UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**





x **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





For
      the
      quarter ended June 30, 2008





 ̈  **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





For
      the
      transition period from _____ to _____





Commission
      File Number: 0-52150





**FRANKLIN
      TOWERS ENTERPRISES, INC.**


(Exact
      name of small business issuer as specified in its charter)





**Nevada**
            
            **20-4069588**(State
                of incorporation)
            
            (IRS
                Employer ID Number)




88
      Julong
      Road


Lidu
      Economic Development Zone


Fulin,
      Chongqing, China


(Address
      of principal executive offices)





011-86-2372183330


(Issuer's
      telephone number)


(Former name, former address and former fiscal year, if changed since last report)




Check whether the issuer
      (1) filed all reports required to be filed by Section 13 or 15(d) of the
      Exchange Act during the past 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such
      filing requirements for the past 90 days.


Yes
x  No
       ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer
             ̈
            Accelerated filer
             ̈Non-accelerated filer
             ̈
            Smaller reporting company
            x(Do not check if a smaller reporting company)




Indicate by
      check mark whether the registrant is a shell company (as defined in Rule 12b-2
      of the Exchange Act). Yes  ̈ No x







**TABLE
      OF CONTENTS**





Part
                IItem
                1.
            Financial
                Statements
            F-2Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations.
            2Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk.
            8Item
                4.
            Controls
                and Procedures.
            8PART
                II
            9OTHER
                INFORMATION
            9Item
                1.
            Legal
                Proceedings.
            9Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds.
            10Item
                3.
            Defaults
                Upon Senior Securities.
            10Item
                5.
            Other
                Information.
            10Item
                6.
            Exhibits
            10




1


**PART
          I**
 
 **Item
          1.**  **Financial
          Statements**
 FRANKLIN
          TOWERS ENTERPRISES, INC. AND SUBSIDIARY
 
 INDEX
          TO
          FINANCIAL STATEMENTS
 
 PageCondensed
                    Consolidated Balance Sheets
                  as
                    of June 30, 2008 (Unaudited) and December 31, 2007
                F-2Condensed
                    Consolidated Statements of Operations
                  for
                    the three and six months ended June 30, 2008 and 2007
                    (Unaudited)
                F-3Condensed
                    Consolidated Statement of Stockholders’ Equity
                  for
                    the six months ended June 30, 2008 (Unaudited)
                F-4Condensed
                    Consolidated Statements of Cash Flows
                  for
                    the six months ended June 30, 2008 and 2007 (Unaudited)
                F-5Notes
                    to Condensed Consolidated Financial Statements (Unaudited)
                F-6
                    - F-18
  F-1
  FRANKLIN
            TOWERS ENTERPRISES, INC. AND SUBSIDIARY
 CONDENSED
            CONSOLIDATED BALANCE SHEETS
 
 June 30,
                    2008
                  
                  December 31,
                    2007(Unaudited)ASSETSCurrent
                      Assets:Cash
                      and cash equivalents
                  
                  $
                  298,702
                  
                  $
                  1,311,939Accounts
                      receivable - net of allowance of $17,658 and $2,146 as of June
                      30, 2008
                      and December 31, 2007, respectively
                  
                  
                  218,923
                  
                  
                  105,160Inventories
                  
                  
                  422,534
                  
                  
                  739,499Prepaid
                      costs and expenses
                  
                  
                  2,108,957
                  
                  
                  15,102Total
                      Current Assets
                  
                  
                  3,049,116
                  
                  
                  2,171,700Property
                      and Equipment, net
                  
                  
                  822,916
                  
                  
                  517,632Other
                      Assets:Deposits
                  
                  
                  444,690
                  
                  
                  545,289Deferred
                      finance costs - net of accumulated amortization of $225,854
                      and $82,402 as
                      of June 30, 2008 and December 31, 2007, respectively
                  
                  
                  156,646
                  
                  
                  300,098601,336
                  
                  
                  845,387TOTAL
                      ASSETS
                  
                  $
                  4,473,368
                  
                  $
                  3,534,719LIABILITIES
                      AND STOCKHOLDERS' EQUITYCurrent
                      Liabilities:Convertible
                      notes payable - net of unamortized discount of $1,715,129 and
                      $1,680,939
                      as of June 30, 2008 and December 31, 2007, respectively
                  
                  $
                  760,675
                  
                  $
                  79,664Loans
                      payable
                  
                  
                  1,414,960
                  
                  
                  911,085Accounts
                      payable and accrued expenses
                  
                  
                  1,353,350
                  
                  
                  1,213,282Loans
                      payable - related parties
                  
                  
                  20,581
                  
                  
                  20,581Total
                      Current Liabilities
                  
                  
                  3,549,566
                  
                  
                  2,224,612Long
                      Term Liabilities:Convertible
                      notes payable - net of unamortized discount of $181,718 and
                      $1,078,882 as
                      of June 30, 2008 and December 31, 2007, respectively
                  
                  
                  134,653
                  
                  
                  460,515TOTAL
                      LIABILITIES
                  
                  
                  3,684,219
                  
                  
                  2,685,127Stockholders'
                      Equity:Preferred
                      stock, $0.001 par value; 5,000,000 shares authorized, 0 shares
                      issued and
                      outstanding as of March 31, 2008 and December 31, 2007
                  
                  
                  -
                  
                  
                  -Common
                      stock, $.0001 par value; 1,250,000,000 shares authorized, 123,484,043
                      shares and 91,130,000 shares issued and outstanding as of June
                      30, 2008
                      and December 31, 2007, respectively
                  
                  
                  12,348
                  
                  
                  9,113Deferred
                      finance costs
                  
                  
                  (2,347,396
                  )
                  
                  (3,415,349
                  )Additional
                      paid-in capital
                  
                  
                  17,517,903
                  
                  
                  15,659,700Accumulated
                      deficit
                  
                  
                  (14,642,974
                  )
                  
                  (11,508,096
                  )Accumulated
                      other comprehensive income
                  
                  
                  249,268
                  
                  
                  104,224Total
                      Stockholders' Equity
                  
                  
                  789,149
                  
                  
                  849,592TOTAL
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                  
                  $
                  4,473,368
                  
                  $
                  3,534,719
 
 The
            accompanying notes are an integral part of these unaudited condensed
            consolidated financial statements.
  F-2
 
 FRANKLIN
            TOWERS ENTERPRISES, INC. AND SUBSIDIARY
 CONDENSED
            CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 Three Months Ended June 30
                  
                  Six Months Ended June 302008
                  
                  2007
                  
                  2008
                  
                  2007Net
                      Sales
                  
                  $
                  1,124,478
                  
                  $
                  -
                  
                  $
                  2,450,138
                  
                  $
                  -Cost
                      of Sales
                  
                  
                  1,097,749
                  
                  
                  -
                  
                  
                  2,412,610
                  
                  
                  -Gross
                      Profit
                  
                  
                  26,729
                  
                  
                  -
                  
                  
                  37,528
                  
                  
                  -Selling,
                      General and Administration Expenses
                  
                  
                  338,065
                  
                  
                  29,268
                  
                  
                  553,764
                  
                  
                  105,980Loss
                      From Operations
                  
                  
                  (311,336
                  )
                  
                  (29,268
                  )
                  
                  (516,236
                  )
                  
                  (105,980
                  )Other
                      Income (Expenses):Interest
                      income
                  
                  
                  137
                  
                  
                  117
                  
                  
                  1,576
                  
                  
                  512Interest
                      Expense
                  
                  
                  (1,282,019
                  )
                  
                  (96
                  )
                  
                  (2,620,218
                  )
                  
                  (96
                  )Total
                      Other Income (Expense)
                  
                  
                  (1,281,882
                  )
                  
                  21
                  
                  
                  (2,618,642
                  )
                  
                  416Loss
                      Before Income Tax
                  
                  
                  (1,593,218
                  )
                  
                  (29,247
                  )
                  
                  (3,134,878
                  )
                  
                  (105,564
                  )Provision
                      for Income Tax
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Net
                      Loss
                  
                  $
                  (1,593,218
                  )
                  $
                  (29,247
                  )
                  $
                  (3,134,878
                  )
                  $
                  (105,564
                  )Net
                      Loss per Share - Basic and Diluted
                  
                  $
                  (0.01
                  )
                  $
                  (0.00
                  )
                  $
                  (0.03
                  )
                  $
                  (0.00
                  )Weighted
                      Average Shares Outstanding - Basic and Diluted
                  
                  
                  107,684,502
                  
                  
                  30,250,000
                  
                  
                  99,869,750
                  
                  
                  30,250,000Comprehensive
                      Loss:Net
                      loss
                  
                  $
                  (1,593,218
                  )
                  $
                  (29,247
                  )
                  $
                  (3,134,878
                  )
                  $
                  (76,317
                  )Other
                      comprehensive income
                  
                  
                  64,627
                  
                  
                  -
                  
                  
                  145,044
                  
                  
                  27,147Comprehensive
                      Loss
                  
                  $
                  (1,528,591
                  )
                  $
                  (29,247
                  )
                  $
                  (2,989,834
                  )
                  $
                  (76,317
                  )
 
 The
            accompanying notes are an integral part of these unaudited condensed
            consolidated financial statements.
  F-3
 
 FRANKLIN
            TOWERS ENTERPRISES, INC. AND SUBSIDIARY
 CONDENSED
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 FOR
            THE SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)
 
 Preferred Stock
                  
                  Common Stock
                  
                  AdditionalPaid - in
                  
                  Deferred
                  
                  Accumulated
                  
                  Accumulated
                    Other
                    ComprehensiveShares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Capital
                  
