Ceres Avenue Fontana, CA 92335.


 
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Essex Crane also has agreements which allow it to store equipment at seven additional storage yards located strategically throughout the United States.
 
Essex Crane’s growth strategy includes the establishment of service and storage centers across the United States, with a particular emphasis on new facilities in areas of the United States which our management from time to time believes present growth opportunities for its business. Our management currently believes that growth opportunities exist in the Northeast and Midatlantic regions and intends to investigate potential additional facilities in those regions. We  have not identified specific locations for any such new facilities.
 
We also maintain offices at 461 Fifth Avenue, 25th Floor, New York, New York 10017 pursuant to an agreement with ProChannel Management LLC, an affiliate of Laurence S. Levy, chairman of our board of directors.  Such office is primarily used by our corporate Secretary, Carol Zelinski, and Laurence S. Levy and Edward Levy, each of whom serves on our board of directors.

We consider our current facilities adequate for our current operations.
 
Legal Proceedings
 

From time to time, the Company is party to various legal actions in the normal course of our business.  Management believes that the Company is not party to any litigation that, if adversely determined, would have a material adverse effect on our business, financial condition, result of operations or cash flows.




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

The following proposals were submitted to our stockholders present at a Special Meeting of Stockholders held on October 31, 2008:

 
The proposal to adopt, and approve the transactions contemplated by, the purchase agreement, dated as of March 6, 2008, as amended on May 9, 2008 and August 14, 2008, among the Company, Holdings, Essex Crane, KCP Services LLC, as seller representative, and the members of Holdings, which we refer to as the acquisition proposal.  The acquisition proposal was approved by holders of 12,947,445 shares of our common stock, with holders of 2,357,736 shares voting against the acquisition proposal, no shares abstaining from the vote and no broker non-votes.

 
The proposal to adopt amendments to our certificate of incorporation to change our name from “Hyde Park Acquisition Corp.”  to “Essex Rental Corp.” and to delete certain provisions of our certificate of incorporation that were applicable to us only prior to the completion of a business combination transaction, which we refer to as the amendment proposal.  The amendment proposal was approved by holders of 12,880,170 shares of our common stock, with holders of 1,731,798 shares voting against the amendment proposal, holders of 693,213 shares abstaining from the vote and no broker non-votes.

 
The proposal to adopt the Hyde Park 2008 Long-Term Incentive Plan (an equity-based incentive compensation plan), which we refer to as the plan proposal.  The plan proposal was approved by holders of 12,678,820 shares of our common stock, with holders of 1,933,148 shares voting against the plan proposal,  holders of 693,213 shares abstaining from the vote and no broker non-votes.

 
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PART II
 
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information

Our units, common stock and warrants are traded on the Over-the-Counter Bulletin Board under the symbols, HYDQU, HYDQ and, HYDQW respectively. The following table sets forth the range of high and low closing bid prices for the units, common stock and warrants for the periods indicated since the units commenced public trading on March 13, 2007 and since the common stock and warrants commenced public trading on March 27, 2007. The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

   
Units
   
Common Stock
   
Warrants
 
   
High
   
Low
   
High
   
Low
   
High
   
Low
 
Year ended December 31, 2008
                                   
First Quarter
  $ 9.15     $ 8.33     $ 7.70     $ 7.30     $ 1.32     $ 0.95  
Second Quarter
    9.65       8.97       7.82       7.55       1.97       1.20  
Third Quarter
    9.65       8.75       7.82       7.52       2.08       1.27  
Fourth Quarter
    8.51       3.00       7.74       3.20       1.60       0.60  
Year ended December 31, 2007
                                               
First Quarter
  $ 8.80     $ 8.00     $ 7.27     $ 7.25     $ 1.45     $ 1.40  
Second Quarter
    9.00       8.68       7.35       7.24       1.65       1.35  
Third Quarter
    9.00       8.40       7.43       7.27       1.62       1.13  
Fourth Quarter
    8.48       8.20       7.40       7.28       1.25       0.92  

As of March 27, 2009, there were approximately 136 holders of record of our common stock, four holders of record of warrants and one holder of record of our Units.
 
Dividend Policy

We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends in the near future. The payment of cash dividends in the future will be contingent upon our revenues, earnings, if any, capital requirements and general financial condition.  In addition, we are a holding company and conduct all of our operations through Essex Crane.  As a result, we rely on dividends and distributions to us from our subsidiaries, Essex Crane and Holdings.  Essex Crane’s existing credit facility limits Essex Crane’s and Holdings’ ability to declare and pay dividends or make distributions on account of their capital stock and membership interests, and any debt instruments that the Company or its subsidiaries may enter into in the future may limit our subsidiaries’ ability to pay dividends to us and our ability to pay dividends to our stockholders.  Payment of dividends is within the discretion of our board of directors.  It is the present intention of our board of directors to retain all earnings for future investment and use in business operations.  Accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future on our common stock.

 
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Recent Sales of Unregistered Securities and Use of Proceeds
 
In August 2006 we sold the following shares of common stock without registering under the Securities Act of 1933, as amended:
 

Stockholders
 
Number of Shares
 
Laurence S. Levy
   
1,800,000
 
Edward Levy
   
900,000
 
Isaac Kier
   
112,500
 

Such shares were issued in connection with our organization pursuant to the exemption from registration contained in Section 4(2) of the Securities Act as they were sold to sophisticated, wealthy individuals or entities. The shares issued to the individuals and entities above were sold at a purchase price of $0.0167 per share. Effective February 2, 2007 and February 5, 2007, our board of directors authorized a stock dividend of 0.5 shares and 0.25 shares of common stock, respectively, for each outstanding share of common stock on such dates, effectively lowering the purchase price to approximately $0.009 per share.

The shares issued prior to our initial public offering will be held in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until October 31, 2009. Such shares may be released from escrow earlier than that date if, prior to October 31, 2009, we consummate a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property. During the escrow period, the holders of these shares will not be able to sell or transfer their securities except for limited exceptions.

Simultaneously with the consummation of our initial public offering on March 13, 2007, we consummated the private sale of 1,500,000 warrants at a price of $1.00 per warrant. These warrants were purchased by Laurence S. Levy, Edward Levy and Isaac Kier and are identical to the warrants included in the units sold in the in initial public offering, except that if we call the warrants sold in the initial public offering for redemption, the warrants sold to Messrs. Levy, Levy and Kier may be exercisable on a cashless basis so long as they are held by the purchasers or their affiliates. Messrs. Levy, Levy and Kier agreed that the warrants purchased by them will not be sold or transferred by them until a business combination had been completed.

We used the proceeds from these private sales to our initial stockholders to fund the acquisition of Essex Crane and related expenses, including fees and expenses associated with the identification of Essex Crane as a potential acquisition target, for working capital and for other general corporate purposes.
 
Initial Public Offering
 
On March 13, 2007 we closed our initial public offering of 11,250,000 units with each unit consisting of one share of our common stock, $.0001 par value per share and one warrant, each to purchase one share of common stock. The units were sold at an offering price of $8.00 per unit, generating gross proceeds of $90,000,000. The managing underwriter in the offering was EarlyBirdCapital, Inc. The securities sold in the offering were registered under the Securities Act of 1933 on a registration statement on Form S-1 (No. 333-138452). The Securities and Exchange Commission declared the registration statement effective on March 5, 2007.
 
On March 15, 2007, we consummated the closing of the 1,687,500 units which were subject to the over-allotment option. The 12,937,500 units sold in the initial public offering, including the 1,687,500 units subject to the over-allotment option, generated total gross proceeds of $103,500,000. Of the gross proceeds of the initial public offering (including upon exercise of the over-allotment option) and sale of warrants to Messrs. Levy, Levy and Kier, $99,710,000 (or approximately $7.71 per share sold in the offering) was placed in trust.

 
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We paid a total of $6,117,500 in underwriting discounts and commissions. Of that total, $1,552,500 was accrued and deferred and not payable until we completed the acquisition of Essex Crane. In addition, approximately $563,450 was paid for costs and expenses related to the offering. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the offering, including deferred underwriting discounts of $1,552,500, were approximately $98,423,651, of which $98,210,000 was deposited into the trust account. In addition, all of the proceeds from the private sale of the warrants were deposited into the trust fund, for a total of $99,710,000 held in trust. The remaining proceeds were available to be used to search for potential target businesses, conduct business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. We used $82,118,675 of the proceeds of the initial public offering held in our trust account as of the closing date of the acquisition of Essex Crane to pay the net purchase price in the acquisition.   Approximately $18,705,000 of the proceeds of our initial public offering were paid to holders of our common stock who voted against the acquisition of Essex Crane and exercised their conversion rights.  The remaining balance of $1,814,160 held in the trust account following payment to shareholders who exercised their conversion rights was distributed to us and will be used for general corporate purposes.
 
Purchases of Equity Securities by the Issuer
 
The following table provides information about purchases of the Company’s common stock and warrants by the Company during the fourth quarter of 2008:
 
Period
 
Total Number of
Warrants Purchased
   
Average Price
Paid Per Warrant
   
Total Number of Common
Shares Purchased
   
Average Price
 Paid per Share
 
October 1, 2008 to October 31, 2008 (a)
    -       -       2,,357,736     $ 7.93  
November 1, 2008 to November 30, 2008
    619,500       1.11       2,000       6.68  
December 1, 2008 to December 31, 2008
    799,019       1.03       61,500       4.53  
                                 
  Total
    1,418,519               2,421,236          

(a) 
Represents shares issued in our initial public offering with respect to which holders voted against the acquisition of Essex Crane and exercised their conversion rights.
 
Equity Compensation Plans

For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.


Item 6.
Selected Financial Data
 
This information is not required for a smaller reporting company.


 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations of Essex Rental Corp. and Essex Holdings LLC (Predecessor)
 
  The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A—Risk Factors of this Annual Report on Form 10-K.

Overview

History

All activity from August 21, 2006 (inception) through March 13, 2007 relates to Essex Rental Corp’s (formerly Hyde Park Acquisition Corp.) formation and initial public offering. From March 13, 2007 through October 31, 2008, the Company’s activities were limited to identifying prospective target businesses to acquire and complete a business combination.  On October 31, 2008, the Company consummated the acquisition of Holdings and its wholly-owned subsidiary, Essex Crane, and, as a result, is no longer in the development stage.  For more information regarding the acquisition of Holdings and Essex Crane, see note 2 to our financial statements.

Business
 
Essex Crane is a leading provider of lattice-boom crawler crane and attachment rental services and possesses one of the largest fleets of such equipment in the United States. Over approximately 48 years of operation, since its founding in 1960, Essex Crane has steadily grown from a small, family-owned crane rental company to a private equity owned professionally managed company that today is a public company and one of the leading players in the industry offering lattice boom crawler rental services to a variety of customers, industries and regions mainly throughout the United States and Canada.

