SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

                      Annual Report Pursuant to Section 13
                 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended                          Commission File No.  1-9727
December 31, 2000                                                      -------


                          Franklin Capital Corporation
               (Exact name of registrant specified in its charter)

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

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

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

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

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ X ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of February 28, 2001 was  $3,698,716  based on the last sale price
as quoted by The American Stock Exchange on such date  (officers,  directors and
5% stockholders are considered affiliates for the purposes of this calculation).

The number of shares of common  stock  outstanding  as of February  28, 2001 was
1,096,900.
<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<S>      <C>
PART I
         Item 1.  Business
         Item 2.  Properties
         Item 3.  Legal Proceedings
         Item 4.  Submission of Matters to a Vote of Security Holders

PART II
         Item 5.  Market for Corporation's Common Equity and Related Stockholder Matters
         Item 6.  Selected Financial Data
         Item 7.  Management's Discussion and Analysis of Financial Condition and Results of
                        Operations
         Item7a.  Quantitative and Qualitative Disclosures about Market Risk
         Item 8.  Financial Statements and Supplementary Data
         Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial
                  Disclosure

PART III
         Item 10. Directors and Executive Officers of the Corporation
         Item 11. Executive Compensation
         Item 12. Security Ownership of Certain Beneficial Owners and Management
         Item 13. Certain Relationships and Related Transactions

PART IV
         Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
</TABLE>

SIGNATURES

EXHIBIT INDEX

                           FORWARD LOOKING STATEMENTS

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


                                       2
<PAGE>


                                     PART I

ITEM 1.           BUSINESS

FORMATION

         Franklin Capital  Corporation(1)  (the "Registrant", "Franklin," or the
"Corporation")  filed  on April  7,  1987,  with  the  Securities  and  Exchange
Commission (the "SEC" or the "Commission") a notification of registration  under
Section  8(a)  of the  Investment  Company  Act of 1940  (the  "1940  Act")  and
registered as a closed-end,  non-diversified  management  investment company. On
July 10, 1987, the Corporation  commenced  operations as an investment  company.
The  Corporation's  common stock,  par value $1.00 per share, has been listed on
The American Stock Exchange since October 1, 1987.

         The operating strategy of providing managerial  assistance to companies
in which the  Corporation  invests has been pursued by Franklin since 1992. This
strategy  is  consistent  with  the  legislative  intent  behind  the  statutory
framework  governing  business  development  companies  under the 1940 Act.  The
Business  Development  Company ("BDC") structure is available for companies that
are engaged in the business of furnishing  capital and  managerial  expertise to
other  companies that might not otherwise have access to such capital.  In light
of  this  operating  strategy  and  the  Corporation's   long-term   objectives,
management  and the  Board  of  Directors  determined  that  it was in the  best
interests  of the  shareholders  to explore  the  feasibility  of electing to be
regulated as a BDC.

         On August 5, 1997, the Board of Directors  determined  that it would be
in the best interests of the Corporation and its stockholders to elect to become
a BDC under the 1940 Act.  On  September  9,  1997,  at the  Annual  Meeting  of
Stockholders,  the  stockholders  of Franklin  approved  the  proposal  that the
Corporation be regulated as a BDC. On November 18, 1997, the Corporation filed a
notification  of  election  to become a BDC with the  Commission.  The  election
became  effective  upon  the  receipt  of  the  filing  by the  Commission.  The
Corporation  operates as an  internally  managed BDC  whereby its  officers  and
employees, under the general supervision of its Board of Directors,  conduct its
operations.

         As  a  BDC,  the   Corporation's   objective  is  to  achieve   capital
appreciation  through  long-term  investments  in  businesses  believed  to have
favorable growth potential. The Corporation participates,  or would participate,
in start-up and early stage financing,  expansion or growth financing, leveraged
buy-out financing and restructurings. The Corporation has also invested and will
consider investing in a broad range of industry segments.


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

         1. On July 14, 1998, the  Corporation  filed a Certificate of Amendment
with the Secretary of State of the State of Delaware, changing its name from The
Franklin Holding  Corporation  (Delaware) to Franklin Capital  Corporation.  The
Corporation's  shareholders had approved a proposal to change the  Corporation's
name  at the  Annual  Meeting  of  Stockholders  held  on  June  16,  1998.  The
Corporation had filed its original Articles of Incorporation  with the Secretary
of State of the State of Delaware as The Franklin Holding Corporation (Delaware)
on March 31, 1987.

                                       3
<PAGE>


PORTFOLIO OF INVESTMENTS

         The Corporation  invests  primarily in equity  securities,  for example
common  stock,  preferred  stock,  convertible  preferred  stock or other equity
derivatives such as options, warrants or rights to acquire stock. As of December
31, 2000, the Corporation's  portfolio of investments is a composite of illiquid
investments in developing companies and securities in publicly traded developing
companies.

         The  Corporation  has invested a  substantial  portion of its assets in
private  development  stage or  start-up  companies.  The current  portfolio  is
invested  principally  but not  exclusively  in  securities  issued by companies
involved in early stage high technology sectors such as wireless communications,
other telecommunications services, Internet software and information services.

         The Corporation  generally favors investments in private companies that
it believes can achieve the necessary size, profitability,  management depth and
sophistication  to become public companies or become  candidates for acquisition
by merger or otherwise.  The  Corporation  seeks to enable its  stockholders  to
participate  in  investments  not  typically  available to the public due to the
private  nature  of  a  substantial  majority  of  the  Corporations   portfolio
companies,  the size of the  financial  commitment  often  required  in order to
participate  in  such  investments,   and/or  the  experience,  skill  and  time
commitment   required  to  identify  and  take  advantage  of  these  investment
opportunities.

         The Corporation  offers managerial  assistance to its private portfolio
companies and expects that it will play a role in setting  corporate  strategies
and advising  such  companies  regarding  important  decisions  affecting  their
businesses,  including  potential  acquisitions,  recruiting  key managers,  and
securing equity and debt financing.

         Generally,   most  of  the  Corporation's   investments  are,  and  the
Corporation  anticipates that they will continue to be, in small to medium sized
companies  with total assets or annual sales under $500  million.  Many of these
companies may have very limited operating  histories.  Each investment  includes
portfolio  companies that have the potential for substantial growth in sales and
earnings.  The Corporation seeks to identify companies that management  believes
have  significant  opportunities in the industry sectors they serve or that have
devised innovative products, services or ways of doing business that afford them
a distinct  competitive  advantage.  Such companies  might achieve growth either
internally or by acquisition.

ILLIQUIDITY OF INVESTMENTS

         A majority  of the  Corporation's  investments  consist  of  securities
acquired directly from the issuer in private  transactions.  They may be subject
to restrictions on resale or otherwise be illiquid.  Franklin  anticipates  that
there  may  not  be  an  established   trading   market  for  such   securities.
Additionally, many of the securities that the Corporation may invest in will not
be eligible for sale to the public without registration under the Securities Act
of 1933, as amended, which could prevent or delay any sale by the Corporation of
such  investments  or reduce the amount of  proceeds  that  might  otherwise  be
realized therefrom.  Restricted  securities generally sell at a price lower than
similar  securities not subject to  restrictions on resale.  Further,  even if a
portfolio  company  (hereinafter  referred to as an  "investee")  registers  its
securities and becomes a reporting corporation under the Securities Exchange Act
of 1934,  the  Corporation  may be  considered an insider by virtue of its board
representation   and  would  be  restricted  in  sales  of  such   corporation's
securities.
                                       4
<PAGE>

MANAGERIAL ASSISTANCE

         The Corporation  believes that providing  managerial  assistance to its
investees is critical to its business development activities.  "Making available
significant  managerial assistance" as defined in the 1940 Act with respect to a
BDC such as  Franklin  means  (a) any  arrangement  whereby a BDC,  through  its
directors,  officers,  employees or general partners,  offers to provide, and if
accepted,  does so provide  significant  guidance  and  counsel  concerning  the
management,  operations  or  business  objectives  and  policies  of a portfolio
company;  or (b) the exercise of a controlling  influence over the management or
policies of a portfolio  company by a BDC acting  individually or as a part of a
group  acting   together  which  controls  such   portfolio   Corporation.   The
Corporation,  as a  BDC,  is  required  by the  1940  Act  to  make  significant
managerial  assistance  available at least with  respect to  investees  that the
Corporation treats as qualifying assets for purposes of the 70 percent test (see
"Regulation").  The nature,  timing and amount of managerial assistance provided
by the  Corporation  vary  depending upon the  particular  requirements  of each
investee company.

         In connection  with its managerial  assistance,  the Corporation may be
represented  by one or  more  of its  officers  or  directors  on the  board  of
directors  of an investee.  The  Corporation's  goal is to assist each  investee
company in establishing its own independent and effective board of directors and
management.

NEED FOR FOLLOW-ON INVESTMENTS

         Following its initial  investments in investees,  the  Corporation  has
made and  anticipates  that it will continue to make  additional  investments in
such investees as "follow-on"  investments,  in order to increase its investment
in an investee,  and may exercise  warrants,  options or convertible  securities
that were acquired in the original financing.  Such follow-on investments may be
made for a variety  of  reasons  including:  1) to  increase  the  Corporation's
exposure  to an  investee,  2) to  acquire  securities  issued  as a  result  of
exercising convertible  securities that were purchased in a prior financing,  3)
to  preserve or reduce  dilution  of  Franklin's  proportionate  ownership  in a
subsequent  financing,  or 4) in an attempt to  preserve or enhance the value of
the  Corporation's  investment.  There can be no assurance that the  Corporation
will  make  follow-on   investments  or  have  sufficient  funds  to  make  such
investments;  the  Corporation  will have the  discretion  to make any follow-on
investments as it determines,  subject to the availability of capital resources.
The failure to make such follow-on  investments  may, in certain  circumstances,
jeopardize the continued viability of an investee and the Corporation's  initial
investment,  or may  result  in a  missed  opportunity  for the  Corporation  to
increase its  participation in a successful  operation.  Even if the Corporation
has sufficient capital to make a desired follow-on investment,  the Company may,
under  certain  circumstances  be inhibited  from doing so if such an investment
would result in non-compliance with BDC regulations.

COMPETITION

         Numerous  companies and  individuals are engaged in the venture capital
business and such business is extremely  competitive.  The Corporation  competes
for attractive  investment  opportunities with venture capital  partnerships and
corporations,  merchant  banks,  venture  capital  affiliates of industrial  and
financial  companies,  Small Business  Investment  Companies,  other  investment
companies,  pension plans, other BDCs and private individual investors.  Many of
these   competitors  have   significantly   greater   resources  and  managerial
capabilities   than  the   Corporation  to  obtain  access  to  venture  capital
investments.  There can be no  assurance  that the  Corporation  will be able to
compete against those competitors for attractive investments.

                                       5
<PAGE>


DETERMINATION OF NET ASSET VALUE

         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 the  Corporation
(the "Board of Directors") may determine, if appropriate,  to discount the value
where there is an impediment to the marketability of the securities held.

         Investments for which there is no ready market are initially  valued at
cost and,  thereafter,  at fair value  based upon the  financial  condition  and
operating results of the issuer and other pertinent factors as determined by the
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.

EMPLOYEES

         At December 31, 2000, the Corporation had six employees.

REGULATION

         The Corporation is not a registered  investment company.  However, as a
BDC it is subject to regulation  under the 1940 Act,  including many of the same
provisions  that apply to registered  investment  companies.  The following is a
brief  description  of  the  provisions  of  the  1940  Act  applicable  to  the
Corporation.

         Generally,  to be  eligible  to elect BDC status,  a  corporation  must
primarily engage in the business of furnishing capital and managerial  expertise
to  companies  that do not have  ready  access to capital  through  conventional
financial  channels.  Such portfolio  companies are termed  "eligible  portfolio
companies." More specifically,  in order to qualify as a BDC, a corporation must
(i) be a domestic corporation; (ii) have registered a class of its securities or
have filed a  registration  statement with the SEC pursuant to Section 12 of the
Securities  Exchange Act of 1934;  (iii) operate for the purpose of investing in
the  securities of certain  types of portfolio  companies,  namely,  immature or
emerging  companies and businesses  suffering or just  recovering from financial
distress (see following paragraph);  (iv) make available significant  managerial
assistance to such portfolio companies; (v) have a majority of directors who are
not  "interested  persons" (as defined in the 1940 Act) and (vi) file (or, under
certain circumstances, intend to file) a proper notice of election with the SEC.