                  Finance Costs
                  
                  Deficit
                  
                  Income
                  
                  TotalBalance
                      - December 31, 2007
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  91,130,000
                  
                  $
                  9,113
                  
                  $
                  15,659,700
                  
                  $
                  (3,415,349
                  )
                  $
                  (11,508,096
                  )
                  $
                  104,224
                  
                  $
                  849,592Common
                      stock issued for repayment of convertible notes and accrued
                      interest
                  
                  
                  -
                  
                  
                  -
                  
                  
                  32,354,043
                  
                  
                  3,235
                  
                  
                  665,627
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  668,862Amortization
                      of deferred finance costs
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,067,953
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,067,953Repayment
                      of nonreciprocal funds transferred to shareholder
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,192,576
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,192,576Net
                      loss for the six months ended June 30, 2008 (Unaudited)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (3,134,878
                  )
                  
                  -
                  
                  
                  (3,134,878
                  )Foreign
                      currency translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  145,044
                  
                  
                  145,044Balance
                      - June 30, 2008 (Unaudited)
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  123,484,043
                  
                  $
                  12,348
                  
                  $
                  17,517,903
                  
                  $
                  (2,347,396
                  )
                  $
                  (14,642,974
                  )
                  $
                  249,268
                  
                  $
                  789,149
 
 The
            accompanying notes are an integral part of these unaudited condensed
            consolidated financial statements.
  F-4
 
 FRANKLIN
            TOWERS ENTERPRISES, INC. AND SUBSIDIARY
 CONDENSED
            CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
            THE SIX MONTHS ENDED JUNE 30,
 (UNAUDITED)
 
 2008
                  
                  2007Cash
                      Flows from Operating Activities:Net
                      Loss
                  
                  $
                  (3,134,878
                  )
                  $
                  (105,564
                  )Adjustments
                      to Reconcile Net Loss to Net Cash Used in Operating
                      Activities:Depreciation
                      expense
                  
                  
                  36,431
                  
                  
                  233Bad
                      debt expense
                  
                  
                  14,889
                  
                  
                  -Amortization
                      of deferred finance costs
                  
                  
                  143,452
                  
                  
                  -Amortization
                      of debt discount - fair value of warrants and benefecial conversion
                      feature
                  
                  
                  862,974
                  
                  
                  -Amortization
                      of deferred finance costs - consulting
                  
                  
                  1,067,953
                  
                  
                  -Common
                      stock issued for accrued interest on convertible notes payable
                  
                  
                  174,913
                  
                  
                  -Rent
                      expense satisfied by reduction of nonreciprocal funds transferred
                      balance
                  
                  
                  29,704
                  
                  
                  -Changes
                      in operating assets and liabilitiesIncrease
                      in accounts receivable:
                  
                  
                  (129,275
                  )
                  
                  -Decrease
                      (increase) in inventories
                  
                  
                  316,965
                  
                  
                  (102,488
                  )Increase
                      in prepaid costs and expenses
                  
                  
                  (2,093,855
                  )
                  
                  (1,854
                  )Increase
                      in accounts payable
                  
                  
                  140,068
                  
                  
                  41,467Increase
                      in security deposit payable
                  
                  
                  -
                  
                  
                  578Net
                      Cash Used in Operating Activities
                  
                  
                  (2,570,660
                  )
                  
                  (167,628
                  )Cash
                      Flows from Investing Activities:Capital
                      expenditures
                  
                  
                  (5,567
                  )
                  
                  (329,390
                  )Acquisition
                      deposit returned
                  
                  
                  135,244
                  
                  
                  -Net
                      Cash Provided by (Used in) Investing Activities
                  
                  
                  129,677
                  
                  
                  (329,390
                  )Cash
                      Flows from Financing Activities:Repayment
                      of short term loan
                  
                  
                  (891,085
                  )
                  
                  -Proceeds
                      from short term loan
                  
                  
                  1,394,960
                  
                  
                  -Repayment
                      of convertible notes payable
                  
                  
                  (13,875
                  )
                  
                  -Proceeds
                      from related party
                  
                  
                  -
                  
                  
                  80,674Proceeds
                      from repayment of nonreciprocal funds transferred to
                      shareholder
                  
                  
                  909,256
                  
                  
                  -Proceeds
                      from an additional investment charged to additional paid in
                      capital
                  
                  
                  -
                  
                  
                  768,600Net
                      cash of business accquired
                  
                  
                  -
                  
                  
                  (2,552
                  )Net
                      Cash Provided by Financing Activities
                  
                  
                  1,399,256
                  
                  
                  846,722Effect
                      of Exchange Rate Changes on Cash and Cash Equivalents
                  
                  
                  28,489
                  
                  
                  27,147Net
                      (Decrease) Increase in Cash and Cash Equivalents
                  
                  
                  (1,013,237
                  )
                  
                  376,851Cash
                      and Cash Equivalents - Beginning of Period
                  
                  
                  1,311,939
                  
                  
                  384,423Cash
                      and Cash Equivalents - End of Period
                  
                  $
                  298,702
                  
                  $
                  761,274Supplemental
                      Cash Flow Information:Interest
                      paid
                  
                  $
                  12,500
                  
                  $
                  -Income
                      taxes paid
                  
                  $
                  -
                  
                  $
                  -Supplemental
                      Disclosure of Non-Cash Investing Activites:Fixed
                      assets purchased from related party
                  
                  $
                  253,617
                  
                  $
                  -Supplemental
                      Disclosures of Non-Cash Financing Activities:Preferred
                      stock issued in connection with recapitalization
                  
                  $
                  -
                  
                  $
                  5,000Common
                      stock issued for convertible notes payable
                  
                  $
                  493,959
                  
                  $
                  -Common
                      stock issued for accrued interest on convertible notes
                      payable
                  
                  $
                  174,913
                  
                  $
                  -
 
 The
            accompanying notes are an integral part of these unaudited condensed
            consolidated financial statements.
 
 F-5
  FRANKLIN
          TOWERS ENTERPRISES, INC. AND SUBSIDIARY
 NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 NOTE
          1 – Description
          of Business and Basis of Presentation
 
 Organization
 
 Franklin
          Towers Enterprises, Inc *.* (“Franklin”) was incorporated on March 23, 2006 under the laws of the State of
          Nevada. Franklin originally intended to engage in the manufacture, processing
          and distribution of frozen Pan Asian food.
 
 On
          June
          19, 2007, Franklin entered into a Share Purchase Agreement with the shareholders
          of Chongqing Qiluo Textile Co. Ltd.(“Qiluo”), a limited liability company
          organized under the laws of the People’s Republic of China, whereby Franklin
          agreed to acquire 100% of the issued and outstanding registered capital
          of Qiluo
          for consideration of 5,000,000 shares of Franklin’s Series A Convertible
          Preferred Stock (convertible into 52,880,000 shares of common stock) (see
          Note
          10). Upon consummation of such purchase, Qiluo became a wholly-owned subsidiary
          of Franklin.
 
 The
          acquisition is accounted for as a “reverse acquisition”, since the stockholders
          of Qiluo owned a majority of Franklin’s common stock immediately following the
          transaction. The combination of the two companies is recorded as a
          recapitalization of Qiluo pursuant to which Qiluo is treated as the continuing
          entity although Franklin is the legal acquirer. Accordingly, the Company’s
          historical financial statements are those of Qiluo.
 
 Qiluo
          was
          incorporated on December 15, 2006, under the name “Chongqing Qiluo Industry
          Ltd.” under the laws of the People’s Republic of China with the purpose of
          engaging in the manufacture and sale of silk and silk products. Qiluo renamed
          to
“Chongqing Qiluo Textile Co., Ltd.” On May 30, 2008, Qiluo renamed to “Chongqing
          Fuling Qiluo Wintus Silk Co., Ltd”. After the acquisition, Franklin focused on
          the production and sale of silk and silk products. The Company started
          its test
          production at the end of June 2007 and commenced operations from the third
          quarter of 2007.
 
 All
          references to common stock, share and per share amounts have been retroactively
          restated to reflect the reverse acquisition as if the transaction had taken
          place as of the beginning of the earliest period presented.
 
 Principles
          of Consolidation
 
 The
          accompanying unaudited condensed consolidated financial statements included
          the
          accounts of Franklin (Parent) and its wholly owned subsidiary Qiluo. All
          significant intercompany accounts and transactions have been eliminated
          in
          consolidation.
 
 Going
          Concern
 
 The
          Company started its test production at the end of June 2007 and commenced
          its
          manufacturing operations during the third quarter of 2007. The Company
          has
          incurred a net loss of $1,593,218 and $3,134,878, which included the
          amortization of deferred finance cost and debt discount of $1,020,343 and
          $2,074,378 for the three and six months ended June 30, 2008, respectively.
          In
          addition, the Company had negative cash flow from operations since December
          15,
          2006 (date of inception) and has an accumulated deficit of $14,642,974
          at June
          30, 2008. Substantial portions of the losses are attributable to amortization,
          consulting and professional fees. Furthermore, the Company’s gross margin rate
          from its current operations was very low. It was 2.4% and 1.5% for the
          three and
          six months ended June 30, 2008, respectively. The Company had a working
          capital
          deficiency of $500,450 at June 30, 2008. These factors raise substantial
          doubt
          about the Company’s ability to continue as a going concern.
  F-6
 
  Going
            Concern (Continued)
 
 There
          can
          be no assurance that funds will be generated during the next twelve months
          or
          thereafter from the Company’s current operations, or that funds will be
          available from external sources such as debt or equity financings or other
          potential sources. The lack of additional capital could force the Company
          to
          curtail or cease operations and would, therefore, have a material adverse
          effect
          on its business. Furthermore, there can be no assurance that any such required
          funds, if available, will be available on attractive terms or that they
          will not
          have a significant dilutive effect on the Company's existing
          stockholders.
 
