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 MARCH 31, 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
                                                     ---------------------------

           Securities registered pursuant to Section 12(b) of the Act:
                          Common Stock, $1.00 par value
           Securities registered pursuant to Section 12(g) of the Act:
                                      None

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  Corporation  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No ___

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of April 30, 2001 was  $3,381,516  based on the last sale price as
quoted by The American Stock Exchange on such date  (officers,  directors and 5%
stockholders are considered affiliates for the purposes of this calculation).

The  number  of  shares of common  stock  outstanding  as of April 30,  2001 was
1,091,400.

                                       1
<PAGE>


                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

         Item 1.  Financial Statements
                  Balance Sheets
                  Statements of Operations
                  Statements of Cash Flows
                  Statements of Changes in Net Assets
                  Portfolio of Investments
                  Notes to Financial Statements
         Item 2.  Management's Discussion and Analysis of Financial Condition
                   and Results of Operations
                  Statement of Operations
                  Financial Condition
                  Investments
                  Results of Operations
                  Liquidity and Capital Resources
                  Risks
         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  ANNUAL  REPORT  ON  FORM  10-K,   THE  WORDS   "BELIEVES,"
"ANTICIPATES,"  "EXPECTS"  AND  SIMILAR  EXPRESSIONS  ARE  INTENDED  TO IDENTIFY
FORWARD-LOOKING  STATEMENTS.  STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K.  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>


                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

     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.

                                       3
<PAGE>


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

Balance Sheets

--------------------------------------------------------------------------------
                                                      March 31,     December 31,
                                                         2001           2000
                                                     (unaudited)
--------------------------------------------------------------------------------

ASSETS

Marketable investment securities, at market
  value (cost: March 31, 2001 - $96,124;
  December 31, 2000 - $122,231)  (Note 2)            $   90,675     $  112,019
Investments, at fair value
  (cost: March 31, 2001 - $2,140,589;
  December 31, 2000 - $3,505,159)  (Note 2)
    Affiliate investments                               377,430      1,338,389
    Other investments                                 2,162,549      3,548,504
                                                     ----------     ----------
                                                      2,539,979      4,886,893
                                                     ----------     ----------

Cash and cash equivalents (Note 2)                    1,719,322        647,565
Other assets                                            116,584        120,235
                                                     ----------     ----------

                                                     $4,466,560     $5,766,712
TOTAL ASSETS


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

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accounts payable and accrued liabilities             $   79,092     $  187,632
                                                     ----------     ----------

TOTAL LIABILITIES                                        79,092        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 March 31, 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:1,096,900
  shares outstanding at March 31, 2001 and
  1,098,200 at December 31,2000 (Note 7)              1,505,888      1,505,888
Paid-in capital - common stock                        8,643,060      8,643,060
                  preferred stock                     1,628,550      1,628,550
Unrealized appreciation of investments,
  net of deferred income taxes  (Notes 2 and 3)         393,941      1,371,522
Accumulated deficit                                  (5,395,280)    (5,190,908)
                                                     ----------     ----------

                                                      6,776,159      7,958,112
Deduct common stock held in treasury, at cost,
  408,988 shares at March 31, 2001, and 407,688
  shares at December 31, 2000 (Note 4)               (2,405,141)    (2,395,482)
                                                     ----------     ----------

Net assets, equivalent to $4.00 basic, $3.60 as
  if converted basis, and $ 2.50 as if
  liquidated basis, per common share at
  March 31, 2001, and $5.08 basic, $4.57 as if
  converted basis, and $3.58 as if liquidated
  basis at December 31, 2000 (Note 9)                 4,371,018      5,562,630
                                                     ----------     ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $4,450,110     $5,750,262
                                                     ==========     ==========

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

                                       4
<PAGE>


                          FRANKLIN CAPITAL CORPORATION
================================================================================
 STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------------------------------

FOR THE THREE MONTHS ENDED MARCH 31,                     2001           2000
--------------------------------------------------------------------------------

INVESTMENT INCOME
  Dividend income                                    $    26,744    $    10,500
  Interest income                                         15,813         11,844
                                                     -----------    -----------

                                                          42,557         22,344
                                                     -----------    -----------

