SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended Commission File No. 1-9727
December 31, 2003 -------
FRANKLIN CAPITAL CORPORATION
(Exact name of registrant specified in its charter)
DELAWARE 13-3419202
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 PARK AVENUE, 20TH FLOOR, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 486-2323
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 par value The American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Corporation was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K.___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ______ No X
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 2003 was $699,411.
As of March 9, 2004, there were 1,020,100 shares of common stock ($1 par value)
outstanding.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item7a. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9a. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
FORWARD LOOKING STATEMENTS
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES,""EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS
AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE HEREOF. THE CORPORATION UNDERTAKES NO OBLIGATION TO
PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
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PART I
ITEM 1. BUSINESS
Franklin Capital Corporation (the "Registrant", "Franklin," or the
"Corporation") was incorporated on March 31, 1987, under the laws of the state
of Delaware and operates as a business development company ("BDC") under the
Investment Company Act of 1940 (the "1940 Act"). The Corporation's common stock,
par value $1.00 per share, has been listed on The American Stock Exchange since
October 1, 1987.
As a BDC, the Corporation's objective is to achieve capital
appreciation through long-term investments in businesses believed to have
favorable growth potential. In the past the Corporation participated in start-up
and early stage financing, expansion or growth financing, leveraged buy-out
financing and restructurings in a variety of industries. At December 31, 2003,
Franklin had $2,024,138 in net assets.
EXCELSIOR RADIO NETWORKS, INC.
On August 28, 2001, Franklin along with Sunshine Wireless LLC
("Sunshine") purchased the assets of Winstar Radio Networks, Global Media and
Winstar Radio Productions (collectively "WRN") for a total purchase price of
$6.25 million. The acquisition was consummated through eCom Capital Inc.,
subsequently renamed Excelsior Radio Networks, Inc. ("Excelsior"), a then
wholly-owned subsidiary of Franklin. Franklin's total investment was $2.5
million consisting of $1.5 million in cash and a $1 million note payable to WRN.
The note was due February 28, 2002 with interest at 3.54% and has a right of
set-off against certain representations and warranties made by WRN. In October
2001, a legal proceeding was filed against WRN, which also named Franklin as a
defendant, in which the representations and warranties made by WRN have been
challenged. Until the time that this action is settled the due date of the note
is extended indefinitely. (See Item 3 Legal Proceedings) Additionally, Franklin
provided a $150,000 note receivable to Excelsior. In connection with this note,
Franklin was granted warrants to acquire 12,879 shares of Excelsior common stock
at an exercise price of $1.125 per share. The note bears interest at 10% per
annum and is issued for a ninety-day rolling period. As of December 31, 2003,
this note has been repaid. On October 1, 2002, Franklin received 74,232 warrants
to acquire shares of Excelsior common stock at an exercise price of $1.20 per
share for arranging a financing for Excelsior.
At the closing, Franklin entered into a services agreement with
Excelsior whereby Franklin provided Excelsior with certain management services.
In consideration for the services provided, for a period of six months from the
closing of the transaction, Franklin received $30,000 per month and was
reimbursed for all direct expenses. Since then, Franklin's monthly fee was
$15,000 per month and Franklin was reimbursed for all direct expenses. The
agreement expired on December 31, 2003. Finally, Franklin's chief financial
officer served as Excelsior's chief financial officer, and his salary and
benefits were allocated between Excelsior and Franklin 80% and 20%,
respectively. During the year ended December 31, 2003, Franklin earned $180,000
in management fees and was reimbursed $144,000 for salary and benefits for
Franklin's chief financial officer, which was recorded as a reduction of
expenses of Franklin.
PROPOSED MERGER WITH CHANGE TECHNOLOGY PARTNERS, INC.
On July 1, 2002, Franklin executed its right to terminate the merger
agreement that had been entered into on December 4, 2001, between Change
Technology Partners, Inc. ("Change") and Franklin pursuant to which Change would
have been merged with and into Franklin.
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CURRENT PORTFOLIO OF INVESTMENTS
The Corporation invests primarily in equity securities, for example
common stock, preferred stock, convertible preferred stock or other equity
derivatives such as options, warrants or rights to acquire stock. As of December
31, 2003, the Corporation had invested a substantial portion of its assets in
private companies. The current portfolio, other than Excelsior is invested in
securities issued by a company involved in Internet software and information
services.
EXCELSIOR
Franklin's most significant investment is in Excelsior. As of December
31, 2003, Franklin owned 36.4% of Excelsior (13.8% on a fully diluted basis).
Excelsior is a subsidiary of Franklin and was incorporated in 1999
under the laws of the State of Delaware. Excelsior had no operations until
August 2001 when a group led by Franklin invested in Excelsior for the purpose
of acquiring certain assets from Winstar Radio Networks, LLC, Winstar Global
Media, Inc. and Winstar Radio Productions, LLC.
On April 3, 2002, Excelsior purchased Dial Communications, whose assets
were combined with Excelsior's Global Media division to create a national radio
sales representation company with 2003 advertising sales revenues of over $50
million and a client roster of over forty independent radio production
companies.
Excelsior creates, produces, distributes and is a sales representative
for national radio programs and offers other miscellaneous services to the radio
industry. Excelsior offers radio programs to the industry in exchange for
commercial broadcast time, which Excelsior sells to national advertisers.
Excelsior currently offers approximately 100 programs to over 2,000 radio
stations across the country. The group of radio stations who contract with
Excelsior to broadcast a particular program constitutes a radio network.
Excelsior derives its revenue from selling the commercial broadcast time on its
radio networks to advertisers desiring national coverage.
Excelsior currently produces over 20 network programs targeting the
most popular radio formats, including adult contemporary, rock, urban oldies,
album oriented rock, comedy and country. Excelsior produces both short form and
long form programs. Excelsior offers these programs to radio stations in
exchange for advertising time. The radio stations airing these programs become
networks for Excelsior to sell advertising time. Excelsior sells the commercial
broadcast time inside of these networks to advertisers desiring national
coverage.
Excelsior intends to focus its programming growth with both short-form
and long-form programs. For example during 2003, Excelsior announced the
launching of two new shows: "Daily Dose" and the "Ross Brittain Morning Prep
Show." Daily Dose is a morning prep show that is a joint venture between
Excelsior and The Source Magazine, "Ross Brittain Morning Prep Show" is a
morning prep show written by Mr. Brittain, a nationally recognized morning disc
jockey. Excelsior believes that it has developed a niche in short-form
programming specifically in the prep services that it provides to radio
stations. Moreover, Excelsior believes that it has a strong presence in urban
programming. Developing more programming that complements its existing programs
will provide Excelsior with more broadcast commercial inventory to sell on its
network. A typical short form program will have 2 to 4 commercials available for
sale while a typical long form program has 8 to 48 commercials available for
sale. Excelsior intends to offer additional programming in the future through
internal development, joint ventures, and the acquisition of businesses or
assets that complement Excelsior's operations.
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The creation of a radio network allows Excelsior to sell the acquired
commercial broadcast inventory to advertisers desiring national coverage. Rates
for the sale of network advertising are established on the basis of audience
delivery or ratings and the demographic composition of the listening audience.
Thus, if Excelsior expands its network, as previously discussed, it will be able
to charge more for broadcast commercial time on the network. In addition to
being able to charge more for its advertising time, by expanding its
programming, there will also be more commercial broadcast inventory available
for sale by Excelsior.
Excelsior sells commercial broadcast time by guaranteeing certain
ratings and demographics. There can be no assurance that the guarantee will be
achieved. If the radio network on which the commercial broadcast time is sold
does not achieve the guarantee, Excelsior may be obligated to offer the
advertiser additional advertising time on the same radio network or on an
alternate radio network. These "make goods" or "bonus spots" are the predominant
means whereby Excelsior satisfies such obligations to advertisers.
Alternatively, Excelsior could be obligated to refund or credit a portion of the
advertising revenue derived from such sales. Historically, Excelsior has not had
to refund any cash received as revenues.
According to the National Association of Broadcasters ("NAB"), there
are approximately 10,000 commercial radio stations in the United States.
Excelsior currently has broadcast commercial time on over 2,000 of these radio
stations. Radio is one of the most cost effective forms of advertising given its
wide reach and low cost in comparison to print and television media. Radio
advertising is attractive to advertisers for a variety of reasons:
o short lead time between commercial production and broadcast time;
o low cost of commercial production; and
o the fact that most radio listening occurs away from home, closer to the
point of purchase.
Radio stations attempt to develop formats, such as news/talk, music or
other types of entertainment programming, in order to appeal to a target
listening audience that will attract local, regional, and national advertisers
to their station. Most radio stations do not have the creative and financial
resources to produce nationally accepted programming. As a result, radio
stations look to syndicators, such as Excelsior, to enhance their existing local
programming. As a national network, Excelsior licenses radio stations to air its
programs in exchange for commercial broadcast time on the station. Excelsior
then resells the advertising time to advertisers requiring national coverage.
The commercial broadcast time may vary from market to market within a specified
time period depending on the requirements of the particular radio station. The
advertising rates are based upon audience ratings for the specific demographic
the advertiser is trying to reach. These ratings are determined by Arbitron
Research Company, which periodically measures the percentage of the radio
audience in a market area listening to a specific radio station during a
specific time period.
COMPETITION
Competition for radio advertising is very intense. The industry is made
up of a variety of competitive forces, including: (1) ownership groups, which
own blocks of radio stations across the industry; (2) syndicators, like
Excelsior, that offer programming and marketing services to radio stations; and
(3) independent producers and distributors that offer programs or services to
radio stations. Several of Excelsior's syndicating competitors also are
associated with major radio station group owners. In addition, many of these
competitors have recognized brand names and will pay compensation to radio
stations to broadcast their network commercials.
5
Excelsior's largest competitors that are associated with an ownership
group are Westwood One, Premier Radio Networks, and ABC Radio Networks.
Excelsior estimates that these competitors account for about 80% of the network
advertising revenues. Excelsior is a leader of the syndication companies not
associated with an ownership group. The principal competitive factors in the
radio industry are the quality and creativity of programming and the ability to
provide advertisers with a cost-effective method of reaching the target
demographic. In this respect, Excelsior has positioned itself by adding top
producers like Walt "Baby" Love, Mike Harvey, John Tesh, Talk Radio Network
featuring Michael Savage and Laura Ingraham, and WOR Radio featuring Joan Rivers
and Jim Cramer. Excelsior's principal operating strategy is to continue to
provide high quality programming in the most popular formats. Excelsior has
developed and expanded its network through internal operations and will look to
continue this in the future as well as acquire assets and businesses that
compliment Excelsior's operations.
GOVERNMENT REGULATIONS
Radio broadcasting and station ownership are regulated by the Federal
Communication Commission ("FCC"). Excelsior, as a producer and distributor of
radio programs, is generally not subject to regulation by the FCC. The FCC
regulates the radio stations that air Excelsior's programs. The radio station
affiliates are ultimately responsible for what material is broadcast on their
airwaves.
EMPLOYEES
As of February 1, 2004, Excelsior had 90 full time employees. In
addition, Excelsior maintains continuing relationships with over 40 independent
hosts, writers, and producers. Excelsior is not party to any collective
bargaining agreements. Excelsior believes its relationship with its employees
and independent contractors is good.
OTHER INVESTMENTS
See "Management's Discussion and Analysis of Financial Condition."
PRESENTATION OF FINANCIAL INFORMATION
Franklin presents its financial statements in accordance with
Securities and Exchange Commission ("SEC") regulations in the format applicable
to investment companies and with accounting principles generally accepted in the
United States. Generally, investments are reported at fair market value rather
than cost, including investments in wholly-owned subsidiaries. Because of such
reporting requirements, the operating results of Excelsior are not included in
the consolidated operating results of Franklin, and instead, Franklin reports
only the fair value of its investment in such companies.
ILLIQUIDITY OF INVESTMENTS
A majority of the Corporation's investments consist of securities
acquired directly from the issuer in private transactions. They may be subject
to restrictions on resale or otherwise be illiquid. Franklin anticipates that
there may not be an established trading market for such securities.
Additionally, many of the securities that the Corporation may invest in will not
be eligible for sale to the public without registration under the Securities Act
of 1933, which could prevent or delay any sale by the Corporation of such
investments or reduce the amount of proceeds that might otherwise be realized
therefrom. Restricted securities generally sell at a price lower than similar
securities not subject to restrictions on resale. Further, even if a portfolio
company registers its securities and becomes a reporting corporation under the
Securities Exchange Act of 1934, the Corporation may be considered an insider by
virtue of its board representation and would be restricted in sales of such
corporation's securities.
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MANAGERIAL ASSISTANCE
The Corporation, as a BDC, is required by the 1940 Act to make
significant managerial assistance available to its portfolio companies. "Making
available significant managerial assistance" as defined in the 1940 Act with
respect to a BDC such as Franklin means (a) any arrangement whereby a BDC,
through its directors, officers, employees or general partners, offers to
provide, and if accepted, does so provide significant guidance and counsel
concerning the management, operations or business objectives and policies of a
portfolio company; or (b) the exercise of a controlling influence over the
management or policies of a portfolio company by a BDC acting individually or as
a part of a group acting together which controls such portfolio company. The
nature, timing and amount of managerial assistance provided by the Corporation
vary depending upon the particular requirements of each portfolio company.
In connection with its managerial assistance, the Corporation may be
represented by one or more of its officers or directors on the board of
directors of a portfolio company. The Corporation's goal has been to assist each
portfolio company in establishing its own independent and effective board of
directors and management.
