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, 2004
                                     --------------

                                            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, 20th 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  Corporation  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X  No
                                       ---    ---

                                 Not Applicable
                                 --------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes      No  X
    ---     ---

The  number  of  shares  of  common  stock  outstanding  as of May 14,  2004 was
1,020,100.

                                       1
<PAGE>

                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
         Item 1.  Financial Statements (Unaudited)
                  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
                  Critical Accounting Policies
                  Statement of Operations
                  Financial Condition
                  Investments
                  Results of Operations
                  Taxes
                  Liquidity and Capital Resources
                  Risk Factors
         Item 3.  Quantitative and Qualitative Disclosures about Market Risk
         Item 4.  Controls and Procedures

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>

                         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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 (UNAUDITED)
                                                                                                   MARCH 31,           DECEMBER 31,
                                                                                                     2004                  2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                   <C>
ASSETS

Marketable investment securities, at market value (cost: March 31,
    2004 - $26,249 and December 31, 2003 - $40,899)  (Notes 2 and 6)                             $    180,812          $     33,899
Investments, at fair value (cost: March 31, 2004 - $1,850,000;
    December 31, 2003 - $1,908,804)  (Notes 2 and 6)
         Excelsior Radio Networks, Inc.                                                             1,803,662             1,921,270
         Other investments                                                                          1,000,000             1,000,000
                                                                                                 ------------          ------------
                                                                                                    2,803,662             2,921,270
                                                                                                 ------------          ------------

Cash and cash equivalents (Note 2)                                                                     98,896               224,225
Other assets                                                                                           73,095                78,638
                                                                                                 ------------          ------------

TOTAL ASSETS                                                                                     $  3,156,465          $  3,258,032
                                                                                                 ============          ============


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

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Notes payable (Note 6)                                                                           $    915,754          $    915,754
Accounts payable and accrued liabilities                                                              376,183               318,140
                                                                                                 ------------          ------------

TOTAL LIABILITIES                                                                                   1,291,937             1,233,894
                                                                                                 ------------          ------------

Commitments and contingencies  (Note 5)

STOCKHOLDERS' EQUITY

Convertible preferred stock, $1 par value, cumulative 7% dividend: 5,000,000
    shares authorized; 10,950 issued and outstanding at March 31, 2004 and
    December 31, 2003, respectively
    (Liquidation preference $1,095,000) (Note 4)                                                       10,950                10,950
Common stock, $1 par value: 5,000,000 shares authorized;
    1,505,888 shares issued: 1,020,100 shares outstanding
    at March 31, 2004 and December 31, 2003 (Note 7)                                                1,505,888             1,505,888
Paid-in capital                                                                                    10,439,610            10,439,610
Unrealized appreciation of investments                                                              1,108,225             1,005,466
Accumulated deficit                                                                                (8,583,313)           (8,320,944)
                                                                                                 ------------          ------------

                                                                                                    4,481,360             4,640,970
Deduct: 485,788 shares of common stock held in treasury,
    at cost, at March 31, 2004 and December 31, 2003 (Note 4)                                      (2,616,832)           (2,616,832)
                                                                                                 ------------          ------------

Net assets (Note 9 for per share information)                                                       1,864,528             2,024,138
                                                                                                 ------------          ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                       $  3,156,465          $  3,258,032
                                                                                                 ============          ============
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       4
<PAGE>


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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

FOR THE THREE MONTHS ENDED MARCH 31,                                                                    2004                 2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                   <C>                 <C>
INVESTMENT INCOME
    Interest income                                                                                   $     165           $     678
    Management fees                                                                                          --              45,000
                                                                                                      ---------           ---------

                                                                                                            165              45,678
                                                                                                      ---------           ---------

EXPENSES
    Salaries and employee benefits                                                                      128,901             175,565
    Professional fees                                                                                    57,000              30,000
    Rent                                                                                                 18,075               9,172
    Insurance                                                                                            17,038              17,413
    Directors' fees                                                                                       2,000               2,001
    Taxes other than income taxes                                                                        12,764              15,969
    Depreciation and amortization                                                                            --               4,244
    Interest expense                                                                                      8,926               8,850
    General and administrative                                                                           48,144              56,191
                                                                                                      ---------           ---------

                                                                                                        292,848             319,405
                                                                                                      ---------           ---------

Net investment loss from operations                                                                    (292,683)           (273,727)

Net realized gain (loss) on portfolio of investments: Investment securities:
          Affiliated                                                                                     58,804                  --
          Unaffiliated                                                                                   (9,326)                 --
                                                                                                      ---------           ---------
     Total investment securities                                                                         49,478                  --
                                                                                                      ---------           ---------

Net realized loss on portfolio of investments                                                          (243,205)           (273,727)

(Decrease) increase in unrealized appreciation of investments: Investment
     securities:
          Affiliated                                                                                    (58,804)             47,544
          Unaffiliated                                                                                    7,000                  --
          Other increase in unrealized appreciation (Note 6)                                            154,563                  --
                                                                                                      ---------           ---------
     Total investment securities                                                                        102,759              47,544
                                                                                                      ---------           ---------

Net decrease in net assets from operations                                                             (140,446)           (226,183)

Preferred dividends                                                                                      19,164              19,164
                                                                                                      ---------           ---------

Net decrease in net assets attributable to
   common stockholders                                                                                ($159,610)          ($245,347)
                                                                                                      =========           =========

Basic and diluted net decrease in net assets per common share (Note 8)                                ($   0.16)          ($   0.23)
                                                                                                      =========           =========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       5
<PAGE>


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

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

FOR THE THREE MONTHS ENDED MARCH 31,                                                                    2004                2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>                  <C>
Cash flows from operating activities:
  Net decrease in net assets from operations                                                         ($140,446)           ($226,183)
  Adjustments to reconcile net decrease in net assets to net
    cash used in operating activities:
      Depreciation and amortization                                                                         --                4,244
      Increase in unrealized appreciation of investments                                              (102,759)             (47,544)
      Net realized gain on portfolio of investments                                                    (49,478)                  --

