SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

 (Mark One)
      X           Quarterly Report Pursuant to Section 13 or 15(d) of the
      -           Securities and Exchange Act of 1934

      For the Quarterly period ended SEPTEMBER 30, 2001

                                            or

      _           Transition report pursuant to Section 13 or 15(d) of the
                  Securities and Exchange Act of 1934

      For the transition period from  ________________ to ___________________.

Commission File No. 1-9727
                    ------

                          FRANKLIN CAPITAL CORPORATION
                          ----------------------------
               (Exact name of registrant specified in its charter)

         DELAWARE                                      13-3419202
--------------------------------            ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

450 Park Avenue, 10th Floor, New York, New York                         10022
-----------------------------------------------                       ----------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code         (212) 486-2323
                                                     ---------------------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X  No __

The number of shares of common  stock  outstanding  as of October  31,  2001 was
1,074,700.


                                       1
<PAGE>

                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements (unaudited)

             Balance Sheets - September 30, 2001 and December 31, 2000
             Statements of Operations - Three months and nine months ended
               September 30, 2001 and 2000
             Statements of Cash Flows - Nine months ended September 30,
               2001 and 2000
             Statements of Changes in Net Assets - Three months and nine months
               ended September 30, 2001 and 2000
             Portfolio of Investments - September 30, 2001
             Notes to Financial Statements
     Item 2. Management's Discussion and Analysis of Financial Condition
               and Results of Operations
     Item 3. Quantitative and Qualitative Disclosures about Market Risk

PART II. OTHER INFORMATION
     Item 1. Legal Proceedings
     Item 2. Changes in Securities and Use of Proceeds
     Item 3. Defaults Upon Senior Securities
     Item 4. Submission of Matters to a Vote of Security Holders
     Item 5. Other Information
     Item 6. Exhibits and Reports on Form 8-K

SIGNATURE

EXHIBIT INDEX

                           FORWARD LOOKING STATEMENTS

WHEN  USED  IN THIS  QUARTERLY  REPORT  ON  FORM  10-Q,  THE  WORDS  "BELIEVES,"
"ANTICIPATES,"  "EXPECTS"  AND  SIMILAR  EXPRESSIONS  ARE  INTENDED  TO IDENTIFY
FORWARD-LOOKING  STATEMENTS.  STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS QUARTERLY REPORT ON FORM 10-Q. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS
AND  UNCERTAINTIES  WHICH  COULD  CAUSE  ACTUAL  RESULTS  TO DIFFER  MATERIALLY,
INCLUDING,  BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S  DISCUSSION AND
ANALYSIS  OF  FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATIONS."  READERS  ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE HEREOF.  THE  CORPORATION  UNDERTAKES NO OBLIGATION TO
PUBLICLY   REVISE  THESE   FORWARD-LOOKING   STATEMENTS  TO  REFLECT  EVENTS  OR
CIRCUMSTANCES  OCCURRING  AFTER THE DATE HEREOF OR TO REFLECT THE  OCCURRENCE OF
UNANTICIPATED EVENTS.


                                       2
<PAGE>

                          FRANKLIN CAPITAL CORPORATION
================================================================================

BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                         SEPTEMBER 30,           DECEMBER 31,
                                                                                            2001                    2000
                                                                                        (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                   <C>

ASSETS

Marketable investment securities, at market value (cost: September 30,
    2001 - $194,872; December 31, 2000 - $122,231)  (Note 2)                                 $119,675              $112,019
Investments, at fair value (cost: September 30, 2001 -$4,377,430;
    December 31, 2000 - $3,505,159)  (Note 2)
         eCom Capital, Inc.                                                                 2,650,000                    --
         Affiliate investments                                                                236,456             1,338,389
         Other investments                                                                  1,350,000             3,548,504
                                                                                           ----------             ---------
                                                                                            4,236,456             4,886,893
                                                                                           ----------             ---------

Cash and cash equivalents (Note 2)                                                            112,610               647,565
Other assets                                                                                   98,638               120,235
                                                                                              -------               -------

TOTAL ASSETS                                                                               $4,567,379            $5,766,712
                                                                                           ==========            ==========

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

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accounts payable and accrued liabilities                                                     $132,229              $187,632
Note payable                                                                                1,000,000                    --
                                                                                           ----------              --------

TOTAL LIABILITIES                                                                           1,132,229               187,632
                                                                                           ----------               -------

Commitments and contingencies

STOCKHOLDERS' EQUITY

Convertible preferred stock, $1 par value, cumulative 7% dividend:
    5,000,000 shares authorized; 16,450 shares issued and outstanding
    at September 30, 2001 and December 31, 2000
    (Liquidation preference $1,645,000) (Note 4)                                               16,450                16,450
Common stock, $1 par value: 5,000,000 shares authorized;
    1,505,888 shares issued:1,074,700 shares outstanding at September 30,
    2001 and 1,098,200 at December 31, 2000 (Note 6)                                        1,505,888             1,505,888
Additional paid-in capital                                                                 10,271,610            10,271,610
Unrealized (depreciation) appreciation of investments,
    net of deferred income taxes  (Notes 2 and 3)                                            (216,171)            1,371,522
Accumulated deficit                                                                        (5,623,271)           (5,190,908)
                                                                                           ----------            ----------

                                                                                            5,954,506             7,974,562
Deduct common stock held in treasury, at cost, 431,188 shares at
    September 30, 2001, and 407,688 shares at December 31, 2000 (Note 4)                   (2,519,356)           (2,395,482)
                                                                                           ----------            ----------

    Net assets (See Note 8 for per share information)                                       3,435,150             5,579,080
                                                                                           ----------             ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                 $4,567,379            $5,766,712
                                                                                           ==========            ==========

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       3
<PAGE>

                          FRANKLIN CAPITAL CORPORATION
================================================================================
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                              THREE MONTHS ENDED                          NINE MONTHS ENDED
                                                                 SEPTEMBER 30,                              SEPTEMBER 30,
                                                          2001                  2000                  2001                2000
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                   <C>                  <C>                 <C>
INVESTMENT INCOME
    Dividend income                                           $0               $10,500              $26,744             $31,500
    Interest income                                       11,735                10,638               42,350              40,134
    Other income                                          30,000                     0               30,000              22,000
                                                         -------                    --              -------             -------

                                                          41,735                21,138               99,094              93,634
                                                         -------               -------              -------             -------
EXPENSES
    Salaries and employee benefits (Note 7)              215,216               366,020              692,487           1,068,331
    Professional fees                                     41,325                57,400              123,975             270,681
    Rent                                                  29,784                31,484               89,351              72,452
    Insurance                                             10,600                10,442               31,799              31,321
    Directors' fees                                          501                19,875               19,502              53,625
    Taxes other than income taxes                          7,901                 8,993               37,160              37,802
    Newswire and promotion                                 1,000                 1,500                3,000               4,500
    Depreciation and amortization                          4,998                 5,416               14,995              16,052
    General and administrative                            47,556                62,517              165,359             204,943
                                                         -------               -------             --------            --------

