As we close the books on 2004, we want to thank all of our clients and candidates for helping to make the year just ended so successful. Our performance for the year supports the conclusion that the California legal market remains in a recovery mode; albeit, a recovery that encounters an occasional speed bump. What follows is a review of 2004 for Solutus "At A Glance:"

The Numbers.

-- 15% increase in the total number of placements in 2004 compared to 2003;
-- In-house up 12%;
-- Lateral associates up 25%;
-- Lateral Partners up 5% (the year-to-year partner numbers remain relatively steady as demand for partners with portable books of business does not change significantly year-to-year).

Practice Areas in Demand

Perhaps the most significant change in practice area demand in 2004 was the increase in demand for general corporate/securities associates in law firms. While we continued to see increased demand for lateral associates in the practice areas of intellectual property litigation, securities litigation, and general commercial litigation; these increases simply extended the trend from 2003. In the corporate/securities area however, we went from a dormant market in 2003 throughout California, to a more steady, although still sub-normal, demand cycle in 2004. We experienced a nearly 40% increase in corporate/securities associate placements in 2004. Interestingly, the bulk of that increase occurred in the first half of 2004 when the IPO market was more active.

Trends to Watch in 2005

Lateral Associates. Our law firm clients inform us that they expect to increase their lateral hiring in 2005. We expect the corporate/securities associate market to continue to strengthen, particularly in the first half of 2005. Law firms were cautious in their entry level hiring for both 2003 and 2004 and we expect them to be at under-capacity with respect to their mid to senior level associate ranks as new work pours in. We also expect the litigation markets to continue their improvements, particularly in the areas mentioned above: intellectual property, securities, and general commercial.

Intellectual Property transactional work will also continue to improve, as will the straight patent prosecution market. Associates with relevant technical degrees and/or expertise will continue to find a welcoming market, although many firms seek their help in IP related litigation matters as opposed to straight prosecution. Also, we have begun to see modest improvements in both the real estate and tax practice groups.

In-House. The in-house market in California (both Southern and Northern) while improving throughout 2004, remained frustratingly sluggish and unpredictable. All indicators point to a more sustained improvement in 2005. Still, significant improvements in the California in-house market depend on the growth of the emerging company market. An in-house market that is dependent solely on organic legal department growth in established companies and/or attrition within such companies will never grow significantly. We are beginning to see some uptick in demand for our services from early stage companies (and not just in biotech), but the numbers are still too statistically insignificant to warrant "irrational exuberance." Nevertheless, we remain very optimistic that the emerging company sector will liven up in 2005 and present some very interesting opportunities to high quality in-house candidates.

Partners. Demand for lateral partners with substantial portable books of business will remain robust. The demand is fueled by indigenous California firms who seek to make strategic practice acquisitions and by national firms with either relatively new California offices or ambitions to establish a presence in California. The supply of high quality lateral partner candidates is always problematical and dependent on a variety of factors, not the least of which is the financial condition of their current firms. With generally improving economic conditions for firms, the "push factors" affecting lateral partner candidates may not be very compelling. This makes the "pull factors" all the more important. Firms that wish to grow through lateral partner acquisitions will need to continue to improve their lateral partner recruiting techniques.

Summary

We were pleased with the strides that we made here at Solutus in 2004 as we continued to solidify our status as the premiere full service legal search firm in California. But, more work needs to be done. We look forward to increasing our market presence in Southern California, as well as increasing our already impressive market share in Northern California.

We are optimistic about the trends affecting the California legal market and look forward with renewed enthusiasm to helping our clients and candidates realize their objectives in 2005.