      Changes in operating assets and liabilities:
        Decrease (increase) in other assets                                                              5,543              (33,032)
        Increase (decrease) in accounts payable and accrued liabilities                                 58,043              (43,959)
                                                                                                     ---------            ---------

          Total adjustments                                                                            (88,651)            (120,291)
                                                                                                     ---------            ---------

          Net cash used in operating activities                                                       (229,097)            (346,474)
                                                                                                     ---------            ---------

Cash flows from investing activities:
  Proceeds from sale of marketable investment securities                                                20,572                   --
  Proceeds from sale of securities in affiliate                                                        117,608                   --
  Purchases of securities in affiliate                                                                      --              (87,444)
  Purchases of marketable investment securities                                                        (15,248)                  --
                                                                                                     ---------            ---------

          Net cash provided by (used in) investing activities                                          122,932              (87,444)
                                                                                                     ---------            ---------

Cash flows from financing activities:
  Payment of preferred dividends                                                                       (19,164)             (19,164)
  Decrease in note payable                                                                                  --               (3,706)
  Purchases of treasury stock                                                                               --              (10,005)
                                                                                                     ---------            ---------

          Net cash used in financing activities                                                        (19,164)             (32,875)
                                                                                                     ---------            ---------

Net decrease in cash and cash equivalents                                                             (125,329)            (466,793)

Cash and cash equivalents at beginning of period                                                       224,225              562,191
                                                                                                     ---------            ---------

Cash and cash equivalents at end of period                                                           $  98,896            $  95,398
                                                                                                     =========            =========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       6
<PAGE>

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

STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

FOR THE THREE MONTHS ENDED MARCH 31,                                                            2004                       2003
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>                        <C>
Decrease in net assets from operations:
   Net investment loss                                                                       ($  292,683)               ($  273,727)
   Net realized gain on portfolio of investments                                                  49,478                         --
   Increase in unrealized appreciation of investments                                            102,759                     47,544
                                                                                             -----------                -----------

       Net decrease in net assets from operations                                               (140,446)                  (226,183)

Capital stock transactions:
   Payment of dividends on preferred stock                                                       (19,164)                   (19,164)
   Purchase of treasury stock                                                                         --                    (10,005)
                                                                                             -----------                -----------

       Total decrease in net assets                                                             (159,610)                  (255,352)

Net assets at beginning of period                                                              2,024,138                  3,267,540
                                                                                             -----------                -----------

Net assets at end of period                                                                  $ 1,864,528                $ 3,012,188
                                                                                             ===========                ===========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                                                                                                    MARKET
                                                                                      NUMBER OF                     VALUE
MARCH 31, 2004 (2)                                                                     SHARES       COST(1)        (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                     <C>      <C>             <C>
Principal Financial Group common stock (Note 6)                                         4,338            --      $  154,563
Certificate of Deposit - 0.7%, due 05/03/2004                                                    $   26,249          26,249
                                                                                                 ----------      ----------

     Total Marketable Investment Securities (6.1% of total investments and 9.7% of net assets)   $   26,249      $  180,812
                                                                                                 ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Investments, at Fair Value
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                  DIRECTORS'
                                                                            EQUITY    NUMBER OF                   VALUATION
MARCH 31, 2004 (2)                                       INVESTMENT        INTEREST    SHARES       COST(1)        (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                 <C>       <C>        <C>             <C>
MAJORITY OWNED AFFILIATE

Excelsior Radio Networks, Inc.                          Common stock        34.00%    850,000    $  850,000      $1,700,000
Excelsior Radio Networks, Inc.                            Warrants            -        87,111            --         103,662
                                                                                                 ----------      ----------
Total Excelsior Radio Networks, Inc. (60.4% of total
   investments and 96.7% of assets)                                         13.01%                  850,000       1,803,662
   (Radio production and advertising sales)                            (fully diluted)

OTHER INVESTMENTS

Alacra Corporation (33.5% of total investments      Convertible Preferred    1.68%    321,543     1,000,000       1,000,000
   and 56% of net assets)                                   Stock
    (Internet-based information provider)

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

     Investments, at Fair Value                                                                  $1,850,000      $2,803,662
                                                                                                 ==========      ==========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   (1) Book cost equals tax cost for all investments
   (2) Total investments refers to investments and marketable investment
       securities.

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

                                       8
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
1. DESCRIPTION OF BUSINESS

Franklin Capital  Corporation  ("Franklin",  or the "Corporation") is a Delaware
corporation  operating  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 making  available  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.

The  accompanying  financial  statements  have been  prepared  assuming that the
Corporation  will continue as a going  concern.  The  Corporation  has a working
capital  deficiency  of  approximately  $1,000,000  at March 31, 2004.  (Working
capital is defined as total  liabilities  less liquid  assets.)  This  condition
raises substantial doubt about the Corporation's  ability to continue as a going
concern.  The  Corporation  is  currently  seeking  financing.  There  can be no
assurance that the Corporation  would be able to obtain  alternative  financing.
The financial  statements do not include any adjustments to reflect the possible
future  effects on the  recoverability  of assets or the amounts of  liabilities
that may result from the outcome of this uncertainty.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  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, 2004 and 2003.

At March  31,  2004 and 2003,  the  Corporation  held cash and cash  equivalents
primarily in money market funds at one commercial banking institution.

VALUATION OF INVESTMENTS

Security  investments which are publicly traded on a national exchange or Nasdaq
Stock Market 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 in good faith by
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

                                       9
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (C0NTINUED)

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.

