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 September 30, 2008
 
 o  **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**
                (State
                  of incorporation)
              **20-4069588**
                (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 o
 
 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
              o
              Accelerated filer
              oNon-accelerated filer
              o
              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 o No x
 
 Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        stock, as of the latest practicable date: 123,484,043 shares as of November
        18,
        2008
  
  **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
              8OTHER
                  INFORMATION
              8Item
                  1.
              Legal
                  Proceedings.
              8Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds.
              9Item
                  3.
              Defaults
                  Upon Senior Securities.
              9Item
                  5.
              Other
                  Information.
              9Item
                  6.
              Exhibits
              9
  
  **PART
        I**
 
 **Item
        1.**  **Financial
        Statements**
  FRANKLIN
          TOWERS ENTERPRISES, INC. AND SUBSIDIARY
 
 INDEX
          TO
          FINANCIAL STATEMENTS
 
 PageCondensed
                    Consolidated Balance Sheets
                  as
                    of September 30, 2008 (Unaudited) and December 31, 2007
                F-2Condensed
                    Consolidated Statements of Operations
                  for
                    the three and nine months ended September 30, 2008 and 2007
                    (Unaudited)
                F-3Condensed
                    Consolidated Statement of Stockholders’ Equity
                  for
                    the nine months ended September 30, 2008 (Unaudited)
                F-4Condensed
                    Consolidated Statements of Cash Flows
                  for
                    the nine months ended September 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
 
 September 30,
                  2008
                
                December 31,
                  2007(Unaudited)ASSETSCurrent
                    Assets:Cash
                    and cash equivalents
                
                $
                766,837
                
                $
                1,311,939Accounts
                    receivable - net of allowance of $30,030 and $2,146 as of September
                    30,
                    2008 and December 31, 2007, respectively
                
                
                93,640
                
                
                105,160Inventories
                
                
                1,729,927
                
                
                739,499Prepaid
                    costs and expenses
                
                
                691,929
                
                
                15,102Total
                    Current Assets
                
                
                3,282,333
                
                
                2,171,700Property
                    and Equipment, net
                
                
                875,757
                
                
                517,632Other
                    Assets:Deposits
                
                
                486,024
                
                
                545,289Deferred
                    finance costs - net of accumulated amortization of $281,780 and
                    $82,402 as
                    of September 30, 2008 and December 31, 2007, respectively
                
                
                100,720
                
                
                300,098586,744
                
                
                845,387TOTAL
                    ASSETS
                
                $
                4,744,834
                
                $
                3,534,719LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    Liabilities:Convertible
                    notes payable - net of unamortized discounts of $1,482,301 and
                    $1,680,939
                    as of September 30, 2008 and December 31, 2007,
                    respectively
                
                $
                1,309,874
                
                $
                79,664Loans
                    payable
                
                
                1,059,797
                
                
                911,085Accounts
                    payable and accrued expenses
                
                
                1,509,385
                
                
                1,213,282Loans
                    payable - related parties
                
                
                19,391
                
                
                20,581Total
                    Current Liabilities
                
                
                3,898,447
                
                
                2,224,612Long
                    Term Liabilities:Convertible
                    notes payable - net of unamortized discounts of $0 and $1,078,882
                    as of
                    September 30, 2008 and December 31, 2007, respectively
                
                
                -
                
                
                460,515TOTAL
                    LIABILITIES
                
                
                3,898,447
                
                
                2,685,127Stockholders'
                    Equity:Preferred
                    stock, $0.001 par value; 5,000,000 shares authorized, 0 shares
                    issued and
                    outstanding as of Septembre 30, 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 September
                    30,
                    2008 and December 31, 2007, respectively
                
                
                12,348
                
                
                9,113Deferred
                    finance costs
                
                
                (1,834,385
                )
                
                (3,415,349
                )Additional
                    paid-in capital
                
                
                18,278,752
                
                
                15,659,700Accumulated
                    deficit
                
                
                (15,937,073
                )
                
