United States
Securities and Exchange Commission

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2005

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period from: ____________ to ____________

Commission file number 0-22554

OPINION RESEARCH CORPORATION

609-452-5400

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes þ No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $0.01 Par Value – 6,436,388 shares as of May 2, 2005.

INDEX

Opinion Research Corporation and Subsidiaries

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

OPINION RESEARCH CORPORATION AND SUBSIDIARIES

See notes to financial statements

OPINION RESEARCH CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

See notes to financial statements

OPINION RESEARCH CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

See notes to financial statements

OPINION RESEARCH CORPORATION AND SUBSIDIARIES

NOTE A — BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the full year. For further information, reference should be made to the consolidated financial statements and footnotes contained in our Annual Report on Form 10-K for the year ended December 31, 2004. For purposes of this report, “Opinion Research”, the “Company”, “we”, “our”, “us” or similar references means Opinion Research Corporation and its consolidated subsidiaries unless the context requires otherwise.

     In the statement of cash flows for the period ended March 31, 2004, certain amounts in unbilled services have been reclassified to deferred revenues in the net cash provided by operating activities section to conform with the current year’s presentation.

NOTE B — CREDIT FACILITIES

     In May 2004, we entered into a secured revolving credit facility of $35.0 million with Citizen’s Bank of Pennsylvania and First Horizon Bank (the “Senior Revolving Facility”). The Senior Revolving Facility is for a three-year term and is secured by substantially all of our assets. The Senior Revolving Facility carries an interest rate at our discretion of either bank’s designated base rate (5.75% at March 31, 2005) plus 100 basis points or LIBOR (3-month LIBOR was 3.12% at March 31, 2005) plus 300 basis points. As of March 31, 2005, there was approximately $8.4 million of additional credit available under the Senior Revolving Facility.

     In May 2004, we also issued $10.0 million of secured subordinated notes (the “Secured Subordinated Notes”) and $12.0 million of unsecured subordinated notes (the “Unsecured Subordinated Notes”) to Allied Capital Corporation. The Secured Subordinated Notes carried an interest rate of 10% and were to mature in November 2007. The Secured Subordinated Notes required principal payments of $500,000 per quarter commencing July 1, 2004, with an unamortized balance of $3.0 million due at the end of the term. The Unsecured Subordinated Notes were to mature in May 2009 and carried a fixed interest rate of 15.5%; 13% payable quarterly in cash, and 2.5% payable in cash or deferred and included in the outstanding principal balance until maturity. In exchange for consideration received in connection with this debt, we extended the term of existing warrants held by Allied Capital Corporation and Allied Investment Corporation (together, “Allied”) from May 2007 to the later of May 2009 or the third

anniversary of the repayment date. These warrants were issued in 1999 to Allied and are for the purchase of 437,029 shares of our common stock at an exercise price of $5.422 per share. The extension of these warrants was valued at $616,000 and was accreted through interest expense over the life of the Unsecured Subordinated Notes.

     We are required to maintain certain financial covenants under our credit facilities, such as minimum earnings, debt-to-earnings, interest coverage, and other financial ratios. For the measuring period ended March 31, 2005, we were in compliance with all of the financial covenants. In addition, covenants under our credit facilities limit or prohibit our ability to incur additional debt, prepay specified types of indebtedness, pay dividends, make investments, sell assets, or engage in mergers and acquisitions.

     All debt outstanding as of May 4, 2004 was repaid with proceeds from the above borrowings. In conjunction with the new credit facilities, we incurred additional costs of approximately $1.4 million which are included in other long term assets in our consolidated financial statements and are being amortized over the remaining terms of the facilities. Due to the refinancing of the credit facilities, we also wrote off the unamortized loan fees of approximately $2.5 million as interest expense, which included payments of $345,000 made in 2004, related to the retired debt in the second quarter of 2004.

     In March 2005, we entered into a new secured term loan of $15.0 million with Citizens Bank of Pennsylvania and First Horizon Bank (the “Term Loan”). The Term Loan is for a five year term and is secured by substantially all of our assets. The Term Loan carries an interest rate of LIBOR plus 350 basis points, requires principal payments of $750,000 per quarter and matures in 2010. The proceeds from the Term Loan and a drawdown from the Senior Revolving Facility were used to prepay the Secured Subordinated Notes and the Unsecured Subordinated Notes in the combined amount of $20.5 million. We wrote-off unamortized fees in the amount of $813,000 and incurred prepayment penalties in the amount of $362,000 in connection with this transaction in the first quarter of 2005.

NOTE C — EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted earnings per share:

     At March 31, 2004, there were 544,978 options and 740,500 warrants outstanding to purchase our common shares that were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of our common shares.

     At March 31, 2005, there were 266,900 options and 740,500 warrants outstanding to purchase our common shares that were not included in the computation of diluted earnings per share because their exercise price was greater than the average market price of our common shares.

NOTE D — STOCK-BASED COMPENSATION

     Employee stock option plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations. We have adopted the disclosure-only provisions of Statement 123, Stock-Based Compensation and Statement 148, Accounting for Stock-Based Compensation — Transition and Disclosure, which was released in December 2002 as an amendment of Statement 123.

