Franklin Towers Enterprises (FRTW) 10QSB 2007 Q3 Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

For the quarter ended September 30, 2007

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

For the transition period from _____ to _____

Commission File Number: 000-52150

FRANKLIN TOWERS ENTERPRISES, INC.

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

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

5 Ash Drive

Center Barnstead, New Hampshire 03225

(Address of principal executive offices)

(702) 966-0436

(Issuer's telephone number)

________________________________________________________________

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

As of November 19, 2007, the issuer had 38,250,000 shares of common stock and 5,000,000 shares of Series A Convertible Preferred Stock issued and outstanding.

Transitional Small Business Format Yes o No x

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition	17
Item 3. Control and Procedures	20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Submission of Matters to a Vote of Security Holders	21
Item 5. Other Information	21
Item 6. Exhibits	21
Signatures	22

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 2007

(Unaudited)

ASSETS
Current Assets:
Cash and Cash Equivalents	$	3,220,138
Inventories		620,734
Prepaid Expenses		33,754
Total Current Assets		3,874,626
Property and Equipment, Net		348,159
Other Assets:
Deferred Financing Costs, Net		374,531
Total Assets	$	4,597,316
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Convertible Note Payable, Net of Unamortized Discounts of $1,072,914	$	27,086
Notes Payable - Others		20,000
Accounts Payable		35,099
Accrued Expenses		119,215
Customer Deposits		10,707
Loans Payable - Related Parties		459,624
Total Current Liabilities		671,731
Long-Term Debt:
Convertible Notes Payable, Net of Unamortized Discounts of $2,145,827		54,173
Total Liabilities		725,904
Commitments and Contingencies
Stockholders’ Equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized, 5,000,000
shares issued and outstanding; liquidation preference, $.01 per share		5,000
Common Stock, $.0001 par value; 1,250,000,000 shares authorized,
38,250,000 shares issued and outstanding		3,825
Additional Paid-In Capital		17,573,075
Deferred Finance Costs, Net		( 3,879,301	)
Accumulated Deficit		( 9,874,048	)
Accumulated Other Comprehensive Income		42,861
Total Stockholders’ Equity		3,871,412
Total Liabilities and Stockholders’ Equity	$	4,597,316

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

3

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

	For the Nine Months Ended September 30, 2007			For the Three Months Ended September 30, 2007
Sales - Net	$	346,947		$	346,947
Cost of Sales		324,066			324,066
Gross Profit		22,881			22,881
Operating Expenses:
Consulting Fees		9,483,499			9,483,499
Professional Fees		136,928			41,880
Other General and Administrative Expenses		42,444			31,745
Depreciation and Amortization		949			716
Total Operating Expenses		9,663,820			9,557,840
Loss from Operations		(9,640,939	)		(9,534,959	)
Other Income (Expense):
Interest Income		532			20
Interest Expense		(17,006	)		(16,910	)
Amortization of Debt Discount		(81,259	)		(81,259	)
Amortization of Deferred Finance Costs		(105,904	)		(105,904	)
Total Other Income (Expense)		(203,637	)		(204,053	)
Net Loss	$	(9,844,576	)	$	(9,739,012	)
Net Loss per Common Share (Basic)	$	(.32	)	$	(.30	)
Weighted Average Common Shares Outstanding (Basic)		30,836,081			31,989,130
Proforma Loss per Common Share	$	(.19	)	$	(.11	)
Proforma Weighted Average Common Shares Outstanding		51,373,223			84,869,130

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

4

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007

(Unaudited)