 During
          the six months ended June 30, 2008, the Company received proceeds from
          a
          significant shareholder in the amount of $909,256 as a repayment of
          nonreciprocal funds transferred to this shareholder during 2007.
  The
          Company has undertaken further steps as part of a plan to improve operations
          and
          to address our lack of liquidity by raising additional funds, either in
          the form
          of debt or equity or some combination thereof. The Company is planning
          to reduce
          its cost of goods sold by purchasing its main raw material directly from
          farmers
          in the local neighbored area and to reduce its overhead cost by fully utilizing
          its current manufacture facilities. However, there can be no assurance
          that the
          Company can successfully accomplish these steps and/or business plans,
          and it is
          uncertain whether the Company will achieve a profitable level of operations
          or
          be able to obtain additional financing.
 
 There
          can
          be no assurance that any additional financings will be available to the
          Company
          on satisfactory terms and conditions, if at all. In the event we are unable
          to
          continue as a going concern, we may elect or be required to seek protection
          from
          our creditors by filing a voluntary petition in bankruptcy or may be subject
          to
          an involuntary petition in bankruptcy.
 
 The
          accompanying unaudited condensed consolidated financial statements do not
          include any adjustments related to the recoverability or classification
          of
          asset-carrying amounts or the amounts and classifications of liabilities
          that
          may result should the Company be unable to continue as a going
          concern.
  Reclassifications
 
 Certain
          items in these unaudited condensed consolidated financial statements have
          been
          reclassified to conform to the current period’s presentation.
 
 Recent
          Accounting Pronouncements
 
 Effective
          January 1, 2008, we adopted Statement of Financial Accounting Standards
          ("SFAS")
          No. 157, "Fair Value Measurements " ("SFAS No. 157" ) and SFAS No. 159,
          "The
          Fair Value Option for Financial Assets and Financial Liabilities - Including
          an
          Amendment of FASB Statement No. 115" ("SFAS No. 159"). In February 2008,
          the
          Financial Accounting Standards Board (the "FASB") issued FASB Staff Position
          ("FSP") 157-2, *"Effective
          Date of FASB Statement No. 157"* ("FSP
          157-2), which delayed the effective date of SFAS No. 157 for all non-financial
          assets and liabilities, except those that are recognized or disclosed at
          fair
          value in the financial statements on a recurring basis, until January 1,
          2009.
          We have not yet determined the impact that the implementation of FSP 157-2
          will
          have on our non-financial assets and liabilities which are not recognized
          on a
          recurring basis; however, we do not anticipate the adoption of this standard
          will have a material impact on our consolidated financial position, results
          of
          operations or cash flows. The partial adoption of SFAS No. 157 and the
          adoption
          of SFAS No. 159 did not have a material impact on the Company's condensed
          consolidated financial statements.
  F-7
 Recent
          Accounting Pronouncements (Continued)
 
 In
          December 2007, the FASB issued SFAS No. 141(R),"Business Combinations"
          ("SFAS
          No. 141(R)"), which establishes principles and requirements for how an
          acquirer
          recognizes and measures in its financial statements the identifiable assets
          acquired, the liabilities assumed, and any noncontrolling interest in an
          acquiree, including the recognition and measurement of goodwill acquired
          in a
          business combination. SFAS No. 141(R) is effective as of the beginning
          of the
          first fiscal year beginning on or after December 15, 2008. Earlier adoption
          is
          prohibited and the Company is currently evaluating the effect, if any,
          that the
          adoption will have on its financial position, results of operations or
          cash
          flows.
 
 In
          December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
          Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS No.
          160"),
          which will change the accounting and reporting for minority interests,
          which
          will be recharacterized as noncontrolling interests and classified as a
          component of equity within the consolidated balance sheets. SFAS No. 160
          is
          effective as of the beginning of the first fiscal year beginning on or
          after
          December 15, 2008. Earlier adoption is prohibited and the Company is currently
          evaluating the effect, if any, that the adoption will have on its financial
          position, results of operations or cash flows.
 
 In
          December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
          "Accounting for Collaborative Arrangements" (EITF 07-1). EITF 07-1 defines
          collaborative arrangements and requires collaborators to present the result
          of
          activities for which they act as the principal on a gross basis and report
          any
          payments received from (made to) the other collaborators based on other
          applicable authoritative accounting literature, and in the absence of other
          applicable authoritative literature, on a reasonable, rational and consistent
          accounting policy is to be elected. EITF 07-1 also provides for disclosures
          regarding the nature and purpose of the arrangement, the entity's rights
          and
          obligations, the accounting policy for the arrangement and the income statement
          classification and amounts arising from the agreement. EITF 07-1 will be
          effective for fiscal years beginning after December 15, 2008, and will
          be
          applied as a change in accounting principle retrospectively for all
          collaborative arrangements existing as of the effective date. The Company
          has
          not yet evaluated the potential impact of adopting EITF 07-1 on its financial
          position, results of operations or cash flows.
 
 In
          March
          2008, the FASB" issued SFAS No. 161, "Disclosures about Derivative Instruments
          and Hedging Activities - an amendment to FASB Statement No. 133" ("SFAS
          No.
          161"). SFAS No. 161 is intended to improve financial standards for derivative
          instruments and hedging activities by requiring enhanced disclosures to
          enable
          investors to better understand their effects on an entity's financial position,
          financial performance, and cash flows. Entities are required to provide
          enhanced
          disclosures about: (a) how and why an entity uses derivative instruments;
          (b)
          how derivative instruments and related hedged items are accounted for under
          SFAS
          No. 133 and its related interpretations; and (c) how derivative instruments
          and
          related hedged items affect an entity's financial position, financial
          performance, and cash flows. It is effective for financial statements issued
          for
          fiscal years beginning after November 15, 2008, with early adoption encouraged.
          The Company has not yet evaluated the potential impact of adopting SFAS
          No. 161
          on its financial position, results of operations or cash flows.
 
 Other
          recent accounting pronouncements issued by the FASB (including its Emerging
          Issues Task Force), the AICPA, and the SEC did not, or are not believed
          by
          management to, have a material impact on the Company's present or future
          consolidated financial statements.
  F-8
 NOTE
          2 – Interim
          Financial Statements
 
 The
          unaudited condensed consolidated financial statements as of June 30, 2008
          have
          been prepared in accordance with accounting principles generally accepted
          in the
          United States of America for interim financial information and with the
          instructions for Securities and Exchange Commission (“SEC”) Form 10-Q. In the
          opinion of management, the unaudited condensed financial statements have
          been
          prepared on the same basis as the annual financial statements and reflect
          all
          adjustments, which include only normal recurring adjustments, necessary
          to
          present fairly the financial position as of June 30, 2008 and the results
          of
          operations and cash flows for the periods ended June 30, 2008 and 2007.
          The
          financial data and other information disclosed in these notes to the interim
          financial statements related to these periods are unaudited. The results
          for the
          three and six month period ended June 30, 2008 is not necessarily indicative
          of
          the results to be expected for any subsequent quarter and/or the entire
          year
          ending December 31, 2008.
 
 Certain
          information and footnote disclosures normally included in financial statements
          prepared in accordance with accounting principles generally accepted in
          the
          United States have been condensed or omitted pursuant to the SEC’s rules and
          regulations. These unaudited condensed consolidated financial statements
          should
          be read in conjunction with our audited consolidated financial statements
          and
          notes thereto for the year ended December 31, 2007, included in the Company’s
          Annual Report on Form 10K filed on April 15, 2008 with the SEC.
 
 NOTE
          3 - Net
          Loss Per Common Share
 
 The
          Company has adopted Financial Accounting Standards Board (“FASB”) Statement
          Number 128, “Earnings per Share,” (“EPS”) which requires presentation of basic
          and diluted EPS on the face of the income statement for all entities with
          complex capital structures and requires a reconciliation of the numerator
          and
          denominator of the basic EPS computation to the numerator and denominator
          of the
          diluted EPS
 
 Basic
          net
          loss per share is computed by dividing net loss by the weighted average
          number
          of common shares outstanding during the period.
 
 Diluted
          net loss per share is computed similarly to basic net loss per share except
          that
          it includes the potential dilution that could occur if dilutive securities
          were
          converted. Diluted net loss per common share is the same as basic net loss
          per
          share for the periods presented, as the effect of potentially dilutive
          securities (convertible notes payable and warrants), are
          anti-dilutive.
 
