UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 (Mark
One)
 xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
 OF
1934
 
 For
      the quarterly period ended December 31,
2008
 or
   ̈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 000-52089
 
 Design Source, Inc.(Exact name of small business issuer as specified in its charter)Nevada
                
                36-4528166(State or other jurisdiction of
                  incorporation or organization)
                
                (IRS Employer Identification
                  Number)100 Europa Drive, Suite 455, Chapel Hill, North Carolina 27517(Address of principal executive offices)(919) 933-2720(Registrant’s telephone number, including area code)
 
 Indicate
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past 90 days. Yes
x  No  ̈
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
One):
 
 Large accelerated filer  ̈
              
              Accelerated filer  ̈
              
              Non-accelerated filer  ̈
              
              Smaller reporting company x(Do
      not check if a smaller
                reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2).  Yes x  No
 ̈
 
 As of
February 10, 2009 there were 11,218,457 shares of the issuer’s common stock, par
value $0.00001, issued and outstanding.
  
  DESIGN
SOURCE, INC.
 
 FORM
10-Q
 FOR
THE QUARTERLY PERIOD ENDED DECEMBER 31, 2008
 TABLE
OF CONTENTS
 
 PAGEPART
      I - FINANCIAL INFORMATION
                3Item
      1.
                Financial
      Statements
                3Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                12Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                14Item
      4T.
                Controls
      and Procedures
                14PART
      II - OTHER INFORMATION
                15Item
      1.
                Legal
      Proceedings
                15Item
      1A.
                Risk
      Factors
                15Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                15Item
      3.
                Defaults
      Upon Senior Securities
                16Item
      4.
                Submission
      of Matter to a Vote of Security Holders
                16Item
      5.
                Other
      Information
                16Item
      6.
                Exhibits
                16SIGNATURES
  2
  PART
I – FINANCIAL INFORMATION
  ITEM
1.     FINANCIAL STATEMENTS
 
 PAGEBalance
      Sheets as of December 31, 2008 and March 31, 2008
                4Statements
      of Operations for the three and nine month periods ended December 31, 2008
      and 2007 and for the period from April 2, 2003 (Inception) through
      December 31, 2008
                5Statements
      of Cash Flows for the nine month periods ended December 31, 2008 and 2007
      and for the period from April 2, 2003 (Inception) through December 31,
      2008
                6Notes
      to Financial Statements
                7
  3
  DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 BALANCE
SHEETS
 
  December 31,
                            
                            
                            March 31,2008
                            
                            
                            2008(Unaudited)
                            
                            
                            (Audited)ASSETSCURRENT
      ASSETSCash
                            
                            $
                            14
                            
                            
                            $
                            22,372TOTAL
      ASSETS
                            
                            $
                            14
                            
                            
                            $
                            22,372LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
                            
                            $
                            9,188
                            
                            
                            $
                            5,000TOTAL
      CURRENT LIABILITIES
                            
                            
                            9,188
                            
                            
                            
                            5,000TOTAL
      LIABILITIES
                            
                            
                            9,188
                            
                            
                            
                            5,000COMMITMENTS
      AND CONTINGENCIES
                            
                            
                            -
                            
                            
                            
                            -STOCKHOLDERS'
      EQUITY (DEFICIT)Common
      stock, $0.00001 par value, 100,000,000 shares authorized, 11,218,457
      shares issued and outstanding
                            
                            
                            113
                            
                            
                            
                            113Additional
      paid-in capital
                            
                            
                            585,810
                            
                            
                            
                            585,810Accumulated
      deficit during development stage
                            
                            
                            (595,097
                            )
                            
                            
                            (568,551
                            )TOTAL
      STOCKHOLDERS' EQUITY (DEFICIT)
                            
                            
                            (9,174
                            )
                            
                            
                            17,372TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                            
                            $
                            14
                            
                            
                            $
                            22,372
 The
accompanying notes are an integral part of these financial
statements.
  4
 
 DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 STATEMENTS
OF OPERATIONS
 
 
 From Inception(April 2, 2003)Three Months Ended
                                                              
                                                              
                                                              Nine Months Ended
                                                              
                                                              
                                                              throughDecember 31,
                                                              
                                                              
                                                              December 31,
                                                              
                                                              
                                                              December 31,
                                                              
                                                              
                                                              December 31,
                                                              
                                                              
                                                              December 31,2008
                                                              
                                                              
                                                              2007
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2007
                                                              
                                                              
                                                              2008(Unaudited)
                                                              
                                                              
                                                              (Unaudited)
                                                              
                                                              
                                                              (Unaudited)
                                                              
                                                              
                                                              (Unaudited)
                                                              
                                                              
                                                              (Unaudited)REVENUES
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              -EXPENSESGeneral
      and administrative
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              153
                                                              
                                                              
                                                              
                                                              1,171
                                                              
                                                              
                                                              
                                                              315
                                                              
                                                              
                                                              
                                                              64,300Professional
      fees
                                                              
                                                              
                                                              3,188
                                                              
                                                              
                                                              
                                                              6,450
                                                              
                                                              
                                                              
                                                              25,139
                                                              
                                                              
                                                              
                                                              8,916
                                                              
                                                              
                                                              
                                                              173,581Taxes
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              1,036Management
      fees
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              236
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              29,155Stock
      compensation
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              327,500Total
      Expenses
                                                              
                                                              
                                                              3,188
                                                              
                                                              
                                                              
                                                              6,603
                                                              
                                                              
                                                              
                                                              26,546
                                                              
                                                              
                                                              
                                                              9,231
                                                              
                                                              
                                                              
                                                              595,572LOSS
      FROM OPERATIONS
                                                              
                                                              
                                                              (3,188
                                                              )
                                                              
                                                              
                                                              (6,603
                                                              )
                                                              
                                                              
                                                              (26,546
                                                              )
                                                              
                                                              
                                                              (9,231
                                                              )
                                                              
                                                              
                                                              (595,572
                                                              )OTHER
      INCOME (EXPENSE)Interest
      income
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              6
                                                              
                                                              
                                                              
                                                              2,128Interest
      expense
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (1,653
                                                              )Total
      Other Income (Expense)
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              6
                                                              
                                                              
                                                              
                                                              475LOSS
      BEFORE TAXES
                                                              
                                                              
                                                              (3,188
                                                              )
                                                              
                                                              
                                                              (6,603
                                                              )
                                                              
                                                              
                                                              (26,546
                                                              )
                                                              
                                                              
                                                              (9,225
                                                              )
                                                              
                                                              
                                                              (595,097
                                                              )INCOME
      TAX EXPENSE
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -NET
      LOSS
                                                              
                                                              $
                                                              (3,188
                                                              )
                                                              
                                                              $
                                                              (6,603
                                                              )
                                                              
                                                              $
                                                              (26,546
                                                              )
                                                              
                                                              $
                                                              (9,225
                                                              )
                                                              
                                                              $
                                                              (595,097
                                                              )NET
      LOSS PER SHARE,BASIC
      AND DILUTED
                                                              
                                                              $
                                                              (0.00
                                                              )
                                                              
                                                              $
                                                              (0.00
                                                              )
                                                              
                                                              $
                                                              (0.00
                                                              )
                                                              
                                                              $
                                                              (0.00
                                                              )WEIGHTED
      AVERAGE NUMBER OFCOMMON
      SHARES OUTSTANDING,BASIC
      AND DILUTED
                                                              
                                                              
                                                              11,218,457
                                                              
                                                              
                                                              
                                                              10,718,457
                                                              
                                                              
                                                              
                                                              11,218,457
                                                              
                                                              
                                                              
                                                              10,718,457
  The
accompanying notes are an integral part of these financial
statements.
 5
 
 DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 STATEMENTS
OF CASH FLOWS
 
 
 From Inception(April 2, 2003)Nine Months Ended
                        
                        
                        throughDecember 31,
                        
                        
                        December 31,
                        
                        
                        December 31,2008
                        
                        
                        2007
                        
                        
                        2008(Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                        
                        $
                        (26,546
                        )
                        