                (11,508,096
                )Accumulated
                    other comprehensive income
                
                
                326,745
                
                
                104,224Total
                    Stockholders' Equity
                
                
                846,387
                
                
                849,592TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                4,744,834
                
                $
                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 September 30,
                
                Nine Months Ended September 30,2008
                
                2007
                
                2008
                
                2007Net
                    Sales
                
                $
                2,334,638
                
                $
                346,947
                
                $
                4,784,776
                
                $
                346,947Cost
                    of Sales
                
                
                2,051,618
                
                
                324,066
                
                
                4,464,228
                
                
                324,066Gross
                    Profit
                
                
                283,020
                
                
                22,881
                
                
                320,548
                
                
                22,881Selling,
                    General and Administration Expenses
                
                
                338,687
                
                
                9,557,840
                
                
                892,451
                
                
                9,663,820Loss
                    From Operations
                
                
                (55,667
                )
                
                (9,534,959
                )
                
                (571,903
                )
                
                (9,640,939
                )Other
                    Income (Expenses):Interest
                    income
                
                
                576
                
                
                20
                
                
                2,152
                
                
                532Interest
                    Expense
                
                
                (1,239,008
                )
                
                (204,073
                )
                
                (3,859,226
                )
                
                (204,169
                )Total
                    Other Income (Expense)
                
                
                (1,238,432
                )
                
                (204,053
                )
                
                (3,857,074
                )
                
                (203,637
                )Loss
                    Before Income Tax
                
                
                (1,294,099
                )
                
                (9,739,012
                )
                
                (4,428,977
                )
                
                (9,844,576
                )Provision
                    for Income Tax
                
                
                -
                
                
                -
                
                
                -
                
                
                -Net
                    Loss
                
                $
                (1,294,099
                )
                $
                (9,739,012
                )
                $
                (4,428,977
                )
                $
                (9,844,576
                )Net
                    Loss per Share - Basic and Diluted
                
                $
                (0.01
                )
                $
                (0.30
                )
                $
                (0.04
                )
                $
                (0.32
                )Weighted
                    Average Shares Outstanding - Basic and Diluted
                
                
                123,484,043
                
                
                31,989,130
                
                
                107,741,181
                
                
                30,836,081Comprehensive
                    Loss:Net
                    loss
                
                $
                (1,294,099
                )
                $
                (9,739,012
                )
                $
                (4,428,977
                )
                $
                (9,844,576
                )Other
                    comprehensive income
                
                
                77,477
                
                
                14,582
                
                
                222,521
                
                
                41,729Comprehensive
                    Loss
                
                $
                (1,216,622
                )
                $
                (9,724,430
                )
                $
                (4,206,456
                )
                $
                (9,802,847
                )
  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 NINE MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED)
 
 Preferred Stock
                
                Common Stock
                
                Additional
                  Paid - 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
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,580,964
                
                
                -
                
                
                -
                
                
                1,580,964Repayment
                    of nonreciprocal funds transferred to shareholder
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,953,425
                
                
                -
                
                
                -
                
                
                -
                
                
                1,953,425Net
                    loss for the nine months ended September 30, 2008
                    (Unaudited)
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (4,428,977
                )
                
                -
                
                
                (4,428,977
                )Foreign
                    currency translation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                222,521
                
                
                222,521Balance
                    - September 30, 2008 (Unaudited)
                
                
                -
                
                $
                -
                
                
                123,484,043
                
                $
                12,348
                
                $
                18,278,752
                
                $
                (1,834,385
                )
                $
                (15,937,073
                )
                $
                326,745
                
                $
                846,387
  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 NINE MONTHS ENDED SEPTEMBER 30,
 (UNAUDITED)
 
 2008
                
                2007Cash
                    Flows from Operating Activities:Net
                    Loss
                
                $
                (4,428,977
                )
                $
                (9,844,576
                )Adjustments
                    to Reconcile Net Loss to NetCash
                    Used in Operating Activities:Depreciation
                    expense
                
