FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


For the quarter ended:          March 31, 2001

Commission file number:         333-42640

                         DISCOUNT MORTGAGE SOURCE, INC.
                   -------------------------------------------
             (exact name of registrant as specified in its charter)

       Texas                                                       75-2882833
-----------------------                                            ----------
(State of Incorporation)                                          (IRS ID No.)


                 750 I-30 East, Suite 170, Rockwall, Texas         75087
      ----------------------------------------------------------- --------
               (Address of principal executive offices)           (Zip code)

Registrant's telephone number, including area code: 972-771-3863

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [x ] No [ ].


Shares of common stock outstanding at March 31, 2001:

                                                     2,468,700







<PAGE>



                                TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION                                       Page Number


Item  1.          Financial Statements                                    1-9

Item  2.          Managements's Discussion and Analysis
                  of Financial Condition and Results of Operations       10-11


PART II - OTHER INFORMATION                                                12












<PAGE>
                                CHARLES E. SMITH

                           CERTIFIED PUBLIC ACCOUNTANT

                           709-B West Rusk, Suite 580
                               Dallas, Texas 75087

                            TELEPHONE (214) 212-2307






                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors of
Discount Mortgage Source, Inc.


         I have reviewed the  accompanying  balance  sheet of Discount  Mortgage
Source,  Inc.  (a Texas  corporation)  as of March  31,  2001,  and the  related
statements of operations,  retained earnings and accumulated  deficit,  and cash
flows  for the three  months  then  ended,  in  accordance  with  Statements  on
Standards for Accounting and Review Services issued by the American Institute of
Certified  Public  Accountants.  All  information  included  in these  financial
statements is the  representation of the management of Discount Mortgage Source,
Inc.

         A review  consists  primarily  of inquiries  of Company  personnel  and
analytical  procedures  applied to financial data. It is  substantially  less in
scope than and audit in accordance with generally  accepted auditing  standards,
the objective of which is the  expression of an opinion  regarding the financial
statements taken as a whole. Accordingly, I do not express such an opinion.

         Based on my review, I am not aware of any material  modifications  that
should be made to the accompanying  financial statements in order for them to be
in conformity with generally accepted accounting principles.



                                               /s/  Charles E. Smith
                                               ---------------------
                                                    Charles E. Smith
                                                    Certified Public Accountant



Rockwall, Texas
May 4, 2001












                                       F-1


<PAGE>


<TABLE>

<CAPTION>



                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

                                 BALANCE SHEETS
                      March 31, 2001 and September 30, 2000


                                     ASSETS
                                     ------

                                                                                    March 31, 2001     Sept 30, 2000
                                                                                  -------------------------------------
<S>                                                                               <C>                  <C>

  CURRENT ASSETS:
      Cash                                                                                 $45,366                $752

  PROPERTY AND EQUIPMENT:
      Equipment (net of $66 and $22 depreciation respectively)                                 310                 376
      Website (net of $4,167 and $1,389 amortization respectively)                          19,444              23,611
                                                                                  -----------------   -----------------
      Total property and equipment                                                          19,754              23,987

                                                                                  -----------------   -----------------

  TOTAL ASSETS                                                                             $65,120             $24,739
                                                                                  =================   =================




                      LIABILITIES AND STOCKHOLDERS' EQUITY


  LIABILITIES                                                                                1,377                 103

  STOCKHOLDERS' EQUITY
      Common stock, $0.001 par value, 50,000,000 authorized,
           2,468,700 and 2,200,000 shares issued and outstanding respectively                2,469               2,200
      Additional paid-in-capital                                                            84,132              25,100
      Deficit accumulated during the development stage                                     (22,858)             (2,664)
                                                                                  -----------------   -----------------
          Total Stockholders' Equity                                                        63,743              24,636
                                                                                  -----------------   -----------------

  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                               $65,120             $24,739
                                                                                  =================   =================



</TABLE>















  See accompanying notes              F-2
<PAGE>

<TABLE>

<CAPTION>


                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

                             STATEMENT OF OPERATIONS
          Three Months and Six Months Ended March 31, 2001, and
             Period from Inception (July 11, 2000) to March 31, 2001

                                                                                             Period from
                                                                                              Inception
                                                         Three Months     Six Months       (July 11, 2000)
                                                            Ended           Ended                 to
                                                         Mar 31, 2001    Mar 31, 2001        Mar 31, 2000
                                                        --------------------------------   -----------------
<S>                                                     <C>              <C>               <C>