                                                         358,881               563,647            1,177,628           1,759,707
                                                        --------              --------           ----------          ----------

Net investment loss from operations                     (317,146)             (542,509)          (1,078,534)         (1,666,073)

Net realized gain on portfolio of investments:
     Investment securities:
          Affiliated                                       1,000                43,558              138,757             165,254
          Unaffiliated                                     4,902                 3,737              591,277             946,862
                                                          ------                ------             --------            --------
     Total investment securities                           5,902                47,295              730,034           1,112,116

     Other than investment securities                          0                   202                  823               3,819
                                                              --                  ----                 ----              ------

Net realized gain on portfolio of investments              5,902                47,497              730,857           1,115,935
                                                          ------               -------             --------          ----------

Provision for current income taxes                             0                 1,001               (1,676)             20,001
                                                              --                ------              -------             -------

Net realized loss                                       (311,244)             (496,013)            (346,001)           (570,139)

(Decrease) increase in unrealized appreciation of
    investments, net of deferred income taxes:
     Investment securities:
          Affiliated                                    (140,974)              968,958              278,725            (709,163)
          Unaffiliated                                    86,001            (3,394,358)          (1,866,419)          1,268,742
                                                         -------            -----------          -----------         ----------
     Total investment securities                         (54,973)           (2,425,400)          (1,587,694)            559,579

     Other than investment securities                          0                     0                    0            (951,862)
                                                              --                    --                   --            ---------

     Deferred income tax benefit                               0              (855,000)                   0            (159,000)
                                                              --              ---------                  --            ---------
Decrease in unrealized appreciation of investments,
    net of deferred income taxes                         (54,973)           (1,570,400)          (1,587,694)           (233,283)
                                                         --------           -----------          -----------           ---------
Net decrease in net assets from operations              (366,217)           (2,066,413)          (1,933,695)           (803,422)
                                                        ---------           -----------          -----------           ---------
Preferred dividends                                       28,787                28,787               86,362              69,845
                                                         -------               -------              -------             -------
Net decrease in net assets attributable to common
   stockholders                                        ($395,004)          ($2,095,200)         ($2,020,057)          ($873,267)
                                                       ==========          ============         ============          ==========
Basic and diluted net decrease in net assets
  from operations per common share (Note 7)               ($0.37)               ($1.92)              ($1.86)             ($0.80)
                                                          =======               =======              =======             =======
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       4
<PAGE>

                          FRANKLIN CAPITAL CORPORATION
================================================================================


STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,                                                      2001                    2000
-----------------------------------------------------------------------------------------------------------------------------

<S>                                                                                      <C>                       <C>
Cash flows from operating activities:
  Net decrease in net assets from operations                                             ($1,933,695)              ($803,422)
  Adjustments to reconcile net decrease in net assets to net
    cash used in operating activities:
      Depreciation and amortization                                                           14,995                  16,052
      Decrease in unrealized appreciation of investments,
           net of deferred income tax expense                                              1,587,694                 233,283
      Net realized gain on portfolio of investments, net of current income taxes            (732,533)             (1,095,934)
      Non-cash compensation expense from exercise of officer options                               -                 326,505

      Changes in operating assets and liabilities:
        Increase in other assets                                                               6,595                 229,994
        (Decrease) increase in accounts payable and accrued liabilities                      (53,727)                 12,292
                                                                                             -------                  ------

          Total adjustments                                                                  823,024                (277,808)
                                                                                            --------                --------

          Net cash used in operating activities                                           (1,110,671)             (1,081,230)
                                                                                          ----------              ----------

Cash flows from investing activities:
  Proceeds from sale of affiliate                                                          1,519,421                 357,013
  Proceeds from sale of other investments                                                  1,044,782                   3,819
  Proceeds from sale of marketable investment securities                                     462,989               1,228,374
  Purchase of investment in majority owned affiliate                                      (1,650,000)                      -
  Purchase of investment in affiliate                                                              -                (100,000)
  Purchases of investments                                                                   (49,095)             (1,631,936)
  Purchases of marketable investment securities                                             (542,146)               (139,417)
                                                                                            --------                --------

          Net cash provided by (used in) investing activities                                785,951                (282,147)
                                                                                            --------                --------

Cash flows from financing activities:
  Proceeds from issuance of preferred stock                                                        -               1,645,000
  Payment of preferred dividends                                                             (86,362)                (69,845)
  Cash paid to common shareholders in lieu of fractional shares
     due to stock split of common shares                                                           -                  (1,449)
  Purchase of treasury stock                                                                (123,873)               (279,766)
                                                                                            --------                --------

          Net cash (used in) provided by financing activities                               (210,235)              1,293,940
                                                                                            --------               ---------

Net decrease in cash and cash equivalents                                                   (534,955)                (69,437)

Cash and cash equivalents at beginning of period                                             647,565                 571,341
                                                                                            --------                -------

Cash and cash equivalents at end of period                                                  $112,610                $501,904
                                                                                            ========                ========

-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       5
<PAGE>

                          FRANKLIN CAPITAL CORPORATION
================================================================================

STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                            THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                               SEPTEMBER 30,                  SEPTEMBER 30,
                                                                           2001            2000            2001             2000
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                     <C>              <C>           <C>              <C>
Decrease in net assets from operations:
   Net investment loss                                                  ($317,146)       ($542,509)    ($1,078,534)     ($1,666,073)
   Net realized gain on portfolio of investments,
       net of current income taxes                                          5,902           46,496         732,533        1,095,934
   Decrease in unrealized appreciation of investments,
       net of deferred income taxes                                       (54,973)      (1,570,400)     (1,587,694)        (233,283)
                                                                          --------      -----------     -----------        ---------

       Net decrease in net assets from operations                        (366,217)      (2,066,413)     (1,933,695)        (803,422)

Capital stock transactions:
   Issuance of preferred stock                                               -                -               -           1,645,000
   Payment of dividends on preferred stock                                (28,787)         (28,787)        (86,362)         (69,845)
   Issuance of stock from treasury for exercise of officer options           -             129,317            -             326,505
   Cash paid to common shareholers in lieu of fractional shares              -                -               -              (1,449)
   Purchase of treasury stock                                              (8,514)         (65,215)       (123,873)        (279,766)
                                                                           -------         --------       ---------        ---------

       Total (decrease) increase in net assets                           (403,518)      (2,031,098)     (2,143,930)         817,023
                                                                         ---------      -----------     -----------         -------


Net assets at beginning of period                                       3,838,668       11,288,503       5,579,080        8,440,382
                                                                        ---------       ----------       ---------        ---------


Net assets at end of period                                            $3,435,150       $9,257,405      $3,435,150       $9,257,405
                                                                       ==========      ===========      ==========       ==========

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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



