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 June 30,
2009




or




o
              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 xNo  ̈





As of
July 24, 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 JUNE 30, 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
                13Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                15Item
      4T.
                Controls
      and Procedures
                15PART
      II - OTHER INFORMATION
                16Item
      1.
                Legal
      Proceedings
                16Item
      1A.
                Risk
      Factors
                16Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                16Item
      3.
                Defaults
      Upon Senior Securities
                17Item
      4.
                Submission
      of Matter to a Vote of Security Holders
                17Item
      5.
                Other
      Information
                17Item
      6.
                Exhibits
                17SIGNATURES
                19


2


PART
I – FINANCIAL INFORMATION




ITEM
      1.
            FINANCIAL
      STATEMENTS





PAGEBalance
      Sheets as of June 30, 2009 (Unaudited) and March 31, 2009
      (Audited)
                4Statements
      of Operations for the three months ended June 30, 2009 and 2008
      (Unaudited) and for the period from April 2, 2003 (Inception) through June
      30, 2009 (Unaudited)
                5Statements
      of Cash Flows for the three months ended June 30, 2009 and 2008
      (Unaudited) and for the period from April 2, 2003 (Inception) through June
      30, 2009 (Unaudited)
                6Notes
      to Financial Statements (Unaudited)
                7


3


DESIGN
SOURCE, INC.


(A
Development Stage Company)


BALANCE
SHEETS





June 30,
                  
                  
                  March 31,2009
                  
                  
                  2009(Unaudited)
                  
                  
                  (Audited)ASSETSCURRENT
      ASSETSCash
                  
                  $
                  10,081
                  
                  
                  $
                  12TOTAL
      ASSETS
                  
                  $
                  10,081
                  
                  
                  $
                  12LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable
                  
                  $
                  11,734
                  
                  
                  $
                  47,147TOTAL
      CURRENT LIABILITIES
                  
                  
                  11,734
                  
                  
                  
                  47,147Convertible
      debt (including accrued interest)
                  
                  
                  80,958
                  
                  
                  
                  -TOTAL
      LIABILITIES
                  
                  
                  92,692
                  
                  
                  
                  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
                  
                  
                  (668,534
                  )
                  
                  
                  (633,058
                  )TOTAL
      STOCKHOLDERS' DEFICIT
                  
                  
                  (82,611
                  )
                  
                  
                  (47,135
                  )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                  
                  $
                  10,081
                  
                  
                  $
                  12





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
                        
                        
                        throughJune 30,
                        
                        
                        June 30,
                        
                        
                        June 30,2009
                        
                        
                        2008
                        
                        
                        2009(Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)REVENUES
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -EXPENSESGeneral
      and administrative
                        
                        
                        426
                        
                        
                        
                        1,353
                        
                        
                        
                        64,739Professional
      fees
                        
                        
                        34,094
                        
                        
                        
                        18,659
                        
                        
                        
                        245,623Taxes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,036Management
      fees
                        
                        
                        -
                        
                        
                        
                        236
                        
                        
                        
                        29,155Stock
      based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        327,500Total
      Expenses
                        
                        
                        34,520
                        
                        
                        
                        20,248
                        
                        
                        
                        668,053LOSS
      FROM OPERATIONS
                        
                        
                        (34,520
                        )
                        
                        
                        (20,248
                        )
                        
                        
                        (668,053
                        )OTHER
      INCOME (EXPENSE)Interest
      income
                        
                        
                        2
                        
                        
                        
                        -
                        
                        
                        
                        2,130Interest
      expense
                        
                        
                        (958
                        )
                        
                        
                        -
                        
                        
                        
                        (2,611
                        )Total
      Other Income (Expense)
                        
                        
                        (956
                        )
                        
                        
                        -
                        
                        
                        
                        (481
                        )NET
      LOSS
                        
                        $
                        (35,476
                        )
                        
                        $
                        (20,248
                        )
                        
                        $
                        (668,534
                        )NET
      LOSS PER SHARE, BASIC AND DILUTED
                        
                        $
                        (0.00
                        )
                        
                        $
                        (0.00
                        )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND
    DILUTED
                        
                        
                        11,218,457
                        
                        
                        
                        11,218,457





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)Three Months Ended
                                  
                                  
                                  throughJune 30,
                                  
                                  
                                  June 30,
                                  
                                  
                                  June 30,2009
                                  
                                  
                                  2008
                                  
                                  
                                  2009(Unaudited)
                                  
