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Aero Performance Products, Inc. – ‘10-Q/A’ for 9/30/05

On: Thursday, 4/20/06, at 1:44pm ET · For: 9/30/05 · Accession #: 1165527-6-123 · File #: 814-00692

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/20/06  Aero Performance Products, Inc.   10-Q/A      9/30/05    5:64K                                    Global Financial Corp/FA

Amendment to Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q/A      Amendment No. 2 to Form 10-Q                          22    102K 
 2: EX-31.1     CEO Section 302 Certification                          2±    10K 
 3: EX-31.2     CFO Section 302 Certification                          2±    10K 
 4: EX-32.1     CEO Section 906 Certification                          1      6K 
 5: EX-32.2     CFO Section 906 Certification                          1      6K

10-Q/A — Amendment No. 2 to Form 10-Q
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Changes in Securities Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Other Information Quantitative and Qualitative Disclosures About Market Risk Submission of Matters to Vote of Security Holders
1	1st Page - Filing Submission
3	Item 1. Financial Statements
15	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
21	Item 3. Quantitative and Qualitative Disclosures About Market Risk
"	Item 4. Controls and Procedures
"	Item 1. Legal Proceedings
"	Item 2. Changes in Securities
"	Item 3. Defaults Upon Senior Securities
"	Item 4. Submission of Matters to Vote of Security Holders
22	Item 5. Other Information
"	Item 6. Exhibits

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-Q/A

(Mark One)                                                                      
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange 
Act of 1934                                                             

For the quarterly period ended September 30, 2005                       

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

For the transition period from _____________ to _______________         

Commission File Number 000-26887

 FRANCHISE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

Nevada                                           98-0353403 
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)                                                

8655 E. Via De Ventura Suite G-217
Scottsdale, AZ 85058
(Address of principal executive offices)

(480) 355-8142
 (Registrant's telephone number)

     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 [ ]                                                                  

APPLICABLE ONLY TO CORPORATE ISSUERS

     The  number of shares  of the  issuer's  common  equity  outstanding  as of
November 7, 2005 was 71,562,852 shares of common stock, par value $.0001.       

   Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

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INDEX TO FORM 10-Q/AFILING
FOR THE QUARTER ENDED SEPTEMBER 30, 2005

 TABLE OF CONTENTS

PART I FINANCIAL INFORMATION                                                    

ITEM 1. FINANCIAL STATEMENTS                                                    
        Portfolio of Investments as of September 30, 2005                      3
Statements of Assets and Liabilities at September 30, 2005      
         and June 30, 2005                                                     5
Statements of Operations for the three month periods ended      
        September 30, 2005 and September 30, 2004                              6
Statements of Changes in Net Assets for the three month periods 
        ended September 30, 2005 and September 30, 2004                        7
Statements of Cash Flow for the three month periods ended       
        September 30, 2005 and September 30, 2004                              8
        Notes to Financial Statements                                         10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION             
        AND RESULTS OF OPERATIONS                                             15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS           21
ITEM 4. CONTROLS AND PROCEDURES                                               21

PART II OTHER INFORMATION                                                       

ITEM 1. LEGAL PROCEEDINGS                                                     21
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS           21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                       21
ITEM 4. SUBMSISION OF MATTERS TO A VOTE OF SECURITY HOLDERS                   21
ITEM 5. OTHER INFORMATION                                                     22
ITEM 6. EXHIBITS                                                              22

SIGNATURES                                                                    22

 EXPLANATORY NOTE:

On  December  23,  2004,  the  company  elected  to be  regulated  as a Business
Development  Company (BDC) as outlined in the Investment  Company Act of 1940 by
filing a Form N-54A.  As a BDC,  the Company is no longer  eligible to report on
Form 10-QSB because it is an investment company and, therefore, does not qualify
as a small  business  issuer.  The  Company has  therefore  elected to file this
amended Form 10Q/A to properly present its financial  information to comply with
Regulation S-X.                                                                 

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ITEM 1. FINANCIAL STATEMENTS                                                    

FRANCHISE CAPITAL CORPORATION 
PORTFOLIO OF INVESTMENTS (UNAUDITED)

SEPTEMBER 30, 2005

                                                          Percent of
                                                           Net
                                     Value                Assets
                                     -----                ------
PORTFOLIO STRUCTURE                                                             

SHORT-TERM INVESTMENTS:                                                         
None                                    $        --               --%       

PRIVATE COMPANIES                           1,013,134              167%         
PUBLIC COMPANIES                                   --               --%         
PRIVATE UNVESTMENT FUNDS                           --               --%         

TOTAL INVESTMENTS                           1,013,134              167%         
OTHER ASSETS & LIABILITIES (NET)             (404,767)             (67)%        

NET ASSETS                            $   608,367              100%     

Notes to Financial Statements are an integral part of 
these Financial Statements

3 

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FRANCHISE CAPITAL CORPORATION 
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2005 (UNAUDITED) 

                                                        [Enlarge/Download Table]

      Principal                                                Acquisition              
    Amount/Shares                                                  Date        Value    
    -------------                                                  ----        -----    
                                                                                        
PRIVATE COMPANIES (1) -- 167%                                                           
Common Stocks-- 100%                                                                    
Restaurant companies-- 100%                                                             

INVESTMENTS IN CONTROLLED COMPANIES:                                                    
Membership 72.5%    Comstock Jake's Franchise Co., LLC            12/2004   $        -- 
Membership 50%      Cousin Vinnie's Franchise Co., LLC            12/2004         7,500 
Membership 100%     Kirby Foo's Franchise Co., LLC                12/2004         7,500 
Membership 90%      Kokopelli Mexican Grill Franchise Co. LLC     12/2004       690,642 

ADVANCES TO CONTROLLED COMPANIES:                                                       
                    Comstock Jake's Franchise Co., LLC            12/2004        92,670 
                    Cousin Vinnie's Franchise Co., LLC            12/2004        90,705 
                    Kirby Foo's Franchise Co., LLC                12/2004        26,924 
                    Kokopelli Mexican Grill Franchise Co. LLC     12/2004        97,193 
                                                                             ---------- 

                    TOTAL-- PRIVATE COMPANIES (Cost $512,473)                 1,013,134 
                                                                             ---------- 

                    TOTAL INVESTMENTS (Cost $512,473)-- 167%                  1,013,134 
                                                                             ---------- 

                    OTHER ASSETS & LIABILITIES (NET)-- (67)%                   (404,767)
                                                                            ----------- 

                    NET ASSETS-- 100.00%                                    $   608,367 
                                                                            ----------- 

----------                                                                      
1.   At September  30, 2005 the Company owned 25% or more of each of the private
     company's  outstanding  common  stock  thereby  making  each  a  controlled
     affiliate as defined by the  Investment  Company Act of 1940.  Total market
     value of controlled  affiliated  securities owned at September 30, 2005 was
$1,013,134.                                                           