 
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Essex Crane’s fleet size currently stands at more than 350 lattice-boom crawler cranes and various types of attachments which are made available to clients depending upon the lifting requirements of its customers such as weight, pick and carry aspects, reach and angle of reach. The fleet’s combination of crawler cranes and attachments is diverse by lift capacity and capability, allowing Essex Crane to meet the crawler crane requirements of its engineering and construction firm customer base. Essex Crane rents its crawler cranes and attachments “bare,” meaning without an Essex Crane-supplied operator, and arranges the transportation of cranes and attachments for its customers in return for a charge for these services. Once the crane is erected on the customer’s site, inspected and determined to be operating properly by the customer’s crane operator and management, the majority of the maintenance and repair costs are the responsibility of the customer while the equipment is on rent. This business model allows Essex Crane to minimize its headcount and operating costs and provides the customer with a more flexible situation where they control the crane operator’s work schedule.
 
Through a network of 4 main service centers, 3 smaller service locations and several remote storage yards, complemented by a geographically dispersed highly skilled staff of sales and maintenance service professionals, Essex Crane serves a variety of customers engaged in construction and maintenance projects related to power plants, refineries, bridge and road, alternative energy, water treatment and purification, hospitals, shipbuilding and other infrastructure and commercial construction. Essex Crane has significantly diversified the end-markets they serve in recent years to avoid over-exposure to any one sector of the construction segment. Essex Crane uses its significant investment in modern ERP systems and business process methods to help its management assimilate information more quickly than others in their industry, thereby providing real time visibility of the factors they have to effectively manage to achieve their goals. Essex Crane’s end-markets are characterized by medium to large construction projects many times with longer lead times. Management believes that these longer lead times, coupled with most contracts having rental periods of between 6 and 18 months, provide them more visibility over future project pipelines and revenues.

Essex Crane generates revenue from a number of sources as follows:

·   
Equipment rentals – Essex Crane rents its fleet of over 350 cranes and attachments to a variety of engineering and construction customers under contracts, most of which have rental periods of between 6 and 18 months. The contracts typically provide for an agreed rental rate and a specified rental period. Essex Crane’s revenue from crane and attachment rentals is primarily driven by rental rates (which are typically higher for the more expensive cranes with heavier lifting capacities than less expensive cranes with lower lifting capacities) charged to its customers and its fleet utilization rate. Rental revenue is recognized as earned in accordance with the terms of the relevant rental contract on a pro rata daily basis;
 
·   
Used rental equipment sales revenue – in Essex Crane’s ordinary course of business, it sells used cranes and attachments over time to optimize the combination of crane models and lifting capacities available in its fleet as it perceives market demands and opportunities. On average, Essex Crane has historically achieved sale prices for equipment in excess of the carrying value. This is due to the long useful life of Essex Crane’s crane and attachment fleet, the conditions prevailing in the secondary market and the high content of engineered high-strength steel included in these fleet assets. Used rental equipment sales are recognized upon acceptance by the customer or the execution of a definitive sales agreement stipulating the date of transferring the risk of ownership. The gain on sale of rental equipment historically will not be indicative of near term future results in light of Essex Crane’s recent acquisition since the rental equipment has been adjusted to fair value as of the closing date, thereby reducing future gain on sale;
 
·   
Transportation revenue – transportation revenue is derived from Essex Crane’s management of the logistics process by which Essex Crane’s rental equipment is transported to and from customers’ construction sites, including the contracting of third party trucking for such transportation. Transportation revenue is earned under equipment rental agreements on a gross basis representing both the third-party provider’s fee for transportation and Essex Crane’s fee for managing these transportation services and they are matched with the associated costs, and related costs for amounts paid to third party providers. The key drivers of transportation revenue are crane and attachment utilization rates and average contract lengths. Shorter average contract durations and high utilization rates generally result in higher requirements for transportation of equipment and resulting revenue. The distance that equipment has to move between different jobsites and the type of equipment being moved (number of truckloads) are also major drivers of transportation revenue and associated costs. Transportation revenue is recognized upon completion of the transportation of equipment; and
 
 
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·   
Equipment repair and maintenance revenue – while crawler cranes or attachments are on rent, most of the repair and maintenance work is paid for by the customer. Essex Crane performs a portion of the repair and maintenance work and recognizes revenue for such services to the extent they are the customer’s responsibility. This category of revenue also includes Essex Crane providing certain services while erecting the equipment during initial assembly or disassembly of the equipment at the end of the rental. Key drivers for repair and maintenance revenue are the utilization rates for cranes and attachments as well as jobsite operating conditions. Repair and maintenance revenue is recognized as such services are performed.
 
In summary, 72.5% of pro forma total revenue for the year ended December 31, 2008 was generated through equipment rental, 9.9% through pro forma used rental equipment sales, 9.6% through pro forma transportation services and  8.1% through pro forma repair and maintenance services.
 
Fleet utilization and average rental rates both have increased over the three year period presented (both of which are considered by management to be fundamental indicators of business performance), in part as a result of the improvement of the crane and attachment fleet through used rental equipment sales and new rental equipment purchases.
 
Historically, Essex Crane measured equipment utilization using what was referred to as the “hits” method. In this method, a piece of equipment on rent for anytime in a month counted as a utilization hit. This meant that if a piece of equipment were on rent for one day in a month it would be treated the same in the utilization statistic as a piece of equipment on rent for all 30 days in a month. Essex Crane's management believes that the “hits” utilization measurement had a less direct correlation with equipment rental revenue.

After Essex Crane implemented a new ERP system in 2002, it began to measure utilization using the method referred to as the “days” method. Essex Crane's management believes that this method, while it may reflect lower utilization rates than the “hits” method, is the most accurate method for measuring equipment utilization and correlates the most closely with rental revenue. Under this method, a real time report is generated from the ERP system for each piece of equipment on rent in a period. The report includes the number of days each piece of equipment was on rent on a particular lease and the base monthly rental rate. The total number of days on rent of all pieces of equipment provides the numerator for determining utilization. The denominator is all equipment rental assets owned times the number of days in the month. The “days” method is the utilization measurement currently used by Essex Crane, and Essex Crane anticipates that the “days” method will be the basis for future disclosure of utilization rates for Essex Crane’s cranes and attachments.
 
Essex Crane’s investment decisions contributed greatly to the repositioning Essex Crane’s fleet to further enhance its utilization rates and the associated gains in average rental rates. During the periods reported:
 
·   
utilization rates of cranes improved from 68.9% (or 72.6%, if calculated using the “hits” method) in 2006 to 72.5% (or 77.0%, if calculated using the “hits” method) in 2008 on a pro forma basis;
 
·   
average crane rental rates increased from $13,779 in 2006 to $21,382 in 2008, and average attachment rental rates increased from $8,039 in 2006 to $16,051 in 2008 on a pro forma basis;
 
·   
utilization rates of attachments increased from 34.9% (or 38.9% if calculated using the “hits” method) in 2006 to 42.0% (or 44.2% if calculated using the “hits” method) in 2008 on a pro forma basis.
 
These improvements are also reflected in Essex Crane’s operating results and cash flow. During the period from December 31, 2006 through December 31, 2008:
 
·   
Revenue increased by 38.4% from $61.6 million in 2006 to $85.3 million on a pro forma basis in 2008 and equipment rental revenue increased by 48.6% from $41.6 million in 2006 to $61.8 million on a pro forma basis in 2008;
 
 
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·   
cost of revenue increased by 19.8% from $31.7 million in 2006 to $38.0 million on a pro forma basis in 2008, but decreased as a percentage of total revenue from 51.4% to 44.5%;
 
·  
selling, general and administrative expenses increased by 102.6% from $8.7 million in 2006 to $17.7 million on a pro forma basis in 2008, but this included $6.2 million of acquisition transaction related costs. As a percentage of total revenue these costs increased from 14.2% to 20.7%; however, excluding these acquisition transaction related costs they increased by 31.7% from 2006 to the combined 2008 and were 13.5% of pro forma total revenues for 2008.
 
Many of the market sectors served by Essex Crane were not as adversely affected by the weakening economy as the residential and light commercial sectors, which are not significant markets for Essex Crane. Management believes that, in the long-term, Essex Crane’s strong niche market position and improvements in its fleet due to investment in new cranes will provide similar future growth trends.  Management bases such belief on the assumption that, in the long-term, there will be improvements in our customers’ ability to obtain financing, including credit, for infrastructure projects.  We cannot assure you that Essex Crane’s customers’ access to financing for infrastructure projects, including credit, will improve.
 
Results of Operations

Essex Rental Corp.   – Year ended December 31, 2008 compared to year ended December 31, 2007 and year ended December 31, 2007 compared to the period from inception (August 21, 2006) to December 31, 2006

Essex Rental was formed on August 21, 2006 as Hyde Park Acquisition Corp. to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating company.   Essex Rental consummated its initial public offering on March 13, 2007. All activity from August 21, 2006 through March 13, 2007 related to the formation and initial public offering. From March 13, 2007 until October 31, 2008, the Company had been searching for prospective target businesses to acquire and, on October 31, 2008, we acquired Essex Crane through the acquisition of substantially all of the membership interests in Holdings.  For more information regarding the acquisition of Essex Crane, see note 2 to our financial statements.

Essex Rental had a net loss of $11.9 million for the year ended December 31, 2008, including an after-tax charge related to goodwill impairment of approximately $14.8 million ($23.9 million gross). Absent that item, net income would have been approximately $2.9 million.  Essex Rental’s financial results for the year ended 2008 include the operations of Essex Crane for the two month post acquisition period.  Total revenue, cost of revenues and gross profit were $14.5 million, $6.7 million and $7.8 million, respectively.  Selling general and administrative expenses of $4.0 million was composed primarily of salaries, payroll taxes benefits, sales and marketing, insurance, professional fees, rent and travel expenses and included $1.1 million transaction costs.  Interest income from cash held in trust was $1.4 million while interest expense related to Essex Crane’s revolving credit facility was $1.0 million for the year ended December 31, 2008.  Essex Rental had a tax benefit of $8.1 million for the year ended December 31, 2008 primarily related to the net loss before income taxes of $20.0 million.
 
For the year ended December 31, 2007, Essex Rental had a net income of $1.7 million derived from interest income of $2.5 million offset by operating expenses of $0.4 million, including officers' liability insurance, professional fees, travel and other expenses, Delaware franchise taxes, transfer agent and trustee fees, administrative fees, other operating expenses and includes $0.2 million of dead deal costs and $0.4 million of New York State and City income taxes.
 
For the period from inception (August 21, 2006) to December 31, 2006, Essex Rental had a net loss of $402 related to interest income of $1,148 offset by operating expenses of $1,550 related to formation and franchise taxes.

