UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10 – Q


(Mark
One)


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





For the
quarterly period ended December
31, 2009




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
by check mark 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes  ̈  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 of the Exchange Act).  Yes x  No
 ̈





As of
February 1, 2010 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, 2009


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
              15Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              17Item
      4T.
              Controls
      and Procedures
              18PART
      II - OTHER INFORMATION
              18Item
      1.
              Legal
      Proceedings
              18Item
      1A.
              Risk
      Factors
              19Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              19Item
      3.
              Defaults
      Upon Senior Securities
              19Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              19Item
      5.
              Other
      Information
              19Item
      6.
              Exhibits
              19SIGNATURES
              21


2


PART
I – FINANCIAL INFORMATION




ITEM
1.           FINANCIAL
STATEMENTS





PAGEBalance
      Sheets as of December 31, 2009 (Unaudited) andMarch
      31, 2009 (Audited)
                        
                        4Statements
      of Operations for the three and nine months endedDecember
      31, 2009 and 2008 (Unaudited) and for the period fromApril
      2, 2003 (Inception) through December 31, 2009 (Unaudited)
                        
                        5Statements
      of Cash Flows for the nine months ended December 31, 2009and
      2008 (Unaudited) and for the period from April 2, 2003(Inception)
      through December 31, 2009 (Unaudited)
                        
                        6Notes
      to Financial Statements (Unaudited)
                        
                        7


3


DESIGN
SOURCE, INC.


(A
Development Stage Company)


BALANCE
SHEETS








December
      31,
                  
                  
                  March
      31,2009
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)ASSETSCURRENT
      ASSETSCash
                  
                  $
                  -
                  
                  
                  $
                  12TOTAL
      ASSETS
                  
                  $
                  -
                  
                  
                  $
                  12LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  16,413
                  
                  
                  $
                  47,147TOTAL
      CURRENT LIABILITIES
                  
                  
                  16,413
                  
                  
                  
                  47,147Convertible
      debt (including accrued interest)
                  
                  
                  84,285
                  
                  
                  
                  -TOTAL
      LIABILITIES
                  
                  
                  100,698
                  
                  
                  
                  47,147COMMITMENTS
      AND CONTINGENCIES
                  
                  
                  -
                  
                  
                  
                  -STOCKHOLDERS'
      DEFICITCommon
      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
                  
                  
                  (686,621
                  )
                  
                  
                  (633,058
                  )TOTAL
      STOCKHOLDERS' DEFICIT
                  
                  
                  (100,698
                  )
                  
                  
                  (47,135
                  )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                  
                  $
                  -
                  
                  
                  $
                  12





The
accompanying notes are an integral part of these unaudited 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
      31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)REVENUES
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -EXPENSESGeneral
      and administrative
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    426
                    
                    
                    
                    1,171
                    
                    
                    
                    64,739Professional
      fees
                    
                    
                    6,098
                    
                    
                    
                    3,188
                    
                    
                    
                    48,854
                    
                    
                    
                    25,139
                    
                    
                    
                    260,383Taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,036Management
      fees
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    236
                    
                    
                    
                    29,155Stock
      based compensation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    327,500Total
      Expenses
                    
                    
                    6,098
                    
                    
                    
                    3,188
                    
                    
                    
                    49,280
                    
                    
                    
                    26,546
                    
                    
                    
                    682,813LOSS
      FROM OPERATIONS
                    
                    
                    (6,098
                    )
                    
                    
                    (3,188
                    )
                    
                    
                    (49,280
                    )
                    
                    
                    (26,546
                    )
                    
                    
                    (682,813
                    )OTHER
      INCOME (EXPENSE)Interest
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2
                    
                    
                    
                    -
                    
                    
                    
                    2,130Interest
      expense
                    
                    
                    (1,664
                    )
                    
                    
                    -
                    
                    
                    
                    (4,285
                    )
                    
                    
                    -
                    
                    
                    
                    (5,938
                    )Total
      Other Income (Expense)
                    
                    
                    (1,664
                    )
                    
                    
                    -
                    
                    
                    
                    (4,283
                    )
                    
                    
                    -
                    
                    
                    
                    (3,808
                    )NET
      LOSS
                    
                    $
                    (7,762
                    )
                    
                    $
                    (3,188
                    )
                    
                    $
                    (53,563
                    )
                    
                    $
                    (26,546
                    )
                    
                    $
                    (686,621
                    )NET
      LOSS PER SHARE, BASIC AND DILUTED
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND
    DILUTED
                    
                    
                    11,218,457
                    
                    
                    
                    11,218,457
                    
                    
                    
                    11,218,457
                    
                    
                    
                    11,218,457





The
accompanying notes are an integral part of these unaudited 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
      31,2009
                    
                    
                    2008
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                    
                    $
                    (53,563
                    )
                    
                    $
                    (26,546
                    )
                    