NEED FOR FOLLOW-ON INVESTMENTS
Following its initial investments in portfolio companies, the
Corporation has made additional investments in such portfolio companies as
"follow-on" investments, in order to increase its investment in a portfolio
company, and exercised warrants, options or convertible securities that were
acquired in the original financing. Such follow-on investments may be made for a
variety of reasons including: 1) to increase the Corporation's exposure to a
portfolio company, 2) to acquire securities issued as a result of exercising
convertible securities that were purchased in a prior financing, 3) to preserve
or reduce dilution of Franklin's proportionate ownership in a subsequent
financing, or 4) in an attempt to preserve or enhance the value of the
Corporation's investment. There can be no assurance that the Corporation will
make follow-on investments or have sufficient funds to make such investments;
the Corporation will have the discretion to make any follow-on investments as it
determines, subject to the availability of capital resources. The failure to
make such follow-on investments may, in certain circumstances, jeopardize the
continued viability of a portfolio company and the Corporation's initial
investment, or may result in a missed opportunity for the Corporation to
increase its participation in a successful operation. Even if the Corporation
has sufficient capital to make a desired follow-on investment, the Company may,
under certain circumstances be prohibited from doing so if such an investment
would result in non-compliance with BDC regulations.
COMPETITION
Numerous companies and individuals are engaged in the venture capital
business and such business is extremely competitive. The Corporation competes
for attractive investment opportunities with venture capital partnerships and
corporations, merchant banks, venture capital affiliates of industrial and
financial companies, Small Business Investment Companies, other investment
companies, pension plans, other BDCs and private individual investors. Many of
these competitors have significantly greater resources and managerial
capabilities than the Corporation to obtain access to venture capital
investments. There can be no assurance that the Corporation will be able to
compete against those competitors for attractive investments.
DETERMINATION OF NET ASSET VALUE
Security investments that are publicly traded on a national exchange or
Nasdaq Stock Market are stated at the last reported sales price on the day of
valuation, or if no sale was reported on that date, then
7
the securities are stated at the last quoted bid price. The board of directors
of the Corporation may determine, if appropriate, to discount the value where
there is an impediment to the marketability of the securities held.
Investments for which there is no ready market are initially valued at
cost and, thereafter, at fair value based upon the financial condition and
operating results of the issuer and other pertinent factors as determined by the
board of directors. The financial condition and operating results have been
derived utilizing both audited and unaudited data. In the absence of a ready
market for an investment, numerous assumptions are inherent in the valuation
process. Some or all of these assumptions may not materialize. Unanticipated
events and circumstances may occur subsequent to the date of the valuation and
values may change due to future events. Therefore, the actual amounts eventually
realized from each investment may vary from the valuations shown and the
differences may be material. Franklin reports the unrealized gain or loss
resulting from such valuation in the Statements of Operations.
EMPLOYEES
At December 31, 2003, the Corporation had three employees.
GOVERNMENT REGULATIONS IMPACTING FRANKLIN
Franklin operates in a highly regulated environment as a BDC. The
following discussion generally summarizes certain regulations.
A BDC is defined and regulated by the 1940 Act. It is an investment
company that primarily focuses on investing in or lending to small private
companies and making managerial assistance available to them. A BDC may use
capital provided by public stockholders and from other sources to invest in
long-term, private investments in growing small businesses. A BDC provides
stockholders the ability to retain the liquidity of a publicly traded stock,
while sharing in the possible benefits, if any, of investing in privately-owned
growth companies.
As a BDC, Franklin may not acquire any asset other than "Qualifying
Assets" unless, at the time the acquisition is made, Qualifying Assets represent
at least 70% of the value of the total assets (the "70% test"). The principal
categories of Qualifying Assets relevant to Franklin's business are:
(1) securities purchased in transactions not involving any public
offering, the issuer of which is an eligible portfolio company. An
eligible portfolio company is defined to include any issuer that (a)
is organized and has its principal place of business in the United
States, (b) is not an investment company other than an SBIC
wholly-owned by a business development company, and (c) does not
have any class of publicly traded securities with respect to which a
broker may extend margin credit;
(2) securities received in exchange for or distributed with respect to
securities described in (1) above or pursuant to the exercise of
options, warrants, or rights relating to such securities; and
(3) cash, cash items, government securities and high quality debt
securities (within the meaning of the 1940 Act), maturing in one
year or less from the time of the investment.
To include certain securities described above as Qualifying Assets for
the purpose of the 70% test, a BDC must make available to the issuer of those
securities significant managerial assistance such as
8
providing significant guidance and counsel concerning the management,
operations, or business objectives and policies of a portfolio company, or
making loans to a portfolio company.
As a BDC, Franklin is entitled to issue senior securities in the form
of stock or senior securities representing indebtedness, including debt
securities and preferred stock, as long as each class of senior security has an
asset coverage of at least 200% immediately after each such issuance.
Franklin has adopted a Code of Ethics that establishes procedures for
personal investments and restricts certain transactions by its personnel.
The Corporation is permitted to adopt either a profit-sharing plan
pursuant to which management (including disinterested directors) could receive
up to 20% of the net after-tax profits of the Corporation or an option plan
covering up to 20% of the stock of the Corporation. Presently the Corporation
has incentive plans in effect covering 46,875 shares (4.6% on a diluted basis).
See "Item 11 Executive Compensation - Compensation Plans - Stock Option Plans."
RISK FACTORS
There are significant risks inherent in the Corporation's venture
capital business. The Corporation has invested a substantial portion of its
assets in small private companies. Because of the speculative nature of these
investments, there is significantly greater risk of loss than is the case with
traditional investment securities. The Corporation expects that from time to
time its venture capital investments may result in a complete loss of the
Corporation's invested capital or may be unprofitable. Other investments may
appear likely to become successful, but may never realize their potential.
Neither the Corporation's investments nor an investment in the Corporation is
intended to constitute a balanced investment program. The Corporation has in the
past relied and continues to rely to a large extent upon proceeds from sales of
investments rather than investment income to defray a significant portion of its
operating expenses.
INVESTING IN PRIVATE COMPANIES INVOLVES A HIGH DEGREE OF RISK. The
Corporation's portfolio consists primarily of investments in private companies.
Investments in private businesses involve a high degree of business and
financial risk, which can result in substantial losses and accordingly should be
considered speculative. There is generally no publicly available information
about the companies in which Franklin invests, and Franklin relies significantly
on the diligence of its employees and agents to obtain information in connection
with the Corporation's investment decisions. In addition, some smaller
businesses have narrower product lines and market shares than their competitors,
and may be more vulnerable to customer preferences, market conditions or
economic downturns, which may adversely affect the return on, or the recovery
of, the Corporation's investment in such businesses.
THE PORTFOLIO OF INVESTMENTS IS ILLIQUID. Franklin acquires most of its
investments directly from private companies. The majority of the investments in
its portfolio will be subject to restrictions on resale or otherwise have no
established trading market. The illiquidity of most of the portfolio may
adversely affect Franklin's ability to dispose of loans and securities at times
when it may be advantageous to liquidate such investments.
FRANKLIN'S PORTFOLIO INVESTMENTS ARE RECORDED AT FAIR VALUE AS
DETERMINED BY THE BOARD OF DIRECTORS IN ABSENCE OF READILY ASCERTAINABLE PUBLIC
MARKET VALUES. Pursuant to the requirements of the 1940 Act, the Corporation's
board of directors is required to value each asset quarterly, and Franklin is
required to carry the portfolio at a fair market value as determined by the
board of directors. Since there is typically no public market for the loans and
equity securities of the companies in which Franklin makes investments, the
board of directors estimates the fair value of these loans and equity securities
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pursuant to written valuation policy and a consistently applied valuation
process. Unlike banks, Franklin is not permitted to provide a general reserve
for anticipated loan losses; instead, Franklin is required by the 1940 Act to
specifically value each individual investment and record an unrealized loss for
an asset that it believes has become impaired. Without a readily ascertainable
market value, the estimated value of the portfolio of loans and equity
securities may differ significantly from the values that would be placed on the
portfolio if there existed a ready market for the loans and equity securities.
Franklin adjusts quarterly the valuation of the portfolio to reflect the board
of directors' estimate of the current realizable value of each investment in the
Corporation's portfolio. Any changes in estimated value are recorded in the
Corporation's statement of operations as "Net unrealized gains (losses)."
FRANKLIN OPERATES IN A COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES.
Franklin competes for investments with many other companies and individuals,
some of whom have greater resources than does Franklin. Increased competition
would make it more difficult to purchase or originate investments at attractive
prices. As a result of this competition, sometimes Franklin may be precluded
from making otherwise attractive investments.
QUARTERLY RESULTS MAY FLUCTUATE AND MAY NOT BE INDICATIVE OF FUTURE
QUARTERLY PERFORMANCE. The Corporation's quarterly operating results could
fluctuate, and therefore, you should not rely on quarterly results to be
indicative of Franklin's performance in future quarters. Factors that could
cause quarterly operating results to fluctuate include, among others, variations
in the investment origination volume, variation in timing of prepayments,
variations in and the timing of the recognition of realized and unrealized gains
or losses, the degree to which Franklin encounters competition in its markets
and general economic conditions.
FRANKLIN IS DEPENDENT UPON KEY MANAGEMENT PERSONNEL FOR FUTURE SUCCESS.
Franklin is dependent for the selection, structuring, closing and monitoring of
its investments on the diligence and skill of its senior management members and
other management members. The future success of the Corporation depends to a
significant extent on the continued service and coordination of its senior
management team, particularly the Chairman and Chief Executive Officer. The
departure of any of the executive officers or key employees could materially
adversely affect the Corporation's ability to implement its business strategy.
Franklin does not maintain key man life insurance on any of its officers or
employees.
THERE IS SUBSTANTIAL DOUBT AS TO FRANKLIN'S ABILITY TO CONTINUE AS A
GOING CONCERN. Franklin has determined that it may not have sufficient cash and
cash equivalents to meet its working capital requirements over the next fiscal
year. Franklin's independent auditors have issued an opinion in which the
independent auditors have indicated that there is substantial doubt as to
Franklin's ability to continue as a going concern as noted in their explanatory
paragraph within their opinion, which is noted in Franklin's financial
statements. Franklin is seeking alternative sources of financing to continue
operating through the current fiscal year. If funds are not raised, Franklin may
not be able to continue its operations.
ITEM 2. PROPERTIES
Franklin maintains its offices at 450 Park Avenue, New York, New York
10022, where it leases approximately 2,000 square feet of office space pursuant
to a lease agreement expiring December 31, 2004. As of December 31, 2003,
Franklin had a sublet arrangement with one subtenant for a portion of Franklin's
office space.
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ITEM 3. LEGAL PROCEEDINGS
On October 15, 2001, Jeffrey A. Leve and Jeffrey Leve Family
Partnership, L.P. filed a lawsuit against Franklin, Sunshine Wireless, LLC
("Sunshine"), and four other defendants affiliated with Winstar Communications,
Inc. On February 25, 2003, the case against Franklin and Sunshine was dismissed,
however the plaintiffs have a right to appeal. The lawsuit alleges that the
Winstar defendants conspired to commit fraud and breached their fiduciary duty
to the plaintiffs in connection with the acquisition of the plaintiff's radio
production and distribution business. The complaint further alleges that
Franklin and Sunshine joined the alleged conspiracy. The plaintiffs seek
recovery of damages in excess of $10,000,000, costs and attorneys' fees. An
unfavorable outcome in an appeal, should it be brought, together with an
unfavorable outcome in the lawsuit may have a material adverse effect on
Franklin's business, financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 17, 2003, the Corporation held an annual meeting of its
common and preferred stockholders. Stephen L. Brown, Irving Levine, Laurence I.
Foster and David T. Lender were elected to serve as directors of the Corporation
for a term of one year or until their successors are duly elected and qualified.
The number of common and preferred shares, voting together as a single class,
voted for and against each director is as follows:
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FOR WITHHELD
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Stephen L. Brown 787,779 84,803
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David Lender 793,580 79,002
---------------------------- --------------------- ---------------------------
---------------------------- --------------------- ---------------------------
Laurence I. Foster * 9,000 0
---------------------------- --------------------- ---------------------------
---------------------------- --------------------- ---------------------------
Irving Levine* 9,000 0
---------------------------- --------------------- ---------------------------
* - Only preferred stockholders voted for these directors.
In addition, stockholders were asked to ratify the selection of Ernst &
Young LLP as the Corporation's independent auditors for the fiscal year ended
December 31, 2003. 796,918 shares voted for, 56,037 shares voted against and
19,627 shares abstained from ratifying Ernst & Young LLP as the Corporation's
independent auditors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK TRANSFER AGENT
Mellon Investor Services, 85 Challenger Road, Overpack Center,
Ridgefield Park, NJ 07660 (Telephone (800) 851-9677) serves as transfer agent
for the Corporation's common stock. Certificates to be transferred should be
mailed directly to the transfer agent, preferably by registered mail.
MARKET PRICES
The Corporation's common stock is traded on The American Stock Exchange
under the symbol "FKL." The following table sets forth the range of the high and
low selling price of the Corporation's shares during each quarter of the last
two years, as reported by the American Stock Exchange.
11
2003 QUARTER ENDING LOW HIGH
------------------- --- ----
March 31 $ 1.10 $ 1.62
June 30 $ 0.77 $ 1.26
September 30 $ 0.75 $ 1.05
December 31 $ 0.50 $ 1.55
2002 QUARTER ENDING LOW HIGH
------------------- --- ----
March 31 $ 3.76 $ 4.24
June 30 $ 3.46 $ 4.02
September 30 $ 2.90 $ 3.72
December 31 $ 1.45 $ 2.97
DIVIDENDS
The Corporation paid $76,652, and $115,152 and $115,150 in dividends to
preferred stockholders during 2003, 2002 and 2001, respectively, and has not
paid any dividends to common stockholders during the past three years.
STOCKHOLDERS
As of March 9, 2004, there were 562 registered shareholders of record
of the Corporation's common stock. The Corporation has 5,000,000 shares of
common stock authorized, of which 1,505,888 are issued and 1,020,100 shares are
outstanding at March 9, 2004. The Corporation has 5,000,000 shares of
convertible preferred stock authorized, of which 16,450 were issued on February
22, 2000 and 10,950 shares are outstanding at March 9, 2004. (See Item 7
Management's Discussion and Analysis of Financial Condition - Liquidity and
Capital Resources.)
ITEM 6. SELECTED FINANCIAL DATA
The following tables should be read in conjunction with the Financial
Statements included in Item 8 of this Form 10-K.