Essex Rental Corp. - Unaudited pro forma fiscal year ended December 31, 2008 operating results compared to unaudited pro-forma fiscal year ended December 31, 2007 operating results

As previously discussed, Essex Rental acquired Holdings and its operating subsidiary Essex Crane on October 31, 2008.  As a result, our consolidated operating results only include Essex Crane’s results of operations since the acquisition date. The following unaudited pro forma financial information provides a comparison of the pro forma results of operations for the years ended December 31, 2008 and 2007 as if we had acquired Holdings (and Essex Crane) on January 1, 2007.  Management believes that the such pro forma comparison provides a more meaningful comparison of our business’s results of operations for the years ended December 31, 2007 and 2008.  The following unaudited pro forma operating results of our business are not intended to be, and not indicative of, the consolidated results of operations of the Company that would have been reported had the acquisition of Holdings (and Essex Crane) been completed as of the dates presented, and are not necessarily indicative of the results to be expected for a full year, going forward.   The unaudited pro forma financial information should be read in conjunction with our historical financial statements and the historical financial statements of Holdings included elsewhere in this Annual Report on Form 10-K.
 
 
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Unaudited Pro-forma
 
   
Years Ended December 31,
 
   
2008
   
2007
 
Total revenue
  $ 85,328,505     $ 77,764,829  
Cost of revenues
    (37,977,116 )     (40,893,732 )
Gross profit
    47,351,389       36,871,097  
Other operating expenses
    42,589,354       10,509,522  
Income from operations
    4,762,035       26,361,575  
Other expenses, net
    (9,469,424 )     (12,097,124 )
(Loss) income before income taxes
    (4,707,389 )     14,264,451  
(Benefit) Provision for income taxes
    (1,068,388 )     4,162,025  
Net income
  $ (3,639,001 )   $ 10,102,426  

For the year ended December 31, 2008 we had a pro forma net loss of $3.6 million compared to pro forma net income a $10.1 million in 2007.  The decrease in pro forma earnings was primarily due to a $23.9 million ($14.8 million net of tax) goodwill impairment charge recorded in 2008.
 
   
Unaudited Pro-forma
 
   
Years Ended December 31,
 
   
2008
   
2007
 
REVENUE
           
             
Equipment rentals
  $ 61,823,678     $ 48,800,490  
Used rental equipment sales
    8,439,805       13,232,768  
Transportation
    8,163,171       8,667,849  
Equipment repairs and maintenance
    6,901,851       7,063,722  
TOTAL REVENUE
  $ 85,328,505     $ 77,764,829  
 
Pro forma revenue for the year ended December 31, 2008 was $85.3 million, a 9.7% increase from $77.8 million for the year ended December 31, 2007.  Pro forma revenue was comprised of the following components:

·   
Pro forma equipment rental revenue, which represented 72.5% of total pro forma revenue, was $61.8 for the year ended December 31, 2008, a 26.7% increase from $48.8 million for 2007. This increase was partly driven by an increase in crane utilization to 72.5% (or 77.0% if calculated using the “hits” method) in the year ended December 31, 2008 from 72.1% (or 76.3% if calculated using the “hits” method) in the year ended December 31, 2007, but mainly driven by an increase in the average crane rental rate of 31.4%, to $21,382 (per crane per rental month) in the year ended December 31, 2008 relative to $16,266 in the year ended December 31, 2007. This increased average crane rental rate represents both rental rate increases for the same models of equipment year over year, as well as a change in the type and lifting capacity of cranes on rent toward larger, higher rental rate cranes as Essex Crane continues to manage the fleet toward larger lifting capacities;
 
 
29

 
 
·   
Pro forma attachment rental revenue, included in equipment rental revenue described above, was $7.0 million for the year ended December 31, 2008, a 22.8% increase from $5.7 million for the fiscal year ended December 31, 2007. This increase was driven by a greater number of higher rental rate attachments being on rent. Attachments vary in rental rate from $2,000 per month to over $100,000 per month for the largest lifting capacity enhancement attachments. Essex Crane maintains an extensive group of attachment assets which are rented along with their cranes and enhance the cranes’ lifting capacity, reach or capability. Accordingly, the utilization percentage for these assets may vary greatly and does not necessarily correlate to rental revenue because of the diversity in rental rates due to the capability and capital cost of the varying attachments. The average utilization of these assets was 42.0% (or 44.2% if calculated using the “hits” method) for the year ended December 31, 2008 and 24.6% (or 27.3% if calculated using the “hits” method) for the year ended December 31, 2007;
 
·   
Pro forma used rental equipment sales revenue, which represented 9.9% of total pro forma revenue, was $8.4 million for the year ended December 31, 2008, a 36.2% decrease from $13.2 million for 2007. These used equipment sales have presented Essex Crane with opportunities to further enhance its combination of cranes and attachments by providing an additional cash flow source for purchasing additional new rental equipment. The number of lower lifting capacity cranes sold by Essex Crane was 23 in 2008 which was a decrease from 45 for the year ended December 31, 2007.  In both years the market presented opportunities to sell many of the lower rental rate units and Essex reinvested the proceeds of such sales into a smaller number of larger cranes and attachments which yield higher utilization rates and higher rental rates on the capital costs and enable Essex to improve its strategic position of its rental fleet for the future;
 
·   
Pro forma transportation revenue, which represented 9.6% of total pro forma revenues, was $8.2 million for the year ended December 31, 2008, a 5.7% decrease from $8.7 million for the year ended December 31, 2007. This decrease is a result of the combination of cranes and attachments rented and the specific distances that equipment had to move for various rentals; and
 
·   
Pro forma repair and maintenance revenue (including rigging and other services), which represented 8.1% of total revenue, was $5.9 million for the year ended December 31, 2008, a 2.3% decrease from $7.1 million for the year ended December 31, 2007. This decrease is attributed to a decrease in demand for repair, maintenance and other services.
 
   
Pro-forma
 
   
Years Ended December 31,
 
   
2008
   
2007
 
COST OF REVENUES
           
             
Salaries, payroll taxes and benefits
  $ 8,041,998     $ 7,320,488  
Depreciation expense (a)
    10,561,967       10,387,438  
Book value of equipment sold
    4,625,783       7,183,496  
Transportation
    6,727,663       6,731,983  
Equipment repairs and maintenance
    6,180,432       7,356,751  
Yard operating expenses
    1,839,273       1,913,576  
                 
TOTAL COST OF REVENUES
  $ 37,977,116     $ 40,893,732  

 (a)
Pro forma adjustments to depreciation expense of $1.8 million and $2.4 million are reflected for the years ended December 31, 2008 and 2007, respectively,  based on the fair value purchase price allocation to the rental equipment which was significantly in excess of the carrying amount of Holdings, thereby increasing depreciation expense.

Pro forma cost of revenue for the year ended December 31, 2008 was $38.0 million for the year ended December 31, 2008, a 7.1% decrease from $40.9 million for the year ended December 31, 2007.  Pro forma cost of revenue was 44.5% of total pro forma revenue for the year ended December 31, 2008, relative to 52.6% for the year ended December 31, 2007. The decrease in cost of revenues resulted from decreases in expenses for  net book value of equipment sold and equipment repairs and maintenance partially offset by increases in the salaries, payroll taxes and benefits and depreciation expenses as described below:
 
 
30

 
 
·  
Pro forma salary, payroll tax and benefit expenses increased 9.9% to $8.0 million for the year ended December 31, 2008, from $7.3 million for the year ended December 31, 2007. The increase was also a direct result of the higher utilization of Essex’s fleet. In addition, all employees, including those who work directly in the generation of revenues, receive bonuses based on Holdings’ financial performance, which had higher payouts due to higher profitability levels, contributing to increased salary and payroll tax expenses.
 
·   
Pro forma depreciation expense related to rental equipment increased 1.7% to $10.6 million for the year ended December 31, 2008, from $10.4 million for the year ended December 31, 2007. The increase in depreciation expense was driven by additional investment in lattice-boom crawler cranes and attachments during 2008 as Holdings enhanced the size and capacity of its fleet.
 
·   
Pro forma net book value of rental equipment sold decreased 35.6% to $4.6 million for year ended December 31, 2008, from $7.2 million for the year ended December 31, 2007. The decrease in net book value of equipment sold was driven by the decrease in the used equipment sales (number of units sold) during 2008 as more fully described in used equipment sale revenue and the higher relative asset basis for the sales occurring after the fair value acquisition accounting.
 
·   
Pro forma equipment repairs and maintenance expenses decreased 16.0% to $6.2 million for the year ended December 31, 2008, from $7.4 million in the year ended December 31, 2007. The decrease was directly impacted by repair and maintenance revenues, a result of the increased crane utilization and combination of equipment rented and also affected by the fleet mix changes as a result of used equipment sales and new equipment investments.
 
·   
Pro forma yard operating expense decreased by 3.9% to $1.8 million for the year ended December 31, 2008, from $1.9 million for the year ended December 31, 2007.  The variances were minimal in this cost category.

Essex Crane’s pro forma gain on the sale of used rental equipment was $3.8 million (45.2% margin, calculated by dividing the gain on the sale divided by the revenue from such sale) for the year ended December 31, 2008 compared to $6.0 million (45.7% margin) for the year ended December 31, 2007.  The lower level of gains on sales was also the result of the lower levels of used equipment sales in the corresponding period discussed above.   As a result, the gain on sale of equipment included in these pro forma financial results for the years ended December 31, 2008 and 2007 may not be indicative of future results since the rental equipment was adjusted to fair value as of the closing date of the acquisition, thereby reducing future gain on sale.
 
   
Unaudited Pro-forma
 
   
Years Ended December 31,
 
   
2008
   
2007
 
             
OTHER OPERATING EXPENSES
           
             
SELLING GENERAL AND ADMINISTRATIVE
  $ 17,698,297     $ 9,568,535  
GOODWILL IMPAIRMENT
    23,895,733       -  
NON-RENTAL DEPRECIATION (a)
    995,324       940,987  
                 
TOTAL OTHER OPERATING EXPENSES
  $ 42,589,354     $ 10,509,522  

(a)
Adjustments to non-rental depreciation expense of $0.9 million and $0.8 million was recorded for the years ended December 31, 2008 and 2007, respectively, based on the purchase price allocation of the fair value of the property and equipment which was significantly in excess of the carrying amount of Holdings, thereby increasing depreciation expense.
 
 
31

 
 
Pro forma selling, general and administrative expenses for the year ended December 31, 2008 was $17.7 million, a 85.0% increase from $9.6 million in the year ended December 31, 2007. This increase was primarily the result of the one-time acquisition transaction related expenses incurred totaling approximately $6.2  million in 2008.  Also, there were higher employee bonus expenses related to the better operating performance of the business, higher sales and marketing expenses and reserves for bad debt, which were partially offset by lower insurance expenses. Pro forma selling, general and administrative expenses increased to 20.7% (13.5% excluding the transaction-related costs) of the pro forma total revenue for the year ended December 31, 2008, from 11.7% for the year ended December 31, 2007.  Key components of administrative expenses include: salaries, payroll taxes and benefits, insurance and selling and marketing expenses.

The Company recorded a one-time charge of $23.9 million for the year ended December 31, 2008 to expense the goodwill related to its October 31, 2008 acquisition.  This non-cash impairment charge is more fully described in note 2 to our consolidated financial statements.

Pro forma non-rental depreciation and amortization expense increased 5.8% to $1.0 million for the year ended December 31, 2008, from $0.9 million for the year ended December 31, 2007.  Both years had a depreciation adjustment for the fair value purchase accounting adjustment and the amortization of the other identifiable intangibles resulting from the acquisition.  The increase in depreciation expense was driven by additional property and equipment acquired during 2008.  