EXPENSES
  Salaries and employee benefits (Note 7)                252,190        191,979
  Professional fees                                       41,325        117,851
  Rent  (Note 5)                                          29,784         20,484
  Insurance                                               10,600         10,440
  Directors' fees                                         18,500         13,875
  Taxes other than income taxes                           20,754         17,645
  Newswire and promotion                                   1,000          1,500
  Depreciation and amortization                            4,998          5,221
  General and administrative                              53,503         66,111
                                                     -----------    -----------

                                                         432,654        445,106
                                                     -----------    -----------

Net investment loss from operations                     (390,097)      (422,762)

Net realized gain on portfolio of investments:
  Investment securities:
    Affiliated                                           137,757        121,696
    Unaffiliated                                          86,464        606,448
                                                     -----------    -----------
  Total investment securities                            224,221        728,144

  Other than investment securities                           823          3,617
                                                     -----------    -----------

Net realized gain on portfolio of investments            225,044        731,761
                                                     -----------    -----------

Provision for current income taxes                        10,532         19,000
                                                     -----------    -----------

Net realized (loss) income                              (175,585)       289,999

(Decrease) increase in unrealized appreciation
  of investments, net of deferred income taxes:

   Investment securities:
     Affiliated                                          419,699      2,488,160
     Unaffiliated                                     (1,397,280)      (122,578)
                                                     -----------    -----------
   Total investment securities                          (977,581)     2,365,582

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

   Deferred income taxes                                       0        605,000
                                                     -----------    -----------

(Decrease) increase in unrealized appreciation
  of investments, net of deferred income taxes          (977,581)       808,720
                                                     -----------    -----------

Net (decrease) increase in net assets
  from operations                                    ($1,153,166)   $ 1,098,719
                                                     -----------    -----------

Preferred dividends                                       28,787         12,270
                                                     -----------    -----------

Net (decrease) increase in net assets
  attributable to common stockholders                ($1,181,953)   $ 1,086,449
                                                     ===========    ===========

Basic net (decrease) increase in net assets
  from operations per common share (Note 8)               ($1.08)         $0.99
                                                          ======          =====

Diluted net (decrease) increase in net assets
  from operations per common share (Note 8)               ($1.08)         $0.92
                                                          ======          =====

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

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

                                       5
<PAGE>


                          FRANKLIN CAPITAL CORPORATION
================================================================================
STATEMENTS OF CASH FLOWS
(UNAUDITED)
--------------------------------------------------------------------------------

FOR THE THREE MONTHS ENDED MARCH 31,                      2001          2000
--------------------------------------------------------------------------------

Cash flows from operating activities:
  Net (decrease) increase in net assets
    from operations                                   ($1,153,166)  $ 1,098,719
  Adjustments to reconcile net (decrease)
    increase in net assets to net cash used in
    operating activities:
      Depreciation and amortization                         4,998         5,221
      Decrease (increase) in unrealized
        appreciation of investments, net of
        deferred income tax expense                       977,581      (808,720)
      Net realized gain on portfolio of
        investments, net of current income taxes         (214,520)     (712,761)

      Changes in operating assets and liabilities:

        Decrease in receivable from disposal
          of investments                                       --       170,391
        Increase in other assets                           (1,347)      (67,101)
        Decrease in accounts payable and
          accrued liabilities                            (119,070)     (142,191)
                                                      -----------   -----------

          Total adjustments                               647,642    (1,555,161)
                                                      -----------   -----------

          Net cash used in operating activities          (505,524)     (456,442)
                                                      -----------   -----------

Cash flows from investing activities:

  Proceeds from sale of affiliates                      1,519,421       218,081
  Proceeds from sale of other investments                 114,635         3,617
  Proceeds from sale of marketable investment
    securities                                            221,399       672,567
  Purchases of other investments                          (49,094)     (183,125)
  Purchases of marketable investment securities          (190,634)      (23,991)
                                                      -----------   -----------

          Net cash provided by investing activities     1,615,727       687,149
                                                      -----------   -----------

Cash flows from financing activities:

  Proceeds from issuance of preferred stock                    --     1,645,000
  Payment of preferred dividends                          (28,787)      (12,270)
  Purchases of treasury stock                              (9,659)           --
                                                      -----------   -----------

          Net cash (used in) provided by
            financing activities                          (38,446)    1,632,730
                                                      -----------   -----------

Net increase in cash and cash equivalents               1,071,757     1,863,437

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

Cash and cash equivalents at end of period            $ 1,719,322   $ 2,434,778
                                                      ===========   ===========