         An eligible portfolio company generally is a domestic  corporation that
is not an  investment  company  and that  does  not  have a class of  securities
registered on which margin credit can be extended or is actively controlled by a
BDC and has an affiliate of a BDC on its board of  directors.  Control under the
1940 Act is  presumed  to exist  where a BDC owns  more than 25  percent  of the
outstanding voting securities of the investee.

                                       6
<PAGE>



         The 1940 Act restricts BDC  investments  in certain types of companies,
such as brokerage  firms,  insurance  companies,  investment  banking  firms and
investment companies.  Moreover,  the 1940 Act requires that at least 70 percent
of  the  value  of  the  Corporation's  assets  consist  of  qualifying  assets.
Qualifying  assets  include:  (i)  securities  of companies  that were  eligible
portfolio  companies at the time such company  acquired their  securities;  (ii)
securities of bankrupt or insolvent  companies that were eligible at the time of
such company's initial investment in those companies;  (iii) securities received
in exchange for or  distributed  in or with respect to any of the  foregoing and
(iv) cash items,  government  securities and high quality  short-term  debt. The
1940 Act also places  restrictions  on the nature of the  transactions in which,
and  the  persons  for  whom,  securities  can be  purchased  in  order  for the
securities to be considered qualifying assets.

         The   Corporation  is  permitted  by  the  1940  Act,  under  specified
conditions,  to issue  multiple  classes  of senior  debt and a single  class of
preferred stock if its asset  coverage,  as defined in the 1940 Act, is at least
200 percent  after the issuance of the debt or the preferred  stock (i.e.,  such
senior securities may not be in excess of 50 percent of its net assets).  If the
value of the  Corporation's  assets,  as defined,  were to increase  through the
issuance of  additional  capital stock or otherwise,  the  Corporation  would be
permitted under the 1940 Act to issue senior securities. These securities may be
convertible  into common  stock  subject to various  statutory  limitations.  On
February 22, 2000, the Corporation  issued  $1,645,000  worth of preferred stock
with a 7% coupon  convertible into the Corporation's  common stock at $13.33 per
share. The preferred stock is convertible into common stock at the discretion of
the  preferred  stock holder  beginning one year after  issuance and  continuing
until 10 years after  issuance.  The Corporation at the time of the issuance and
as of the date of this filing complied with the 1940 Act provisions  relating to
the issuance of convertible preferred stock.

         Certain  transactions  involving certain closely  affiliated persons of
the Corporation,  including its directors,  officers, and employees, may require
the  prior  approval  of the  SEC.  The  1940 Act  generally  does not  restrict
transactions  between the  Corporation  and its portfolio  companies.  A BDC may
change the nature of its business so as to cease being a BDC (and in  connection
therewith  withdraws  its election to be treated as a BDC) only if authorized to
do so by a majority vote (as defined in the 1940 Act) of its outstanding  voting
securities.  The  Corporation is entitled to change its  diversification  status
without stockholder approval.

         The  Corporation  is permitted to adopt  either a  profit-sharing  plan
pursuant to which management (including  disinterested  directors) could receive
up to 20% of the net  after-tax  profits of the  Corporation  or an option  plan
covering up to 20% of the stock of the  Corporation.  Presently the  Corporation
has an option plan in effect covering 46,875 shares (4.1% on a diluted basis).

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  a  bulletin   board  listed  public
corporation.  Because of the speculative nature of these  investments,  there is
significantly greater risk of loss than is the case with traditional  investment
securities.  The Corporation  expects that from time to time its venture capital
investments may result in a complete loss of the Corporation's  invested capital
or  may  be  unprofitable.   Other  investments  may  appear  likely  to  become
successful,  but may never realize their  potential.  Neither the  Corporation's
investments  nor an  investment in the  Corporation  is intended to constitute a
balanced  investment  program.  The  Corporation  has in  the  past  relied  and
continues  to rely to a

                                       7
<PAGE>

large extent upon  proceeds  from sales of  investments  rather than  investment
income to defray a significant portion of its operating expenses.


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

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

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

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

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

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

         REGULATORY RISKS

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

         THE  CORPORATION IS DEPENDENT UPON KEY MANAGEMENT  PERSONNEL FOR FUTURE
         SUCCESS

         The  Corporation is dependent for the selection,  structuring,  closing
and  monitoring  of its  investments  on the  diligence  and skill of its senior
management and other management  members.

                                       8
<PAGE>

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

         INVESTMENT IN SMALL, PRIVATE COMPANIES

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

         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 are 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."

                                       9
<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 2.  PROPERTIES

         Franklin  maintains  its offices at 450 Park  Avenue,  10th Floor,  New
York, New York 10022, where it leases  approximately 3,600 square feet of office
space pursuant to a lease agreement  expiring  December 31, 2003. As of December
31, 2000,  Franklin had a sublet arrangement with one subtenant for a portion of
Franklin's office space.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

         The   Corporation  did  not  submit  any  matters  to  a  vote  of  its
stockholders during the fourth quarter of the 2000 fiscal year.



                                       10
<PAGE>



                                     PART II

ITEM 5.  MARKET FOR CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

STOCK TRANSFER AGENT

         Chase Mellon Shareholder Services, 85 Challenger Road, Overpack Center,
Ridgefield  Park, NJ 07660  (Telephone  (800) 851-9677) serves as transfer agent
for the  Corporation's  common stock.  Certificates to be transferred  should be
mailed directly to the transfer agent, preferably by registered mail.

MARKET PRICES

         The Corporation's common stock is traded on The American Stock Exchange
under the symbol "FKL". The following table sets forth the range of the high and
low selling  price of the  Corporation's  shares during each quarter of the last
two years, as reported by the American Stock Exchange.

         2000 QUARTER ENDING            LOW               HIGH

         March 31                       $  6.833          $ 31.000
         June 30                        $  7.333          $ 21.000
         September 30                   $  8.250          $  9.500
         December 31                    $  7.500          $  8.750

         1999 QUARTER ENDING            LOW               HIGH

         March 31                       $  3.083          $  4.167
         June 30                        $  3.333          $  5.000
         September 30                   $  3.333          $  3.917
         December 31                    $  3.417          $  7.417

DIVIDENDS

         The  Corporation  paid $98,633 in  dividends to preferred  stockholders
during 2000 and did not pay dividends to common stockholders during the past two
years.

RECENT SALES OF UNREGISTERED SECURITIES

         On  February  22,  2000,  the  Corporation   issued  16,450  shares  of
unregistered  convertible  preferred  stock under Section 4(2) of the Securities
Exchange Act of 1934 as a private  placement  at a price of $100 per share.  The
convertible  preferred  stock was issued with a 7% coupon  convertible  into the
Corporation's  common  stock  at  $13.33  per  share.  The  preferred  stock  is
convertible  into common stock at the  discretion of the preferred  stock holder
beginning one year after issuance and continuing until 10 years after issuance.

         The preferred  stock  offered was purchased by officers,  directors and
other  accredited  investors.   (See  Item  12  Security  Ownership  of  Certain
Beneficial Owners and Management).

                                       11
<PAGE>


STOCKHOLDERS

         As of February  28, 2001,  there were 599  registered  shareholders  of
record of the  Corporation's  common stock. The Corporation has 5,000,000 shares
of common stock  authorized,  of which  1,505,888  are issued and  1,096,900 are
outstanding  at February 28,  2001.  The  Corporation  has  5,000,000  shares of
convertible preferred stock authorized,  of which 16,450 were issued on February
22, 2000 and are outstanding at February 28, 2001. (See section on Liquidity and
Capital Resources for details of preferred stock.)

ITEM 6.  SELECTED FINANCIAL DATA

         The following  tables should be read in conjunction  with the Financial
Statements included in Item 8 of this form 10-K.

BALANCE SHEET DATA
FINANCIAL POSITION AS OF DECEMBER 31:

<TABLE>
<CAPTION>
                                                      2000          1999           1998          1997*           1996
                                                   -----------   -----------    -----------   ------------    ------------
<S>                                                <C>           <C>            <C>           <C>             <C>
Total assets                                       $ 5,766,712   $ 8,995,965    $ 6,548,696   $  7,718,458    $ 11,798,044

Liabilities                                        $   187,632   $   555,583    $   233,143   $    375,326    $  1,921,475

Net asset value                                    $ 5,579,080   $ 8,440,382    $ 6,315,553   $  7,343,132    $  9,876,569

Basic net asset value per share                    $      5.08   $      7.70    $      5.61   $       6.11    $       8.22
Diluted net asset value per share                  $      4.57   $      7.55    $      5.61   $       6.11    $       8.22
Shares outstanding                                   1,098,200     1,095,882      1,126,029      1,201,797       1,201,797
OPERATING DATA FOR THE YEAR ENDED DECEMBER 31:
                                                       2000**        1999           1998           1997            1996
                                                   -----------   -----------    -----------   ------------    ------------
Investment income                                  $   115,015   $    72,382    $   262,323   $    497,021    $    852,211

Expenses                                           $ 2,372,797   $ 1,621,780    $ 1,620,408   $  2,400,850    $  2,406,102

Net investment loss from operations                $(2,257,782)  $(1,549,398)   $(1,357,085)  $ (1,903,829)   $ (1,553,891)

Net realized gain on investments,
      net of income taxes                          $ 1,215,875   $   688,259    $ 1,628,004    $ 3,105,165    $     95,085

Net (decrease) increase in
      unrealized appreciation
      of investments, net of
      deferred income taxes                        $(3,365,513)  $ 3,086,958    $(1,015,091)  $ (1,130,879)   $    266,694

Net (decrease) increase in net
      assets from operations                       $(4,427,420)  $ 2,225,819    $  (744,172)  $     70,457    $ (1,192,112)
</TABLE>


                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                       2000**       1999           1998           1997            1996
                                                   -----------   -----------    -----------   ------------    ------------
<S>                                                <C>           <C>            <C>           <C>             <C>
Basic net (decrease) increase in net
       assets from operations per
       weighted average number of
       shares outstanding                          $     (4.05)  $      1.98    $     (0.99)  $      (0.63)   $     (0.99)

Diluted net (decrease) increase in
      net assets from operations per
      weighted average number of
      shares outstanding                           $     (4.05)  $      1.98    $     (0.99)  $      (0.63)   $     (0.99)
</TABLE>

*    A special  distribution  of $3.25 per share was  declared in July 1997.

**   Expenses in the year ended December 31, 2000 include non-cash  compensation
     of $349,644 due to the exercise of employee incentive stock options.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

THE INFORMATION CONTAINED IN THIS SECTION SHOULD BE READ IN CONJUNCTION WITH THE
CORPORATION'S 2000 FINANCIAL STATEMENTS AND NOTES THERETO IN ITEM 8.

STATEMENT OF OPERATIONS

         The Corporation  accounts for its operations  under Generally  Accepted
Accounting  Principles for investment  companies.  On this basis,  the principal
measure of its financial  performance is captioned "Net  (decrease)  increase in
net assets from operations", which is composed of the following: "Net investment
loss from operations," which is the difference between the Corporation's  income
from interest, dividends and fees and its operating expenses; "Net realized gain
on  portfolio  of  investments,"  which is the  difference  between the proceeds
received from  dispositions  of portfolio  securities and their stated cost; any
applicable  income tax (benefits)  provisions;  and "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,
$5,766,712 and $5,579,080 at December 31, 2000 versus  $8,995,965 and $8,440,382
at December  31, 1999.  Net asset value per share was $5.08  ($4.57  diluted) at
December 31, 2000 versus $7.70 ($7.55 diluted) at December 31, 1999.

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



                                     13
<PAGE>


                                  DECEMBER 31, 2000         DECEMBER 31, 1999
                                  -----------------         ------------------

Investments, at cost                 $3,627,390                $2,971,347
Unrealized appreciation, net of
         deferred taxes               1,371,522                 4,737,035
                                     ----------                -----------
Investments, at fair value           $4,998,912                $7,708,382
                                     ==========                ===========

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   development  stage  companies  that  may  lack
management depth and have little history of operations.