  REVENUE:                                                      $5,522           $8,145              $9,140

  OPERATING EXPENSE:
      Depreciation and amortization                              2,116            4,233               5,643
      Consulting - related party                                                  1,700               3,200
      Advertising                                               19,000           19,000              19,000
      General and administrative                                 1,542            3,406               4,155
                                                        --------------------------------   -----------------
          Total Operating Expense                               22,658           28,339              31,998

                                                        --------------------------------   -----------------

  NET LOSS                                                    ($17,136)        ($20,194)           ($22,858)
                                                        ================================   =================



  Weighted average shares outstanding                        2,458,309        2,329,062           2,336,195
                                                        ================================   =================

  Loss per share - basic and diluted                            ($0.00)          ($0.00)             ($0.00)
                                                        ================================   =================

</TABLE>























  See accompanying notes              F-3
<PAGE>

<TABLE>

<CAPTION>



                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

        STATEMENT OF STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
             Period from inception (July 11, 2000) to March 31, 2001




                                            Common  Stock                             Paid In
                                         Shares          Amount                       Capital              Total
                                   ----------------------------------------------------------------   -----------------
<S>                                <C>                   <C>                          <C>             <C>

  Balance,
          July 11, 2000
          (date of inception)                  -0-             -0-                             -0-                 -0-

  Shares issued on
         July 11, 2000 for:
             Cash                          500,000             500                                                 500
             Services                    1,500,000           1,500                                               1,500

         July 12, 2000 for:
             Website development           200,000             200                          24,800              25,000

  Paid in Capital by Shareholder                                                               300                 300

  Net Loss                                                                                                      (2,664)

                                   ----------------------------------------------------------------   -----------------
  Balance
          September 30, 2000             2,200,000          $2,200                         $25,100             $24,636
                                   ================================================================   =================


  Sale of common stock
        (net of offering expenses)         241,500             242                          51,359              51,601

  Paid in Capital by Shareholder                                                               450                 450

  Net Loss - three months
        December 31, 2000                                                                                       (3,058)

  Sale of common stock                      27,200              27                           6,773               6,800

  Paid in Capital by Shareholder                                                               450                 450

  Net Loss - three months
        March 31, 2001                                                                                         (17,136)

                                   ----------------------------------------------------------------   -----------------
  Balance
          March 31, 2001                 2,468,700           2,469                          84,132              63,743
                                   ================================================================   =================
</TABLE>








  See accompanying notes              F-4
<PAGE>

<TABLE>

<CAPTION>


                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

                             STATEMENT OF CASH FLOWS
              Three Months and Six Months Ended March 31, 2001, and
             Period from Inception (July 11, 2000) to March 31, 2001

                                                                                                        Period from
                                                                                                         Inception
                                                                    Three Months     Six Months       (July 11, 2000)
                                                                       Ended           Ended                 to
                                                                    Mar 31, 2001    Mar 31, 2001        Mar 31, 2001
                                                                   --------------------------------   -----------------
<S>                                                                <C>                    <C>         <C>

  CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                           ($17,136)        ($20,194)           ($22,858)
      Adjustments to reconcile net loss to net
              cash (used) by operating activities:
                Items not requiring cash:
                  stock issued for services                                                                      1,500
                  paid in capital by shareholder                              450              900               1,200
                  depreciation and amortization                             2,117            4,233               5,644
      Increase in accounts payable                                         (7,500)           1,274               1,377

                                                                   --------------------------------   -----------------
  NET CASH (USED) BY OPERATING ACTIVITIES:                                (22,069)         (13,787)            (13,137)


  CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of assets                                                        0                0                (398)

  CASH FLOWS FROM FINANCING ACTIVITIES:
      Sale of common stock (net of offering expenses)                       6,800           58,401              58,901

                                                                   --------------------------------   -----------------
      Total cash flows from financing activities                            6,800           58,401              58,901

                                                                   --------------------------------   -----------------

  NET INCREASE IN CASH                                                   ($15,269)         $44,614             $45,366

  CASH, BEGINNING OF PERIOD                                                60,635              752                   0
                                                                   --------------------------------   -----------------

  CASH, END OF PERIOD                                                     $45,366          $45,366             $45,366
                                                                   ================================   =================

</TABLE>


  Note:
  -----
Non-cash investing activity - the company issued 200,000 shares valued at $0.125
per share for a total of $25,000 for development of its website.