	Preferred Stock				Common Stock				Additional Paid-In			Deferred Finance			Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Shares		Amount		Capital			Costs			Deficit			Income		Total
Balance - January 1, 2007		-	$	-		30,250,000	$	3,025	$	91,475		$	-		$	( 118,863	)	$	-	$	( 24,363	)
Issuance of Preferred Stock in Connection with Recapitalization		5,000,000		5,000		-		-		( 5,000	)		-			-			-		-
Effect of Recapitalization		-		-		-		-		1,010,164			-			89,391			1,132		1,100,687
Debt Discount Recorded in Connection with Issuance of Convertible Notes Payable		-		-		-		-		3,300,000			-			-			-		3,300,000
Issuance of Common Stock for Services		-		-		8,000,000		800		9,199,200			-			-			-		9,200,000
Issuance of Common Stock Purchase Warrants as Finder’s Fees in Connection with Convertible Notes Payable		-		-		-		-		3,977,236			(3,977,236	)		-			-		-
Amortization of Deferred Finance Costs		-		-		-		-		-			97,935			-			-		97,935
Comprehensive Income (Loss):
Net (Loss) for the Nine Months Ended September 30, 2007		-		-		-		-		-			-			(9,844,576	)		-		(9,844,576	)
Foreign Currency Translation Adjustment		-		-		-		-		-			-			-			41,729		41,729
Total Comprehensive Loss		-		-		-		-		-			-			-			-		(9,802,847	)
Balance - September 30, 2007		5,000,000	$	5,000		38,250,000	$	3,825	$	17,573,075		$	(3,879,301	)	$	(9,874,048	)	$	42,861	$	3,871,412

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

5

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007

(Unaudited)

Cash Flows from Operating Activities:
Net Loss	$	(9,844,576	)
Adjustments to Reconcile Net Loss to Net Cash Used
in Operating Activities:
Depreciation Expense		14,483
Common Stock Issued for Services		9,200,000
Amortization of Deferred Finance Costs		105,904
Amortization of Debt Discount		81,259
Changes in Assets and Liabilities:
(Increase) in Inventories		(620,734	)
(Increase) in Prepaid Expenses		(33,754	)
Increase in Accounts Payable and Accrued Expenses		112,949
Increase in Customer Deposits		10,707
Net Cash (Used) in Operating Activities		(973,762	)
Cash Flows from Investing Activities:
Capital Expenditures		(361,262	)
Net Cash (Used) in Investing Activities		(361,262	)
Cash Flows from Financing Activities:
Proceeds of Additional Paid-In Capital		768,600
Net Cash of Business Acquired		(2,552	)
Proceeds of Loans- Related Party		445,462
Proceeds from Issuance of Convertible Notes Payable		3,300,000
Finance Costs Related to Issuance of Convertible Debt		(382,500	)
Net Cash Provided by Financing Activities		4,129,010
Effect of Exchange Rate Changes on Cash		41,729
Net Change in Cash and Cash Equivalents		2,835,715
Cash and Cash Equivalents - Beginning of Period		384,423
Cash and Cash Equivalents - End of Period	$	3,220,138

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

6

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007

(Unaudited)

(Continued)

Supplemental Disclosures of Cash Flow Information:
Interest Paid	$	-
Income Taxes Paid	$	-
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Preferred Stock Issued in Connection with Recapitalization	$	5,000
Common Stock Purchase Warrants Issued for Deferred Finance Costs	$	3,977,236
Debt Discount Recorded in Connection with Issuance of Convertible Notes Payable	$	3,300,000

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

7

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Description of Business and Basis of Presentation

Basis of Presentation

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. These financial statements are condensed and therefore do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

Organization

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

On June 19, 2007, Franklin entered into a Share Purchase Agreement with the shareholders of Chongqing Qiluo Textile Co. Ltd., a limited liability company organized under the laws of the People’s Republic of China (“Qiluo”), whereby Franklin agreed to acquire 100% of the issued and outstanding registered capital of Qiluo for consideration of 5,000,000 shares of Franklin’s Series A Convertible Preferred Stock (convertible into 52,880,000 shares of common stock) (See Note 7). Upon consummation of such purchase, Qiluo became a wholly-owned subsidiary of Franklin. Through our subsidiary, Qiluo, we will focus on the production and sale of raw silk.