BALANCE SHEET DATA
FINANCIAL POSITION AS OF DECEMBER 31:
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Total assets $3,258,032 $4,632,338 $4,098,866 $5,766,712 $8,995,965
Liabilities $1,233,894 $1,364,798 $1,177,121 $ 187,632 $ 555,583
Net asset value $2,024,138 $3,267,540 $2,921,745 $5,579,080 $8,440,382
Net asset value per share attributable to common
stockholders $ 0.91 $ 2.07 $ 1.19 $ 3.58 $ 7.70
Net asset value per share, as if converted basis $ 1.84 $ 2.89 $ 2.44 $ 4.57 $ 7.70
Shares outstanding 1,020,100 1,049,600 1,074,700 1,098,200 1,095,882
12
OPERATING DATA FOR THE YEAR ENDED DECEMBER 31:
2003 2002 2001 2000* 1999
---- ---- ---- ---- ----
Investment income $183,159 $455,081 $192,697 $115,015 $72,382
Expenses $1,279,526 $1,985,450 $1,579,382 $2,372,797 $1,621,780
Net investment loss from operations $(1,096,367) $(1,530,369) $(1,386,685) $(2,257,782) $(1,549,398)
Net realized gain on portfolio of investments,
net of current income taxes $430,883 $237,327 $522,131 $1,195,875 $688,259
Net (decrease) increase in
unrealized appreciation of investments, net
of deferred income taxes $(475,605) $1,663,304 $(1,553,756) $(3,365,513) $3,086,958
Net (decrease) increase in net
assets attributable to common stockholders $(1,217,741) $255,110 $(2,533,460) $(4,526,053) $2,225,819
Basic and diluted net (decrease) increase in net
assets from operations per weighted
average number of shares outstanding $(1.17) $0.24 $(2.34) $(4.14) $1.98
* Expenses in the year ended December 31, 2000 include non-cash
compensation of $349,644 due to the exercise of employee
incentive stock options.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE INFORMATION CONTAINED IN THIS SECTION SHOULD BE READ IN CONJUNCTION WITH THE
CORPORATION'S 2003 FINANCIAL STATEMENTS AND NOTES THERETO IN ITEM 8.
The following "Overview" section is a brief summary of the significant
issues addressed in Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A"). Investors should read the relevant sections
of the MD&A for a complete discussion of the issues summarized below. The entire
MD&A should be read in conjunction with Item 6. Selected Financial Data and Item
8. Financial Statements and Supplementary Data appearing elsewhere in this Form
10K.
OVERVIEW
During 2003, the Corporation realized approximately $433,000 in gains
on its sale of Excelsior common stock. The Corporation continues to rely on the
increase in the value of its investments and the ability to sell them in order
to fund its ongoing operations. Operating expenses were reduced by approximately
$706,000 due to the salary of one senior officer of the Corporation moving to
Excelsior whereby that officer became the CEO of Excelsior, Franklin's most
significant investment as well as the one-time expenses related to the failed
Change merger in 2002.
13
CRITICAL ACCOUNTING POLICIES
Franklin's discussion and analysis of its financial condition and
results of operations are based upon the Corporation's financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Corporation to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosure of contingent assets and liabilities. On an ongoing basis, the
Corporation evaluates its estimates, the most critical of which are those
related to the fair value of the portfolio of investments.
Security investments which are publicly traded on a national exchange
or Nasdaq Stock Market are stated at the last reported sales price on the day of
valuation or, if no sale was reported on that date, then the securities are
stated at the last quoted bid price. The Board of Directors of Franklin (the
"Board of Directors") may determine, if appropriate, to discount the value where
there is an impediment to the marketability of the securities held.
Investments for which there is no ready market are initially valued at
cost and, thereafter, at fair value based upon the financial condition and
operating results of the issuer and other pertinent factors as determined in
good faith by the Board of Directors. The financial condition and operating
results have been derived utilizing both audited and unaudited data. In the
absence of a ready market for an investment, numerous assumptions are inherent
in the valuation process. Some or all of these assumptions may not materialize.
Unanticipated events and circumstances may occur subsequent to the date of the
valuation and values may change due to future events. Therefore, the actual
amounts eventually realized from each investment may vary from the valuations
shown and the differences may be material. Franklin reports the unrealized gain
or loss resulting from such valuation in the Statements of Operations.
STATEMENT OF OPERATIONS
The Corporation accounts for its operations under accounting principles
generally accepted in the United States for investment companies. On this basis,
the principal measure of its financial performance is captioned "Net (decrease)
increase in net assets from operations," which is composed of the following:
o "Net investment loss from operations," which is the difference between
the Corporation's income from interest, dividends and fees and its
operating expenses;
o "Net realized gain on portfolio of investments," which is the
difference between the proceeds received from dispositions of portfolio
securities and their stated cost;
o any applicable income tax provisions (benefits); and
o "Net (decrease) increase in unrealized appreciation of investments,"
which is the net change in the fair value of the Corporation's
investment portfolio, net of any (decrease) increase in deferred income
taxes that would become payable if the unrealized appreciation were
realized through the sale or other disposition of the investment
portfolio.
"Net realized gain (loss) on portfolio of investments" and "Net
(decrease) increase in unrealized appreciation of investments" are directly
related. When a security is sold to realize a gain, the net unrealized
appreciation decreases and the net realized gain increases. When a security is
sold to realize a loss, the net unrealized appreciation increases and the net
realized gain decreases.
14
FINANCIAL CONDITION
The Corporation's total assets and net assets were, respectively,
$3,258,032 and $2,024,138 at December 31, 2003 versus $4,632,338 and $3,267,540
at December 31, 2002. Net asset value per share attributable to common
stockholders and on an as if converted basis was $0.91 and $1.84 at December 31,
2003, respectively, versus $2.07 and $2.89, respectively, at December 31, 2002.
The change in total assets and net assets is primarily attributable to the
Corporation's operating losses.
The Corporation's financial condition is dependent on the success of
its investments. A summary of the Corporation's investment portfolio is as
follows:
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Investments, at cost .......... $1,949,703 $2,511,479
Unrealized appreciation, net of
deferred taxes ....... 1,005,466 1,471,071
---------- ----------
Investments, at fair value .... $2,955,169 $3,992,550
========== ==========
INVESTMENTS
The Corporation's financial condition is dependent on the success of
its investments. The Corporation has invested a substantial portion of its
assets in thinly capitalized companies including one development stage company
that may lack management depth.
ALACRA CORPORATION
At December 31, 2003, the Corporation had an investment in Alacra
Corporation ("Alacra"), valued at $1,000,000, which represents 30.7% of the
Corporation's total assets and 49.4% of its net assets. Alacra, based in New
York, is a leading global provider of business and financial information. Alacra
provides a diverse portfolio of fast, sophisticated online services that allow
users to quickly find, analyze, package and present mission-critical business
information. Alacra's customers include more than 750 leading financial
institutions, management consulting, law and accounting firms and other
corporations throughout the world.
On April 20, 2000, the Corporation purchased $1,000,000 worth of Alacra
Series F Convertible Preferred Stock. Franklin has the right to have the
preferred stock redeemed by Alacra for face value plus accrued dividends on
December 31, 2005. In connection with this investment, Franklin was granted
observer rights on Alacra board of directors meetings.
EXCELSIOR RADIO NETWORKS
At December 31, 2003, the Corporation had an investment in Excelsior
Radio Networks, Inc. ("Excelsior"), formerly known as eCom Capital, Inc., valued
at $1,921,270, which represents 59.0% of the Corporation's total assets and
94.9% of its net assets. This valuation represents the same value as the last
sales price realized by the Corporation for a sale of 375,000 shares of
Excelsior's common stock on October 8, 2003. Excelsior produces and syndicates
programs and services heard on more than 2,000 radio stations nationwide across
most major formats. Through its Dial Communications Global Media sales
subsidiary, Excelsior sells the advertising inventory radio stations provide in
exchange for the Excelsior content. The programming and content includes prep
services as well as long form and short form programming. Additionally, Dial
Communications Global Media has a number of independent
15
producer clients, which range from talk and music programs to news and traffic
services. See Item 1 Business - Current Portfolio Investments - Excelsior.
On August 28, 2001, the Corporation purchased $2,500,000 worth of
Excelsior Common Stock and issued a secured note for $150,000. In connection
with this note, Franklin was granted warrants to acquire 12,879 shares of
Excelsior common stock at an exercise price of $1.125 per share. As of December
31, 2003, the secured note was paid back to Franklin. Franklin sold 250,000
common shares for $1.00 per share on December 4, 2001 for no gain or loss in
connection with the proposed merger with Change. On October 1, 2002, Franklin
received 74,232 warrants to acquire shares of Excelsior common stock at an
exercise price of $1.20 per share for arranging a financing of Excelsior. On
October 3, 2002, Franklin sold 773,196 common shares for $1.94 per share for
total proceeds of $1,500,000 realizing a gain of $726,804. On January 31, 2003,
Franklin purchased and subsequently on May 29, 2003, Franklin cancelled the
purchase, 33,750 common shares for $1.625 per share and 65,199 warrants to
acquire shares of Excelsior common stock at an exercise price of $1.125 per
share for $0.50 per warrant. On August 12, 2003, Franklin sold 193,000 common
shares for $1.30 per share for total proceeds of $250,900 realizing a gain of
$57,900. Franklin has stock appreciation rights on these common shares as
follows, a) in the event that Excelsior is sold on or before August 8, 2004 for
gross proceeds of no less than $40,000,000, then Franklin shall be entitled to
receive fifty percent (50%) of any net value above $1.30 per share not to exceed
proceeds to Franklin of $1.94 per share, and b) in the event that the Excelsior
is sold on or before August 8, 2005 for gross proceeds of no less than
$40,000,000, then Franklin shall be entitled to receive fifty percent (50%) of
any net value above $1.30 per share not to exceed proceeds to Franklin of $1.625
per share. On October 8, 2003, Franklin sold to Sunshine 375,000 shares of the
common stock of Excelsior for an aggregate purchase price of $750,000, realizing
a gain of $375,000, pursuant to a stock purchase agreement between Sunshine and
Franklin. Franklin has stock appreciation rights on these common shares such
that if Excelsior is sold and the purchaser of the common shares from Franklin
receives more than $3.50 per share, Franklin is entitled to receive 80% of the
value greater than $3.50 per share. After giving effect to the purchase of the
common stock, Sunshine owns approximately 63.6% and the Company owns 36.4% of
the issued and outstanding common stock, and voting power, of Excelsior. On a
fully diluted basis, after giving effect to the exercise of the outstanding
warrants and the conversion of Sunshine's outstanding preferred stock of
Excelsior into common stock, the Corporation owns approximately 13.8% of
Excelsior. Franklin continues to maintain a seat on the board of directors of
Excelsior.
RESULTS OF OPERATIONS
INVESTMENT INCOME AND EXPENSES
The Corporation's principal objective is to achieve capital
appreciation through long-term investments in businesses believed to have
favorable growth potential. Therefore, a significant portion of the investment
portfolio is structured to maximize the potential for capital appreciation and
provides little or no current yield in the form of dividends or interest. The
Corporation earns interest income from loans, preferred stock, corporate bonds
and other fixed income securities. The amount of interest income varies based
upon the average balance of the Corporation's fixed income portfolio and the
average yield on this portfolio.
The Corporation had interest and dividend income of $3,159 in 2003,
$5,081 in 2002, and $72,697 in 2001. The Corporation earned management fees of
$180,000 in 2003, $450,000 in 2002, and $120,000 in 2001 from its majority-owned
affiliate, Excelsior.
Operating expenses were $1,279,526 in 2003, $1,985,450 in 2002, and
$1,579,382 in 2001. A majority of the Corporation's operating expenses consist
of employee compensation, office and rent
16
expense, other expenses related to identifying and reviewing investment
opportunities and professional fees. Operating expense decreased from 2002 to
2003 due to the merger fees discussed below and the resignation of one senior
officer of the Corporation who was employed in 2003 by Excelsior. Professional
fees consist of general legal fees, audit and tax fees, consulting fees and
investment related legal fees. During 2003 and 2002, the Corporation incurred
professional fees related to the terminated merger with Change of $73,500 and
$490,782, respectively.
Net investment losses from operations were $1,096,367 in 2003,
$1,530,369 in 2002, and $1,386,685 in 2001.
The Corporation has relied and continues to rely to a large extent upon
proceeds from sales of investments rather than investment income to defray a
significant portion of its operating expenses. Because such sales cannot be
predicted with certainty, the Corporation attempts to maintain adequate working
capital to provide for fiscal periods when there are no such sales.
NET REALIZED GAINS AND LOSSES ON PORTFOLIO OF INVESTMENTS
During the three years ended December 31, 2003, 2002, and 2001, the
Corporation realized net gains before taxes of $430,883, $237,658, and $520,455,
respectively, from the disposition of various investments.
During 2003, Franklin realized a gain of $432,900 from the sale of
568,000 shares of Excelsior Radio Networks, Inc. common stock. This gain was
offset by a loss of $2,017 from sale of marketable securities.
During 2002, Franklin realized a gain of $726,804 from the sale of
773,196 shares of Excelsior Radio Networks, Inc. common stock. This gain was
offset by a loss of $300,000 from the sale of 188,425 shares of Structured Web
common stock, a previous portfolio holding of the Corporation, a loss of
$140,000 from the write down of Excom Ventures, a previous portfolio holding of
the Corporation which was determined to be a worthless security, a loss of
$32,715 from the sale of 363,938 shares of Primal common stock a previous
portfolio holding of the Corporation as well as a realized net loss of $16,430
from sale of marketable securities.
During 2001, Franklin realized a gain of $598,617 from the sale of
434,024 shares of Go America, Inc. common stock a previous portfolio holding of
the Corporation, a gain of $87,013 from the sale of 1,183,938 shares of Avery
common stock a previous portfolio holding of the Corporation, and a gain of
$50,750 from the sale of 350,000 shares of Avery preferred stock. These gains
were offset by a loss of $130,139 from the sale of 1,150,000 shares of Primal
common stock as well as a realized net loss of $85,786 from the sale of various
marketable securities.