  See accompanying notes              F-5

<PAGE>

                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

                          NOTES TO FINANCIAL STATEMENTS
                      March 31, 2001 and September 30, 2000

Note A - Nature of Business and Summary of Significant Accounting Policies:
---------------------------------------------------------------------------

History:  The  Company  was  organized  July 11, 2000 under the name of Discount
Mortgage Source, Inc. in the State of Texas and is in the development stage. The
Company's business plan outlines its plan of operations which is to allow people
to  obtain  residential  mortgage  loans  over  the  internet.  Its  development
activities  included the setting up of the Company's website and advertising its
website to encourage borrowers to apply for loans on the internet.

Basis of Accounting:
--------------------
It is the Company's  policy to prepare its  financial  statements on the accrual
basis of accounting in conformity with generally accepted accounting principles.
Sales are recorded as income in the period in which they are earned and expenses
are recognized in the period in which the related liability is incurred.

Revenue Recognition:
--------------------
Revenue is recognized when a loan is closed. The company receives a fee for each
loan that is processed through its website and subsequently closed.

Cash and Cash Equivalents:
--------------------------
For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  debt  instruments  with a  maturity  of three  months or less to be cash
equivalents.

Loss per Common Share:
----------------------
Loss  applicable  to common  share is based on the  weighted  average  number of
shares of common stock outstanding during the period presented.

Accounting Estimates:
---------------------
The preparation of financial  statements in conformity  with generally  accepted
accounting   principles  requires  management  to  make  certain  estimates  and
assumptions  that affect the amount  reported in the  financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Stock based compensation:
-------------------------
The Company accounts for stock based compensation in accordance with FAS 123 and
APB No. 25 and the Financial  Accounting  Standards Board Interpretation No. 44.
This  requires  that we base the  issuance  of  stock  at the fair  value of the
consideration received.


                                       F-6


<PAGE>



                         DISCOUNT MORTGAGE SOURCE, INC.
                           A Development Stage Company

                          NOTES TO FINANCIAL STATEMENTS
                      March 31, 2001 and September 30, 2000

Note A - Nature of  Business  and  Summary of  Significant  Accounting  Policies
--------------------------------------------------------------------------------
(con't):  Software  Development  Costs:
---------------------------------------
The Company accounts for its software  development costs under the provisions of
Statement  of  Position  98-1  "Accounting  for the Costs of  Computer  Software
Developed or Obtained for Internal Use",  which was issued by the AICPA in 1998.
This  requires  the  capitalization  of the costs  incurred in  connection  with
developing or obtaining internal-use software.

Income Tax:
-----------
The Company is subject to the greater of federal income taxes computed under the
regular system or the alternative  minimum tax (ATM) system. The Company uses an
asset and  liability  approach for the  accounting  and  financial  reporting of
income tax as required by SFAS No. 109.  Under this method,  deferred tax assets
and  liabilities  are  determined  based on  temporary  differences  between the
financial  carrying  amounts and the tax bases of assets and  liabilities  using
enacted tax rates in effect in the years in which the temporary  differences are
expected to reverse.

Note B - Web site:
------------------
The  Company's  primary  asset  is its  web  site  which  is the  center  of its
operational and income generating activities for which it paid $25,000. The cost
of the web site is being amortized over three years starting in August 2000, the
first full month of operation.

The cost of  developing  the web site is accounted  for under the  provisions of
Statement  of  Position  98-1  "Accounting  for the Costs of  Computer  Software
Developed or Obtained for Internal Use",  which was issued by the AICPA in 1998.
This  requires  the  capitalization  of the costs  incurred in  connection  with
developing or obtaining internal-use software.

In March 2000, the Financial  Accounting  Standards Board issued  Interpretation
No.  44 (FIN No.  44)  "Accounting  for  Certain  Transactions  Involving  Stock
Compensation", an interpretation of APB Opinion No. 25" which was effective July
1, 2000.  The  website  development  was paid for by issuing  200,000  shares of
common  stock,  the value of which was  $0.125 per share  which was  arbitrarily
determined and negotiated since there was no readily  determinable  market value
for the Company's shares.






                                       F-7


<PAGE>



                         DISCOUNT MORTGAGE SOURCE, INC.
                           A Development Stage Company

                          NOTES TO FINANCIAL STATEMENTS
                      March 31, 2001 and September 30, 2000

Note C - Stockholders' Equity:
-----------------------------

Common Stock:
-------------
The Company is  authorized to issue  50,000,000  common shares of stock at a par
value of $0.001 per share.  These shares have full voting  rights.  At March 31,
2001  and  September  30,  2000,  there  were  2,468,700  and  2,200,000  shares
outstanding   respectively.   The  Company  has  not  paid  a  dividend  to  its
shareholders.

