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 JUNE 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 July 31,  2001 was
1,076,000.




                                       1

<PAGE>

                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
         Item 1.  Financial Statements (unaudited)
                  Balance Sheets - June 30, 2001 and December 31, 2000
                  Statements of Operations - Three months and six months ended
                           June 30, 2001 and 2000
                  Statements of Cash Flows - Six months ended June 30, 2001
                           and 2000
                  Statements of Changes in Net Assets - Three months and
                           six months ended June 30, 2001 and 2000
                  Portfolio of Investments - June 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>
-----------------------------------------------------------------------------------------------------------
                                                                            June 30,           December 31,
                                                                              2001                2000
                                                                           (unaudited)
-----------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                <C>
ASSETS

Marketable investment securities, at market value (cost: June 30,
    2001 - $194,872; December 31, 2000 - $122,231)  (Note 2)                 $154,675           $112,019
Investments, at fair value (cost: June 30, 2001 - $1,771,059;
    December 31, 2000 - $3,505,159)  (Note 2)
         Affiliate investments                                                199,358          1,338,389
         Other investments                                                  1,450,700          3,548,504
                                                                           ----------         ----------
                                                                            1,650,058          4,886,893
                                                                           ----------         ----------

Cash and cash equivalents (Note 2)                                          2,020,175            647,565
Other assets                                                                  102,682            120,235
                                                                           ----------         ----------

                                                                           $3,927,590         $5,766,712
                                                                           ==========         ==========
TOTAL ASSETS

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

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accounts payable and accrued liabilities                                      $88,922           $187,632
                                                                           ----------         ----------

TOTAL LIABILITIES                                                              88,922            187,632
                                                                           ----------         ----------

Commitments and contingencies  (Note 5)

STOCKHOLDERS' EQUITY

Convertible preferred stock, $1 par value, cumulative 7% dividend:
    5,000,000 shares authorized; 16,450 shares issued and outstanding
    at June 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:1,076,500 shares outstanding at June 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)                            (161,198)         1,371,522
Accumulated deficit                                                        (5,283,241)        (5,190,908)
                                                                           ----------         ----------

                                                                            6,349,509          7,974,562
Deduct common stock held in treasury, at cost, 429,388 shares at
    June 30, 2001, and 407,688 shares at December 31, 2000 (Note 4)        (2,510,841)        (2,395,482)
                                                                           ----------         ----------

    Net assets (See Note 8 for per share information)                       3,838,668          5,579,080
                                                                           ----------         ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $3,927,590         $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                  Six Months Ended
                                                                        June 30,                            June 30,
                                                                  2001             2000              2001              2000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>            <C>                <C>
INVESTMENT INCOME
    Dividend income                                                  $0           $10,500           $26,744           $21,000
    Interest income                                              14,802            17,652            30,615            29,496
    Other income                                                     --            22,000                --            22,000
                                                              ---------          --------       -----------        ----------
                                                                 14,802            50,152            57,359            72,496
                                                              ---------          --------       -----------        ----------
EXPENSES
    Salaries and employee benefits                              225,081           510,332           477,271           702,311
    Professional fees                                            41,325            95,430            82,650           213,281
    Rent                                                         29,783            20,484            59,567            40,968
    Insurance                                                    10,599            10,439            21,199            20,879
    Directors' fees                                                 501            19,875            19,001            33,750
    Taxes other than income taxes                                 8,505            11,164            29,259            28,809
    Newswire and promotion                                        1,000             1,500             2,000             3,000
    Depreciation and amortization                                 4,999             5,415             9,997            10,636
    General and administrative                                   64,300            76,315           117,803           142,426
                                                              ---------          --------       -----------        ----------
                                                                386,093           750,954           818,747         1,196,060
                                                              ---------          --------       -----------        ----------
Net investment loss from operations                            (371,291)         (700,802)         (761,388)       (1,123,564)

Net realized gain on portfolio of investments:
     Investment securities:
          Affiliated                                                 --                --           137,757           121,696
          Unaffiliated                                          499,911           336,677           586,375           943,125
                                                              ---------          --------       -----------        ----------
     Total investment securities                                499,911           336,677           724,132         1,064,821

     Other than investment securities                                --                --               823             3,617
                                                              ---------          --------       -----------        ----------
Net realized gain on portfolio of investments                   499,911           336,677           724,955         1,068,438
                                                              ---------          --------       -----------        ----------
(Benefit) provision for current income taxes                    (12,208)               --            (1,676)           19,000
                                                              ---------          --------       -----------        ----------
Net realized gain (loss)                                        140,828          (364,125)          (34,757)          (74,126)