                
                58,750
                
                
                14,483Bad
                    debt expense
                
                
                21,220
                
                
                -Amortization
                    of deferred finance costs
                
                
                199,378
                
                
                105,904Amortization
                    of debt discount - fair value of warrants and beneficial conversion
                    feature
                
                
                1,277,520
                
                
                81,259Amortization
                    of deferred finance costs - consulting
                
                
                1,580,964
                
                
                -Common
                    stock issued for services
                
                
                -
                
                
                9,200,000Common
                    stock issued for accrued interest on convertible notes
                    payable
                
                
                174,913
                
                
                -Rent
                    expense satisfied by reduction of nonreciprocal funds transferred
                    balance
                
                
                36,559
                
                
                -Changes
                    in operating assets and liabilitiesIncrease
                    in accounts receivable:
                
                
                (16,364
                )
                
                -Increase
                    in inventories
                
                
                (990,428
                )
                
                (620,734
                )Increase
                    in prepaid costs and expenses
                
                
                (676,827
                )
                
                (33,754
                )Increase
                    in accounts payable and accrued liabilities
                
                
                296,103
                
                
                123,656Net
                    Cash Used in Operating Activities
                
                
                (2,467,189
                )
                
                (973,762
                )Cash
                    Flows from Investing Activities:Capital
                    expenditures
                
                
                (33,606
                )
                
                (361,262
                )Acquisition
                    deposit returned - net
                
                
                89,835
                
                
                -Net
                    Cash Provided by (Used in) Investing Activities
                
                
                56,229
                
                
                (361,262
                )Cash
                    Flows from Financing Activities:Proceeds
                    from short term loan
                
                
                148,712
                
                
                -Proceeds
                    from issuance of convertible notes payable
                
                
                
                
                
                3,300,000Finance
                    costs related to issuance of convertible notes
                
                
                
                
                
                (382,500
                )Repayment
                    of convertible notes payable
                
                
                (13,875
                )
                
                -(Repayment)
                    proceeds from related party
                
                
                (1,190
                )
                
                445,462Proceeds
                    from repayment of nonreciprocal funds transferred to
                    shareholder
                
                
                1,663,249
                
                
                -Proceeds
                    from an additional investment charged to additional paid in
                    capital
                
                
                -
                
                
                768,600Net
                    cash of business acquired
                
                
                -
                
                
                (2,552
                )Net
                    Cash Provided by Financing Activities
                
                
                1,796,896
                
                
                4,129,010Effect
                    of Exchange Rate Changes on Cash and Cash Equivalents
                
                
                68,962
                
                
                41,729Net
                    (Decrease) Increase in Cash and Cash Equivalents
                
                
                (545,103
                )
                
                2,835,715Cash
                    and Cash Equivalents - Beginning of Period
                
                
                1,311,939
                
                
                384,423Cash
                    and Cash Equivalents - End of Period
                
                $
                766,837
                
                $
                3,220,138Supplemental
                    Cash Flow Information:Interest
                    paid
                
                $
                12,500
                
                $
                -Income
                    taxes paid
                
                $
                -
                
                $
                -Supplemental
                    Disclosure of Non-Cash Investing Activities: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
                
                $
                493,950
                
                $
                -Common
                    stock issued for accrued interest on convertible notes
                    payable
                
                $
                174,912
                
                $
                -Common
                    stock purchase warrants issued for deferred finance costs
                
                $
                -
                
                $
                3,977,236Debt
                    discount recorded in connection with issuance of convertible
                    notes
                    payable
                
                $
                -
                
                $
                3,300,000
  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.
 