                                       6
<PAGE>


                          FRANKLIN CAPITAL CORPORATION
================================================================================

PORTFOLIO OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
MARKETABLE INVESTMENT SECURITIES
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         MARKET
                                                                                       NUMBER OF                         VALUE
SEPTEMBER 30, 2001                                                                      SHARES         COST(1)          (NOTE 2)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>            <C>           <C>
New Media Spark - common stock                                                          500,000       $160,197          $85,000
Certificate of Deposit - 3.26%, due 10/04/2001(2)                                                       34,675           34,675
                                                                                                      --------          --------
  Total Marketable Investment Securities
     (2.7% of total investments and 3.5% of net assets)                                               $194,872         $119,675
                                                                                                      ========         ========
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT FAIR VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                        NUMBER OF
                                                                                        SHARES OR                      DIRECTORS'
                                                                              EQUITY    PRINCIPAL                      VALUATION
SEPTEMBER 30, 2001                                          INVESTMENT       INTEREST    AMOUNT($)     COST(1)          (NOTE 2)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>         <C>            <C>           <C>
MAJORITY OWNED AFFILIATE

eCom Capital, Inc.                                          Common stock      64.70%   2,500,000    $2,500,000       $2,500,000
eCom Capital, Inc.                                         Note Receivable(2)   -        150,000       150,000          150,000
                                                                                         -------       -------          -------

Total eCom Capital, Inc. (60.8% of total investments
      and 77.1% of net assets)
     (Radio production and advertising sales)                                64.70%   2,650,000     2,650,000        2,650,000

AFFILIATES

Excom Ventures, LLC
     (3.2% of total investments and 4.1% of net assets)         Units         18.64%     140,000       140,000          140,000
     (Purchase evaluation software)

Primal Solutions, Inc.
     (2.2% of total investments and 2.8% of net assets)     Common Stock       7.30%   1,483,938       237,430           96,456
                                                                                                       -------           ------
     (Internet-based Voice over IP billing software)

Total Affiliates                                                                                       377,430          236,456

OTHER INVESTMENTS

Alacra Corporation
    (23.0% of total investments and 29.1% of net assets)     Convertible       1.68%     321,543     1,000,000        1,000,000
    (Internet-based information provider)                   Preferred Stock

Structured Web, Inc.
    (8.1% of total investments and 10.2% of net assets)      Convertible
    (Internet-based application service provider)          Preferred Stock     3.60%     188,425       350,000          350,000
                                                                                                       -------          -------


Total Other Investments                                                                               1,350,000       1,350,000
                                                                                                      ---------       ---------

     Total Investments, at Fair Value                                                                 4,377,430       4,236,456
                                                                                                      =========       =========
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


   (1) Book cost equals tax cost for all investments
   (2) Income producing security



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


                                       7

<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001

1. ORGANIZATION

The information furnished in the accompanying  financial statements reflects all
adjustments  that  are,  in the  opinion  of  management,  necessary  for a fair
presentation of the results for the interim period presented.

Franklin Capital  Corporation  ("Franklin",  or the "Corporation") is a Delaware
corporation  registered  as a Business  Development  Company  ("BDC")  under the
Investment  Company  Act of 1940 (the  "Act").  A BDC is a  specialized  type of
investment  company  under  the Act.  A BDC  must be  primarily  engaged  in the
business of furnishing capital and managerial expertise to companies that do not
have ready  access to capital  through  conventional  financial  channels.  Such
companies are termed "eligible portfolio companies". The Corporation,  as a BDC,
generally may invest in other  securities;  however,  such  investments  may not
exceed  30% of the  Corporation's  total  asset  value  at the  time of any such
investment.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with accounting  principles generally accepted
in the United States have been condensed or omitted.  It is suggested that these
condensed  financial  statements  be  read in  conjunction  with  the  financial
statements and notes thereto included in the Corporation's Annual Report on Form
10-K for the year ended December 31, 2000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

STATEMENTS OF CASH FLOWS

The  Corporation  paid no interest or income  taxes during the nine months ended
September 30, 2001 and 2000.

The Corporation issued a note payable in the amount of $1,000,000 as part of the
purchase  price  of a  majority  owned  affiliate.  See  Note  5 for  additional
information.

At September 30, 2001, the Corporation held cash and cash equivalents  primarily
in money market funds and overnight  commercial paper at two commercial  banking
institutions and one broker/dealer.

VALUATION OF INVESTMENTS

Security  investments which are publicly traded on a national exchange or NASDAQ
are stated at the last reported  sales price on the day of  valuation,  or if no
sale was  reported  on that  date,  then the  securities  are stated at the last
quoted bid price.  The Board of Directors of Franklin (the "Board of Directors")
may  determine,  if  appropriate,  to  discount  the  value  where  there  is an
impediment to the marketability of the securities held.

Investments for which there is no ready market are initially valued at cost and,
thereafter,  at fair value  based upon the  financial  condition  and  operating
results of the  issuer and other  pertinent  factors as  determined  by the good
faith of the Board of Directors.  The financial  condition and operating results
have been derived utilizing both audited and unaudited data. In the absence of a
ready  market  for an  investment,  numerous  assumptions  are  inherent  in the
valuation  process.  Some  or all of  these  assumptions  may  not  materialize.
Unanticipated  events and  circumstances may occur subsequent to the date of the
valuation  and values may change  due to future  events.  Therefore,  the actual
amounts eventually realized from each investment may

                                       8

<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

vary from the valuations  shown and the  differences  may be material.  Franklin
reports  the  unrealized  gain or loss  resulting  from  such  valuation  in the
Statements of Operations.

GAINS ON PORTFOLIO OF INVESTMENTS

Amounts  reported as realized gains are measured by the  difference  between the
proceeds of sale or exchange and the cost basis of the investment without regard
to unrealized gains reported in the prior periods. Gains are considered realized
when sales or dissolution of investments are consummated.

INCOME TAXES

Franklin  does not  qualify  for  pass  through  tax  treatment  as a  Regulated
Investment  Company under  Subchapter M of the Internal  Revenue Code for income
tax purposes. Therefore, the Corporation is taxed under Regulation C.

Franklin accounts for income taxes in accordance with the provision of Statement
of Financial  Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109").  The  significant  components of deferred tax assets and  liabilities are
principally related to the Corporation's net operating loss carryforward and its
unrealized appreciation of investments.

DEPRECIATION AND AMORTIZATION

Depreciation  is  recorded  using the  straight-line  method at rates based upon
estimated  useful lives for the respective  assets.  Leasehold  improvements are
included  in other  assets  and are  amortized  over their  useful  lives or the
remaining life of the lease, whichever is shorter.

NET DECREASE IN NET ASSETS PER COMMON SHARE

Basic and diluted net decrease in net assets per common share is  calculated  in
accordance  with the provisions of Statement of Financial  Accounting  Standards
No. 128, "Earnings per Share".