UNREALIZED APPRECIATION OF INVESTMENTS
Unrealized appreciation of investments, net of deferred taxes,
decreased by $475,605 during the year ended December 31, 2003, due primarily to
the sale of a portion of the Corporation's holdings of Excelsior offset by the
increased valuation of Excelsior.
Unrealized appreciation of investments, net of deferred taxes,
increased by $1,663,304 during the year ended December 31, 2002, due primarily
to the increased valuation of Excelsior.
Unrealized appreciation of investments, net of deferred taxes,
decreased by $1,553,756 during the year ended December 31, 2001, primarily from
the sale of Franklin's position in Go America common
17
stock and the sale of Franklin's position in Avery Communications. The changes
in the value of these investments occurred during a period of extreme volatility
of publicly traded, small capitalization, high technology stocks.
TAXES
Franklin does not qualify for pass through tax treatment as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code for income
tax purposes. The Corporation is taxed under Regulation C of the Code and,
therefore, it is subject to federal income tax on the portion of its taxable
income and net capital as well as such distribution to its stockholders.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements have been prepared assuming that
the Corporation will continue as a going concern. The Corporation has a working
capital deficiency of approximately $900,000 at December 31, 2003. This
condition raises substantial doubt about the Corporation's ability to continue
as a going concern. The Corporation is currently seeking financing. There can be
no assurance that the Corporation would be able to obtain financing. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability of assets or the amounts of liabilities
that may result from the outcome of this uncertainty.
Cash and cash equivalents decreased by $337,966 to $224,225 for the
year ended December 31, 2003, compared to an increase of $282,463 for the year
ended December 31, 2002.
Operating activities used $1,192,248 of cash for the year ended
December 31, 2003, compared to using $1,282,171 for the year ended December 31,
2002.
Operating activities for the year ended December 31, 2003, exclusive of
changes in operating assets and liabilities, used $1,079,395 of cash, as the
Corporation's net decrease in net assets from operations of $1,141,089 included
non-cash charges for depreciation and amortization of $16,972, realized gains of
$430,883 and unrealized losses of $475,605. For the year ended December 31,
2002, operating activities, exclusive of changes in operating assets and
liabilities, used $1,513,400 of cash, as the Corporation's net increase in net
assets from operations of $370,262 included non-cash charges of depreciation and
amortization of $16,969, realized gains of $237,327 and unrealized gains of
$1,663,304.
Changes in operating assets and liabilities decreased cash $112,853 for
the year ended December 31, 2003, principally due a decrease in the level of
accounts payable and accrued expenses. For the year ended December 31, 2002,
changes in operating assets and liabilities produced $231,229 of cash.
The principal factor in the $992,658 of cash provided by investing
activities in the year ended December 31, 2003 was the sale of a portion of the
Corporation's holding in Excelsior for $1,000,900. The principal factor in the
$1,637,284 of cash provided by investing activities in the year ended December
31, 2002 was the sale of a portion of the Corporation's holding in Excelsior for
$1,500,000.
Cash used in financing activities for the year ended December 31, 2003
of $138,376 resulted primarily from the payment of preferred dividends of
$76,652 and the purchase of treasury stock of $25,661. Additionally, the note
payable was offset by certain payments made allowed for in the note payable.
Cash used in financing activities for the year ended December 31, 2002 of
$72,650 primarily resulted from payment of preferred dividends of $115,152, the
redemption of preferred stock of $137,500 and the purchase of treasury stock of
$71,815 offset by the issuance of certain rights to convert promissory notes
issued from Excelsior to Dial into Franklin stock of $300,000.
18
Franklin is obligated under an operating lease, which provides for
annual minimum rental payments through December 31, 2004 of $105,000.
On February 22, 2000, the Corporation issued $1,645,000 of convertible
preferred stock. The stock was issued at a price of $100 per share and has a 7%
quarterly dividend. The stock is convertible into Franklin common stock at a
conversion price of $13.33 per common share. On December 31, 2002 the
Corporation redeemed from certain preferred stockholders 5,500 shares of
convertible preferred stock for $25.00 per share.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's business activities contain elements of risk. The
Corporation considers a principal type of market risk to be valuation risk.
Investments are stated at "fair value" as defined in the 1940 Act and in the
applicable regulations of the Securities and Exchange Commission. All assets are
valued at fair value as determined in good faith by, or under the direction of,
the Board of Directors.
Neither the Corporation's investments nor an investment in the
Corporation is intended to constitute a balanced investment program. The
Corporation has exposure to public-market price fluctuations to the extent of
its publicly traded portfolio.
The Corporation has invested a substantial portion of its assets in
private development stage or start-up companies. These private businesses tend
to be thinly capitalized, unproven, small companies that lack management depth
and have not attained profitability or have no history of operations. Because of
the speculative nature and the lack of public market for these investments,
there is significantly greater risk of loss than is the case with traditional
investment securities. The Corporation expects that some of its venture capital
investments will be a complete loss or will be unprofitable and that some will
appear to be likely to become successful but never realize their potential.
Because there is typically no public market for the equity interests of
the small companies in which the Corporation invests, the valuation of the
equity interests in the Corporation's portfolio is subject to the estimate of
the Corporation's Board of Directors. In making its determination, the Board may
consider valuation information provided by an independent third party or the
portfolio company itself. In the absence of a readily ascertainable market
value, the estimated value of the Corporation's portfolio of equity interests
may differ significantly from the values that would be placed on the portfolio
if a ready market for the equity interests existed. Any changes in valuation are
recorded in the Corporation's consolidated statements of operations as "Net
increase (decrease) in unrealized appreciation on investments."
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FRANKLIN CAPITAL CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Report of Ernst & Young LLP.................................. 21
Balance Sheets as of
December 31, 2003 and 2002.......................... 22
Statements of Operations for the years
ended December 31, 2003, 2002 and 2001.............. 23
Statements of Cash Flows for the years
ended December 31, 2003, 2002 and 2001.............. 24
Statements of Changes in Net Assets for the years
ended December 31, 2003, 2002 and 2001.............. 25
Financial Highlights for the years ended December 31,
2003, 2002, 2001, 2000 and 1999..................... 26
Portfolio of Investments as of
December 31, 2003................................... 27
Notes to Financial Statements................................ 28-35
The schedules for which provision is made in the applicable regulation of the
Securities and Exchange Commission are not required under the related
instruction or are inapplicable and, therefore, have been omitted
20
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Franklin Capital Corporation
We have audited the accompanying balance sheets of Franklin Capital
Corporation as of December 31, 2003 and 2002, including the portfolio of
investments as of December 31, 2003, and the related statements of operations,
cash flows and changes in net assets for each of the three years in the period
ended December 31, 2003, and the financial highlights for each of the five years
in the period ended December 31, 2003. These financial statements and financial
highlights are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included the
confirmation of securities owned as of December 31, 2003 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Franklin Capital Corporation at December 31, 2003 and 2002, the
results of its operations, cash flows and changes in net assets for each of the
three years in the period ended December 31, 2003, and the financial highlights
for each of the five years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
Franklin Capital Corporation will continue as a going concern. As more fully
described in Note 1, the Corporation has incurred recurring operating losses and
has a working capital deficiency. These conditions raise substantial doubt about
the Corporation's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability of assets or the amounts of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
New York, New York
March 5, 2004, except for Note 13, as to which the
date is March 19, 2004
21
FRANKLIN CAPITAL CORPORATION
===============================================================================
BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2003 2002
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Marketable investment securities, at market value (cost: December 31,
2003 - $40,899; December 31, 2002 - $34,675) (Note 2) $33,899 $34,675
Investments, at fair value (cost: December 31, 2003 - $1,908,804;
December 31, 2002 - $2,476,804) (Note 2)
Excelsior Radio Networks, Inc. 1,921,270 2,957,875
Other investments 1,000,000 1,000,000
---------- ----------
2,921,270 3,957,875
---------- ----------
Cash and cash equivalents (Note 2) 224,225 562,191
Other assets 78,638 77,597
---------- ----------
TOTAL ASSETS $3,258,032 $4,632,338
========== ==========
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable (Note 6) $915,754 $951,817
Accounts payable and accrued liabilities 318,140 412,981
---------- ----------
TOTAL LIABILITIES 1,233,894 1,364,798
---------- ----------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 par value, cumulative 7% dividend:
5,000,000 shares authorized; 10,950 issued and outstanding
at December 31, 2003 and 2002
(Liquidation preference $1,095,000) (Note 4) 10,950 10,950
Common stock, $1 par value: 5,000,000 shares authorized;
1,505,888 shares issued: 1,020,100 and 1,049,600 shares outstanding
at December 31, 2003 and 2002, respectively (Note 7) 1,505,888 1,505,888
Paid-in capital 10,439,610 10,439,610
Unrealized appreciation of investments,
net of deferred income taxes (Notes 2 and 3) 1,005,466 1,481,071
Accumulated deficit (8,320,944) (7,578,808)
---------- ----------
4,640,970 5,858,711
Deduct: 485,788 and 456,288 shares of common stock held in treasury,
at cost, at December 31, 2003 and 2002, respectively (Note 4) (2,616,832) (2,591,171)
---------- ----------
Net assets (Note 9 for per share information) 2,024,138 3,267,540
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,258,032 $4,632,338
========== ==========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
22
FRANKLIN CAPITAL CORPORATION
================================================================================
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest on short term investments and money market accounts $3,159 $5,081 $45,953
Dividend income -- -- 26,744
Income from affiliates (Note 6) 180,000 450,000 120,000
------------ ------------ ------------
183,159 455,081 192,697
------------ ------------ ------------
EXPENSES
Salaries and employee benefits, net of reimbursements (Note 7) 548,269 862,970 933,081
Professional fees 231,164 191,900 168,618
Rent (Note 5) 71,942 98,982 126,134
Insurance 67,728 58,036 41,955
Directors' fees 9,158 2,003 18,802
Taxes other than income taxes 29,708 39,709 40,394
Newswire and promotion -- 1,181 5,707
Depreciation and amortization 16,972 16,969 19,994
Interest expense 42,903 35,401 11,988
Expenses related to terminated merger 73,500 490,782 --
General and administrative 188,182 187,517 212,709
------------ ------------ ------------
1,279,526 1,985,450 1,579,382
------------ ------------ ------------
Net investment loss from operations (1,096,367) (1,530,369) (1,386,685)
Net realized gain (loss) on portfolio of investments: Investment securities:
Affiliated 432,900 254,088 7,613
Unaffiliated (2,017) (16,430) 512,842
------------ ------------ ------------
Net realized gain on portfolio of investments 430,883 237,658 520,455
Provision (benefit) for current income taxes
-- 331 (1,676)
------------ ------------ ------------
Net realized loss (665,484) (1,293,042) (864,554)
(Decrease) increase in unrealized appreciation of investments, net of deferred
income taxes:
Investment securities:
Affiliated (479,392) 1,663,304 279,699
Unaffiliated 3,787 -- (1,833,455)
------------ ------------ ------------
(Decrease) increase in unrealized appreciation of investments,
net of deferred income taxes (475,605) 1,663,304 (1,553,756)
------------ ------------ ------------
Net (decrease) increase in net assets from operations (1,141,089) 370,262 (2,418,310)
Preferred dividends 76,652 115,152 115,150
------------ ------------ ------------
Net (decrease) increase in net assets attributable
to common stockholders ($1,217,741) $255,110 ($2,533,460)
============ ============ ============
Basic and diluted net (decrease) increase in net assets per share
attributable to common stockholders (Note 8) ($1.17) $0.24 ($2.34)
============ ============ ============
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
23
FRANKLIN CAPITAL CORPORATION
================================================================================
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2003 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (decrease) increase in net assets from operations ($1,141,089) $370,262 ($2,418,310)
Adjustments to reconcile net (decrease) increase in net assets from operations
to net cash used in operating activities:
Depreciation and amortization 16,972 16,969 19,994
Decrease (increase) in unrealized appreciation of investments,
net of deferred taxes 475,605 (1,663,304) 1,553,756
Net realized gain on portfolio of investments, net of current income taxes (430,883) (237,327) (522,131)
Changes in operating assets and liabilities:
(Increase) decrease in other assets (18,013) (4,300) 9,963
(Decrease) increase in accounts payable and accrued liabilities (94,840) 235,529 (8,835)
----------- ----------- -----------
Total adjustments (51,159) (1,652,433) 1,052,747
----------- ----------- -----------
Net cash used in operating activities (1,192,248) (1,282,171) (1,365,563)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of majority-owned affiliate -- 1,500,000 250,000
Proceeds from sale of affiliate 1,000,900 78,715 1,564,282
Proceeds from sale of other investments -- -- 1,044,782
Proceeds from sale of marketable investment securities 28,924 6,554 543,927
Loan payments received from majority-owned affiliate -- 75,000 75,000
Loan to majority owned affiliate -- -- (150,000)
Purchases of investment in majority-owned affiliate -- -- (1,500,000)
Purchases of other investments -- -- (49,095)
Purchases of marketable investment securities (37,166) (22,985) (542,146)
----------- ----------- -----------
Net cash provided by investing activities 992,658 1,637,284 1,236,750
----------- ----------- -----------
Cash flows from financing activities:
Payments of preferred dividends (76,652) (115,152) (115,150)
Decrease in note payable (36,063) (48,183) --
Proceeds from conversion right -- 300,000 --
Redemption of preferred stock -- (137,500) --
Purchases of treasury stock (25,661) (71,815) (123,874)
----------- ----------- -----------
Net cash used in financing activities (138,376) (72,650) (239,024)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (337,966) 282,463 (367,837)
Cash and cash equivalents at beginning of year 562,191 279,728 647,565
----------- ----------- -----------
Cash and cash equivalents at end of year $224,225 $562,191 $279,728
=========== =========== ===========
------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Non-cash liability issued in connection with purchase of majority owned affiliate -- -- $1,000,000
------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
24
FRANKLIN CAPITAL CORPORATION
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in net assets from operations:
Net investment loss ($1,096,367) ($1,530,369) ($1,386,685)
Net realized gain on portfolio of investments,
net of current income taxes 430,883 237,327 522,131
(Decrease) increase in unrealized appreciation of investments,
net of deferred income taxes (475,605) 1,663,304 (1,553,756)
----------- ----------- -----------
Net (decrease) increase in net assets from operations (1,141,089) 370,262 (2,418,310)
Capital stock transactions:
Payment of dividends on preferred stock (76,652) (115,152) (115,150)
Proceeds for conversion right -- 300,000 --
Redemption of preferred stock -- (137,500) --
Purchase of treasury stock (25,661) (71,815) (123,874)
----------- ----------- -----------
Total (decrease) increase in net assets (1,243,402) 345,795 (2,657,335)
----------- ----------- -----------
Net assets at beginning of year 3,267,540 2,921,745 5,579,080
----------- ----------- -----------
Net assets at end of year $2,024,138 $3,267,540 $2,921,745
=========== =========== ===========
------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
25
FRANKLIN CAPITAL CORPORATION
================================================================================
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2003(1) 2002(1) 2001(1) 2000(1) 1999
---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (2):
Net asset value attributable to common stockholders,
beginning of year $2.07 $1.19 $3.58 $7.70 $5.61
----- ----- ----- ----- -----
Net investment loss (1.06) (1.44) (1.28) (2.07) (1.38)
Net (loss) gain on portfolio of
investments (realized and unrealized) after taxes (0.04) 1.78 (0.95) (1.98) 3.35
----- ----- ----- ----- -----
Total from investment operations (1.10) 0.34 (2.23) (4.05) 1.97
----- ----- ----- ----- -----
Less dividends and distributions:
Distributions from accumulated
deficit and earnings 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- -----
Total dividends and distributions 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- -----
Capital stock transactions (0.06) 0.54 (0.16) (0.07) 0.12
----- ----- ----- ----- -----
Net asset value attributable to common stockholders,
end of year $0.91 $2.07 $1.19 $3.58 $7.70
===== ===== ===== ===== =====
Market value per share, end of year $1.06 $1.62 $4.18 $8.00 $6.83
===== ===== ===== ===== =====
TOTAL INVESTMENT RETURN:
Based on market value per share (%) (38.37) (58.85) (47.75) 17.13 95.24
RATIOS TO AVERAGE NET ASSETS:
Expenses (%) 48.36 56.61 37.67 25.99 24.97
Net investment loss from operations (%) (41.44) (43.64) (33.08) (24.73) (23.86)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000 omitted) $2,024 $3,268 $2,922 $5,579 $8,440
Portfolio turnover rate (%) 26 37 89 24 36
--------------------------------------------------------------------------------
(1) - Includes liquidation preference of preferred stockholders.