The acquisition is accounted for as a “reverse acquisition”, since the stockholders of Qiluo owned a majority of Franklin’s common stock immediately following the transaction. Qiluo is treated as the continuing entity although Franklin is the legal acquirer. Consequently, the consolidated financial statements include the assets and liabilities of Qiluo and Franklin (collectively, the “Company”), historical operations of Qiluo, and operations of Qiluo and Franklin from the date of the acquisition.

Qiluo was incorporated on December 15, 2006, under the name “Chongqing Qiluo Industry Ltd.” under the laws of the People’s Republic of China with the purpose of engaging in the manufacture and sale of silk and silk products. The Company started test production at the end of June 2007 and commenced operations during the quarter ended September 30, 2007.

Principles of Consolidation

The accompanying consolidated financial statements included the accounts of Franklin (Parent) and its wholly owned subsidiary Qiluo. All significant intercompany accounts and transactions have been eliminated in consolidation.

8

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 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 of America 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Fair Value of Financial Instruments

The carrying amounts of the Company’s cash, accounts receivable, accounts payable, and notes and loans payable approximate fair value because of the immediate or short-term maturity of these financial instruments.

Inventories

Inventories are stated at the lower of cost (first-in, first out method) or market.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets.

Revenue Recognition

The Company has not generated any revenue to date. For revenue from product sales, the Company will recognize revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments will be provided for in the same period the related sales are recorded.

Advertising Costs

Advertising costs are expensed as incurred. The Company did not incur any advertising costs for the quarter ended September 30, 2007.

9

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 -             Summary of Significant Accounting Policies (Continued)

Income Taxes

The Company accounts for income taxes using the asset and liability method described in SFAS No. 109, “Accounting For Income Taxes”, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

No provision has been made for corporation income taxes due to the current loss. In addition, no future tax benefit has been calculated. According to the tax regulations of China, the amount of loss that will carry over to the next tax period should be assessed and approved by the tax regulation agency. The maximum carry over period is five years.

Foreign Currency Translation

The financial statements of the Company are translated pursuant to Statement of Financial Accounting Standards (SFAS) No. 52 - “Foreign Currency Translation.” Qiluo is located and operated in China. The Chinese Yuan is the functional currency. The financial statements of Qiluo is translated to U.S. dollars using quarter-end rates of exchange for assets and liabilities, and average rates of exchange for revenues, costs and expenses. Translation gains and losses are deferred and recorded in accumulated other comprehensive income as a component of stockholders’ equity.

Net Loss Per Common Share

Loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. The common stock issued and outstanding with respect to the pre-merger Franklin stockholders has been included since March 23, 2006. Diluted loss per common share is the same as basic loss per share, as the effect of potentially dilutive securities (convertible debt-3,300,000 shares, and warrants-30,360,000) at September 30, 2007 are anti-dilutive.

Proforma loss per share is computed similarly to basic loss per share except that it includes the potential dilution that could occur if the 5,000,000 Series A Convertible Preferred Stock issued and outstanding at September 30, 2007 were converted into 52,880,000 shares of Franklin common stock.

Recently Issued Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“Interpretation No. 48”). Interpretation No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” Interpretation No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interpretation No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation No. 48 is effective beginning January 1, 2007. The Company believes that the adoption of Interpretation No. 48 will not have a material impact on its financial statements.

Reclassifications

Certain items in these condensed consolidated financial statements have been reclassified to conform to the current period presentation.

10

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 -               Inventories

                 Inventories consist of the following:

Raw Materials	$	182,744
Work-in-Process		197,910
Finished Goods		230,801
Packaging Materials & Supplies		9,279
	$	620,734

NOTE 4 - Property and Equipment

Property and equipment is summarized as follows:

	Estimated Useful Life		Cost
Machinery		7	$	314,684
Computers		3		3,342
Office equipment		5		4,072
Furniture and Fixtures		7		13,191
				362,289
Less: Accumulated Depreciation				14,130
			$	348,159

Depreciation expense was $14,130 for the nine months ended September 30, 2007, of which, $101 was eliminated to additional paid in capital in connection with the recapitalization.