GAINS (LOSSES) ON PORTFOLIO OF INVESTMENTS

Amounts  reported as realized  gains  (losses)  are  measured by the  difference
between the  proceeds of sale or exchange  and the cost basis of the  investment
without regard to unrealized gains (losses) reported in the prior periods. Gains
(losses) 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

Property and equipment are stated at cost.  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

Net increase  (decrease) in net assets  attributable to common  stockholders 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, 2004, and 2003,  Franklin's tax (provision)
benefit was based on the following:

                                                       2004             2003
                                                    ----------       ----------
Net investment loss from operations                 $ (292,683)      $ (273,727)
Net realized gain on portfolio of investments           49,478               --
Increase in unrealized appreciation                    102,759           47,544
                                                    ----------       ----------
     Pre-tax book loss                              $ (140,446)      $ (226,183)
                                                    ==========       ==========

                                                       2004             2003
                                                    ----------       ----------
Federal tax benefit at 34% on $(140,446) and
  $(226,183), respectively .....................    $   48,000       $   77,000
Other ..........................................         1,000            7,000
Change in valuation allowance ..................       (49,000)         (84,000)
                                                    ----------       ----------
                                                    $       --       $       --
                                                    ==========       ==========

Deferred  income tax  benefit  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,  2004 and 2003,  significant  deferred  tax assets and  liabilities
consist of:

                                       10
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (C0NTINUED)

                                                          Asset (Liability)
                                                    ----------------------------
                                                     March 31,      December 31,
                                                       2004            2003
                                                    ----------      -----------
Deferred Federal and state benefitfrom net
  operating loss carryforward...................    $2,691,000      $ 2,605,000
Deferred  Federal  and state  (provision)
  benefit on unrealized (appreciation)
  depreciation of investments...................      (414,000)        (377,000)
Valuation allowance.............................    (2,277,000)      (2,228,000)
                                                    ----------      -----------
 Deferred taxes.................................    $       --      $        --
                                                    ==========      ===========

At December 31, 2003,  Franklin had net operating loss  carryforwards for income
tax purposes of approximately $7,236,000 that will begin to expire in 2011. At a
36%  effective  tax rate the  after-tax  net  benefit  from this  loss  would be
approximately $2,605,000.

4.  STOCKHOLDERS' EQUITY

The accumulated  deficit at March 31, 2004, consists of accumulated net realized
gains of $5,555,000 and accumulated investment losses of $14,138,000.

The Board of Directors has authorized  Franklin to repurchase up to an aggregate
of 575,000  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 March 31, 2004 and December 31, 2003,
the  Corporation  has  purchased  536,950  shares of its  common  stock of which
485,788 shares remain in treasury.

PREFERRED STOCK -

The preferred  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). 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.

5.  COMMITMENTS AND CONTINGENCIES

Franklin is  obligated  under an  operating  lease,  which  provides  for annual
minimum rental payments through December 31, 2004 of $105,000.

Rent  expense  for  the  three  months  ended  March  31,  2004  and  2003,  was
approximately $18,000 and $9,000, respectively. For the three months ended March
31, 2004, and 2003, the Corporation collected rents of $9,000 from one subtenant
under a month-to-month lease, for a portion of its existing office space that is
reflected as a reduction in rent expense for that period.

On October 15, 2001, Jeffrey A. Leve and Jeffrey Leve Family  Partnership,  L.P.
filed a lawsuit against Franklin, Sunshine Wireless, LLC ("Sunshine"),  and four
other defendants  affiliated with Winstar  Communications,  Inc. On February 25,
2003,  the case  against  Franklin  and  Sunshine  was  dismissed,  however  the
plaintiffs  have a right  to  appeal.  The  lawsuit  alleges  that  the  Winstar
defendants  conspired to commit fraud and breached  their  fiduciary duty to the
plaintiffs  in  connection  with  the  acquisition  of  the  plaintiff's   radio
production  and  distribution  business.  The  complaint  further  alleges  that
Franklin  and  Sunshine  joined the  alleged  conspiracy.  The  plaintiffs  seek
recovery of damages in

                                       11
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (C0NTINUED)

excess of $10,000,000,  costs and attorneys' fees. An unfavorable  outcome in an
appeal,  should it be  brought,  together  with an  unfavorable  outcome  in the
lawsuit may have a material  adverse  effect on Franklin's  business,  financial
condition and results of operations.

6. MARKETABLE INVESTMENT SECURITIES AND INVESTMENTS AT FAIR VALUE

Franklin valued its position in Excelsior at $2.00 per common share based on the
sale of 58,804 common shares to Sunshine on March 19, 2004 and the receipt of an
unsolicited  non-binding  expression of interest by Excelsior from a third-party
at a price greater than $2.00 per common share.

Franklin  issued a $1,000,000  note as part of the purchase  price of Excelsior.
This note was due  February  28, 2002 with  interest at 3.54% but has a right of
set-off  against  certain  representations  and warranties made by Winstar Radio
Networks, Inc. The due date of the note has been extended indefinitely until the
action described in Note 5 is settled.

On October 1, 2002,  Franklin  received  74,232  warrants  to acquire  shares of
Excelsior  common stock at an exercise  price of $1.20 per share for arranging a
refinancing of Excelsior debt.

During  the three  months  ended  March 31,  2003,  Franklin  earned  $45,000 in
management  fees  and  was  reimbursed  $36,000  for  salary  and  benefits  for
Franklin's  chief  financial  officer,  which was  recorded  as a  reduction  of
expenses on Franklin under a management  services agreement between Franklin and
Excelsior. The agreement expired on December 31, 2003.