Common stock issuances
----------------------
On July 11, 2000,  the Company  issued  2,000,000  shares to the  President  for
$2,000,  comprised of $500 cash and $1,500 of his  services.  The services  were
valued at $1,500 and the stock issued at par.

On July 12, 2000, the Company issued to unrelated parties 200,000 shares for the
development of its website  valued at $25,000.  The value assigned of $0.125 per
share  was  arbitrarily  determined  and  negotiated  by  the  Company  and  the
developers of the website since there was no readily  determinable  market value
for the shares.

Note D - Income Taxes:
----------------------

The Company  had a net  operating  loss of $2,664 for the period from  inception
(July 11, 2000) to September  30, 2000 (fiscal year end) and $20,194 for the six
months ended March 31, 2001. No deferred tax asset has been  recognized  for the
operating loss as any valuation allowance would reduce the benefit to zero.

         Operating losses expire:           2020        $ 2,664
                                            2021        $20,194

The Company has adopted the asset and liability  method of accounting for income
taxes as required by SFAS No. 109. In accordance  with SFAS No. 109, the Company
has recorded a valuation  allowance  equal to the deferred tax asset as a result
of  the  Company's  "going  concern"  opinion  referred  to in  Note  F and  the
uncertainty that it will be realized.






                                       F-8


<PAGE>


                         DISCOUNT MORTGAGE SOURCE, INC.
                           A Development Stage Company

                          NOTES TO FINANCIAL STATEMENTS
                      March 31, 2001 and September 30, 2000

Note D - Income Taxes (con't):
------------------------------

The  components  of the  provision  (benefit)  for income taxes  included in the
financial statements as of March 31, 2001 are as follows:

Deferred tax assets:                            Sept 30, 2000      Dec 31, 2000
                                                -------------      ------------
Net operating loss carryforwards                  $ ( 2,664)          $( 20,194)
Valuation allowance                                   2,664              20,194
                                                  ----------         ----------
Total deferred income tax assets                        -0-                 -0-
Total deferred income tax liabilities                   -0-                 -0-
                                                  ----------         ----------
Net deferred income tax assets                    $     -0-          $      -0-

The  Company's  effective tax rate on a pre-tax  income  (loss) from  continuing
operations differs from the U.S federal statutory rate as follows:

U.S. federal statutory rate                                            (  34)%
Increase (decrease) in rates resulting from:
         Change in valuation allowance for deferred tax asset             34 %
                                                                     ---------
Effective tax rate                                                         0 %

Note E - Related Party Transactions:
-----------------------------------

In  July  2000,  the  Company  issued  to  its  President  2,000,000  shares  in
consideration for $2,000, comprised of $500 cash and $1,500 of his services. The
services were valued at $1,500 and the stock was issued at par.

Note F - Going Concern:
-----------------------

As of September 30, 2000 the Company had minimal capital resources  available to
meet obligations expected to be incurred given that it is a start up enterprise.
Accordingly,  the Company's continued existence is dependent upon the successful
operation  of the  Company's  plan of  operations,  selling  common stock in the
Company, or obtaining  financing.  In December of 2000, the Company raised funds
under an SB-1  registration  statement  filed  with the  Securities  &  Exchange
Commission and in the opinion of management,  has sufficient  funds to carry the
company out of the development  stage. The lack of operating  revenue or capital
raises substantial doubt that the Company can continue as a going concern.


                                       F-9


<PAGE>




Item 2:           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.

Results of Operations

         The Registrant  has had limited  operations to date since it was formed
on July 11, 2000 and as part of its start up operations, it filed a registration
statement on Form SB-1 with the  Securities  and Exchange  Commission to raise a
minimum of $60,000 and a maximum of $500,000 which became  effective on November
8, 2000. The Registrant has raised funds under that  registration  statement and
as of March 31,  2001 had raised a gross  amount of  $67,175 by selling  268,700
shares.