                        $
                        (9,225
                        )
                        
                        $
                        (595,097
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Increase
      in accounts payable
                        
                        
                        4,188
                        
                        
                        
                        4,202
                        
                        
                        
                        9,188Stock
      issued for compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        327,500Issuance
      of common stock for reimbursement of expenses
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        25,923Net
      cash used in operating activities
                        
                        
                        (22,358
                        )
                        
                        
                        (5,023
                        )
                        
                        
                        (232,486
                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from shareholder loans
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        21,560Repayment
      of shareholder loans
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (21,560
                        )Proceeds
      from issuance of common stock
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        232,500Net
      cash provided by financing activities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        232,500NET
      INCREASE (DECREASE) IN CASH
                        
                        
                        (22,358
                        )
                        
                        
                        (5,023
                        )
                        
                        
                        14CASH,
      BEGINNING OF PERIOD
                        
                        
                        22,372
                        
                        
                        
                        5,259
                        
                        
                        
                        -CASH,
      END OF PERIOD
                        
                        $
                        14
                        
                        
                        $
                        236
                        
                        
                        $
                        14SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,653Income
      taxes paid
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
  The
accompanying notes are an integral part of these financial
statements.
 6
 
 DESIGN
SOURCE, INC.
 (A
Development Stage Enterprise)
 NOTES
TO THE FINANCIAL STATEMENTS
 As
of and for the nine months ended December 31, 2008
 (Unaudited)
  NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION
  Design
Source, Inc. (hereinafter "the Company") was incorporated on April 2, 2003 under
the laws of the State of Nevada for the purpose of offering textiles to the
commercial designer market utilizing the internet. The Company's headquarters is
located in Chapel Hill, North Carolina. The Company is a development stage
enterprise.
  The
Company's year end is March 31.
  The
foregoing unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, these financial statements do not include all of the disclosures
required by generally accepted accounting principles in the United States of
America for complete financial statements. These unaudited interim financial
statements should be read in conjunction with the audited financial statements
for the period ended March 31, 2008. In the opinion of management, the unaudited
interim financial statements furnished herein include all adjustments, all of
which are of a normal recurring nature, necessary for a fair statement of the
results for the interim period presented. Operating results for the nine-month
period ending December 31, 2008 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2009.
  NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  This
summary of significant accounting policies is presented to assist in
understanding the accompanying financial statements. The financial statements
and notes are representations of the Company's management, which is responsible
for their integrity and objectivity. These accounting policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of the financial
statements.
  Accounting
Method
 The
Company's financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
  Development Stage
Activities
 The
Company has been in the development stage since its formation and has not
realized any revenue from operations. It is primarily engaged in offering
textiles to the commercial designer market utilizing the internet.
  7
  DESIGN
SOURCE, INC.
 (A
Development Stage Enterprise)
 NOTES
TO THE FINANCIAL STATEMENTS
 As
of and for the nine months ended December 31, 2008
 (Unaudited)
 
 Going
Concern
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As reflected in the financial statements, the
Company incurred a net loss of $26,546 for the nine months ended December 31,
2008. In addition, the Company had an accumulated deficit of $595,097 as of
December 31, 2008. Since its inception, the Company has not generated any
revenues and has minimal cash resources.
 
 These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Management's
efforts have been directed towards the development and implementation of a plan
to generate sufficient revenues to cover all of its present and future costs and
expenses. For the twelve-month subsequent period, the Company anticipates that
its minimum operating cash requirements to continue as a going concern will be
approximately $55,000.
 
 The
Company has determined that it cannot continue with its business operations as
outlined in its original business plan because of a lack of financial results
and resources; therefore, although it may return to its intended business
operations at a later date, it has redirected its focus towards identifying and
pursuing options regarding the development of a new business plan and direction.
The Company intends to explore various business opportunities that have the
potential to generate revenue, profits and cash flow in order to financially
accommodate the costs of being a publicly held company. However, the Company
cannot assure that there will be any business opportunities available nor the
nature of the business opportunity, nor indication of the financial resources
required of any possible business opportunity.
 
