U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-K


(Mark
One)


x
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
Fiscal Year Ended: March 31, 2010


OR


o
            TRANSITION
      REPORT UNDER 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 registrant as specified in its charter)





Nevada
              
              36-4528166(State or other jurisdiction of
                incorporationor organization)
              
              (IRS Employer Identification
                No.)





100 Europa Drive, Suite 455, Chapel Hill, NC
              
              27517(Address of principal executive offices)
              
              (Postal Code)




Issuer's
telephone number:  919.933.2720
  Securities
registered under Section 12(b) of the Act:  None
  Securities
registered under Section 12(g) of the Act:  Common Stock, par value $0.00001 per
share
  Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.  Yes oNo x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes oNo x
  Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes xNo o
  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 oNo o
  Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB.  o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company.  See the
definitions of the “large accelerated filer,” “accelerate filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.   (Check
one):
  Large Accelerated Filer o
                Accelerated Filer oNon-Accelerated Filer o
                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 o
  As of
September 30, 2009, there were 11,218,457 shares of the registrant's common
stock, par value $0.00001, issued and outstanding.  Of these,
4,150,000 shares were held by non-affiliates of the registrant.  The
market value of securities held by non-affiliates was approximately $415,000
based on the closing bid price of $0.10 for the registrant’s common stock on
September 30, 2009.
  As of
June 15, 2010, there were 11,218,457 shares of the registrant's common stock,
par value $0.00001, issued and outstanding.
  DOCUMENTS
INCORPORATED BY REFERENCE
 If the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated:  (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933,
as amended (“Securities Act”).
  Not
Applicable.





TABLE
OF CONTENTS


Item Number and Caption
                                                
                                                PageFORWARD-LOOKING
      STATEMENTS
                                                
                                                3PART
      I
                                                
                                                
                                                
                                                4ITEM
      1.
                                                
                                                BUSINESS
                                                
                                                4ITEM
      1A.
                                                
                                                RISK
      FACTORS
                                                
                                                5ITEM
      1B.
                                                
                                                UNRESOLVED
      STAFF COMMENTS
                                                
                                                5ITEM
      2.
                                                
                                                PROPERTIES
                                                
                                                5ITEM
      3.
                                                
                                                LEGAL
      PROCEEDINGS
                                                
                                                5ITEM
      4.
                                                
                                                (REMOVED
      AND RESERVED)
                                                
                                                5PART
      II
                                                
                                                
                                                
                                                5ITEM
      5.
                                                
                                                MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER
      MATTERS AND ISSUER PURCHASES OFEQUITY
      SECURITIES
                                                
                                                5ITEM
      6.
                                                
                                                SELECTED
      FINANCIAL DATA
                                                
                                                6ITEM
      7.
                                                
                                                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
      AND RESULTS OF OPERATIONS
                                                
                                                6ITEM
      7A.
                                                
                                                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                                
                                                8ITEM
      8.
                                                
                                                FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                                
                                                8ITEM
      9.
                                                
                                                CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING
      AND FINANCIAL DISCLOSURE
                                                
                                                8ITEM 9A.[T]
                                                
                                                CONTROLS
      AND PROCEDURES
                                                
                                                8ITEM
      9B.
                                                
                                                OTHER
      INFORMATION
                                                
                                                9PART
      III
                                                
                                                
                                                
                                                9ITEM
      10.
                                                
                                                DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
                                                
                                                9ITEM
      11.
                                                
                                                EXECUTIVE
      COMPENSATION
                                                
                                                12ITEM
      12.
                                                
                                                SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
      AND RELATED STOCKHOLDER MATTERS
                                                
                                                13ITEM
      13.
                                                
                                                CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, ANDDIRECTOR
      INDEPENDENCE
                                                
                                                14ITEM
      14.
                                                
                                                PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                                
                                                14PART
      IV
                                                
                                                
                                                
                                                15ITEM
      15.
                                                
                                                EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                                
                                                15


2


FORWARD-LOOKING
STATEMENTS




Except
for historical information, this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934.  Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses.  Such forward-looking statements include, among
others, those statements including the words “expects,” “anticipates,”
“intends,” “believes” and similar language.  Our actual results may
differ significantly from those projected in the forward-looking
statements.  You should carefully review the risks described in this
Annual Report and in other documents we file from time to time with the
Securities and Exchange Commission.  You are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date of this report.  We undertake no obligation to publicly release
any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document.




Although
we believe that the expectations reflected in these forward-looking statements
are based on reasonable assumptions, there are a number of risks and
uncertainties that could cause actual results to differ materially from such
forward-looking statements.




Factors
that might cause or contribute to such differences include, but are not limited
to, those discussed in the sections “Business,” “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”




All
references in this Form 10-K to the “Company,” “Design Source,” “we,” “us” or
“our” are to Design Source, Inc.