 Notes to Financial Statements are an integral part of
these Financial Statements

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FRANCHISE CAPITAL CORPORATION 
STATEMENT OF ASSETS AND LIABILITIES 

                                                        [Enlarge/Download Table]

                                                                    September 30,     June 30,  
                                                                        2005           2005     
                                                                    ------------   ------------ 
                                                                    (Unaudited)                 
                                                                                                
ASSETS:                                                                                         
  Controlled Affiliated Issuers at value (Cost $512,473                                         
   and $0, respectively)                                            $  1,013,134   $  1,014,430 
  Cash and cash equivalents                                                3,801             -- 
  Purchased receivables and other assets                                  71,266         11,747 
                                                                    ------------   ------------ 
      Total Assets                                                  $  1,088,201   $  1,026,177 

LIABILITIES:                                                                                    
  Accounts payable and accrued expenses                             $     58,907   $    120,712 
  Debentures payable (See Note 4)                                        220,927        358,156 
  Notes payable                                                          200,000        200,000 
                                                                    ------------   ------------ 
      Total Liabilities                                                  479,834        678,868 

NET ASSETS                                                          $    608,367   $    347,309 

NET ASSETS consist of:                                                                          
  Preferred Series C, 12,325,000 and 13,187,500 shares outstanding         1,233          1,319 
  Paid-in capital, 68,562,852 Common shares outstanding                7,163,317      6,600,512 
  Stock subscription receivable                                          (64,937)            -- 
  Accumulated deficit                                                 (6,491,246)    (6,254,522)
                                                                    ------------   ------------ 

Total Net Assets                                                    $    608,367   $    347,309 

Shares Outstanding (200,000,000 of $0.0001 par value common stock                               
 authorized)                                                          68,562,852     32,927,305 

NET ASSET VALUE PER SHARE                                           $       0.01   $       0.01 
                                                                    ============   ============ 

 Notes to Financial Statements are an integral part of
these Financial Statements

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FRANCHISE CAPITAL CORPORATION 
STATEMENTS OF OPERATIONS
AS OF SEPTEMBER 30, 2005
(UNAUDITED) 

                                                    For the three months ended
                                                       September 30,
                                                   2005             2004
                                                    ---------        ---------

INVESTMENT INCOME:                                                              
 Interest income                                    $      --        $      --
 Dividend income                                           --               --
                                                    ---------        ---------
     Total Income                                          --               --

EXPENSES:                                                                       
 Interest                                              36,620            4,352
 Administration expenses and fees                     198,253          478,421
                                                    ---------        ---------
     Total Expenses                                   234,873          482,773

NET INVESTMENT LOSS                                   (234,873)        (482,773)

NET REALIZED LOSS ON INVESTMENTS                       (83,231)              -- 

NET CHANGE IN UNREALIZED GAINS AND LOSSES ON                                    
INVESTMENTS                                             81,380               -- 

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF                                       
ACCOUNTING CHANGES                                    (236,724)        (482,773)

INCOME FROM DISCONTINUED OPERATIONS                         --           25,805 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING                                 
FROM OPERATIONS                                      $(236,724)       $(456,968)

 Notes to Financial Statements are an integral part of
these Financial Statements

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FRANCHISE CAPITAL CORPORATION 
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) 

                                                                [Download Table]

                                                       For the three months ended   
                                                              September 30,         
                                                        2005                2004    
                                                      ---------           --------- 
                                                                                    
OPERATIONS:                                                                         
  Net investment loss                                 $(234,873)          $(482,773)
  Income from discontinued operations                        --              25,805 
  Net realized and unrealized gain (loss) on                                        
  investment transactions                                (1,851)                 -- 

Net decrease in net assets resulting from operations   (236,724)           (456,968)

SHAREHOLDER ACTIVITY:                                                               
  Stock sales and conversion                            497,782             231,000 

NET INCREASE (DECREASE) IN ASSET VALUE                  261,058            (225,968)

NET ASSETS:                                                                         
  Beginning of Period                                   347,309            (162,201)

  End of Period                                       $ 608,367           $(388,169)

 Notes to Financial Statements are an integral part of
these Financial Statements

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FRANCHISE CAPITAL CORPORATION 
STATEMENTS OF CASH FLOWS
AS OF SEPTEMBER 30, 2005
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                           For the three       For the three  
                                                           Months Ended        Months Ended   
                                                        September 30, 2005  September 30, 2004
                                                        ------------------  ------------------
                                                                                              
CASH FLOWS FROM OPERATING ACTIVITIES:                                                         
  Net Loss                                                   $(236,724)         $(456,968)    
  Adjustments to reconcile net loss to net cash used                                          
   by operating activities:                                                                   
     Non-cash loss on disposition of investments                82,752                        
     Change in unrealized appreciation/depreciation of                                        
      portfolio investments                                    (81,380)                       
     Amortization of beneficial conversion features             29,321                        
     Common stock issued as consideration for services                            215,000     
     Depreciation and amortization                                                  4,405     
     Amortization of deferred compensation                                         16,000     
     Impairment of goodwill                                                        44,836     
     Minority interest                                                             (2,510)    
  Changes in assets and liabilities (net of business                                          
   acquisition)                                                                               
     Prepaid expenses                                                              (4,000)    
     Interest receivable                                                            1,414     
     Accounts receivable                                                          (73,523)    
     Other assets                                              (15,519)                       
     Deferred revenue                                                             125,000     
     Accounts payable and accrued liabilities                  (11,805)            (2,181)    
                                                             ---------          ---------     
          Net Cash (Used) by Operating Activities             (233,355)          (132,527)    
                                                             ---------          ---------     

 Notes to Financial Statements are an integral part of
these Financial Statements

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FRANCHISE CAPITAL CORPORATION 
STATEMENTS OF CASH FLOWS
AS OF SEPTEMBER 30, 2005
 (UNAUDITED)
CONTINUED 

                                                        [Enlarge/Download Table]

                                                             For the three       For the three  
                                                             Months Ended        Months Ended   
                                                          September 30, 2005  September 30, 2004
                                                          ------------------  ------------------
                                                                                                

CASH FLOWS FROM INVESTING ACTIVITIES                                                            
  Cash advances to portfolio companies                         (139,582)                  --    
  Advances to affiliates/officers                                    --               (2,741)   

                                                              ---------            ---------    
        Net Cash (Used) by Investing Activities                (139,582)              (2,741)   
                                                              ---------            ---------    

CASH FLOWS FROM FINANCING ACTIVITIES                                                            
  Common stock issued for cash                                  361,378                   --    
  Repayment of shareholder advances                              (3,708)                        
  Proceeds from notes payable and convertible debentures         15,360              100,000    
                                                              ---------            ---------    
        Net Cash Provided by Financing Activities               376,738               96,292    
                                                              ---------            ---------    