 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, named “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 include
          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 $1,294,099 and $4,428,977, which included the
          amortization of deferred finance costs and debt discounts of $983,483 and
          $3,057,862 for the three and nine months ended September 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 $15,937,073
          at
          September 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 low. It was 12.1% and 6.7%
          for the
          three and nine months ended September 30, 2008, respectively. The Company
          had a
          working capital deficiency of $616,114 at September 30, 2008. These factors
          raise substantial doubt concerning 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 nine months ended September 30, 2008, the Company received proceeds
          from a
          significant shareholder in the amount of $1,663,249 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. From the Spring of 2008, the Company
          began
          purchasing its main raw material directly from farmers through the planned
          acquisition of “Zhengzhong” (see Note 7), thereby helping the Company to reduce
          its raw material - cocoon cost by 14.5% directly and increase its operating
          gross margin rate to 12.1% during the quarter ended September 30, 2008.
          However,
          there can be no assurance that the Company will be able to acquire “Zhengzhong”
and to accomplish these objectives, 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 September 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 September 30, 2008 and the
          results
          of operations and cash flows for the periods ended September 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 nine month period ended September 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:
 September 30,
                
                December 31,2008
                
                2007(Unaudited)Finished
                    Goods
                
                $
                134,535
                
                $
                544,327Processed
                    cocoons
                
                
                963,889
                
                
                -Raw
                    Materials
                
                
                345,975
                
                
                182,335Work
                    in Process
                
                
                285,528
                
                
                12,837Total
                
                $
                1,729,927
                
                $
                739,499
 
 Finished
          goods consist of those silks and by products available for sale. There
          was no
          valuation allowance for inventory loss at September 30, 2008 and December
          31,
          2007.
  F
              -
              9
 
 NOTE
          5 – Prepaid
          Costs and Expenses
 
 Prepaid
          costs and expenses consist of:
 September 30,
                  2008
                
                December 31,
                  2007(Unaudited)Advances
                    to farmers and others for future deliveries
                  of
                    silk cocoons and other inventory
                
                $
                481,972
                
                $
                -Cash
                    advances to personnel operating silk cocoon
                  purchase
                    stations for future overhead costs
                
                
                16,420
                
                
                -Advances
                    to vendors for future overhead costs
                
                
                89,360
                
                
                -Value
                    added tax credits
                
                
                91,425
                
                
                -Other
                
                
                12,752
                
                
                15,102Total
                
                $
                691,929
                
                $
                15,102
  NOTE
          6 - Property
          and Equipment
 
 Property
          and equipment is summarized as follows:
 Fixed
                    Assets
                
                Estimated
                  Useful Life
                
                September 30,
                  2008
                
                December 31,
                  2007(Unaudited)Production
                    Equipment
                
                
                10
                
                $
                730,027
                
                $
                516,381Auxiliary
                    Equipment
                
                
                10
                
                
                6,981
                
                
                7,878Office
                    Equipment
                
                
                3-5
                
                
                22,271
                
                
                15,991Automobile
                
                
                5
                
                
                125,188
                
                
                -Furniture
                    and Fixtures
                
                
                5-7
                
                
                29,707
                
                
                25,872Construction
                    in progress
                
                
                
                
                
                72,814
                
                
                -986,988
                
                
                566,122Less:
                    Accumulated Depreciation
                
                
                
                
                
                111,231
                
                
                48,490$
                875,757
                
                $
                517,632
 
 Depreciation
          expense was $58,750 for the nine months ended September 30, 2008, of which
          $39,926 was included in the cost of sales. Depreciation expense was $14,483
          for
          the nine months ended September 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:
 September 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")
                
                $
                411,270
                
                $
                411,270Deposit
                    for purchase of silkworm seeds
                
                
                -
                
                
                134,019Deposit
                    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
                
                
                7,364
                
                
                -Payment
                    on August 15, 2008 in connection with the purchase
                
                
                36,820
                
                
                -Foreign
                    currency translation adjustment
                
                
                30,570
                
                
                -Total
                
                $
                486,024
                
                $
                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
          ($1,528,000 translated at the September 30, 2008 exchange rate). If the
          Company
          is unable to pay the remaining 7,124,800 Renminbi ($1,049,340 translated
          at the
          September 30, 2008 exchange rate) due, the Company’s total payment of 3,250,000
          Renminbi ($478,660 translated at the September 30, 2008 exchange rate)
          may be
          forfeited and not recovered (partially or in full).
 