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

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

                                       6
<PAGE>


                          FRANKLIN CAPITAL CORPORATION
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
--------------------------------------------------------------------------------

FOR THE THREE MONTHS ENDED MARCH 31,                      2001          2000
--------------------------------------------------------------------------------

(Decrease) increase in net assets from operations:
   Net investment loss                                  ($390,097)    ($422,762)
   Net realized gain on portfolio of investments,
     net of current income taxes                          214,512       712,761
   (Decrease) increase in unrealized appreciation
     of investments, net of deferred income taxes        (977,581)      808,720
                                                      -----------   -----------

     Net (decrease) increase in net assets
       from operations                                 (1,153,166)    1,098,719

Capital stock transactions:
   Issuance of preferred stock                                 --     1,645,000
   Payment of dividends on preferred stock                (28,787)      (12,270)
   Purchase of treasury stock                              (9,659)           --
                                                      -----------   -----------

       Total (decrease) increase in net assets         (1,191,612)    2,731,449
                                                      -----------   -----------

Net assets at beginning of period                       5,562,630     8,440,382
                                                      -----------   -----------

Net assets at end of period                           $ 4,371,018   $11,171,831
                                                      ===========   ===========

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

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

                                       7
<PAGE>


                          FRANKLIN CAPITAL CORPORATION
================================================================================
PORTFOLIO OF INVESTMENTS
(UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MARKETABLE INVESTMENT SECURITIES
------------------------------------------------------------------------------------------------------------------------------------
                                                                                   NUMBER OF                     VALUE
MARCH 31, 2001                                                                      SHARES       COST(1)        (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------

     New Media Spark - common stock                                                                200,000      $61,449      $56,000
     Certificate of Deposit - 4.81%, due 04/04/2001 (2)                                                          34,675       34,675
                                                                                                             ----------   ----------

Total Marketable Investment Securities (3.4% of total investments and 2.1% of net assets)                      $ 96,124      $90,675
                                                                                                             ==========   ==========

------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS, AT FAIR VALUE
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        EQUITY   NUMBER OF                VALUATION
MARCH 31, 2001                                                    INVESTMENT           INTEREST    SHARES      COST(1)     (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                           <C>      <C>         <C>          <C>
AFFILIATES

  Excom Ventures, LLC
    (5.3% of total investments and 3.2% of net assets)               Units              18.64%     140,000   $  140,000   $  140,000
    (Purchase evaluation software)

  Primal Solutions, Inc. (9.0% of total investments
    and 5.4% of net assets)                                      Common stock            7.30%   1,483,938      237,430      237,430
                                                                                                             ----------   ----------
    (Internet-based Voice over IP billing software)

Total Affiliates                                                                                                377,430      377,430

OTHER INVESTMENTS

  Alacra Corporation (38.0% of total investments          Convertible preferred stock    1.68%     321,543    1,000,000    1,000,000
    and 22.8% of net assets)
    (Internet-based information provider)

  Go America Inc. (30.9% of total investments
    and 18.5% of net assets)                                     Common stock            0.76%     400,024      413,159      812,549
    (Wireless internet service provider)

  Structured Web, Inc. (13.3% of total
    investments and 8.0% of net assets)                   Convertible preferred stock    3.60%     188,425      350,000      350,000
                                                                                                             ----------   ----------
    (Internet-based application service provider)

Total Other Investments                                                                                       1,763,159    2,162,549
                                                                                                             ----------   ----------

Total Investments, at Fair Value                                                                             $2,140,589   $2,539,979
                                                                                                             ==========   ==========
------------------------------------------------------------------------------------------------------------------------------------
</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.

                                       8
<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2001

1. ORGANIZATION

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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

STATEMENTS OF CASH FLOWS

For purposes of the  Statements of Cash Flows,  Franklin  considers  only highly
liquid  investments  such as  money  market  funds  and  commercial  paper  with
maturities  of 90  days or less at the  date  of  their  acquisition  to be cash
equivalents.

The  Corporation  paid no interest or income taxes during the three months ended
March 31, 2001 and 2000.

At March 31, 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.