3


PART
I




ITEM
      1.
            BUSINESS




General




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
subsequently determined that we could not continue with our intended business
operations because of a lack of financial results and
resources.  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 you that there will be any other business opportunities available, or of
the nature of any business opportunity that we may find, or of the financial
resources required of any possible business opportunity.




We have
minimal operating costs and expenses at the present time due to our limited
business activities. We have no employees other than our two executive
officers.  We may need 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 sales of our equity securities or loans from our
directors. There is no assurance that additional financing will be available, if
required, or on terms favorable to us.




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




Loans




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.




On May
10, 2010 we received a $75,000 loan from one person and in connection therewith
issued a 10%, $75,000 convertible note dated May 10, 2010 (the “Note”). Subject
to prepayment, interest and principal are due on the Note on November 9, 2011.
At all times while the Note is outstanding, the Note is convertible into shares
of our common stock at the rate of $0.10 per share, subject to adjustment for
stock splits, business combinations, mergers, reclassifications, sales of assets
and similar transactions (the “Fixed Conversion Price”). Further, if at any time
while the Note is outstanding we issue shares of our common stock at a price
below the then Fixed Conversion Price, the Fixed Conversion Price shall be
reduced to such lower issue price.


4


Reports
to Security Holders




We file
annual, quarterly, and current reports and other information with the Securities
and Exchange Commission. You may read and copy any reports, statements or other
information that we file with the Commission at the Commission's public
reference room at 100 F Street, N.E., Washington, D.C. 20549.  Please
call the Commission at (202) 551-8090 for further information on the public
reference room. These Commission filings are also available to the public from
commercial document retrieval services and at the Internet site maintained by
the Commission at http://www.sec.gov.




ITEM
      1A.
            RISK
      FACTORS




Not
Applicable.




ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS




Not
Applicable.




ITEM
      2.
            PROPERTIES




We do not
own any property. We maintain our statutory registered agent's office at 101
Convention Center Drive, Suite 700, Las Vegas, Nevada 89109 and our business
office, consisting of approximately 200 square feet of space, is located at 100
Europa Drive, Suite 455, Chapel Hill, North Carolina 27517. The telephone number
at our business office is (919) 933-2720. This is the office of our President,
Peter Reichard, and the current business office of Tryon Capital Ventures, LLC.
This office is provided to us by Mr. Reichard on a rent free basis.




ITEM
      3.
            LEGAL
      PROCEEDINGS




Legal
Proceedings




From time
to time we may be a defendant and plaintiff in various legal proceedings arising
in the normal course of our business. We are currently not a party to any
material legal proceedings or government actions, including any bankruptcy,
receivership, or similar proceedings. In addition, we are not aware of any known
litigation or liabilities involving the operators of our properties that could
affect our operations. Furthermore, as of the date of this Annual Report, our
management is not aware of any proceedings to which any of our directors,
officers, or affiliates, or any associate of any such director, officer,
affiliate, or security holder is a party adverse to our company or has a
material interest adverse to us.




ITEM 4.
            (Removed
      and Reserved)




PART
II




ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES




Market
Information




“Bid” and
”ask” prices for our common stock have been quoted on the Over-The-Counter
Bulletin Board (the “OTCBB”) under the symbol “DSGS.OB” since November 17, 2006.
Prior to November 17, 2006 our common stock was not quoted.




The
following table sets forth, for the fiscal quarters indicated, the high and low
closing bid prices per share of our common stock on the OTCBB, reported by the
National Association of Securities Dealers Composite Feed or other qualified
interdealer quotation medium.  Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.


5




Quarter Ended
                  
                  High Bid
                  
                  
                  Low BidMarch
      31, 2010
                  
                  $
                  0.10
                  
                  
                  $
                  0.10December
      31, 2009
                  
                  $
                  0.10
                  
                  
                  $
                  0.10September
      30, 2009
                  
                  $
                  0.10
                  
                  
                  $
                  0.10June
      30, 2009
                  
                  $
                  0.10
                  
                  
                  $
                  0.10March
      31, 2009
                  
                  $
                  0.15
                  
                  
                  $
                  0.15December
      31, 2008
                  
                  $
                  0.15
                  
                  
                  $
                  0.15September
      30, 2008
                  
                  $
                  0.15
                  
                  
                  $
                  0.15June
      30, 2008
                  
                  $
                  0.15
                  
                  
                  $
                  0.15




As of
June 1, 2010, we had 16 shareholders of record of our common stock.




Dividends




We have
never declared any cash dividends with respect to our common
stock.  Future payment of dividends is within the discretion of our
Board of Directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors.  Although there are no
material restrictions limiting, or that are likely to limit, our ability to pay
dividends on our common stock, we presently intend to retain future earnings, if
any, for use in our business and have no present intention to pay cash dividends
on our common stock.




Recent
Sales of Unregistered Securities




We issued
no shares of our common stock during the fiscal year ended March 31,
2010.