Franklin along with Sunshine initially  purchased  Excelsior on August 28, 2001.
On October 3, 2002,  Franklin sold 773,196 common shares for $1.94 per share for
$1,500,000 realizing a gain of $726,804. On January 31, 2003, Franklin purchased
and subsequently on May 29, 2003, Franklin cancelled the purchase, 33,750 common
shares for $1.625 per share and 65,199  warrants to acquire  shares of Excelsior
common stock at an exercise price of $1.125 per share for $0.50 per warrant.  On
August 12, 2003,  Franklin  sold 193,000  common  shares for $1.30 per share for
$250,900 realizing a gain of $57,900.  Franklin has stock appreciation rights on
these  common  shares as follows,  a) in the event that  Excelsior is sold on or
before  August 8,  2004 for gross  proceeds  of no less than  $40,000,000,  then
Franklin shall be entitled to receive fifty percent (50%) of any net value above
$1.30 per share not to exceed total proceeds to Franklin of $1.94 per share, and
b) in the event  that  Excelsior  is sold on or before  August 8, 2005 for gross
proceeds of no less than $40,000,000, then Franklin shall be entitled to receive
fifty  percent  (50%) of any net  value  above  $1.30  per  share  not to exceed
proceeds to Franklin of $1.625 per share.  On October 8, 2003,  Franklin sold to
Sunshine  375,000  shares of the  common  stock of  Excelsior  for an  aggregate
purchase  price of $750,000,  realizing a gain of $375,000,  pursuant to a stock
purchase  agreement between Sunshine and Franklin.  On March 19, 2004,  Franklin
sold to Sunshine 58,804 shares of the common stock of Excelsior for an aggregate
purchase  price of  $117,608,  realizing a gain of $58,804,  pursuant to a stock
purchase   agreement   between   Sunshine  and  Franklin.   Franklin  has  stock
appreciation  rights on the common shares sold on both October 8, 2003 and March
19, 2004,  such that if Excelsior is sold and the purchaser of the common shares
from  Franklin  receives  more than $3.50 per share,  Franklin  is  entitled  to
receive 80% of the value greater than $3.50 per share. There can be no guarantee
that Franklin will be able to continue to sell shares of Excelsior to Sunshine.

After giving effect to the purchase of the common  stock,  Sunshine owns 66% and
the Corporation owns 34% of the issued and outstanding  common stock, and voting
power,  of  Excelsior.  On a fully  diluted  basis,  after giving  effect to the
exercise  of  the   outstanding   warrants  and  the  conversion  of  Sunshine's
outstanding preferred stock of Excelsior into common stock, the Corporation owns
approximately 13% of Excelsior.

In 2001,  Franklin  maintained  group life and dental  insurance  with Principal
Financial  Group  ("PFG").  Upon the  demutualization  of PFG in  October  2001,
Franklin received 4,338 common shares of PFG. However,  Franklin did not receive
any notification  for the receipt of such shares.  In 2004 Franklin became aware
of its  ownership  of PFG common  shares,  and  recorded  the fair value of such
shares  ($154,563  at March  31,  2004)  within  marketable

                                       12
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (C0NTINUED)

investments  on  the  accompanying  balance  sheet  and  as  other  increase  in
unrealized appreciation in the accompanying statement of operations.

7.    STOCK OPTION PLANS

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

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

                                   March 31, 2004           March 31, 2003
                                --------------------     --------------------
                                            Weighted                 Weighted
                                            Average                  Average
                                            Exercise                 Exercise
                                Shares       Price       Shares       Price
                                ------      --------     ------      --------
Outstanding at beginning
of year                         20,625       $11.39      20,625        $11.39
Granted                             --           --          --            --
Exercised                           --           --          --            --
Forfeited                           --           --          --            --
Expired                             --           --          --            --
                                ------      --------     ------      --------
Outstanding at end of year      20,625       $11.39      20,625        $11.39
                                ======                   ======
Exercisable at end of year      20,625       $11.39      20,625        $11.39
                                ======                   ======
Weighted average fair
value of options granted            --                       --

The options issued under the SIP have a remaining contractual life of 4.8 years.
The options issued under the SOP have a remaining contractual life of 6.8 years.

8.    NET DECREASE IN NET ASSETS PER COMMON SHARE

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

                                                               March 31,
                                                     ---------------------------
                                                         2004           2003
                                                     ---------------------------
Numerator:
      Net decrease in net
         assets from operations                       ($140,446)      ($226,183)
      Preferred stock dividends                       (  19,164)      (  19,164)
                                                     ----------     -----------

      Numerator for basic and diluted
         earnings per share - net increase in net
         assets attributable to common stockholders   ($159,610)      ($245,347)
                                                     ==========     ===========

                                       13
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (C0NTINUED)

Denominator:
      Denominator for basic and diluted
         decrease in net assets from operations -
         weighted - average shares                    1,020,100       1,045,187
                                                     ==========     ===========
Basic and diluted net decrease in net assets
      from operations per share                      $(    0.16)    $     (0.23)
                                                     ==========     ===========

Common  shares  which  would be  issued  upon  conversion  of the  Corporation's
preferred  stock or exercise of options have been excluded from the dilutive per
share computation as they are antidilutive (see Notes 4 and 7):

                                                        Period Ended March 31,
                                                    ----------------------------
                                                         2004           2003
                                                    ----------------------------
Preferred stock convertible into common stock           82,125         82,125
Stock options                                           20,625         20,625

9. NET ASSET VALUE PER SHARE

The  following  table sets forth the  computation  of net asset value per common
share attributable to common stockholders:

<TABLE>
<CAPTION>
                                                                 ------------------------------
                                                                   March 31,       December 31,
                                                                     2004              2003
                                                                 ------------------------------
<S>                                                               <C>              <C>
Numerator:
      Numerator for net asset value per
        common share, as if converted basis                       $ 1,864,528      $ 2,024,138
      Liquidation value of convertible preferred stock             (1,095,000)      (1,095,000)
                                                                  -----------      -----------
      Numerator for net asset value per share
        attributable to common stockholders                       $   769,528      $   929,138
                                                                  ===========      ===========
Denominator:
      Number of common shares outstanding,
        denominator for net asset value per share
        attributable to common stockholders                         1,020,100        1,020,100
      Number of shares of common stock to be
        issued upon conversion of preferred stock                      82,125           82,125
                                                                  -----------      -----------
      Denominator for net asset value per common
        share as if converted basis                                 1,102,225        1,102,225

      Net asset value per share attributable to common
        stockholders                                              $      0.75      $      0.91
                                                                  ===========      ===========

      Net asset value per common share, as if converted basis
                                                                  $      1.69      $      1.84
                                                                  ===========      ===========
</TABLE>

10.  PURCHASES AND SALES OF INVESTMENT SECURITIES

The  cost of  purchases  and  proceeds  from  sales  of  investment  securities,
excluding short-term investments, aggregated $15,248 and $138,180, respectively,
for the three months ended March 31, 2004; $87,446 and $0, respectively, for the
three months ended March 31, 2003.