INCREASE (DECREASE) IN CASH AND EQUIVALENTS                       3,801              (38,976)   

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                            --               46,001    
                                                              ---------            ---------    

CASH AND EQUIVALENTS, END OF PERIOD                           $   3,801            $   7,025    
                                                              =========            =========    

Supplemental Disclosure of Non-Cash Investing and                                               
Financing Activities:                                                                           
  Conversion of debt to common stock                          $ 118,500                         
                                                              =========                         

 Notes to Financial Statements are an integral part of
these Financial Statements

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 FRANCHISE CAPITAL CORPORATION
 NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004

1. ORGANIZATION AND BASIS OF PRESENTATION                                       

The accompanying unaudited financial statements have been prepared in accordance
with accounting  principles  generally accepted in the United States for interim
financial  information and the instructions  for Form 10-Q/Aand  Regulation S-X.
Accordingly,  they do not include all of the information and footnotes  required
by accounting  principles  generally  accepted in the United States for complete
financial  statements.  All adjustments that, in the opinion of management,  are
necessary for a fair  presentation  of the results of operations for the interim
periods have been made and are of a recurring nature unless otherwise  disclosed
herein.  The results of operations for the three months ended September 30, 2005
are not  necessarily  indicative  of the results  that will be realized  for the
entire fiscal year.  These  financial  statements  should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended June 30, 2005. 

a. General                                                                      

FRANCHISE  Capital  Corporation  (the  "Company")  a  Nevada  corporation,   was
incorporated  on July 6, 2001 as Cortex  Systems,  Inc.  In December of 2004 the
Company changed its name to Franchise  Capital  Corporation,  to more accurately
reflect  its true  business  nature.  The  Company  invests  in  developing  and
franchising  casual  dining  restaurants.  The  Company  is  seeking  to acquire
additional  investments  within this  industry and has acquired the rights to at
least one  concept.  To date,  the Company has had no revenues  associated  with
these  activities.  Effective  December 17, 2004,  the Company as an  internally
managed,  closed  end  investment  company  elected  to be treated as a business
development company under the Investment Company Act of 1940, as amended.       

As a  business  development  company,  we  provide  long-term  debt  and  equity
investment  capital to support the  expansion of  companies in the casual,  fast
food restaurant industry. We generally invest in private, small to middle market
companies  that lack  access to public  capital or whose  securities  may not be
marketable.  Today, our investment and lending activity is generally  focused in
private finance.                                                                

Our investment  portfolio consists primarily of equity investments in companies,
which may or may not constitute a controlling equity interest.  At September 30,
2005 our investment  portfolio totaled  $1,013,134 at fair value. Our investment
objective is to achieve current income.                                         

The Company did not elect to be treated  for  federal  income tax  purposes as a
regulated investment company under the Internal Revenue Code.                   

b. Going Concern                                                                

The Company faces many operating and industry challenges. There is no meaningful
operating history to evaluate the Company's prospects for successful operations.
Future losses for the Company are  anticipated.  The proposed plan of operations
would  include  seeking  an  operating  entity  with  which  to  merge.  Even if
successful,  a merger may not  result in cash flow  sufficient  to  finance  the
continued expansion of a business.                                              

The accompanying  financial statements reflect the accounts of Franchise Capital
Corporation, and the related results of operations. In accordance with Article 6
of Regulation S-X under the  Securities Act of 1933 and Securities  Exchange Act
of 1934, the Company does not consolidate portfolio company investments in which
the Company has a controlling  interest.  These  financial  statements have been
prepared assuming that the Company will continue as a going concern. The Company
has incurred  material  operating  losses,  has  continued  operating  cash flow
deficiencies  and has working  capital  deficit at  September  30,  2005.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern. The Company believes that it will be successful in the management

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of its investment portfolio. However, the Company will likely require additional
debt or equity capital in order to implement its business plan. The accompanying
financial  statements do not include any adjustments that might result from this
uncertainty.                                                                    

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Franchise  Capital  Corporation  changed  to  a  Business  Development  Company,
effective December 17, 2004. Therefore, the prior periods are no longer directly
comparable.  The balance  sheets as of September 30, 2005, and June 30, 2005 are
presented to reflect the change to a BDC. The  statement of  operations  for the
period ended  September 30, 2004, is presented prior to the change to a Business
Development  Company and  therefore  is not directly  comparable  to the current
period.  The  Company's  Board of  Directors  determined  that  absent any other
operating information, all investments are valued at cost.                      

CONTROLLED  AFFILIATED  ISSUERS - As a business  development  company  under the
Investment Company Act of 1940, all of the Company's investments must be carried
at  market  value or fair  value as  determined  by our Board of  Directors  for
investments which do not have readily  determinable  market values.  Most of the
Company's assets were acquired in privately negotiated  transactions and have no
readily  determinable market values.  These securities are carried at fair value
as determined by the Board of Directors under our valuation  policy.  Currently,
our valuation policy provides for obtaining  independent business valuations for
those equity securities that are not traded on a national securities exchange.  

With respect to private equity  securities,  investments are valued as indicated
above by a  independent  business  valuation  company using  industry  valuation
benchmarks,  and then the value is assigned a discount  reflecting  the illiquid
nature  of the  investment,  as well as a  minority,  non-control  position,  if
applicable.  When an  external  event  such as a  purchase  transaction,  public
offering,  or  subsequent  equity  sale  occurs,  the pricing  indicated  by the
external event will be used to  corroborate  our private  equity  valuation.  At
September 30, 2005, the fair values of Comstock Jake's, Kokopelli, CV and Fathom
Business  systems  was  determined  by  a by a  independent  business  valuation
company.  Of  the  Company's   investments,   only  Kokopelli  and  Fathom  have
operations. Kokopelli has begun to sell franchises and Fathom has been operating
since it was acquired.  The  investment in Fit N Healthy was effective  June 30,
2005.                                                                           

The  Company's  investment in Fit N Healthy was disposed of in August of 2005 in
exchange  for  assumption  of a $50,000  note  payable by the Company to a third
party. There was no gain or loss as result of that exchange.                    

On September 27, 2005 the Company  approved the sale of Fathom Business  Systems
for  $44,000.  The  Company  took  title to  $44,000  in Fathom  trade  accounts
receivable  as  consideration  for the sale.  This  portfolio  company  has been
operating  at a loss and its sale will  improve  the cash  flow of the  Company.
There was no gain or loss as result of that exchange. Previous unrealized losses
were realized upon execution of this transaction.                               

CASH AND CASH  EQUIVALENTS - Cash and cash  equivalents  include all  short-term
liquid  investments  that are readily  convertible  to known amounts of cash and
have original maturities of three months or less.                               