(2) - Calculated based on weighted average number of shares outstanding during
the period.
The accompanying notes are an integral part of these financial highlights.
26
FRANKLIN CAPITAL CORPORATION
================================================================================
PORTFOLIO OF INVESTMENTS
--------------------------------------------------------------------------------
MARKETABLE INVESTMENT SECURITIES
--------------------------------------------------------------------------------
NUMBER OF
SHARES OR MARKET
PRINCIPAL VALUE
DECEMBER 31, 2003 (2) AMOUNT ($) COST(1) NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
Explore Technologies 7,500 $14,650 $7,650
Certificate of Deposit - 0.7%, due 02/02/2004 26,249 26,249
------- ------
Total Marketable Investment Securities
(1.1% of total investments and 1.7%
of net assets) $40,899 $33,899
======== =======
--------------------------------------------------------------------------------
INVESTMENTS, AT FAIR VALUE
--------------------------------------------------------------------------------
NUMBER OF
SHARES OR DIRECTORS'
EQUITY PRINCIPAL VALUATION
DECEMBER 31, 2003 (2) INVESTMENT INTEREST AMOUNT ($) COST(1) (NOTE 2)
------------------------------------------------------------------------------------------------------------------------------------
AFFILIATE
Excelsior Radio Networks, Inc. Common stock 36.35% 908,804 $908,804 $1,817,608
Excelsior Radio Networks, Inc. Warrants - 87,111 - 103,662
-------- ----------
Total Excelsior Radio Networks, Inc.
(65.0% of total investments and 94.9% of net assets) 13.82% 908,804 1,921,270
(Radio production and advertising sales) (fully diluted)
OTHER INVESTMENT
Alacra Corporation (33.8% of total investments
and 49.4% of net assets) Convertible Preferred 1.68% 321,543 1,000,000 1,000,000
Stock ---------- ----------
(Internet-based information provider)
Investments, at Fair Value 1,908,804 2,921,270
========== ==========
--------------------------------------------------------------------------------
(1) Book cost equals tax cost for all investments
(2) Total investments refers to investments and marketable investment
securities.
The accompanying notes are an integral part of these financial statements.
27
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
1. DESCRIPTION OF BUSINESS
Franklin Capital Corporation ("Franklin", or the "Corporation") is a Delaware
corporation operating as a Business Development Company ("BDC") under the
Investment Company Act of 1940 (the "Act"). A BDC is a specialized type of
investment company under the Act. A BDC must be primarily engaged in the
business of furnishing capital and making available managerial expertise to
companies that do not have ready access to capital through conventional
financial channels. Such companies are termed "eligible portfolio companies".
The Corporation, as a BDC, generally may invest in other securities; however,
such investments may not exceed 30% of the Corporation's total asset value at
the time of any such investment.
The accompanying financial statements have been prepared assuming that the
Corporation will continue as a going concern. The Corporation has a working
capital deficiency of approximately $900,000 at December 31, 2003. (Working
capital is defined as total liabilities less liquid assets.) This condition
raises substantial doubt about the Corporation's ability to continue as a going
concern. The Corporation is currently seeking financing. There can be no
assurance that the Corporation would be able to obtain alternative financing.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability of assets or the amounts of liabilities
that may result from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the Statements of Cash Flows, Franklin considers only highly
liquid investments such as money market funds and commercial paper with
maturities of 90 days or less at the date of their acquisition to be cash
equivalents.
The Corporation paid no interest or income taxes during the years ended December
31, 2003, 2002 and 2001.
At December 31, 2003 and 2002, the Corporation held cash and cash equivalents
primarily in money market funds at two commercial banking institutions, and two
broker/dealers.
VALUATION OF INVESTMENTS
Security investments which are publicly traded on a national exchange or Nasdaq
Stock Market are stated at the last reported sales price on the day of valuation
or, if no sale was reported on that date, then the securities are stated at the
last quoted bid price. The Board of Directors of Franklin (the "Board of
Directors") may determine, if appropriate, to discount the value where there is
an impediment to the marketability of the securities held.
Investments for which there is no ready market are initially valued at cost and,
thereafter, at fair value based upon the financial condition and operating
results of the issuer and other pertinent factors as determined in good faith by
the Board of Directors. The financial condition and operating results have been
derived utilizing both audited and unaudited data. In the absence of a ready
market for an investment, numerous assumptions are inherent in the valuation
process. Some or all of these assumptions may not materialize. Unanticipated
events and circumstances may occur subsequent to the date of the valuation and
values may change due to future events. Therefore, the actual amounts
28
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
eventually realized from each investment may vary from the valuations shown and
the differences may be material. Franklin reports the unrealized gain or loss
resulting from such valuation in the Statements of Operations.
GAINS (LOSSES) ON PORTFOLIO OF INVESTMENTS
Amounts reported as realized gains (losses) are measured by the difference
between the proceeds of sale or exchange and the cost basis of the investment
without regard to unrealized gains (losses) reported in the prior periods. Gains
(losses) are considered realized when sales or dissolution of investments are
consummated.
INCOME TAXES
Franklin does not qualify for pass through tax treatment as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code for income
tax purposes. Therefore, the Corporation is taxed under Regulation C.
Franklin accounts for income taxes in accordance with the provision of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). The significant components of deferred tax assets and liabilities are
principally related to the Corporation's net operating loss carryforward and its
unrealized appreciation of investments.
STOCK-BASED COMPENSATION
The Corporation has elected to follow APB Opinion 25, "Accounting for Stock
Issued to Employees," to account for its Non-Qualified Stock Option Plan under
which no compensation cost is recognized because the option exercise price is
equal to at least the market price of the underlying stock on the date of grant.
Had compensation cost for these plans been determined at the grant dates for
awards under the alternative accounting method provided for in SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
Amendment of FASB Statement No. 123," net income and earnings per share, on a
pro forma basis, would have been:
DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- ----------------- -----------------
Net (decrease) increase in net assets
attributable to common
stockholders:
As reported $(1,217,741) $255,110 $(2,533,460)
Deduct:
Total stock-based employee compensation expense
determined under fair value
based method for all awards, net of related
tax effect -- 4,734 37,985
------------ -------- -----------
Pro forma $(1,217,741) $250,376 $(2,571,445)
Basic and diluted net (decrease) increase
in net assets attributable to common
stockholders:
As reported $(1.17) $0.24 $(2.34)
Pro forma $(1.17) $0.23 $(2.37)
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation is recorded using the
straight-line method at rates based upon estimated useful lives for the
respective assets. Leasehold Improvements are included in other assets and are
amortized over their useful lives or the remaining life of the lease, whichever
is shorter.
29
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NET INCREASE (DECREASE) IN NET ASSETS PER COMMON SHARE
Net increase (decrease) in net assets attributable to common stockholders per
common share is calculated in accordance with the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share".
3. INCOME TAXES
For the years ended December 31, 2003, 2002 and 2001, Franklin's tax (provision)
benefit was based on the following:
2003 2002 2001
------------- --------------- ---------------
Net investment loss from operations $(1,096,367) $(1,530,369) $(1,386,685)
Net realized gain on portfolio of investments 430,883 237,657 520,455
(Decrease) increase in unrealized appreciation (475,605) 1,663,304 (1,553,756)
----------- ----------- -----------
Pre-tax book (loss) income $(1,141,089) $ 370,592 $(2,419,986)
=========== =========== ===========
2003 2002 2001
------------- --------------- ---------------
Federal tax benefit (provision) at 34% on $(1,141,089),
$370,592, and $(2,419,986), respectively $ 388,000 (126,000) $ 823,000
State and local, net of Federal benefit 22,500 -- 1,000
Other (5,500) (22,000) 5,000
Change in valuation allowance (405,000) 148,000 (827,000)
----------- ----------- -----------
$ - $ - $ 2,000
============ ============ ============
The components of the tax benefit are as follows:
2003 2002 2001
------------- --------------- ---------------
Current state and local tax benefit $ - $ - $ 2,000
============ ============ ============
Deferred income tax benefit (provision) reflects the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.
At December 31, 2003 and 2002, significant deferred tax assets and liabilities
consist of:
ASSET (LIABILITY)
December 31, December 31,
2003 2002
---------------- ---------------
Deferred Federal and state benefit from net operating
loss carryforward................................................. $ 2,605,000 $ 2,356,000
Deferred Federal and state (provision) benefit on unrealized
(appreciation) depreciation of investments............................. (377,000) (533,000)
Valuation allowance...................................................... (2,228,000) (1,823,000)
----------- -----------
Deferred taxes......................................................... $ - $ -
============= =============
At December 31, 2002, Franklin had net operating loss carryforwards for income
tax purposes of approximately $7,236,000 that will begin to expire in 2011. At a
36% effective tax rate the after-tax net benefit from this loss would be
approximately $2,605,000.
4. STOCKHOLDERS' EQUITY
The accumulated deficit at December 31, 2003, consists of accumulated net
realized gains of $5,524,000 and accumulated investment losses of $13,845,000.
The convertible preferred stock has a cumulative 7% quarterly dividend and is
convertible into the number of shares of common stock by dividing the purchase
price for the convertible preferred stock by conversion price in effect,
30
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
currently $13.33. The convertible preferred stock has antidilution provisions,
which can change the conversion price in certain circumstances if the
Corporation issues additional shares of common stock. The holder has the right
to convert the shares of convertible preferred stock at any time until February
22, 2010 into common stock. Upon liquidation, dissolution or winding up of the
Corporation, the stockholders of the convertible preferred stock are entitled to
receive $100 per share plus any accrued and unpaid dividends before
distributions to any holder of the Corporation's common stock.
On December 31, 2002, the Corporation redeemed from certain preferred
stockholders 5,500 shares of convertible preferred stock for $25.00 per share.
The Board of Directors has authorized Franklin to repurchase up to an aggregate
of 575,000 shares of its common stock in open market purchases on the American
Stock Exchange when such purchases are deemed to be in the best interest of the
Corporation and its stockholders. As of December 31, 2002, the Corporation had
purchased 507,450 shares of its common stock of which 456,288 remained in
treasury. During the year ended December 31, 2003, the Corporation purchased
29,500 shares of its common stock at a total cost of $25,661. To date, Franklin
has repurchased 536,950 shares of its common stock of which 485,788 shares
remain in treasury at December 31, 2003.
5. COMMITMENTS AND CONTINGENCIES
Franklin is obligated under an operating lease, which provides for annual
minimum rental payments through December 31, 2004 of $105,000.
Rent expense for the years ended December 31, 2003, 2002 and 2001, was
approximately $72,000, $99,000, and $126,000, respectively. For the years ended
December 31, 2003, 2002 and 2001, the Corporation collected rents of $37,500,
$59,000, and $24,000, respectively, from subtenants under month-to-month leases,
for a portion of its existing office space that is reflected as a reduction in
rent expense for that period.
On October 15, 2001, Jeffrey A. Leve and Jeffrey Leve Family Partnership, L.P.
filed a lawsuit against Franklin, Sunshine Wireless, LLC ("Sunshine"), and four
other defendants affiliated with Winstar Communications, Inc. On February 25,
2003, the case against Franklin and Sunshine was dismissed, however the
plaintiffs have a right to appeal. The lawsuit alleges that the Winstar
defendants conspired to commit fraud and breached their fiduciary duty to the
plaintiffs in connection with the acquisition of the plaintiff's radio
production and distribution business. The complaint further alleges that
Franklin and Sunshine joined the alleged conspiracy. The plaintiffs seek
recovery of damages in excess of $10,000,000, costs and attorneys' fees. An
unfavorable outcome in an appeal, should it be brought, together with an
unfavorable outcome in the lawsuit may have a material adverse effect on
Franklin's business, financial condition and results of operations.