(Decrease) increase in unrealized
    appreciation of investments, net
    of deferred income taxes:
     Investment securities:
          Affiliated                                                 --        (4,166,281)          419,699        (1,678,121)
          Unaffiliated                                         (555,140)        4,785,678        (1,952,420)        4,663,100
                                                              ---------          --------       -----------        ----------
     Total investment securities                               (555,140)          619,397        (1,532,721)        2,984,979

     Other than investment securities                                --                --                --          (951,862)
                                                              ---------          --------       -----------        ----------
     Deferred income taxes                                           -             91,000                --           696,000
                                                              ---------          --------       -----------        ----------
(Decrease) increase in unrealized
    appreciation of investments, net
    of deferred income taxes                                   (555,140)         528,397         (1,532,721)        1,337,117
                                                              ---------          --------       -----------        ----------
Net (decrease) increase in net assets from operations          (414,312)          164,272        (1,567,478)        1,262,991

Preferred dividends                                              28,788            28,788            57,575            41,058
                                                              ---------          --------       -----------        ----------
Net (decrease) increase in net assets
   attributable to common stockholders                        ($443,100)         $135,484       ($1,625,053)       $1,221,933
                                                              =========          ========       ===========        ==========
Basic net (decrease) increase in net assets
   from operations attributable to common stockholders
   per common share (Note 7)                                     ($0.41)            $0.12            ($1.49)            $1.12
                                                              =========          ========       ===========        ==========
Diluted net (decrease) increase in net assets
   from operations attributable to common stockholders
   per common share (Note 7)                                     ($0.41)            $0.12            ($1.49)            $1.03
                                                              =========          ========       ===========        ==========

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

                                       4
<PAGE>

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

STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------

FOR THE SIX MONTHS ENDED JUNE 30,                                                           2001                    2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                      <C>
Cash flows from operating activities:
  Net (decrease) increase in net assets from operations                                 ($1,567,478)             $1,262,991
  Adjustments to reconcile net (decrease) increase in net assets from
    operations to net cash used in operating activities:
      Depreciation and amortization                                                           9,997                  10,636
      Decrease (increase) in unrealized appreciation of investments,
           net of deferred income tax expense                                             1,532,721              (1,337,117)
      Net realized gain on portfolio of investments, net of current income taxes           (726,631)             (1,049,438)
      Non-cash compensation expense from exercise of officer options                             --                 197,188

      Changes in operating assets and liabilities:
        Decrease in receivable from disposal of investments                                      --                 231,308
        Increase (decrease) in other assets                                                   7,556                 (68,555)
        (Increase) decrease in accounts payable and accrued liabilities,
        excluding change in current income taxes payable                                    (97,041)                29,178
                                                                                         ----------              ----------
          Total adjustments                                                                 726,602              (1,986,800)
                                                                                         ----------              ----------
          Net cash used in operating activities                                            (840,876)               (723,809)
                                                                                         ----------              ----------
Cash flows from investing activities:
  Proceeds from sale of affiliates                                                        1,519,421                 218,081
  Proceeds from sale of other investments                                                   985,583                   3,617
  Proceeds from sale of marketable investment securities                                    442,960               1,212,638
  Purchase of affiliate                                                                          --                (100,000)
  Purchases of other investments                                                            (49,095)             (1,183,125)
  Purchases of marketable investment securities                                            (512,449)               (127,417)
                                                                                         ----------              ----------
          Net cash provided by investing activities                                       2,386,420                  23,794
                                                                                         ----------              ----------
Cash flows from financing activities:
  Proceeds from issuance of preferred stock                                                      --               1,645,000
  Payment of preferred dividends                                                            (57,575)                (41,058)
  Cash paid to common shareholders in lieu of fractional shares
     due to stock split of common shares                                                         --                  (1,449)
  Purchases of treasury stock                                                              (115,359)               (214,551)
                                                                                         ----------              ----------
          Net cash (used in) provided by financing activities                              (172,934)              1,387,942
                                                                                         ----------              ----------
Net increase in cash and cash equivalents                                                 1,372,610                 687,927