         The Corporation has an investment in Avery  Communications  Corporation
("Avery  Communications")  valued at  $1,198,389  at December  31,  2000,  which
represents 20.8% of the Corporation's  total assets and 21.5% of its net assets.
Avery  Communication's  common  stock is quoted on the OTC  Electronic  Bulletin
Board under the symbol "ATEX".  Avery Communications is the public parent of two
companies,  Primal  Solutions,  Inc.  ("Primal")  and HBS Billing  Service,  Ltd
("HBS"), both of which operate in the telecommunications industry. Primal, based
in Irvine,  California,  is a leading provider of Web-based  integrated customer
management and intelligence solutions that allow rapidly evolving communications
and Internet service  providers to stay connected with and grow their customers.
It does this  through an  integrated  suite of  applications  that can track and
analyze  customer  behavior and  preferences,  collect  usage  information,  and
support billing and customer care back-office  requirements,  including those of
emerging IP billing  markets.  HBS, based in San Antonio,  Texas is a nationwide
provider of a  comprehensive  range of Local Exchange  Carrier (LEC) Billing and
Collection  services  through an established  billing network of more than 1,300
LECs.  HBS has  built  strong  billing  and  collection  relationships  with all
Regional Bell Operating  Companies  (RBOCs),  GTE, AllTel,  Sprint,  and several
hundred independent  telephone companies  throughout the United States.  Through
these billing  agreements,  HBS provides  clearinghouse  billing services to its
clients  for a  variety  of  telecommunication-related  services  and  products,
including Direct Dialed 1+, Dial-Around 10-10-xxx,  and qualified  non-regulated
telecommunication  services. On August 10, 2000, Avery Communications  announced
that it had revised its previously stated plan to spin-off its HBS Subsidiary to
its  shareholders.  Pending  regulatory  approval,  under  the  new  plan  Avery
Communications  shareholders will receive one share of stock in Primal for every
one Avery Communications  common share held on the record date. Primal has filed
a registration statement with the Securities and Exchange Commission to register
the Primal shares to be issued in the spin-off.

         During the year ended  December 31, 2000,  Franklin sold 202,000 shares
of Avery  Communications  for total  proceeds  of  $379,527  realizing a gain of
$161,531.  Franklin's  remaining shares represent 10.5% of Avery  Communications
outstanding  voting stock on a primary  share basis and 9.5% on a fully  diluted
basis.  Stephen L. Brown and Spencer L. Brown,  officers  of  Franklin,  did not
stand for  re-election  to the Avery  Communications  Board of  Directors at the
annual meeting held on September 13, 2000 and are  therefore,  no longer members
of the Avery  Communications Board of Directors.  In addition,  Spencer L. Brown
resigned from the Primal Board of Directors on December 11, 2000.

         Subsequent to year-end,  on February 1, 2001, the  Corporation  sold to
Avery  Communications in a private transaction  1,183,938 shares of common stock
and  350,000  shares of  preferred  stock,  representing  the  entire  ownership
interest in Avery for $1,551,617  plus


                                       14
<PAGE>



accrued  interest on the preferred  stock for a realized gain net of expenses of
$137,759.  As part of the sale, Franklin retained the right to receive 1,533,938
shares of Primal once the spin-off,  as discussed above,  occurred.  On February
13, 2001, Primal announced that Avery  Communications had completed the spin-off
of Primal and Franklin received 1,533,938 fully registered and marketable shares
of Primal.

         At  December  31,  2000,  the  Corporation  had an  investment  in Data
Downlink  Corporation  ("Data Downlink") valued at $1,000,000,  which represents
17.3% of the  Corporation's  total  assets  and  17.9% of its net  assets.  Data
Downlink,  headquartered  in New York  and  London,  is a  leading  provider  of
Internet-based  online  information  services.  Data Downlink provides a service
called  .xls,  which  aggregates  and  cross-indexes  over 70  premier  business
databases,  delivering  information directly to Microsoft Excel, HTML, Microsoft
Word or PDF formats at the desktop.  Other products  include  privatesuiteTM,  a
fast, easy,  cost-effective  way to identify and retrieve  profiles of privately
held companies around the world;  compbookTM,  a tool for company peer analysis;
and Portal BTM, a fully integrated business information portal.

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

         At December  31,  2000,  the  Corporation  had an  investment  in Excom
Ventures,  LLC  ("Excom")  valued  at  $140,000,  which  represents  2.4% of the
Corporation's  total  assets and 2.5% of its net  assets.  Excom was formed as a
limited  liability  holding  company  for the  purpose  of  investing  in Expert
Commerce,  Inc. ("Expert Commerce").  Expert Commerce is a  Business-to-Business
purchase  evaluation engine that simulates the way people make decisions.  Based
on  intelligent  and proven  technology,  the  engine  helps  structure  complex
decisions and provides an audit trail to justify transactions, empowering buyers
to make purchase decisions with confidence.

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

         At December 31, 2000,  the  Corporation  owned 409,024 shares of common
stock of Go America,  Inc. ("Go America"),  a wireless internet service provider
valued at $2,198,504,  which represents 38.1% of the Corporation's  total assets
and 39.4% of its net  assets.  Go America is a leading  provider  of  nationwide
wireless  Internet   services.   Go  America  enables  business  and  individual
subscribers to access  remotely the Internet,  email and corporate  intranets in
real time through a wide variety of mobile computing and communications devices.
Go  America's   Wireless  Internet   Connectivity   Center  offers   subscribers
comprehensive and flexible mobile data solutions for wireless Internet access by
providing  wireless network  services,  mobile devices,  software and subscriber
service and support.

         The Corporation made an initial purchase of $25,000 worth of Go America
common stock in 1996. The Corporation made additional  purchases of common stock
of  $25,000  and   $324,740  in  1998  and  in  November   1999,   respectively.
Additionally,   in  November  1999,  the  Corporation   purchased   $125,000  of
convertible  preferred  stock. On April 7, 2000, Go America's common stock began
trading on the Nasdaq National  Market.  All of the convertible  preferred stock
owned by Franklin was converted to common on this date as well.  During the year
ended  December 31, 2000,  Franklin sold 105,760  shares of Go America for total
proceeds of $946,332 realizing a gain of $843,663.

         At December 31, 2000, the  Corporation  had an investment in Structured
Web, Inc.  ("Structured  Web") valued at $350,000,  which represents 6.1% of the
Corporation's  total assets


                                       15
<PAGE>


and 6.3% of its net assets.  Structured  Web  develops  web  building  blocks to
enable  small  businesses  to create and manage  their own digital  nerve system
easily and at an affordable  price.  Structured Web's  object-based  proprietary
technology  enables  customers to choose from a growing selection of "WebBlocks"
including content, communication, commerce and services.

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

         During the third quarter of 2000 eMattress ceased  operations and as of
December 31, 2000,  Franklin has written off its entire  investment  including a
loan of  $56,311  that  was  determined  to be  non-collectible.  eMattress  was
dissolved effective December 26, 2000.

         On December 22, 2000,  TradingNews,  Inc. announced that it was ceasing
operations  immediately  and that there would be no funds  available to pay back
stockholders or convertible note holders.  As of December 31, 2000, Franklin has
written off its entire investment in TradingNews, Inc.

RESULTS OF OPERATIONS

INVESTMENT INCOME AND EXPENSES:

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

         The  Corporation  had interest and dividend  income of $93,015 in 2000,
$72,382 in 1999,  and  $34,128 in 1998.  The  increase in 2000 from 1999 was the
result of an increase in the amount of cash on hand in 2000 as compared to 1999.
Income from controlled affiliates was $0 in 2000 and 1999, and $229,195 in 1998,
representing  dividend  and  interest  income  from  preferred  stock and a note
received   in   connection   with   the   Corporation's   investment   in  Avery
Communications.  Avery  Communications  ceased being a controlled  investment of
Franklin  during  1998.  (See  Footnote  6 to  the  Financial  Statements.)  The
Corporation  had  $22,000 in other  income  during  2000  representing  a patent
infringement settlement.

         Operating  expenses were  $2,372,797 in 2000,  $1,621,780 in 1999,  and
$1,620,408 in 1998. A majority of the Corporation's  operating  expenses consist
of employee compensation, (which for 2000 included a non-cash charge of $349,644
due to the cashless  exercise of  incentive  options)  office and rent  expense,
other expenses related to identifying and reviewing investment opportunities and
professional  fees.  Professional  fees consist of general legal fees, audit and
tax fees, consulting fees and investment related legal fees.

         Net  investment   losses  from  operations  were  $2,257,782  in  2000,
$1,549,398 in 1999, and $1,357,085 in 1998.

         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


                                       16
<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 years ended  December 31, 2000,  1999,  and 1998,  the
Corporation  realized  net  gains  before  taxes of  $1,215,875,  $688,259,  and
$1,628,004, respectively, from the disposition of various investments.

         During  2000,  Franklin  realized a gain of  $956,576  from the sale of
241,131 shares of Communication Intelligence Corporation ("CIC") common stock, a
portfolio  holding  company  since  1996,  a gain of  $161,531  from the sale of
202,000  shares of Avery common  stock,  and a gain of $843,663 from the sale of
105,760  shares of Go America common stock.  Additionally,  gains of $3,819 were
realized on tail payments from partnerships  liquidated during 1999. These gains
were  offset  by a loss of  $440,057  from the  write-off  of the  Corporation's
investment  in  eMattress.com  and a loss of $300,626  from the write-off of the
Corporation's  investment in TradingNews,  Inc as well as a realized net loss of
$9,031 from the sale of various marketable securities.

         During  1999,  Franklin  realized a gain of  $922,118  from the sale of
775,000  shares  of CIC  common  stock  as well as a gain of  $92,300  from  the
liquidation of Seneca and $36,622 from the  liquidation of the investment in the
FMA  High  Yield  Income  Limited  Partnership.  Additionally,  the  Corporation
realized $73,797 in gains from the sale of various marketable securities.  These
gains  were  offset  by  a  loss  of  $226,023  from  the   liquidation  of  the
Corporation's  investment in Codman  Research  Inc., and $148,014 from the write
off of the Corporation's  investment in Pacific Healthcare Group.  Additionally,
the Corporation  realized losses of $62,541 from the sale of various  marketable
securities.

         During 1998, Franklin realized a net gain from the sale of a portion of
its investment in and subsequent exercise of warrants in Avery Communications of
$1,308,208,  as well as $350,000 in gains from Seneca, and $96,370 in gains from
other investment  partnerships,  the sale of various  marketable  securities and
loans.  These  gains were  offset by a loss of  $126,574 on the sales of various
marketable securities, loans, and investment partnerships.

UNREALIZED APPRECIATION OF INVESTMENTS:

         Unrealized   appreciation  of  investments,   net  of  deferred  taxes,
decreased by $3,365,513 during the year ended December 31, 2000,  primarily from
the decreased value of Avery  Communications and the sale of Franklin's position
in CIC common stock and CIC Standby Ventures, L.P. ("CIC Ventures"). The changes
in the value of the investments  occurred during a period of extreme  volatility
of publicly traded, small capitalization, high technology stocks. The volatility
of the  overall  market  will  continue  to  impact  on the  performance  of the
Corporation's investments.  The value of the Corporation's investments will vary
on a quarterly basis.

         Unrealized   appreciation  of  investments,   net  of  deferred  taxes,
increased by $3,086,958 during the year ended December 31, 1999,  primarily from
the  increased  value  of CIC and CIC  Ventures  and the  increased  value of Go
America.

         Unrealized   appreciation  of  investments,   net  of  deferred  taxes,
decreased by $1,015,091 during the year ended December 31, 1998,  primarily from
realized  gains due to the sale of a

                                       17
<PAGE>


portion of  Franklin's  investment in Avery  Communications.  This was offset by
increased values for CIC and CIC Ventures.

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.

LIQUIDITY AND CAPITAL RESOURCES:

         The  Corporation's  reported total cash and cash  equivalents,  accrued
interest and accounts  receivable  and  marketable  investment  securities  (the
primary  measure of  liquidity)  at December 31, 2000 was  $768,582  compared to
$1,710,087 at December 31, 1999 and $1,979,256 at December 31, 1998. In addition
to the above  amount  the  Corporation's  portfolio  position  in Go  America is
available for sale at December 31, 2000.  Management  believes that these assets
provide the Corporation with sufficient liquidity for its operations.