 NOTE
          4 - Inventories
 
 Inventories
          consist of the following:
  June 30,
                  2008
                
                December 31,
                  2007(Unaudited)Finished
                    Goods
                
                $
                166,425
                
                $
                544,327Raw
                    Materials
                
                
                91,577
                
                
                182,335Work
                    in Process
                
                
                164,532
                
                
                12,837Total
                
                $
                422,534
                
                $
                739,499
 
 Finished
          goods consist of those silks and by products available for sales. There
          was no
          valuation allowance for inventory loss at June 30, 2008 and December 31,
          2007.
  F-9
  NOTE
          5 – Prepaid
          Costs and Expenses
 
 Prepaid
          costs and expenses consist of:
  June 30,
                  2008
                
                December 31,
                  2007(Unaudited)Advances
                    to farmers and others for future deliveries of silk cocoons and
                    other
                    inventory
                
                $
                1,826,291
                
                $
                -Cash
                    advances to personnel operating silk cocoon purchase stations
                    for future
                    overhead costs
                
                
                120,138
                
                
                -Advances
                    to vendors for future overhead costs
                
                
                88,209
                
                
                -Other
                
                
                74,319
                
                
                15,102Total
                
                $
                2,108,957
                
                $
                15,102
 
 NOTE
          6 - Property
          and Equipment
 
 Property
          and equipment is summarized as follows:
  Estimated
                  Useful Life
                
                June 30,
                  2008
                
                December 31,
                  2007(Unaudited)Fixed AssetsProduction
                    Equipment
                
                
                10
                
                $
                694,989
                
                $
                516,381Auxiliary
                    Equipment
                
                
                10
                
                
                6,911
                
                
                7,878Office
                    Equipment
                
                
                3-5
                
                
                22,061
                
                
                15,991Automobile
                
                
                5
                
                
                123,930
                
                
                -Furniture
                    and Fixtures
                
                
                5-7
                
                
                29,408
                
                
                25,872Construction
                    in progress
                
                
                
                
                
                34,126
                
                
                -911,425
                
                
                566,122Less:
                    Accumulated Depreciation
                
                
                
                
                
                88,509
                
                
                48,490$
                822,916
                
                $
                517,632
 
 Depreciation
          expense was $36,431 for the six months ended June 30, 2008, of which $25,939
          was
          included in the cost of sales. Depreciation expense was $233 for the six
          months
          ended June 30, 2007.
 
 During
          the first quarter of 2008, management reviewed the useful lives and residual
          value of the Company’s machinery and equipment and compared to industry
          standards. Management has determined the production equipment acquired
          in 2007,
          which were originally estimated to have 5-7 years useful lives should be
          increased to 10-years useful lives and with a residual value of 5% of their
          original cost. Accordingly, effective January 1, 2008, the Company has
          changed
          the depreciation lives for the production equipment and auxiliary equipment
          to
          10 years.
  F-10
  NOTE
          7 - Deposits
 
 Deposits
          consist of:
  June 30,
                  2008
                
                December 31,
                  2007(Unaudited)Down
                    payment in connection with Letter Agreement dated November 26,
                    2007 to
                    acquire cocoon purchase stations, warehouse, and certain other
                    assets from
                    Zhengzhong Silkworm Industrial Development Co. Ltd., a state
                    owned entity
                    ("Zhengzhong")
                
                $
                437,400
                
                $
                545,289Deposit
                    paid in connection with agreement dated March 19, 2008 to use
                    cocoon
                    purchase stations and warehouse at no cost from March 19, 2008
                    to March
                    18, 2009
                
                
                7,290
                
                
                -Total
                
                $
                444,690
                
                $
                545,289
 
 The
          Letter Agreement dated November 26, 2007 and subsequent amendments provided
          that
          the total purchase price of the Zhengzhong assets was 10,374,800 Renminbi
          ($1,512,646 translated at the June 30, 2008 exchange rate). If the Company
          is
          unable to pay the remaining 7,374,800 Renmibi ($1,075,246 translated at
          the June
          30, 2008 exchange rate) due, the Company’s down payment of 3,000,000 Renminbi
          ($437,400 translated at the June 30, 2008 exchange rate) may be forfeited
          and
          not recovered (partially or in full).
 
 NOTE
          8 - Loans
          Payable – Short Term
 
 Loans
          payable consist of:
 
 June 30,
                  2008
                
                December 31,
                  2007(Unaudited)Qiluo
                    loan payable to Chongqing Aikekaer Paint Co., Ltd. under 10,000,000
                    Renminbi ($1,458,000) credit line, interest at 6% per annum,
                    due May 31,
                    2009
                
                $
                1,239,300
                
                $
                -Qiluo
                    loans payable to three individuals, interest at 6% per annum,
                    due on
                    demand
                
                
                155,660
                
                
                -Franklin
                    loans payable to two individuals, interest at 8% per annum, due
                    April 24,
                    2008 (past due)
                
                
                20,000
                
                
                20,000Qiluo
                    loan payable to Shanghai Pudong Development Bank, interest at
                    6.57% per
                    annum, due January 29, 2008 (repaid in full)
                
                
                -
                
                
                891,085Total
                
                $
                1,414,960
                
                $
                911,085
 
 Loans
          payable – related parties consist of:
  June 30,
                  2008
                
                December 31,
                  2007(Unaudited)Franklin
                    loan payable to former chief executive officer, interest at 8%
                    per annum,
                    due on demand
                
                $
                12,233
                
                $
                12,233Franklin
                    loan payable to former chief executive officer, non-interest
                    bearing, due
                    on demand
                
                
                8,348
                
                
                8,348Total
                
                $
                20,581
                
                $
                20,581
  F-11
 NOTE
          9 - Convertible
          Notes Payable
 
 Convertible
          notes payable consists of the following:
  June 30,
                  2008
                
                December 31,
                  2007(Unaudited)Convertible
                    notes payable, net of unamortized discount of $1,896,847 and
                    $2,759,821,
                    respectively
                
                $
                895,328
                
                $
                540,179Less:
                    current portion
                
                
                760,675
                
                
                79,664Long
                    term portion
                
                $
                134,653
                
                $
                460,515
 
 On
          September 12 and September 20, 2007, the Company entered into Subscription
          Agreements (the "Subscription Agreements") with 11 investors ("Purchasers"),
          for
          the purchase and sale of $3,300,000 of Secured Convertible Promissory Notes
          of
          the Company (the “Notes”) for the aggregate purchase price of $3,300,000 (the
“Note Financing”). The Company received net proceeds from the issuance of the
          Notes of $2,622,425 after finance costs of $382,500 and other expenses
          of
          $295,075. Pursuant to the terms of the Subscription Agreements, the Company
          also
          issued to the Purchasers warrants to purchase up to 26,400,000 shares of
          common
          stock of the Company, subject to adjustments for certain issuances and
          transactions.
 
 The
          Notes
          bear interest at the rate of 10% per annum, payable in either (a) cash
          or (b)
          absent an event of default, in shares of the Company’s common stock at the
          lesser of (i) $0.25 per share or (ii) 75% of the average of the closing
          bid
          prices of the Company’s common stock for the 5 trading days preceding the
          payment date. Said payments commence on March 12, 2008 and all accrued
          but
          unpaid interest and any other amounts due thereon is due and payable on
          September 12, 2009, or earlier upon acceleration following an event of
          default,
          as defined in the Notes.
 
 All
          principal and accrued interest on the Notes is convertible into shares
          of the
          Company’s common stock at the election of the Purchasers at any time at the
          conversion price of $0.25 per share, subject to adjustment for certain
          issuances, transactions or events that would result in “full ratchet” protection
          to the holders.
 
 The
          Notes
          contain default events which, if triggered and not timely cured (if curable),
          will result in a default interest rate of 15% per annum. The Notes also
          contain
          full ratchet antidilution provisions with respect to certain securities
          issuances, including the issuances of stock for less than $.25 per share.
          In
          addition, the Company has to pay the Purchasers an additional amount of
          principal plus accrued interest if the Company is no longer listed on the
          Bulletin Board or sells substantially all of its assets.
 
 As
          part
          of the financing, the Company also issued to the Purchasers an aggregate
          of
          13,200,000 Class A Common Stock Purchase Warrants and 13,200,000 Class
          B Common
          Stock Purchase Warrants. The Class A Warrants are exercisable at a price
          of
          $0.50 per share at any time until the fifth anniversary from the date the
          Registration Statement is declared effective by the Securities and Exchange
          Commission (“the Expiration Date”) and the Class B Warrants are exercisable at a
          price of $1.00 per share at any time until the Expiration Date. The warrants
          include a cashless exercise provision which is triggered after March 12,
          2008 as
          well as “full ratchet” antidilution provisions with respect to certain
          securities issuances.
 
 Absent
          a
          waiver from a Purchaser, conversion of the Notes, or exercise of the Warrants,
          is subject to the restriction that such conversion or exercise does not
          result
          in the Purchaser beneficially owning at any one time more than 4.99% of
          the
          Company’s outstanding shares of common stock.
  F-12
 NOTE
          9 - Convertible
          Notes Payable (Continued)
 
 Payment
          of the Notes along with the Company’s other obligations to the Purchasers is
          secured by all the assets of the Company and of its wholly-owned subsidiary,
          Qiluo. Such obligations are also secured by a guaranty and pledge of the
          17,100,000 shares of the Company’s common stock held by Xinshengxiang Industrial
          Development Co., Ltd., a significant shareholder of the Company. In connection
          with the transaction, the Company agreed to prepare and file with the Securities
          and Exchange Commission within 60 days following the closing a registration
          statement on Form SB-2 for the purpose of registering for resale all of
          the
          shares of common stock underlying the Notes. If the Company fails to file
          such
          registration statement within such time, or if the registration statement
          is not
          declared effective within 120 days from September 12, 2007, the Company
          must pay
          monthly liquidated damages in cash equal to 2% of the principal amount
          of the
          Notes. The Purchasers were also granted standard piggyback registration
          rights
          along with certain demand registration rights. The Company filed a registration
          statement on December 26, 2007. The registration statement has not yet
          been
          declared effective (see Note 15).
 