Cash and cash equivalents at beginning of period                                            647,565                 571,341
                                                                                         ----------              ----------
Cash and cash equivalents at end of period                                               $2,020,175              $1,259,268
                                                                                         ==========              =========
----------------------------------------------------------------------------------------------------------------------------
</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             SIX MONTHS ENDED
                                                                               JUNE 30,                      JUNE 30,
                                                                          2001           2000           2001           2000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>             <C>            <C>
(Decrease) increase in net assets from operations:
   Net investment loss                                                 ($371,291)     ($700,802)     ($761,388)    ($1,123,564)
   Net realized gain on portfolio of investments,
       net of current income taxes                                       512,119        336,677        726,631       1,049,438
   (Decrease) increase in unrealized appreciation of investments,
       net of deferred income taxes                                     (555,140)       528,397     (1,532,721)      1,337,117
                                                                      ----------    -----------     ----------     -----------
       Net (decrease) increase in net assets from operations            (414,312)       164,272     (1,567,478)      1,262,991

Capital stock transactions:
   Issuance of preferred stock                                                --             --             --       1,645,000
   Payment of dividends on preferred stock                               (28,788)       (28,788)       (57,575)        (41,058)
   Issuance of stock from treasury for exercise of options                    --        197,188             --         197,188
   Cash paid to common shareholders in lieu of fractional shares               --         (1,449)            --          (1,449)
   Purchase of treasury stock                                           (105,700)      (214,551)      (115,359)       (214,551)
                                                                      ----------    -----------     ----------     -----------

       Total (decrease) increase in net assets                          (548,800)       116,672     (1,740,412)      2,848,121
                                                                      ----------    -----------     ----------     -----------

Net assets at beginning of period                                      4,387,468     11,171,831      5,579,080       8,440,382
                                                                      ----------    -----------     ----------     -----------

Net assets at end of period                                           $3,838,668    $11,288,503     $3,838,668     $11,288,503
                                                                      ==========    ===========     ==========     ===========

---------------------------------------------------------------------------------------------------------------------------------
</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
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  NUMBER OF                 VALUE
JUNE 30, 2001                                                                                      SHARES       COST(1)    (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                               <C>                                <C>         <C>          <C>          <C>
     New Media Spark - common stock                                                                500,000     $160,197     $120,000
     Certificate of Deposit - 3.93%, due 07/2001 (2)                                                             34,675       34,675
                                                                                                             ----------   ----------
Total Marketable Investment Securities (8.6% of
     total investments and 4.0% of net assets)                                                                 $194,872     $154,675
                                                                                                             ==========   ==========
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT FAIR VALUE
------------------------------------------------------------------------------------------------------------------------------------

                                                                                    EQUITY       NUMBER OF                 VALUATION
JUNE 30, 2001                                              INVESTMENT              INTEREST       SHARES       COST(1)     (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
Affiliates

  Excom Ventures, LLC (7.8% of total
        investments and 3.6% of net assets)                   Units                  18.64%        140,000     $140,000     $140,000
        (Purchase evaluation software)

  Primal Solutions, Inc. (3.3% of total
        investments and 1.5% of net assets)               Common stock                7.30%      1,483,938      237,430       59,358
                                                                                                             ----------   ----------
        (Internet-based Voice over IP billing
        software)

Total Affiliates                                                                                                377,430      199,358

OTHER INVESTMENTS

  Alacra Corporation (55.4% of total
        investments and 26.1% of net assets)      Convertible preferred stock         1.68%        321,543    1,000,000    1,000,000
        (Internet-based information provider)

  Go America Inc. (5.6% of total
        investments and 2.6% of net assets)               Common stock                0.09%         47,500       43,629      100,700
        (Wireless internet service provider)

  Structured Web, Inc. (19.4% of total
        investments and 9.1% of net assets)       Convertible preferred stock         3.60%        188,425      350,000     350,000
        (Internet-based application service                                                                  ----------   ----------
        provider)

Total Other Investments                                                                                       1,393,629    1,450,700
                                                                                                             ----------   ----------
Total Investments, at Fair Value                                                                             $1,771,059   $1,650,058
                                                                                                             ==========   ==========
------------------------------------------------------------------------------------------------------------------------------------
</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
JUNE 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 generally accepted accounting  principles
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 six months ended
June 30, 2001 and 2000.

At June 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 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.