         On February 22, 2000, the Corporation  issued $1,645,000 of convertible
preferred  stock. The stock was issued at a price of $100 per share and has a 7%
quarterly  dividend.  The stock is convertible  into Franklin  common stock at a
conversion price of $13.33 per share.

ITEM 7a. 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
investee  corporation 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.


                                       18
<PAGE>


Any  changes  in  valuation  are  recorded  in  the  Corporation's  consolidated
statements of operations as "Net increase (decrease) in unrealized  appreciation
on investments."

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          FRANKLIN CAPITAL CORPORATION

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES





                                                                      Page
                                                                      ----
         Report of Ernst & Young, LLP..............................    20

         Balance Sheets as of
                  December 31, 2000 and 1999.......................    21

         Statements of Operations for the years
                  ended December 31, 2000, 1999 and 1998...........    22

         Statements of Cash Flows for the years
                  ended December 31, 2000, 1999 and 1998...........    23

         Statements of Changes in Net Assets for the years
                  ended December 31, 2000, 1999 and 1998...........    24

         Financial Highlights for the years ended December 31,
                  2000, 1999, 1998, 1997 and 1996..................    25

         Portfolio of Investments as of
                  December 31, 2000................................    26

         Notes to Financial Statements............................. 27-35

The schedules for which  provision is made in the  applicable  regulation of the
Securities   and  Exchange   Commission  are  not  required  under  the  related
instruction or are inapplicable and, therefore, have been omitted


                                       19
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors
Franklin Capital Corporation

We have audited the accompanying  balance sheets of Franklin Capital Corporation
as of December 31, 2000 and 1999,  including the portfolio of  investments as of
December  31,  2000 and the related  statements  of  operations,  cash flows and
changes in net assets and the financial highlight for each of the three years in
the period ended  December 31, 2000.  These  financial  statements and financial
highlights  are  the  responsibility  of  the  Corporation's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and financial
highlights.  Our procedures  included the confirmation of securities owned as of
December 31, 2000 by correspondence  with the custodian.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Franklin Capital Corporation at
December  31,  2000 and 1999,  the  results  of its  operations,  cash flows and
changes in net assets and the financial  highlights  for each of the three years
in the period ended December 31, 2000, in conformity with accounting  principles
generally accepted in the United States.



                                                     ERNST & YOUNG LLP
New York, New York
February 16, 2001


                                       20
<PAGE>
<TABLE>
<CAPTION>

                                                                Exhibit 14(a)(i)
                          FRANKLIN CAPITAL CORPORATION
=================================================================================================================
BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------------
DECEMBER 31,                                                                           2000           1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>             <C>
ASSETS

Marketable investment securities, at market value (cost: December 31,
    2000 - $122,231; December 31, 1999 - $109,784)  (Note 2) ...................   $    112,019   $     891,462
Investments, at fair value (cost: December 31, 2000 - $3,505,159;
    December 31, 1999 - $2,861,563)  (Note 2)
         Avery Communications, Inc. ............................................      1,198,389       3,471,880
         eMattress.com .........................................................           --           100,000
         Excom Ventures, LLC ...................................................        140,000           --
         Other investments .....................................................      3,548,504       3,596,040
                                                                                   ------------   ------------
                                                                                      4,886,893       7,167,920
                                                                                   ------------   ------------
Cash and cash equivalents (Note 2) .............................................        647,565         571,341
Receivable from disposal of investments ........................................           --           231,308
Accrued interest and accounts receivable (Note 6) ..............................          8,998          15,976
Other assets ...................................................................        111,237         117,958
                                                                                   ------------   ------------
                                                                                   $  5,766,712   $   8,995,965
                                                                                   ============   =============
TOTAL ASSETS
---------------------------------------------------------------------------------------------------------------


LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accounts payable and accrued liabilities .......................................   $    187,632   $     204,583
Deferred taxes payable .........................................................           --           351,000
                                                                                   ------------   -------------
TOTAL LIABILITIES ..............................................................        187,632         555,583
                                                                                   ------------   -------------
Commitments and contingencies  (Note 5)

STOCKHOLDERS' EQUITY

Common stock, $1 par value: 5,000,000 shares authorized;
    1,505,888 shares issued: 1,098,200 and 1,095,882 shares outstanding
    at December 31, 2000 and 1999, respectively  (Note 7) ......................      1,505,888       1,003,986
Convertible preferred stock, $1 par value, cumulative 7% dividend:
    5,000,000 shares authorized; 16,450 issued and outstanding at December 31,
    2000, 0 issued and outstanding at December 31, 1999
    (Liquidation preference $1,645,000) (Note 4) ...............................         16,450            --
Paid-in capital - common stock .................................................      8,643,060       8,998,051
                  preferred stock ..............................................      1,628,550            --
Unrealized appreciation of investments,
    net of deferred income taxes  (Notes 2 and 3) ..............................      1,371,522       4,737,035
Accumulated deficit ............................................................     (5,190,908)     (4,030,368)
                                                                                   ------------   -------------
                                                                                      7,974,562      10,708,704
Deduct: 407,688 and 410,097 shares of common stock held in treasury,
    at cost, at December 31, 2000 and 1999, respectively  (Note 4) .............     (2,395,482)     (2,268,322)
                                                                                   ------------   -------------

Net assets, equivalent to $5.08 (diluted $4.57) per share at December 31,
      2000 and $7.70 (diluted $7.55) per share at December 31, 1999 ............      5,579,080       8,440,382
                                                                                   ------------   -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....................................   $  5,766,712   $   8,995,965
                                                                                   ============   ============

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


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


                                       21
<PAGE>
<TABLE>
<CAPTION>


                          FRANKLIN CAPITAL CORPORATION
===================================================================================================================================
STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, ..............................................          2000           1999           1998
                                                                                 -----------------------------------------
<S>                                                                              <C>            <C>            <C>
INVESTMENT INCOME
    Interest on short term investments and money market accounts .............   $    51,015    $    30,382    $    34,128
    Dividend income ..........................................................        42,000         42,000           --
    Income from controlled affiliates  (Note 6) ..............................          --             --          229,195
    Other income .............................................................        22,000           --             --
                                                                                 -----------    -----------    -----------
                                                                                     115,015         72,382        263,323
                                                                                 -----------    -----------    -----------
EXPENSES
    Salaries and employee benefits  (Note 7) .................................     1,419,941        870,820        882,168
    Professional fees ........................................................       367,629        330,382        223,106
    Appraisal fees ...........................................................          --           20,616          3,087
    Rent  (Note 5) ...........................................................       104,332         83,905         99,912
    Insurance ................................................................        42,314         41,301         43,201
    Directors' fees ..........................................................        67,981         48,850         54,539
    Taxes other than income taxes ............................................        45,306         28,980         49,919
    Newswire and promotion ...................................................         6,823          4,424         12,774
    Depreciation and amortization ............................................        21,468         22,402         28,428
    General and administrative ...............................................       297,003        170,100        223,274
                                                                                 -----------    -----------    -----------
                                                                                   2,372,797      1,621,780      1,620,408
                                                                                 -----------    -----------    -----------
Net investment loss from operations ..........................................    (2,257,782)    (1,549,398)    (1,357,085)

Net realized gain (loss) on portfolio of investments:
     Investment securities:
          Affiliated .........................................................      (278,526)          --        1,308,208
          Unaffiliated .......................................................     1,490,582        559,337        (81,008)
                                                                                 -----------    -----------    -----------
     Total investment securities .............................................     1,212,056        559,337      1,227,200
     Other than investment securities ........................................         3,819        128,922        400,804
                                                                                 -----------    -----------    -----------
Net realized gain on portfolio of investments ................................     1,215,875        688,259      1,628,004
Provision for current income taxes ...........................................        20,000           --             --
                                                                                 -----------    -----------    -----------
Net realized loss ............................................................    (1,061,907)      (861,139)       270,919
(Decrease) increase in unrealized appreciation of investments, net of deferred
    income taxes:
     Investment securities:
          Affiliated .........................................................    (1,771,744)      (196,487)    (1,040,371)
          Unaffiliated .......................................................      (992,907)     2,790,030        287,656
                                                                                 -----------    -----------    -----------
     Total investment securities .............................................    (2,764,651)     2,593,543       (752,715)
     Other than investment securities ........................................      (951,862)       844,415       (262,376)
     Deferred income tax benefit (expense) ...................................       351,000       (351,000)          --
(Decrease) increase in unrealized appreciation of investments,
 net of deferred income taxes ................................................    (3,365,513)     3,086,958     (1,015,091)
                                                                                 -----------    -----------    -----------
Net (decrease) increase in net assets from operations ........................    (4,427,420)     2,225,819       (744,172)
                                                                                 ===========    ===========    ===========
Preferred dividends ..........................................................        98,633           --             --
                                                                                 -----------    -----------    -----------
Net (decrease) increase in net assets attributable
   to common stockholders ....................................................   ($4,526,053)   $ 2,225,819    ($  744,172)
                                                                                 ===========    ===========    ===========
Basic net (decrease) increase in net assets from operations
  per common share (Note 8) ..................................................        ($4.05)         $1.98         ($0.63)
                                                                                 ===========    ===========    ===========
Diluted net (decrease) increase in net assets from operations
  per common share (Note 8) ..................................................        ($4.05)         $1.98         ($0.63)
                                                                                 ===========    ===========    ===========
</TABLE>


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

                                       22
<PAGE>
<TABLE>
<CAPTION>


                          FRANKLIN CAPITAL CORPORATION
===================================================================================================================================
STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,                                                       2000             1999              1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>             <C>            <C>
Cash flows from operating activities:
  Net (decrease) increase in net assets from operations ........................   ($4,427,420)   $ 2,225,819    ($  744,172)
  Adjustments to reconcile net (decrease) increase in net assets to net cash
    used in operating activities:
      Depreciation and amortization ............................................        21,468         22,402         28,428
      Non-cash compensation expense from cashless exercise of officer options ..       349,644           --             --
      Decrease (increase) in unrealized appreciation of investments,
           net of deferred taxes ...............................................     3,365,513     (3,086,958)     1,015,091
      Amortization of discount on note receivable from affiliate ...............          --             --         (101,176)
      Net realized gain on portfolio of investments, net of current income taxes    (1,195,875)      (688,259)    (1,628,004)
      Changes in operating assets and liabilities:
        Decrease (increase) in receivable from disposal of investments .........       231,308       (231,308)          --
        Decrease in accrued interest and accounts receivable ...................         6,978        163,203        150,869
        (Increase) decrease in other assets ....................................       (14,741)         5,880         (7,596)
        Decrease in accounts payable and accrued liabilities ...................       (36,951)       (28,560)      (142,183)
                                                                                   -----------    -----------    -----------

          Total adjustments ....................................................     2,727,344     (3,843,600)      (684,571)
                                                                                   -----------    -----------    -----------

          Net cash used in operating activities ................................    (1,700,076)    (1,617,781)    (1,428,743)
                                                                                   -----------    -----------    -----------

Cash flows from investing activities:
  Proceeds from sale of affiliate ..............................................       379,527           --        2,500,000
  Proceeds from sale of other investments ......................................       950,151        766,308      1,432,717
  Proceeds from sale of marketable investment securities .......................     1,259,323      2,483,077        217,481
  Return of capital from investments ...........................................          --           36,622           --
  Loan payments received from investments ......................................          --           66,667           --
  Purchases of investment in majority owned affiliate ..........................       (56,311)      (375,000)          --
  Purchase of investment in affiliate ..........................................      (140,000)          --             --
  Purchases of other investments ...............................................    (1,575,625)      (529,346)    (1,025,000)
  Purchases of marketable investment securities ................................      (257,239)    (1,247,440)      (661,575)
  Purchases of fixed assets ....................................................          --           (2,402)          --
                                                                                   -----------    -----------    -----------

          Net cash provided by investing activities ............................       559,826      1,198,486      2,463,623
                                                                                   -----------    -----------    -----------