   
Unaudited Pro-forma
 
   
Years Ended December 31,
 
   
2008
   
2007
 
OTHER INCOME (EXPENSES), NET
           
             
Other income, net - insurance recoveries
  $ 55,519     $ 139,669  
Interest expense (a)
    (9,524,943 )     (12,236,793 )
TOTAL OTHER INCOME (EXPENSES), NET
  $ (9,469,424 )   $ (12,097,124 )
 
(a)
Adjustments of $0.7 million and $0.1 million were recorded for the years ended December 31, 2008 and 2007, respectively, for the additional borrowing on the revolving credit facility that was a direct result of the acquisition and for the amortization of deferred financing costs.
 
The pro forma benefit for income taxes was $1.1 million for the year ended December 31, 2008, compared to a $4.2 million pro forma tax provision for the year ended December 31, 2007.  The higher provision for income taxes for the year ended December 31, 2007 is primarily due to higher pre-tax income and partially offset by the reversal of substantially all of the valuation reserve maintained at December 31, 2006.

Essex Crane had 129 full-time employees as at December 31, 2008 compared to 124 full-time employees at December 31, 2007.
 
 
32

 
 
Essex Holdings LLC - Ten months ended October 31, 2008 compared to year ended December 31, 2007  

The following is a discussion of the key factors that impact the consolidated operating results, financial condition, liquidity and cash flows of Holdings for the ten months ended October 31, 2008 compared to the year ended December 31, 2007 and should be read in conjunction with Holdings’ consolidated financial statements and the notes thereto.

The following is a summary of the results of Holdings for the ten months ended October 31, 2008 compared to the year ended December 31, 2008

Total revenue for the ten months ended October 31, 2008 was a $70.8 million compared to $77.8 million for the year ended December 31, 2007. The decline in total revenue was primarily due to a two month shorter period in 2008. Total revenue was comprised of the following components:

 
·
Equipment rental revenue, which represented 72.4% of total revenue, was $51.3 million for the  ten months ended October 31, 2008 compared to $48.8 million or 62.8% of total revenue for the year ended December 31, 2007. This increase was partly driven by an increase in crane utilization, but mainly driven by an increase in the average crane rental rate.  This increased average crane rental rate represents both rental rate increases for the same models of equipment year over year, as well as a change in the type and lifting capacity of cranes on rent toward larger, higher rental rate cranes as Essex continues to manage the fleet toward larger lifting capacities.
 
 
·
Used equipment sale revenue, which represented 9.5% of total revenue, was $6.7 million for the for the ten months ended October 31, 2008 compared to $13.2 million or 17% of total revenue for the year ended December 31, 2007.  This was due to fewer crane sales in the ten month period ended October 31, 2008.  These used equipment sales have presented Essex Crane with opportunities to further enhance its combination of cranes and attachments by providing an additional cash flow source for purchasing additional new rental equipment. The number of lower lifting capacity cranes sold by Essex Crane in 2008 was less than the prior year.  In both years the market presented opportunities to sell many of the lower rental rate units and Essex Crane reinvested the proceeds of such sales into a smaller number of larger cranes and attachments which yield higher utilization rates and higher rental rates on the capital costs and enable Essex Crane to improve its strategic position of its rental fleet for the future.
 
 
·
Transportation revenue, which represented 9.8% of total revenues, was $5.9 million for the ten months ended October 31, 2008 compared to $8.7 million or 11.1% total revenues for the year ended December 31, 2007.
 
 
·
Repair and maintenance revenue (including rigging and other services), which represented 8.3% of total revenue, was $5.9 million for the  ten months ended October 31, 2008 compared to $7.1 million or 9.1% of total revenue for the year ended December 31, 2007.

Cost of revenue for the ten months ended October 31, 2008 was $29.5 million compared to $38.5 million in the year ended December 31, 2007.  Cost of revenue was 41.6% of total revenue for the for the ten months ended October 31, 2008, relative to 49.6% for the year ended December 31, 2007.  The decrease in cost of revenues between the ten months ended October 31, 2008 and year ended December 31, 2007 was due to the two month shorter period in 2008.

 
·
Salary, payroll tax and benefit expenses was $6.7 million for the ten months ended October 31, 2008 compared to $7.3 million for the year ended December 31, 2007.

 
·
Depreciation expense related to rental equipment was $6.9 million for the ten months ended October 31, 2008 compared to $8.0 million for the year ended December 31, 2007.

 
33

 


 
·
Net book value of rental equipment sold was $3.2 million for the ten months ended October 31, 2008 compared to $7.2 million for the year ended December 31, 2007. The decrease in net book value of equipment sold was driven by the decrease in the used equipment sales (number of units sold) during 2008.

 
·
Equipment repairs and maintenance expenses were $5.3 million for the ten months ended October 31, 2008 compared to $7.4 million for the year ended December 31, 2007. The decrease was a direct result of the repair and maintenance activities, a result of the increased crane utilization and combination of equipment rented and also affected by the fleet mix changes as a result of used equipment sales and new equipment investments.
 
 
·
Yard operating expense was $1.5 million for the ten months ended October 31, 2008 compared to $1.9 million for the year ended December 31, 2007.

Essex’s gain on the sale of used rental equipment was $3.5 million (52.5% margin) for sales for the ten months ended October 31, 2008 and $6.0 million (45.7% margin) for the year ended December 31, 2007, which was due to fewer crane sales in the 2008 period.

Selling, general and administrative expenses for the ten months ended October 31, 2008 was $13.7 compared to $9.1 million in the year ended December 31, 2007.  This increase was primarily the result of acquisition transaction related expenses incurred totaling approximately $5.2 million  including an associated $500,000 bonus payment in 2008.  Selling, general and administrative expenses were 19.3% (11.9% excluding transaction costs) of total revenue for the ten months ended October 31, 2008 which were higher than 11.7% for the year ended December 31, 2007.  Components of administrative expenses include: salaries, payroll taxes and benefits, insurance and selling and marketing expenses.

Interest expense was $7.7 million for the ten months ended October 31, 2008 compared to $12.2 million for the year ended December 31, 2007.  This decrease resulted from a the lower market interest rates.  Market interest rates declined significantly in 2008.
 
Other income (expense) includes the effects of marking the interest rate swap to market and ultimate settlement costs which caused a $0.5 million expense for the ten months ended October 31, 2008 compared to a $2.8 million charge to expense in the year ended December 31, 2007. This represented the present value of the future cash settlement payments under the swap agreement.
 
Provision for income taxes was $8.1 million for the ten month period ended October 31, 2008, compared to $3.9 million tax provision for the year ended December 31, 2007.  As of December 31, 2007, Holdings had two consecutive years of significant net income before tax and expected similar or future earnings performance, thereby resulting in establishing a tax provision and relieving the valuation reserve against the net operating losses in the balance sheet that existed at December 31, 2006. The increase in provision for income taxes is primarily due to higher pre-tax income and the utilization of net operating loss carry-forwards from prior years partially offset by the reversal of substantially all of the valuation reserve maintained at December 31, 2006.

  Net income for the ten months ended October 31, 2008 was $11.4 million compared to a net income of $11.2 million for the year ended December 31, 2007.


 
34

 

Essex Holdings LLC - Year ended December 31, 2007 compared to year ended December 31, 2006  
 
The following is a discussion of the key factors that impact the consolidated operating results for the year ended December 31, 2007 compared to the year ended December 31, 2006 and should be read in conjunction with Holdings’ consolidated financial statements and the notes thereto.

Net income for the year ended December 31, 2007 was $11.2 million, a 20.8% increase from $9.3 million in the year ended December 31, 2006, The increase in net income was a direct result of higher operating income related to the rental business of $5.9 million and greater gain on used rental equipment sales of $3.0 million, offset by higher interest expense of $0.7 million, higher swap liability expense of $2.8 million and higher tax provision expense of $3.4 million primarily to due the reversal of the valuation allowance.
 
Total revenue for the year ended December 31, 2007 was $77.8 million, a 26.2% increase from $61.6 million for the year ended December 31, 2006. Total revenue was comprised of the following components:

 
·
Equipment rental revenue, which represented 62.8% of total revenue, was $48.8 million, a 17.4% increase from $41.6 million for the fiscal year ended December 31, 2006. This increase was driven by an increase in crane utilization to 72.1% (or 76.3% if calculated using the “hits” method) in the year ended December 31, 2007 from 68.9% (or 72.6% if calculated using the “hits” method) in the year ended December 31, 2006, and an increase in the average crane rental rate of cranes on rent of 18.0%, to $16,266 (per crane per rental month) in the year ended December 31, 2007 relative to $13,779 in the year ended December 31, 2006. This increased average crane rental rate represents both rental rate increases for the same models of equipment year over year, as well as a change in the type and lifting capacity of cranes on rent toward larger, higher rental rate cranes as Essex continues to manage the fleet toward larger lifting capacities;
 
 
·
Attachment rental revenue, included in rental revenue described above, was $3.4 million, a 20.0% increase from $2.9 million for the fiscal year ended December 31, 2006. This increase was driven by a greater number of higher rental rate attachments being on rent. Attachments vary in rental rate from $2,000 per month to over $100,000 per month for the largest lifting capacity enhancement attachments. Essex maintains an extensive group of attachment assets which are rented along with their cranes and enhance the cranes’ lifting capacity, reach or capability. Accordingly, the utilization percentage for these assets may vary greatly and does not necessarily correlate to rental revenue because of the diversity in rental rates due to the capability and capital cost of the varying attachments. The average utilization of these assets was 24.6% (or 27.3% if calculated using the “hits” method) for the year ended December 31, 2007 and 34.9% (or 39.0% if calculated using the “hits” method) for the year ended December 31, 2006, thus substantiating the point that rental revenue grew despite lower utilization because of a greater number of higher priced attachments on rental;
 
 
·
Used equipment sale revenue, which represented 17.0% of total revenue, was $13.2 million for the year ended December 31, 2007, a 121.3% increase from $6.0 million for the year ended December 31, 2006. This increase was driven by the high demand in infrastructure construction activity which requires the heavier lifting capacity of lattice boom crawler cranes offered by Essex. This has presented Essex with opportunities to further enhance its combination of cranes and attachments by providing an additional cash flow source for purchasing additional new rental equipment. The number of lower lifting capacity cranes sold by Essex increased to 45 for the year ended December 31, 2007 from 18 units for the year ended December 31, 2006. For the year ended December 31, 2007, the market presented opportunities to sell many of the lower rental rate units and Essex reinvested the proceeds of such sales into a smaller number of larger cranes and attachments which yield higher utilization rates and higher rental rates on the capital costs and enable Essex to improve its strategic position of its rental fleet for the future;
 

 
35

 


 
 
·
Transportation revenue, which represented 11.1% of total revenues, was $8.7 million for the year ended December 31, 2007, a 14.5% increase from $7.6 million for the year ended December 31, 2006. This increase was driven by an increase in crane utilization rates, the combination of cranes and attachments rented and the specific distances that equipment had to move for various rentals thereby resulting in an increase in demand for transportation of cranes and attachments to construction sites; and
 
 
·
Repair and maintenance revenue (including rigging and other services), which represented 9.1% of total revenue, was $7.1 million for the year ended December 31, 2007, an 8.5% increase from $6.5 million for the year ended December 31, 2006. This increase was driven by the increase in crane and attachment utilization rates resulting in an increase in demand for repair, maintenance and other services.