                                       14
<PAGE>

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

         The following  "Overview" section is a brief summary of the significant
issues addressed in Management's  Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A").  Investors should read the relevant sections
of the MD&A for a complete discussion of the issues summarized below. The entire
MD&A should be read in conjunction with Item 1. Financial  Statements  appearing
elsewhere in this Form 10Q.

OVERVIEW

         During the three months ended March 31, 2004, the Corporation  realized
approximately  $50,000  in gains  on its sale of  Excelsior  common  stock.  The
Corporation  continues to rely on the  increase in the value of its  investments
and the ability to sell them in order to fund its ongoing  operations.  In 2001,
Franklin  maintained  group  life  and  dental  insurance  with  PFG.  Upon  the
demutualization of PFG in October 2001, Franklin received 4,338 common shares of
PFG. However,  Franklin did not receive any notification for the receipt of such
shares. In 2004 Franklin became aware of its ownership of PFG common shares, and
recorded  the fair value of such  shares  ($154,563  at March 31,  2004)  within
marketable  investments on the accompanying  balance sheet and as other increase
in unrealized appreciation in the accompanying statement of operations.

CRITICAL ACCOUNTING POLICIES

         Franklin's  discussion  and  analysis of its  financial  condition  and
results of operations  are based upon the  Corporation's  financial  statements,
which have been  prepared in accordance  with  accounting  principles  generally
accepted in the United States.  The  preparation of these  financial  statements
requires  the  Corporation  to make  estimates  and  judgments  that  affect the
reported  amounts of assets,  liabilities,  revenues  and  expenses  and related
disclosure  of  contingent  assets and  liabilities.  On an ongoing  basis,  the
Corporation  evaluates  its  estimates,  the most  critical  of which  are those
related to the fair value of the portfolio of investments.

         Security  investments  which are publicly traded on a national exchange
or Nasdaq Stock Market 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 in
good faith by 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.

                                       15
<PAGE>

STATEMENT OF OPERATIONS

         The Corporation accounts for its operations under accounting principles
generally accepted in the United States for investment companies. On this basis,
the principal measure of its financial  performance is captioned "Net (decrease)
increase in net assets from operations," which is composed of the following:

    o    "Net investment loss from operations,"  which is the difference between
         the  Corporation's  income from  interest,  dividends  and fees and its
         operating expenses;

    o    "Net  realized  gain  on  portfolio  of  investments,"   which  is  the
         difference between the proceeds received from dispositions of portfolio
         securities and their stated cost;

    o    any applicable income tax provisions (benefits); and

    o    "Net (decrease)  increase in unrealized  appreciation of  investments,"
         which  is  the  net  change  in the  fair  value  of the  Corporation's
         investment portfolio, net of any (decrease) increase 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
(decrease)  increase 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,
$3,156,465 and $1,864,528 at March 31, 2004, versus $3,258,032 and $2,024,138 at
December 31, 2003. Net asset value per share attributable to common shareholders
and on an as if converted  basis was $0.75 and $1.69,  respectively at March 31,
2004, versus $0.91 and $1.84 at December 31, 2003.

         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, 2004   DECEMBER 31, 2003
                                      --------------   -----------------
Investments, at cost                      $1,876,249          $1,949,703
Unrealized appreciation                    1,108,225           1,005,466
                                          ----------          ----------
Investments, at fair value                $2,984,474          $2,955,169
                                          ==========          ==========

         The accompanying  financial statements have been prepared assuming that
the Corporation will continue as a going concern.  The Corporation has a working
capital deficiency of approximately $1,000,000 at March 31, 2004. This condition
raises substantial doubt about the Corporation's  ability to continue as a going
concern.  There can be no assurance that the Corporation would be able to find a
suitable  merger  partner  or be  able  to  obtain  alternative  financing.  The
financial  statements  do not include any  adjustments  to reflect the  possible
future  effects on the  recoverability  of assets or the amounts of  liabilities
that may result from the outcome of this uncertainty.

                                       16
<PAGE>

INVESTMENTS

         The  Corporation's  financial  condition is dependent on the success of
its  investments.  The  Corporation  has invested a  substantial  portion of its
assets in thinly capitalized  companies  including one development stage company
that may lack management depth.

         ALACRA CORPORATION

         At  March  31,  2004,  the  Corporation  had an  investment  in  Alacra
Corporation  ("Alacra"),  valued at $1,000,000,  which  represents  31.7% of the
Corporation's  total  assets and 53.6% of its net assets.  Alacra,  based in New
York, is a leading global provider of business and financial information. Alacra
provides a diverse portfolio of fast,  sophisticated  online services that allow
users to quickly find, analyze,  package and present  mission-critical  business
information.   Alacra's  customers  include  more  than  750  leading  financial
institutions,   management  consulting,  law  and  accounting  firms  and  other
corporations throughout the world.

         On April 20, 2000, the Corporation purchased $1,000,000 worth of Alacra
Series  F  Convertible  Preferred  Stock.  Franklin  has the  right  to have the
preferred  stock  redeemed by Alacra for face value plus  accrued  dividends  on
December 31, 2005.  In  connection  with this  investment,  Franklin was granted
observer rights on Alacra board of directors meetings.