Cash flows from financing activities:
  Proceeds from issuance of preferred stock ....................................     1,645,000           --             --
  Payments of preferred dividends ..............................................       (98,633)          --             --
  Cash paid to common stockholders in lieu of fractional shares due to
    stock split of common shares ...............................................        (1,448)          --             --
  Purchases of treasury stock ..................................................      (328,445)      (109,737)      (283,407)
                                                                                   -----------    -----------    -----------

          Net cash provided by (used in) financing activities ..................     1,216,474       (109,737)      (283,407)
                                                                                   -----------    -----------    -----------

Net increase (decrease) in cash and cash equivalents ...........................        76,224       (529,032)       751,473

Cash and cash equivalents at beginning of year .................................       571,341      1,100,373        348,900
                                                                                   -----------    -----------    -----------

Cash and cash equivalents at end of year .......................................   $   647,565    $   571,341    $ 1,100,373
                                                                                   ===========    ===========    ===========
-----------------------------------------------------------------------------------------------------------------------------------

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

                                       23
</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                          FRANKLIN CAPITAL CORPORATION
===================================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,                                      2000             1999              1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>            <C>
-----------------------------------------------------------------------------------------------------------------------------------


Increase (decrease) in net assets from operations:
   Net investment loss ............................................   ($2,257,782)   ($1,549,398)   ($1,357,085)
   Net realized gain on portfolio of investments,
       net of current income taxes ................................     1,195,875        688,259      1,628,004
   (Decrease) increase in unrealized appreciation of investments,
       net of deferred income taxes ...............................    (3,365,513)     3,086,958     (1,015,091)
                                                                      -----------    -----------    -----------

       Net (decrease) increase in net assets from operations ......    (4,427,420)     2,225,819       (744,172)

Capital stock transactions:
   Issuance of stock from treasury to majority owned affiliate, net          --            8,747           --
   Issuance of preferred stock ....................................     1,645,000           --             --
   Payment of dividends on preferred stock ........................       (98,633)          --             --
   Issuance of stock from treasury for exercise of officer options        349,644           --             --
   Cash paid to common shareholders in lieu of fractional shares ..        (1,448)          --             --
   Purchase of treasury stock .....................................      (328,445)      (109,737)      (283,407)
                                                                      -----------    -----------    -----------

       Total (decrease) increase in net assets ....................    (2,861,302)     2,124,829     (1,027,579)
                                                                      -----------    -----------    -----------


Net assets at beginning of year ...................................     8,440,382      6,315,553      7,343,132
                                                                      -----------    -----------    -----------


Net assets at end of year .........................................   $ 5,579,080    $ 8,440,382    $ 6,315,553
                                                                      ===========    ===========    ===========

 --------------------------------------------------------------------------------------------------------------
</TABLE>
   The accompanying notes are an integral part of these financial statements.


                                       24

<PAGE>

<TABLE>
<CAPTION>
                          FRANKLIN CAPITAL CORPORATION
===============================================================================================================
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,                                   2000      1999    1998    1997(1)  1996(1)
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>      <C>      <C>      <C>      <C>
PER SHARE OPERATING PERFORMANCE (2):
Net asset value, beginning of period ......................      $7.70    $5.61    $6.11    $8.22    $9.78
                                                                 -----    -----    -----    -----   ------
        Net investment loss ...............................      (2.07)   (1.38)   (1.14)   (1.58)   (1.29)
        Net gain on portfolio of
          investments (realized and unrealized) after taxes      (1.98)    3.35     0.51     1.64     0.30
                                                                 -----    -----    -----    -----   ------
Total from investment operations ..........................      (4.05)    1.97    (0.63)    0.06    (0.99)
                                                                 -----    -----    -----    -----   -------
Less dividends and distributions:
        Distributions from accumulated
           deficit and earnings ...........................       0.00     0.00     0.00    (2.17)   (0.67)
                                                                 -----    -----    -----    -----    ------
Total dividends and distributions .........................       0.00     0.00     0.00    (2.17)   (0.67)
                                                                 -----    -----    -----    -----    -----
Capital stock transactions ................................       1.43     0.12     0.12     0.00     0.09
                                                                 -----    -----    -----    -----    -----
Net asset value, end of period ............................      $5.08    $7.70    $5.61    $6.11    $8.22
                                                                 =====    =====    =====    =====    =====
Market value per share, end of period .....................      $8.00    $6.83    $3.50    $4.33    $6.75
                                                                 =====    =====    =====    =====    =====
TOTAL INVESTMENT RETURN:
Based on market value per share (%) .......................      17.13    95.24   (19.23)  (16.62)    9.64

RATIOS TO AVERAGE NET ASSETS:
Expenses (%) ..............................................      25.99    24.97    23.73    28.97    20.58
Net investment loss (%) ...................................     (24.73)  (23.86)  (19.88)  (22.97)  (13.29)

RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000 omitted) .................     $5,579   $8,440   $6,316   $7,343   $9,877
Portfolio turnover rate (%) ...............................         24       36       39       77       8
</TABLE>
--------------------------------------------------------------------------------
(1) -  Audited by predecessor auditor
(2) -  Calculated based on weighted average number of shares outstanding during
       the period.

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

                                       25
<PAGE>


                          FRANKLIN CAPITAL CORPORATION
================================================================================
PORTFOLIO OF INVESTMENTS
--------------------------------------------------------------------------------
MARKETABLE INVESTMENT SECURITIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                NUMBER OF
                                                                SHARES OR                      MARKET
                                                                PRINCIPAL                       VALUE
DECEMBER 31, 2000                                               AMOUNT ($)      COST(1)       (NOTE 2)
----------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>           <C>
Communications Intelligence Corporation - common stock           75,000        $ 87,556        $77,344
Certificate of Deposit - 5.03%, due 01/03/2001                                   34,675         34,675
                                                                               --------       --------
     Total Marketable Investment Securities
       (2.2% of total investments and 2.0% of net assets)                      $122,231       $112,019
                                                                               ========       ========
</TABLE>
--------------------------------------------------------------------------------

INVESTMENTS, AT FAIR VALUE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                              NUMBER OF
                                                                                              SHARES OR                 DIRECTORS'
                                                                                  EQUITY      PRINCIPAL                 VALUATION
DECEMBER 31, 2000                                                INVESTMENT      INTEREST      AMOUNT ($)    COST(1)     (NOTE 2)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                    <C>        <C>         <C>          <C>
AFFILIATES

  Avery Communications, Inc.                                     Common stock                 1,183,938    $1,268,089

  Avery Communications, Inc.                                 Convertible preferred
                                                               stock - Series E;
                                                             12.0% dividend rate(2)             350,000       350,000
                                                                                                            ---------
Total Avery Communications, Inc.
(24.0% of total investments and 21.5% of net assets)                                 9.32%                  1,618,089   $1,198,389
   (Telecommunications)                                                      (fully diluted basis)

  Excom Ventures, LLC
  (2.8% of total investments and 2.5% of net assets)               Units            18.64%      140,000       140,000      140,000
   (Purchase evaluation software)

OTHER INVESTMENTS

  Data Downlink Corporation
   (20.0% of total investments and 17.9% of net assets)      Convertible Preferred   1.68%      321,543     1,000,000    1,000,000
    (Internet-based information provider)                           Stock

  Go America, Inc.
  (44.0% of total investments and 39.4% of net assets)          Common stock         0.77%      409,024       397,070    2,198,504
   (Wireless internet service provider)

  Structured Web, Inc.
  (7.0% of total investments and 6.3% of net assets)         Convertible Preferred   2.02%      188,425       350,000      350,000
   (Internet-based application service provider)                    Stock

Total Other Investments                                                                                     1,747,070     3,548,504
                                                                                                           ----------    ----------
     Total Investments, at Fair Value                                                                      $3,505,159    $4,886,893
                                                                                                           ==========    ==========
</TABLE>

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

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


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

                                       26
<PAGE>


FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000

1. ORGANIZATION

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 managerial expertise to companies that do not
have ready  access to capital  through  conventional  financial  channels.  Such
companies are termed "eligible portfolio companies". The Corporation,  as a BDC,
generally may invest in other securities however such investments may not exceed
30% of the Corporation's total asset value at the time of any such investment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

STATEMENTS OF CASH FLOWS

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

The  Corporation  paid no interest  during the years ended December 31, 2000 and
1999, and paid income taxes of $2,000 during the year ended December 31, 1999.

On January 25, 1999,  the  Corporation  issued 30,069  shares of treasury  stock
valued at $175,000,  the Net Asset Value ("NAV") on the date of the transaction,
as part of an  investment  in a controlled  affiliate.  On  September  30, 1999,
28,566 of these shares  valued at $166,252,  were  canceled and placed back into
treasury. (See Note 6 - Transactions with Affiliates.)

At December 31, 2000, the Corporation held cash and cash  equivalents  primarily
in  money  market  funds  at  two  commercial   banking   institutions  and  one
broker/dealer.

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

                                       27

<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

GAINS ON PORTFOLIO OF INVESTMENTS

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

INCOME TAXES

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

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

DEPRECIATION AND AMORTIZATION

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

NET INCREASE (DECREASE) IN NET ASSETS PER COMMON SHARE

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

3.  INCOME TAXES

For the years ended December 31, 2000, 1999 and 1998, Franklin's tax (provision)
benefit was based on the following:

<TABLE>
<CAPTION>


                                                        2000            1999             1998
                                                   ------------    -------------     ------------
<S>                                                <C>             <C>               <C>
Net investment loss from operations                $(2,257,782)     $(1,549,398)     $(1,357,085)
Net realized gain on portfolio of investments        1,215,875          688,259        1,628,004
(Decrease) increase in unrealized appreciation      (3,716,513)       3,437,958       (1,015,091)
                                                   ------------     ------------     ------------
     Pre-tax book (loss) income                    $(4,758,420)     $ 2,576,819      $  (744,172)
                                                   ===========      ===========      ============
</TABLE>

                                       28
<PAGE>

<TABLE>
<CAPTION>

                                                                2000             1999        1998
                                                            -----------      ----------   ---------
<S>                                                        <C>               <C>          <C>
Federal tax benefit (provision) at 34% on $(4,758,420),
$2,576,819, and $(744,172) respectively ....               $ 1,618,000       $ (876,000)  $ 253,000
State and local, net of Federal benefit ....                   (13,000)         (49,000)         --
Book losses for which no benefit is provided                  (130,000)         (10,000)   (253,000)
Change in valuation allowance ..............                (1,144,000)         584,000          --
                                                            -----------      ----------   ---------
                                                              $ 331,000      $ (351,000)   $     --
                                                            ===========      ==========   =========

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

                                                              2000              1999         1998
                                                           ----------        ---------     -------
Current state and local tax expense.........              $  ( 20,000)       $      --     $    --
Deferred tax benefit (expense)..............                  351,000         (351,000)         --
                                                           ----------        ---------     -------
Benefit (provision) for income taxes........              $   331,000        $(351,000)    $    --
                                                          ===========        =========     =======
</TABLE>
--------------------------------------------------------------------------------
Deferred  income tax  benefit  (provision)  reflects  the  impact of  "temporary
differences"  between amounts of assets and liabilities for financial  reporting
purposes and such amounts as measured by tax laws.

At December 31, 2000 and December 31, 1999,  significant deferred tax assets and
liabilities consist of:

                                                            Asset (Liability)
                                                       -------------------------
                                                       December 31, December 31,
                                                           2000         1999
                                                       ----------- -------------
Deferred Federal and state benefit from net operating
  loss carryforward .................................. $ 1,638,000 $ 1,481,000
Deferred Federal and state provision on unrealized
  appreciation of investments ........................    (494,000) (1,832,000)
Valuation allowance ..................................  (1,144,000)         --
                                                       ----------- ------------
  Deferred taxes ..................................... $      --   $(  351,000)
                                                       =========== =============

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

4.  STOCKHOLDERS' EQUITY

The  Accumulated  Deficit at December  31,  2000,  consists of  accumulated  net
realized gains of $4,641,000 and accumulated investment losses of $9,831,000.