 NOTE
          8 - Loans
          Payable – Short Term
 
 Loans
                    payable consist of:
                
                September 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
                
                $
                976,467
                
                $
                -Qiluo
                    loans payable to one individual, interest at 6% per
                  annum,
                    due on demand
                
                
                63,330
                
                
                -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
                
                $
                1,059,797
                
                $
                911,085
 
 Loans
                    payable – related parties consist of:
                
                September 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
                
                
                7,158
                
                
                8,348Total
                
                $
                19,391
                
                $
                20,581
 
  F
              -
              11
  NOTE
          9 - Convertible
          Notes Payable
 
 September 30,
                
                December 31,Convertible
                    notes payable, net consist of:
                
                2008
                
                2007(Unaudited)Convertible
                    notes - initial face amount
                
                $
                3,300,000
                
                $
                3,300,000Less
                    unamortized debt discounts:Discount
                    on relative fair value of warrants
                
                
                (2,903,247
                )
                
                (2,903,247
                )Discount
                    on beneficial conversion feature
                
                
                (396,753
                )
                
                (396,753
                )Less
                    accumulated amortization
                
                
                1,817,699
                
                
                540,179Unamortized
                    debt discounts
                
                
                (1,482,301
                )
                
                (2,759,821
                )Repayment
                    of convertible notes
                
                
                (507,825
                )
                
                -Convertible
                    notes payable, net
                
                $
                1,309,874
                
                $
                540,179Current
                    portion
                
                $
                1,309,874
                
                $
                79,664Long
                    term portion
                
                $
                -
                
                $
                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.
  F
              -
              12
 
 NOTE
          9 - Convertible
          Notes Payable (Continued)
 
 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.
 
 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 asset 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 discounts are reported as a component of the interest expense.
          The
          amortization of deferred finance costs and debt discounts for the nine
          months
          ended September 30, 2008 were $1,580,964 and $1,277,520, 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 Purchasers during the six months ended June 30,
          2008,
          which represented accrued interest of $174,912 and repayment of principal
          of
          $493,950. The Company did not make any repayments during the three months
          ended
          September 30, 2008 due to its financing difficulties. The Company is in
          default
          to all eleven investors. (See Note 17)
 
 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 nine months ended September
          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
                    - September 30, 2008
                  (Unaudited)
                    and December 31, 2007
                
                
                
                
                
                30,360,000
                
                $
                0.68
 
 
 Warrants
          outstanding and exercisable by price range as of September 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 November
            15,
            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 Transaction
 
 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 $1,663,249 in cash during
          the
          nine months ended September 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 $253,617
          (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 nine months ended September 30, 2008, the Company and Xinshengxiang
          agreed
          to offset the Company’s $36,559 rent liability to Xinshengxiang and treat the
          $36,559 as a repayment of the nonreciprocal funds transferred in 2007.
          The
          Company recorded the $36,559 repayment as an increase in additional paid-in
          capital.
 
 At
          September 30, 2008, the unpaid balance of the nonreciprocal funds transferred
          to
          Xinshengxiang in 2007 is $66,260.
 
 During
          the three months ended March 31, 2008, the Company purchased approximately
          42.3
          tons raw material–cocoon for $301,455 (2,198,960 Renminbi) at market price from
          Xinshengxiang.
 
 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 $766,837 as of September 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 ($29,456 translated at the September 30, 2008
          exchange rate) plus other occupancy costs.
 