6. EXCELSIOR RADIO NETWORKS, INC.
Franklin valued its position in Excelsior at $2.00 per common share based on the
sale of 375,000 common shares to Sunshine on October 8, 2003 (See Note 11) and
the receipt of an unsolicited non-binding expression of interest by Excelsior
from a third party at a price greater than $2.00 per common share.
Franklin issued a $1,000,000 note as part of the purchase price of Excelsior.
This note was due February 28, 2002 with interest at 3.54% but has a right of
set-off against certain representations and warranties made by Winstar Radio
Networks, Inc. The due date of the note has been extended indefinitely until the
action described in Note 5 is settled.
On October 1, 2002, Franklin received 74,232 warrants to acquire shares of
Excelsior common stock at an exercise price of $1.20 per share for arranging a
refinancing of Excelsior debt.
31
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Franklin entered into a services agreement with Excelsior whereby Franklin
provides Excelsior with certain services. Franklin receives a management fee of
not less than $15,000 per month as determined by Excelsior's board.
Additionally, Franklin's chief financial officer serves in that capacity for
Excelsior and his salary and benefits are allocated between Excelsior and
Franklin on an 80/20 basis. During the years ended December 31, 2003, 2002 and
2001, Franklin earned $180,000, $450,000 and $120,000, respectively, in
management fees and was reimbursed $144,000, $120,936 and $40,156, respectively,
for salary and benefits for Franklin's chief financial officer, which was
recorded as a reduction of expenses on Franklin.
Excelsior issued notes, each with an initial aggregate principal amount of
$460,000 in connection with the acquisition of substantially all of the assets
of Dial Communications Group, Inc., and Dial Communications Group, LLC in April
2002. At the time of issuance each of the promissory notes was convertible into
shares of Franklin's common stock at a premium ranging from 115% to 120% of the
average closing prices of Franklin's common stock during a specified pre and
post closing measurement period. Excelsior paid to Franklin an amount equal to
$300,000 in consideration of Franklin's obligations in connection with any
Franklin common stock that may be issued pursuant to the terms of the promissory
notes. Excelsior and the note holders agreed to revise the notes on December 15,
2003, such that the notes are no longer convertible into Franklin common stock.
Franklin along with Sunshine initially purchased Excelsior on August 28, 2001.
On October 3, 2002, Franklin sold 773,196 common shares for $1.94 per share for
$1,500,000 realizing a gain of $726,804. On January 31, 2003, Franklin purchased
and subsequently on May 29, 2003, Franklin cancelled the purchase, 33,750 common
shares for $1.625 per share and 65,199 warrants to acquire shares of Excelsior
common stock at an exercise price of $1.125 per share for $0.50 per warrant. On
August 12, 2003, Franklin sold 193,000 common shares for $1.30 per share for
$250,900 realizing a gain of $57,900. Franklin has stock appreciation rights on
these common shares as follows, a) in the event that Excelsior is sold on or
before August 8, 2004 for gross proceeds of no less than $40,000,000, then
Franklin shall be entitled to receive fifty percent (50%) of any net value above
$1.30 per share not to exceed total proceeds to Franklin of $1.94 per share, and
b) in the event that Excelsior is sold on or before August 8, 2005 for gross
proceeds of no less than $40,000,000, then Franklin shall be entitled to receive
fifty percent (50%) of any net value above $1.30 per share not to exceed
proceeds to Franklin of $1.625 per share. On October 8, 2003, Franklin sold to
Sunshine 375,000 shares of the common stock of Excelsior for an aggregate
purchase price of $750,000, realizing a gain of $375,000, pursuant to a stock
purchase agreement between Sunshine and Franklin. Franklin has stock
appreciation rights on these common shares such that if Excelsior is sold and
the purchaser of the common shares from Franklin receives more than $3.50 per
share, Franklin is entitled to receive 80% of the value greater than $3.50 per
share. There can be no guarantee that Franklin will be able to continue to sell
shares of Excelsior to Sunshine.
After giving effect to the purchase of the common stock, Sunshine owns
approximately 63.6% and the Company owns 36.4% of the issued and outstanding
common stock, and voting power, of Excelsior. On a fully diluted basis, after
giving effect to the exercise of the outstanding warrants and the conversion of
Sunshine's outstanding preferred stock of Excelsior into common stock, the
Corporation owns approximately 13.8% of Excelsior.
7. STOCK OPTION PLANS
On September 9, 1997, Franklin's stockholders approved two Stock Option Plans: a
Stock Incentive Plan ("SIP") to be offered to the Corporation's consultants,
officers and employees (including any officer or employee who is also a director
of the Corporation) and a Non-Statutory Stock Option Plan ("SOP") to be offered
to the Corporation's "outside" directors, (i.e., those directors who are not
also officers or employees of Franklin). 112,500 shares of the Corporation's
Common Stock have been reserved for issuance under these plans, of which 67,500
shares have been reserved for the SIP and 45,000 shares have been reserved for
the SOP. Shares subject to options that terminate or expire prior to exercise
will be available for future grants under the Plans. Because the issuance of
options to "outside" directors is not permitted under the Act without an
exemptive order by the Securities and Exchange Commission, the issuance of
options under the SOP was conditioned upon the granting of such order. The order
was granted by the Commission on January 18, 2000.
32
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the status of the Stock Option Plans during the
years ended:
December 31, 2003 December 31, 2002 December 31, 2001
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- ------ -------- ------ --------
Outstanding at beginning of year 20,625 $11.39 39,375 $11.27 39,375 $11.27
Granted - - - - - -
Exercised - - - - - -
Forfeited - - 18,750 $11.13 - -
Expired - - - - - -
---------- ---------- ----------
Outstanding at end of year 20,625 $11.39 20,625 $11.39 39,375 $11.27
====== ====== ======
Exercisable at end of year 20,625 $11.39 20,625 $11.39 26,875 $11.33
====== ====== ======
The options issued under the SIP have a remaining contractual life of 4.1 years.
The options issued under the SOP have a remaining contractual life of 6.1 years.
8. NET (DECREASE) INCREASE IN NET ASSETS PER COMMON SHARE
The following table sets forth the computation of basic and diluted change in
net assets per common share:
December 31,
----------------------------------------------------
2003 2002 2001
----------------------------------------------------
Numerator:
Net (decrease) increase in net
assets from operations $(1,141,089) $370,262 ($2,418,310)
Preferred stock dividends (76,652) (115,152) (115,150)
----------- --------- ----------
Numerator for basic and diluted
earnings per share - net (decrease)
increase in net assets attributable
to common stockholders $(1,217,741) $255,110 ($2,533,460)
=========== ========= ==========
Denominator:
Denominator for basic and diluted
(decrease) increase in net assets
from operations - weighted -
average shares 1,037,443 1,066,195 1,083,408
=========== ========= ==========
Basic and diluted net (decrease) increase in
net assets from operations per share $(1.17) $0.24 $(2.34)
=========== ========= ==========
Common shares which would be issued upon conversion of the Corporation's
preferred stock or exercise of options have been excluded from the dilutive per
share computation as they are antidilutive (see Notes 4 and 7):
Period Ended December 31,
---------------------------------------------
2003 2002 2001
---------------------------------------------
Preferred stock convertible into common stock 82,125 123,375 123,375
Stock options 20,625 20,625 39,375
33
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. NET ASSET VALUE PER SHARE
The following table sets forth the computation of net asset value per common
share attributable to common stockholders:
December 31, December 31,
--------------------------------------
2003 2002
--------------------------------------
Numerator:
Numerator for net asset value per
common share, as if converted basis $2,024,138 $3,267,540
Liquidation value of convertible preferred
stock (1,095,000) (1,095,000)
---------- ----------
Numerator for net asset value per share
attributable to common stockholders $ 929,138 $2,172,540
========== ==========
Denominator:
Number of common shares outstanding,
denominator for net asset value per share
attributable to common stockholders 1,020,100 1,049,600
Number of shares of common stock to be
issued upon conversion of preferred stock 82,125 82,125
---------- ----------
Denominator for net asset value per common
share as if converted basis 1,102,225 1,131,725
========== ==========
Net asset value per share attributable to common stockholders $0.91 $2.07
========== ==========
Net asset value per common share, as if converted basis $1.84 $2.89
========== ==========
10. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, aggregated $37,166 and $1,021,398,
respectively, for the year ended December 31, 2003; $22,985 and $1,660,269,
respectively, for the year ended December 31, 2002; and $3,241,241 and
$3,477,991, respectively, for the year ended December 31, 2001.
11. MERGER WITH CHANGE TECHNOLOGY PARTNERS, INC.
On July 1, 2002, Franklin executed its right to terminate the merger agreement
that had been entered into on December 4, 2001, between Change Technology
Partners, Inc. ("Change") and Franklin pursuant to which Change would have been
merged with and into Franklin.
12. SELECTED QUARTERLY DATA (UNAUDITED)
2003
----
Quarter 1 Quarter 2 Quarter 3 Quarter 4
--------------------------------------------------------------
Total investment income $45,678 $ 45,080 $ 45,090 $ 47,311
Net investment loss from operations (273,727) (277,926) (271,683) (273,031)
Net (decrease) increase in net assets
attributable to common stockholders (245,347) (821,688) 145,013 (295,719)
Basic and diluted earnings per common share (0.23) (0.79) 0.14 (0.29)
34
FRANKLIN CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2002
----
Quarter 1 Quarter 2 Quarter 3 Quarter 4
--------------------------------------------------------------
Total investment income $91,549 $120,560 $120,110 $122,862
Net investment loss from operations (254,441) (434,455) (472,220) (369,253)
Net (decrease) increase in net assets
attributable to common stockholders (268,903) 2,225,964 (1,396,784) (305,167)
Basic and diluted earnings per common share (0.25) 2.08 (1.31) (0.29)
13. SUBSEQUENT EVENT
On March 19, 2004, Franklin sold to Sunshine 58,804 shares of the common stock
of Excelsior for an aggregate purchase price of $117,608, $2.00 per common
share, pursuant to a stock purchase agreement between Sunshine and Franklin.
Franklin has stock appreciation rights on these common shares such that if
Excelsior is sold and the purchaser of the common shares from Franklin receives
more than $3.50 per share, Franklin is entitled to receive 80% of the value
greater than $3.50 per share.
35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
The Corporation's chief executive officer and chief financial
officer have evaluated the effectiveness of the Corporation's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) as of a date (the
"Evaluation Date") within 90 days before the filing date of this annual report.
Based on such evaluation, they have concluded that, as of the Evaluation Date,
the information required to be disclosed by the Corporation in the reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
There were no significant changes in the Corporation's internal
controls or in other factors that could significantly affect these controls
during the period covered by this annual report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
All of the Corporation's directors are independent with the exception
of Stephen L. Brown.
COMMON STOCK DIRECTORS
STEPHEN L. BROWN, (1) age 65, was elected to the Corporation's Board of
Directors and appointed Chairman of its Board of Directors in October 1986. He
has been Chairman and Chief Executive Officer since October 1986. Prior to
joining Franklin, Mr. Brown was Chairman of S.L. Brown & Company, Inc. ("SLB &
Co., Inc."), a private investment firm. Mr. Brown is a director of Copley
Financial Services Corporation, advisor to Copley Fund, Inc., a mutual fund as
well as a director of U.S. Energy Systems, Inc. an independent producer of clean
efficient energy for growing energy markets. Mr. Brown is an "interested person"
of the Corporation as defined in the 1940 Act because he serves as both an
officer and director of the Corporation.
DAVID T. LENDER, (3) age 51, joined the Board as a director in 2000.
Mr. Lender is a Managing Director at Banc of America Securities, LLC where he
specializes in mergers and acquisitions. Prior to joining Banc of America
Securities, LLC, Mr. Lender was a Managing Director in the Mergers and
Acquisitions Group of Rothschild, Inc.
PREFERRED STOCK DIRECTORS
IRVING LEVINE, (1), (2), (3) age 82, joined the Board as a director in
1990. He has been Chairman of the Board and President of Copley Fund, Inc., a
mutual fund, since 1978, and Chairman and Treasurer of Stuffco International,
Inc., a ladies handbag processor and chain-store operator, since 1978. Mr.
Levine is President and a director of Copley Financial Services Corporation
(advisor to Copley Fund, Inc.) as well as a director of U.S. Energy Systems,
Inc. an independent producer of clean efficient energy for growing energy
markets.
LAURENCE I. FOSTER, (2), (3) age 62, joined the Board as a director in
2002. He was a partner at KPMG until his retirement in May 2000 when he joined
Richard E. Eisner & Company LLP's New York City office as a partner in the
personal financial planning practice. In June 2002 Mr. Foster became an
36
independent consultant. Mr. Foster holds the American Institute of Certified
Public Accountants "Personal Financial Specialist" (PFS) designation. Mr. Foster
is a member of the American Institute of Certified Public Accountants where he
is the Chairman on the PFS Credential Committee. Mr. Foster is also a member of
the New York State Society of Certified Public Accountants and the former
chairman of their Estate Planning Committee.
(1) - Member of Executive Committee, (2) - Member of Compensation Committee,
(3) - Member of Audit Committee
EXECUTIVE OFFICERS
STEPHEN L. BROWN, Chairman and Chief Executive Officer. For additional
information about Mr. Brown, please see the Directors' biographical information
section above.
HIRAM M. LAZAR, age 39, joined the Corporation as Chief Financial
Officer in January 1999. From June 1992 to January 1999, Mr. Lazar was the
Vice-President of Finance and Corporate Controller for Lebenthal & Co., Inc., a
regional full-service broker/dealer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers and directors, and persons who own more than 10
percent of the Corporation's common stock to file reports (including a year-end
report) of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC") and to furnish the Company with copies of all reports
filed.
Based solely on a review of the forms furnished to the Corporation, or
written representations from certain reporting persons, the Corporation believes
that all persons who were subject to Section 16(a) in 2002 complied with the
filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary for each of the last three
years of the cash and non-cash compensation awarded to, earned by, or paid to
the Chief Executive Officer of the Corporation and the other executive officers
of the Corporation, whose individual remuneration exceeded $100,000 for the year
ended December 31, 2003.