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

                                       29
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

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

The Board of Directors has authorized  Franklin to repurchase up to an aggregate
of 525,000  shares of its common stock in open market  purchases on the American
Stock  Exchange when such purchases are deemed to be in the best interest of the
Corporation and its stockholders.  The Corporation issued 30,069 shares of stock
from treasury pursuant to an investment made by Franklin on January 25, 1999. On
September  30, 1999,  28,566 of these shares were  canceled and placed back into
the  Corporation's  treasury.  (See Note 6 - Transactions with Affiliates) As of
December 31, 1999 the  Corporation  had purchased  426,600  shares of its common
stock of which 410,097 remained in treasury.  During the year ended December 31,
2000,  the  Corporation  purchased  32,250 shares of its common stock at a total
cost of  $328,445.  On May 9, 2000,  17,399  shares were  issued  from  treasury
pursuant to the exercise of options by one of Franklin's officers.  On September
11, 2000,  14,369 shares were issued from  treasury  pursuant to the exercise of
options by one of Franklin's  officers.  On December 21, 2000, 2,891 shares were
issued from treasury  pursuant to the exercise of options by three of Franklin's
officers.  To date,  Franklin has repurchased 458,850 shares of its common stock
of which 407,688 shares remain in treasury at December 31, 2000.

5.  COMMITMENTS AND CONTINGENCIES

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

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

Rent expense for the years ended December 31, 2000,  1999 and 1998 was $104,332,
$83,905 and $99,912  respectively.  For the years  ended  December  31, 2000 and
1999, the Corporation collected rents of $40,000 and $58,032, respectively, from
subtenants  under  month-to-month  leases,  for a portion of its existing office
space that is reflected  as a reduction in rent expense for that period.  Of the
amount  collected from  subtenants  during the years ended December 31, 2000 and
1999, $30,000 and $25,000, respectively was received from a corporation included
in Franklin's  investment portfolio during the year ended December 31, 2000, and
$10,812 was received during the year ended December 31, 1999, from a partnership
in which two officers of Franklin have a non-controlling interest.

6. TRANSACTIONS WITH AFFILIATES

During the year ended December 31, 2000, the  Corporation  invested  $140,000 in
Excom Ventures,  LLC.  ("Excom").  Excom was formed as a holding company for the
purpose of investing in Expert Commerce,

                                       30
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


Inc. ("Expert Commerce") a Business-to-Business  purchase evaluation engine that
simulates the way people make decisions.

In January 1999,  Franklin formed eCom Capital  Corporation  ("eCom"),  a wholly
owned subsidiary of Franklin,  for the purposes of investing in Internet related
ventures.   On  January  25,  1999,   eCom  invested  a  total  of  $387,500  in
eMattress.com  Inc.  ("eMattress"),  consisting  of  $175,000  worth of Franklin
common stock (30,069 shares from treasury stock valued at the Net Asset Value on
the date of the transaction) and $212,500 in cash.  Franklin received  preferred
stock  convertible  into a 50% equity  interest in  eMattress.  Two  officers of
Franklin were elected to serve on the five member eMattress Board of Directors.

In August 1999,  Franklin  invested an additional  $87,500 in eCom.  Pursuant to
this  transaction,  eMattress was merged into eCom and 28,566 shares of Franklin
common  stock were  returned  to  Franklin's  treasury.  The  surviving  entity,
eMattress.com is a Delaware corporation.  In November 1999, Franklin invested an
additional  $75,000  into  eMattress  and as a result  of this  transaction,  on
December 31, 1999,  Franklin  owned 87.2% of  eMattress.  During 2000  eMattress
ceased operations and has legally dissolved. Franklin has written off its entire
investment   including   a  loan  of   $56,311   that  was   determined   to  be
non-collectible.

On  July 6,  1998,  Franklin  sold  1,500,000  shares  of  Avery  Communications
preferred Series D stock and a $1,000,000 Avery note along with 280,000 warrants
to purchase Avery  Communications  common stock for a total of $2,500,000 to the
Thurston Group, Inc. The president of the Thurston Group is the current chairman
of Avery Communications. Franklin realized a net gain of $935,297 as a result of
this sale.

On July 13,  1998,  Franklin  entered  into a cashless  exercise  of warrants to
purchase 386,667 shares of Avery Communications  common stock at $1.50 per share
realizing a net gain of $372,911 and a decrease in unrealized  appreciation of a
like amount. In return, Franklin received 196,503 shares of Avery Communications
common stock.

During the year ended  December 31, 2000,  Franklin sold 202,000 shares of Avery
Communications for total proceeds of $379,527 realizing a gain of $161,531.

Effective  July  8,  1998,  Avery  Communications  was no  longer  a  controlled
affiliate of  Franklin.  At December  31,  2000,  Franklin  owned 9.32% of Avery
Communications on a fully diluted basis, and 16.1% of Avery  Communications on a
primary basis.

For the year ended  December 31,  1998,  Avery  Communications  was a controlled
affiliate  of  Franklin.   Income   during  that  period   received  from  Avery
Communications was $118,431 in dividends and $110,764 in interest.

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

                                       31
<PAGE>
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)


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.

On January 27, 1998,  67,500 options were granted to three eligible  officers of
the  Corporation  under the SIP.  The strike  price of the options was $4.67 per
share,  which  represented  the  closing  price of  Franklin's  Common  Stock as
reported by the American Stock  Exchange on that date.  One-third of the options
granted vested  immediately;  another one-third vested one year from the date of
issuance;  and the final one-third  vested two years after the date of issuance.
The options  expire after ten years.  On December 31, 1998,  one of the eligible
officers  resigned  from the  Corporation  and  forfeited  15,000  options  upon
resignation  and an additional  7,500  options  three months after  resignation.
15,000  of these  options  were  reissued  on March 18,  1999 to three  eligible
officers  of the  Corporation  at a  strike  price  of $3.83  per  share,  which
represented  the closing  price of  Franklin's  Common  Stock as reported by the
American  Stock  Exchange on that date.  These options will expire as originally
issued. One-half of the reissued options vested immediately, and one-half vested
on January 27, 2000. 5,625 of the remaining  forfeited  options were reissued on
December 9, 1999 to three eligible officers of the Corporation at a strike price
of $6.00 per share,  which  represented  the closing price of Franklin's  Common
Stock as reported by the American  Stock  Exchange on that date.  These  options
will expire as  originally  issued.  One-half  of the  reissued  options  vested
immediately,  and one-half  vested on December 9, 2000.  The remaining  1,875 of
forfeited options were reissued on March 1, 2000, to one eligible officer of the
Corporation at a strike price of $14.00 per share, which represented the closing
price of Franklin's  Common Stock as reported by the American  Stock Exchange on
that date.  These  options  will expire as  originally  issued.  One-half of the
reissued options vested immediately, and one-half will vest on March 1, 2001.

On February 14, 2000, 30,000 options were granted under the SOP to four eligible
"outside" directors. The strike price of the options was $11.50 per share, which
represented  the closing  price of  Franklin's  Common  Stock as reported by the
American  Stock Exchange on that date.  One-third of the options  granted vested
immediately;  another one-third vest one year from the date of issuance; and the
final  one-third  vest two years after the date of issuance.  The options expire
after ten years.  On June 7, 2000,  7,500  options were granted under the SOP to
four eligible "outside" directors. The strike price of the options was $9.67 per
share,  which  represented  the  closing  price of  Franklin's  Common  Stock as
reported by the American Stock  Exchange on that date.  One-third of the options
granted  vested  immediately;  another  one-third vest one year from the date of
issuance; and the final one-third vest two years after the date of issuance. The
options expire after ten years.

On May 9, 2000, one of Franklin's  officers made a cash-less  exercise of 29,062
options resulting in a non-cash charge to compensation  expense of $197,188.  On
September  11, 2000,  one of Franklin's  officers  made a cash-less  exercise of
29,062  options  resulting  in a  non-cash  charge to  compensation  expense  of
$129,317.  On December 21, 2000,  three of Franklin's  officers  made  cash-less
exercises  of 7,501  options  resulting  in a  non-cash  charge to  compensation
expense of $23,139.

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

                                       32
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

                                    December 31, 2000   December 31, 1999
                                    -----------------  -------------------
<S>                                 <C>                 <C>
Net (decrease) increase in net assets from operations:
As reported                        $(4,427,420)        $2,225,819
Pro forma                          $(4,568,005)        $2,196,909

Net (decrease) increase in net assets per common share:
As reported                             $(4.05)             $1.98
Pro forma - Basic                       $(4.17)             $1.95
Pro forma - Diluted                     $(4.17)             $1.95

Net Asset Value per share:
As reported                              $5.08              $7.70
Pro forma - Basic                        $4.95              $7.63
Pro forma - Diluted                      $4.45              $7.48
</TABLE>

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

                                 December 31, 2000   December 31, 1999
                                 -----------------   -----------------
Stock volatility                        41.3%             30.6%
Risk-free interest rate                  5.5%              5.5%
Option term in years                       4                 4
Stock dividend yield                      --                --

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

                                       December 31, 2000      December 31, 1999
                                    ----------------------- -------------------
                                                  Weighted           Weighted
                                                  Average             Average
                                                  Exercise            Exercise
                                    Shares         Price    Shares     Price
                                    ------        --------  ------    --------
Outstanding at beginning of
 period                             65,625         $ 4.42   52,500     $4.67
Granted                             39,375         $11.27   20,625     $4.42
Exercised                           65,625          $4.42       --     --
Forfeited                               --          --       7,500     $4.67
Expired                                 --          --          --     --
Outstanding at end of period        39,375         $11.27   65,625     $4.59
Exercisable at end of period        13,438         $11.33   40,312     $4.42

Weighted average fair value of
 options granted                     $2.40                   $1.42


                                       33
<PAGE>
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The options issued under the SIP have a remaining contractual life of 7.1 years.
The options issued under the SOP have a remaining contractual life of 9.1 years.


8. NET (DECREASE) INCREASE IN NET ASSETS PER COMMON SHARE

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

<TABLE>
<CAPTION>

                                                               December 31,
                                                  -----------------------------------------
                                                      2000          1999           1998
                                                  ------------   ----------      ----------
<S>                                               <C>           <C>              <C>
Numerator:
  Net (decrease) increase in net
  assets from operations                          ($4,427,420)   $2,225,819       ($744,172)
  Preferred stock dividends                           (98,633)          --              --
                                                  -----------    ----------      ----------
  Numerator for basic earnings per share -
   net (loss) income available for common
  stockholders                                     (4,526,053)    2,225,819        (744,172)
  Effect of dilutive securities:
    Preferred stock dividends                          98,633           --              --
  Numerator for diluted earnings per share -
    Net (decrease) increase in net assets
    available for common stockholders after
    assumed conversions                            (4,427,420)    2,225,819        (744,172)

Denominator:
  Denominator for basic (decrease)
  increase in net assets from
  operations - weighted -
  average shares                                    1,094,373     1,124,740       1,188,858

Effect of dilutive securities:
  Employee stock options -
  weighted - average shares                                --         1,763             --
                                                  -----------    ----------      ----------
  Denominator  for  diluted  (decrease)
  increase  in  net  assets  from
  operations - adjusted weighted - average
  shares and assumed conversions                    1,094,373     1,126,503       1,188,858
                                                  ===========    ==========      ==========

Basic and diluted net (decrease) increase in
  net assets from operations per share                 $(4.05)        $1.98         ($0.63)
                                                  ===========    ==========      ==========

Diluted net (decrease) increase in net
  assets from operations per share                     $(4.05)        $1.98         ($0.63)
                                                  ===========    ==========      ==========

</TABLE>

                                       34
<PAGE>

FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

                                                                       Period ended December 31,
                                                           -----------------------------------------
                                                             2000              1999             1998
                                                           -----------------------------------------
<S>                                                         <C>                 <C>             <C>
Preferred stock convertible into 123,375
         shares of common stock                             123,375              --              --
Stock options                                                21,925              --              --

</TABLE>

For additional information on the above securities, see Notes 4 and 7.

9.  PURCHASES AND SALES OF INVESTMENT SECURITIES

The  cost of  purchases  and  proceeds  from  sales  of  investment  securities,
including the issuance of treasury stock for December 31, 1999, and the cashless
exercise of the Avery warrants for December 31, 1998, as discussed in Note 6 and
excluding  short  term   investments,   aggregated   $1,944,500  and  $2,543,819
respectively,  for the year ended  December 31, 2000;  $2,158,804 and $3,352,674
respectively,  for  the  year  ended  December  31,  1999;  and  $4,730,199  and
$2,365,820 respectively, for the year ended December 31, 1998.