INCOME TAXES - The Company  provides for income taxes based on the provisions of
Statement of  Financial  Accounting  Standards  No. 109,  ACCOUNTING  FOR INCOME
TAXES,  which among other things,  requires that  recognition of deferred income
taxes be measured by the provisions of enacted tax laws in effect at the date of
financial statements.                                                           

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

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4. CONVERTIBLE DEBENTURE                                                        

During the year ended June 30, 2004 the Company issued a 2-year 7.5% convertible
debenture amounting to Golden Gate Investors, Inc. "Golden Gate" to $85,000 with
interest  payable  monthly and due June 9, 2006.  The  debenture  also  included
non-detachable  warrants for 2,500,000 shares of common stock.  During the three
months ended December 31, 2004,  this debenture was increased to $177,438.  Upon
approval of the Company's change to a Business Development Company, the warrants
were cancelled. As of September 30, 2005, we currently owe $220,927.            

Subsequent to September 30, 2005,  the Company  contacted  Golden Gate regarding
what we believe may be securities law violations in connection with transactions
involving the  convertible  debenture and its related  warrants and  agreements.
Among other things,  the Company believes Golden Gate violated Section 16 of the
Securities  Exchange Act of 1934 when they converted nearly 12% of the Company's
outstanding  shares and immediately resold shares in the market. The Company has
terminated  all  agreements  with Golden Gate,  and is currently  seeking  legal
counsel to advise it  regarding  pursuing  Golden Gate for short  swing  profits
resulting from the purchase and sale of shares.                                 

On  October  14,  2004 the  Company  issued a six  month  convertible  debenture
amounting  to  $25,000,  with  interest  payable  at the  end of the  term.  The
debenture may be converted,  at the option of the holder,  into common shares of
the  Company.  The  conversion  price is 50% of the  closing  bid on the day the
Company  receives notice of conversion.  The debenture may be converted,  at the
option of the Company,  into common shares of the Company.  The conversion price
is 50% of the closing bid on the day the Company  receives notice of conversion.
As of September 30, 2005 this debenture was paid in full.                       

On  October  4,  2004,  the  Company  issued a six month  convertible  debenture
amounting  to  $25,000,  with  interest  payable  at the  end of the  term.  The
debenture may be converted,  at the option of the holder,  into common shares of
the  Company.  The  conversion  price is 50% of the  closing  bid on the day the
Company  receives notice of conversion.  The debenture may be converted,  at the
option of the Company,  into common shares of the Company.  The conversion price
is 50% of the closing bid on the day the Company  receives notice of conversion.
As of September 30, 2005 this debenture was paid in full.                       

On December 1, 2004,  the Company  issued a twelve month  convertible  debenture
amounting to $50,000,  with interest of $1,250 payable quarterly beginning March
1, 2005.  The  debenture  may be  converted,  at the option of the holder,  into
common shares of the Company.  The conversion price is 50% of the closing bid on
the  day the  Company  receives  notice  of  conversion.  The  debenture  may be
converted,  at the option of the Company, into common shares of the Company. The
conversion  price  is 50% of the  closing  bid on the day the  Company  receives
notice of conversion. On August 15, 2005 we sold a portfolio investment,  and as
part of the negotiated sales price, this debenture was assumed by the buyer.    

On January 17,  2005 the Company  issued a twelve  month  convertible  debenture
amounting  to  $35,000,  with  interest  payable  at the  end of the  term.  The
debenture may be converted,  at the option of the holder,  into common shares of
the  Company.  The  conversion  price is 50% of the  closing  bid on the day the
Company  receives notice of conversion.  The debenture may be converted,  at the
option of the Company,  into common shares of the Company.  The conversion price
is 50% of the closing bid on the day the Company  receives notice of conversion.
As of September 30, 2005 this debenture was paid in full.                       

On July  21,  2004 the  Company  issued a  twelve  month  convertible  debenture
amounting to $50,000,  with  interest  payable  monthly.  The  debenture  may be
converted,  at the option of the holder, into common shares of the Company.  The
conversion  price  is 50% of the  closing  bid on the day the  Company  receives
notice of  conversion.  The  debenture  may be  converted,  at the option of the
Company,  into common shares of the Company.  The conversion price is 50% of the
closing  bid on the  day  the  Company  receives  notice  of  conversion.  As of
September 30, 2005 this debenture was paid in full.                             

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For the  debentures  issued in the period ended  September 30, 2005, the Company
computed the beneficial conversion feature to be equal to the face amount of the
debentures. The $244,410 discount is being amortized over the terms of the debt.
During the  quarter  ended  September  30,  2005,  $29,321 of the  discount  was
amortized leaving a remaining discount of $0.                                   

Convertible   debt  outstanding  at  September  30,  2005  is  convertible  into
16,944,385 shares of common stock.                                              

5. CAPITAL STOCK                                                                

The Company  declared a 6 for 1 stock split during the year ended June 30, 2003.
The  number  of  shares  presented  in  these  financial   statements  has  been
retroactively restated for all periods to reflect this stock split.             

During the three months ended December 31, 2003, the Company sold 125,000 shares
of its common stock for $55,000.  In connection  with this sale of common stock,
the Company also granted 137,500  warrants to acquire the Company's common stock
at $0.50 per share.                                                             

Also during the three  months  ended  December  31,  2003,  the Company  granted
275,000 shares of its common stock to consultants as consideration  for services
rendered.  The shares  were  valued at the  trading  price of the common  shares
aggregating to $99,966.                                                         

Additionally,  during the three  months ended  December  31,  2003,  the Company
granted 675,000 shares of its common stock to consultants as  consideration  for
services  rendered.  The shares were  valued at the trading  price of the common
shares aggregating to $247,500.                                                 

The Company reacquired  15,535,000 shares of its common stock in the three month
period ended December 31, 2003. The Company entered into an agreement to acquire
all of the outstanding shares of "ICEBERG FOOD SYSTEMS,CORP." ("IFSC"). IFSC was
owned by a former officer and director of the Company. The only holdings of IFSC
were 30,000,000  shares of the Company's common stock. As part of the agreement,
IFSC  distributed  14,465,000  shares  of  the  Company's  common  stock  to its
shareholder.  IFSC then became a wholly owned subsidiary of the Company with its
only holdings  being the  remaining  15,535,000  shares of the Company's  common
stock. Effectively,  the transaction was an acquisition of treasury stock by the
Company. In exchange, the Company would assume a commitment to raise capital and
develop the Iceberg  Drive-In  concept.  The rights to develop that concept were
previously  held by IFSC.  The  Company  is to assist  IFSC in  providing  up to
$1,130,000.  The Company has accounted for this transaction as an acquisition of
treasury stock through the issuance of a note payable of $1,130,000.            