Cost of revenue for the year ended December 31, 2007 was $38.5 million, a 21.6% increase from $31.7 million in the year ended December 31, 2006. Cost of revenue was 49.6% of total revenue for the year ended December 31, 2007, relative to 51.4% for the year ended December 31, 2006. The increase in cost of revenues resulted primarily from increases in expenses for salaries, payroll taxes and benefits, depreciation, net book value of equipment sold, equipment repairs and maintenance; transportation expenses; and yard operating expenses.
 
 
·
Salary, payroll tax and benefit expenses increased 11.9% to $7.3 million for the year ended December 31, 2007, from $6.5 million for the year ended December 31, 2006. The increase was also a direct result of the higher utilization of Essex’s fleet. In addition, all employees, including those who work directly in the generation of revenues, receive bonuses based on Holdings’ financial performance, which had higher payouts due to higher profitability levels, contributing to increased salary and payroll tax expenses along with the headcount increases noted below.

 
·
Depreciation expense related to rental equipment increased 3.6% to $8.0 million for the year ended December 31, 2007, from $7.8 million for the year ended December 31, 2006. The increase in depreciation expense was driven by additional investment in lattice-boom crawler cranes and attachments during 2007 as Holdings enhanced the size and capacity of its fleet.

 
·
Net book value of rental equipment sold increased 141.6% to $7.2 million or 9.2% of total revenue for the year ended December 31, 2007, from $3.0 million for the year ended December 31, 2006. The increase in net book value of equipment sold was driven by the increase in the number of units sold during 2007 as more fully described in used equipment sale revenue.

 
·
Transportation expense increased by 8.5% to $6.7 million in the year ended December 31, 2007, from $6.2 million in the year ended December 31, 2006. This increase was a direct result of the increase in transportation activities as a result of the increase in crane utilization, mix of rented equipment and the particulars of the total distance equipment had to move between rentals.

 
·
Equipment repairs and maintenance expenses increased 10.9% to $7.4 million in the year ended December 31, 2007, from $6.6 million in the year ended December 31, 2006. The increase was a direct result of the increase in the repair and maintenance activities, a result of the increased crane utilization and combination of equipment rented.

 
·
Yard operating expense increased by 20.9% to $1.9 million for the year ended December 31, 2007, from $1.6 million for the year ended December 31, 2006, as Holdings invested in its facilities during the period to enhance its capabilities and productivity including a $0.2 million increase in costs for environmental remediation.


 
36

 

Essex’s gain on the sale of used rental equipment was $6.0 million and $3.0 million for the years ended December 31, 2007 and 2006, respectively, as the fair value of the equipment was significantly higher than its net book value. The gain on sale of used rental equipment may not be indicative of future results in light of Essex’s pending acquisition since the rental equipment would be adjusted to fair value as of the closing date of the acquisition, thereby reducing future gain on sale. Also, Essex’s depreciation expense for the years ended December 31, 2007 and 2006 may not be indicative of future results in light of Essex’s pending acquisition as the higher fair value of the rental equipment will be depreciated over the estimated useful life of the assets, thereby increasing future depreciation expense.
 
Selling, general and administrative expenses for the year ended December 31, 2007 were $9.2 million, an increase of 4.3% from $8.9 million in the year ended December 31, 2006. This increase was primarily the result of higher employee bonus costs and insurance expenses, but was partially offset by lower consulting expenses and telecommunication expenses. Selling, general and administrative expenses were 11.9% of total revenue for the year ended December 31, 2007, an improvement from 14.4% for the year ended December 31, 2006. Key components of administrative expenses include: salaries, payroll taxes and benefits, insurance and selling and marketing expenses.

 
·
Salary, payroll tax and benefit expenses increased by 17.3% to $3.5 million for the year ended December 31, 2007, from $3.0 million for the year ended December 31, 2006 due to higher Company defined earnings before interest and taxes based employee bonus costs.
 
 
·
Insurance expenses increased by 12.1% to $1.6 million in the year ended December 31, 2007, from $1.4 million in the year ended December 31, 2006. The increase was due to higher business volumes and property and equipment values, but was partially offset by lower per unit premium rates.
 
 
·
Selling and marketing expenses increased by 12.9% to $0.7 million for the year ended December 31, 2007, from $0.6 million for the year ended December 31, 2006. The increase was primarily due to higher commissions related to higher rental revenue.
 
As a result of the factors outlined above, income from operations was $30.0 million for the year ended December 31, 2007, an increase of 42.2% from $21.1 million in the year ended December 31, 2006. Income from operations as a percentage of revenue was 38.6% for the year ended December 31, 2007, an increase from 34.2% for the year ended December 31, 2006. Income from operations was favorably impacted by the larger gain on used rental equipment sales which was $6.0 million for the year ended December 31, 2007 compared to $3.0 million for the year ended December 31, 2006.
 
Interest expense was $12.2 million in year ended December 31, 2007, a 6.3% increase from $11.5 million in the year ended December 31, 2006. This increase resulted from a refinancing on February 23, 2007, which increased Holdings’ outstanding debt to $145.6 million immediately after the refinancing and a $50 million dividend paid to Holdings’ equity holders. Holdings then reduced the debt balance to $129.9 million by December 31, 2007 which was higher than the December 31, 2006 balance of $93.9 million.
 
Other income (expense) includes the effects of marking the interest rate swap to market as of December 31, 2007 which caused a $2.8 million non-cash expense to earnings. This represents the present value of the future cash settlement payments under the swap agreement.
 
Holdings’ provision for income taxes was $3.9 million for the year ended December 31, 2007, compared to $0.5 million in the year ended December 31, 2006. Holdings has had two consecutive years of significant net income before tax and expects similar or improved future earnings performance, thereby resulting in establishing a tax provision and relieving the valuation reserve against the net operating losses in the balance sheet that existed at December 31, 2006. The increase in provision for income taxes is primarily due to higher pre-tax income of $5.4 million and the utilization of net operating loss carry-forwards from prior years partially offset by the reversal of substantially all of the valuation reserve maintained at December 31, 2006.
 


 
37

 

Liquidity and Capital Resources
 
Essex Crane has substantial liquidity from its cash flow from operations as its markets and rental activity have remained at higher levels, as well as under its revolving credit facility. As described below, between December 31, 2006 and December 31, 2008, net cash provided by operating activities increased from $14.6 million to $26.6 million for the combined periods in 2008 ($-676,535 plus $27,284,032). In addition to cash flow from operations, Essex Crane borrows under its $190 million revolving credit facility to purchase equipment and attachments for its rental fleet. As of December 31, 2008, Essex Crane had $38.1 million in available borrowing capacity under this facility. Simultaneously with the closing of the acquisition, Essex Crane entered into a new revolving credit facility (replacing the existing facility) which will provide for up to $190 million in available credit through October 31, 2013.  We believe that these two sources of cash should adequately fund the investment needs of the business for the foreseeable future. Essex Crane has a $100 million interest rate swap agreement in place that locks this portion of its debt based upon LIBOR of 2.71% plus 225 basis points.  Management believes this cost of interest is offset in the rental revenue it generates since rental rates are established as a percentage of the values of the underlying equipment.
 
Cash Flow from Operating Activities

The Company’s cash used in operating activities for the year ended December 31, 2008 was $0.7 million. This is primarily the result of a net loss of $11.9 million, which, when adjusted for non-cash expense items, such as goodwill impairment of $23.9 million, depreciation and amortization of $2.0 million, deferred income taxes and of $9.9 million, stock-based compensation expense of 0.1 million, and gains on the sale of rental equipment of 0.3 million, provided positive cash flows of approximately $4.2 million.  The cash flows from operating activities were also reduced by $1.7 million of cash earned trust fund, an increase in receivables of $1.5 million, an decrease of $0.4 million in accounts payable and accrued expenses, and a $0.4 million increase in unearned rental revenue.

The Company’s cash used in operating activities for the year ended December 31, 2007 was $0.6 million.  The cash flows used in operating activities was primarily attributable to net income of $1.7 million, which was more than offset by interest earned on the cash held in Trust of $2.8 million.

Cash Flow from Investing Activities

For the year ended December 31, 2008, cash provided by investing activities was approximately $24.0 million.  This is primarily the result of the sale of all the cash held in Trust Fund ($102.6 million), the majority of which was used to fund the acquisition of Holdings, the purchase of $2.8 million rental equipment and $0.2 million in property and equipment, partially offset by proceeds from the sale of rental equipment of $1.7 million.

For the year ended December 31, 2007, cash used in investing activities was $98.3 million which consisted of $99.7 million of the cash raised in the Company’s initial public offering contributed to the cash held in Trust Fund partially offset by disbursements from the Trust Fund of $1.6 million for qualified expenditures.

Cash flow from financing activities

Cash used in financing activities was approximately $24.0 million for the year ended December 31, 2008.  This is primarily due to $18.7 million in payments made to reacquire and retire common stock for those parties that did not vote in favor of the business combination and $1.8 million paid for the repurchase of common stock and warrants.  Total borrowings during the year under the revolving credit facility were $12.2 million and total payments were $14.8 million.  The Company also paid $0.8 million of deferred financing costs in connection with amending the revolving credit facility assumed in the acquisition of Holdings.

Cash provided by financing activities for the year ended December 31, 2007 was $99.9 million.  The Company completed an initial public offering of units (made up of common stock and warrants) in March 2007, resulting in net proceeds, after deducting underwriting commissions and other fees and expenses, of approximately $98.5 million (see note 1 to the consolidated financial statements for further information related to our initial public offering) and $1.5 million from the issuance of warrants in a private placement.

Revolving Credit Facility

The following information discusses significant events during the year ended December 31, 2008 that relate to the revolving credit facility assumed in the acquisition of Holdings.  Also see note 7 to the consolidated financial statements for further information related to our credit facility.

38


In conjunction with the acquisition of Holdings on October 31, 2008, Essex Crane amended its asset-based senior secured revolving line of credit facility, which permits it to borrow up to $190 million.  The maximum borrowing amount of the revolving credit facility may be increased by up to $5 million any time prior to November 2010 subject to certain specified terms and conditions in the credit agreement.  Essex Crane may borrow up to an amount equal to the sum of 85% of eligible net receivables and 75% of the net orderly liquidation value of eligible rental equipment. The revolving credit facility is scheduled to mature in October 2013 and is collateralized by a first security interest in substantially all of the Company’s assets.

The maximum amount that could be borrowed under the revolving credit facility, net of letters of credit, interest rate swaps and other reserves was approximately $175,497,000 at December 31, 2008, which was limited by the eligible borrowing base.  The Company’s available borrowing under the revolving credit facility is $38,119,079 at December 31, 2008.
 