SECURITIES
OTHER UNDERLYING
NAME & ANNUAL OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) (1) AWARDED (#) COMPENSATION ($)
------------------ ---- ----------- --------- -------------------- ----------- ----------------
Stephen L. Brown (2) 2003 $387,500 $40,000 - - -
CHAIRMAN & 2002 420,000 30,000 - - -
PRESIDENT 2001 420,000 - - - -
Hiram M. Lazar 2003 160,000 3,750 - - -
CHIEF FINANCIAL 2002 130,000 3,750 - - -
OFFICER 2001 130,000 - - - -
(1) There were no perquisites paid by the Corporation in excess of the lesser of
$50,000 or 10% of the compensated person's total salary and bonus for the year.
(2) Mr. Brown is an "interested person" of the Corporation, as defined under the
1940 Act, because he serves as both a director and executive officer of the
Corporation.
37
COMPENSATION OF DIRECTORS
Each director of the Corporation, other than Mr. Stephen L. Brown, is
eligible to receive a fee of $500 plus reimbursement of expenses incurred in
attending each board meeting.
PENSION OR
RETIREMENT BENEFITS
ACCRUED AS PART OF ESTIMATED ANNUAL
AGGREGATE CORPORATION'S BENEFITS UPON TOTAL COMPENSATION
NAME OF DIRECTOR COMPENSATION EXPENSES RETIREMENT PAID TO DIRECTORS
Stephen L. Brown $ - - - -
David T. Lender $3,000 - - $3,000
Michael P. Rolnick $1,000 - - $1,000
Lawrence J. Foster $3,000 - - $3,000
Irving Levine $3,000 - - $3,000
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Irving Levine, Laurence Foster, and David Lender served on the
Compensation Committee during 2003. There were no Compensation Committee
interlocks or insider (employee) participation during 2003.
OPTION GRANTS
No options were granted during the year ended December 31, 2003, to the
Chief Executive Officer of the Corporation or the other executive officers of
the Corporation.
OPTION EXERCISES
No options were exercised during the year ended December 31, 2003, by
the Chief Executive Officer of the Corporation or the other executive officers
of the Corporation.
EMPLOYMENT AGREEMENTS
On July 26, 2002, the Board authorized an amendment to Stephen L.
Brown's Employment Agreement with the Corporation (as amended, the "Stephen
Brown Employment Agreement"). The Stephen Brown Employment Agreement will now
expire on December 31, 2004 ("the Term"). The Term will automatically renew from
year to year thereafter, unless the Corporation notifies Mr. Brown not less than
120 days prior to the end of any Term in writing that the Corporation will not
be renewing the Stephen Brown Employment Agreement.
The Stephen Brown Employment Agreement provides that Mr. Stephen L.
Brown will serve as the Chairman and Chief Executive Officer of the Corporation
and be responsible for the general management of the affairs of the Corporation,
reporting directly to the Board. It also provides that he will serve as a member
of the Board for the period of which he is and shall from time to time be
elected or reelected.
38
Mr. Stephen L. Brown receives compensation under the Stephen Brown
Employment Agreement in the form of base salary of $420,000. In addition, the
Board may increase such salary at its discretion from time to time. Mr. Brown is
also entitled to be paid bonuses as the Board determines in its sole discretion.
Under the Stephen Brown Employment Agreement, the Corporation furnishes Mr.
Brown with an automobile and reimburses him for certain expenses related to such
automobile. In addition, Mr. Brown is reimbursed for expenses related to
membership in a club to be used primarily for business purposes. Mr. Brown is
entitled under the Stephen Brown Employment Agreement to participate in any
employee benefit plans or programs and to receive all benefits, perquisites and
emoluments for which salaried employees are eligible. Mr. Brown is also entitled
to severance pay in the event of termination without cause or by constructive
discharge equal to the remaining base salary payable under the Stephen Brown
Employment Agreement and provides for death benefits payable to his surviving
spouse equal to Mr. Brown's base salary for a period of one year.
In addition, on July 26, 2002 the Board authorized an amendment to
Stephen L. Brown's Severance Agreement (as amended, the "Stephen Brown Severance
Agreement"). Under the terms of the Stephen Brown Severance Agreement, Mr. Brown
is entitled to receive severance if following a change in control (as defined in
the Stephen Brown Severance Agreement) his employment is terminated by the
Corporation without cause or by the executive within one year of such change in
control. The amendment has increased the amount of the severance payment Mr.
Brown is entitled to receive upon the occurrence of such event from 1.5 to 2.5
times his average compensation over the past five years.
On January 1, 2003, Mr. Hiram Lazar entered into an employment
agreement with the Corporation, the "Hiram Lazar Employment Agreement". The
Hiram Lazar Employment Agreement will expire on December 31, 2003 ("the Term").
The Term will automatically renew from year to year thereafter, unless the
Corporation notifies Mr. Lazar not less than 90 days prior to the end of any
Term in writing that the Corporation will not be renewing the Hiram Lazar
Employment Agreement.
The Hiram Lazar Employment Agreement provides that Mr. Lazar will serve
as the Chief Financial Officer of the Corporation and be responsible for the
financial affairs of the Corporation, reporting directly to the Chief Executive
Officer.
Mr. Lazar receives compensation under the Hiram Lazar Employment
Agreement in the form of base salary of $160,000. In addition, the Board may
increase such salary at its discretion from time to time. Mr. Lazar is also
entitled to be paid bonuses up to 20% of base salary as the Board determines in
its sole discretion. Mr. Lazar is entitled under the Hiram Lazar Employment
Agreement to participate in any employee benefit plans or programs and to
receive all benefits, perquisites and emoluments for which salaried employees
are eligible. Mr. Lazar is also entitled to severance pay in the event of
termination without cause or by constructive discharge equal to the remaining
base salary payable under the Hiram Lazar Employment Agreement and provides for
death benefits payable to his surviving spouse equal to Mr. Lazar's base salary
for a period of six months. Excelsior reimburses the Corporation for 80% of Mr.
Lazar's total compensation.
COMPENSATION PLANS
On September 9, 1997, Franklin Capital's stockholders approved two
Stock Option Plans: a Stock Incentive Plan ("SIP") to be offered to Franklin
Capital's consultants, officers and employees (including any officer or employee
who is also a director of Franklin Capital) and a Non-Statutory Stock Option
Plan ("SOP") to be offered to Franklin Capital's "outside" directors, I.E.,
those directors who are not also officers or employees of Franklin. 112,500
shares of Franklin Capital's common stock have been
39
reserved for issuance under these plans, of which 67,500 shares have been
reserved for the SIP and 45,000 shares have been reserved for the SOP.
Shares subject to options that terminate or expire prior to exercise
will be available for future grants under the plans. Because the issuance of
options to "outside" directors is not permitted under the Investment Company Act
without an exemptive order by the Securities and Exchange Commission, the
issuance of options under the SOP was conditioned upon the granting of such
order. The order was granted by the Commission on January 18, 2000.
On December 31, 2003, there were 20,625 options to purchase common
stock outstanding and 26,250 remain available for future issuance.
The following is a description of each of the Stock Option Plans
followed by a description of the provisions applicable to both Stock Option
Plans.
STOCK INCENTIVE PLAN (SIP)
PURPOSE
The purpose of the SIP is to give the Corporation and its Affiliates a
competitive advantage in attracting, retaining and motivating officers,
employees and consultants of the Corporation and to provide the Corporation with
a stock plan that provides incentives linked to the financial results of the
Corporation and increase in stockholder value.
TYPE OF AWARDS
The SIP permits, at the discretion of the Committee, the granting to
SIP participants of options to purchase Common Stock (including incentive stock
options within the meaning of Section 422 of the Code ("ISOs") or "non-statutory
stock options" ("non-ISOs")), stock appreciation rights, restricted stock and
tax offset bonuses. A stock appreciation right entitles an optionee to an amount
equal to the excess of the fair market value of one share of common stock over
the per share exercise price multiplied by the number of shares in respect of
which the stock appreciation right is exercised. Stock appreciation rights may
only be granted in conjunction with all or part of an option grant.
Restricted stock may be awarded to any participant, for no cash
consideration and may be subject to such conditions, including vesting,
forfeiture and restrictions on transfer, as the Committee shall determine. Such
terms and conditions will be specified in an agreement evidencing the award.
Finally, the SIP permits the granting of a right to receive a cash
payment at such time or times as an award under the SIP results in compensation
income to the participant for the purpose of assisting the participant in paying
the resulting taxes.
Upon exercise of an ISO or non-ISO, the Committee may elect to cash out
all or any portion of the shares of common stock for which an option is being
exercised by paying the optionee the excess of the fair market value of a share
of common stock over the per share exercise price for each such option share
being cashed out. All options granted under the SIP become automatically
exercisable upon a "change of control" and remain exercisable until expiration
of their respective terms. A "change in control" is defined in the Stock Option
Plans as the acquisition by any person or group (other than Stephen L. Brown and
his Affiliates) of more than 25% of the voting securities of the Corporation or
a sale or other disposition of all or substantially all of the assets of the
Corporation to any person.
40
ADMINISTRATION
The SIP will be administered by a committee of the Board of Directors
composed of not fewer than two outside directors each of whom will qualify as a
"non-employee director" within the meaning of Rule 16b-3 of the 1934 Act and an
"outside Director" within the meaning of Section 162(m) of the Code with all
grants under the SIP approved pursuant to Section 57(o) of the 1940 Act. Section
57(o) of the 1940 Act requires that grants be approved by a majority of the
directors with no financial interest in the grant and a majority of
non-interested directors. The Committee will have the authority, among other
rights, to select the participants to whom awards may be granted, determine
whether to grant ISOs, non-ISOs, stock appreciation rights or restricted stock,
or any combination thereof and determine the vesting terms and other conditions
of an award to an SIP participant.
PARTICIPANTS
SIP participants will be the officers, employees (including such
officers and employees who are also directors) or consultants of the Corporation
and its Affiliates who are responsible for or contribute to the management,
growth and profitability of the business of the Corporation and its Affiliates.
Each grant of an award under the SIP will be evidenced by an agreement between
the participant and the Corporation, which shall include such terms and
provisions as the Committee may determine from time to time.
TRANSITION OF AWARDS
Under the SIP, generally, upon an SIP participant's death or when an
SIP participant's employment is terminated for any reason, all unvested stock
options will be forfeited. Upon the termination of employment of an optionee
other than as a result of the optionee's death, unless otherwise provided in
such optionee's option agreement, an optionee's right to exercise a vested
option will expire three months after termination of employment. If an
optionee's employment is terminated by reason of death, the period of exercise
for options vested at the optionee's death is 12 months. Options are not
transferable except on the death of the optionee, by will or the laws of decent
and distribution. Stock appreciation rights may be exercised and transferred to
the same extent that the options to which they relate may be exercised or
transferred.
The Board of Directors may terminate, suspend, amend or revise the SIP
at any time subject to limitations in the plan. The Board may not, without the
consent of the optionee, alter or impair rights under any award previously
granted except in order to comply with applicable law.
NON-STATUTORY STOCK OPTION PLAN (SOP)
PURPOSE
The purpose of the SOP is to further the interests of the Corporation,
its stockholders and its employees by providing the "outside" directors of the
Corporation (I.E., those who are not also officers and employees of the
Corporation) the opportunity to purchase the Common Stock of the Corporation as
an appropriate reward for the dedication and loyalty of the "outside" directors.
TYPE OF AWARDS
The SIP only permits the granting of options to purchase common stock.
Only non-ISOs can be granted under the SOP.
41
ADMINISTRATION
The SOP will be administered by the Board of Directors of the
Corporation with all grants approved pursuant to Section 57(o) of the 1940 Act.
Options granted under the SOP are intended to comply with the exemption afforded
by Rule 16b-3 of the 1934 Act. The Board, in its discretion, can impose any
vesting or other restrictions on options granted under the SOP.
PARTICIPANTS
SOP participants will be outside directors of the Corporation.
TERMINATION OF AWARDS
Under the SOP, options expire 30 days after the date of a SOP
participant's appointment with the Corporation is terminated except if such
termination is by reason of death or disability. In the event of termination by
reason of disability, options expire 12 months after such termination. In the
event of the participant's death while serving as director or within the 30-day
period following termination of the participant's appointment, options expire 12
months following the date of death.
PROVISIONS APPLICABLE TO BOTH STOCK OPTION PLANS
AVAILABLE SHARES
The aggregate number of shares of common stock reserved for issuance
under the Stock Option Plans will be 112,500, of which 67,500 shares have been
reserved for issuance under the SIP and 45,000 have been reserved for issuance
under the SOP. Shares subject to options that terminate or expire prior to
exercise will be available for future grants under the Stock Option Plan.
The number of shares of common stock reserved for issuance under the
Stock Option Plans, the number of shares issuable upon the exercise of options
or subject to stock appreciation rights, the exercise price of such awards and
the number of restricted stock awards granted under the Stock Option Plans may
be subject to "anti-dilution" adjustments, in the sole discretion of the
Committee, in the event of any merger, reorganization, consolidation,
separation, liquidation, stock dividend, stock split, share combination,
recapitalization or other change in corporate structure affecting the
outstanding common stock of the Corporation.
GRANT AND EXERCISE OF AWARDS
The exercise price for options under the Stock Option Plans will be
determined, in the case of the SIP, by the Committee, and in the case of the
SOP, by the Board of Directors, but will not be less than the "Fair Market
Value" of the Corporation's common stock at the date of grant (as defined in the
Stock Option Plans as the closing market price of the common stock on the
American Stock Exchange on the date of such grant).
Options granted under the Stock Option Plans are exercisable for a
period of 10 years from the date of grant (five years with respect to ISOs
granted to optionees who own more than 10% of the voting power of the
Corporation or any subsidiary) or such shorter period as the administrator of
such plan (either the Committee or the Board, as the case may be) may establish
as to any or all shares of common stock subject to any option. Options will
become exercisable in accordance with the vesting schedule prescribed in such
optionee's option agreement, and may be subject to satisfaction of such other
conditions as the administrator may determine. Stock appreciation rights granted
under the SIP are
42
exercisable to the same extent as the options to which they relate and upon
exercise terminate the related option.