 Future
          minimum rentals under this lease are as follows:
  Year Ending
                  September 30,
                
                Future Minimum
                  Rent Payments2009
                
                $
                29,4562010
                
                
                29,4562011
                
                
                29,4562012
                
                
                29,4562013
                
                
                29,456Thereafter
                
                
                395,201Total
                
                $
                542,481
 
 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 $542,636
          at September 30, 2008, which has been included in interest expense for
          the nine
          months ended September 30, 2008 and accounts payable and accrued expenses
          at
          September 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, 2007, 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 – Default
          on Convertible Notes Payable
  As
          of
          June 12, 2008, the Company was in default to six (6) Purchasers on convertible
          notes payments due June 12, 2008 and earlier. As of July 12, 2008, the
          Company
          is in default to all eleven (11) Purchasers on convertible notes 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. As of
          September 30, 2008, the unpaid convertible notes payable balance is $2,792,175;
          unpaid accrued interest is $135,329; and unpaid accrued liquidated damages
          are
          $641,636. The Company is seeking ways to resolve the default issue 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.
 
 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 was accounted for as a “reverse acquisition,” because 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, named “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 to “Chongqing
        Qiluo Textile Co., Ltd.” On May 30, 2008, Qiluo changed its name to “Chongqing
        Fuling Qiluo Wintus Silk Co., Ltd”.
  **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 500,000 Renminbi ($29,456 translated at September 30, 2008 exchange rate)
        plus other occupancy costs. The leased factory building is new and includes
        housing facilities.
 
 As
        of
        September 30, 2008 the Company spent approximately $737,000 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. Eleven of these lines have been completed
        and
        the other one has 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.
 
 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. The total purchase price is 10,374,800 Renminbi ($1,528,000
        translated at September 30, 2008 exchange rate)
  3
  On
        December 28, 2007, the Company paid 3,000,000 Renminbi ($441,840 translated
        at
        the September 30, 2008 foreign exchange rate) as a down payment to Chongqing
        Fulin Municipal Government in order to execute the acquisition plan. On August
        15, 2008, the Company paid additional 250,000 Renminbi ($36,820 translated
        at
        September 30, 2008 foreign exchange rate). If the Company is unable to pay
        the
        remaining 7,124,800 Renmibi ($1,049,340 translated at the September 30, 2008
        exchange rate) due, the Company’s total payment of 3,250,000 Renminbi ($478,660
        translated at the September 30, 2008 exchange rate) may be forfeited and
        not
        recovered (partially or in full).
 
 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 ($7,364
        translated at the September 30, 2008 foreign exchange rate) to Chongqing
        Fulin
        State Owned Assets Investment and Management Co. as required by the rent
        contract.
 
 The
        acquisition of certain assets of Zhengzhong Silkworm Industrial Development
        Co.,
        Ltd. from Fuling Municipal Government has not been consummated as the Company
        failed to make the full payment. Nevertheless, the Company started to use
        these
        cocoon stations and to purchase cocoon directly from local farmers in the
        second
        quarter of 2008.
  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 November 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.
 
 The
        current market condition – financial crisis will have a negative impact on
        our operations in the coming quarters. The market is lack of demand for our
        products. The silk price has decreased 12% and cocoon price decreased 3%,
        compared average prices in the third quarter of 2008. Chinese authorities
        announced plans to spend $586 billion over the next two years in order to
        stimulate the economy. However, there can be no assurance that this plan
        will
        have a positive effect on our industry in a short run.
 
 **Results
        of Operations**
 
 Three Months Ended
              
              Nine Months EndedSeptember 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Net
                  sales
              
              $
              2,334,638
              
              $
              346,947
              
              $
              4,784,776
              
              $
              346,947Cost
                  of sales
              
              
              2,051,618
              
              
              324,066
              
              
              4,464,228
              
              
              324,066Gross
                  profit
              
              
              283,020
              
              
              22,881
              
              
              320,548
              
              
              22,881Selling,
                  general and administrative expenses
              
              
              338,687
              
              
              9,557,840
              
              
              892,451
              
              
              9,663,820Loss
                  from operations
              
              
              (55,667
              )
              
              (9,534,959
              )
              
              (571,903
              )
              
              (9,640,939
              )Other
                  expense
              
              
              (1,238,432
              )
              