Our management believes that cash generated from operations, together with amounts available under the revolving credit facility, will be adequate to permit Essex Crane to meet its debt service obligations, ongoing costs of operations, working capital needs and capital expenditure requirements for the foreseeable future. Also, substantially all of Holdings’ rental equipment and all its other assets are subject to liens under its revolving credit facility. None of such assets may be available to satisfy the claims of its general creditors. Essex Crane’s future financial and operating performance, ability to service or refinance its debt and ability to comply with covenants and restrictions contained in its debt agreements will be subject to future economic conditions and to financial, business and other factors, many of which are beyond its control.
 
Off Balance Sheet Arrangements
 
Options and warrants issued in conjunction with our initial public offering and to members of Essex Crane’s senior management are equity linked derivatives and accordingly represent off-balance sheet arrangements. The options and warrants meet the scope exception in paragraph 11(a) of Financial Accounting Standard (FAS) 133 and are accordingly not accounted for as derivatives for purposes of FAS 133, but instead are accounted for as equity.
 
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations for the purposes of this document are based upon our audited consolidated audited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results, however, may materially differ from the calculated estimates and this difference would be reported in its current operations.
 
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are presented in note 2 to our 2008 audited financial statements, and the following summaries should be read in conjunction with the audited financial statements and the related notes thereto. While all accounting policies affect the financial statements, certain accounting policies may be viewed as critical to us. Critical accounting policies are those that are both most important to the portrayal of the financial statements and results of operations and that require our management’s most subjective or complex judgments or estimates.  Our management believes the policies that fall within this category are policies related to revenue recognition, rental equipment, impairment of goodwill and long-lived assets, derivative financial instruments and income taxes.
 
Revenue recognition  
 
Essex recognizes revenue, including multiple element arrangements, in accordance with the provisions of SFAS 13, Accounting for Leases (“SFAS 13”), Staff Accounting Bulletin No. 104 and Emerging Issues Tax Force 00-21 “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). We generate revenue from Essex Crane’s rental of cranes and related equipment and other services such as crane and equipment transportation and repairs and maintenance. In many instances, Holdings provides some of the above services under the terms of a single customer Equipment Rental Agreement. When a rental agreement involves multiple elements, the items included in the arrangement are evaluated under EITF 00-21.

 
Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered item has value to the customer on a stand-alone basis and whether there is objective and reliable evidence of the fair value of the undelivered item(s). In general, vendor specific objective evidence (“VSOE”) or objective and reliable evidence of fair value of the undelivered item(s) exists, however, no such evidence exists for the delivered item.

We use the residual method to allocate the arrangement consideration and as such, VSOE of fair value or objective and reliable evidence of fair value of the undelivered elements is deferred and the residual is recognized as revenue related to the delivered element.

Revenue from equipment rentals are billed monthly in advance and recognized as earned, on the straight line basis over the rental period, in accordance with SFAS 13 as specified in the associated equipment rental agreement. Rental contract terms span several months or longer. Because the term of the contracts can extend across financial reporting periods, for rentals billed in advance we record unearned rental revenue at the end of reporting periods so that rental revenue is included in the appropriate period. Repair service revenue is recognized when the service is provided. Transportation revenue from rental equipment delivery service is recognized for the drop off of rental equipment on the delivery date and is recognized for pick-up when the equipment is returned to the Essex Crane service center, storage yard or next customer location. New and used rental equipment sales are recognized upon acceptance by the customer and the execution of a definitive sales agreement stipulating the date of transferring the risk of ownership.

These policies are directly related to our cash flow and earnings. There are estimates required in recording certain repair and maintenance revenues and also in recording any allowances for doubtful accounts as required. The estimates have historically been accurate in all material respects and we do not anticipate any material changes to our current estimates in these areas. The unearned rental revenue is recorded as a deferral in the balance sheet in order to match the customer’s rental equipment possession and usage with the corresponding period.

Useful Lives of Rental Equipment
 
Essex Crane’s primary assets consist of its lattice-boom crawler crane and attachment fleet, which are recorded at cost less accumulated depreciation. In conjunction with the acquisition of Essex Crane on October 31, 2008, Essex recorded all of its crane and attachment fleet values in accordance with SFAS No. 141 “Business Combinations” at fair value.  Essex depreciates the existing crane and attachment fleet over periods between 20 and 30 years on a straight line basis such that additions of new cranes to the fleet are depreciated over a 30 year time period while used cranes acquired will be amortized over a period of 20 to 25 years. Management experience and third-party estimates indicate a possible asset life for a properly repaired and maintained lattice-boom crawler crane fleet of 50 years. Given the average life of the existing crane fleet is 20 to 30 years, the useful life adopted is considered appropriate. Essex’s management reviews the value of its crane fleet annually in conjunction with its lenders.
 
Allowance for Doubtful Accounts .
 
The Company maintains allowances for doubtful accounts and credit memos.  The allowance for doubtful accounts is the Company’s best estimate of the amount of credit losses in accounts receivable and is included in selling, general and administrative expenses in the consolidated statements of operations. The Company periodically reviews the allowance for doubtful accounts and balances are written off against the allowance when management believes it is probable the receivable will not be recovered. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, The Company may be required to increase or decrease our allowance.

 
40

 
 
Purchase Price Allocation .
 
The Company allocates the cost of the acquired enterprise to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. With the exception of goodwill, long-lived fixed assets generally represent the largest component of any acquisition. The long-lived fixed assets that we acquire are primarily rental equipment.   All of the rental equipment that was acquired in the purchase business combinations has been classified as “Held and Used”, rather than as “Held for Sale”. Equipment that we acquire is recorded at fair value, as determined by replacement cost to the Company of such equipment.   The Company uses a third party valuation expert to help calculate replacement cost.
 
In addition to long-lived fixed assets, the Company also acquires other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the book values reflected on the acquired entities’ balance sheets. However, when appropriate, the Company adjusts these book values for factors such as collectibility and existence. The intangible assets that we have acquired are primarily goodwill, customer relationships and trademarks.  Goodwill is calculated as the excess of the cost of the acquired entity over the net of the amounts assigned to the assets acquired and the liabilities assumed.

Income Taxes

The Company uses an asset and liability approach, as required by SFAS No. 109 “Accounting for Income Taxes” for financial accounting and reporting of income taxes.  Deferred tax assets and liabilities are computed using tax rates expected to apply to taxable income in the years in which those assets and liabilities are expected to be realized. The effect on deferred tax assets and liabilities resulting from a change in tax rates is recognized as income or expense in the period that the change in tax rates is enacted.

Management makes certain estimates and judgments in determining income tax expense for financial statement purposes.  These estimates and judgments are applied in the calculation of certain tax credits and in the calculation of the deferred income tax expense or benefit associated with certain deferred tax assets and liabilities.  Significant changes to these estimates may result in an increase or decrease to Essex Rental’s tax provision in a subsequent period.

Management assesses the likelihood that it will be able to recover its deferred tax assets.  If recovery is not likely, the Company will increase its provision for income taxes by recording a valuation allowance against the deferred tax assets that are unlikely to be recovered.

The Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes” , on January 1, 2007 which had no impact on the company’s consolidated financial statements as management has concluded that the tax benefits related to its uncertain tax positions can be fully recognized. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company files income tax returns in the United States federal jurisdiction and in most state jurisdictions.  With limited exception, the Company is no longer subject to U.S. federal or state income tax examinations for years prior to 2005.

Essex’ management makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are applied in the calculation of certain tax credits and in the calculation of the deferred income tax expense or benefit associated with certain deferred tax assets and liabilities. Significant changes to these estimates may result in an increase or decrease to Essex’s tax provision in a subsequent period.
 
At December 31, 2006, Holdings’ management concluded that neither the Federal and state net operating loss carryforwards nor the other net deferred tax assets were more likely than not to be utilized due to a history of tax net operating losses and, as such, recorded a valuation allowance against substantially all of the Company’s net deferred tax assets. At December 31, 2007, the valuation allowance was reversed for the entire amount of the Federal and the majority of the state net operating losses as Essex has now generated taxable income in excess of $10,000,000 in each of the past two years.  Essex’s management has concluded that at December 31, 2008, October 31, 2008 and December 31, 2007 it is more likely than not that the deferred tax assets, except for certain state net operating losses that have a history of expiring unused, will be utilized.

At December 31, 2008, the Company had unused federal net operating loss carry-forwards totaling approximately $43.6 million that begin expiring in 2020.  At December 31, 2008, the Company also had unused state net operating loss carry-forwards totaling approximately $26.2 million that expire between 2009 and 2020.  The net operating loss carry-forwards are subject to internal revenue code section 382 limitations based upon the purchase price and may be favorably impacted by built in tax gains on the sale of rental equipment and property and equipment through October 2013 which were acquired in the acquisition.

 
41

 

Impairment of Goodwill and Indentifiable Intangible Assets
 
As a result of acquisition of Holdings, the Company has acquired goodwill and identifiable intangible assets. Goodwill represents the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date.  Intangible assets consist of customer relationships and trademarks.

Under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), we evaluate goodwill for impairment at the reporting unit level at least annually, or more frequently if triggering events occur or other impairment indicators arise which might impair recoverability. Management has determined that it has only one reporting unit, Essex Crane. To determine if there is any impairment, management determined whether the fair value of the reporting unit is greater than its carrying value. If the fair value of a reporting unit is less than its carrying value, then the implied fair value of goodwill must be estimated and compared to its carrying value to measure the amount of impairment, if any.

During the fourth quarter of 2008, the Company determined that the weakening economy and the global credit crisis resulted in a reduction in the Company’s market capitalization (share price) below its total shareholders’ equity value, which was an indication that its goodwill may be impaired. As a result, the Company performed an assessment of goodwill of its Essex Crane subsidiary as of December 31, 2008 with the assistance of a third-party valuation specialist. The impairment was the result of a significant decline in the Company’s stock price (market capitalization), the weakening of the economy and credit crisis and the likely potential impact on the Company’s future cash flows. Based on the analysis, the Company recorded a non-cash impairment charge of $23,895,733 at December 31, 2008 which is included in the Company’s statement of operations for the year ended December 31, 2008.  After recording this impairment charge, the Company has no remaining goodwill at December 31, 2008.   The Company also performed an assessment of other identifiable intangible assets and concluded that there was no impairment at December 31 2008.
 
Impairment of long-lived assets
 
Essex accounts for the impairment of long-lived assets under the provisions of SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets,” which requires the impairment losses related to long-lived assets to be recorded where indicators of impairment are present and the estimated undiscounted cash flows to be generated by the asset are less than the assets’ carrying value. If the carrying value of the assets will not be recoverable, as determined by the undiscounted cash flows, the carrying value of the assets is reduced to fair value. Essex, under the terms of its credit agreement, engages an independent third party to appraise the value of the crane and attachment fleet on an annual basis. We considered a number of factors including value in use for crane and attachment rental, secondary market values and possible values in alternate use.