Purchases
of Equity Securities by the Issuer and Affiliated Purchasers




None




Equity
Compensation Plan Information




We have
not adopted any stock option or other equity compensation plans since our
inception.




ITEM
      6.
            SELECTED
      FINANCIAL DATA




Not
applicable.




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
following discussion should be read in conjunction with our audited consolidated
financial statements and the accompanying notes included elsewhere in this
Annual Report on Form 10-K.




The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of various factors, including
those discussed elsewhere in this annual report.




Results
of Operations




For the
period from inception (April 2, 2003) to March 31, 2010, we had no revenues and
incurred net operating losses of $689,595.  For the year ended March
31, 2010, we incurred a net operating loss of $56,062, which consisted of
professional fees and general and administrative expenses primarily incurred in
connection with the preparation and filing of our ongoing SEC filing
requirements.


6


Liquidity
and Capital Resources




Our cash
at March 31, 2010, was $0.  In order to satisfy our cash requirements
for the next twelve months we will have to raise additional funds. There can be
no assurance that we will be able to do so.




Net cash
used in operating activities during the year ended March 31, 2010, was
$80,012.  Net cash used in operating activities from inception through
March 31, 2010 was $312,500. Net cash provided by financing activities from
inception through March 31, 2010 was $312,500.  We had no financing
activity during the year ended March 31, 2010 other than an $80,000 loan
received from an affiliated person.  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.




Critical
Accounting Policies and Estimates




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 March 31, 2010 and March
31, 2009.





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,
revenues, 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.


7


Off
Balance Sheet Arrangements




None.




Contractual
Obligations




Not
applicable.




ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Not
applicable




ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




Our
consolidated financial statements are included beginning immediately following
the signature page to this report.  See Item 15 for a list of the
financial statements included herein.




ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




Not
applicable.




ITEM
      9A.[T]
            CONTROLS
      AND PROCEDURES




Evaluation
of Our Disclosure Controls




We
maintain disclosure controls and procedures that are designed to provide
reasonable assurance that material information required to be disclosed in our
periodic reports filed under the Securities Exchange Act of 1934, as amended, or
1934 Act, is recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms and to provide reasonable
assurance that such information is accumulated and communicated to our
management, including Peter Reichard, our chief executive and financial officer,
to allow timely decisions regarding required disclosure. As of the end of the
period covered by this Annual Report, we carried out an evaluation, under the
supervision and with the participation of our management, including our
principal executive and financial officer, of the effectiveness of the design
and operation of our disclosure controls and procedures, as defined in Rule
13(a)-15(e) under the 1934 Act. Based on this evaluation, management concluded
that, as of March 31, 2010, our disclosure controls and procedures were
effective at such reasonable assurance level.




Management’s
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
is designed to provide reasonable assurances regarding the reliability of
financial reporting and the preparation of our financial statements in
accordance with U.S. generally accepted accounting principles, or GAAP. Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree or compliance
with the policies or procedures may deteriorate.




With the
participation of Peter Reichard, our Chief Executive and Financial Officer, our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting as of March 31, 2010 based on the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO"). Based upon our assessment and the COSO
criteria, management concluded that our internal control over financial
reporting was effective as of March 31, 2010.


8




This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report on Form 10-K.


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 Controls




During
the fiscal quarter ended March 31, 2010, there have been no changes in our
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect our internal controls over financial
reporting.




ITEM
      9B.
            OTHER
      INFORMATION




Not
applicable.




PART
III




ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE




Executive
Officers, Directors and Key Employees




Directors
serve until the next annual meeting of the stockholders; until their successors
are elected or appointed and qualified, or until their prior resignation or
removal.  Officers serve for such terms as determined by our board of
directors.  Each officer holds office until such officer’s successor
is elected or appointed and qualified or until such officer’s earlier
resignation or removal.  No family relationships exist between any of
our present directors and officers.




The
following table sets forth certain information, as of March 31, 2010, with
respect to our directors and executive officers.


9




Name
              
              Positions Held
              
              Age
              
              Date of Election or
                Appointment as
                DirectorPeter
      A. Reichard
              
              President,
      Treasurer, Chief Executive Officer, Chief Financial Officer, and
      Director
              
              54
              
              September
      2003Peter
      L. Coker
              
              Secretary
      and Director
              
              68
              
              September
      2003




Certain
biographical information of our directors and officers is set forth
below.