                                  
                                  (Unaudited)
                                  
                                  
                                  (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                  
                                  $
                                  (35,476
                                  )
                                  
                                  $
                                  (20,248
                                  )
                                  
                                  $
                                  (668,534
                                  )Adjustments
      to reconcile net loss to net cash used in opearating
      activities:Increase
      (decrease) in:Accounts
      payable
                                  
                                  
                                  (35,413
                                  )
                                  
                                  
                                  3,415
                                  
                                  
                                  
                                  11,734Accrued
      interest
                                  
                                  
                                  958
                                  
                                  
                                  
                                  -
                                  
                                  
                                  958Stock
      issued for compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  327,500Stock
      issued for reimbursement of expenses
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  25,923Net
      cash used in operating activities
                                  
                                  
                                  (69,931
                                  )
                                  
                                  
                                  (16,833
                                  )
                                  
                                  (302,419
                                  )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
      INCREASE (DECREASE) IN CASH
                                  
                                  
                                  10,069
                                  
                                  
                                  
                                  (16,833
                                  )
                                  
                                  10,081CASH,
      BEGINNING OF PERIOD
                                  
                                  
                                  12
                                  
                                  
                                  
                                  22,372
                                  
                                  
                                  
                                  -CASH,
      END OF PERIOD
                                  
                                  $
                                  10,081
                                  
                                  
                                  $
                                  5,539
                                  
                                  
                                  $
                                  10,081SUPPLEMENTAL
      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 Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the three months ended June 30, 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 three-month
period ending June 30, 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 three months ended June 30, 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 $35,476 for the three months ended June 30, 2009.
In addition, the Company had an accumulated deficit of $668,534 as of June 30,
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 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 $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 three months ended June 30, 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 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 June 30, 2009 and March 31,
2009.





9


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the three months ended June 30, 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 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.





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.


10




DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the three months ended June 30, 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 this
filing.





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


11


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


As
of and for the three months ended June 30, 2009


(Unaudited)




NOTE
4 - COMMON STOCK (continued)





During
the three months ended June 30, 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 June
30, 2009 and March 31, 2009, he Company had calculated deferred tax assets of
approximately $271,000 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 June 30, 2009 and March 31,
2009 were as follows:





June 30, 2009
                                  
                                  
                                  March 31, 2009Net
      operating loss carryforward
                                  
                                  $
                                  271,000
                                  
                                  
                                  $
                                  256,000Valuation
      allowance
                                  
                                  
                                  (271,000
                                  )
                                  
                                  
                                  (256,000
                                  )Net
      deferred tax asset
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -





At June
30, 2009 and March 31, 2009, the Company has net operating loss carryforwards of
approximately $668,000 and $633,000, respectively, which expire in the year
2029. The change in the allowance account from March 31, 2009 to June 30, 2009
was approximately $15,000.


12


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 June 30, 2009, we had no operating
revenues and incurred net operating losses of $668,053. For the three months
ended June 30, 2009 and June 30, 2008, we incurred net operating losses of
$34,520 and $20,248, 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.




13





Liquidity
and Capital Resources





Our cash
at June 30, 2009 and March 31, 2009, was $10,081 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 three months ended June 30, 2009 and June
30, 2008, was $69,931 and $16,833, respectively.  Net cash used in
operating activities from inception through June 30, 2009, was $302,419. Net
cash provided by financing activities from inception through June 30, 2009, was
$312,500.  We had $80,000 of financing activity in the three months
ended June 30, 2009 and no financing activity in the three months ended June 30,
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.




14





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. 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





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.




15





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 June 30, 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.





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 June 30,
2009.




16





ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES




None.





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





None.





ITEM
      5.
            OTHER
      INFORMATION





On May 8,
2009 we received an $80,000 loan from one person and in connection therewith
issued an 8.25%, $80,000 convertible promissory note dated May 8,
2009.  Subject to prior conversion, interest and principal are due on
the Note on November 8, 2010.  The terms of conversion have not been
determined but will be mutually determined by us and the holder.





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





•
            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.




17





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


18


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:  July
      24, 2009
                Design
      Source, Inc.By:
                /s/ Peter ReichardPeter
      Reichard, President, Principal Executive
                  Officer,
      Treasurer, Principal Financial Officer, and
                  Principal
      Accounting Officer