NOTE 5 -             Loans Payable - Related Parties

Due to related parties represents advances made to the Company by its significant stockholder and officers. Advances amounting to $459,624 are payable on demand and bear no interest. Loans from the Company’s officers in the amount of $12,233 bear interest at 8% per annum. As of September 30, 2007, the accrued interest payable was in the amount of $1,058.

NOTE 6 -             Notes Payable

The Company borrowed $20,000 from two individuals. Each of these loans, $10,000 each, with a borrowing line of up to $20,000, bears the interest at 8% per annum. The principal and interest is due on April 24, 2008. As of September 30, 2007 the accrued interest totaled $2,279.

11

FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 -             Convertible Debt

On September 12, 2007 the Company entered into Subscription Agreements (the "Subscription Agreements") with 11 investors ("Purchasers"), for the purchase and sale of $3,300,000 of Secured Convertible Promissory Notes of the Company (the “Notes”) for the aggregate purchase price of $3,300,000 (the “Note Financing”). The Company received net proceeds from the issuance of the Notes of $2,917,500. Pursuant to the terms of the Subscription Agreement, the Company also issued to the Purchasers warrants to purchase up to 26,400,000 shares of common stock of the Company, subject to adjustments for certain issuances and transactions.

The Notes bear interest at the rate of 10% per annum, payable in either (a) cash equal to 115% of 5.55% of the initial principal amount or (b) absent any event of default, in shares of the Company’s common stock at the lesser of (i) $1.00 per share or (ii) 80% of the average of the closing bid prices of the Company’s common stock for the 20 trading days preceding the payment date. Said payments commence on March 12, 2008 and all accrued but unpaid interest and any other amounts due thereon is due and payable on September 12, 2009, or earlier upon acceleration following an event of default, as defined in the Notes.

All principal and accrued interest on the Notes is convertible into shares of the Company’s common stock at the election of the Purchasers at any time at the conversion price of $1.00 per share, subject to adjustment for certain issuances, transactions or events that would result in “full ratchet” protection to the holders.

The Notes contain default events which, if triggered and not timely cured (if curable), will result in a default interest rate of 15% per annum. The Notes also contain full ratchet antidilution provisions with respect to certain securities issuances, including the issuances of stock for less than $.25 per share. In addition, the Company has to pay the Purchasers an additional amount principal plus accrued interest if the Company is no longer listed on the Bulletin Board or sells substantially all of its assets.

As part of the financing, the Company also issued to each Purchaser an aggregate of 13,200,000 Class A Common Stock Purchase Warrants and 13,200,000 Class B Common Stock Purchase Warrants. The Class A Warrants are exercisable at a price of $0.50 per share at any time until the fifth anniversary from the date the Registration Statement is declared effective by the Securities and Exchange Commission (“the Expiration Date”) and the Class B Warrants are exercisable at a price of $1 per share at any time until the Expiration Date. The warrants include a cashless exercise provision which is triggered after March 12, 2008 as well as “full ratchet” antidilution provisions with respect to certain securities issuances.

The option of each Purchaser, conversion of the Notes, or exercise of the Warrants, is subject to the restriction that such conversion or exercise, does not result in the Purchaser beneficially owning at any one time more that 4.99% of the Company’s outstanding shares of common stock.

Payment of the Notes along with the Company’s other obligations to the Purchasers is secured by all the assets of the Company and of its wholly-owned subsidiary Chongqinq Qiluo Textile Co. Inc., a limited liability company organized under the laws of the People’s Republic of China (“Qiluo”). Such obligations are also secured by a guaranty and pledge of the 17,100,000 shares of the Company’s common stock held by Xinshengxiang Industrial Development Co., Ltd.

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FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 -             Convertible Debt (Continued)

In connection with the transaction, the Company agreed to prepare and file with the Securities and Exchange Commission within 60 days following the closing a registration statement on Form SB-2 for the purpose of registering for resale all of the shares of common stock underlying the Notes, If the Company fails to file such registration statement within such time, or if the registration statement is not declared effective within 120 days from September 16, 2007, the Company must pay monthly liquidated damages in cash equal to 2% of the principal amount of the Notes and purchase price of the Warrants. The Purchasers were also granted standard piggyback registration rights along with certain demand registration rights.