 In
          connection with the convertible debt, the Company recorded deferred finance
          costs of $4,466,334 of which $382,500 was recorded as an assets and $4,083,834
          was recorded as a component of stockholders’ equity. Such deferred finance costs
          are being amortized over the life of the related debt. The Company also
          recorded
          a deferred debt discount in the amount of $3,300,000 to reflect the beneficial
          conversion feature of the convertible debt and the fair value of the warrants.
          The beneficial conversion feature was recorded pursuant to Emerging Issues
          Task
          Force (“EITF”) 00-27: “Application of EITF No. 98-5, Accounting for Convertible
          Securities with Beneficial Conversion Features or Contingently Adjustable
          Conversion Ratios, to Certain Convertible Instruments”. In accordance with EITF
          00-27, the Company evaluated the value of the beneficial conversion feature
          and
          recorded the amount of $396,753 as a reduction to the carrying amount of
          the
          convertible debt and as an addition to paid-in capital. Additionally, the
          relative fair value of the warrants of $2,903,247 was calculated and recorded
          as
          a further reduction to the carrying amount of the convertible debt and
          as
          addition to paid-in capital. The amortization of these deferred finance
          costs
          and debt discount are reported as a component of the interest expense.
          The
          amortization of deferred finance costs and debt discount for the six months
          ended June 30, 2008 were $1,067,953 and $862,974, respectively. Such
          amortizations have been included as interest expense.
  The
          Company commenced the repayment of the convertible notes and interest on
          March
          12, 2008 and paid $26,375 in cash to three of the Purchasers, which represented
          accrued interest of $12,500 and repayment of principal of $13,875 due on
          the
          convertible promissory notes. Also, the Company issued a total of 32,354,043
          shares to seven of the Purchases during the six months ended June 30, 2008,
          which represented accrued interest of $174,912 and repayment of principal
          of
          $493,950.
 
 NOTE
          10 - Stockholders’
          Equity and Share Purchase Agreement
 
 Effective
          on April 23, 2007, the Company amended its articles of incorporation for
          the
          purpose of effecting a 2.5 for 1 forward stock split of its common stock.
          In
          addition, the authorized common stock of the Company was increased from
          500,000,000 shares, $.001 par value to 1,250,000,000 shares, $.0001 par
          value.
          All share and per share data have been given retroactive effect to reflect
          this
          recapitalization.
  F-13
 NOTE
          10 - Stockholders’
          Equity and Share Purchase Agreement (Continued)
 
 On
          June
          19, 2007, Franklin entered into a Share Purchase Agreement (the “Share Purchase
          Agreement”) with the following persons: Chongqing Qiluo Textile Co. Ltd., a
          limited liability company organized under the laws of the People’s Republic of
          China (“Qiluo”); Xinshengxiang Industrial Development Co., Ltd., a limited
          liability company organized under the laws of the People’s Republic of China
          (“Xinshengxiang”); Mr. Dingliang Kuang (“Dingliang”); and Ms. Yue Kuang (“Yue,”
and together with Xinshengxiang and Dingliang, the "Qiluo Shareholders").
          Pursuant to the Share Purchase Agreement, Franklin agreed to acquire Qiluo
          at a
          closing held simultaneously therewith by purchasing from the Qiluo Shareholders
          all of their respective shares of Qiluo’s registered capital, which represent
          100% of the issued and outstanding registered capital stock of Qiluo. Upon
          the
          consummation of such purchase, Qiluo became a wholly-owned subsidiary of
          Franklin. In consideration therefor, Franklin agreed to issue to the Qiluo
          Shareholders an aggregate of 5,000,000 shares of Franklin’s Series A Convertible
          Preferred Stock (convertible into 52,880,000 shares of common stock, see
          Note
          11), which were allocated between the Qiluo Shareholders as follows: 4,750,000
          shares to Xinshengxiang; 125,000 shares to Dingliang; and 125,000 shares
          to Yue.
          Each share of Series A Convertible Preferred Stock was convertible, at
          the
          option of the holder thereof, into 10.576 shares of Franklin's common
          stock.
 
 In
          connection with the foregoing transaction, on June 19, 2007, Kelly Fan,
          the
          former President, Chief Executive Officer, Treasurer, and Director of Franklin,
          transferred without consideration to the Qiluo Shareholders 18,000,000
          shares of
          the common stock of Franklin which were issued and outstanding and held
          by Ms.
          Fan. Such shares were allocated between the Qiluo Shareholders as follows:
          17,100,000 shares to Xinshengxiang Industrial Development Co., Ltd.; 450,000
          shares to Dingliang Kuang; and 450,000 shares to Yue Kuang.
 
 As
          a
          result of the foregoing transactions: (a), Xinshengxiang Industrial Development
          Co., Ltd. held approximately 81% of the total combined voting power of
          all
          classes of Franklin’s capital stock entitled to vote; (b) Diangliang Kuang is
          the principal owner and manager of Xinshengxiang Industrial Development
          Co.,
          Ltd. and thus has voting, investment, and dispositive control over the
          shares of
          Franklin’s capital stock owned by Xinshengxiang Industrial Development Co., Ltd.
          Accordingly, Mr. Kuang is also deemed to be the indirect beneficial owner
          of the
          shares of Franklin’s capital stock owned by Xinshengxiang Industrial Development
          Co., Ltd. Mr. Kuang thus directly and indirectly (by Xinshengxiang Industrial
          Development Co., Ltd.) held approximately 83% of the total combined voting
          power
          of all classes of Franklin’s capital stock entitled to vote; and (c) Yue Kuang,
          who is the sister of Diangliang Kuang, directly held approximately 2% of
          the
          total combined voting power of all classes of Franklin’s capital stock who is
          entitled to vote.
 
 In
          September 2007, the Company agreed to issue an aggregate of 8,000,000 shares
          of
          its common stock valued at $9,200,000 to Bonsai Venture Partner, Ltd.,
          a British
          Virgin Islands Limited company in consideration for the consulting services
          rendered. These issuances were offered and sold in reliance upon exemptions
          from
          registration pursuant to Section 4(2) under the Securities Act and the
          Rule 506
          promulgated thereunder. The shares issued in consideration for services
          rendered
          were valued at $9,200,000, based on the price of our stock on the date
          of
          issuance.
 
 The
          Company issued a total of 32,354,043 shares to seven of the Purchasers
          as
          repayment of loan and loan interest during the six months ended June 30,
          2008,
          pursuant to the terms of the Notes (see Note 9). The issuing price was
          calculated at 75% of the average of the closing bid prices of the Company’s
          common stock for the 5 days preceding the payment date.
 
 NOTE
          11 - Preferred
          Stock
 
 On
          June
          18, 2007, the Company designated a series of Preferred Stock known as the
          “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”) by
          filing a Certificate of Designation with the Secretary of State of Nevada.
          The
          number of shares constituting such Series A Preferred Stock was designated
          to be
          5,000,000 shares, par value $0.001 per share. Pursuant to the Certificate
          of
          Designation, the principal rights, preferences, powers, limitations and
          restrictions of the Series A Preferred Stock are as follows:
  F-14
  NOTE
          11 - Preferred
          Stock (Continued)
 
 Each
          share of Series A Preferred Stock is convertible, at the option of the
          holder
          thereof, without payment of additional consideration, into 10.576 shares
          of the
          Company’s common stock. Holders of Series A Preferred Stock shall be entitled to
          vote, together with holders of common stock as a single class, on all matters
          upon which stockholders of the Company are entitled to vote, with each
          share of
          Series A Preferred Stock having one vote. The Series A Preferred Stock
          shall
          rank senior to the common stock. In the event of any liquidation, dissolution
          or
          winding up of the Company, the holders of Series A Preferred Stock shall
          be
          entitled to receive, prior and in preference to any distribution of any
          of the
          assets of the Company to the holders of the common stock of the Company
          and any
          other issue of stock, should there be any, by reason of their ownership
          thereof,
          an amount per share equal to $0.001 per each share of Series A Preferred
          Stock
          owned by such shareholder plus any declared and unpaid dividends on the
          Series A
          Preferred Stock.
 
 On
          December 10, 2007, the Company issued an aggregate of 52,880,000 shares
          of
          common stock to complete the conversion of the 5,000,000 shares of Series
          A
          Preferred Stock then outstanding.
 
 NOTE
          12 -  Warrants
 
 A
          summary
          of the status of the Company’s warrants is presented below:
  Date of
                  Issuance
                
                Number of
                  Warrants
                
                Weighted Average
                  Exercise PriceOutstanding
                    - January 1, 2007
                
                
                
                
                
                -
                
                $
                -Issued,
                    Class A Warrants
                
                
                9/12/2007
                
                
                13,200,000
                
                
                0.50Issued,
                    Class B Warrants
                
                
                9/12/2007
                
                
                13,200,000
                
                
                1.00Issued,
                    Finder's Fees Warrants
                
                
                9/12/2007
                
                
                3,960,000
                
                
                0.25Outstanding
                    - June 30, 2008 (Unaudited) and December 31, 2007
                
                
                
                
                
                30,360,000
                
                $
                0.68
 
 Warrants
          outstanding and exercisable by price range as of June 30, 2008 are:
 
 Warrants Outstanding
                
                Warrants ExercisableRange of
                
                Number
                  Outstanding
                
                Weighted Average
                  Remaining
                  Contractual
                  Life in Years *
                
                Weighted
                  Average
                  Exercise
                  Price
                
                Number
                  Exercisable
                
                Weighted
                  Average
                  Exercise
                  Price$          
                    0.25
                
                
                3,960,000
                
                
                5.00
                
                $
                0.25
                
                
                3,960,000
                
                $
                0.25$           0.50
                
                
                13,200,000
                
                
                5.00
                
                
                0.50
                
                
                13,200,000
                
                
                0.50$           1.00
                
                
                13,200,000
                
                
                5.00
                
                
                1.00
                
                
                13,200,000
                
                
                1.0030,360,000
                
                
                
                
                $
                0.68
                
                
                30,360,000
                
                $
                0.68
 
 *
          Warrants expire 5 years after effective date of registration
          statement.
 The
          registration statement filed on December 26, 2007 is not effective as of
          August
          8, 2008.
 