During the three  months  ended  September  30,  2004,  the Company sold 140,000
shares of its common stock for $35,000.                                         

Also during the three  months ended  September  30,  2004,  the Company  granted
3,050,000  shares  of its  common  stock to  consultants  as  consideration  for
services  rendered.  The shares were  valued at the trading  price of the common
shares aggregating to $602,275.                                                 

On October 13, 2004, the Company negotiated a consulting  agreement with Javelin
Holdings, Inc. The agreement with Javelin provides for $15,000 upon execution of
the  agreement,  $15,000  cash  and a  $30,000  60  day  Convertible  Note  upon
successful filing of requisite SEC documents.  In addition,  Javelin receives 5%
of any Preferred  Class of stock created for the benefit of the Company,  10% of
any bridge  financing and 5% of any subsequent  funding.  During October,  2004,
Javelin  earned  finders  fee of  $5,000  from the  Company  for two  short-term
convertible debentures in the amount of $25,000 each.                           

In November 2004, the Company converted its Preferred Series B stock into common
stock. This conversion resulted in the retiring of all Preferred Series B stock,
and issuance of 10,000,000 shares of common stock.                              

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In December, 2004, the Company approved a reverse 1 for 10 common stock split.  

Subsequent to September 30, 2005, the Company was notified by the Securities and
Exchange  Commission  ("Commission")  that the debentures  issued by the Company
were considered "senior  securities" as defined by the Investment Company Act of
1940.  Franchise Capital Corporation  believed at the time the debentures issued
were not senior  securities.  As a result,  the Company may not be in compliance
with Section 18 of the  Investment  Company Act of 1940 which  required that the
Company  maintain  net  assets to senior  security  coverage  of at least  200%.
Further,  the Company was informed that the convertible nature of the debentures
made them subject to Section 61 of the  Investment  Company Act which  requires,
among other things, that rights to acquire common stock:                        

*    Expire within 10 years from date of grant                        
*    Are approved by a vote of shareholders, and                      
     *    Are  exercisable at a price not less than the fair market value on the
date of grant.                                              

The convertible debentures did not comply with these provisions of Section 61 at
the time they were issued.  . The Company is in negotiations  with the remaining
debenture  holder to restructure  the obligation into a format that is compliant
with the Investment Company Act.                                                

In conjunction with the transactions  discussed in Note 4, the Company issued an
aggregate of 28,577,877 shares of its common stock.                             

Effective December 17, 2004, the Company designated  30,000,000 shares of Series
C Preferred  Stock. The Series C Preferred Stock is non-interest  bearing,  does
not have voting rights and is not entitled to receive  dividends.  Each share of
Series C issued can be converted into Common Stock on a 1:1 basis.  In the event
of a liquidation  event, the Series C stock  automatically  converts into common
stock based on the foregoing  formula.  By  designation,  the Series C Preferred
Stock is not affected by forward or reverse splits of the Company's common stock
or  other  adjustments  to the  Company's  capital  structure.  The  Series C is
entitled to name three members of the Company's Board of Directors at all times.
During the quarter  ended  December  31,  2004,  the  Company  issued a total of
13,500,000 shares of Series C Preferred Stock for services rendered prior to the
Company's election to become a business development company.                    

Subsequent to September 30, 2005, the Company was notified by the Securities and
Exchange  Commission  ("Commission")  that the terms of the  Series C  Preferred
Stock issued by the Company may be in violation of Section 23 of the  Investment
Company Act of 1940. As a result,  the Series C holders agreed to a 1:10 reverse
split of the Series C stock  corresponding  to the similar 1:10 reverse split of
the  Company's  common  stock on January  14,  2005.  Further,  the  Company has
restructured the terms of the Series C Preferred Stock. Most significantly,  the
rights of the Series C Preferred Stock to convert to common stock and provisions
in  the  Series  C  Preferred  Stock  affording   protections   against  capital
reorganization were eliminated.                                                 

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ITEM 2. 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
Selected Consolidated  Financial and Other Data, the Selected Operating Data and
our Consolidated  Financial  Statements and notes thereto appearing elsewhere in
this  Quarterly  Report.  This  Quarterly  Report,  including  the  Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations,
contains   forward-looking   statements  that  involve   substantial  risks  and
uncertainties.  These  forward-looking  statements are not historical facts, but
rather are based on current  expectations,  estimates and projections  about our
industry,  our  beliefs,  and our  assumptions.  Words  such  as  "anticipates",
"expects",   "intends",  "plans",  "believes",   "seeks",  and  "estimates"  and
variations  of these  words and  similar  expressions  are  intended to identify
forward-looking  statements.  These  statements  are not  guarantees  of  future
performance and are subject to risks, uncertainties,  and other factors, some of
which are beyond our control  and  difficult  to predict and could cause  actual
results  to  differ  materially  from  those  expressed  or  forecasted  in  the
forward-looking  statements including without limitation (1) any future economic
downturn could impair our customers' ability to repay our loans and increase our
non-performing  assets,  (2) economic  downturns can  disproportionately  impact
certain sectors in which we concentrate,  and any future economic downturn could
disproportionately  impact the industries in which we concentrate  causing us to
suffer losses in our portfolio and experience  diminished  demand for capital in
these  industry  sectors,  (3) a  contraction  of  available  credit  and/or  an
inability to access the equity  markets could impair our lending and  investment
activities, (4) interest rate volatility could adversely affect our results, (5)
the risks  associated with the possible  disruption in the Company's  operations
due to terrorism and (6) the risks,  uncertainties and other factors we identify
from time to time in our filings with the  Securities  and Exchange  Commission,
including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the
assumptions on which these forward-looking  statements are based are reasonable,
any of those  assumptions  could prove to be  inaccurate,  and as a result,  the
forward-looking  statements based on those  assumptions also could be incorrect.
In light of these and other  uncertainties,  the  inclusion of a  projection  or
forward-looking  statement in this Quarterly  Report should not be regarded as a
representation by us that our plans and objectives will be achieved.  You should
not place undue reliance on these forward-looking  statements,  which apply only
as of the date of this Quarterly Report.                                        

OVERVIEW                                                                        

Franchise Capital Corporation is a solutions-focused  financial services company
providing  financing and advisory  services to small and medium-sized  companies
throughout the United States primarily in the restaurant  franchising  industry.
Effective December 23, 2004, we became an internally  managed,  non-diversified,
closed-end  investment  company  that  elected  to  be  treated  as  a  business
development company under the Investment Company Act of 1940.  Franchise Capital
Corporation  will not elect to be treated for federal  income tax  purposes as a
regulated  investment company under the Internal Revenue Code with the filing of
its federal corporate income tax return for 2004.                               