Peter A.
Reichard has served as our President, Treasurer, and member of our board of
directors since September 2003. Mr. Reichard is a partner of Tryon Capital
Ventures, LLC, which is engaged in the business of assisting and promoting
start-up companies. He has been with the firm since March 2003. From February
2003 to December 2003, Mr. Reichard was a partner in Tryon Capital, a
partnership which was engaged in the business of assisting and promoting
start-up companies. Tryon Capital was a boutique merchant banking firm located
in the Research Triangle Park in North Carolina. It was designed to reenergize
and stimulate struggling early-state and middle market companies by combining
analyses, strategy, people and money. Tryon Capital is no longer in business.
Accordingly, there is no affiliation between Tryon Capital and Tryon Capital
Ventures LLC. During the months from December 2002 through March 2003, Mr.
Reichard was involved with establishing the Sandpiper Fund, an early stage
venture fund in eastern North Carolina. From October 2001 through December 2002,
Mr. Reichard was the Finance Director for the Erskine Bowles for U.S. Senate
campaign. He served as the Finance Director for the Mike Easley for Governor
campaign from January 1999 through October 2001. From January 1985 through
December 1998, Mr. Reichard was employed by the Greensboro Area Chamber of
Commerce. He began as Manager of Membership/Government Affairs, and then after
three years became Vice President and four years later, President, a position he
held for six years. Mr. Reichard holds a Bachelor of Arts degree in political
science from Guilford College (1980).




Peter L.
Coker has served as our Secretary and member of our board of directors since
September 2003. Mr. Coker is a partner of Tryon Capital Ventures, LLC, is
engaged in the business of assisting and promoting start-up companies. He has
been with the firm since January 2004. From June 2001 to December 2003, Mr.
Coker was a partner in Tryon Capital, a partnership which was engaged in the
business of assisting and promoting start-up companies. Tryon Capital was a
boutique merchant banking firm located in the Research Triangle Park in North
Carolina. It was designed to reenergize and stimulate struggling early-state and
middle market companies by combining analyses, strategy, people and money. Tryon
Capital is no longer in business. Accordingly, there is no affiliation between
Tryon Capital and Tryon Capital Ventures LLC. Mr. Coker currently sits on the
Board of Directors of The North Carolina State University Investment Fund (as
Chairman of the Board). From January 2003 until September 2008 he sat on the
Board of Directors of eTrials Worldwide, Inc. From February 2004 to November
2004, Mr. Coker was chairman of the board of directors of Beijing Med-Pharm
Corporation. Prior to his work at Tryon Capital Ventures, he was a managing
director of Tryon Capital Holdings, LLC, which is also an investment banking
firm from June 2001 through December 2003. As Senior Managing Director for
Capital Investment Partners, LLC, from June 1996 through May 2001, Mr. Coker
worked with small companies primarily in North Carolina that needed financing.
He would perform due diligence on them, help structure the new financing and
search for interested investors. Mr. Coker has a Bachelor of Arts degree in
Economics from North Carolina State University (1966) and a Master of Arts
degree in Economics from North Carolina (1968).


10


Employment
Agreements




We do not
have employment agreements with our executive officers or any other
person.  We do not contemplate entering into any employment agreements
until such time as we commence material operations.  Our executive
officers are not presently compensated for serving as such.




Term
of Office




Our
directors are appointed for a period of one year or until such time as their
replacements have been elected by our shareholders.  The officers of
the Company are appointed by our board of directors and hold office until their
resignation or removal.




Board
Committees




We have
no board committees other than an audit committee and a disclosure
committee.  However, since we have only two directors, neither of
which is independent, our entire board serves as the audit committee and
disclosure committee.  We do not have an audit committee financial
expert, or any person performing a similar function.  We currently
have no operating revenues.  Management does not believe that it would
be in our best interests at this time to retain independent directors to sit on
an audit committee or any other committee. If we are able to grow our business
and increase our operations in the future, then we will likely seek out and
retain independent directors, change the members of the audit and disclosure
committees and form other committees.  Further, we do not have a
policy with regard to the consideration of any director candidates recommended
by security holders.




Board
of Directors and Board Compensation




Our
directors do not receive any compensation for serving as such.




Corporate
Governance




Leadership
Structure




Our Board
has 2 members as follows: Mr. Peter A. Reichard and Mr. Peter L. Coker. We have
not designated a chairman and each of our directors assumes equal leadership
roles.




We are a
small, development stage company which has yet to achieve operating revenues.
Our two directors, Mr. Reichard and Mr. Coker, also serve as our executive
officers.  Our board members have complementary skills, enabling us to
operate in a cost and time effective manner.  We believe that our
present management structure is appropriate for a company of our size and state
of development.




Our board
is actively involved in our risk oversight function and collectively undertakes
our risk oversight function. This review of our risk tolerances includes, but is
not limited to, financial, legal and operational risks and other risks
concerning our reputation and ethical standards.




Given our
size, we do not have a nominating committee or a diversity policy. Our entire
board monitors and assesses the need for and qualifications of additional
directors.  We may adopt a diversity policy in the future in
connection with our anticipated growth.


11


Compliance
with Section 16(a) of the Exchange Act




Section
16(a) of the Exchange Act requires our directors, officers and persons who own
more than 10% of a registered class of our equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Directors, officers and greater than 10% stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon our review of the copies of such forms that we received during
the fiscal year ended March 31, 2010, we believe that each person who at any
time during the fiscal year was a director, officer or beneficial owner of more
than 10% of our Common Stock complied with all Section 16(a) filing requirements
during such fiscal year.