                                       8
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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 INCREASE (DECREASE) IN NET ASSETS PER COMMON SHARE

Basic and  diluted net  increase  (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 six months  ended June 30,  2001 and 2000,  Franklin's  tax  (provision)
benefit was based on the following:

                                                        2001            2000
                                                    -----------     -----------
Net investment loss from operations ............    $  (761,388)    $(1,123,563)
Net realized gain on portfolio of investments ..        724,955       1,068,438
(Decrease) increase in unrealized
  appreciation/depreciation ....................     (1,532,721)      2,033,116
                                                    -----------     -----------
     Pre-tax book income loss ..................    $(1,569,154)    $ 1,977,991
                                                    ===========     ===========


                                                        2001            2000
                                                    -----------     -----------
Tax benefit (provision) at 34% on $(1,569,154)
  and $1,977,991 respectively ..................    $   533,000     $  (673,000)
State and local, net of Federal benefit ........         41,000         (40,000)


                                       9
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


Book losses for which no benefit is provided ...         (7,000)         (2,000)
Change in valuation allowance ..................       (565,000)             --
                                                    -----------     -----------
                                                    $     2,000     $  (715,000)
                                                    ===========     ===========

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

                                                        2001            2000
                                                    -----------     -----------
Current state and local tax provision ..........    $     2,000     $   (19,000)

Deferred tax expense ...........................             --        (696,000)
                                                    -----------     -----------
Benefit (provision) for income taxes ...........    $     2,000     $  (715,000)
                                                    ===========     ===========

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

                                                          ASSET (LIABILITY)
                                                    ---------------------------
                                                      June 30,      December 31,
                                                        2001            2000
                                                    -----------     -----------
Deferred Federal and state benefit from
  net operating loss carryforward...............    $ 1,651,000     $ 1,638,000
Deferred Federal and state benefit
  (provision) on unrealized appreciation
  of investments     ...........................         58,000        (494,000)
Valuation allowance.............................     (1,709,000)     (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 June 30, 2001 consists of accumulated  net realized
gains of $5,310,000 and accumulated investment losses of $10,593,000.

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. 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.

                                       10
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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 six months ended June 30, 2001, the Corporation  purchased
21,700 shares of its common stock at a total cost of $115,360. To date, Franklin
has  repurchased  480,550  shares of its common  stock of which  429,388  shares
remain in treasury at June 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 six months ended June 30, 2001,  Franklin sold 50,000 shares
of Primal for total proceeds of $9,000, realizing a gain of $1,000.

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 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:

                                                   JUNE 30, 2001   JUNE 30, 2000
                                                   -------------   -------------
Net (decrease) increase in net assets attributable to common stockholders:
As reported                                         ($1,625,053)     $1,221,933
Pro forma                                           ($1,631,131)     $1,176,946

Net increase (decrease) in net assets per common share:
As reported                                         ($     1.49)     $     1.12
Pro forma - Basic                                   ($     1.49)     $     1.08
Pro forma - Diluted                                 ($     1.49)     $     0.96


                                       11
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


Net Asset Value per share:
As reported - Basic                                  $     3.57      $    10.31
Pro forma - Basic                                    $     3.56      $    10.27
Pro forma - As if converted basis                    $     3.19      $     9.09
Pro forma - As if liquidated basis                   $     2.04      $     9.09

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:

                                           JUNE 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 six months ended June 30, 2001.

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

                                      JUNE 30, 2001          JUNE 30, 2000
                                    ------------------    -------------------
                                              Weighted               Weighted
                                               Average                Average
                                              Exercise               Exercise
                                    SHARES     Price      SHARES      Price
                                    ------     ------     ------      ------
Outstanding at beginning of
  period                            39,375     $11.27     65,625      $ 4.59
Granted                                 --         --     39,375      $11.65
Exercised                               --         --     29,062      $ 6.82
Forfeited                               --         --         --          --
Expired                                 --         --         --          --
                                    ------     ------     ------      ------
Outstanding at end of period        39,375     $11.27     75,938      $ 9.81
                                    ======     ======     ======      ======
Exercisable at end of period        26,875     $10.73     73,750      $10.04
                                    ======     ======     ======      ======
Weighted average fair value of
  options granted                       --                $ 2.58

The options issued under the SIP have a remaining contractual life of 7.5 years.
The options issued under the SOP have a remaining contractual life of 8.6 years.