In connection with the convertible debt, the Company recorded deferred finance costs of $4,359,736. Such deferred finance costs are being amortized over the life of the related debt. The Company also recorded a deferred debt discount in the amount of $3,300,000 to reflect the beneficial conversion feature of the convertible debt and the value of the warrants. The beneficial conversion feature was recorded pursuant to Emerging Issues Task Force (“EITF”) 00-27: “Application of EITF No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, to Certain Convertible Instruments”. In accordance with EITF 00-27, the Company evaluated the value of the beneficial conversion feature and recorded this amount ($424,953) as a reduction to the carrying amount of the convertible debt and as an addition to paid-in capital. Additionally, the fair value of the warrants ($2,875,047) was calculated and recorded as a further reduction to the carrying amount of the convertible debt and as addition to paid-in capital.

The Company is amortizing the discounts over the term of the debt. Amortization of the debt discount and deferred finance costs was $81,259 and $105,904 for the quarter ended September 30, 2007.

NOTE 8 -     ��       Stockholders’ Equity and Share Purchase Agreement

Effective April 23, 2007 the Company amended its articles of incorporation for the purpose of effecting a two and a half for one (2.5 for 1) forward stock split of its common stock. In addition, the authorized common stock of the Company was increased from 500,000,000 shares, $.001 par value to 1,250,000,000 shares, $.0001 par value. All share and per share data have been given retroactive effect to reflect this recapitalization.

On June 19, 2007, Franklin entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with the following persons: Chongqing Qiluo Textile Co. Ltd., a limited liability company organized under the laws of the People’s Republic of China (“Qiluo”); Xinshengxiang Industrial Development Co., Ltd., a limited liability company organized under the laws of the People’s Republic of China (“Xinshengxiang”); Mr. Dingliang Kuang (“Dingliang”); and Ms. Yue Kuang (“Yue,” and together with Xinshengxiang and Dingliang, the "Qiluo Shareholders"). Pursuant to the Share Purchase Agreement, Franklin agreed to acquire Qiluo at a closing held simultaneously therewith by purchasing from the Qiluo Shareholders all of their respective shares of Qiluo’s registered capital, which represent 100% of the issued and outstanding registered capital stock of Qiluo. Upon the consummation of such purchase, Qiluo became a wholly-owned subsidiary of Franklin. In consideration therefor, Franklin agreed to issue to the Qiluo Shareholders an aggregate of 5,000,000 shares of Franklin’s Series A Convertible Preferred Stock (convertible into 52,880,000 shares of common stock), which were allocated between the Qiluo Shareholders as follows: 4,750,000 shares to Xinshengxiang; 125,000 shares to Dingliang; and 125,000 shares to Yue. Each share of Series A Convertible Preferred Stock is convertible, at the option of the holder thereof, into 10.576 of Franklin's common stock.

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FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 -             Stockholders’ Equity and Share Purchase Agreement (Continued)

In connection with the foregoing transaction, on June 19, 2007, Kelly Fan, the President, Chief Executive Officer, Treasurer, and Director of Franklin, sold to the Qiluo Shareholders 18,000,000 shares of the common stock of Franklin which were issued and outstanding and held by Ms. Fan. Such shares were allocated between the Qiluo Shareholders as follows: 17,100,000 shares to Xinshengxiang Industrial Development Co., Ltd.; 450,000 shares to Dingliang Kuang; and 450,000 shares to Yue Kuang.