 The
Company has minimal operating costs and expenses at the present time due to its
limited business activities. The Company, however, will be required to raise
additional capital over the next twelve months to meet its current
administrative expenses, and may do so in connection with or in anticipation of
possible acquisition transactions. This financing may take the form of
additional sales of equity securities and/or loans from directors. There is no
assurance that additional financing will be available, if required, or on terms
favorable to the Company.
 
 The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
  8
 DESIGN
SOURCE, INC.
 (A
Development Stage Enterprise)
 NOTES
TO THE FINANCIAL STATEMENTS
 As
of and for the nine months ended December 31, 2008
 (Unaudited)
 
 Cash and Cash
Equivalents
 For
purposes of the statement of cash flows, the Company considers all short-term
debt with original maturities of three months or less to be cash
equivalents.
  Fair Value of Financial
Instruments
 The
Company's financial instruments as defined by Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments," may
include cash, and accounts payable. All such instruments are accounted for on a
historical cost basis, which, due to the short maturity of these financial
instruments, approximates fair value at December 31, 2008 and March 31,
2008.
  Use of
Estimates
 The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
  Provision for
Taxes
 Income
taxes are provided based upon the liability method of accounting pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (hereinafter "SFAS No. 109"). Under this approach, deferred income taxes
are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end. A valuation allowance is recorded against the deferred
tax asset if management does not believe the Company has met the "more likely
than not" standard imposed by SFAS No. 109 to allow recognition of such an
asset.
 
 Basic and Diluted Earnings
(Loss) Per Share
 The
Company utilizes Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". Basic earnings per share is calculated on the weighted effect of all
common shares issued and outstanding, and is calculated by dividing net income
available to common stockholders by the weighted average shares outstanding
during the period. Diluted earnings per share, which is calculated by dividing
net income available to common stockholders by the weighted average number of
common shares used in the basic earnings per share calculation, plus the number
of common shares that would be issued assuming conversion of all potentially
dilutive securities outstanding, is not presented separately as it is
anti-dilutive.
  9
  DESIGN
SOURCE, INC.
 (A
Development Stage Enterprise)
 NOTES
TO THE FINANCIAL STATEMENTS
 As
of and for the nine months ended December 31, 2008
 (Unaudited)
  Recently Issued Accounting
Pronouncements
  Management
does not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, could have a material effect on the
accompanying financial statements.
  NOTE
3 - COMMON STOCK
  The
Company is authorized to issue 100,000,000 shares of $0.00001 par value common
stock. All shares have equal voting rights, are non-assessable and have one vote
per share. Voting rights are not cumulative and, therefore, the holders of more
than 50% of the common stock could, if they choose to do so, elect all of the
directors of the Company.
  Upon
incorporation, the Company issued 435,000 shares of common stock at a price of
$0.05 per share as reimbursement of a cash advance in the amount of $1,000 and
expenses paid personally by a director totaling $20,750.
  During
the period ending March 31, 2004, an additional 283,457 shares of common stock
were issued at $0.05 per share for reimbursement of expenses paid personally by
a director totaling $4,173 and for cash totaling $10,000.
  During
the period ending March 31, 2006, an additional 3,320,000 shares of common stock
were issued at $0.05 per share for cash totaling $160,000 and subscription
receivable of $6,000.
  During
the year ended March 31, 2007, 130,000 shares of common stock were issued at
$0.05 per share for cash totaling $6,500 to outside investors; 6,550,000 share
of common stock were issued to its officers for compensation at $0.05 per share
for $327,500 and $6,000 subscription receivable was received.
  During
the year ended March 31, 2008, 500,000 shares of common stock were issued at
$0.10 per share for cash totaling $50,000 to Milestone Enhanced Fund
Ltd;
 
 During
the nine months ended December 31, 2008, the Company had not issued any
additional shares of common stock.
  10


DESIGN
SOURCE, INC.