              (204,053
              )
              
              (3,857,074
              )
              
              (203,637
              )Net
                  loss
              
              $
              (1,294,099
              )
              $
              (9,739,012
              )
              $
              (4,428,977
              )
              $
              (9,844,576
              )
  4
  *Three
        months ended September 30, 2008 vs. three months ended September 30, 2007.*
  Revenue
        for the three months ended September 30, 2008 was $2,334,638, an increase
        of
        $1,987,691, as compared to the revenue of $346,947 for the three months ended
        September 30, 2007. The increase is primarily attributable to the following
        factors: (i) the Company only commenced its operation in the third quarter
        of
        2007 and thus was not in full operations during the third quarter of 2007;
        (ii)
        commence in spring cocoon season of 2008, the Company started to use its
        exclusive right to purchase cocoons directly from local farmers through acquired
        Zhengzhong assets (see Business), the Company sold excess processed cocoons
        which are not suitable by our facilities, approximately 203 tons to other
        manufacturers and realized revenue of $1.09 million (7.4 million
        Renminbi).
 
 Our
        total
        operating expenses for the three months ended September 30, 2008 were $338,687,
        a decrease of $9,219,153 as compared to $9,557,840 for the three months ended
        September 30, 2007. The decrease was primarily due to the common stocks issued
        for services, which was valued at $9,200,000 and recorded as consulting fee
        during the three months ended September 30, 2007.
 
 *Nine
        months ended September 30, 2008 vs. nine months ended September 30, 2007.*
 
 The
        net
        sales for the nine months ended September 30, 2008 totaled $4,784,776, an
        increase of $4,437,829 as compared to the sales of $346,947 for the nine
        months
        ended September 30, 2007. This is due to the fact that the Company only
        commenced its operation in the third quarter of 2007. Of the net sales for
        the
        nine months ended September 30, 2008, approximately 43.3% was generated from
        the
        sale of raw silk, which represented the sale of approximately 93.8 tons of
        silk
        ; 12.2% was generated from the sale of by products, which are residual
        substances and materials from the processing of cocoons; 39.6% was generated
        from the resale of 330.2 tons of excessive processed cocoons and certain
        cocoons
        which were not suitable for our facilities; and 4.8% was other sales and
        income.
 
 Our
        total
        operating expenses for the nine months ended September 30, 2008 were $892,451,
        as compared to $9,663,820 for the nine months ended September 30, 2007. The
        decrease was primarily due to the common stock issued for services, which
        was
        valued at $9,200,000 and recorded as consulting fee during the third quarter
        of
        2007. Absenting consulting expense, the operating expenses were increased
        $428,631, or increased 92%, compared to the comparable period of 2007. Due
        to
        that Company started its operation from the third quarter of 2007.
  **Liquidity
        and Capital Resources**
 
 The
        gross
        margin rate during the third quarter of 2008 increased to 12.1% from 2.4%
        during
        the second quarter of 2008. This improvement is mainly the result of our
        acquisition of Zhengzhong (see Business). The Company start to use its exclusive
        right through acquired assets of Zhengzhong to purchase cocoon directly from
        local farmers commence on spring cocoon season of 2008. As a result, the
        cost of
        our main raw material – cocoon decreased 27%, the average cost (excluding
        tax) purchased directly from farmers is $4,620 (31,350 Renminbi) per ton,
        compared to $6,350 (43,140 Renminbi) per ton, the average cost purchased
        from
        other vendors.
 
 As
        of
        September 30, 2008, we had $766,837 in cash and cash equivalents. The Company
        had negative working capital of $616,114 at September 30, 2008.
 
 During
        the nine months ended September 30, 2008, the Company received $1,663,249
        in
        cash from its major shareholder as a repayment of funds that were advanced
        to
        the shareholder in 2007 and borrowed $148,712 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.
  5
  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. The Company did not make any
        repayment during the three months ended September 30, 2008 due to its financing
        difficulties.
 