PORTFOLIO COMPOSITION AND ASSET QUALITY                                         

Our primary business is lending to and investing in businesses, primarily in the
restaurant   franchising   industry,   through   investments   in  senior  debt,
subordinated debt and equity-based  investments,  including  warrants and equity
appreciation rights. Though we intend to increase our level of subordinated debt
and equity-based investments,  we expect a substantial majority of our portfolio
will continue to consist of investments in portfolio  companies.  The total fair
value of  investments  in  non-publicly  traded  securities  was  $1,013,134 and
$1,014,430 at September 30, 2005 and June 30, 2005, respectively                

The following table summarizes  Franchise Capital  Corporation's assets held and
income from Majority Owned Companies, Controlled Companies and Other Affiliates:

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                                                  September 30,       June 30,
                                                    2005              2005
                                                   ---------         ---------
ASSETS HELD:                                                                    
Majority Owned Companies (a):                                               
    Investments in and advances to                 1,013,134         1,014,430
Controlled Companies (b):                                                   
Other Affiliates (c):                                                       
    Loans at fair value                                    0                 0
    Equity Investments at fair value                       0                 0

                                                Three Months Ended September 30,
                                                   2005             2004
                                                   ---------         ---------
INCOME RECOGNIZED:                                                              
From Majority Owned Companies (a):                                          
    Interest and fee income                      $         0         $       0
From Controlled Companies (b):                                              
From Other Affiliates (c): 1                                                
    Interest and fee income                                0                 0
Net change in unrealized appreciation                                 
     (depreciation) on investments                    81,380                 0
    Realized losses on investments                   (83,231)               --

----------                                                                      
(a)  Majority owned companies are generally defined under the Investment Company
     Act of 1940 as companies in which Franchise  Capital  Corporation owns more
than 50% of the voting securities of the company.                     

(b)  Controlled companies are generally defined under the Investment Company Act
     of 1940 as companies in which Franchise Capital  Corporation owns more than
25% but not more than 50% of the voting securities of the company.    

(c)  Other affiliates are generally defined under the Investment  Company Act of
     1940 as companies in which Franchise  Capital  Corporation owns at least 5%
but not more than 25% of the voting securities of the company.        

ASSET QUALITY                                                                   

Asset quality is generally a function of our underwriting and ongoing management
of our investment  portfolio.  As a business  development company, our loans and
equity  investments  are  carried at market  value or, in the  absence of market
value,  at fair value as determined by our board of directors in good faith on a
quarterly   basis.   For  the  quarter  ended   September  30,  2005  unrealized
appreciation on investments  totaled  $81,380 For additional  information on the
change in  unrealized  depreciation  on  investments,  see the section  entitled
"Reconciliation   of  Net  Operating  Income  to  Net  Increase   (Decrease)  in
Stockholders' Equity from Earnings".                                            

We monitor loan  concentrations  in our  portfolio,  both on an individual  loan
basis and on a sector or industry basis, to manage overall portfolio performance
due to specific customer issues or specific industry issues.                    

We  monitor  individual  customer's  financial  trends  in order to  assess  the
appropriate  course of action  with  respect to each  customer  and to  evaluate
overall portfolio quality. We closely monitor the status and performance of each
individual  investment  on a quarterly  and,  in some  cases,  a monthly or more
frequent  basis.  Because we are a provider of  long-term  privately  negotiated
investment  capital to  growth-oriented  companies  and we  actively  manage our
investments  through our contract  structure,  we do not believe  that  contract
exceptions  such as  breaches  of  contractual  covenants  or late  delivery  of

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financial  statements  are  necessarily  an indication of  deterioration  in the
credit  quality  or the  need to  pursue  remedies  or an  active  workout  of a
portfolio investment.                                                           

When a loan  becomes 90 days or more past due, or if we  otherwise do not expect
the customer to be able to service its debt and other obligations, we will, as a
general  matter,  place the loan on  non-accrual  status  and cease  recognizing
interest income on that loan until all principal has been paid.  However, we may
make  exceptions  to this policy if the  investment  is well  secured and in the
process of collection.                                                          

As of  September  30,  2005 and June 30,  2005,  none of the  loans to our other
affiliates were on non-accrual status.                                          

When  principal and interest on a loan is not paid within the  applicable  grace
period, we will contact the customer for collection.  At that time, we will make
a determination  as to the extent of the problem,  if any. We will then pursue a
commitment  for immediate  payment and will begin to more  actively  monitor the
investment.  We will formulate strategies to optimize the resolution process and
will begin the process of  restructuring  the  investment to better  reflect the
current financial performance of the customer.  Such a restructuring may involve
deferring  payments of  principal  and  interest,  adjusting  interest  rates or
warrant  positions,  imposing  additional fees,  amending financial or operating
covenants or converting  debt to equity.  In general,  in order to compensate us
for any enhanced risk, we receive appropriate  compensation from the customer in
connection with a restructuring. During the process of monitoring a loan that is
out of  compliance,  we will  in  appropriate  circumstances  send a  notice  of
non-compliance outlining the specific defaults that have occurred and preserving
our remedies,  and initiate a review of the collateral.  When a restructuring is
not the most appropriate  course of action,  we may determine to pursue remedies
available  under our loan documents or at law to minimize any potential  losses,
including initiating foreclosure and/or liquidation proceedings.                

OPERATING INCOME                                                                

Operating income includes interest income on commercial loans, advisory fees and
other  income.  Interest  income is comprised  of  commercial  loan  interest at
contractual  rates and upfront fees that are amortized into income over the life
of the loan.  Most of our loans  contain  lending  features that adjust the rate
margin based on the financial and operating  performance of the borrower,  which
generally occurs quarterly.                                                     

THREE MONTHS ENDED                                                              

SEPTEMBER 30, 2005                                                              

CHANGE DUE TO:                                                                  
Asset growth                            $ 81,380                          
Increase in fee income                         0                          
Interest and other income                      0                          
Manufacturing income                           0                          
             ---------
Total change in operating income          $  81,380                             
             =========

Total  operating  income for the three months ended September 30, 2005 increased
$50,071, to $81,380 from $31,309 for the three months ended September 30, 2004. 

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OPERATING EXPENSES                                                              

Operating   expenses   include,   employee   compensation,   and   general   and
administrative expenses.                                                        

The change in  operating  expenses  from the three  months  September  30,  2005
compared to the same period in 2004 is attributable to the following items:     

THREE MONTHS ENDED                                                              

Total operating  expenses  decreased  $378,339 to $60,780 for the 3 months ended
September 30, 2005, from $439,119 for the three months ended September 30, 2004.
The  decrease  was  due  primarily  to  the  reduction  in our  use  of  outside
consultants.                                                                    

NET OPERATING INCOME                                                            

Net operating  income/loss  before other income (loss) or the three months ended
September 30, 2005 totaled  $20,600  compared with a loss of $(407,810)  for the
three months ended September 30, 2004.                                          

OTHER INCOME (LOSS)                                                             

Interest  expense for the three months ended  September 30, 2005 was $174,093 as
compared to $4,352 for the three  months  ended  September  30,  2004.  Realized
losses for the current  period  were  $83,231.There  were no  realized  gains or
losses for the three months ended September 30, 2004.                           