         EXCELSIOR RADIO NETWORKS

         At March 31, 2004, the Corporation had an investment in Excelsior Radio
Networks,  Inc.  ("Excelsior"),  formerly known as eCom Capital, Inc., valued at
$1,803,662,  which represents 57.1% of the Corporation's  total assets and 96.7%
of its net assets.  This  valuation  represents the same value as the last sales
price  realized by the  Corporation  for sales of 58,804 and  375,000  shares of
Excelsior's  common  stock on March 19, 2004 and October 8, 2003,  respectively.
Excelsior produces and syndicates programs and services heard on more than 2,000
radio  stations   nationwide  across  most  major  formats.   Through  its  Dial
Communications  Global Media sales  subsidiary,  Excelsior sells the advertising
inventory  radio  stations  provide in exchange for the Excelsior  content.  The
programming  and content  includes  prep services as well as long form and short
form programming. Additionally, Dial Communications Global Media has a number of
independent  producer clients,  which range from talk and music programs to news
and traffic services.

         On August 28,  2001,  the  Corporation  purchased  $2,500,000  worth of
Excelsior  Common Stock and issued a secured note for  $150,000.  In  connection
with this note,  Franklin  was  granted  warrants  to acquire  12,879  shares of
Excelsior  common stock at an exercise price of $1.125 per share. As of December
31,  2003,  the secured note was paid back to  Franklin.  Franklin  sold 250,000
common  shares for $1.00 per share on December  4, 2001 for no gain or loss.  On
October  1,  2002,  Franklin  received  74,232  warrants  to  acquire  shares of
Excelsior  common stock at an exercise  price of $1.20 per share for arranging a
financing of Excelsior.  On October 3, 2002, Franklin sold 773,196 common shares
for  $1.94  per  share for total  proceeds  of  $1,500,000  realizing  a gain of
$726,804.  On January 31, 2003,  Franklin  purchased and subsequently on May 29,
2003, Franklin cancelled the purchase, 33,750 common shares for $1.625 per share
and 65,199  warrants to acquire shares of Excelsior  common stock at an exercise
price of $1.125 per share for $0.50 per warrant.  On August 12,  2003,  Franklin
sold 193,000  common  shares for $1.30 per share for total  proceeds of $250,900
realizing a gain of $57,900.  Franklin  has stock  appreciation  rights on these
common  shares as follows,  a) in the event that  Excelsior is sold on or before
August 8, 2004 for gross  proceeds of no less than  $40,000,000,  then  Franklin
shall be entitled to receive  fifty  percent  (50%) of any net value above $1.30
per share not to exceed  proceeds to Franklin of $1.94 per share,  and b) in the
event that the Excelsior is sold on or before August 8, 2005 for gross  proceeds
of no less than  $40,000,000,  then Franklin  shall be

                                       17
<PAGE>

entitled to receive  fifty  percent (50%) of any net value above $1.30 per share
not to exceed  proceeds  to  Franklin  of $1.625 per share.  On October 8, 2003,
Franklin sold to Sunshine 375,000 shares of the common stock of Excelsior for an
aggregate purchase price of $750,000,  realizing a gain of $375,000, pursuant to
a stock purchase  agreement  between  Sunshine and Franklin.  On March 19, 2004,
Franklin  sold to Sunshine  58,804  shares of common stock of  Excelsior  for an
aggregate purchase price of $117,608, realizing a gain of $58,804, pursuant to a
stock  purchase  agreement  between  Sunshine and  Franklin.  Franklin has stock
appreciation  rights on the common shares sold on both October 8, 2003 and March
19, 2004,  such that if Excelsior is sold and the purchaser of the common shares
from  Franklin  receives  more than $3.50 per share,  Franklin  is  entitled  to
receive 80% of the value  greater than $3.50 per share.  After giving  effect to
the purchase of the common stock,  Sunshine owns 66% and the Company owns 34% of
the issued and outstanding  common stock,  and voting power, of Excelsior.  On a
fully  diluted  basis,  after giving  effect to the exercise of the  outstanding
warrants  and the  conversion  of  Sunshine's  outstanding  preferred  stock  of
Excelsior  into  common  stock,  the  Corporation  owns   approximately  13%  of
Excelsior.  Franklin  continues  to maintain a seat on the board of directors of
Excelsior.

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 investment income of $165 and $45,678 for the three
months ended March 31, 2004 and 2003,  respectively.  The decrease in investment
income for the three  months  ended  March 31,  2004 when  compared to March 31,
2003, was primarily the result of the  management  agreement with Excelsior that
expired on December 31, 2003.

         Operating  expenses  were  $292,848  and  $319,405 for the three months
ended March 31,  2004 and 2003,  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.  Included  in  compensation  is a $40,000  bonus  paid to an
officer of the  Corporation  during 2003.  Professional  fees consist of general
legal  fees,  audit  and  tax  fees  and  investment  related  legal  fees.  The
Corporation was reimbursed  approximately $36,000 for salary and benefit expense
for its chief financial officer under the terms of the management agreement with
Excelsior for the three months ended March 31, 2003. This reimbursement has been
recorded as a reduction in operating expenses.

         Net investment  losses from  operations  were $292,683 and $273,727 for
the three months ended March 31, 2004 and 2003, 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

                                       18
<PAGE>

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, 2004 and 2003, the  Corporation
realized net losses before taxes of $49,478 and $0 respectively,  primarily from
the disposition of a portion of the Corporation's Excelsior holdings.

UNREALIZED APPRECIATION OF INVESTMENTS:

         Unrealized  appreciation of  investments,  increased by $102,759 during
the three months ended March 31, 2004, primarily due to the receipt of shares in
Principal Financial Group ("PFG"),  offset by an unrealized loss due to the sale
of a  portion  of  the  Corporation's  Excelsior  holdings.  In  2001,  Franklin
maintained group life and dental insurance with PFG. Upon the demutualization of
PFG in October 2001,  Franklin  received  4,338 common  shares of PFG.  However,
Franklin did not receive any  notification  for the receipt of such  shares.  In
2004 Franklin  became aware of its ownership of PFG common shares,  and recorded
the fair value of such shares  ($154,563 at March 31,  2004)  within  marketable
investments  on  the  accompanying  balance  sheet  and  as  other  increase  in
unrealized appreciation in the accompanying statement of operations.