 As
        of
        June 12, 2008, the Company was in default to six (6) Purchasers on convertible
        notes payments due June 12, 2008 and earlier. As of July 12, 2008, the Company
        is in default to all eleven (11) Purchasers on convertible notes 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. As of
        September 30, 2008, the unpaid convertible notes payable balance is $2,792,175;
        unpaid accrued interest is $135,329; and unpaid accrued liquidated damages
        is
        $641,636. The Company is seeking ways to resolve the default issue 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, 2007, 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.
  **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 $1,294,099 and $4,428,977, which included the
        amortization of deferred finance costs and debt discounts of $983,483 and
        $3,057,862 for the three and nine months ended September 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 $15,937,073
        at
        September 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 low. It was 12.1% and 6.7% for
        the
        three and nine months ended September 30, 2008, respectively. The Company
        had a
        working capital deficiency of $616,114 at September 30, 2008. These factors
        raise substantial doubt concerning the Company’s ability to continue as a going
        concern.
  6
  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 nine months ended September 30, 2008, the Company received proceeds from
        a
        significant shareholder in the amount of $1,663,249 as a repayment of the
        funds
        advanced 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. From the Spring of 2008, the Company
        started
        to purchase its main raw material directly from farmers through the acquisition
        of Zhengzhong. It helped the Company to reduce its raw material - cocoon
        cost by
        14.5% directly and increased its operating gross margin rate to 12.1%
        consequently during the quarter ended September 30, 2008. However, the
        acquisition has not been consummated as the Company failed to make a full
        payment. There can be no assurance that the Company can raise enough funds
        to
        accomplish successfully this acquisition and to accomplish these steps and/or
        business plans, and it is uncertain whether the Company will achieve a
        profitable level of operations.
 
 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.
 
 **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.
 
 **Off-Balance
        Sheet Arrangements**
 
 We
        have
        no off-balance sheet arrangements.
 
 7
  **Commitments
        and Contingencies**
  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, 2007. The registration
        statement has not yet been declared effective. Accordingly, the Company has
        accrued liquidated damages of $542,636 at September 30, 2008, which has been
        included in interest expense for the nine months ended September 30, 2008
        and
        accounts payable and accrued expenses at September 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.**
 
 Evaluation
        of Disclosure Controls and Procedures
 
 As
        of
        September 30, 2008, under the direction of our Chief Executive Officer/Chief
        Financial Officer, we evaluated our disclosure controls and procedures as
        of
        September 30, 2008 and concluded that our disclosure controls and procedures
        were ineffective as of September 30, 2008 due to the following: A material
        weakness related the conclusion by our Chief Executive Officer/Chief Financial
        Officer that all prior evaluations of the effectiveness of our internal
        disclosure controls and procedures previously conducted may have been
        insufficient. Management has committed to undertake a reevaluation of such
        disclosure controls and procedures.
 
 There
        were no changes in our internal control over financial reporting during the
        fiscal quarter ended September 30, 2008, that have materially affected, or
        are
        reasonably likely to materially affect, our internal control over financial
        reporting.
 
 **PART
        II**
 **OTHER
        INFORMATION**
 
 **Item
        1.** **** **Legal
        Proceedings.**
 
 As
        of
        June 12, 2008, the Company was in default to six (6) Purchasers on convertible
        notes payments due June 12, 2008 and earlier. As of July 12, 2008, the Company
        is in default to all eleven (11) Purchasers on convertible notes 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. As of
        September 30, 2008, the unpaid convertible notes payable balance is $2,792,175;
        unpaid accrued interest is $135,329; and unpaid accrued liquidated damages
        is
        $641,636. The Company is seeking ways to resolve the default issue 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, 2007, 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.
  8
  
 **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 September 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:
                  November 18, 2008
              By:
              /s/Name:
              Dingliang
                  KuangTitle:
              President,
                  Chief Executive Officer,
                Treasurer
                  and Director(Principal
                  Executive, Financial and
                Accounting
                  Officer)
  9