Code
of Ethics




We have
adopted a Code of Ethics that applies to our executive officers and other
employees.  A copy of our Code of Ethics will be provided to any
person requesting same without charge.  To request a copy of our Code
of Ethics, please make written request to our President c/o Design Source, Inc.,
100 Europa Drive, Suite 455, Chapel Hill, NC 27517.




ITEM
      11.
            EXECUTIVE
      COMPENSATION




The
following table sets forth information concerning the total compensation paid or
accrued by us during the three fiscal years ended March 31, 2010, 2009 and 2008
to (i) all individuals that served as our principal executive officer or acted
in a similar capacity for us at any time during the fiscal year ended March 31,
2010; (ii) all individuals that served as our principal financial officer or
acted in a similar capacity for us at any time during the fiscal year ended
March 31, 2010; and (iii) all individuals that served as executive officers of
ours at any time during the fiscal year ended March 31, 2010 that received
annual compensation during the fiscal year ended March 31, 2010 in excess of
$100,000.




Summary
Compensation Table




Name and
                                    Principal
                                    Position
                                  
                                  Year
                                  
                                  Salary
                                    ($)
                                  
                                  
                                  Bonus
                                    ($)
                                  
                                  
                                  Stock
                                    Awards
                                    ($)
                                  
                                  
                                  Option
                                    Awards
                                    ($)
                                  
                                  
                                  Grant
                                    Date
                                    Fair
                                    Value
                                    of
                                    Stock
                                    and
                                    Stock
                                    Option
                                    Awards
                                    ($)
                                  
                                  
                                  Non-
                                    Equity
                                    Incentive
                                    Plan
                                    Compen-sation ($)
                                  
                                  
                                  Change in
                                    Pension
                                    Value
                                    and
                                    Non-
                                    qualified
                                    Deferred
                                    Compen-sation
                                    Earnings
                                    ($)
                                  
                                  
                                  All
                                    Other
                                    Compen-sation ($)
                                  
                                  
                                  Total
                                    ($)Peter
      A.
                                  
                                  2010
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Reichard,
                                  
                                  2009
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Principal
                                  
                                  2008
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0Executive
      and Financial Officer




We have
not issued any stock options or maintained any stock option or other equity
incentive plans since our inception.  We have no plans in place and
have never maintained any plans that provide for the payment of retirement
benefits or benefits that will be paid primarily following retirement including,
but not limited to, tax qualified deferred benefit plans, supplemental executive
retirement plans, tax-qualified deferred contribution plans and nonqualified
deferred contribution plans. Similarly, we have no contracts, agreements, plans
or arrangements, whether written or unwritten, that provide for payments to the
named executive officers or any other persons following, or in connection with
the resignation, retirement or other termination of a named executive officer,
or a change in control of us or a change in a named executive officer’s
responsibilities following a change in control.


12


ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of March 31, 2010 by:




·
            each
      person or entity known by us to be the beneficial owner of more than 5% of
      our common stock;




·
            each
      of our directors;




·
            each
      of our executive officers; and




·
            all
      of our directors and executive officers as a
  group.




The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on such date and all shares of our common stock issuable to such holder in the
event of exercise of outstanding options, warrants, rights or conversion
privileges owned by such person at said date which are exercisable within 60
days of March 31, 2010. Except as otherwise indicated, the persons listed below
have sole voting and investment power with respect to all shares of our common
stock owned by them, except to the extent such power may be shared with a
spouse.




Name and Address of
                                                    Beneficial Owner
                                                  
                                                  Title of Class
                                                  
                                                  Amount and Nature
                                                    of Beneficial
                                                    Ownership(1)
                                                  
                                                  Percentage of
                                                    Class(2)Peter
      A. Reichard
                                                    2211
      Wright Avenue
                                                    Greensboro,
      NC 27403
                                                  
                                                  Common
      Stock, $0.001 par value
                                                  
                                                  3,275,000
      shares,
                                                    direct
                                                  
                                                  
                                                  29.19
                                                  %Peter
      L. Coker
                                                    12804
      Morehead
                                                    Chapel
      Hill, NC 27517
                                                  
                                                  Common
      Stock, $0.001 par value
                                                  
                                                  3,793,457
      shares(3),
                                                    3,275,000
      direct,
                                                    518,457
      indirect
                                                  
                                                  
                                                  33.81
                                                  %All
      officers and directors as a group (2 persons)
                                                  
                                                  Common
      Stock, $0.001 par value
                                                  
                                                  7,068,457
      shares
                                                  
                                                  
                                                  63.01
                                                  %




(1)
            As
      used herein, the term beneficial ownership with respect to a security is
      defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
      consisting of sole or shared voting power (including the power to vote or
      direct the vote) and/or sole or shared investment power (including the
      power to dispose or direct the disposition of) with respect to the
      security through any contract, arrangement, understanding, relationship or
      otherwise, including a right to acquire such power(s) during the next 60
      days.  Unless otherwise noted, beneficial ownership consists of
      sole ownership, voting and investment
rights.