                    $
                    (686,621
                    )Adjustments
      to reconcile net loss to net cash  used in operating
      activities:Increase
      (decrease) in:Accounts
      payable
                    
                    
                    (30,734
                    )
                    
                    
                    4,188
                    
                    
                    
                    16,413Accrued
      interest
                    
                    
                    4,285
                    
                    
                    
                    -
                    
                    
                    
                    2,621Stock
      issued for compensation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    327,500Stock
      issued for reimbursement of expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,923Net
      cash used in operating activities
                    
                    
                    (80,012
                    )
                    
                    
                    (22,358
                    )
                    
                    
                    (314,164
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from shareholder loans
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    21,560Repayment
      of shareholder loans
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (21,560
                    )Proceeds
      from convertible note
                    
                    
                    80,000
                    
                    
                    
                    -
                    
                    
                    
                    80,000Proceeds
      from issuance of common stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    232,500Net
      cash provided by financing activities
                    
                    
                    80,000
                    
                    
                    
                    -
                    
                    
                    
                    312,500NET
      DECREASE IN CASH
                    
                    
                    (12
                    )
                    
                    
                    (22,358
                    )
                    
                    
                    (1,664
                    )CASH,
      BEGINNING OF PERIOD
                    
                    
                    12
                    
                    
                    
                    22,372
                    
                    
                    
                    -CASH,
      END OF PERIOD
                    
                    $
                    -
                    
                    
                    $
                    14
                    
                    
                    $
                    (1,664
                    )SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,653Income
      taxes paid
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -





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


6


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(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
Company.




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, 2009. 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, 2009 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2010.




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.


7


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(Unaudited)




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Development Stage
Activities





The
Company has been in the development stage since its formation and has not
realized any revenue from operations.The Company is a shell
corporation which has yet to engage in its intended business of offering
commercial upholstery, drapery, bedspread, panel and wall covering
fabrics.




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 $53,563 for the nine months ended December 31,
2009. In addition, the Company had an accumulated deficit of $686,621 as of
December 31, 2009. 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 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
$60,000.




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.


8


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(Unaudited)




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




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.





The
accompanying financial statements have been prepared, in accordance with
accounting principles generally accepted in the United States (“U.S. GAAP”) and
pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”).




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 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, 2009 and March 31, 2009.


9


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(Unaudited)




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




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. 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 to allow recognition of such
an asset.





Basic and Diluted Earnings
(Loss) 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.


10


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(Unaudited)




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Recently Issued Accounting
Pronouncements





In May
2009, the FASB issued FASB ASC 855. FASB ASC 855 incorporates accounting and
disclosure requirements related to subsequent events into U.S. GAAP. The
requirements of FASB ASC 855 for subsequent-events accounting and disclosure are
not significantly different from those in existing auditing standards, which we
have historically followed for financial reporting purposes, as a result, we do
not believe this standard had any material impact on our financial statements.
We have evaluated subsequent events through the date of issuance of these
consolidated financial statements, which is January 8, 2010.





In July
2009, the Financial Accounting Standards Board (“FASB”) issued new guidance
relating to the “FASB Accounting Standards Codification” at FASB ASC 105, as the
single source of authoritative nongovernmental U.S. generally accepted
accounting principles (GAAP). The codification is effective for interim periods
ending after September 15, 2009. All existing accounting standards are
superseded as described in FASB ASC 105. All other accounting literature not
included in the Codification is non-authoritative. The adoption of FASB ASC 105
did not impact our results of operations, financial position or cash
flows.





In
October, 2009, FASB issued ASC 470 that requires the proceeds from the issuance
of certain convertible debt instruments to be allocated between a liability
component (issued at a discount) and an equity component. The resulting debt
discount is amortized over the period the convertible debt is expected to be
outstanding as additional non-cash interest expense. The change in accounting
treatment is effective for us in fiscal 2010, and it is required to be
applied retrospectively to prior periods.





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.


11


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(Unaudited)





NOTE
3 – CONVERTIBLE DEBT




On May 8,
2009, the Company issued a convertible promissory note in the principal amount
of $80,000. This note is payable on November 8, 2010 and bears an interest rate
of 8.25% per annum payable at the end of the term. The terms of conversion have
not been determined as of the date of the filing of the 10 Q for the period
ended December 31, 2009.




NOTE 4 - 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 shares
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;


12




DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(Unaudited)





NOTE
4 - COMMON STOCK (continued)




During
the year ended March 31, 2009, the Company had not issued any additional shares
of common stock.




During
the nine months ended December 31, 2009, the Company had not issued any
additional shares of common stock.





NOTE
5 - RELATED PARTY DEBT AND TRANSACTIONS




In 2004
and 2005, Company directors loaned the Company a total of $21,560. The
underlying notes were unsecured with interest at 5%, and a scheduled maturity of
October 2007 for all principal and accrued interest. There were no monthly note
payments due during the term of the loans. All shareholder loans and accrued
interest had been repaid by fiscal 2007.