 The
          significant assumptions used to determine the fair values of the warrants,
          using
          a Black-Scholes option pricing model, were as follows:
 
 Significant
                    assumptions:Risk-free
                    interest rate at grant date
                
                
                4.11
                %Expected
                    stock price volatility
                
                
                93.95
                %Expected
                    dividend payout
                
                
                -Expected
                    option life-years
                
                
                5
  F-15
  NOTE
          13 - Related
          Party Transactions
 
 During
          2007, the Company received funds from and advanced funds to Xinshengxiang,
          one
          of its significant shareholders (see Note 10) for working capital purposes.
          As
          of December 31, 2007, the excess advanced payments to Xinshengxiang amounted
          to
          $2,019,685. The Company has accounted for this excess as a nonreciprocal
          transfer in 2007 and recorded the overpayment as a direct reduction of
          additional paid-in capital. Xinshengxiang repaid $909,256 in cash during
          the six
          months ended June 30, 2008 and the Company recorded the repayments as an
          increase in additional paid-in capital.
 
 During
          the three months ended March 31, 2008, the Company acquired four silk reeling
          machines and an automobile from Xinshengxiang valued at a total of $253,616
          (1,850,000 Renminbi), which the parties agreed to be treated as a repayment
          of
          the nonreciprocal funds transferred in 2007. The Company recorded the $253,617
          repayment as an increase in additional paid-in capital.
 
 During
          the three months ended June 30, 2008, the Company and Xinshengxiang agreed
          to
          offset the Company’s $29,704 rent liability to Xinshengxiang and treat the
          $29,704 as a repayment of the nonreciprocal funds transferred in 2007.
          The
          Company recorded the $29,704 repayment as an increase in additional paid-in
          capital.
 
 At
          June
          30, 2008, the unpaid balance of the nonreciprocal funds transferred to
          Xinshengxiang in 2007 is $827,108.
 
 During
          the three months ended March 31, 2008, the Company purchased approximately
          4.2
          tons raw material–cocoon for $301,455 (2,198,960 Renminbi) at market price from
          Xinshengxiang. The Company included this amount in accounts payable and
          accrued
          expenses as of March 31, 2008. The Company paid the balance due in full
          during
          the three months ended June 30, 2008.
 
 NOTE
          14 - Concentration
          of Credit Risk
 
 Financial
          instruments that potentially subject the Company to significant concentrations
          of credit risk consist principally of cash and cash equivalents and accounts
          receivable.
 
 Qiluo
          maintains cash balances in various banks in the People’s Republic of China.
          Currently, no deposit insurance system has been set up in the People’s Republic
          of China. Therefore, the Company will bear a risk if any of these banks
          become
          insolvent. Qiluo’s uninsured cash balance was $297,469 as of June 30, 2008.
  F-16
 NOTE
          15 - Commitments
          and Contingencies
 
 Lease
          agreement
 
 On
          January 28, 2007, Qiluo signed a twenty (20) years lease with Xinshengxiang,
          a
          related party (see Note 10), for the use of a factory building located
          in Fulin,
          Chongqing. The lease commenced on March 1, 2007 and provides for annual
          rental
          payments of 200,000 Renminbi ($29,160 translated at the June 30, 2008 exchange
          rate) plus other occupancy costs.
 
 Future
          minimum rentals under this lease are as follows:
  Year Ending
                  June 30,
                
                Future Minimum
                  Rent Payments2009
                
                $
                29,1602010
                
                
                29,1602011
                
                
                29,1602012
                
                
                29,1602013
                
                
                29,160Thereafter
                
                
                398,520Total
                
                $
                544,320
 
 Registration
          Rights Arrangement
 
 In
          connection with the convertible notes payable (see Note 9), the Company
          agreed
          to prepare and file with the Securities and Exchange Commission within
          60 days
          following the closing a registration statement for the purpose of registering
          for resale all of the shares of common stock underlying the Notes. If the
          Company fails to file such registration statement within such time, or
          if the
          registration statement is not declared effective within 120 days from September
          12, 2007, the Company is to pay monthly liquidated damages in cash equal
          to 2%
          of the principal amount of the Notes. The Company filed a registration
          statement
          on December 26, 2007; the registration statement has not yet been declared
          effective. Accordingly, the Company has accrued liquidated damages of $474,105
          at June 30, 2008, which has been included in interest expense for the six
          months
          ended June 30, 2008 and accounts payable and accrued expenses at June 30,
          2008.
 
 Lack
          of Insurance
 
 The
          Company currently has no insurance in force for its office facilities and
          operations and it cannot be certain that it can cover the risks associated
          with
          such lack of insurance or that it will be able to obtain and/or maintain
          insurance to cover these risks at economically feasible premiums.
 
 Country
          Risk
 
 As
          the
          Company's principal operations are conducted in the People’s Republic of China
          (the “PRC”), the Company is subject to special considerations and significant
          risks not typically associated with companies in North America and Western
          Europe. These risks include, among others, risks associated with the political,
          economic and legal environments and foreign currency exchange limitations
          encountered in the PRC. The Company's results of operations may be adversely
          affected by changes in the political and social conditions in the PRC,
          and by
          changes in governmental policies with respect to laws and regulations,
          among
          other things.
 
 In
          addition, all of the Company's transactions undertaken in the PRC are
          denominated in Renminbi, which must be converted into other currencies
          before
          remittance out of the PRC may be considered. Both the conversion of Renminbi
          into foreign currencies and the remittance of foreign currencies abroad
          require
          the approval of the PRC government.
  F-17
 
 NOTE
          16 – Legal
          Proceeding
 
 On
          June
          30, 2008, Professional Offshore Opportunity Fund Ltd. (the “Plaintiff”) filed a
          motion for default judgment against the Company. On April 21, 2008, the
          Plaintiff initiated the action in the United States District Court Southern
          District of New York, on a claim of breach of contract and non payment
          on a
          promissory note dated September 12, 2008, made by the Company in favor
          of the
          Plaintiff, in the principal amount of $500,000. The Plaintiff claimed
          approximately $671,000 in total relief, which amount includes a 15% principal
          charge of $75,000, accrued interest of $48,125, and liquidated damages
          of
          $37,000.
 
 NOTE
          17 - Subsequent
          Events
  As
          of
          June 30, 2008, the Company was in default to six (6) Purchasers on convertible
          note payments due June 12, 2008 and earlier. At June 30, 2008, excluding
          the
          additional interest and other charges which may apply in a default (see
          Note 9),
          the Company owed principal of $252,525 and accrued interest of $56,160
          to those
          Purchasers.
 
 As
          of
          August 8, 2008, the Company is in default to all eleven (11) Purchasers
          on
          convertible note payments due July 12, 2008. The Notes provide that, at
          the
          option of the holder, an event of default shall make all sums of principal
          and
          interest then remaining unpaid and all other amounts payable immediately
          due and
          payable upon demand. The Company is seeking ways to resolve the debt with
          all
          investors.
  F-18


**Item
      2.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.**





**Forward-Looking
      Statements**





The
      following discussion should be read in conjunction with our financial
      statements, which are included elsewhere in this Form 10-Q (the “Report”). This
      Report contains forward-looking statements which relate to future events or
      our
      future financial performance. In some cases, you can identify forward-looking
      statements by terminology such as “may,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or
      the negative of these terms or other comparable terminology. These statements
      are only predictions and involve known and unknown risks, uncertainties, and
      other factors that may cause our or our industry’s actual results, levels of
      activity, performance or achievements to be materially different from any future
      results, levels of activity, performance or achievements expressed or implied
      by
      these forward-looking statements.





For
      a
      description of such risks and uncertainties refer to our Registration Statement
      on Form S-1/A, and Annual Report on Form 10-K, filed with the Securities and
      Exchange Commission on March 7, 2008 and April 15, 2008, respectively. While
      these forward-looking statements, and any assumptions upon which they are based,
      are made in good faith and reflect our current judgment regarding the direction
      of our business, actual results will almost always vary, sometimes materially,
      from any estimates, predictions, projections, assumptions or other future
      performance suggested herein. Except as required by applicable law, including
      the securities laws of the United States, we do not intend to update any of
      the
      forward-looking statements to conform these statements to actual
      results.


2


***Business
      Overview***





**Our
      History**





Franklin
      Towers Enterprises, Inc*.*(“Franklin”) was incorporated on March 23, 2006 under the laws of the State of
      Nevada. Franklin originally intended to engage in the manufacture, processing
      and distribution of frozen Pan Asian food.





On
      June
      19, 2007, Franklin entered into a Share Purchase Agreement with the shareholders
      of Chongqing Qiluo Textile Co. Ltd.(“Qiluo”), a limited liability company
      organized under the laws of the People’s Republic of China, whereby Franklin
      agreed to acquire 100% of the issued and outstanding registered capital of
      Qiluo
      for consideration of 5,000,000 shares of Franklin’s Series A Convertible
      Preferred Stock (convertible into 52,880,000 shares of common stock) (see
      Company’s Current Report on Form 8-K filed with the SEC on June 20, 2007). Upon
      consummation of such purchase, Qiluo became a wholly-owned subsidiary of
      Franklin.