As a result of the foregoing transactions: (a), Xinshengxiang Industrial Development Co., Ltd. holds approximately 81% of the total combined voting power of all classes of Franklin’s capital stock entitled to vote. (b) Diangliang Kuang is the principal owner and manager of Xinshengxiang Industrial Development Co., Ltd. and thus has voting, investment, and dispositive control over the shares of Franklin’s capital stock owned by Xinshengxiang Industrial Development Co., Ltd. Accordingly, Mr. Kuang is also deemed to be the indirect beneficial owner the shares of Franklin’s capital stock owned by Xinshengxiang Industrial Development Co., Ltd. Mr. Kuang thus directly and indirectly (by Xinshengxiang Industrial Development Co., Ltd.) holds approximately 83% of the total combined voting power of all classes of Franklin’s capital stock entitled to vote. (c) Yue Kuang, who is the sister of Diangliang Kuang, directly holds approximately 2% of the total combined voting power of all classes of Franklin’s capital stock entitled to vote.

In September 2007 the Company agreed to issue an aggregate of 8,000,000 shares of common stock valued at $9,200,000 to Bonsai Venture Partners, Ltd., a British Virgin Islands limited company in consideration, amongst other things, for introducing potential investors to the Company and for consulting services rendered in connection with the September 2007 private placement.

Warrants

A summary of the status of the Company’s warrants is presented below:

	Number of Warrants		Weighted Average Exercise Price
Outstanding, January 1, 2007		-	$	-
Issued, Class A Warrants		13,200,000		.50
Issued, Class B Warrants		13,200,000		1.00
Issued, Finder’s Fees Warrants		3,960,000	$	.25
Outstanding, September 30, 2007		30,360,000	$	.68

Warrants outstanding and exercisable by price range as of September 30, 2007 were as follows:

Warrants Outstanding							Warrants Exercisable
Range of	Number Outstanding		Weighted Average Remaining Contractual Life in Years*		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.25		3,960,000		5.0	$	0.25		3,960,000	$	0.25
$0.50		13,200,000		5.0		0.50		13,200,000	$	0.50
$1.00		13,200,000		5.0		1.00		13,200,000	$	1.00
		30,360,000			$	0.68		30,360,000	$	0.68

* Warrants expire 5 years after effective date of registration statement which has not yet been filed.

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FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 -              Preferred Stock

On June 18, 2007, we designated a series of Preferred Stock known as the “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”) by filing a Certificate of Designation with the Secretary of State of Nevada. The number of shares constituting such Series A Preferred Stock was designated to be 5,000,000 shares, par value $0.001 per share. Pursuant to the Certificate of Designation, the principal rights, preferences, powers, limitations and restrictions of the Series A Preferred Stock are as follows:

Each share of Series A Preferred Stock is convertible, at the option of the holder thereof, without payment of additional consideration, 10.576 shares of the Company’s common stock. Holders of Series A Preferred Stock shall be entitled to vote, together with holders of common stock as a single class, on all matters upon which stockholders of the Company are entitled to vote, with each share of Series A Preferred Stock having one vote. The Series A Preferred Stock shall rank senior to the common stock. In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the common stock of the Company and any other issue of stock, should there be any, by reason of their ownership thereof, an amount per share equal to $0.01 per each share of Series A Preferred Stock owned by such shareholder plus any declared and unpaid dividends on the Series A Preferred Stock.

NOTE 10 -           Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances at financial institutions which exceed the Federal Deposit Insurance Corporation limit of $100,000 at times during the year. As of September 30, 2007 the Company’s cash balance in US dollar bank accounts was $2,198,428.

In addition the Company maintains cash balances in various banks in China. Currently, no deposit insurance system has been set up in China. Therefore, the Company will bear a risk if any of these banks become insolvent. As of September 30, 2007, the Company’s uninsured cash balance was approximately $761,000.

The financial position and results of operations of the Company’s subsidiary are recorded in Chinese Yuan. Therefore, exchange rate fluctuations could affect the profitability of the subsidiary when translated to US dollars.

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FRANKLIN TOWERS ENTERPRISES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 -           Commitments and Contingencies

On January 28, 2007, the Company signed a twenty (20) year lease with Xinshengxiang, a related party, see Note 7, for the use of a factory building located in Fulin, Chongqing. The lease commenced on March 1, 2007 and calls for annual base rent of $26,963 plus other occupancy costs.