(A
Development Stage Enterprise)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2008


(Unaudited)




NOTE
4 - INCOME TAXES




At
December 31, 2008 and March 31, 2008, he Company had calculated deferred tax
assets of approximately $240,000 and $229,000, respectively, calculated at a
combined federal and state expected rate of 40.5%. As management of the Company
cannot determine that it is more likely than not that the Company will realize
the benefit of the net deferred tax asset, a valuation allowance equal to the
net deferred tax asset has been recorded.




The
significant components of the deferred tax assets as December 31, 2008 and March
31, 2008 were as follows:




December 31,
                      2008
                    
                    
                    March 31,
                      2008Net
      operating loss carryforward
                    
                    $
                    240,000
                    
                    
                    $
                    229,000Valuation
      allowance
                    
                    
                    (240,000
                    )
                    
                    
                    (229,000
                    )Net
      deferred tax asset
                    
                    $
                    -
                    
                    
                    $
                    -




At
December 31, 2008 and March 31, 2008, the Company has net operating loss
carryforwards of approximately $593,000 and $566,000, respectively, which begin
to expire in the year 2027. The change in the allowance account from March 31,
2008 to December 31, 2008 was approximately $11,000.




11




ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION




Forward-looking
Statements





This
section of the report includes a number of forward-looking statements that
reflect our current views with respect to future events and financial
performance. Forward-looking statements are often identified by words like:
believe, expect, estimate, anticipate, intend, project and similar expressions,
or words which, by their nature, refer to future events. You should not place
undue certainty on these forward-looking statements, which apply only as of the
date of this report. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or our predictions.





Plan
of Operation





We were
incorporated on April 2, 2003, to offer a comprehensive supply of, market and
distribute commercial upholstery, drapery, bedspread, panel, and wall covering
fabrics to the interior designer industry and individual retail customers on our
proprietary Internet website. We have determined that we cannot continue with
our business operations as outlined in our original business plan because of a
lack of financial results and resources; therefore, although we may return to
our intended business operations at a later date, we have redirected our focus
towards identifying and pursuing options regarding the development of a new
business plan and direction. We intend to explore various business opportunities
that have the potential to generate positive revenue, profits and cash flow in
order to financially accommodate the costs of being a publicly held company.
However, we cannot assure that there will be any other business opportunities
available nor the nature of the business opportunity, if any, nor any indication
of the financial resources required to take advantage of any possible business
opportunity.





We have
minimal operating costs and expenses at the present time due to our limited
business activities. We may, however, be required to raise additional capital
over the next twelve months to meet our current administrative expenses, and we
may do so in connection with or in anticipation of possible acquisition
transactions. This financing may take the form of additional sales of our equity
securities, loans from our directors, or other transactions. There can be no
assurance that additional financing would be available to us if required, or
that the terms would be favorable to us and our stockholders.





We are
not currently engaging in any product research and development and have no plans
to do so in the foreseeable future. We have no present plans to purchase or sell
any plant or significant equipment. We also have no present plans to add
employees although we may do so in the future if we engage in any merger or
acquisition transactions.





Results
of Operations





For the
period from inception (April 2, 2003) to December 31, 2008, we had no revenues
and incurred net operating losses of $595,572. For the three and nine months
ended December 31, 2008, we incurred net operating losses of $3,188 and $26,546,
respectively, which consisted of professional fees and general and
administrative expenses primarily incurred in connection with the preparation
and filing of our ongoing SEC filing requirements.


12


Liquidity
and Capital Resources





Our cash
at December 31, 2008, was $14.  In order to satisfy our cash
requirements for the current period we will have to raise additional funds as
described above. There can be no assurance that we will be able to do
so.





Net cash
used in operating activities in the nine months ended December 31, 2008, was
$22,358.  Net cash used in operating activities from inception through
December 31, 2008, was $232,486. Net cash provided by financing activities from
inception through December 31, 2008, was $232,500.  We had no
financing activity in the nine months ended December 31, 2008.  Our
independent registered public accounting firm has expressed the opinion that in
our current condition, there is substantial doubt about our ability to continue
as a going concern. Please refer to Note 2, Summary of Significant Accounting
Policies, of the financial statements included in this report.