Derivative Financial Instruments
 
Essex uses derivative financial instruments for the purpose of hedging the risks associated with interest rate fluctuations on its revolving credit facility with the objective of converting a targeted amount of its floating rate debt to a fixed rate. Holdings does not enter into derivative transactions for speculative purposes, and therefore holds no derivative instruments for trading purposes.
 
Holdings has historically been privately held and previously reported its financial statements on a basis other than generally accepted accounting principles (GAAP) (modified tax basis). Accordingly, Holdings did not contemporaneously document the hedge designation on the date of inception in order to quality for hedge accounting treatment in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” Accordingly, the derivative financial instruments are recorded at fair value in the accompanying consolidated balance sheets in long-term liabilities with changes in the underlying fair value reported as a component of Other income (expenses) in Holdings’ consolidated statements of operations.
 
Essex believes that the use of derivatives in the form of interest rate swaps is an important tool to manage its balance sheet liabilities and interest rate risk, while protecting its associated rental margins. Holdings sets its equipment rental rates based in part as a percentage of the investment cost of the equipment and then uses the interest rate swap to lock in the associated interest costs of a period of time.
 
42

 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 8. Financial Statements and Supplementary Data
 
The consolidated financial statements and supplementary data of Essex Rental Corp. required by this Item are described in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.
 
Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
In accordance with Item 307 of Regulation S-K, based on management's evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report, our Company has concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
Management’s Report on Internal Control over Financial Reporting
 
This annual report does not include a report by management as to internal control over financial reporting, which is required under the rules applicable to annual reports on Form 10-K. Management notes that the internal control over financial reporting relating to the business that produced all of the revenues reported in the financial statements contained herein is the internal control over financial reporting of the business acquired by us in our initial business combination transaction on October 31, 2008.  Before that date, we were a blank check company with no business operations, no operating assets other than cash held in a trust account pending the consummation of a business combination, and no purpose other than to seek to effect a merger, acquisition or other similar business combination with an operating business.
 
Substantially all of the internal control over financial reporting that existed prior to October 31, 2008 no longer exists and has been replaced by the internal control over financial reporting of Essex Crane, our operating subsidiary which we acquired in our initial business combination on that date. Prior to October 31, 2008, Essex was a private company not required to prepare an annual report on Form 10-K and therefore its management had no reason to make an assessment of, or consider the preparation of a management report on, internal control over financial reporting as required by this Form 10-K. In addition, there was a relatively short period of time between the date of our business combination and the end of our fiscal year on December 31, 2008 during which our management could make an assessment of the acquired company's internal control over financial reporting; and during that time, as well as since December 31, 2008, management has focused on the operation of our continuing business as well as other business activities including efforts to expand our business as described elsewhere in this annual report. Because of the foregoing, our management has determined that it would not be practicable to perform an assessment of our internal control over financial reporting as it existed on October 31, 2008 as a result of our initial business combination and continued to exist on December 31, 2008.  Our management has also determined that an assessment of our internal control over financial reporting as in effect prior to our October 31, 2008 business combination would not be meaningful due to the essentially complete change in our internal control over financial reporting that occurred on that date. Therefore, management has determined that it is appropriate to exclude from this annual report on Form 10-K any report or evaluation regarding our internal control over financial reporting, both relating to the business we acquired on October 31, 2008 and relating to our operations before that acquisition.
 
           We are actively preparing for full compliance with the requirements of Item 308 of Regulation S-K for our 2009 Form 10-K. In connection with our recent implementation of various corporate governance initiatives, our Board established an audit committee, and appointed three independent directors to that committee. The chairman of the audit committee has been working with our principal financial officer to retain the services of a competent and experienced accounting firm to assist management in documenting, reviewing and assessing our internal control over financial reporting, identifying any material weaknesses in such internal control over financial reporting and assisting in the development of any remedial actions, if necessary. We are in the process of retaining an accounting firm for this purpose. In this way, we are making arrangements to make an assessment of internal control over financial reporting for inclusion in our annual report on Form 10-K for the year ended December 31, 2009.
 
 

43

 
 
We intend to fully comply with all applicable Items required by Form 10-K in our annual report on such Form with respect to the fiscal year ending December 31, 2009, including any requirements relating to an assessment of internal control over financial reporting.
 
The Company’s financial statements as of December 31, 2008 and for the year then ended included in this Annual Report on Form 10-K have been audited by Grant Thornton LLP, an independent registered public accounting firm.  This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only a management’s report which we have excluded from this Annual Report for the reasons noted above.
 
Other Information
 
None.
 
PART III
 
Directors, Executive Officers, and Corporate Governance of the Registrant
 
The information required by this Item is incorporated by reference to the applicable information in our Proxy Statement related to the 2009 Annual Meeting of Stockholders (the “2009 Proxy Statement”), which will be filed with the SEC on or before April 29, 2009.
 
Executive Compensation
 
The information required by this Item is incorporated by reference to the applicable information in the 2009 Proxy Statement, which will be filed with the SEC on or before April 29, 2009.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Equity Compensation Plans
 
The following table provides certain information, as of December 31, 2008, about our common stock that may be issued upon the exercise of options, warrants and rights, as well as the issuance of shares granted to employees, consultants or members of our Board of Directors, under our existing equity compensation plan, the Hyde Park Acquisition Corp. 2008 Long-Term Incentive Plan.
 
Plan Category
 
Number of Securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans
             
Equity compensation plans approved by stockholders
 
565,000
 
$4.50
 
1,010,000
             
Equity plans not approved by security holders (1)
 
-
 
-
 
-
             
Total
 
565,000
 
$4.50
 
1,010,000

(1)  Following the acquisition of Essex Crane, we issued 100 shares of our common stock to each of Essex Crane’s employees, other than members of Essex’s senior management, or 12,300 shares in the aggregate, pursuant to the Essex Rental Corp. Special Incentive Plan.  Such Special Incentive Plan authorized the issuance of up to 20,000 shares of our common stock to employees of the Company and its subsidiaries, other than officers of the Company and its subsidiaries with the title of Vice President, President, Chief Executive Officer or Chief Financial Officer.  The Special Incentive Plan terminated on December 31, 2008 and accordingly there are no shares available for issuance under such plan.
 
The additional information required by this Item is incorporated by reference to the applicable information in the 2009 Proxy Statement, which will be filed with the SEC on or before April 29, 2009.
 
Certain Relationships and Related Transactions
 
The information required by this Item is incorporated by reference to the applicable information in the 2009 Proxy Statement, which will be filed with the SEC on or before April 29, 2009.
 
Principal Accountant Fees and Services
 
The information required by this Item is incorporated by reference to the applicable information in the 2009 Proxy Statement, which will be filed with the SEC on or before April 29, 2009.
 
44

PART IV
 
Exhibits and Financial Statement Schedules
 
(a) Documents filed as a part of this report
 
(1) Consolidated financial statements:
 
Successor and Predecessor Company Financial Statements
 
Reports of Independent Registered Public Accounting Firms
 
Essex Rental Corp. Consolidated Balance Sheets—December 31, 2008 and 2007
 
Essex Holdings, LLC and Subsidiary Consolidated Balance Sheets—October 31, 2008 and December 31, 2007
 
Essex Rental Corp. Consolidated Statements of Operations for the years ended December 31, 2008 and 2007 and period from August 21, 2006 (inception) to December 31, 2006
 
Essex Holdings, LLC and Subsidiary Consolidated Statements of Operations for the ten months ended October 31, 2008, and years ended December 31, 2007 and 2006
 
Essex Rental Corp. Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008 and 2007 and period from August 21, 2006 (inception) to December 31, 2006
 
Essex Holdings, LLC and Subsidiary Essex Rental Corp. Consolidated Statements of Stockholders’ Equity for the ten months ended October 31, 2008, and the years ended December 31, 2008 and 2007
 
Essex Rental Corp. Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007 and period from August 21, 2006 (inception) to December 31, 2006
 
Essex Holdings, LLC and Subsidiary Essex Rental Corp. Consolidated Statements of Cash Flows for the ten months ended October 31, 2008, and the years ended December 31, 2007 and 2006
 
Notes to consolidated financial statements
 
Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the financial statements or notes thereto.
 
(3) Exhibits: The exhibits to this report are listed in the exhibit index below.
 
(b) Description of Exhibits
 
Exhibit No.
 
Description
     
2.1
 
Purchase Agreement, dated as of March 6, 2008, among Hyde Park Acquisition Corp., Essex Holdings LLC, KCP Services LLC, and the Members of Essex Holdings LLC signatory thereto. (1)
     
2.2
 
Amendment No. 1 to Purchase Agreement, dated May 9, 2008, among Hyde Park Acquisition Corp., Essex Holdings LLC, KCP Services LLC and the Members of Holdings signatory thereto. (1)
     
2.3
 
Amendment No. 2 to Purchase Agreement, dated August 14, 2008, among Hyde Park Acquisition Corp., Essex Holdings LLC, KCP Services LLC and the Members of Holdings signatory thereto. (1)
     
3.1
 
Amended and Restated Certificate of Incorporation. (1)
     
3.2
 
Amended and Restated Bylaws of the Corporation, effective as of September 28, 2007. (2)
     
4.1
 
Specimen Unit Certificate. (3)
     
4.2
 
Specimen Common Stock Certificate. (3)
     
4.3
 
Specimen Warrant Certificate.  (3)
     


45

4.4
 
Form of Unit Purchase Option to be granted to Representative. (3)
     
4.5
 
Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant. (3)
     
10.1
 
Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Laurence S. Levy. (3)
     
10.2
 
Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Edward Levy. (3)
     
10.3
 
Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Isaac Kier. (3)
     
10.4
 
Form of Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and the
Registrant. (3)
     
10.5
 
Form of Stock Escrow Agreement between the Registrant, Continental Stock Transfer & Trust Company and the Initial Stockholders. (3)
     
10.6
 
Form of Letter Agreement between ProChannel Management LLC and Registrant regarding administrative support. (3)
     
10.7
 
Form of Promissory Note, dated as of August 21, 2006, issued to each of Laurence S. Levy, Edward Levy and Isaac Kier. (3)
     
10.8
 
Form of Registration Rights Agreement among the Registrant and the Initial Stockholders. (3)
     
10.9
 
Form of Subscription Agreement among the Registrant, Graubard Miller and each of Laurence S. Levy, Edward Levy and Isaac Kier. (3)
     
10.10
 
Lock-up Agreement, dated October 31, 2008, between Registrant and Ronald Schad. (4)
     
10.11
 
Lock-up Agreement, dated October 31, 2008, between Registrant and Martin Kroll. (4)
     
10.12
 
Lock-up Agreement, dated October 31, 2008, between Registrant and William O’Rourke. (4)
     
10.13
 
Lock-up Agreement, dated October 31, 2008, between Registrant and William Erwin. (4)
     
10.14
 
Escrow Agreement, dated October 31, 2008,  among Registrant, KCP Services LLC and Key Bank National Association.  (4)
     