                                       12
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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         Six Months ended
                                                                         June 30,                  June 30,
                                                               ---------------------------------------------------------
                                                                  2001         2000            2001           2000
                                                               ---------------------------------------------------------
<S>                                                            <C>             <C>         <C>             <C>
Numerator:
   Net (decrease) increase in net assets from
      operations                                               ($414,312)      $164,272    ($1,567,478)    $1,262,991
   Preferred stock dividends                                     (28,788)       (28,788)       (57,575)       (41,058)
                                                               ---------      ---------    -----------     ----------
   Numerator for basic earnings per share -
     net (loss) income available for common
     stockholders                                               (443,100)       135,484     (1,625,053)     1,221,933
   Effect of dilutive securities:
     Preferred stock dividends                                        --             --             --        (41,058)
                                                               ---------      ---------    -----------     ----------
   Numerator for diluted earnings per share -
     net (decrease) increase in net assets available
     for common stockholders after assumed
     conversions                                               ($443,100)      $135,484    ($1,625,053)    $1,262,991
                                                               =========      =========    ===========     ==========
Denominator:
  Denominator for basic (decrease) increase
    in net assets from operations
    weighted - average shares                                  1,086,081      1,090,113      1,091,624      1,092,997
  Effect of dilutive securities:
    Convertible preferred stock - weighted - average
       common equivalent shares                                       --             --             --         88,125
    Employee stock options - weighted - average
       shares                                                         --         46,240             --         42,204
                                                               ---------      ---------    -----------     ----------
    Dilutive potential common stock                                   --         46,240             --        130,329
                                                               ---------      ---------    -----------     ----------

  Denominator for diluted (decrease) increase
     in net assets available for common stockholders -
     adjusted weighted - average shares and
     assumed conversions                                       1,086,081      1,136,353      1,091,624      1,223,326
                                                               =========      =========    ===========     ==========
  Basic net (decrease) increase in net assets
     attributable to common stockholders                          ($0.41)         $0.12         ($1.49)         $1.12
                                                               =========      =========    ===========     ==========
  Diluted net (decrease) increase in net assets
     attributable to common stockholders                          ($0.41)         $0.12         ($1.49)         $1.03
                                                               =========      =========    ===========     ==========
</TABLE>

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

For additional information on the above securities, see Note 4.

                                       13
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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>
                                                                       JUNE 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                    $3,838,668         $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                                           $2,193,668         $3,934,080
                                                                      ==========         ==========
Denominator:
         Number of common shares outstanding,
           denominator for basic and as if liquidated
           net asset value per common share                            1,076,500          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                                            1,199,875          1,221,575
                                                                      ----------         ----------

         Net asset value per common share, basic                           $3.57              $5.08
                                                                      ==========         ==========

         Net asset value per common share, as if converted basis           $3.20              $4.57
                                                                      ==========         ==========

         Net asset value per common share, as if liquidated basis          $2.04              $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 $561,544 and $2,947,141 respectively, for the
six months ended June 30, 2001; $1,375,867 and $1,389,154 respectively,  for the
six months ended June 30, 2000.

10. SUBSEQUENT EVENT

On August 8, 2001, Franklin entered into an asset purchase agreement to purchase
certain assets and assume certain  liabilities of Winstar Radio  Networks,  LLC,
Winstar  Global  Media,  Inc.,  and  Winstar  Radio  Productions,  LLC,  each  a
subsidiary of Winstar  Communications.  Franklin  agreed to pay $5.25 million in
cash,  issue  a  $1  million  note  and  assume   approximately  $2  million  in
liabilities. The transaction is expected to close on or before August 31, 2001.

                                       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,
$3,927,590 and $3,838,668 at June 30, 2001,  versus $5,766,712 and $5,579,080 at
December  31,  2000.  Net asset  value per  share was $3.57  basic,  $3.20 as if
converted basis, and $2.04 as if liquidated basis at June 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:

                                              JUNE 30, 2001   DECEMBER 31, 2000
                                              -------------   -----------------

Investments, at cost                            $1,965,931       $3,627,390
Unrealized appreciation (depreciation),
         net of deferred taxes                    (161,198)       1,371,522
                                                ----------       ----------
Investments, at fair value                      $1,804,733       $4,998,912
                                                ==========       ==========