(2)
            There
      were 11,218,457 shares of common stock issued and outstanding on March 31,
      2010.


13


(3)
            Includes
      518,457 shares owned by Tryon Capital which are beneficially owned by Mr.
      Coker.




Securities
Authorized for Issuance Under Equity Compensation Plans




We have
not adopted any Equity Compensation Plans since our inception.




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE




There are
no reportable transactions involving our officers, directors and principal
shareholders




Director
Independence




Neither
of our two present directors are “independent” as that term is defined by the
National Association of Securities Dealers Automated Quotations (“NASDAQ”) as
they both serve as executive officers of ours.




ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




Audit
Fees.




The
aggregate fees billed to us by our principal accountant for services rendered
during the fiscal years ended March 31, 2010 and 2009 are set forth in the table
below:




Fee Category
                  
                  Fiscal year ended
                    March 31, 2010
                  
                  
                  Fiscal year ended
                    March 31, 2009Audit
      fees (1)
                  
                  $
                  19,500
                  
                  
                  $
                  19,500Audit-related
      fees (2)
                  
                  
                  0
                  
                  
                  
                  0Tax
      fees (3)
                  
                  
                  0
                  
                  
                  
                  0All
      other fees (4)
                  
                  
                  0
                  
                  
                  
                  0Total
      fees
                  
                  $
                  19,500
                  
                  
                  $
                  19,500




(1) Audit
fees consist of fees incurred for professional services rendered for the audit
of consolidated financial statements, for reviews of our interim consolidated
financial statements included in our quarterly reports on Form 10-Q and for
services that are normally provided in connection with statutory or regulatory
filings or engagements.




Audit-related
fees consist of fees billed for professional services that are reasonably
related to the performance of the audit or review of our consolidated financial
statements, but are not reported under “Audit fees.”




Tax fees
consist of fees billed for professional services relating to tax compliance, tax
planning, and tax advice.




All other
fees consist of fees billed for all other services.


14


Audit Committee’s
Pre-Approval Practice.




Prior to
our engagement of our independent auditor, such engagement was approved by our
board of directors. The services provided under this engagement may include
audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. Pursuant our requirements, the independent
auditors and management are required to report to our board of directors at
least quarterly regarding the extent of services provided by the independent
auditors in accordance with this pre-approval, and the fees for the services
performed to date. Our board of directors may also pre-approve particular
services on a case-by-case basis. All audit-related fees, tax fees and other
fees incurred by us for the year ended March 31, 2010, were approved by our
board of directors.




PART
IV




ITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




Financial Statements
                    
                    PageReport
      of Independent Registered Public Accounting Firm
                    
                    F-2Balance
      Sheets as of March 31, 2010 and 2009 (Audited)
                    
                    F-3Statements
      of Operations for the years ended March 31, 2010 and 2009 (Audited)and
      for the period from April 2, 2003 (Inception) to March 31, 2010
      (Unaudited)
                    
                    F-4Statements
      of Stockholders’ Equity (Deficit) for the years ended March 31, 2010and
      2009 (Audited) and for the period from April 2, 2003 (Inception) toMarch
      31, 2010 (Unaudited)
                    
                    F-5Statements
      of Cash Flows for the years ended March 31, 2010 and 2009(Audited)and
      for the period from April 2, 2003 (Inception) to March 31, 2010
      (Unaudited)
                    
                    F-6Notes
      to Financial Statements
                    
                    F-7 - F-10




Financial
Statement Schedules




All
financial statement schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.




Exhibits




In
reviewing the agreements included as exhibits to this Form 10-K, 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;


15


•
            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-K 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.
              
              SEC Report
                Reference
                Number
              
              Description3.1
              
              3.1
              
              Articles
      of Incorporation of Registrant as filed with the Nevada Secretary of State
      on April 2, 2003 (1)3.2
              
              3.2
              
              By-Laws
      of Registrant (1)4.1
              
              4.1
              
              Convertible
      $80,000 Promissory Note of registrant Issued May 8, 2009  (2)4.2
              
              *
              
              10%
      Convertible Promissory Note of registrant Issued May 10,
    201014
              
              14.1
              
              Code
      of Ethics  (3)21
              
              *
              
              List
      of Subsidiaries31.1
      / 31.2
              
              *
              
              Certification
      of Principal Executive and Financial Officer pursuant to Section 302 the
      Sarbanes-Oxley Act of 200232.1
      / 32.2
              
              *
              
              Certification
      of Principal Executive and Financial Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200299.1
              
              99.1
              
              Subscription
      Agreement (1)99.2
              
              99.2
              
              Audit
      Committee Charter (3)99.3
              
              99.3
              
              Disclosure
      Committee Charter (3)




* Filed
herewith.