                                       9
<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 three months ended March 31, 2001 and 2000,  Franklin's tax  (provision)
benefit was based on the following:

                                                            2001         2000
                                                         ---------    ---------

Net investment loss from operations ..................   $(390,097)   $(422,762)
Net realized gain on portfolio of investments ........     225,044      731,761
(Decrease) increase in unrealized appreciation .......    (977,581)   1,413,720
                                                       -----------   ----------
  Pre-tax book income loss ........................... $(1,142,634)  $1,722,719
                                                       ===========   ==========


                                                            2001         2000
                                                         ---------    ---------
Tax benefit (provision) at 34% on $(1,142,634) and
  $1,722,719 respectively ............................   $ 388,000    $(586,000)
State and local, net of Federal benefit ..............      15,000      (34,000)
Book losses for which no benefit is provided .........      (2,000)      (4,000)
Change in valuation allowance ........................    (412,000)          --
                                                         ---------    ---------
                                                         $ (11,000)   $(624,000)
                                                         =========    =========

                                       10
<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


The components of the tax provision are as follows:

                                                            2001         2000
                                                         ---------    ---------

Current state and local tax provision ................   $ (11,000)   $ (19,000)
Deferred tax expense .................................          --     (605,000)
                                                         ---------    ---------
Provision for income taxes ...........................   $ (11,000)   $(624,000)
                                                         =========    =========

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



                                                           ASSET (LIABILITY)
                                                        ----------------------
                                                        March 31,   December 31,
                                                        ---------   -----------
                                                           2001         2000
                                                        ----------   ----------
Deferred Federal and state benefit from
  net operating loss carryforward ...................   $1,698,000   $1,638,000

Deferred Federal and state provision on
  unrealized appreciation of investments ............     (142,000)    (494,000)

Valuation allowance .................................   (1,556,000)  (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 March 31, 2001 consists of accumulated net realized
gains of $4,826,000 and accumulated investment losses of $10,222,000.

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.

On April 26, 2000, the  Corporation  declared a three for two stock split of the
Corporation's  Common Stock in the form of a stock dividend to  shareholders  of
record on May 15,  2000,  and  payable  June 7, 2000.  The stock  split has been
reflected in the accompanying financial statements and all applicable references
as to the number of common shares and per share information have been restated.

                                       11
<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 three  months  ended  March  31,  2001,  the  Corporation
purchased  1,300 shares of its common stock at a total cost of $9,659.  To date,
Franklin has  repurchased  460,150  shares of its common stock of which  408,988
shares remain in treasury at March 31, 2001.

5. COMMITMENTS AND CONTINGENCIES

Franklin is  obligated  under an  operating  lease,  which  provides  for annual
minimum rental payments as follows:

December 31,
2001 .................................................................  $149,600
2002 .................................................................   149,600
2003 .................................................................   149,600
                                                                        --------
                                                                        $448,800
                                                                        ========

Rent expense for the three months ended March 31, 2001, and 2000 was $29,784 and
$20,484  respectively.  For the three months ended March 31, 2001 and 2000,  the
Corporation collected rents of $6,000 and $15,000, respectively, from subtenants
under month to month leases, for a portion of its existing office space which is
reflected as a reduction in rent expense for that period.

6. 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 three  months  ended March 31,  2001,  Franklin  sold 50,000
shares of Primal for total proceeds of $9,000, realizing a gain of $1,000.

7. 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

                                       12
<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


of options under the SOP was  conditioned  upon the granting of such order.  The
Commission granted the order on January 18, 2000.

On February 14, 2000, 30,000 options were granted under the SOP to four eligible
"outside" directors. The strike price of the options was $11.50 per share, which
represented  the closing  price of  Franklin's  Common  Stock as reported by the
American  Stock Exchange on that date.  One-third of the options  granted vested
immediately;  another one-third vest one year from the date of issuance; and the
final  one-third  vest two years after the date of issuance.  The options expire
after ten years.

On March 1, 2000,  1,875  forfeited  options were  reissued  under the SIP to an
eligible officer of the Corporation at a strike price of $14.00 per share, which
represented  the closing  price of  Franklin's  Common  Stock as reported by the
American  Stock  Exchange on that date.  These options will expire as originally
issued.  One-half of the reissued options vested immediately,  and one-half will
vest on March 1, 2001.