Future minimum rentals are as follows:

Year Ending December 31,	Future Minimum Rent Payments US Dollars
2007	$	6,741
2008		26,963
2009		26,963
2010		26,963
2011		26,963
2012		26,963
Thereafter		381,979
Total	$	523,535

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Item 2. Management’s Discussion and Analysis or Plan of Operations.

As used in this Form 10-QSB, references to the “Franklin”, “Company,” “we,” “our” or “us” refer to Franklin Towers Enterprises, Inc., unless the context otherwise indicates.

This Management’s Discussion and Analysis or Plan of Operation should be read in conjunction with the financial statements and the notes thereto.

Forward-Looking Statements

This quarterly report on Form 10-QSB contains forward-looking statements that involve risks and uncertainties. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “the Company believes,” “management believes” and similar language. The forward-looking statements involve numerous risks and uncertainties, including the “Risk Factors” discussed in our annual report on Form 10-KSB for the year ended December 31, 2006, which was filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2007. Our actual results could differ significantly from those in the forward-looking statements included in this quarterly report. Except as required by law, including the federal securities laws, we assume no obligation to update the forward-looking statements included in this quarterly report. Statements contained in this Form 10-QSB that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

Critical Accounting Policies

Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require us to apply significant judgment in their application. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, we use our judgment in making certain assumption and estimates. Our critical accounting policies are described in our Annual Reports on Form 10-KSB and Form 10-KSB/A for the year ended December 31, 2006. There have been no material changes to our critical accounting policies as of and for the three months ended September 30, 2007.

History

Franklin was incorporated on March 23, 2006 in the State of Nevada. Prior to our acquisition of Chongqing Qiluo Textile Co. Ltd. (“Qiluo”), as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on June 20, 2007, Franklin intended to engage in the manufacture, processing, and distribution of frozen Pan Asian foods. Franklin has not generated any revenue to date and its operations have been limited to organizational, start-up, and fund raising activities.

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On July 20, 2006, the SEC declared effective Franklin’s Registration Statement on Form SB-2 (Commission File No. 333-135199) relating to the primary offering by Franklin of up to 4,000,000 shares of our common stock at a purchase price equal to $0.025 per share. Such offering commenced on July 1, 2006 and was terminated and concluded on September 25, 2006. Franklin sold all 4,000,000 shares of common stock offered in such offering and raised gross proceeds of $100,000. Franklin incurred offering costs of $16,000, and net proceeds amounted to $84,000. $70,000 of the proceeds were utilized to engage consultants in areas including culinary cuisine, research and development, equipment, development of a marketing plan, food samples and web site development.

On April 23, 2007, Franklin amended its Articles of Incorporation for the purposes of implementing a two and a half for one (2 ½ for 1) forward stock split and increasing its authorized shares of common stock on a corresponding basis. As a result of such forward stock split, shares of common stock held by each holder of record on April 23, 2007 were automatically split at the rate of two and a half for one (2 ½ for 1), so that each pre-split share of the Corporation was equal to two and a half post-split shares without any further action on the part of the shareholders.

On June 18, 2007, Franklin authorized and created a series of preferred stock, designated as the “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”), consisting of 5,000,000 shares. Each share of Series A Preferred Stock is convertible, at the option of the holder thereof, into 10.576 shares of Franklin's common stock. The holders of shares of Series A Preferred Stock are entitled to vote together with the holders of the common stock, as a single class, upon all matters submitted to holders of common stock for a vote. Each share of Series A Preferred Stock will carry a number of votes equal to the number of shares of common stock issuable as if converted at the record date. The Series A Preferred Stock shall rank senior to the common stock. In the event of any liquidation, dissolution or winding up of Franklin, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of Franklin to the holders of the common stock of Franklin and any other issue of stock, should there be any, by reason of their ownership thereof, an amount per share equal to $0.01 per each share of Series A Convertible Preferred Stock owned by such shareholder plus any declared and unpaid dividends on the Series A Convertible Preferred Stock.