INVESTMENTS

         At  June  30,  2001,  the  Corporation  had  an  investment  in  Alacra
Corporation ("Alacra"),  formerly known as Data Downlink,  valued at $1,000,000,
which represents 25.5.% of the  Corporation's  total assets and 26.1% 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 June 30, 2001, the  Corporation had an investment in Excom Ventures,
LLC ("Excom")  valued at $140,000,  which  represents 3.6% of the  Corporation's
total assets and 3.6% 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 June 30, 2001,  the  Corporation  owned 47,500 of common stock of Go
America,  Inc. ("Go America"),  a wireless  internet  service provider valued at
$100,700,  which represents 2.6% of the  Corporation's  total assets and 2.6% of
its net assets. Go America is a leading provider of nationwide wireless Internet
services.  Go America  enables  business and  individual  subscribers  to access
remotely the Internet, email and corporate intranets in real time through a wide
variety of mobile computing and  communications  devices.  Go America's Wireless
Internet  Connectivity  Center  offers  subscribers  comprehensive  and flexible
mobile data solutions for wireless Internet access by providing wireless network
services, mobile devices, software and subscriber service and support.

         The Corporation made an initial investment in a private placement in Go
America  during 1996.  The  Corporation  made add-on  investments  in Go America
during  1998 and 1999 and 2001.  During  the six  months  ended  June 30,  2001,
Franklin sold 386,524 shares of common stock realizing a gain of $582,224.

         At June 30, 2001, the  Corporation  owned  1,483,938 of common stock of
Primal Solutions,  Inc.  ("Primal") valued at $59,358,  which represents 1.5% of
the  Corporation's  total  assets and 1.5% 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 six months  ended June 30,
2001, Franklin sold 50,000 shares of common stock realizing a gain of $1,000.

         At June 30, 2001, the  Corporation had an investment in Structured Web,
Inc.  ("Structured  Web")  valued  at  $350,000,  which  represents  8.9% of the
Corporation's  total assets and 9.1% 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.

                                       16
<PAGE>

         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.

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 $57,359 and $50,496
for the six months ended June 30, 2001 and 2000,  respectively.  The increase in
interest  and  dividend  income  for the six  months  ended  June 30,  2001 when
compared to June 30, 2000,  was  primarily the result of a portion of the Primal
spin-off being declared a dividend as well as Franklin  having more cash on hand
during the six months ended June 30, 2001. The  Corporation  had interest income
and  dividend  income of $14,802 and $28,152 for the three months ended June 30,
2001 and 2000, respectively. The decrease in interest and dividend for the three
months ended June 30, 2001 when  compared to June 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 months ended June 30, 2000, Franklin had
other income of $22,000 related to a one-time event.

         Operating  expenses  were  $818,747 and  $1,196,060  for the six months
ended and  $386,093  and  $750,954  for the three months ended June 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.

         Net investment  losses from operations were $761,388 and $1,123,564 for
the six months  ended and  $371,291 and $700,802 for the three months ended June
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 six months  ended June 30,  2001 and 2000,  the  Corporation
realized net gains before taxes of $724,955 and  $1,068,438  respectively,  from
the disposition of various investments.

UNREALIZED APPRECIATION OF INVESTMENTS:

         Unrealized   appreciation  of  investments,   net  of  deferred  taxes,
decreased by  $1,532,721  during the six months  ended June 30, 2001,  primarily
from unrealized losses due to the decrease in value of Franklin's  investment in
Go America as well as the sale of a significant  portion of Franklin's  holdings
in Go America.  This  decrease was  partially  offset by the sale of  Franklin's
investment in Avery Communications.

                                       17
<PAGE>

         Unrealized   appreciation  of  investments,   net  of  deferred  taxes,
increased by  $1,337,116  during the six months  ended June 30, 2000,  primarily
from unrealized  gains due to the increase in value of Franklin's  investment in
Go America.  This  increase was  partially  offset by a decrease in the value of
Franklin's investments in Avery and CIC.

LIQUIDITY AND CAPITAL RESOURCES

         The  Corporation's   reported  total  cash  and  cash  equivalents  and
marketable  investment securities (the primary measure of liquidity) at June 30,
2001,  was  $2,174,850  compared to $768,582 at December  31,  2000.  Management
believes that these assets provide the Corporation with sufficient liquidity for
its operations.

         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

                                       18

<PAGE>

Corporation's  investments  in portfolio  companies are highly  speculative  and
aggressive and,  therefore,  an investment in its shares may not be suitable for
you.

         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.  The  Company did not file any reports on
                  Form 8-K during the first six months of 2001.

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


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<PAGE>

                                  EXHIBIT INDEX

None.








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