         Unrealized appreciation of investments, increased by $47,544 during the
three months ended March 31, 2003, primarily from unrealized gains in Excelsior.

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.  The  Corporation  is taxed under  Regulation  C of the Code and,
therefore,  it is subject to federal  income tax on the  portion of its  taxable
income and net capital as well as such distribution to its stockholders.

LIQUIDITY AND CAPITAL RESOURCES

         The accompanying  financial statements have been prepared assuming that
the Corporation will continue as a going concern.  The Corporation has a working
capital deficiency of approximately $1,000,000 at March 31, 2004. This condition
raises substantial doubt about the Corporation's  ability to continue as a going
concern.  The  Corporation  is seeking  alternative  financing.  There can be no
assurance that the Corporation  would be able to obtain  alternative  financing.
The financial  statements do not include any adjustments to reflect the possible
future  effects on the  recoverability  of assets or the amounts of  liabilities
that may result from the outcome of this uncertainty.

         Cash and cash  equivalents  decreased  by  $125,329  to $98,896 for the
three months  ended March 31,  2004,  compared to a decrease of $466,793 for the
three months ended March 31, 2003.

         Operating  activities  used $229,097 of cash for the three months ended
March 31, 2004,  compared to using $346,474 for the three months ended March 31,
2003.

                                       19
<PAGE>

         Operating  activities  for the  three  months  ended  March  31,  2004,
exclusive of changes in operating assets and liabilities, used $292,683 of cash,
as the  Corporation's  net  decrease in net assets from  operations  of $140,446
included  non-cash  charges for  unrealized  gains of $102,759  and net realized
gains  of  $49,478.  For the  three  months  ended  March  31,  2003,  operating
activities,  exclusive  of changes in  operating  assets and  liabilities,  used
$269,483  of  cash,  as  the  Corporation's  net  decrease  in net  assets  from
operations  of  $226,183   included   non-cash   charges  for  depreciation  and
amortization of $4,244 and unrealized gains of $47,544.

         Changes in operating assets and liabilities  increased cash $63,586 for
the three  months ended March 31,  2004,  principally  due to an increase in the
level of accounts  payable and accrued  expenses and a decrease in other assets.
For the three  months  ended March 31,  2003,  changes in  operating  assets and
liabilities resulted in the use of $76,991 of cash.

           The  principal  factor in the  $122,932  cash  provided by  investing
activities  for the three  months  ended  March 31,  2004 was the sale of common
shares of Excelsior. For the three months ended March 31, 2003, the $87,444 cash
used in investing  activities  was the purchase of additional  common shares and
warrants of Excelsior.

         Cash used in financing  activities for the three months ended March 31,
2004 of $19,164 was for preferred dividends.  Financing activities for the three
months ended March 31, 2003 used $32,875 primarily from the payment of preferred
dividends of $19,164 and the purchase of treasury stock of $10,005.

RISK FACTORS

         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  one  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 PRIVATE  COMPANIES  INVOLVES A HIGH  DEGREE OF RISK.  The
Corporation's  portfolio consists primarily of investments in private companies.
Investments  in  private  businesses  involve  a high  degree  of  business  and
financial risk, which can result in substantial losses and accordingly should be
considered  speculative.  There is generally no publicly  available  information
about the companies in which Franklin invests, and Franklin relies significantly
on the diligence of its employees and agents to obtain information in connection
with  the  Corporation's   investment  decisions.   In  addition,  some  smaller
businesses have narrower product lines and market shares than their competitors,
and may be  more  vulnerable  to  customer  preferences,  market  conditions  or
economic  downturns,  which may adversely  affect the return on, or the recovery
of, the Corporation's investment in such businesses.

         THE PORTFOLIO OF INVESTMENTS IS ILLIQUID. Franklin acquires most of its
investments directly from private companies.  The majority of the investments in
its portfolio  will be subject to  restrictions  on resale or otherwise  have no
established  trading  market.  The  illiquidity  of  most

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<PAGE>

of the portfolio may adversely affect Franklin's ability to dispose of loans and
securities at times when it may be advantageous to liquidate such investments.

         FRANKLIN'S  PORTFOLIO   INVESTMENTS  ARE  RECORDED  AT  FAIR  VALUE  AS
DETERMINED BY THE BOARD OF DIRECTORS IN ABSENCE OF READILY  ASCERTAINABLE PUBLIC
MARKET VALUES.  Pursuant to the requirements of the 1940 Act, the  Corporation's
board of  directors is required to value each asset  quarterly,  and Franklin is
required to carry the  portfolio  at a fair market  value as  determined  by the
board of directors.  Since there is typically no public market for the loans and
equity  securities of the companies in which  Franklin  makes  investments,  the
board of directors estimates the fair value of these loans and equity securities
pursuant  to written  valuation  policy  and a  consistently  applied  valuation
process.  Unlike banks,  Franklin is not permitted to provide a general  reserve
for anticipated  loan losses;  instead,  Franklin is required by the 1940 Act to
specifically value each individual  investment and record an unrealized loss for
an asset that it believes has become impaired.  Without a readily  ascertainable
market  value,  the  estimated  value  of the  portfolio  of  loans  and  equity
securities may differ  significantly from the values that would be placed on the
portfolio if there  existed a ready market for the loans and equity  securities.
Franklin  adjusts  quarterly the valuation of the portfolio to reflect the board
of directors' estimate of the current realizable value of each investment in the
Corporation's  portfolio.  Any changes in  estimated  value are  recorded in the
Corporation's statement of operations as "Net unrealized gains (losses)."

         FRANKLIN OPERATES IN A COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES.
Franklin  competes for investments  with many other  companies and  individuals,
some of whom have greater  resources than does Franklin.  Increased  competition
would make it more difficult to purchase or originate  investments at attractive
prices.  As a result of this  competition,  sometimes  Franklin may be precluded
from making otherwise attractive investments.