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:

                                                        MARCH 31,      MARCH 31,
                                                          2001           2000
                                                       -----------    ----------
Net (decrease) increase in net assets
  from operations:

As reported .......................................    ($1,153,166)   $1,098,719
Pro forma .........................................    ($1,159,244)   $1,019,758

Net increase (decrease) in net assets
  per common share:

As reported .......................................       ($ 1.08)       $  0.99
Pro forma - Basic .................................       ($ 1.09)       $  0.92
Pro forma - Diluted ...............................       ($ 1.09)       $  0.86

Net Asset Value per share:
As reported - Basic ...............................        $ 4.00        $ 10.19
Pro forma - Basic .................................        $ 3.99        $ 10.12
Pro forma - As if converted basis .................        $ 3.59        $  8.62
Pro forma - As if liquidated basis ................        $ 2.49        $  8.62

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:

                                                  MARCH 31, 2000
                                                  --------------
                    Stock volatility                   41.9%
                    Risk-free interest rate             5.5%
                    Option term in years                  4
                    Stock dividend yield                 --

No options were granted during the three months ended March 31, 2001.

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

                                       13
<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                       MARCH 31, 2001          MARCH 31, 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                                  --          --      31,875      $11.65

Exercised                                --          --          --          --
Forfeited                                --          --          --          --
Expired                                  --          --          --          --
Outstanding at end of period         39,375      $11.27      97,500      $ 8.97
                                     ======                  ======
Exercisable at end of period         14,375      $10.73      73,750      $ 5.61
                                     ======                  ======
Weighted average fair value
  of options granted                     --                  $ 2.59

The options issued under the SIP have a remaining contractual life of 7.8 years.
The options issued under the SOP have a remaining contractual life of 8.9 years.

8. 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:

                                                             MARCH 31,
                                                     --------------------------
                                                         2001           2000
                                                     -----------    -----------
Numerator:
    Net (decrease) increase in net assets from
       operations                                    ($1,153,166)   $ 1,098,719
    Preferred stock dividends                            (28,787)       (12,270)
                                                     -----------    -----------
    Numerator for basic earnings per share -
      net (loss) income available for common
      stockholders                                   ($1,181,953)   $ 1,086,449
    Effect of dilutive securities:
      Preferred stock dividends                               --         12,270
                                                     -----------    -----------
    Numerator for diluted earnings per share -
      net (decrease) increase in net assets
      available for common stockholders after
      assumed conversions                            ($1,181,953)   $ 1,098,719
                                                     ===========    ===========

Denominator:
    Denominator for basic (decrease) increase
      in net assets from operations
      weighted - average shares                        1,097,166      1,095,882

                                       14
<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


    Effect of dilutive securities:
      Convertible preferred stock - weighted -
        average common equivalent shares                      --         52,875
      Employee stock options - weighted -
        average shares                                        --         38,168
                                                     -----------    -----------
      Dilutive potential common stock                         --         91,043
                                                     -----------    -----------

    Denominator for diluted (decrease) increase
      in net assets available for common
      stockholders - adjusted weighted - average
      shares and assumed conversions                   1,097,166      1,186,925
                                                     ===========    ===========

Basic net (decrease) increase in net assets
    attributable to common stockholders                   ($1.08)         $0.99
                                                          ======          =====

Diluted net (decrease) increase in net assets
    attributable to common stockholders                   ($1.08)         $0.92
                                                          ======          =====

The  following  securities  have  been  excluded  from the  dilutive  per  share
computation as they are antidilutive:

                                                               THREE MONTHS
                                                              ENDED MARCH 31,
                                                            -------     -------
                                                             2001        2000
                                                            -------     -------
Preferred stock convertible into 123,375
    shares of common stock                                  123,375         --

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

9.    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:

                                                        MARCH 31,   DECEMBER 31,
                                                       ----------    ----------
                                                          2001          2000
                                                       ----------    ----------
Numerator:
    Net assets, numerator for basic and as if
      converted basis, net asset value per
      common share                                     $4,387,468    $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                     $2,742,468    $3,934,080
                                                       ==========    ==========

                                       15
<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


Denominator:
    Number of common shares outstanding,
      denominator for basic and as if liquidated
      net asset value per common share                  1,096,900     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                                  1,220,275     1,221,575
                                                       ==========    ==========

    Net asset value per common share, basic            $     4.00    $     5.08
                                                       ==========    ==========

    Net asset value per common share, as if
      converted basis                                  $     3.60    $     4.57
                                                       ==========    ==========

    Net asset value per common share, as if
      liquidated basis                                 $     2.50    $     3.58
                                                       ==========    ==========

10. PURCHASES AND SALES OF INVESTMENT SECURITIES

The cost of purchases and proceeds from sales of investment securities excluding
short term investments, aggregated $239,728 and $1,854,632 respectively, for the
three months ended March 31, 2001; $207,116 and $894,265  respectively,  for the
three months ended March 31, 2000.