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements.





Critical
Accounting Policies





A.
Basis of Accounting





The
Company’s financial statements are prepared using the accrual method of
accounting. The Company has elected a March 31 fiscal year-end.





B.
Basic Earnings Per Share





In
February 1997, the Financial Accounting Standards Board (“FASB”) issued
Statement of Accounting Standards (“SFAS”) No. 128, “Earnings Per Share”, which
specifies the computation, presentation and disclosure requirements for earnings
(loss) per share for entities with publicly held common stock. SFAS No. 128
supersedes the provisions of APB No. 15, and requires the presentation of basic
earnings (loss) per share and diluted earnings (loss) per share. The Company has
adopted the provisions of SFAS No. 128 effective as of the date of inception
(April 2, 2003).





Basic net
loss per share amounts are computed by dividing the net loss by the weighted
average number of common shares outstanding.





C.
Cash Equivalents





The
Company considers all highly liquid investments, if any, purchased with an
original maturity of three months or less to be cash
equivalents.


13


D.
Use Of Estimates and Assumptions





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. In accordance with FASB 16 all
adjustments are normal and recurring.





E.
Income Taxes





Income
taxes are provided in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. A deferred tax asset
or liability is recorded for all temporary differences between financial and tax
reporting and net operating loss carryforwards. Deferred tax expense (benefit)
results from the net change during the year of deferred tax assets and
liabilities.





Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of all of the deferred
tax assets will be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
Applicable.





ITEM
4T.        CONTROLS AND
PROCEDURES





Evaluation
of Our Disclosure Controls and Internal Controls





Under the
supervision and with the participation of our senior management, including our
chief executive officer and chief financial officer, Peter Reichard, we
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as
of the end of the period covered by this quarterly report (the “Evaluation
Date”). Based on this evaluation, our chief executive officer and chief
financial officer concluded as of the Evaluation Date that our disclosure
controls and procedures were effective such that the information relating to us,
including our consolidated subsidiaries, required to be disclosed in our
Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and (ii) is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.


14


Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external purposes of
accounting principles generally accepted in the United
States.  Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance
of achieving their control objectives. In evaluating the effectiveness of our
internal control over financial reporting, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control – Integrated Framework.





Officers’
Certifications





Appearing
as exhibits to this quarterly report are “Certifications” of our Chief Executive
Officer and Chief Financial Officer. The Certifications are required pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (the “Section 302
Certifications”). This section of the Quarterly Report contains information
concerning the Controls Evaluation referred to in the Section 302 Certification.
This information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics
presented.





Changes
in Internal Control Over Financial Reporting





There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2008 that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.




PART
II – OTHER INFORMATION





ITEM
1.         LEGAL
PROCEEDINGS





In the
ordinary course of our business, we may from time to time become subject to
routine litigation or administrative proceedings which are incidental to our
business. We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions involving us.





ITEM
1A.      RISK FACTORS





Not
applicable.





ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





We did
not issue any equity securities during the quarter ended December 31,
2008.


15


ITEM
3.         DEFAULTS UPON SENIOR
SECURITIES





None.





ITEM
4.         SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS





None.





ITEM
5.         OTHER
INFORMATION





None.





ITEM
6.  EXHIBITS





Exhibit No.
                            
                            Description31.1
      / 31.2
                            
                            Rule
      13(a)-14(a)/15(d)-14(a) Certification of Principal Executive and Financial
      Officer32.1
      / 32.2
                            
                            Rule
      1350 Certification of Principal Executive and Financial
      Officer


16


SIGNATURES





In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





Date:  February
      12, 2009
                          Design
      Source, Inc.By:
                          /s/
      Peter ReichardPeter
      Reichard, President, Principal ExecutiveOfficer,
      Treasurer, Principal Financial Officer, andPrincipal
      Accounting
Officer