3. INCOME TAXES

For  the  nine  months  ended  September  30,  2001  and  2000,  Franklin's  tax
(provision) benefit was based on the following:

                                                       2001             2000
                                                    ----------       ----------
Net investment loss from operations .............  $(1,078,534)     $(1,666,073)
Net realized gain on portfolio of investments ...      730,857        1,115,935
Decrease in unrealized appreciation/depreciation    (1,587,694)      (  392,283)
                                                    ----------       ----------
     Pre-tax book loss ..........................  $(1,935,371)     $(  942,421)
                                                   ===========      ===========



                                       9
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                                       2001             2000
                                                    ----------       ----------
Tax benefit at 34% on $(1,935,371) and
  $(942,421) respectively ....................... $    658,000       $  320,000
State and local, net of Federal benefit .........       49,000        (  20,000)
Book losses for which no benefit is provided ....      ( 8,000)        (141,000)
Change in valuation allowance ...................     (697,000)              --
                                                      --------         --------
                                                  $      2,000       $  139,000
                                                  ============       ==========

The components of the tax benefit (provision) are as follows:

                                                       2001             2000
                                                    ----------       ----------
Current state and local tax benefit (provision) . $      2,000       $  (20,000)
Deferred tax benefit ............................           --          159,000
                                                  ------------       ----------
Benefit for income taxes ........................ $      2,000       $  139,000
                                                  ============       ==========

Deferred  income tax provision  reflects the impact of  "temporary  differences"
between amounts of assets and liabilities for financial  reporting  purposes and
such amounts as measured by tax laws.

At September 30, 2001 and December 31, 2000, significant deferred tax assets and
liabilities consist of:


                                                        Asset (Liability)
                                                  -----------------------------
                                                  September 30,     December 31,
                                                      2001              2000
                                                  ------------     ------------
Deferred Federal and state benefit
  from net operating loss carryforward .......... $  1,763,000     $  1,638,000

Deferred Federal and state benefit
  (provision) on unrealized
  appreciation of investments ...................       78,000         (494,000)
Valuation allowance .............................   (1,841,000)      (1,144,000)
                                                    ----------       ----------
Deferred taxes .................................. $         --     $         --
                                                  ============     ============

At December 31, 2000,  Franklin had net operating loss  carryforwards for income
tax purposes of approximately $4,551,000 that will begin to expire in 2011. At a
36%  effective  tax rate the  after-tax  net  benefit  from this  loss  would be
approximately $1,638,000.

4. STOCKHOLDERS' EQUITY

The  Accumulated  Deficit at  September  30, 2001  consists of  accumulated  net
realized gains of $5,287,000 and accumulated investment losses of $10,910,000.

On February  22, 2000,  the  Corporation  issued  16,450  shares of  convertible
preferred  stock  with a par  value  of $100 for  $1,645,000.  The  stock  has a
cumulative 7% quarterly dividend and is convertible into the number of shares of
common stock by dividing the purchase price for the convertible  preferred stock
by conversion price in effect (which is currently $13.33),  resulting in 123,375
shares  of common  stock.  The  convertible  preferred  stock  has  antidilution
provisions,  which can change the conversion  price in certain  circumstances if
the Corporation  issues  additional  shares of common stock.  The holder has the
right to convert  the shares of  convertible  preferred  stock at any time until
February 22, 2010 into common stock.

                                       10

<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Upon liquidation, dissolution or winding up of the Corporation, the stockholders
of the  convertible  preferred stock are entitled to receive $100 per share plus
any  accrued  and unpaid  dividends  before  distributions  to any holder of the
Corporation's common stock.

The Board of Directors has authorized  Franklin to repurchase up to an aggregate
of 525,000  shares of its common stock in open market  purchases on the American
Stock  Exchange when such purchases are deemed to be in the best interest of the
Corporation and its  stockholders.  As of December 31, 2000, the Corporation had
purchased  458,850  shares of its  common  stock of which  407,688  remained  in
treasury.  During the nine months  ended  September  30, 2001,  the  Corporation
purchased  23,500  shares of its common  stock at a total cost of  $123,873.  To
date,  Franklin  has  repurchased  482,350  shares of its common  stock of which
431,188 shares remain in treasury at September 30, 2001.

5. TRANSACTIONS WITH AFFILIATES

On February  1, 2001,  Franklin  sold to Avery  Communications,  Inc.  ("Avery")
1,183,938  shares of common stock and 350,000 shares of preferred stock of Avery
representing  Franklin's  entire holding in Avery,  for $1,557,617  plus accrued
interest on the preferred stock for a realized gain net of expenses of $137,759.
As part of the sale Franklin  retained the right to receive  1,533,938 shares of
Primal  Solutions,  Inc.  ("Primal")  a  wholly-owned  subsidiary  of Avery.  On
February  13,  2001,  Primal  announced  that Avery had  completed a spin-off of
Primal and Franklin received 1,533,938 fully registered and marketable shares of
Primal.  During the nine months ended  September 30, 2001,  Franklin sold 50,000
shares of Primal for total proceeds of $9,000, realizing a gain of $1,000.

On August 28, 2001,  Franklin  along with  Sunshine  Wireless LLC  purchased the
assets of Winstar Radio  Networks,  Global Media and Winstar  Radio  Productions
(collectively  "WRN")  for a total  purchase  price  of  $6.25  million.  Change
Technology  Partners,  a  public  company,  provided  $2.25  million  of  senior
financing for the deal. The  acquisition  was  consummated  through eCom Capital
Inc.,  ("eCom")  a  wholly-owned   subsidiary  of  Franklin.   Franklin's  total
investment  was  $2.65  million  consisting  of $1.65  million  in cash and a $1
million note payable to Winstar. The note is due February 28, 2002 with interest
at  3.54%  and  has a right  of  set-off  against  certain  representations  and
warranties made by Winstar.  As a result of the  transaction,  Franklin now owns
57.5% of eCom on a fully  diluted  basis and 100% of eCom's  common  equity.  In
addition,   Franklin  has  the  right  to  nominate  four  directors  to  eCom's
seven-person board of directors.

At the closing,  Franklin  entered into a services  agreement  with eCom whereby
Franklin  will provide  eCom with certain  services.  In  consideration  for the
services provided,  for a period of six-months Franklin will receive $30,000 per
month  and be  reimbursed  for all  direct  expenses.  Subsequently,  Franklin's
monthly  fee will be  determined  by a majority of the  non-Franklin  directors;
however,  said  management fee will be no less than $15,000 per month.  Franklin
will  continue to be reimbursed  for all direct  expenses.  Finally,  Franklin's
chief financial officer will serve in that capacity for eCom and his salary will
be allocated between eCom and Franklin on an 80/20 basis.