(1)
            Filed
      with the Securities and Exchange Commission on June 4, 2004 as an exhibit,
      numbered as indicated above, to the Registrant’s registration statement
      (SEC File No. 333-116161) on Form SB-2, which exhibit is incorporated
      herein by reference.


16


(2)
            Filed
      with the Securities andExchange Commission on June 29, 2006
      as an exhibit, numbered as indicated above, to the Registrant’s Form
      10-KSB for the fiscal year ended March 31, 2009 (SEC File No. 333-116161),
      which exhibit is incorporated herein by
  reference.




(3)
            Filed
      with the Securities and Exchange Commission on June 29, 2006 as an
      exhibit, numbered as indicated above, to the Registrant’s Form 10-KSB for
      the fiscal year ended March 31, 2006 (SEC File No. 333-116161), which
      exhibit is incorporated herein by
reference.


17


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.




DESIGN
      SOURCE, INC.Dated:  June
      15, 2010
              By:
              /s/ Peter A. ReichardPeter
      A. Reichard, Chief Executive Officer,Chief
      Financial and Accounting Officer,and
      Director





Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on this 15th day of
June, 2010.




/s/ Peter A. ReichardPeter
      A. Reichard, Chief Executive
                Officer,
      Chief Financial and Accounting
                Officer,
      and Director
              June 15, 2010/s/ Peter L. CokerPeter
      L. Coker, Director
              June 15, 2010


18


FINANCIAL
STATEMENTS





INDEX
TO FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                
                F-2Balance
      Sheets as of March 31, 2010 and 2009 (Audited)
                
                F-3Statements
      of Operations for the years ended March 31, 2010 and 2009 (Audited)and
      for the period from April 2, 2003 (Inception) to March 31, 2010
      (Unaudited)
                
                F-4Statements
      of Stockholders’ Equity (Deficit) for the years ended March 31, 2010and
      2009 (Audited) and for the period from April 2, 2003 (Inception) toMarch
      31, 2010 (Unaudited)
                
                F-5Statements
      of Cash Flows for the years ended March 31, 2010 and 2009(Audited)and
      for the period from April 2, 2003 (Inception) to March 31, 2010
      (Unaudited)
                
                F-6Notes
      to Financial Statements
                
                F-7 - F-10


F-1




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
the Board of Directors and Stockholders of Design Source, Inc. (A Development
Stage Company):
  We have
audited the accompanying balance sheets of Design Source, Inc. (A Development
Stage Company) and as of March 31, 2010 and 2009, and the related statements of
operations, stockholders' deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Design Source, Inc. (A Development
Stage Company) at March 31, 2010 and March 31, 2009, and the results of
operations and cash flows for the year ended March 31, 2010 and March 31, 2009,
in conformity with accounting principles generally accepted in the United States
of America.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has incurred significant losses from
operations.  These issues raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
  /s/Sherb & Co.,
      LLP
                        Certified
      Public
Accountants
  New York,
New York
 June 15,
2010
 
 F-2
  DESIGN SOURCE, INC.
 (A
Development Stage Company)
 BALANCE
SHEETS
 March
      31,
                    
                    
                    March
      31,2010
                    
                    
                    2009ASSETSCURRENT
      ASSETSCash
                    
                    $
                    -
                    
                    
                    $
                    12TOTAL
      ASSETS
                    
                    $
                    -
                    
                    
                    $
                    12LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable
                    
                    $
                    23,195
                    
                    
                    $
                    47,147TOTAL
      CURRENT LIABILITIES
                    
                    
                    23,195
                    
                    
                    
                    47,147Convertible
      debt (including accrued interest)
                    
                    
                    85,912
                    
                    
                    
                    -TOTAL
      LIABILITIES
                    
                    
                    109,107
                    
                    
                    
                    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
                    
                    
                    (695,030
                    )
                    
                    
                    (633,058
                    )TOTAL
      STOCKHOLDERS' DEFICIT
                    
                    
                    (109,107
                    )
                    
                    
                    (47,135
                    )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                    
                    $
                    -
                    
                    
                    $
                    12
 
 The
accompanying notes are an integral part of these
 financial
statements.
  F-3
 
 DESIGN SOURCE, INC.
 (A
Development Stage Company)
 STATEMENTS
OF OPERATIONS
 
 From Inception(April 2, 2003)For The Year Ended
                              
                              
                              throughMarch 31,
                              
                              
                              March 31,
                              
                              
                              March 31,2010
                              
                              
                              2009
                              
                              
                              2010(Unaudited)REVENUES
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -EXPENSESGeneral
      and administrative
                              
                              
                              426
                              
                              
                              
                              1,185
                              
                              
                              