10.  SUBSEQUENT EVENT

On February 1, 2001, Franklin sold to Avery  Communications  1,183,938 shares of
common stock and 350,000 shares of preferred stock of Avery  Communications  for
$1,557,617 plus accrued  interest on the preferred stock for a realized gain net
of expenses of  $137,759.  As part of the sale  Franklin  retained  the right to
receive   1,533,938  shares  of  Primal  a  wholly  owned  subsidiary  of  Avery
Communications. On February 13, 2001, Primal announced that Avery Communications
had  completed  a  spin-off  of Primal and  Franklin  received  1,533,938  fully
registered and marketable shares of Primal.




                                       35
<PAGE>


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

         There were no  disagreements  with our  auditors,  Ernst & Young LLP on
accounting or financial disclosure.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

OFFICERS

     STEPHEN L. BROWN,  Chairman and Chief  Executive  Officer.  For  additional
information about Mr. Brown, please see the Directors' biographical  information
section below.

     SPENCER L. BROWN, age 35, has been Senior Vice President of the Corporation
since November  1995,  Secretary of the  Corporation  since October 1994 and was
Vice  President  from  August  1994 to November  1995.  Mr.  Brown is the son of
Stephen L. Brown, the Chairman and Chief Executive of the Corporation.

     HIRAM M. LAZAR,  age 36, joined the Corporation as Chief Financial  Officer
in  January  1999.   From  June  1992  to  January  1999,   Mr.  Lazar  was  the
Vice-President of Finance and Corporate  Controller for Lebenthal & Co., Inc., a
regional full-service broker/dealer.

COMMON STOCK DIRECTORS

     STEPHEN  L.  BROWN,  age 62,  was  elected  to the  Corporation's  Board of
Directors and  appointed  Chairman of its Board of Directors in October 1986. He
has been Chairman and Chief  Executive  Officer  since  October  1986.  Prior to
joining Franklin,  Mr. Brown was Chairman of S.L. Brown & Company,  Inc. ("SLB &
Co.,  Inc."),  a private  investment  firm.  Mr.  Brown is a director  of Copley
Financial Services Corporation, advisor to Copley Fund, Inc., a mutual fund.

     MILES L. BERGER, age 70, joined the Board as a director in 1996. Mr. Berger
is Chairman of the Board of Mid Town Banc Corp,  Chicago,  and Berger Management
Services LLC. Additionally Mr. Berger serves as a board member of Innkeepers USA
Trust and Universal Health Realty Income Trust.

     DAVID T. LENDER, age 48, joined the Board as a director in 2000. Mr. Lender
is a Managing Director at Banc of America  Securities,  LLC where he specializes
in mergers and acquisitions.  Prior to joining Banc of America Securities,  LLC,
Mr.  Lender was a Managing  Director in the Mergers  and  Acquisitions  Group of
Rothschild, Inc.

     JONATHAN A.  MARSHALL,  age 62, joined the Board as a director in 1987. Mr.
Marshall is a Senior Partner in the law firm of Pennie & Edmonds, and has been a
member of that firm  since  1974.  He is a member of the Bar of the State of New
York and is admitted to practice  before the United States Supreme Court and the
United States Patent and Trademark Office.

     MICHAEL P.  ROLNICK,  age 35,  joined the Board as a director in 1998.  Mr.
Rolnick is currently a General  Partner at  ComVentures,  a venture capital firm
that invests in early stage

                                       36
<PAGE>


Internet and  communications  companies.  Mr. Rolnick is responsible for private
equity   investments  and  managing  portfolio   companies.   Prior  to  joining
ComVentures,  Mr.  Rolnick was Vice President for New Ventures at E*Trade Group,
Inc.

PREFERRED STOCK DIRECTORS

     PETER D.  GOTTLIEB,  age 33,  joined the Board as a director  in 2000.  Mr.
Gottlieb is Vice-President  of Investments at First Albany  Corporation and is a
Portfolio  Manager for First Albany Asset  Management.  Mr. Gottlieb serves as a
director of Midwest Bank & Trust and Gottlieb Health Services. Additionally, Mr.
Gottlieb serves as Treasurer of STEP, Inc.

     IRVING LEVINE,  age 79, joined the Board as a director in 1990. He has been
Chairman of the Board and President of Copley Fund,  Inc., a mutual fund,  since
1978,  and  Chairman  and  Treasurer  of Stuffco  International,  Inc., a ladies
handbag processor and chain-store operator,  since 1978. Mr. Levine is President
and a director of Copley Financial Services Corporation (advisor to Copley Fund,
Inc.) as well as a director of U.S. Energy Systems, Inc. an independent producer
of clean efficient energy for growing energy markets.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
the  Corporation's  officers  and  directors,  and  persons who own more than 10
percent of the Corporation's  common stock to file reports (including a year-end
report) of ownership and changes in ownership  with the  Securities and Exchange
Commission  (the "SEC") and to furnish  the  Company  with copies of all reports
filed.

     Based  solely on a review of the forms  furnished  to the  Corporation,  or
written representations from certain reporting persons, the Corporation believes
that all persons who were  subject to Section  16(a) in 2000  complied  with the
filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The  following  table sets  forth a summary  for each of the last three
years of the cash and non-cash  compensation  awarded to,  earned by, or paid to
the Chief Executive Officer of the Corporation and the other executive  officers
of the Corporation, whose individual remuneration exceeded $100,000 for the year
ended December 31, 2000.



<TABLE>
<CAPTION>
                                                                                             SECURITIES
                                                                           OTHER             UNDERLYING
           NAME &                                                          ANNUAL             OPTIONS            OTHER
     PRINCIPAL POSITION      YEAR     SALARY ($)       BONUS ($)   COMPENSATION($) (1)     AWARDED (#)     COMPENSATION ($)
     ------------------      ----     -----------      ----------  --------------------   -------------    ----------------
<S>                         <C>       <C>             <C>            <C>                  <C>               <C>
   Stephen L. Brown          2000      350,000         125,000               -                   -               -
   CHAIRMAN &                1999      350,000          70,000               -                  7,500            -
   PRESIDENT                 1998      350,000          32,500               -                 22,500            -

   Spencer L. Brown          2000      200,000          40,000               -                   -               -
   SENIOR VICE PRESIDENT     1999      151,250          30,000               -                  7,500            -
        & SECRETARY          1998      126,250          12,500               -                 22,500            -

</TABLE>
                                       37
<PAGE>

<TABLE>
<S>                          <C>       <C>             <C>           <C>                   <C>                <C>
   Hiram M. Lazar            2000      120,000          15,000               -                  1,875            -
   CHIEF FINANCIAL OFFICER   1999      112,917           5,000               -                  5,625            -
</TABLE>


(1)  There  were  no perquisites paid by the Corporation in excess of the lesser
     of $50,000 or 10% of the  compensated  person's  total salary and bonus for
     the year.

COMPENSATION OF DIRECTORS

         Each  director  of the  Corporation,  other than Mr.  Stephen L. Brown,
receives a yearly fee of $12,000  plus  reimbursement  of  expenses  incurred in
attending board meetings.

OPTION GRANTS

         The following  table sets forth a summary of the options granted during
the year  ended  December  31,  2000,  to the  Chief  Executive  Officer  of the
Corporation and the other executive officers of the Corporation.

<TABLE>
<CAPTION>
                     NUMBER OF
                     SECURITIES
                     UNDERLYING     PERCENT OF      EXERCISE                        GRANT DATE
                      OPTIONS      TOTAL OPTIONS     PRICE          EXPIRATION        PRESENT
     NAME             GRANTED(1)     GRANTED        PER SHARE          DATE          VALUE ($)(2)
---------------    -------------   -------------    ---------    ----------------   ------------
<S>                   <C>              <C>             <C>               <C> <C>       <C>
Hiram M. Lazar        1,875            100%            $14.00    January 27, 2008      $10,463
</TABLE>

(1) Options granted on March 1, 2000 are exercisable  starting  immediately with
    respect  to 50% of the  shares  granted  and with the  remaining  50% of the
    shares granted  becoming  exercisable on the first  anniversary of the grant
    date. Full vesting would occur prior to the first anniversary in the case of
    change of control of the Corporation.
(2) Black Scholes pricing model used to calculate.  Assumptions used as follows,
    expected  volatility of 41.9%, risk free rate 5.5%,  dividend yield 0%, time
    of exercise 4 years.

OPTION EXERCISES

         The  following  table  sets forth a summary  of the  options  exercised
during the year ended December 31, 2000, by the Chief  Executive  Officer of the
Corporation and the other executive officers of the Corporation.

<TABLE>
<CAPTION>
                                                             NUMBER OF
                                                            SECURITIES        VALUE OF
                                                            UNDERLYING       UNEXERCISED
                   SHARES ACQUIRED                          UNEXERCISED      IN-THE-MONEY
 NAME                 ON EXERCISE       VALUE REALIZED        OPTIONS          OPTIONS
 ----                -----------        --------------        -------          -------
<S>                    <C>                <C>                  <C>                  <C>
Stephen L. Brown       14,603             $131,192               --                 --
Spencer L. Brown       17,632             $199,064               --                 --
Hiram M. Lazar          2,423             $ 19,388              1,875               --
</TABLE>
EMPLOYMENT AGREEMENTS

         On May 1, 2000,  Stephen L. Brown signed an Employment  Agreement  with
the Corporation ("the Employee  Agreement"),  which superseded an agreement that
was to expire on December 31, 2000. The Employee  Agreement  expires on December
31, 2003,  ("the  Term").  The Term will  automatically  renew from year to year
thereafter,  unless the  Corporation  notifies

                                       38
<PAGE>


Mr.  Brown not less than 120 days prior to the end of any Term in  writing  that
the Corporation will not be renewing the Employee Agreement.

         During the period of  employment,  Mr.  Stephen L. Brown shall serve as
the Chairman and Chief Executive Officer of the Corporation;  be responsible for
the general management of the affairs of the Corporation,  reporting directly to
the Board of  Directors of the  Corporation,  serve as a member of the Board for
the period of which he is and shall from time to time be elected or reelected.

         Mr.  Stephen L. Brown is to receive  compensation  under the Employment
Agreement in the form of base salary of $420,000  beginning  January 1, 2001. In
addition, the Board of Directors may increase such salary at its discretion from
time to time.  Mr.  Brown is also  entitled  to be paid  bonuses as the Board of
Directors determines in its sole discretion. Under the Employment Agreement, the
Corporation is to provide Mr. Brown with a company car and membership in certain
clubs.  Mr. Brown is entitled under the  Employment  Agreement to participate in
any employee benefit plans or programs and to receive all benefits,  perquisites
and emoluments for which salaried employees are eligible.

         Under the  Employment  Agreement,  Mr.  Stephen L. Brown is entitled to
severance  pay in the  event of  termination  without  cause or by  constructive
discharge  equal to the  remaining  base  salary  payable  under the  Employment
Agreement and provides for death benefits  payable to the surviving spouse equal
to Mr. Brown's base salary for a period of one year.

         In addition,  Mr. Stephen L. Brown and the  Corporation  entered into a
Severance  Agreement  ("the  Severance  Agreement")  on May 1,  2000.  Under the
Severance  Agreement  Mr. Brown is entitled to receive  severance if following a
change in  control  as defined in the  Severance  Agreement,  such  individual's
employment is terminated  by the  Corporation  without cause or by the executive
within one year of such change in control,  the individual  shall be entitled to
receive  compensation in a lump sum payment equal to 1.5 times the  individual's
average compensation over the past five years.

         On May 1, 2000,  Spencer L. Brown signed an Employment  Agreement  with
the Corporation ("the Employee  Agreement").  The Employee  Agreement expires on
December 31, 2003, ("the Term"). The Term will automatically  renew from year to
year  thereafter,  unless the  Corporation  notifies Mr. Brown not less than 120
days prior to the end of any Term in writing  that the  Corporation  will not be
renewing the Employee Agreement.