On June 19, 2007, Franklin acquired Qiluo by purchasing all of the issued and outstanding shares of registered capital of Qiluo. In exchange therefor, Franklin issued to the shareholders of Qiluo an aggregate of 5,000,000 shares of Franklin’s Series A Convertible Preferred Stock, which is convertible into 52,880,000 shares of common stock.

Since its acquisition of Qiluo, Franklin no longer intends to engage in the manufacture, processing, and distribution of frozen Pan Asian foods. Instead, it will focus on the production and sale of raw silk.

On September 10, 2007, Franklin authorized the issuance of 8,000,000 shares of common stock to Bonsai Venture Partners, Ltd., a limited company organized under the laws of the British Virgin Island, in consideration, amongst other things, for introducing the potential investors to the company and for consulting services rendered in connection with the September 2007 private placement.

Overview

Through, Qiluo, we are currently engaged in the production and sale of raw silk. During the nine months ended September 30, 2007, we produced approximately 100,000 tons of raw silk and generated approximately $347,000 in net sales and gross profits of approximately $23,000.

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Plan of Operation

Qiluo commenced operation in August and during the nine months ended September 30, 2007. Qiluo currently has 12 silk reeling machines, of which 8 are in full operation. We anticipate that the remaining 4 reeling machines, which are currently being assembled, are likely to start production in early January 2008.

Qiluo currently has 306 employees, all of whom are employed on a full time basis. Our employees have no long term commitments to the Company. All employees are employed pursuant to standard employment agreement, which sets forth the terms of the employment, duties, compensation, and other such matters, In addition, all of our employees are required to sign our standard confidentiality agreement, pursuant to which they agree to maintain the confidentiality of all proprietary information of our company. We do not believe that any of these are material to our business operation.

Through Qiluo, we are contemplating the acquisition of various other silk worm farms and/or existing manufacturing facilities. Should these initiatives move forward, we believe that we will have sufficient funds available to proceed with the acquisitions.

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Liquidity and Capital Resources

As of September 30, 2007, we had $3,200,000 in cash. These funds were primarlily generated from the purchase and sale of our secured convertible promissory notes to a total 11 accredited investors.

In September 2007, we entered into subscription agreements with 11 accredited investors for the purchase and sale of $3,300,000 of secured convertible promissory notes. The Company received net proceeds of $2,917,500.

We believe that our cash on hand will be sufficient for our operations for the next 12 months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our principal executive and financial officer has reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) within the end of the period covered by this Quarterly Report on Form 10-QSB and has concluded that the disclosure controls and procedures are effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the last day they were evaluated by our principal executive and financial officer.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

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

Unregistered Sales of Equity Securities

Other than the sales of unregistered equity securities previously disclosed in the Company’s Current Report of Form 8-K filed with the SEC on September 18, 2007 and September 25, 2007, there were no other such sales during the quarter ended September 30, 2007.

Item 3. Defaults Upon Senior Securities.

None.

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

There was no matter submitted to a vote of security holders during the fiscal quarter ended September 30, 2007.

Item 5. Other Information.

Item 6. Exhibits

Exhibit No.	Description
31.1	Rule 13a-14(a)/15d14(a) Certifications of Kelly Fan, the President, Chief Executive Officer, Treasurer, and Director (Attached Hereto)
31.2	Rule 13a-14(a)/15d14(a) Certifications of Patricia E. Dowell, the Secretary (Attached Hereto)
32.1	Section 1350 Certifications of Kelly Fan, the President, Chief Executive Officer, Treasurer, and Director (Attached Hereto)
32.2	Section 1350 Certifications of Patricia E. Dowell, the Secretary (Attached Hereto)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-QSB to be signed on its behalf by the undersigned thereunto duly authorized.

	FRANKLIN TOWERS ENTERPRISES, INC.
Date: November 19, 2007	By:	/s/ Kelly Fan
		Name: Kelly Fan Title: President, Chief Executive Officer, Treasurer, and Director (Principal Executive, Financial, and Accounting Officer)

Date: November19, 2007	By:	/s/ Patricia E. Dowell
		Name: Patricia E. Dowell Title: Secretary

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