                                       16
<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,
$4,466,560 and $4,387,468 at March 31, 2001, versus $5,766,712 and $5,579,080 at
December  31,  2000.  Net asset  value per  share was $4.00  basic,  $3.60 as if
converted  basis,  and $2.50 as if  liquidated  basis at March 31, 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:

                                                     MARCH 31,      DECEMBER 31,
                                                       2001             2000
                                                    ----------       ----------
Investments, at cost                                $2,236,713       $3,627,390
Unrealized appreciation, net of
  deferred taxes                                       393,941        1,371,522
                                                    ----------       ----------
Investments, at fair value                          $2,630,654       $4,998,912
                                                    ==========       ==========

INVESTMENTS

     At March 31, 2001, the Corporation had an investment in Alacra  Corporation
("Alacra"),  formerly  known  as Data  Downlink,  valued  at  $1,000,000,  which
represents 22.4% of the Corporation's  total assets and 22.8% 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  privatesuiteTM,  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
BTM, a fully integrated business information portal.

                                       17
<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 March 31, 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 3.2% 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 March 31,  2001 the  Corporation  owned  400,024  of common  stock of Go
America,  Inc. ("Go America"),  a wireless  internet  service provider valued at
$812,549,  which represents 18.2% of the Corporation's total assets and 18.5% 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. On April 7, 2000, Go America's  common stock began trading
on the NASDAQ National Market.

     At March 31,  2001,  the  Corporation  owned  1,483,938  of common stock of
Primal Solutions,  Inc. ("Primal") valued at $237,430,  which represents 5.3% of
the  Corporation's  total  assets and 5.4% 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.
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.

     At March 31, 2001,  the  Corporation  had an investment in Structured  Web,
Inc.  ("Structured  Web")  valued  at  $350,000,  which  represents  7.8% of the
Corporation's  total assets and 8.0% 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.

                                       18
<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 $42,557 and $22,344 for
the three  months ended March 31, 2001 and 2000,  respectively.  The increase in
interest  and  dividend  income for the three  months  ended March 31, 2001 when
compared to March 31, 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 three months ended March 31, 2001.

     Operating  expenses  were  $432,654 and $445,106 for the three months ended
March 31, 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 $390,097 and $422,762 for the
three months ended March 31, 2001 and 2000, respectively.

     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.

NET REALIZED GAINS AND LOSSES ON PORTFOLIO OF INVESTMENTS:

     During the three  months  ended  March 31, 2001 and 2000,  the  Corporation
realized net gains before taxes of $225,044 and $731,761 respectively,  from the
disposition of various investments.

UNREALIZED APPRECIATION OF INVESTMENTS:

     Unrealized appreciation of investments, net of deferred taxes, decreased by
$977,581 during the three months ended March 31, 2001, primarily from unrealized
gains due to the decrease in value of Franklin's  investment in Go America. This
increase was  partially  offset by the sale of  Franklin's  investment  in Avery
Communications.

     Unrealized appreciation of investments, net of deferred taxes, increased by
$808,720 during the three months ended March 31, 2000, primarily from unrealized
gains due to the


                                       19
<PAGE>


increase in value of Franklin's investment in Avery. This increase was partially
offset by a decrease in the value of Franklin's investment in CIC.

LIQUIDITY AND CAPITAL RESOURCES

     The  Corporation's  reported total cash and cash equivalents and marketable
investment  securities (the primary measure of liquidity) at March 31, 2001, was
$1,809,997  compared to $768,582 at December 31, 2000.  Management believes that
these  assets  provide  the  Corporation  with  sufficient   liquidity  for  its
operations.

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.

                                       20
<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.

                                       21
<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


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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 24.

          (b)  Reports on Form 8-K. The Company did not file any reports on Form
               8-K during the first three months of 2001.

                                    SIGNATURE

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the  Corporation  has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                               FRANKLIN CAPITAL CORPORATION

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

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                                  EXHIBIT INDEX

None.





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