         During the period of  employment,  Mr.  Spencer L. Brown shall serve as
the Senior  Vice-President and Secretary of the Corporation;  be responsible for
the general management of the affairs of the Corporation,  reporting directly to
the Board of  Directors of the  Corporation,  serve as a member of the Board for
the period of which he is and shall from time to time be elected or reelected.

         Mr.  Spencer L. Brown is to receive  compensation  under his Employment
Agreement  in the form of base  salary of  $225,000  beginning  May 1, 2000.  In
addition, the Board of Directors may increase such salary at its discretion from
time to time.  Mr.  Brown is also  entitled  to be paid  bonuses as the Board of
Directors determines in its sole discretion. Under the Employment Agreement, the
Corporation is to provide Mr. Brown with a company car and membership in certain
clubs.  Mr. Brown is entitled under the  Employment  Agreement to participate in
any employee benefit plans or programs and to receive all benefits,  perquisites
and emoluments for which salaried employees are eligible.

                                       39
<PAGE>


         Under the  Employment  Agreement,  Mr.  Spencer L. Brown is entitled to
severance  pay in the  event of  termination  without  cause or by  constructive
discharge  equal to the  remaining  base  salary  payable  under the  Employment
Agreement and provides for death benefits  payable to the surviving spouse equal
to Mr. Brown's base salary for a period of one year.


         In addition,  Mr. Spencer L. Brown and the  Corporation  entered into a
Severance  Agreement  ("the  Severance  Agreement")  on May 1,  2000.  Under the
Severance  Agreement  Mr. Brown is entitled to receive  severance if following a
change in  control  as defined in the  Severance  Agreement,  such  individual's
employment is terminated  by the  Corporation  without cause or by the executive
within one year of such change in control,  the individual  shall be entitled to
receive  compensation in a lump sum payment equal to 1.5 times the  individual's
average compensation over the past five years.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

COMMON STOCK -

         The  following  table sets forth  certain  information  with respect to
beneficial  ownership (as that term is defined in the rules and  regulations  of
the Commission) of the Corporation's common stock as of February 28, 2001, by 1)
each person who is known by the  Corporation to be the beneficial  owner of more
than five  percent of the  outstanding  common  stock,  2) each  director of the
Corporation,   3)  each  current   executive   officer  listed  in  the  Summary
Compensation   Table  and  4)  all  directors  and  executive  officers  of  the
Corporation  as a group.  Except as otherwise  indicated,  to the  Corporation's
knowledge,  all shares are beneficially owned and investment and voting power is
held as stated by the persons named as owners.  The  Corporation is not aware of
any arrangement that may, at a subsequent date, result in a change of control of
the Corporation.  The address for all beneficial owners, unless stated otherwise
below is c/o Franklin Capital Corporation 450 Park Avenue, Suite 1000, New York,
NY 10022.

                                              AMOUNT AND
                                               NATURE OF
       NAME AND ADDRESS                       BENEFICIAL          PERCENT
       OF BENEFICIAL OWNER                     OWNERSHIP          OF CLASS
       --------------------                   ----------         ---------
The Prudential Insurance
Company of America                             211,557               19.3%
751 Broad Street
Newark, NJ 07102
Stephen L. Brown                               138,059           (1) 12.6%
Peter D. Gottlieb                               82,900           (2)  7.3%
Irving Levine                                   46,375           (3)  4.1%
Spencer L. Brown                                32,944           (4)  3.0%
Miles L. Berger                                 21,250           (5)  1.9%
Jonathan A. Marshall                            20,200           (6)  1.8%
Hiram M. Lazar                                   8,048           (7)   *
Michael P. Rolnick                               6,850           (5)   *
David T. Lender                                    300                 *
All officers and directors
     as a group (9 persons)                    356,926               29.8%


-----------------------
* Less than 1.0%

                                       40
<PAGE>


(1)  Does not include  5,023 shares owned by Mr.  Brown's  children and does not
     include  32,944 shares owned by Spencer L. Brown,  who is also his son. See
     (4) below. Mr. Brown disclaims beneficial ownership of such shares.

(2)  Includes  preferred  stock held which is  convertible  into 3,750 shares of
     common  stock.  Also  includes  44,400 shares of common stock and preferred
     stock which is convertible into 30,000 shares of common stock owned by Kuby
     Gottlieb Special Value Fund ("KGSV") and 3,750 shares of common stock owned
     by Kuby Gottlieb  Investments  ("KGI").  Mr. Gottlieb may be deemed to be a
     controlling  person  of  KGSV  and  KGI due to his  position  as  portfolio
     manager.  Therefore, Mr. Gottlieb may be deemed to be a beneficial owner of
     all shares owned by KGSV and KGI.

(3)  Includes options for 2,500 shares exercisable on February 14, 2000, options
     for 625  shares  exercisable  on June 7,  2000,  options  for 2,500  shares
     exercisable on February 14, 2001 and options for 625 shares  exercisable on
     June 7, 2001.  Also  includes  preferred  stock which is  convertible  into
     35,625 shares of common stock owned by Copley Fund,  Inc.  ("Copley").  Mr.
     Levine  may be deemed  to be a  controlling  person  of  Copley  due to his
     position as Chairman and Chief Executive Officer. Therefore, Mr. Levine may
     be deemed to be a beneficial owner of all shares owned by Copley.

(4)  Includes  preferred  stock held which is  convertible  into 1,875 shares of
     common stock.

(5)  Includes options for 2,500 shares exercisable on February 14, 2000, options
     for 625  shares  exercisable  on June 7,  2000,  options  for 2,500  shares
     exercisable on February 14, 2001 and options for 625 shares  exercisable on
     June 7, 2001.

(6)  Includes options for 2,500 shares exercisable on February 14, 2000, options
     for 625  shares  exercisable  on June 7,  2000,  options  for 2,500  shares
     exercisable on February 14, 2001 and options for 625 shares  exercisable on
     June 7, 2001. Also includes  preferred stock held which is convertible into
     3,750 shares of common stock.

(7)  Includes  options for 937 shares  exercisable on March 1, 2000, and options
     for 938 shares  exercisable on March 1, 2001. Also includes preferred stock
     held which is convertible into 750 shares of common stock.

PREFERRED STOCK -

         The  following  table sets forth  certain  information  with respect to
beneficial  ownership (as that term is defined in the rules and  regulations  of
the Commission) of the Corporation's preferred stock as of February 28, 2001, by
1) each person who is known by the  Corporation  to be the  beneficial  owner of
more than five percent of the outstanding  preferred  stock, 2) each director of
the  Corporation,  3) each  current  executive  officer  listed  in the  Summary
Compensation   Table  and  4)  all  directors  and  executive  officers  of  the
Corporation  as a group.  Except as otherwise  indicated,  to the  Corporation's
knowledge,  all shares are beneficially owned and investment and voting power is
held as stated by the persons named as owners.  The  Corporation is not aware of
any arrangement that may, at a subsequent date, result in a change of control of
the Corporation.  The address for all beneficial owners, unless stated otherwise
below is c/o Franklin Capital Corporation 450 Park Avenue, Suite 1000, New York,
NY 10022.


                                       41
<PAGE>


                                           AMOUNT AND
                                            NATURE OF
       NAME AND ADDRESS                     BENEFICIAL         PERCENT
       OF BENEFICIAL OWNER                  OWNERSHIP          OF CLASS
       -------------------                  ---------          --------
       Irving Levine                          4,750           (1) 28.9%
       Peter D. Gottlieb                      4,500           (2) 27.3%
       Mark Rattner                           2,000           (3) 12.2%
       c/o Professional Indemnity
       37 Radio Circle Drive
       Mount Kisco, NY 10549
       Gerry M. Ritterman                     1,500                9.1%
       47 Lawrence Farms Crossways
       Chappaqua, NY 10514
       Jonathan A. Marshall                     500                3.0%
       Spencer L. Brown                         250                1.5%
       Hiram M. Lazar                           100                 *
       Miles L. Berger                           -                  *
       Stephen L. Brown                          -                  *
       David T. Lender                           -                  *
       Michael P. Rolnick                        -                  *
       All officers and directors
            as a group (9 persons)           10,100               61.4%
       -----------------------
        * Less than 1.0%

(1)  Preferred  stock owned by Copley Fund, Inc.  ("Copley").  Mr. Levine may be
     deemed to be a controlling person of Copley due to his position as Chairman
     and Chief Executive  Officer.  Therefore,  Mr. Levine may be deemed to be a
     beneficial owner of all shares owned by Copley.

(2)  Includes  4,000 shares of preferred  stock owned by Kuby  Gottlieb  Special
     Value Fund ("KGSV").  Mr. Gottlieb may be deemed to be a controlling person
     of KGSV due to his position as portfolio manager.  Therefore,  Mr. Gottlieb
     may be deemed to be a beneficial owner of all shares owned by KGSV.

(3)  Includes 1,000 shares of preferred  stock owned by Marshall  Rattner,  Inc.
     ("MRI"). Mr. Rattner may be deemed to be a controlling person of MRI due to
     his position as Chief  Executive  Officer.  Therefore,  Mr.  Rattner may be
     deemed to be a beneficial owner of all shares owned by MRI.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         See Items 10 through 12 and Footnote 6 to the Financial Statements.

                                       42
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

The following financial statements are set forth under Item 8.

     (a)  (1)  Financial Statements

                    Report of Ernst & Young, LLP

                    Balance Sheets as of December 31, 2000 and 1999

                    Statements of Operations for the years ended December 31,
                      2000, 1999 and 1998

                    Statements of Cash Flows for the years ended December 31,
                      2000, 1999 and 1998

                    Statements of Changes in Net Assets for the years ended
                      December 31, 2000, 1999 and 1998

                    Financial Highlights for the years ended December 31, 2000,
                      1999, 1998, 1997 and 1996

                    Portfolio of Investments as of December 31, 2000

                    Notes to Financial Statements

The following exhibits are filed herewith or incorporated as set forth below:

          (2)  Exhibits

                   (3)  (i)   Articles of Incorporation*

                   (3)  (ii)  By-Laws*

                   (3)  (iii) Amendment to Articles of Incorporation

                   (4)  (i)   Certificate of Designation

                   (4)  (ii)  Registration Rights Agreement

                   (4)  (iii) Preferred Stock Purchase Agreement

                   (10) (i)   Employment Agreement - Stephen L. Brown

                   (10) (ii)  Employment Agreement - Spencer L. Brown

                   (10) (iii) Severance Agreement - Stephen L. Brown

                   (10) (iv)  Severance Agreement - Spencer L. Brown

                   (11)       Computation of per share earnings are set forth in
                              Footnote 8 of the 2000 Financial Statements as set
                              forth in Item 8.

                   (23)       Consent of Ernst & Young, LLP

     (b)  Reports on Form 8-K. The Corporation did not file any reports on Form
          8-K during the last quarter of 2000.

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

* Incorporated by reference to the Corporation's Form N-2, as amended, filed
  July 31, 1992.

                                       43
<PAGE>


                                   SIGNATURES

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

                               FRANKLIN CAPITAL CORPORATION

Date: March 29, 2001           By: /s/
                               ---------------------------------
                               Stephen L. Brown
                               CHAIRMAN & CHIEF EXECUTIVE OFFICER

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report  has  been  signed  by  the  following  persons  on  behalf  of the
Corporation in the capacities and on the dates indicated.


<TABLE>
<CAPTION>

SIGNATURES                            TITLE                               DATE
<S>                                   <C>                                 <C>

/s/                                   Chairman &                          March 29, 2001
-----------------------------         Chief Executive Officer
   Stephen L. Brown

/s/                                   Senior Vice President &             March 29, 2001
-----------------------------         Secretary
   Spencer L. Brown

/s/                                   Chief Financial Officer             March 29, 2001
-----------------------------
   Hiram M. Lazar

/s/                                   Director                            March 29, 2001
-----------------------------
   Miles L. Berger

/s/                                   Director                            March 29, 2001
-----------------------------
   Peter D. Gottlieb

/s/                                   Director                            March 29, 2001
-----------------------------
   David T. Lender

/s/                                   Director                            March 29, 2001
-----------------------------
   Irving Levine

/s/                                   Director                            March 29, 2001
-----------------------------
   Jonathan A. Marshall

/s/                                   Director                            March 29, 2001
-----------------------------
   Michael P. Rolnick
</TABLE>
                                       44