         We are an  internet-based  loan  marketplace for consumers and lenders.
Currently, we operate the web site  http://discountmortgagesource.com,  offering
15 and 30 year fixed rate  mortgages up to and  including  $252,700.  Our broker
compensation  for a typical  loan  would be $995 and,  given  prevailing  market
conditions, a traditional mortgage broker source would have earned $4,000 on the
same loan volume.  We recognize  the market niche of lower broker fees,  and are
developing  additional  product  offerings  that  will  provide  for loans up to
$1,000,000, with the expectation fees will increase proportionately.

         Mortgage lending on the internet can offer borrowers an easier,  faster
and less expensive way to obtain  mortgage loans. We have designed this platform
to decrease the cost of originating, closing and selling loans, so consumers who
obtain a loan via our  technology  platform  will save  money when  compared  to
obtaining a loan using a traditional  lender.  We offer borrowers an alternative
to the traditional mortgage transaction, allowing the consumer more control over
terms and  conditions  through  an easy to use  interactive  web based  mortgage
model. We believe this process  results in greater  satisfaction to the consumer
due to them being in control of the information and the process.

         We recognize some borrowers have credit or other issues which may cause
an underwriter to decline their loan request.  Consequently, the assistance of a
good loan officer is justified.  However, it is our President's  experience that
many  borrowers  do not have  credit  problems.  They know  exactly  what  their
financial  capabilities are, where they are getting the down payment funds, what
type of mortgage they want,  and so on. It is for these types of customers  that
our company was founded.  The borrower simply  completes an on-line  application
and submits it to the processor.  The processor ensures that all the information
is complete  and  correct  and  electronically  submits  the  application  to an
automated underwriter which either approves or declines the loan. If the loan is
approved,  the  borrower is notified of the approval  along with any  conditions
determined by the  automated  underwriter.  If the loan request is declined,  we
will notify the  customer and  recommend  the use of a loan  officer.  We do not
employ loan officers,  believing the filling of the niche in the marketplace for
informed and knowledgeable borrowers to be our focus.


                                       10

<PAGE>



         Total broker  compensation  on loan volume for the quarter  ended March
31, 2001 was $5,522  whereas we were not in operation  the same quarter of 1999.
As of March 31, 2001 we had liquid assets of $45,366 with net working capital of
$43,989  whereas we had no assets for the same  quarter of 1999 since we had not
yet been  formed.  Our total loss for the three  months ended March 31, 2001 was
$17,136 which is  significantly  higher than any other quarter for which we have
operations.  This is due to the Company raising funds in its public offering and
using some of those funds for  advertising.  We had minimal  advertising  in the
three months ended December 31, 2000 and have begun some targeted advertising on
radio on talk shows in the Austin, Texas area. This area was targeted because it
is considered to be an area that is technologically  literate and therefore more
likely to have  persons  who would  apply for a loan over the  internet  to save
money. As fo the date of filing this Form 10-Q, we are receiving applications as
a direct result of our advertising strategy.


Liquidity

The  Registrant  has  liquid  assets of  $45,366  and total  working  capital of
$43,989, most of which was generated from the sale of stock in our SB-1 offering
described  above.  As mentioned  earlier,  the Registrant was not formed at this
time in the prior year so there are no comparative numbers.

The  Registrant has minimal  expenses  outside of its  advertising  costs and no
commitments.


Capital Resources

The  Registrant's  capital  resources  have been  generated  from the closing of
mortgage  loans  over  its  website  and  from  the  sale  of  stock  under  its
registration statement that became effective November 8, 2000.

There were no plans or  requirements  for  purchase of capital  items during the
quarter for  company  purposes.  The  Registrant  does not foresee any  material
capital  purchase  in the coming  twelve  months  except for $4,000 to $5,000 of
office/computer  equipment  which is the amount we had  budgeted in our offering
document.



                                       11

<PAGE>



PART II.     OTHER INFORMATION


Item  1.     Legal Proceedings.

                  The Company is not involved in any legal proceedings.

Item  2.     Changes in Securities.

                  Registrant has made no changes in its securities.

Item  3.     Defaults Upon Senior Securities.

                  Registrant has no senior securities and accordingly no
defaults.

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

                  Registrant submitted no matters to a vote of security holders.

Item  5.     Other Information.

                  None.

Item 6.      Exhibits and Reports on Form 8-K.

                  None.




                                       12

<PAGE>


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                Discount Mortgage Source, Inc.
                                                ------------------------------
                                                 (Registrant)


                                                BY:  /s/ C. Michael Kamps
                                                     -------------------------
                                                      C. Michael Kamps
                                                Its: President and Secretary

DATE:   May 14, 2001
        Rockwall, Texas