An employee, officer or director exercising a non-ISO pursuant to the
SIP may elect to have the Corporation withhold shares of the Corporation's
common stock to satisfy tax liabilities arising from the exercise of such
options. Initially, there will be three employees of the Corporation, two of
whom are also directors, who will be eligible to participate in the SIP. There
are five outside directors eligible to participate in the SOP.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
The following discussion of certain relevant federal income tax effects
applicable to stock options granted under the Stock Option Plans is a brief
summary only, and reference is made to the Code and the regulations and
interpretations issued thereunder for a complete statement of all relevant
federal tax consequences.
INCENTIVE STOCK OPTIONS
No taxable income will be realized by an optionee upon the grant or
timely exercise of an ISO. If shares are issued to an optionee pursuant to the
timely exercise of an ISO and a disqualifying disposition of such shares is not
made by the optionee (I.E., no disposition is made within two years after the
date of grant or within one year after the receipt of shares by such optionee,
whichever is later), then (i) upon sale of the shares, any amount realized in
excess of the exercise price of the ISO will be taxed to the optionee as a
long-term capital gain and any loss sustained will be long-term capital loss,
and (ii) no deduction will be allowed to the Corporation. However, if shares
acquired upon the timely exercise of an ISO are disposed of prior to satisfying
the holding period described above, generally (a) the optionee will realize
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of the shares at the time of exercise (or, if
less, the amount realized on the disposition of the shares) over the exercise
price thereof, and (b) the Corporation will be entitled to deduct an amount
equal to such income. Any additional gain recognized by the optionee upon a
disposition of shares prior to satisfying the holding period described above
will be taxed as a short-term or long-term capital gain, as the case may be, and
will not result in any deduction for the Corporation.
If an ISO is not exercised on a timely basis, the option will be
treated as a nonqualified stock option. Subject to certain expectations, an ISO
generally will not be exercised on a timely basis if it is exercised more than
three months following termination of employment.
The amount that the fair market value of shares of common stock on the
exercise date of an ISO exceeds the exercise price generally will constitute an
item that increases the optionee's alternative minimum taxable income.
In general, the Corporation will not be required to withhold income or
payroll taxes on the timely exercise of an ISO.
NON-ISOS
In general, an optionee will not be subject to tax at the time a
non-ISO is granted. Upon exercise of a non-ISO where the exercise price is paid
in cash, the optionee generally must include in ordinary income at the time of
exercise an amount equal to the excess, if any, of the fair market value of the
shares of common stock at the time of exercise over the exercise price. The
optionee's tax basis in the shares acquired upon exercise will equal the
exercise price plus the amount taxable as ordinary income to the
43
optionee. The federal income tax consequences of an exercise of a non-ISO where
the exercise price is paid in previously owned shares of common stock are
generally similar to those where the exercise price is paid in cash. However,
the optionee will not be subject to tax on the surrender of such shares, and the
tax basis of the shares acquired on exercise that are equal in number to the
shares surrendered will be the same as the optionee's tax basis in such
surrendered shares. Special timing rules may apply to an optionee who is subject
to reporting under Section 16(a) of the 1934 Act (generally an executive officer
of the Corporation) and would be subject to liability under Section 16(b) of the
1934 Act.
The Corporation generally will be entitled to a deduction in the amount
of an optionee's ordinary income at the time such income is recognized by the
optionee upon the exercise of a non-ISO. Income and payroll taxes are required
to be withheld for employees on the amount of ordinary income resulting from the
exercise of a non-ISO.
On February 14, 2000, 30,000 options were granted under the SOP to four
eligible "outside" directors. The strike price of the options was $11.50 per
share, which represented the closing price of Franklin's common stock as
reported by the American Stock Exchange on that date. One-third of the options
granted vested immediately; another one-third vested one year from the date of
issuance; and the final one-third vest two years after the date of issuance. The
options expire after ten years. On June 7, 2000, 7,500 options were granted
under the SOP to four eligible "outside" directors. The strike price of the
options was $9.67 per share, which represented the closing price of Franklin's
common stock as reported by the American Stock Exchange on that date. One-third
of the options granted vested immediately; another one-third vest one year from
the date of issuance; and the final one-third vest two years after the date of
issuance. The options expire after ten years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following tables set forth certain information with respect to
beneficial ownership (as that term is defined in the rules and regulations of
the Commission) of the Corporation's common stock as of March 9, 2004, by 1)
each person who is known by the Corporation to be the beneficial owner of more
than five percent of the outstanding common stock, 2) each director of the
Corporation, 3) each current executive officer listed in the Summary
Compensation Table and 4) all directors and executive officers of the
Corporation as a group. Except as otherwise indicated, to the Corporation's
knowledge, all shares are beneficially owned and investment and voting power is
held as stated by the persons named as owners. The address for all beneficial
owners, unless stated otherwise below, is c/o Franklin Capital Corporation 450
Park Avenue, Suite 2002, New York, NY 10022.
COMMON STOCK
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
The Prudential Insurance Company
of America 161,854 15.9%
751 Broad Street, Newark, NJ 07102
Stephen L. Brown 142,590 (1) 14.0%
Irving Levine 46,375 (2) 4.5%
Hiram M. Lazar 9,085 (3) *
David T. Lender 300 *
Laurence I. Foster - *
All officers and directors
as a group (5 persons) 198,350 19.4%
-----------------------
* Less than 1.0%
44
(1) Does not include 5,023D Does not include 45,829 shares owned by Mr. Brown's
children. Mr. Brown disclaims beneficial ownership of such shares.
(2) Includes options for 2,500 shares exercisable on February 14, 2000, options
for 625 shares exercisable on June 7, 2000, options for 2,500 shares
exercisable on February 14, 2001 and options for 625 shares exercisable on
June 7, 2001. Also includes preferred stock which is convertible into
35,625 shares of common stock owned by Copley Fund, Inc. ("Copley"). Mr.
Levine may be deemed to be a controlling person of Copley due to his
position as Chairman and Chief Executive Officer. Therefore, Mr. Levine may
be deemed to be a beneficial owner of all shares owned by Copley.
(3) Includes options for 937 shares exercisable on March 1, 2000, and options
for 938 shares exercisable on March 1, 2001. Also includes preferred stock
held which is convertible into 750 shares of common stock.
PREFERRED STOCK
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
Irving Levine 4,750 (1) 43.4%
Mark Rattner 2,000 18.3%
37 Radio Circle Drive
Mount Kisco, NY 10549
Gerry M. Ritterman 1,500 13.7%
47 Lawrence Farms Crossways
Chappaqua, NY 10514
Hiram M. Lazar 100 *
Stephen L. Brown - *
David T. Lender - *
Laurence I. Foster - *
All officers and directors
As a group (6 persons) 4,850 44.3%
-----------------------
* Less than 1.0%
(1) Preferred stock owned by Copley Fund, Inc. ("Copley"). Mr. Levine may be
deemed to be a controlling person of Copley due to his position as Chairman
and Chief Executive Officer. Therefore, Mr. Levine may be deemed to be a
beneficial owner of all shares owned by Copley.
Set forth below is the dollar range of equity securities beneficially owned by
each nominee and continuing director as of March 10, 2004:
DOLLAR RANGE OF EQUITY
NAME OF SECURITIES BENEFICIALLY
DIRECTOR OWNED(1)(2)(4)
------------------ -----------------------
Stephen L. Brown(3) over $100,000
David T. Lender $1-$10,000
Lawrence J. Foster None
Irving Levine over $100,000
----------
(1) Beneficial ownership has been determined in accordance with Rule
16a-1(a)(2) of the Securities Exchange Act of 1934.
(2) The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-100,000,
or over $100,000.
(3) Denotes an individual who is an "interested person" as defined in the
Investment Company Act of 1940.
45
(4) Franklin Capital has not provided information with respect to the
"Aggregate Dollar Range of Equity Securities in All Funds Overseen or to be
Overseen by Director or Nominee in Family of Investment Companies" because
it is not part of a family of investment companies.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information about the options, warrants
and rights and other equity compensation under the Corporation's equity plans as
of December 31, 2003.
NUMBER OF SECURITIES REMAINING
AVAILABLE FOR FUTURE ISSUANCE
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE UNDER EQUITY COMPENSATION PLANS
BE ISSUED UPON EXERCISE EXERCISE PRICE OF (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY OF OUTSTANDING OPTIONS OUTSTANDING OPTIONS IN COLUMN (A))
Equity compensation plans
approved by security holders (1) 20,625 $11.39 26,250
(1) Includes options to purchase shares of Corporation common stock under the
following stockholder approved plans: Stock Incentive Plan and the Non-Statutory
Stock Option Plan both approved on September 9, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Items 10 through 12 and Footnote 6 to the Financial Statements.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES. The aggregate fees billed for professional services
rendered by Ernst & Young LLP for 2003 for the audit of the Corporation's annual
financial statements for 2003 and for the review of the financial statements
included in the Corporation's Forms 10-Q for 2003 were $89,500.
ALL OTHER FEES. Ernst & Young LLP billed fees of $7,500 during for 2003
for services that were not related to the audit and review of the Corporation's
financial statements.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
The following financial statements are set forth under Item 8.
(a) (1) Financial Statements
Report of Ernst & Young LLP
Balance Sheets as of December 31, 2003 and 2002
Statements of Operations for the years ended December 31, 2003,
2002 and 2001
Statements of Cash Flows for the years ended December 31, 2003,
2002 and 2001
Statements of Changes in Net Assets for the years ended
December 31, 2003, 2002 and 2001
Financial Highlights for the years ended December 31, 2003,
2002, 2001, 2000 and 1999
46
Portfolio of Investments as of December 31, 2003
Notes to Financial Statements
The following exhibits are filed herewith or incorporated as set forth below:
(2) Exhibits
(2)(i) Agreement and Plan of Merger between
Franklin Capital Corporation and Change
Technology Partners, Inc. dated as of
December 4, 2001(1)
(3)(i) Articles of Incorporation(2) (3) (ii)
By-Laws(2)
(3)(iii) Amendment to Articles of Incorporation(3)
(4)(i) Certificate of Designation(4)
(4)(ii) Registration Rights Agreement(5)
(4)(iii) Preferred Stock Purchase Agreement(6)
(10)(i) Employment Agreement - Stephen L.
Brown(7)
(10)(ii) Employment Agreement - Spencer L.
Brown(8)
(10)(iii) Severance Agreement - Stephen L. Brown(9)
(10)(iv) Severance Agreement - Spencer L.
Brown(10)
(10)(v) Stock Incentive Plan(12)
(10)(vi) Stock Option Plan(13)
(10)(vii) Management Agreement with Excelsior Radio
Networks(14)
(10)(viii) Asset Purchase Agreement, dated as of
April 1, 2002, by and among the Dial
Entities, Franklin and Excelsior (11)
(10)(ix) Convertible Promissory Note, dated April
3, 2002, issued by Newco in favor of DCGL
(11)
(10)(x) Convertible Promissory Note, dated April
3, 2002, issued by Newco in favor of DCGL
(11)
(10)(xi) Convertible Promissory Note, dated April
3, 2002, issued by Newco in favor of DCGL
(11)
(10)(xii) Promissory Note, dated April 3, 2002,
issued by Excelsior in favor of Change
(11)
(10)(xiii) Promissory Note, dated April 3, 2002,
issued by Excelsior in favor of Sunshine
(11)
(10)(xiv) Security Agreement, dates as of April 3,
2002, by and among Excelsior, Sunshine
and Change (11)
(10)(xv) Amendment No. 1 to Agreement and Plan of
Merger, dated as of April 3, 2002, by and
between Change and Franklin (11)
(21) List of Subsidiaries(15)
(23) Consent of Ernst & Young LLP
(99.1) Certification Pursuant To 18 U.S.C.
Section 1350, As Adopted By Section 906
Of The Sarbanes-Oxley Act Of 2002
(99.2) Certification Pursuant To 18 U.S.C.
Section 1350, As Adopted By Section 906
Of The Sarbanes-Oxley Act Of 2002
--------------------------------------------------------------------------------
(1) Incorporated by reference to the Current Report on Form 8-K filed December
5, 2001.
(2) Incorporated by reference to the Corporation's Form N-2, as amended, filed
July 31, 1992.
(3) Incorporated by reference to Exhibit 3(iii) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
(4) Incorporated by reference to Exhibit 4(i) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
(5) Incorporated by reference to Exhibit 4(ii) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
47
(6) Incorporated by reference to Exhibit 4(iii) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
(7) Incorporated by reference to Exhibit 10(i) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
(8) Incorporated by reference to Exhibit 10(ii) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
(9) Incorporated by reference to Exhibit 10(iii) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
(10) Incorporated by reference to Exhibit 10(iv) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2000
(11) Incorporated by reference to Current Report on form 8-K filed on April 3,
2002
(12) Incorporated by reference to Exhibit 10(v) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2001
(13) Incorporated by reference to Exhibit 10(vi) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2001
(14) Incorporated by reference to Exhibit 10(vii) filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2001
(15) Incorporated by reference to Exhibit 21 filed on the Company's Annual
Report filed on Form 10-K for the year ended December 31, 2001
(b) Reports on Form 8-K.
None
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN CAPITAL CORPORATION
Date: March 30, 2004 By: /s/ Stephen L. Brown
----------------------------
Stephen L. Brown
CHAIRMAN & CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Corporation in the capacities and on the dates indicated.
SIGNATURES TITLE
---------- -----
/s/ Stephen L. Brown Chairman &
-------------------- Chief Executive Officer
Stephen L. Brown
/s/ Hiram M. Lazar
------------------
Hiram M. Lazar Chief Financial Officer
/s/ Laurence I. Foster
----------------------
Laurence I. Foster Director
/s/ David T. Lender
-------------------
David T. Lender Director
/s/ Irving Levine
-----------------
Irving Levine Director
49