The
      acquisition is accounted for as a “reverse acquisition”, since the stockholders
      of Qiluo owned a majority of Franklin’s common stock immediately following the
      transaction. The combination of the two companies is recorded as a
      recapitalization of Qiluo pursuant to which Qiluo is treated as the continuing
      entity although Franklin is the legal acquirer. Accordingly, the Company’s
      historical financial statements are those of Qiluo.





Qiluo
      was
      incorporated on December 15, 2006, under the name “Chongqing Qiluo Industry
      Ltd.” under the laws of the People’s Republic of China with the purpose of
      engaging in the manufacture and sale of silk and silk products. Qiluo was
      renamed “Chongqing Qiluo Textile Co., Ltd.” On May 30, 2008, Qiluo renamed to
“Chongqing Fuling Qiluo Wintus Silk Co., Ltd”. Through Qiluo, Franklin has
      focused its business on the production and sale of silk and silk products in
      China since the acquisition of June 19, 2007.





**Our
      Business**





Through
      our subsidiary, Qiluo, we are engaged in the manufacture and sale of raw silk
      in
      China. Qiluo’s executive offices and principal place of business is located in
      the Fulin District of Chongqing Municipality, China. The primary goal of Qiluo
      is to be the leader in silk manufacturing in the local area of Fulin, Chongqing,
      China.





On
      January 28, 2007, the Company signed a twenty (20) year lease effective as
      of
      March 1, 2007 with Xinshengxiang, the holder of approximately 17.8% of our
      common stock at the time, for the use of a factory building located in Fulin,
      Chongqing. The lease commenced on March 1, 2007 and calls for annual base rent
      of $29,160 plus other occupancy costs. The leased factory building is new and
      includes housing facilities.





As
      of
      June 30, 2008 the Company spent approximately $736,000 on manufacturing
      equipment and facilities. The Company planned to build twelve silk reeling
      production lines; each production line has the maximum production capacity
      of
      2.5 to 3 tons of silk per month. Eight of these lines have been completed and
      the other four have been in the process of installation. Currently, eight of
      these production lines are in use. The
      Company started its test production at the end of June 2007 and commenced
      operations from the third quarter of 2007.





The
      Company has approximately 510 employees currently.


3


**Results
      of Operations**





*Six
      months ended June 30, 2008 vs. six months ended June 20, 2007.*





The
      net
      sales for the six months ended June 30, 2008 totaled $2,450,138. We had $0
      sales
      for the six months ended June 20, 2007 due to the fact that the Company only
      commenced its operation in the third quarter of 2007. Of the net sales for
      the
      six months ended June 30, 2008, approximately 52% was generated from the sale
      of
      raw silk, which representing the sale of 60 tons of silk approximately; 15%
      was
      generated from the sale of by products, which are residual substances and
      materials from the processing of cocoons; 33% was generated from the resale
      of
      low quality cocoon which are not usable by our facilities.





The
      Company’s gross margin rate from its current operations is very low. The average
      rate was 1.53% for the six months ended June 30, 2008. The low gross margin
      rate
      was primarily attributable to the higher cost of cocoon and lower sales price
      of
      silk.





Our
      total
      operating expenses for the six months ended June 30, 2008 were $553,764, as
      compared to $105,980 for the six months ended June 30, 2007. The increase was
      primarily due to the Company’s commencement of its operations, which started
      during the third quarter of 2007.





*Three
      months ended June 30, 2008 vs. three months ended June 20, 2007.*





Revenue
      for the three months ended June 30, 2008 was $1,124,478. We had $0 sales for
      the
      three months ended June 30, 2007 due to the Company commenced its operation
      from
      the third quarter of 2007. The revenue for quarter ended June 30, 2008 decreased
      15%, as compared to the revenue of $1,325,660 for the quarter ended March 31,
      2008. The decrease was primarily attributable to the shortage of raw material
      -
      cocoon. During the second quarter, we were unable to purchase enough cocoon
      for
      our production because of the seasonality of cocoon. There were only 37 working
      days during the second quarter, 16 days short of to the 53 working days during
      the first quarter.





Our
      total
      operating expenses for the three months ended June 30, 2008 were $338,065,
      as
      compared to $29,268 for the three months ended June 30, 2007. The increase
      was
      primarily due to the Company’s commencement of its operations, which started
      during the third quarter of 2007.





**Liquidity
      and Capital Resources**





The
      gross
      margin rate during the second quarter of 2008 increased to 2.4% from 0.8% during
      the first quarter of 2008. This improvement resulted from the slow recovery
      of
      the silk price. The average selling price increased 4.75% to 154.70 Yuan per
      kilogram during the second quarter, up from 147.68 Yuan per kilogram during
      the
      first quarter of 2008.





As
      of
      June 30, 2008, we had $298,702 in cash and cash equivalents. The Company had
      working capital shortage of $500,450 at June 30, 2008.





During
      the six months ended June 30, 2008, the Company received $909,256 in cash from
      its major shareholder and borrowed $1,394,960 from third parties to cover
      operational needs.





On
      September 12 and September 20, 2007, the Company entered into Subscription
      Agreements (the "Subscription Agreements") with 11 investors ("Purchasers"),
      for
      the purchase and sale of $3,300,000 of Secured Convertible Promissory Notes
      of
      the Company (the “Notes”) for the aggregate purchase price of $3,300,000 (the
“Note Financing”). The Company received net proceeds from the issuance of the
      Notes of $2,622,425 after finance costs of $382,500 and other expenses of
      $295,075. Pursuant to the terms of the Subscription Agreement, the Company
      also
      issued to the Purchasers warrants to purchase up to 26,400,000 shares of common
      stock of the Company, subject to adjustments for certain issuances and
      transactions.


4


The
      Notes
      bear interest at the rate of 10% per annum, payable in either (a) cash equal
      to
      115% of 5.55% of the initial principal amount or (b) absent any event of
      default, in shares of the Company’s common stock at the lesser of (i) $0.25 per
      share or (ii) 75% of the average of the closing bid prices of the Company’s
      common stock for the 5 trading days preceding the payment date. Said payments
      commence on March 12, 2008 and all accrued but unpaid interest and any other
      amounts due thereon is due and payable on September 12, 2009, or earlier upon
      acceleration following an event of default, as defined in the Notes.





All
      principal and accrued interest on the Notes is convertible into shares of the
      Company’s common stock at the election of the Purchasers at any time at the
      conversion price of $0.25 per share, subject to adjustment for certain
      issuances, transactions or events that would result in “full ratchet” protection
      to the holders.





The
      Company commenced the repayment of convertible notes and interest on March
      12,
      2008 and paid $26,375 in cash to three private investors, which represents
      accrued interest of $12,500 to three private investors and repayment of
      principal in the amount of $13,875 due on the convertible promissory notes.
      The
      Company issued total of 32,354,043 shares to seven private investors during
      the
      six months ended June 30, 2008, which represents the repayment of loan principal
      of $493,950 and loan interest of $174,913.





As
      of
      June 30, 2008, the Company owed repayments to six investors in the amount of
      $308,683, which represents principal repayments of $252,525 and accrued interest
      of $56,160 to those investors. Such amount does not include the additional
      interest resulting from the default described below.





During
      the month of July 2008, the Company did not issue its stock to repay the
      investors because it believed the stock price was too low. The Company was
      in
      default to all eleven (11) investors on payments since then. The Company is
      seeking ways to reconstruct the debt with all investors.





On
      June
      30, 2008, Professional Offshore Opportunity Fund Ltd. (the “Plaintiff”) filed a
      motion for default judgment against the Company. On April 21, 2008, the
      Plaintiff initiated the action in the United States District Court Southern
      District of New York, on a claim of breach of contract and non payment on a
      promissory note dated September 12, 2008, made by the Company in favor of the
      Plaintiff, in the principal amount of $500,000. The Plaintiff claimed
      approximately $671,000 in total to relief. The Company is in the process of
      retaining an attorney to defend this litigation. Any adverse outcome of this
      litigation could materially harm the financial condition of the Company and
      could cause it to cease operations.




The
      Company is in talks with a bank to acquire a short term loan to support its
      operating needs. However, there can be no assurance that the Company can
      successfully get a loan from the bank or secure financing from any other
      source.


5


**Going
      Concern Consideration**





The
      Company started its test production at the end of June 2007 and commenced its
      manufacturing operations during the third quarter of 2007. The Company has
      incurred a net loss of $1,593,218 and $3,134,878, which included the
      amortization of deferred finance cost and debt discount of $1,020,343 and
      $2,074,378 for the three and six months ended June 30, 2008, respectively.
      In
      addition, the Company had negative cash flow from operations since December
      15,
      2006 (date of inception) and has an accumulated deficit of $14,642,974 at June
      30, 2008. Substantial portions of the losses are attributable to amortization,
      consulting and professional fees. Furthermore, the Company’s gross margin rate
      from its current operations was very low. It was 2.4% and 1.5% for the three
      and
      six months ended June 30, 2008, respectively. The Company had a working capital
      deficiency of $500,450 at June 30, 2008. These factors raised substantial doubt
      about the Company’s ability to continue as going concern.