6. STOCK OPTIONS

On September 9, 1997, Franklin's stockholders approved two Stock Option Plans: a
Stock  Incentive  Plan ("SIP") to be offered to the  Corporation's  consultants,
officers and employees (including any officer or

                                       11

<PAGE>
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

employee who is also a director of the  Corporation)  and a Non-Statutory  Stock
Option  Plan  ("SOP") to be offered to the  Corporation's  "outside"  directors,
i.e.,  those  directors  who are not also  officers or  employees  of  Franklin.
112,500 shares of the Corporation's Common Stock have been reserved for issuance
under these  plans,  of which 67,500  shares have been  reserved for the SIP and
45,000  shares have been  reserved for the SOP.  Shares  subject to options that
terminate or expire prior to exercise  will be available for future grants under
the  Plans.  Because  the  issuance  of options to  "outside"  directors  is not
permitted  under the Act,  without  an  exemptive  order by the  Securities  and
Exchange  Commission ("the  Commission"),  the issuance of options under the SOP
was  conditioned  upon the granting of such order.  The  Commission  granted the
order on January 18, 2000.

Franklin  accounts for the options issued to employees under APB Opinion No. 25,
under  which no  compensation  cost has been  recognized.  Proforma  information
determined  consistent with the fair value method required by FASB Statement No.
123, is as follows:

<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                     ----------------------------------------------------
                                                     September 30, 2001                September 30, 2000
                                                     ------------------                ------------------
<S>                                                     <C>                                 <C>
Net decrease in net assets attributable to common stockholders:

As reported                                             ($2,020,057)                        $(873,262)
Pro forma                                               ($2,048,546)                        $(918,654)

Net decrease in net assets per common share:

As reported                                             ($  1.86)                           $(   0.80)
Pro forma - Basic                                       ($  1.89)                           $(   0.84)
Pro forma - Diluted                                     ($  1.89)                           $(   0.84)

Net Asset Value per common share:

As reported - Basic                                     $   3.20                            $    8.40
Pro forma - Basic                                       $   3.17                            $    8.36
Pro forma - As if converted basis                       $   2.87                            $    7.50
Pro forma - As if liquidated basis                      $   1.64                            $    6.93
</TABLE>

The fair value of the options granted was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:

                                                     September 30, 2000
                                                     ------------------
                  Stock volatility                          41.3%
                  Risk-free interest rate                    5.5%
                  Option term in years                         4
                  Stock dividend yield                        -

No options were granted during the nine months ended September 30, 2001.


                                       12
<PAGE>
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following is a summary of the status of the Stock Option Plans during the
nine months ended:

<TABLE>
<CAPTION>
                                               September 30, 2001                    September 30, 2000
                                              --------------------                   -------------------
                                                          Weighted                              Weighted
                                                           Average                               Average
                                                          Exercise                              Exercise
                                              Shares        Price                    Shares       Price
                                              ------      --------                   ------     --------
<S>                                           <C>           <C>                      <C>         <C>
Outstanding at beginning of
  period                                      39,375        $11.27                   65,625      $ 4.59
Granted                                          -             -                     39,375      $11.27
Exercised                                        -             -                     58,124      $ 4.55
Forfeited                                        -             -                        -           -
Expired                                          -             -                        -           -
                                              ------                                 ------
Outstanding at end of period                  39,375        $11.27                   46,876      $10.25
                                              ======                                 ======
Exercisable at end of period                  26,875        $10.73                   18,125      $11.61
                                              ======                                 ======
Weighted average fair value of
  options granted                                  -                                  $2.58
</TABLE>

The  options  issued  under the SIP have a  remaining  contractual  life of 7.25
years. The options issued under the SOP have a remaining contractual life of 8.4
years.

7. NET INCREASE IN NET ASSETS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER SHARE

The following  table sets forth the  computation  of basic and diluted change in
net assets per common share:

<TABLE>
<CAPTION>
                                                                 Three Months ended             Nine months ended
                                                                    September 30,                  September 30,
                                                              -----------------------------------------------------
                                                                 2001           2000             2001         2000
                                                              -----------------------------------------------------
<S>                                                           <C>          <C>               <C>           <C>
Numerator:
   Net decrease in net assets from operations                 ($366,217)   ($2,066,413)      ($1,933,695)  ($803,422)
   Preferred stock dividends                                    (28,787)       (28,787)          (86,362)    (69,845)
                                                                -------        -------           -------     -------
   Numerator for basic and diluted earnings per share
     net loss available for common stockholders                (395,004)    (2,095,200)       (2,020,057)   (873,267)
                                                              =========     ==========        ==========    ========

Denominator:
  Denominator for basic and diluted decrease in net
    assets from operations weighted - average shares          1,076,012      1,092,779         1,083,408   1,092,346

  Basic and diluted net decrease in net assets
     attributable to common stockholders                         ($0.37)        ($1.92)           ($1.86)     ($0.80)
                                                                 ======         ======            ======      ======
</TABLE>

Preferred stock convertible into 123,375 shares of common stock was antidilutive
for the three months and nine months ended  September  30, 2001 and 2000.  Stock
options were antidilutive for the three and nine months ended September 30, 2001
and 2000.

                                       13
<PAGE>
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

For additional information on the Preferred Stock, see Note 4.

8. NET ASSET VALUE PER SHARE

The following  table sets forth the  computation of basic, as if converted basis
and as if liquidated basis net asset value per common share:

<TABLE>
<CAPTION>
                                                                      SEPTEMBER 30,              DECEMBER 31,
                                                                      ---------------------------------------
                                                                          2001                      2000
                                                                      ---------------------------------------
<S>                                                                    <C>                       <C>
Numerator:
         Net assets, numerator for basic and as if converted
           basis, net asset value per common share                     $3,435,150                $5,579,080
         Liquidation value of convertible preferred
           stock                                                       (1,645,000)               (1,645,000)
                                                                       ----------                ----------
         Numerator for as if liquidated basis, net asset value
           per common share                                            $1,790,150                $3,934,080
                                                                       ==========                ==========

Denominator:
         Number of common shares outstanding,
           denominator for basic and as if liquidated
           net asset value per common share                             1,074,700                 1,098,200
         Number of shares of common stock to be
           issued upon conversion of preferred stock                      123,375                   123,375
                                                                          -------                   -------
         Denominator for as if converted net asset value
           per common share                                             1,198,075                 1,221,575
                                                                        =========                 =========

         Net asset value per common share, basic                            $3.20                     $5.08
                                                                            =====                     =====

         Net asset value per common share, as if converted basis            $2.87                     $4.57
                                                                            =====                     =====

         Net asset value per common share, as if liquidated basis           $1.67                     $3.58
                                                                            =====                     =====
</TABLE>

9. PURCHASES AND SALES OF INVESTMENT SECURITIES

The cost of purchases and proceeds from sales of investment securities excluding
short term investments, aggregated $3,091,241 and $3,026,363 respectively, for
the nine months ended September 30, 2001; $1,836,678 and $1,544,024
respectively, for the nine months ended September 30, 2000.