         QUARTERLY  RESULTS MAY  FLUCTUATE  AND MAY NOT BE  INDICATIVE OF FUTURE
QUARTERLY  PERFORMANCE.  The  Corporation's  quarterly  operating  results could
fluctuate,  and  therefore,  you  should  not rely on  quarterly  results  to be
indicative  of Franklin's  performance  in future  quarters.  Factors that could
cause quarterly operating results to fluctuate include, among others, variations
in the  investment  origination  volume,  variation  in timing  of  prepayments,
variations in and the timing of the recognition of realized and unrealized gains
or losses,  the degree to which Franklin  encounters  competition in its markets
and general economic conditions.

         FRANKLIN IS DEPENDENT UPON KEY MANAGEMENT PERSONNEL FOR FUTURE SUCCESS.
Franklin is dependent for the selection,  structuring, closing and monitoring of
its investments on the diligence and skill of its senior management  members 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.
Franklin  does not  maintain  key man life  insurance  on any of its officers or
employees.

         THERE IS  SUBSTANTIAL  DOUBT AS TO FRANKLIN'S  ABILITY TO CONTINUE AS A
GOING CONCERN.  Franklin has determined that it may not have sufficient cash and
cash equivalents to meet its working capital  requirements  over the next fiscal
year.  Franklin's  independent  auditors  have  issued an  opinion  in which the
independent  auditors  have  indicated  that  there is  substantial  doubt as to
Franklin's  ability to continue as a going concern as noted in their explanatory
paragraph  within their opinion,  which is noted in Franklin's  annual financial
statements.  Franklin is

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<PAGE>

currently seeking alternative sources of financing to continue operating through
the current  fiscal year. If funds were not raised,  Franklin may not be able to
continue its operations.

         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.

         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."

                                       22
<PAGE>

         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 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
portfolio  company  itself.  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."

ITEM 4.           CONTROLS AND PROCEDURES

         The  Corporation's  chief executive officer and chief financial officer
have evaluated the  effectiveness of the Corporation's  disclosure  controls and
procedures  (as defined in Rules  13a-14(c) and 15d-14(c)  under the  Securities
Exchange Act of 1934 (the "Exchange Act")) as of a date (the "Evaluation  Date")
within 90 days  before  the filing  date of this  annual  report.  Based on such
evaluation, they have concluded that, as of the Evaluation Date, the information
required to be  disclosed  by the  Corporation  in the reports  that it files or
submits under the Exchange Act is recorded, processed,  summarized and reported,
within the time periods  specified in the rules and forms of the  Securities and
Exchange Commission.

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<PAGE>

         There  were  no  significant  changes  in  the  Corporation's  internal
controls or in other  factors that could  significantly  affect  these  controls
during the period covered by this quarterly report.

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         On  October  15,  2001,   Jeffrey  A.  Leve  and  Jeffrey  Leve  Family
Partnership,  L.P. filed a lawsuit  against  Franklin,  Sunshine  Wireless,  LLC
("Sunshine"),  and four other defendants affiliated with Winstar Communications,
Inc. On February 25, 2003, the case against Franklin and Sunshine was dismissed,
however the  plaintiffs  have a right to appeal.  The lawsuit  alleges  that the
Winstar  defendants  conspired to commit fraud and breached their fiduciary duty
to the plaintiffs in connection with the  acquisition of the  plaintiff's  radio
production  and  distribution  business.  The  complaint  further  alleges  that
Franklin  and  Sunshine  joined the  alleged  conspiracy.  The  plaintiffs  seek
recovery of damages in excess of  $10,000,000,  costs and  attorneys'  fees.  An
unfavorable  outcome  in an  appeal,  should  it be  brought,  together  with an
unfavorable  outcome  in the  lawsuit  may have a  material  adverse  effect  on
Franklin's business, financial condition and results of operations.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

                  Not applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES HOLDERS

                  Not applicable

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  Not applicable

ITEM 5.  OTHER INFORMATION

                  Not applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  EXHIBITS

                           Exhibit 31.1     Certification of the Chief Executive
                                            Officer  pursuant to Rule  13a-14(a)
                                            and Rule 15d-14(a) of the Securities
                                            Exchange Act, as amended

                           Exhibit 31.2     Certification of the Chief Financial
                                            Officer  pursuant to Rule  13a-14(a)
                                            and Rule 15d-14(a) of the Securities
                                            Exchange Act, as amended

                           Exhibit 32.1     Certification   of  Chief  Executive
                                            Officer   Pursuant   To  18   U.S.C.
                                            Section 1350, as adopted pursuant to
                                            Section  906 of  the  Sarbanes-Oxley
                                            Act of 2002

                           Exhibit 32.2     Certification   of  Chief  Financial
                                            Officer   Pursuant   To  18   U.S.C.
                                            Section 1350, as adopted pursuant to
                                            Section  906 of  the  Sarbanes-Oxley
                                            Act of 2002

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<PAGE>

         (b) REPORTS ON FORM 8-K.           The  Corporation  filed a report  on
                                            Form 8-K on April 1, 2004 announcing
                                            its   Board   of    Directors    had
                                            authorized   the   retention   of  a
                                            financial advisor to advise Franklin
                                            on various strategic,  financial and
                                            business  alternatives  available to
                                            it to  maximize  shareholder  value.
                                            These may include a  reorganization,
                                            re-capitalization,     acquisitions,
                                            dispositions  of  assets,  a sale or
                                            merger.  There is no assurance  that
                                            any  of the  foregoing  alternatives
                                            will occur.

                                    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: May 14, 2004                  By:   /s/ Stephen L. Brown
                                          --------------------
                                          Stephen L. Brown
                                          CHAIRMAN AND CHIEF EXECUTIVE OFFICER


                                          /s/ Hiram M. Lazar
                                          ------------------
                                          Hiram M. Lazar
                                          CHIEF FINANCIAL OFFICER

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