INCOME TAXES                                                                    

We are taxed under  Subchapter C of the Internal  Revenue Code. We did not elect
to be a regulated  investment company under Subchapter M of the Internal Revenue
Code with the filing of our federal corporate income tax return for 2004.       

NET INCOME                                                                      

Net income (loss) totaled  $(236,724)  for the three months ended  September 30,
2005 compared to $(456,968) for the three months ended September 30, 2004.      

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES                            

CASH, CASH EQUIVALENTS AND CASH, SECURITIZATION ACCOUNTS                        

At  September   30,  2005  and  June  30,  2005,  we  had  $3,801  and  $11,747,
respectively,  in cash  and  cash  equivalents.  Our  objective  is to  maintain
sufficient cash on hand to cover current funding requirements and operations.   

LIQUIDITY AND CAPITAL RESOURCES                                                 

We expect our cash on hand,  future equity  offerings,  and cash  generated from
operations  to be  adequate  to meet our  cash  needs  at our  current  level of
operations.  We generally fund new originations  using cash on hand,  borrowings
under our credit facilities and equity financings.                              

During the first quarter of 2005, the Company raised  $130,232 in cash and has a
subscription  receivable in the amount of $64,397 from selling  6,845,170 shares
of common stock issued under Regulation E.                                      

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BORROWINGS                                                                      

At September 30, 2005, we had aggregate outstanding borrowings of $4,220,927.   

At June 30, 2005, we had aggregate outstanding borrowings of $587,477.          

See  the  Notes  to the  Financial  Statements  for  further  discussion  of our
borrowings.                                                                     

CRITICAL ACCOUNTING POLICIES                                                    

The  financial  statements  are  based  on  the  selection  and  application  of
significant  accounting  policies,  which require management to make significant
estimates  and  assumptions.  We believe that the following are some of the more
critical  judgment  areas in the  application  of our  accounting  policies that
currently affect our financial condition and results of operations.             

INCOME RECOGNITION                                                              

Interest on  commercial  loans is computed by methods that  generally  result in
level rates of return on principal amounts  outstanding.  When a loan becomes 90
days or more past due, or if we  otherwise do not expect the customer to be able
to service its debt and other obligations,  we will, as a general matter,  place
the loan on non-accrual  status and cease  recognizing  interest  income on that
loan until all principal has been paid.  However, we may make exceptions to this
policy if the investment is well secured and in the process of collection.      

In accordance  with GAAP, we include in income certain  amounts that we have not
yet received in cash, such as contractual  payment-in-kind (PIK) interest, which
represents  contractually  deferred  interest  added to the loan balance that is
generally due at the end of the loan term. We currently do not have any interest
income of this nature, but we may during future periods.                        

Loan  origination  fees are deferred and amortized as adjustments to the related
loan's  yield  over  the   contractual   life  of  the  loan.  In  certain  loan
arrangements,  warrants or other equity interests are received from the borrower
as additional  origination  fees.  The borrowers  granting  these  interests are
typically  non-publicly  traded companies.  We record the financial  instruments
received at estimated  fair value as determined by our board of directors.  Fair
values are determined  using various  valuation models which attempt to estimate
the underlying value of the associated entity.  These models are then applied to
our ownership share considering any discounts for transfer restrictions or other
terms which impact the value.  Changes in these values are recorded  through our
statement of operations.  Any resulting discount on the loan from recordation of
warrant and other equity  instruments  are accreted into income over the term of
the loan.                                                                       

VALUATION OF INVESTMENTS                                                        

At  September  30,  2005,  approximately  98% of our  total  assets  represented
investments  recorded at fair value.  Value,  as defined in Section  2(a)(41) of
1940  Act,  is (i) the  market  price for  those  securities  for which a market
quotation is readily  available  and (ii) for all other  securities  and assets,
fair value is as determined in good faith by the board of directors. Since there
is typically no readily  ascertainable  market value for the  investments in our
portfolio,  we  value  substantially  all of our  investments  at fair  value as
determined  in good  faith by the board of  directors  pursuant  to a  valuation
policy and a consistent  valuation process.  Because of the inherent uncertainty
of  determining  the  fair  value  of  investments  that do not  have a  readily
ascertainable market value, the fair value of our investments determined in good
faith by the board of directors  may differ  significantly  from the values that
would have been used had a ready  market  existed for the  investments,  and the
differences could be material.                                                  

There is no single  standard  for  determining  fair value in good  faith.  As a
result, determining fair value requires that judgment be applied to the specific
facts and circumstances of each portfolio  investment.  Unlike banks, we are not
permitted to provide a general reserve for anticipated loan losses.  Instead, we
must  determine  the fair value of each  individual  investment  on a  quarterly

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basis. We will record  unrealized  depreciation  on investments  when we believe
that an investment has become impaired,  including where collection of a loan or
realization  of an equity  security  is  doubtful.  Conversely,  we will  record
unrealized  appreciation if we believe that the underlying portfolio company has
appreciated in value and,  therefore,  our  investment  has also  appreciated in
value, where appropriate.                                                       

As a business  development  company,  we invest primarily in illiquid securities
including debt and equity securities of private companies. The structure of each
debt and equity security is specifically  negotiated to enable us to protect our
investment and maximize our returns.  We generally  include many terms governing
interest rate,  repayment  terms,  prepayment  penalties,  financial  covenants,
operating covenants,  ownership  parameters,  dilution  parameters,  liquidation
preferences,  voting  rights,  and  put or  call  rights.  Our  investments  are
generally  subject  to  some  restrictions  on  resale  and  generally  have  no
established trading market.  Because of the type of investments that we make and
the nature of our  business,  our  valuation  process  requires  an  analysis of
various factors.  Our fair value methodology  includes the examination of, among
other things, the underlying  investment  performance,  financial  condition and
market changing events that impact valuation.                                   

AT  DECEMBER  31,  2004,  THE BOARD OF  DIRECTORS  ELECTED TO EMPLOY A VALUATION
METHOD CONSISTING OF COST BASIS FOR THOSE PORTFOLIO  COMPANIES THAT WERE NOT YET
OPERATIONAL AND A METHOD OF GROSS REVENUE,  NET REVENUE AND NET ASSETS FOR THOSE
COMPANIES  THAT ARE  OPERATIONAL.  THE  COMPANY  EMPLOYED  INDEPENDENT  BUSINESS
VALUATION CONSULTANTS TO PROVIDE A VALUATION OF OUR EXISTING PORTFOLIO COMPANIES
AND CERTAIN OTHER INVESTMENTS FOR THE YEAR ENDED JUNE 30, 2005.                 