     In December 2004, the Financial Accounting Standards Board issued Statement No. 123(R), Share-Based Payment (“Statement No. 123(R)”). Statement No. 123(R) requires that the costs of employee share-based payments be measured at fair value on the awards’ grant date using an option-pricing model and recognized in the financial statements over the requisite service period. Statement No. 123(R) does not change the accounting for stock ownership plans, which is subject to American Institute of Certified Public Accountants SOP 93-6, Employer’s Accounting for Employee Stock Ownership Plans. Statement No. 123(R) supersedes APB 25, Accounting for Stock Issued to Employees and its related interpretations,

and eliminates the alternative to use APB 25’s intrinsic value method of accounting, which we currently use.

     Statement No. 123(R) allows for two alternative transition methods. The first method is the modified prospective application whereby compensation cost for the portion of awards for which the requisite service has not yet been rendered that are outstanding as of the adoption date will be recognized over the remaining service period. The compensation cost for that portion of awards will be based on the grant-date fair value of those awards as calculated for pro forma disclosures under Statement No. 123, as originally issued. All new awards and awards that are modified, repurchased, or cancelled after the adoption date will be accounted for under the provisions of Statement No. 123(R). The second method is the modified retrospective application, which requires that we restate prior period financial statements. The modified retrospective application may be applied either to all prior periods or only to prior interim periods in the year of adoption of Statement No. 123(R). We are currently determining which transition method we will adopt and are evaluating the impact Statement No. 123(R) will have on our financial position, results of operations, earnings per share and cash flows when Statement No. 123(R) is adopted. On April 14, 2005, the SEC issued Release 2005-57 which allows companies to implement Statement No. 123(R) at the beginning of their next fiscal year, instead of the next reporting period that begins after June 15, 2005 as disclosed in the original Statement No. 123(R) release in December 2004.

     The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all stock option awards:

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

     The number of options granted during the three months ended March 31, 2004 and 2005 were 222,500 and 50,000, respectively. The weighted average fair value of options granted during the three months ended March 31, 2004 and 2005 was $3.59 and $3.44 per share, respectively.

NOTE E — GOODWILL AND OTHER INTANGIBLE ASSETS

     The changes in the carrying value of goodwill as of March 31, 2005 are as follows:

     The components of intangible assets are as follows:

     Amortization of intangible assets for the three months ended March 31, 2004 and 2005 was $124,000 and $55,000, respectively. The estimated aggregate amortization expense for the remainder of 2005 and each of the five succeeding years is as follows:

NOTE F — COMPREHENSIVE INCOME

     The components of comprehensive income (loss) for the three months ended March 31, 2004 and 2005, were:

NOTE G — SEGMENTS

     We identify segments based on our internal reporting to management and our board of directors which reflects our geographic locations and industries in which we operate. We currently have four reportable segments: U.S. market research, U.K. market research, teleservices, and social research. We measure segment profits as operating profit, which is defined as income before interest and other non-operating expenses and income taxes. The U.S. market research segment includes unallocated corporate headquarters’ expense. Information on segments and a reconciliation to the consolidated total, are as follows:

NOTE H – STOCKHOLDERS’ DERIVATIVE LAWSUIT

     On December 2, 2004, several persons who purport to be stockholders of our company filed a derivative complaint against us and our directors in the Chancery Court of the State of Delaware regarding an offering of common stock. We proposed to use a portion of the proceeds of a public offering of our common stock to repurchase interests in our company held by LLR Equity Partners, L.P. and LLR Equity Partners Parallel, L.P. (the “LLR Partnerships”), other than limited registration rights and shares of our common stock with a value of $2.0 million, which the LLR Partnerships shall retain. The interests of the LLR Partnerships in us that we intend to repurchase are referred to herein as the “LLR Interests.” The plaintiffs allege, among other things, that the offering is unfairly dilutive to their holdings of our common stock and that the purchase price we intend to pay for the LLR Interests constitutes a waste of corporate assets. The complaint further alleges that, in approving the offering and the repurchase of the LLR Interests, our directors did not act on our behalf or on behalf of our stockholders but, rather, breached their fiduciary duties of good faith and loyalty to us and our stockholders. Finally, the complaint alleges that Janney Montgomery Scott LLC, an independent valuation firm, materially overvalued the LLR Interests in its opinion to our board of directors that our repurchase of the LLR Interests is fair, from a financial point of view, to our stockholders other than the LLR Partnerships. The plaintiffs seek the following:

	•	a declaration that our directors have violated their fiduciary duties;
	•	to enjoin the offering and the proposed repurchase of the LLR Interests or, if these transactions are completed, to rescind the transactions, compel the payment of unspecified damages or compel the issuance of new shares to plaintiffs to compensate for their dilution;
	•	an accounting from the defendants, jointly and severally, to us, the plaintiffs and our other stockholders for all monetary damages suffered by us by reason of the alleged misconduct;

	•	the award of costs and disbursements of their actions, including reasonable attorneys’ and experts’ fees; and
	•	such other and further relief as the court may determine is just and proper.

     We believe this suit is without merit and intend to vigorously defend against it. We have moved to dismiss the plaintiffs’ complaint.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes forward-looking statements. In general, statements other than statements of historical facts contained in this report, including statements regarding revenues, selling, general and administrative expenses, profitability, financial position, business strategy, and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue”, “anticipate,” “intend,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including among other things:

	•	fluctuations in demand for our services;
	•	competition;