                                       14
<PAGE>

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

STATEMENT OF OPERATIONS

         The Corporation  accounts for its operations  under generally  accepted
accounting  principles for investment  companies.  On this basis,  the principal
measure of its financial  performance is captioned  "Net increase  (decrease) in
net assets from operations", which is composed of the following: "Net investment
loss from operations," which is the difference between the Corporation's  income
from interest, dividends and fees and its operating expenses; "Net realized gain
on  portfolio  of  investments,"  which is the  difference  between the proceeds
received from  dispositions  of portfolio  securities and their stated cost; any
applicable  income tax provisions  (benefits);  and "Net increase  (decrease) in
unrealized  appreciation  of  investments,"  which is the net change in the fair
value of the Corporation's  investment portfolio, net of any increase (decrease)
in  deferred   income  taxes  that  would  become   payable  if  the  unrealized
appreciation  were  realized  through  the  sale  or  other  disposition  of the
investment portfolio.

         "Net  realized  gain  (loss)  on  portfolio  of  investments"  and "Net
increase  (decrease) in unrealized  appreciation  of  investments"  are directly
related.  When a  security  is  sold to  realize  a  gain,  the  net  unrealized
appreciation  decreases and the net realized gain increases.  When a security is
sold to realize a loss,  the net unrealized  appreciation  increases and the net
realized gain decreases.

FINANCIAL CONDITION

         The  Corporation's  total  assets  and net assets  were,  respectively,
$4,567,379  and  $3,435,150  at  September  30,  2001,   versus  $5,766,712  and
$5,579,080  at December  31,  2000.  Net asset value per share was $3.20  basic,
$2.87 as if converted  basis,  and $1.67 as if liquidated basis at September 30,
2001, versus $5.08 basic,  $4.57 as if converted,  and $3.58 as if liquidated at
December 31, 2000.

         The  Corporation's  financial  condition is dependent on the success of
its  investments.  A summary of the  Corporation's  investment  portfolio  is as
follows:

                                        SEPTEMBER 30, 2001    DECEMBER 31, 2000
                                        ------------------    -----------------
Investments, at cost                        $4,572,302            $3,627,390
Unrealized (depreciation) appreciation,
         net of deferred taxes                (216,171)            1,371,522
                                            ----------            ----------
Investments, at fair value                  $4,356,131            $4,998,912
                                            ==========            ==========

INVESTMENTS

     At  September  30,  2001,  the  Corporation  had an  investment  in  Alacra
Corporation  ("Alacra"),  valued at $1,000,000,  which  represents  21.9% of the
Corporation's total assets and 29.1% of its net assets. Alacra, headquartered in
New York and London, is a leading provider of Internet-based  online information
services.   Alacra  provides  a  service  called  .xls,   which  aggregates  and
cross-indexes  over  70  premier  business  databases,   delivering  information
directly to Microsoft Excel, HTML, Microsoft Word or PDF formats at the desktop.
Other products include  privatesuite(TM),  a fast, easy,  cost-effective  way to
identify and retrieve  profiles of privately  held  companies  around the world;
compbook(TM),  a tool for  company  peer  analysis;  and Portal  B(TM),  a fully
integrated business information portal.

                                       15
<PAGE>

         On April 20, 2000, the Corporation purchased $1,000,000 worth of Alacra
Series F  Convertible  Preferred  Stock.  In  connection  with this  investment,
Franklin was granted observer rights for Alacra Board of Directors meetings.

         At September  30,  2001,  the  Corporation  had an  investment  in Ecom
Capital,  Inc.  ("Ecom")  valued at $2,650,000,  which  represents  58.0% of the
Corporation's  total  assets  and 77.1% of its net  assets.  Ecom  produces  and
syndicates  programs  and  services  heard on more  than  2,000  radio  stations
nationwide across most major formats.  Through its Global Media Sales unit, Ecom
also sells the advertising  inventory radio stations provide in exchange for the
Ecom content. The programming and content includes prep services as well as long
form and short  form  programming.  Additionally,  Global  Media has a number of
independent  producer clients,  which range from talk and music programs to news
and traffic services.

         On August 28, 2001, the Corporation  purchased $2,500,000 worth of Ecom
Common Stock and issued a secured note for $150,000.

         At September  30, 2001,  the  Corporation  had an  investment  in Excom
Ventures,  LLC  ("Excom")  valued  at  $140,000,  which  represents  3.1% of the
Corporation's  total  assets and 4.1% of its net  assets.  Excom was formed as a
limited  liability  holding  company  for the  purpose  of  investing  in Expert
Commerce,  Inc. ("Expert Commerce").  Expert Commerce is a  Business-to-Business
purchase  evaluation engine that simulates the way people make decisions.  Based
on  intelligent  and proven  technology,  the  engine  helps  structure  complex
decisions and provides an audit trail to justify transactions, empowering buyers
to make purchase decisions with confidence.

         On June 26, 2000,  the  Corporation  purchased  $140,000 worth of Excom
Units.

         At September 30, 2001, the Corporation owned 1,483,938 shares of common
stock of Primal Solutions,  Inc. ("Primal") valued at $96,456,  which represents
2.1% of the Corporation's total assets and 2.8% of its net assets. Primal, based
in Irvine,  California,  is a leading provider of Web-based  integrated customer
management and intelligence solutions that allow rapidly evolving communications
and Internet service  providers to stay connected with and grow their customers.
It does this  through an  integrated  suite of  applications  that can track and
analyze  customer  behavior and  preferences,  collect  usage  information,  and
support billing and customer care back-office  requirements,  including those of
emerging IP billing markets.

         On February 13, 2001,  Primal was spun-off  from Avery  Communications,
Inc.  ("Avery").  As a result of this spin-off Franklin received 1,533,938 fully
registered and marketable  shares of common stock of Primal.  Primal trades over
the counter on the OTC Bulletin  Board.  During the nine months ended  September
30,  2001,  Franklin  sold  50,000  shares of common  stock  realizing a gain of
$1,000.

         At September 30, 2001, the  Corporation had an investment in Structured
Web, Inc.  ("Structured  Web") valued at $350,000,  which represents 7.7% of the
Corporation's total assets and 10.2% of its net assets.  Structured Web develops
web building  blocks to enable small  businesses  to create and manage their own
digital  nerve  system  easily  and at an  affordable  price.  Structured  Web's
object-based  proprietary  technology enables customers to choose from a growing
selection  of  "WebBlocks"  including  content,   communication,   commerce  and
services.

         On  August  8,  2000,  the  Corporation  purchased  $350,000  worth  of
Structured Web convertible  preferred stock. In connection with this investment,
Franklin  was granted  observer  rights for  Structured  Web Board of  Directors
meetings.

                                       16
<PAGE>

RESULTS OF OPERATIONS

INVESTMENT INCOME AND EXPENSES:

         The   Corporation's   principal   objective   is  to  achieve   capital
appreciation  through  long-term  investments  in  businesses  believed  to have
favorable growth potential.  Therefore,  a significant portion of the investment
portfolio is structured to maximize the potential for capital  appreciation  and
provides  little or no current  yield in the form of dividends or interest.  The
Corporation earns interest income from loans, preferred stocks,  corporate bonds
and other fixed income  securities.  The amount of interest  income varies based
upon the average  balance of the  Corporation's  fixed income  portfolio and the
average yield on this portfolio.