10.15
 
Compliance Agreement, dated October 31, 2008, among Registrant, Essex Holdings LLC, KCP Services LLC, Essex Crane Rental Corp. and the members of Essex Holdings LLC. (4)
     
10.16
 
Employment Agreement, dated October 31, 2008, among Registrant, Essex Crane Rental Corp. and Ronald Schad. (4)
     
10.17
 
Employment Agreement, dated October 31, 2008, among Registrant, Essex Crane Rental Corp. and Martin Kroll. (4)
     
10.18
 
Employment Agreement, dated October 31, 2008, among Registrant, Essex Crane Rental Corp. and William O’Rourke. (4)
   
.
10.19
 
Employment Agreement, dated October 31, 2008, among Registrant, Essex Crane Rental Corp. and William Erwin. (4)
     
10.20
 
Amended and Restated Limited Liability Company Agreement of Essex Holdings LLC, dated October 31, 2008, among Registrant, Ronald Schad, Martin Kroll, William O’Rourke and William Erwin. (4)
     
10.21
 
Registration Rights Agreement, dated October 31, 2008, among Registrant, Ronald Schad, Martin Kroll, William O’Rourke and William Erwin. (4)
     
10.22
 
Second Amended and Restated Loan and Security Agreement, dated March 6, 2008, among Essex Crane Rental Corp., Essex Holdings LLC, Textron Financial Corporation, National City Business Credit, Inc., Sovereign Bank, Wachovia Capital Finance Corporation (Central), Wachovia Capital Markets, LLC and the Financial Institutions named therein. (1)
     
10.23
  Hyde Park Acquisition Corp. 2008 Long Term Incentive Plan (1)

46


16
 
Letter from McGladrey & Pullen, LLP to the Securities and Exchange Commission, dated  December 16, 2008. (5)
     
21
 
Subsidiaries of Registrant
     
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
(1) Incorporated by reference to the Registrant Definitive Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on October 8, 2008, regarding the Special Meeting of the Registrant’s Stockholders held on October 31, 2008.
 
(2) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 28, 2007.
 
(3) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (SEC File 333-138452).
 
(4) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 6, 2008.
 
(5) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 16, 2008.
 
 
47

 
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Essex Rental Corp.

We have audited the accompanying consolidated balance sheet of Essex Rental Corp. (a Delaware corporation) and Subsidiaries (collectively the “Company”) as of December 31, 2008, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year then ended.  We have also audited the consolidated balance sheets of Essex Holdings, LLC and Subsidiary (the “Predecessor”) as of October 31, 2008 and December 31, 2007 and the related consolidated statements of operations, members’ equity and cash flows for the period from January 1, 2008 through October 31, 2008, and the years ended December 31, 2007 and 2006.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company and its Predecessor are not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Essex Rental Corp. and Subsidiaries as of December 31, 2008, and the consolidated results of their operations and their cash flows for the year then ended, and the consolidated financial position of Essex Holdings, LLC and Subsidiary as of October 31, 2008 and December 31, 2007 and the consolidated results of their operations and their cash flows for the period from January 1, 2008 through October 31, 2008 and the years ended December 31, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP
Chicago, Illinois
March 30, 2009
 
F-1

 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Essex Rental Corp. f/k/a Hyde Park Acquisition Corp.


We have audited the accompanying balance sheet of Essex Rental Corp. f/k/a Hyde Park Acquisition Corp. (a corporation in the development stage) as of December 31, 2007, and the related statements of operations, stockholders' equity, and cash flows for the year then ended and the cumulative period from August 21, 2006 (inception) to December 31, 2007.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Essex Rental Corp. f/k/a Hyde Park Acquisition Corp. as of December 31, 2007, and the results of its operations and its cash flows for the year then ended and the cumulative period from August 21, 2006 (inception) to December 31, 2007 in conformity with U.S. generally accepted accounting principles.



/s/ McGladrey & Pullen, LLP
New York, New York
March 31, 2008

F-2

 
ESSEX RENTAL CORP.
CONSOLIDATED BALANCE SHEETS
 
   
ESSEX RENTAL CORP.
   
ESSEX HOLDINGS LLC
 
   
(Successor)
   
(Predecessor)
 
   
December 31,
   
December 31,
   
October 31,
   
December 31,
 
   
2008
   
2007
   
2008
   
2007
 
                         
ASSETS
                       
                         
CURRENT ASSETS
                       
Cash and cash equivalents
  $ 139,000     $ 1,051,801     $ 691,660     $ 8,394  
Cash held in Trust Fund
    -       100,927,634       -       -  
Investment in Hyde Park common stock
    -       -       9,957,441       -  
Accounts receivable, net of allowances
    11,350,561       -       10,701,304       11,808,205  
Accounts receivable from rental equipment sales
    -       -       -       739,256  
Other receivables
    3,167,773       -       2,307,540       2,307,540  
Deferred tax assets
    1,859,071       28,000       2,357,290       2,415,571  
Prepaid expenses and other assets
    440,879       33,418       1,204,769       447,128  
TOTAL CURRENT ASSETS
    16,957,284       102,040,853       27,220,004       17,726,094  
                                 
Rental equipment, net
    255,692,116       -       133,172,649       124,950,463  
Property and equipment, net
    8,176,143       -       5,634,059       3,047,289  
Spare parts inventory, net
    3,276,858       -       1,804,042       1,708,138  
Deferred costs
    -       528,331       -       -  
Goodwill
    -       -       -       -  
Other identifiable intangibles, net
    3,518,667       -       -       -  
Loan acquisition costs, net
    2,377,442       -       1,566,262       1,649,562  
                                 
TOTAL ASSETS
  $ 289,998,510     $ 102,569,184     $ 169,397,016     $ 149,081,546  
 
 
 
F-3


ESSEX RENTAL CORP.
CONSOLIDATED BALANCE SHEETS (continued)
 
       
       
   
Essex Rental Corp.
   
ESSEX HOLDINGS LLC
 
   
(Successor)
   
(Predecessor)
 
   
December 31,
   
December 31,
   
October 31,
   
December 31,
 
   
2008
   
2007
   
2008
   
2007
 
LIABILITIES AND STOCKHOLDERS' EQUITY
                       
CURRENT LIABILITIES
                       
Accounts payable
  $ 2,510,564     $ -     $ 5,835,262     $ 3,077,801  
Accrued employee compensation and benefits
    2,160,960       -       2,526,536       1,906,652  
Accrued taxes
    5,203,485       -       4,140,238       3,784,910  
Accrued interest
    440,667       -       596,566       812,437  
Accrued other expenses
    1,390,864       730,410       1,294,224       847,522  
Unearned rental revenue
    2,176,906       -       2,573,176       2,157,111  
Deferred underwriting fees
    -       1,552,500       -       -  
Deferred interest
    -       243,405       -       -  
TOTAL CURRENT LIABILITIES
    13,883,446       2,526,315       16,966,002       12,586,433  
LONG-TERM LIABILITIES
                               
Revolving credit facility
    137,377,921       -       129,895,169       129,862,723  
Deferred tax liabilities
    63,266,773       -       13,829,704       6,784,444  
Interest rate swap
    3,424,613       -       -       2,755,741  
TOTAL LONG-TERM LIABILITIES
    204,069,307       -       143,724,873       139,402,908  
                                 
TOTAL LIABILITIES
    217,952,753       2,526,315       160,690,875       151,989,341  
                                 
Common stock, subject to possible conversion, 2,586,206 shares
    -       19,932,029       -       -  
                                 
STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY (DEFICIT)
                               
Preferred stock, $.0001 par value, Authorized 1,000,000 shares; none issued
    -       -       -       -  
Common stock, $.0001 par value, Authorized 40,000,000
shares; issued and outstanding 14,106,886 shares in 2008
                    -       -  
and 15,750,000 shares (including 2,586,206 shares subject
to possible conversion) in 2007
    1,410       1,575       -       -  
Members' contributions
    -       -       40,270,000       40,270,000  
Paid in capital
    84,383,579       78,410,547       231,602       34,740  
Accumulated (deficit) earnings
    (10,218,403 )     1,698,718       (31,795,461 )     (43,212,535 )
Accumulated other comprehensive loss, net of tax
    (2,120,829 )     -       -       -  
TOTAL STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY (DEFICIT)
    72,045,757       80,110,840       8,706,141       (2,907,795 )
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY AND MEMBERS' EQUITY (DEFICIT)
  $ 289,998,510     $ 102,569,184     $ 169,397,016     $ 149,081,546  
 
The accompanying notes are an integral part of these financial statements
 

F-4

CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
ESSEX RENTAL CORP.
(Successor)
   
ESSEX HOLDINGS LLC
(Predecessor)
 
               
 
                 
   
For the Years Ended
December 31,
   
For the Period from inception (August 21, 2006) to December 31,
   
For the Ten Months Ended October 31,
   
For the Years Ended
December 31,
 
   
2008
   
2007
   
2006
   
2008
   
2007
   
2006
 
REVENUE
                                   
Equipment rentals
  $ 10,522,092     $ -     $ -     $ 51,301,586     $ 48,800,490     $ 41,578,414  
Used rental equipment sales
    1,730,771       -       -       6,709,034       13,232,768       5,980,213  
Transportation
    1,233,873       -       -       6,929,298       8,667,849       7,571,149  
Equipment repairs and maintenance
    999,950       -       -       5,901,901       7,063,722       6,509,559  
                                                 
TOTAL REVENUE
    14,486,686       -       -       70,841,819       77,764,829       61,639,335  
                                                 
COST OF REVENUES
                                               
Salaries, payroll taxes and benefits
    1,311,175       -       -       6,730,823       7,320,488       6,540,734  
Depreciation
    1,809,623       -       -       6,908,980       8,034,011       7,758,332  
Net book value of rental equipment sold
    1,439,677       -       -       3,186,106       7,183,496       2,973,649  
Transportation
    952,861       -       -       5,774,802       6,731,983       6,204,656  
Equipment repairs and maintenance
    850,379       -       -       5,330,053       7,356,751       6,630,698  
Yard operating expenses
    306,174       -       -       1,533,099       1,913,576       1,582,934  
                                                 
TOTAL COST OF REVENUES
    6,669,889       -       -       29,463,863       38,540,305       31,691,003  
                                                 
GROSS PROFIT
    7,816,797       -       -       41,377,956       39,224,524       29,948,332  
                                                 
Selling, general and administrative expenses
    4,045,432       456,661       1,550       13,652,865       9,111,874       8,732,266  
Goodwill impairment
    23,895,733       -       -       -       -       -  
Other depreciation and amortization
    139,943       -       -       110,019       133,124       128,687  
                                                 
(LOSS) INCOME FROM OPERATIONS
    (20,264,311 )     (456,661 )     (1,550 )     27,615,072       29,979,526       21,087,379  
 
 
F-5

ESSEX RENTAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
 
   
ESSEX RENTAL CORP.
(Successor)
   
ESSEX HOLDINGS LLC
(Predecessor)
               
For the Period From inception
                 
               
(August 21, 2006)
   
For the Ten
             
   
For the Years Ended
December 31,
 
to December 31,
   
Months Ended October 31,