NOTE
6 - INCOME TAXES




At
December 31, 2009 and March 31, 2009, he Company had calculated deferred tax
assets of approximately $278,000 and $256,000, 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, 2009 and March
31, 2009 were as follows:


13


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the nine months ended December 31, 2009


(Unaudited)




NOTE
6 - INCOME TAXES (continued)




December 31, 2009
                      
                      
                      March 31, 2009Net
      operating loss carryforward:
                      
                      $
                      278,000
                      
                      
                      $
                      256,000Valuation
      allowance:
                      
                      $
                      (278,000
                      )
                      
                      $
                      (256,000
                      )Net
      deferred tax asset:
                      
                      $
                      -
                      
                      
                      $
                      -




At
December 31, 2009 and March 31, 2009, the Company has net operating loss
carryforwards of approximately $688,000 and $633,000, respectively, which expire
in the year 2029. The change in the allowance account from March 31, 2009 to
December 31, 2009 was approximately $22,000.




NOTE
7 - SUBSEQUENT EVENTS




As of
February 3, 2010 there were no subsequent events.




14


ITEM 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS





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, 2009, we had no operating
revenues and incurred a net loss of $686,621.  For the three and nine
months ended December 31, 2009 we incurred net losses of $7,762 and $53,563,
respectively, which consisted principally of professional fees.  For
the three and nine months ended December 31, 2008, we incurred net losses of
$3,188 and $26,546, respectively, which consisted principally of professional
fees and general and administrative expenses primarily incurred in connection
with the preparation and filing of our ongoing SEC filing
requirements.


15


Liquidity
and Capital Resources





Our cash
at December 31, 2009 and March 31, 2009, was $0 and $12,
respectively.  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, 2009 and
December 31, 2008, was $80,012 and $22,358, respectively.  Net cash
used in operating activities from inception through December 31, 2009, was
$314,164. Net cash provided by financing activities from inception through
December 31, 2009, was $312,500.  We had $80,000 of financing activity
in the nine months ended December 31, 2009 and 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





The
Company utilizes the guidance per FASB Codification “ASC 260 "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 net income per share is computed by dividing net
income for the period by the weighted-average number of common share equivalents
during the period.





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


16





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.





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.





E.
Income Taxes





Income
taxes are accounted for in accordance with the provisions of FASB ASC-740-Income
Taxes.  ASC-740 requires the recognition of deferred tax assets and
liabilities to reflect the future tax consequences of events that have been
recognized in the Company’s financial statements or tax returns. Measurement of
the deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and tax bases of
the Company’s assets and liabilities result in a deferred tax asset, ASC-740
requires an evaluation of the probability of being able to realize the future
benefits indicated by such assets. A valuation allowance related to a deferred
tax asset is recorded when it is more likely than not that some or the entire
deferred tax asset will not be realized.





For
federal income tax purposes, substantially all expenses must be deferred until
the Company commences business and then they may be written off over a 60-month
period.  These expenses will not be deducted for tax purposes and will
represent a deferred tax asset.  The Company will provide a valuation
allowance in the full amount of the deferred tax asset since there is no
assurance of future taxable income.  Tax deductible losses can be
carried forward under current applicable law for 20 years until
utilized.





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
Applicable.


17


ITEM 4T.
            CONTROLS
      AND PROCEDURES





Evaluation
of Our Disclosure 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,
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.





Limitations
on Effectiveness of Controls and Procedures





Our
management, including Peter Reichard, our Chief Executive and Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include, but are not limited to, the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.





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, 2009 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.


18


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,
2009.





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





In
reviewing the agreements included as exhibits to this Form 10-Q, please remember
that they are included to provide you with information regarding their terms and
are not intended to provide any other factual or disclosure information about
the Company or the other parties to the agreements. The agreements may contain
representations and warranties by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the
benefit of the parties to the applicable agreement and:





•
            should
      not in all instances be treated as categorical statements of fact, but
      rather as a way of allocating the risk to one of the parties if those
      statements prove to be inaccurate;





•
            have
      been qualified by disclosures that were made to the other party in
      connection with the negotiation of the applicable agreement, which
      disclosures are not necessarily reflected in the
  agreement;





•
            may
      apply standards of materiality in a way that is different from what may be
      viewed as material to you or other investors;
  and


19


•
            were
      made only as of the date of the applicable agreement or such other date or
      dates as may be specified in the agreement and are subject to more recent
      developments.





Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Form 10-Q and the
Company’s other public filings, which are available without charge through the
SEC’s website at http://www.sec.gov.





The
following exhibits are included as part of this report:





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 Chief Executive and Financial
  Officer




20


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
      3, 2010
                Design
      Source, Inc.By:
                /s/
      Peter ReichardPeter
      Reichard, President, Principal Executive
                  Officer,
      Treasurer, Principal Financial Officer, and
                  Principal
      Accounting Officer


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