         The Corporation had interest and dividend income of $69,094 and $71,634
for the nine  months  ended  September  30,  2001 and  2000,  respectively.  The
Corporation  had interest  income and dividend income of $11,735 and $21,138 for
the three months ended September 30, 2001 and 2000,  respectively.  The decrease
in interest and dividend for the three and nine months ended  September 30, 2001
when  compared to September  30, 2000,  was  primarily the result of the sale of
Avery in February  2001.  Avery was the major source of  dividends  during 2000.
During the three and nine months  ended  September  30,  2001,  the  Corporation
received a management fee of $30,000 for services  provided to eCom.  During the
three months  ended  September  30,  2000,  Franklin had other income of $22,000
related to a one-time event.

         Operating  expenses were  $1,177,628 and $1,759,707 for the nine months
ended and $358,881 and  $563,647 for the three months ended  September  30, 2001
and 2000,  respectively.  A majority  of the  Corporation's  operating  expenses
consist of  employee  compensation,  office  and rent  expense,  other  expenses
related to identifying and reviewing  investment  opportunities and professional
fees.  Professional  fees consist of general legal fees,  audit and tax fees and
investment  related legal fees. The expenses  decreased due to one-time expenses
in 2000 and a cost cutting effort in 2001.

         Net investment  losses from  operations  were $1,078,534 and $1,666,073
for the nine months  ended and  $317,146 and $542,509 for the three months ended
September 30, 2001 and 2000, respectively.  The decrease resulted primarily from
the decrease in expenses noted above.

NET REALIZED GAINS AND LOSSES ON PORTFOLIO OF INVESTMENTS:

         During the nine months and three  months ended  September  30, 2001 and
2000,  the  Corporation   realized  net  gains  before  taxes  of  $730,857  and
$1,115,935, and $5,902 and $47,497 respectively, from the disposition of various
investments.

UNREALIZED APPRECIATION OF INVESTMENTS:

         Unrealized   appreciation  of  investments,   net  of  deferred  taxes,
decreased by  $1,587,694  and $54,973  during the nine months and three  months,
respectively,  ended September 30, 2001, primarily from unrealized losses due to
the sale of Franklin's holdings in Go America.  The decrease for the nine months
was   partially   offset  by  the  sale  of   Franklin's   investment  in  Avery
Communications.

         Unrealized   appreciation  of  investments,   net  of  deferred  taxes,
decreased by $233,283 and  $1,570,400  during the nine months and three  months,
respectively,  ended September 30, 2000, primarily from the realization of gains
in  Communications  Intelligence  Corporation  and by a


                                       17

<PAGE>

decrease in the value of Franklin's  investment  in Avery.  For the nine months,
this  decrease was partially  offset by unrealized  gains due to the increase in
value of Franklin's investment in Go America.

LIQUIDITY AND CAPITAL RESOURCES

         The  Corporation's   reported  total  cash  and  cash  equivalents  and
marketable investment securities (the primary measure of liquidity) at September
30,  2001,  was $232,285  compared to $768,582 at December 31, 2000.  Management
believes that these assets provide the Corporation with sufficient liquidity for
its operations in the short-term.

         The Corporation has relied and continues to rely to a large extent upon
proceeds from sales of  investments  rather than  investment  income to defray a
significant  portion of its  operating  expenses.  Because  such sales cannot be
predicted with certainty,  the Corporation attempts to maintain adequate working
capital to provide for fiscal periods when there are no such sales.

RISKS

         There are  significant  risks  inherent  in the  Corporation's  venture
capital  business.  The  Corporation  has invested a substantial  portion of its
assets  in  small  private   companies  and  a  bulletin   board  listed  public
corporation.  Because of the speculative nature of these  investments,  there is
significantly greater risk of loss than is the case with traditional  investment
securities.  The Corporation  expects that from time to time its venture capital
investments may result in a complete loss of the Corporation's  invested capital
or  may  be  unprofitable.   Other  investments  may  appear  likely  to  become
successful,  but may never realize their  potential.  Neither the  Corporation's
investments  nor an  investment in the  Corporation  is intended to constitute a
balanced  investment  program.  The  Corporation  has in  the  past  relied  and
continues  to rely to a large  extent upon  proceeds  from sales of  investments
rather than investment  income to defray a significant  portion of its operating
expenses.

         INVESTING IN THE CORPORATION'S STOCK IS HIGHLY SPECULATIVE AND YOU
         COULD LOSE SOME OR ALL OF THE AMOUNT YOU INVEST

         The value of the  Corporation's  common  stock may  decline  and may be
affected by numerous market  conditions,  which could result in the loss of some
or all of your investment in the Corporation's  shares.  The securities  markets
frequently  experience  extreme price and volume fluctuation which affect market
prices for  securities  of  companies  generally,  and  technology  companies in
particular.  Because of the Corporation's  focus on the technology  sector,  its
stock  price is  likely  to be  impacted  by these  market  conditions.  General
economic  conditions  and general  conditions  in the Internet  and  information
technology  and  other  high   technology   industries   will  also  affect  the
Corporation's stock price.

         INVESTING IN THE CORPORATION'S SHARES MAY BE INAPPROPRIATE FOR YOUR
         RISK TOLERANCE

         Investing in the  Corporation's  shares may be  inappropriate  for your
risk tolerance. The Corporation's  investments in accordance with its investment
objective and principal strategies may result in an above average amount of risk
and volatility or loss of principal. The Corporation's  investments in portfolio
companies are highly speculative and aggressive and, therefore, an investment in
its shares may not be suitable for you.


                                       18
<PAGE>

         THE MARKET FOR VENTURE CAPITAL INVESTMENTS IS HIGHLY COMPETITIVE. IN
         SOME CASES, THE CORPORATION'S STATUS AS A BUSINESS DEVELOPMENT COMPANY
         MAY HINDER ITS ABILITY TO PARTICIPATE IN INVESTMENT OPPORTUNITIES.

         The  Corporation  faces   substantial   competition  in  its  investing
activities from private venture  capital funds,  investment  affiliates of large
industrial,   technology,   service  and  financial  companies,  small  business
investment companies,  wealthy individuals and foreign investors.  As a business
development  company, the Corporation is required to disclose quarterly the name
and business  description  of  portfolio  companies  and value of any  portfolio
securities.  Most  of the  Corporation's  competitors  are not  subject  to this
disclosure   requirement.   The   Corporation's   obligation  to  disclose  this
information could hinder its ability to invest in certain  portfolio  companies.
Additionally,  other  regulations,  current and future, may make the Corporation
less  attractive  as a potential  investor to a given  portfolio  company than a
private venture capital fund not subject to the same regulations.

