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:          December 31, 2000

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 December 31, 2000:

                                                     2,441,500







<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 December 31,  2000,  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 an 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
February 10, 2001






                                       F-1


<PAGE>

<TABLE>

<CAPTION>


                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

                                 BALANCE SHEETS
                    December 31, 2000 and September 30, 2000


                                     ASSETS
                                     ------

                                                                                Dec 31, 2000        Sept 30, 2000
                                                                               ----------------    ----------------
<S>                                                                            <C>                 <C>

CURRENT ASSETS:
    Cash                                                                               $60,635                $752

PROPERTY AND EQUIPMENT:
    Equipment (net of $55 and $22 depreciation respectively)                               343                 376
    Website (net of $3,472 and $1,389 amortization respectively)                        21,528              23,611
                                                                               ----------------    ----------------
    Total property and equipment                                                        21,871              23,987

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

TOTAL ASSETS                                                                           $82,506             $24,739
                                                                               ================    ================




                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------


LIABILITIES                                                                              8,877                 103

STOCKHOLDERS' EQUITY
    Common stock, $0.001 par value, 50,000,000 authorized,
         2,441,500 and 2,200,000 shares issued and outstanding respectively              2,442               2,200
    Additional paid-in-capital                                                          76,910              25,100
    Deficit accumulated during the development stage                                    (5,723)             (2,664)
                                                                               ----------------    ----------------
        Total Stockholders' Equity                                                      73,629              24,636
                                                                               ----------------    ----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                             $82,506             $24,739
                                                                               ================    ================

</TABLE>

















See accompanying notes                 F-2

<PAGE>

<TABLE>

<CAPTION>


                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

                             STATEMENT OF OPERATIONS
              Three Months Ended December 31, 2000, and
           Period from Inception (July 11, 2000) to September 30, 2000

                                                                              Period from
                                                                               Inception
                                                         Three Months       (July 11, 2000)
                                                             Ended                to
                                                         Dec 31, 2000        Sept 30, 2000
                                                        ----------------    ----------------
<S>                                                     <C>                 <C>

REVENUE:                                                         $2,623                $995

OPERATING EXPENSE:
    Depreciation and amortization                                 2,116               1,411
    Consulting - related party                                    1,700               1,500
    General and administrative                                    1,866                 748
                                                        ----------------    ----------------
        Total Operating Expense                                   5,682               3,659

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

NET LOSS                                                        ($3,059)            ($2,664)
                                                        ================    ================



Weighted average shares outstanding                           2,198,726           2,197,531
                                                        ================    ================

Loss per share - basic and diluted                               ($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 December 31, 2000




                                          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                        51,360              51,602

Paid in Capital by Shareholder                                                             450                 450

Net Loss                                                                                                    (3,059)

                                 --------------------------------------------------------------    ----------------
Balance
        September 30, 2000             2,441,500          $2,442                       $76,910             $73,629
                                 ==============================================================    ================


</TABLE>















See accompanying notes                 F-4

<PAGE>

<TABLE>

<CAPTION>


                         DISCOUNT MORTGAGE SOURCE, INC.
                           a Development Stage Company

                             STATEMENT OF CASH FLOWS
              Three Months Ended December 31, 2000, and
           Period from Inception (July 11, 2000) to September 30, 2000

                                                                                                     Period from
                                                                                                      Inception
                                                                                Three Months       (July 11, 2000)
                                                                                    Ended                to
                                                                                Dec 31, 2000        Sept 30, 2000
                                                                               ----------------    ----------------
<S>                                                                            <C>                 <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                           ($3,059)            ($2,664)
    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                 300
                                           depreciation and amortization                 2,116               1,411
    Increase in accounts payable                                                         8,774                 103

                                                                               ----------------    ----------------
NET CASH (USED) BY OPERATING ACTIVITIES:                                                 8,281                 650


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

CASH FLOWS FROM FINANCING ACTIVITIES:
    Sale of common stock                                                                51,602                 500

                                                                               ----------------    ----------------
    Total cash flows from financing activities                                          51,602                 500

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

NET INCREASE IN CASH                                                                   $59,883                $752

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

CASH, END OF PERIOD                                                                    $60,635                $752
                                                                               ================    ================

</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
                    December 31, 2000 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
                    December 31, 2000 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
                    December 31, 2000 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 December 31,
2000  and  September  30,  2000,  there  were  2,441,500  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 $3,059 for the three
months ended  December 31, 2000. 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      $3,059

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
                    December 31, 2000 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 December 31, 2000 are as follows:

Deferred tax assets:                            Sept 30, 2000       Dec 31, 2000
                                                -------------       ------------
Net operating loss carryforwards                   $( 2,664)           $( 3,059)
Valuation allowance                                   2,664               3,059
                                                -------------       ------------
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.



                                       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 December 30, 2000 had broken escrow by raising  $60,375 by selling 241,500
shares.  The Registrant  continues to solicit funds under this offering which is
being sold by the sole officer and director. Under this offering, the Registrant
is  authorized  to sell a minimum of 240,000  shares and a maximum of  2,000,000
shares at $0.25 per share.

         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



                                       10

<PAGE>


employ loan officers,  believing the filling of the niche in the marketplace for
informed and knowledgeable borrowers to be our focus.

         Total broker compensation on loan volume for the quarter ended December
31, 2000 was $2,623  whereas we were not in operation  the same quarter of 1999.
As of December 31, 2000 we had liquid assets of $60,635 with net working capital
of $51,758  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 December 31, 2000
was $3,058. We broke escrow on our SB-1 offering at the end of December and have
developed  advertising  strategies  and have  started some  advertising  and are
generating activity off that advertising for the first quarter of 2001.


Liquidity

The  Registrant  has  liquid  assets of  $60,635  and total  working  capital of
$51,758, 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 and no commitments.


Capital Resources

The  Registrant's  capital  resources  have been  generated  from the closing of
mortgage  loans  over its  website  and since  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:   February 15, 2001
        Rockwall, Texas