There
      can
      be no assurance that sufficient funds will be generated during the next twelve
      months or thereafter from the Company’s current operations, or that funds will
      be available from external sources such as debt or equity financings or other
      potential sources. The lack of additional capital could force the Company to
      curtail or cease operations and would, therefore, have a material adverse effect
      on its business. Furthermore, there can be no assurance that any such required
      funds, if available, will be available on attractive terms or that they will
      not
      have a significant dilutive effect on the Company's existing
      stockholders.





The
      Company has undertaken further steps as part of a plan to improve operations
      with the goal of sustaining our operations for the next twelve months and beyond
      to address our lack of liquidity by raising additional funds, either in the
      form
      of debt or equity or some combination thereof. The Company is planning to reduce
      its cost of goods sold by purchase its main raw material directly from farmers
      in the local neighbored area and to reduce its overhead cost by fully utilizing
      its current manufacture facilities. However, there can be no assurance that
      the
      Company can successfully accomplish these steps and or business plans, and
      it is
      uncertain that the Company will achieve a profitable level of operations and
      be
      able to obtain additional financing.


There
      can
      be no assurance that any additional financing will be available to the Company
      on satisfactory terms and conditions, if at all. In the event we are unable
      to
      continue as a going concern, we may elect or be required to seek protection
      from
      our creditors by filing a voluntary petition in bankruptcy or may be subject
      to
      an involuntary petition in bankruptcy.





**Plan
      of Operation**





In
      an
      effort to obtain a stable raw material supply and to maximize both output and
      quality of our silk production through Qiluo, we are contemplating the
      acquisition of various other silk worm farms. On November 26, 2007, we entered
      into a letter of intent with Chongqing Fulin Municipal Government to acquire
      certain assets from Zhengzhong Silkworm Industrial Development Co., Ltd., a
      state owned entity, pursuant to which we intend to acquire the assets of cocoon
      purchase stations from Zhengzhong and exclusive right of those purchase stations
      to purchase cocoons produced from approximately 15,000 acres of mulberry farms
      in the local area.





On
      December 28, 2007, the Company paid 3,000,000 Renmimbi ($437,400 translated at
      the June 30, 2008 foreign exchange rate) as a down payment to Chongqing Fulin
      Municipal Government in order to execute the acquisition plan. At June 30,
      2008,
      the Company’s deposit of $437,400 was held by the Chongqing United Assets and
      Equity Exchange, Ltd. We will not be able to complete this acquisition until
      we
      secure additional funds.





As
      part
      of acquisition plan, on March 19, 2008, the Company signed a contract with
      Chongqing Fulin State Owned Assets Investment and Management Company to rent
      and
      use state owned cocoon purchase station and warehouse at no cost from March
      19,
      2008 to March 18, 2009. The Company paid a deposit of 50,000 Renminbi ($7,290
      translated at the June 30, 2008 foreign exchange rate) to Chongqing Fulin State
      Owned Assets Investment and Management Co. as required by the rent
      contract.


6


The
      acquisition of certain asset of Zhengzhong Silkworm Industrial Development
      Co.,
      Ltd. from Fuling Municipal Government is not consummated yet since the Company
      did not make the full payment of $1,512,646 (10,374,800 Reminbi translated
      at
      the June 30, 2008 foreign exchange rate) except for deposits of $437,400.
      Nevertheless, the Company started to use those cocoon stations and to purchase
      cocoon directly from local farmers commenced on the second quarter of 2008.
      It
      is estimated that purchase directly from local farmers will help the Company
      to
      reduce the cocoon cost about 10%. The benefit of reduce purchase costs will
      not
      be realized until the later of the third quarter or the fourth quarter of this
      year.




Furthermore,
      in an effort to expand silk production and subsequent processing ability, on
      November 28, 2007, we entered into a binding letter agreement with Chongqing
      Wintus, pursuant to which we intend to acquire certain assets of Wintus,
      including the stock of their seven wholly owned Chinese subsidiaries. The
      business of Wintus is focused on the production of raw silk and the subsequent
      processing and sales of various silk products. As consideration for the assets,
      we agreed to pay a combination of cash and stock, in amounts to be mutually
      agreed upon after we have completed our due diligence investigation of Wintus’
and its assets. As of August 15, 2008, the Company did not take any further
      steps for this planned acquisition. We will not be able to complete this
      acquisition until we secure additional funds.





Should
      our initiatives to maximize both output and quality of silk production move
      forward, additional funds may be required. However, there can be no assurance
      that additional capital will be available to us. Although we may seek to raise
      additional funds, we have no specific plans, understandings or agreements with
      respect to such an offering, and we have given no contemplation with respect
      to
      the securities to be offered or any other issue with respect to any offering.
      We
      may have to issue debt or equity or enter into a strategic arrangement with
      a
      third party. We currently have no agreements, arrangements or understandings
      with any person to obtain funds through bank loans, lines of credit or any
      other
      sources.





**Lack
      of Insurance**





The
      Company currently has no insurance in force for its office facilities and
      operations and it cannot be certain that it can cover the risks associated
      with
      such lack of insurance or that it will be able to obtain and/or maintain
      insurance to cover these risks at economically feasible premiums.





**Critical
      Accounting Policies and Estimates**





*Recent
      Accounting Pronouncements*





For
      a
      summary of our critical accounting policies, please refer to our Annual Report
      on Form 10-K for the year ended December 31, 2007 filed with SEC on April 15,
      2008 and Note 1 of Notes to Condensed Consolidated Financial Statements under
      the caption “Recent Accounting Pronouncements” included in Part I, Item 1,
      Financial Statements of this Form 10-Q.


7


**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.





**Commitments
      and Contingencies**





Consulting
      Fee Payment





On
      October 1, 2007, the Board determined to engage First Line Capital, LLC for
      one
      year term at $5,000 per month and Mr. Guo Fan for one year term at $4,000 per
      month for their advisory services. The unpaid consulting service fee amounted
      to
      $30,000 and $24,000 as of June 30, 2008, which has been included in the accounts
      payable balances.





Registration
      Rights Arrangement





In
      connection with the convertible debt, the Company agreed to prepare and file
      with the Securities and Exchange Commission within 60 days following the closing
      of a registration statement on Form SB-2 for the purpose of registering for
      resale all of the shares of common stock underlying the Notes, If the Company
      fails to file such registration statement within such time, or if the
      registration statement is not declared effective within 120 days from September
      12, 2007, the Company must pay monthly liquidated damages in cash equal to
      2% of
      the principal amount of the Notes and purchase price of the Warrants. The
      Company filed a registration statement on December 26: the registration
      statement has not yet been declared effective. Accordingly, the Company has
      accrued liquidated damages of $474,105 at June 30, 2008, which has been included
      in interest expense for the six months ended June 30, 2008 and accounts payable
      and accrued expenses at June 30, 2008





**Item
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk.**





Smaller
      reporting companies are not required to provide the information required by
      Item
      305.





**Item
      4.** **** **Controls
      and Procedures.**




Under
        the
        direction of our Chief Executive Officer/ Chief Financial Officer, we evaluated
        our disclosure controls and procedures and concluded that our disclosure
        controls and procedures were not effective as of June 30, 2008 due to the
        following: As our business has developed during the current fiscal year and
        as
        we anticipate our business will continue to develop in the future, our internal
        controls have not kept pace with our existing and anticipated future business
        development and as such we have material weaknesses in thatdue
        to
        our current financial situation, we lack sufficient financial resources to
        implement a fully effective internal controls and procedures infrastructure
        for
        our current and anticipated future business conditions.
  There
        were no changes in our internal control over financial reporting during the
        period ended June 30, 2008, that have materially affected, or are reasonably
        likely to materially affect, our internal control over financial
        reporting.
  8





**PART
      II**


**OTHER
      INFORMATION**





**Item
      1.** **** **Legal
      Proceedings.**




On
        June
        30, 2008, Professional Offshore Opportunity Fund Ltd. (the “Plaintiff”) filed a
        motion for default judgment against the Company. On April 21, 2008, the
        Plaintiff initiated the action in the United States District Court Southern
        District of New York, on a claim of breach of contract and non payment on
        a
        promissory note dated September 12, 2008, made by the Company in favor of
        the
        Plaintiff, in the principal amount of $500,000. The Plaintiff claimed
        approximately $671,000 in total relief, which amount includes a 15% principal
        charge of $75,000, accrued interest of $48,125, and liquidated damages of
        $37,000.


9





**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds.**





***Unregistered
      Sales of Equity Securities***





None





***Purchases
      of equity securities by the issuer and affiliated
      purchasers***





None.





***Use
      of Proceeds***





None





**Item
      3.** **** **Defaults
      Upon Senior Securities.**





None





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders.**





There
      was
      no matter submitted to a vote of security holders during the fiscal quarter
      ended June 30, 2008.





**Item
      5.** **** **Other
      Information.**





None





Item
      6. **** Exhibits





Exhibit
              No.
            
            Description31.1
            
            Rule
                13a-14(a)/15d14(a) Certifications of Dingliang Kuang, the President,
                Chief
                Executive Officer, Treasurer and Director (Attached
                Hereto)32.1
            
            Section
                1350 Certifications of Dingliang Kuang, the President, Chief Executive
                Officer, Treasurer and Director (Attached
                Hereto)





**SIGNATURES**





In
      accordance with to requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





FRANKLIN
                TOWERS ENTERPRISES, INC.Dated:
                August 18, 2008
            By:
            /s/Dingliang
                KuangName:
            Dingliang
                KuangTitle:
            President,
                Chief Executive Officer,
              Treasurer
                and Director(Principal
                Executive, Financial and
              Accounting
                Officer)




10