         REGULATORY RISKS

         Securities  and tax laws and  regulations  governing the  Corporation's
activities   may  change  in  ways  negative  to  the   Corporation's   and  its
shareholders'  interests and  interpretations  of such laws and  regulations may
change with unpredictable consequences.

         THE CORPORATION IS DEPENDENT UPON KEY MANAGEMENT PERSONNEL FOR FUTURE
         SUCCESS

         The  Corporation is dependent for the selection,  structuring,  closing
and  monitoring  of its  investments  on the  diligence  and skill of its senior
management and other management  members.  The future success of the Corporation
depends to a significant extent on the continued service and coordination of its
senior management team,  particularly the Chairman and Chief Executive  Officer.
The departure of any of the executive officers or key employees could materially
adversely affect the Corporation's  ability to implement its business  strategy.
The Corporation  does not maintain key man life insurance on any of its officers
or employees.

         INVESTMENT IN SMALL, PRIVATE COMPANIES

         There are  significant  risks  inherent  in the  Corporation's  venture
capital  business.  The  Corporation  has invested a substantial  portion of its
assets  in  private  development  stage or  start-up  companies.  These  private
businesses tend to be thinly capitalized,  unproven,  small companies with risky
technologies  that lack management depth and have not attained  profitability or
have no history of operations. Because of the speculative nature and the lack of
a public market for these  investments,  there is significantly  greater risk of
loss than is the case with traditional  investment  securities.  The Corporation
expects that some of its venture capital  investments will be a complete loss or
will be unprofitable and that some will appear to be likely to become successful
but never realize their potential.  The Corporation has been risk seeking rather
than risk  averse in its  approach  to venture  capital  and other  investments.
Neither the  Corporation's  investments  nor an investment in the Corporation is
intended to constitute a balanced investment program. The Corporation has in the
past relied,  and continues to rely to a large extent,  upon proceeds from sales
of investments rather than investment income to defray a significant  portion of
its operating expenses.


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<PAGE>


         ILLIQUIDITY OF PORTFOLIO INVESTMENTS

         Most of the  investments  of the  Corporation  are or  will  be  equity
securities acquired directly from small companies.  The Corporation's  portfolio
of equity securities is and will usually be subject to restrictions on resale or
otherwise have no established  trading  market.  The  illiquidity of most of the
Corporation's portfolio of equity securities may adversely affect the ability of
the  Corporation  to  dispose  of  such  securities  at  times  when  it  may be
advantageous for the Corporation to liquidate such investments.

         THE INABILITY OF THE CORPORATION'S PORTFOLIO COMPANIES TO SUCCESSFULLY
         MARKET THEIR PRODUCTS WOULD HAVE A NEGATIVE IMPACT ON ITS INVESTMENT
         RETURNS

         Even if the  Corporation's  portfolio  companies  are  able to  develop
commercially viable products, the market for new products and services is highly
competitive and rapidly changing. Commercial success is difficult to predict and
the  marketing  efforts  of the  Corporation's  portfolio  companies  may not be
successful.

         VALUATION OF PORTFOLIO INVESTMENTS

         There is typically no public  market of equity  securities of the small
private companies in which the Corporation  invests.  As a result, the valuation
of the equity securities in the  Corporation's  portfolio is subject to the good
faith determination of the Corporation's Board of Directors. In the absence of a
readily  ascertainable  market value,  the estimated value of the  Corporation's
portfolio of equity  securities  may differ  significantly  from the values that
would be placed on the  portfolio  if a ready  market for the equity  securities
existed.  Any  changes  in  estimated  net  asset  value  are  recorded  in  the
Corporation's  statement of operations as "Change in unrealized  appreciation on
investments."

         FLUCTUATIONS OF QUARTERLY RESULTS

         The  Corporation's  quarterly  operating  results could  fluctuate as a
result of a number of factors.  These include,  among others,  variations in and
the timing of the  recognition of realized and unrealized  gains or losses,  the
degree  to which the  Corporation  encounters  competition  in its  markets  and
general economic conditions.  As a result of these factors,  results for any one
quarter  should not be relied upon as being  indicative of performance in future
quarters.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The  Corporation's  business  activities  contain elements of risk. The
Corporation  considers a principal  type of market  risk to be  valuation  risk.
Investments  are  stated at "fair  value" as  defined in the 1940 Act and in the
applicable regulations of the Securities and Exchange Commission. All assets are
valued at fair value as  determined in good faith by, or under the direction of,
the Board of Directors.

         Neither  the  Corporation's   investments  nor  an  investment  in  the
Corporation  is  intended  to  constitute  a balanced  investment  program.  The
Corporation has exposure to  public-market  price  fluctuations to the extent of
its publicly traded portfolio.

         The  Corporation  has invested a  substantial  portion of its assets in
private development stage or start-up  companies.  These private businesses tend
to be thinly capitalized,  unproven,  small companies that lack management depth
and have not attained profitability or have no


                                       20

<PAGE>

history of operations.  Because of the speculative nature and the lack of public
market for these investments,  there is significantly  greater risk of loss than
is the case with traditional investment securities. The Corporation expects that
some of its  venture  capital  investments  will be a  complete  loss or will be
unprofitable  and that some will  appear to be likely to become  successful  but
never realize their potential.

         Because there is typically no public market for the equity interests of
the small  companies  in which the  Corporation  invests,  the  valuation of the
equity  interests in the  Corporation's  portfolio is subject to the estimate of
the Corporation's Board of Directors. In making its determination, the Board may
consider  valuation  information  provided by an independent  third party or the
investee  corporation.  In the absence of a readily  ascertainable market value,
the  estimated  value of the  Corporation's  portfolio of equity  interests  may
differ  significantly from the values that would be placed on the portfolio if a
ready market for the equity  interests  existed.  Any changes in  valuation  are
recorded in the  Corporation's  consolidated  statements  of  operations as "Net
increase (decrease) in unrealized appreciation on investments."

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings
                  None

Item 2.  Changes in Securities and Use of Proceeds
                  None

Item 3.  Defaults Upon Senior Securities Holders
                  None

Item 4.  Submission of Matters to a Vote of Security Holders
                  None

Item 5.  Other Information
                  None

Item 6.  Exhibits and Reports on Form 8-K.
         (a)      Exhibits.  The exhibits which are filed with the Form 10-Q or
                  incorporated herein by reference are set for in the Exhibit
                  Index on page 22.

         (b)      Reports on Form 8-K.
                  On September 14, 2001, the Corporation filed a report on Form
                  8-K regarding the Corporation's investment in Ecom Capital,
                  Inc.

                                    SIGNATURE

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                           FRANKLIN CAPITAL CORPORATION

Date: November 14, 2001                    By:  /s/
                                                --------------------------------
                                                Hiram M. Lazar
                                                CHIEF FINANCIAL OFFICER


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<PAGE>


                                  EXHIBIT INDEX

None.









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