VALUATION OF LOANS AND DEBT SECURITIES                                          

As a general rule, we do not value our loans or debt securities  above cost, but
loans and debt  securities  will be subject to fair value  write-downs  when the
asset is  considered  impaired.  In many cases,  our loan  agreements  allow for
increases in the spread to the base index rate if the  financial or  operational
performance of the customer  deteriorates  or shows negative  variances from the
customer's  business plan and, in some cases,  allow for decreases in the spread
if financial or operational performance improves or exceeds the customer's plan.

VALUATION OF EQUITY SECURITIES                                                  

With  respect to private  equity  securities,  each  investment  is valued using
industry  valuation  benchmarks,  and then  the  value is  assigned  a  discount
reflecting  the  illiquid  nature of the  investment,  as well as our  minority,
non-control  position.  When an external  event such as a purchase  transaction,
public offering,  or subsequent equity sale occurs, the pricing indicated by the
external  event  will be used  to  corroborate  our  private  equity  valuation.
Securities that are traded in the over-the-counter market or on a stock exchange
generally  will be valued at the  prevailing  bid price on the  valuation  date.
However, restricted and unrestricted publicly traded securities may be valued at
discounts from the public market value due to  restrictions on sale, the size of
our investment or market liquidity concerns.                                    

RECENT DEVELOPMENT                                                              

On October 4, 2005 the Company  completed  a Purchase  Agreement  with  Creative
Eateries  Corporation  "Creative." Creative purchased from Franchise Capital its
interest in Kokopelli  Sonoran Grill,  Comstock Jakes,  Cousin Vinnie's  Italian
Diner,  and Kirby Foo's Asian Grill.  As per the  Agreement,  Creative is to pay
$2,161,493 to Franchise  Capital for their interest in the said companies  which
will be paid in $200,000 cash and 3,583,667 shares of Creative's common stock.  

Subsequent to October 4, 2005, the Company rescinded the Purchase Agreement with
Creative due to Creative's  failure to meet their obligations under the Purchase
Agreement.  Since the rescission  occurred prior to the quarter ending  December

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31, 2005,  financial  information  regarding the Purchase Agreement has not, and
will not, be a part of any of the Company's financial statements.               

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK              

Interest rate sensitivity  refers to the change in earnings that may result from
the  changes in the level of  interest  rates.  Our net  interest  income can be
affected by changes in various interest rates,  including LIBOR, prime rates and
commercial paper rates.                                                         

As a business  development  company,  we use a greater portion of equity to fund
our business. Accordingly, other things being equal, increases in interest rates
will result in greater  increases in our net interest  income and  reductions in
interest  rates will  result in greater  decreases  in our net  interest  income
compared  with the effects of interest  rate  changes on our results  under more
highly leveraged capital structures.                                            

Currently,  we do not engage in hedging  activities  because we have  determined
that the cost of  hedging  the  risks  associated  with  interest  rate  changes
outweighs  the risk  reduction  benefit.  We monitor this position on an ongoing
basis.                                                                          

ITEM 4. CONTROLS AND PROCEDURES                                                 

(a)  Within  the 90 days  prior to the date of this  report,  Franchise  Capital
Corporation  carried  out an  evaluation,  under  the  supervision  and with the
participation of Franchise Capital Corporation's management, including Franchise
Capital  Corporation's Chief Executive Officer and President and Chief Financial
Officer,  of the  effectiveness of the design and operation of Franchise Capital
Corporation 's disclosure  controls and procedures (as defined in Rule 13a-14 of
the  Securities  Exchange  Act of  1934).  Based on that  evaluation,  the Chief
Executive  Officer and President and the Chief Financial  Officer have concluded
that Franchise Capital  Corporation's current disclosure controls and procedures
are  effective  in timely  alerting  them of  material  information  relating to
Franchise  Capital  Corporation  that is required to be  disclosed  in Franchise
Capital Corporation's SEC filings.                                              

(b) There have not been any  significant  changes in the  internal  controls  of
Franchise Capital Corporation or other factors that could  significantly  affect
these internal controls  subsequent to the date of their  evaluation,  including
any  corrective  actions with regard to  significant  deficiencies  and material
weaknesses.                                                                     

PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                      

The Company is not presently a party to any legal action.                       

ITEM 2. CHANGES IN SECURITIES                                                   

There were no material changes in securities for the quarter ended September 30,
2005, other than the debenture conversions previously discussed.                

ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                         

None                                                                            

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                      

None                                                                            

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ITEM 5. OTHER INFORMATION                                                       

None                                                                            

ITEM 6. EXHIBITS                                                                

(a) The following exhibits are either attached hereto or incorporated  herein by
reference as indicated:                                                         

Exhibit                                                                   
Number                               Description                          
------                               -----------                          
    31.1    CEO  Certification  pursuant to SEC Release No. 33-8238,  as adopted
 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    31.2    CFO  Certification  pursuant to SEC Release No. 33-8238,  as adopted
 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    32.1    CEO  Certification  pursuant to 18 U.S.C.  Section  1350, as adopted
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    32.2    CFO  Certification  pursuant to 18 U.S.C.  Section  1350, as adopted
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.                                                                     

Dated: April 20, 2006           /s/  Edward Heisler                             
                                ------------------------------------------------
                                Edward C. Heisler, President and Chief Executive
                     Officer (Principal Executive Officer)

Dated: April 20, 2006           /s/  Janet Crance                               
                                ------------------------------------------------
                     Janet Crance, Chief Financial Officer
              (Principal Accounting Officer)

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q/A’ Filing	Date	First	Last	Other Filings

	6/9/06	12
Filed on:	4/20/06	22
	11/7/05	1
	10/4/05	20		8-K
For Period End:	9/30/05	1	21	10-K, 10-Q, 10-Q/A, 8-K
	9/27/05	11		3
	8/15/05	12
	6/30/05	10	20	10-K, 10-K/A
	3/1/05	12
	1/17/05	12
	1/14/05	14
	12/31/04	12	20	10-Q/A, 10QSB, NT 10-Q
	12/23/04	2	15	N-54A
	12/17/04	10	14
	12/1/04	12
	10/14/04	12
	10/13/04	13
	10/4/04	12
	9/30/04	8	18	10QSB, NT 10-Q
	7/21/04	12
	6/30/04	12		10KSB, 10KSB/A, NT 10-K
	12/31/03	13		10QSB
	6/30/03	13		10KSB
	7/6/01	10
				List all Filings

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Filing Submission 0001165527-06-000123 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Aero Performance Products, Inc. – ‘10-Q/A’ for 9/30/05

On: Thursday, 4/20/06, at 1:44pm ET · For: 9/30/05 · Accession #: 1165527-6-123 · File #: 814-00692

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Amendment to Quarterly Report — Form 10-QFiling Table of Contents

10-Q/A — Amendment No. 2 to Form 10-QDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Amendment to Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q/A — Amendment No. 2 to Form 10-Q
Document Table of Contents