                              64,739Professional
      fees
                              
                              
                              55,636
                              
                              
                              
                              63,086
                              
                              
                              
                              267,165Taxes
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,036Management
      fees
                              
                              
                              -
                              
                              
                              
                              236
                              
                              
                              
                              29,155Stock
      based compensation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              327,500Total
      Expenses
                              
                              
                              56,062
                              
                              
                              
                              64,507
                              
                              
                              
                              689,595LOSS
      FROM OPERATIONS
                              
                              
                              (56,062
                              )
                              
                              
                              (64,507
                              )
                              
                              
                              (689,595
                              )OTHER
      INCOME (EXPENSE)Interest
      income
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,128Interest
      expense
                              
                              
                              (5,910
                              )
                              
                              
                              -
                              
                              
                              
                              (7,563
                              )Total
      Other Income (Expense)
                              
                              
                              (5,910
                              )
                              
                              
                              -
                              
                              
                              
                              (5,435
                              )NET
      LOSS
                              
                              $
                              (61,972
                              )
                              
                              $
                              (64,507
                              )
                              
                              $
                              (695,030
                              )NET
      LOSS PER SHARE,BASIC
      AND DILUTED
                              
                              $
                              (0.01
                              )
                              
                              $
                              (0.01
                              )WEIGHTED
      AVERAGE NUMBER OFCOMMON
      SHARES OUTSTANDING, BASIC AND DILUTED
                              
                              
                              11,218,457
                              
                              
                              
                              11,218,457
 
 The
accompanying notes are an integral part of these
 financial
statements.
  F-4
 
 DESIGN SOURCE, INC.
 (A
Development Stage Company)
 STATEMENT
OF STOCKHOLDERS' EQUITY (DEFICIT)
 
 DeficitAccumulated
                            
                            
                            TotalAdditional
                            
                            
                            Stock
                            
                            
                            During
                            
                            
                            Stockholders'Common Stock
                            
                            
                            Paid-in
                            
                            
                            Subscription
                            
                            
                            Development
                            
                            
                            EquityShares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Receivable
                            
                            
                            Stage
                            
                            
                            (Deficit)Balance,
      April 2, 2003 (Inception)
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Stock
      issued upon incorporation at $0.05 per share for payment of advances and
      expense reimbursement
                            
                            
                            435,000
                            
                            
                            
                            4
                            
                            
                            
                            21,746
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            21,750Stock
      issued for cash at $0.05 per share
                            
                            
                            200,000
                            
                            
                            
                            2
                            
                            
                            
                            9,998
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            10,000Stock
      issued for expense reimbursement at $0.05 per share
                            
                            
                            83,457
                            
                            
                            
                            1
                            
                            
                            
                            4,172
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4,173Net
      loss for the period ended March 31, 2004
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (30,760
                            )
                            
                            
                            (30,760
                            )Balance,
      March 31, 2004 (Unaudited)
                            
                            
                            718,457
                            
                            
                            
                            7
                            
                            
                            
                            35,916
                            
                            
                            
                            -
                            
                            
                            
                            (30,760
                            )
                            
                            
                            5,163Net
      loss for the year ended March 31, 2005
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (16,676
                            )
                            
                            
                            (16,676
                            )Balance,
      March 31, 2005 (Unaudited)
                            
                            
                            718,457
                            
                            
                            
                            7
                            
                            
                            
                            35,916
                            
                            
                            
                            -
                            
                            
                            
                            (47,436
                            )
                            
                            
                            (11,513
                            )Stock
      issued for cash at $0.05 per share for cash and subscription
      receivable
                            
                            
                            3,320,000
                            
                            
                            
                            33
                            
                            
                            
                            165,967
                            
                            
                            
                            (6,000
                            )
                            
                            
                            -
                            
                            
                            
                            160,000Net
      loss for the year ended March 31, 2006
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (35,028
                            )
                            
                            
                            (35,028
                            )Balance,
      March 31, 2006 (Unaudited)
                            
                            
                            4,038,457
                            
                            
                            
                            40
                            
                            
                            
                            201,883
                            
                            
                            
                            (6,000
                            )
                            
                            
                            (82,464
                            )
                            
                            
                            113,459Payment
      of stock subscription receivable
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            6,000
                            
                            
                            
                            -
                            
                            
                            
                            6,000Stock
      issued for cash at $0.05 per share
                            
                            
                            130,000
                            
                            
                            
                            2
                            
                            
                            
                            6,498
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            6,500Stock
      issued for compensation at $0.05 per share
                            
                            
                            6,550,000
                            
                            
                            
                            66
                            
                            
                            
                            327,434
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            327,500Net
      loss for the year ended March 31, 2007
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (450,448
                            )
                            
                            
                            (450,448
                            )Balance,
      March 31, 2007 (Unaudited)
                            
                            
                            10,718,457
                            
                            
                            
                            108
                            
                            
                            
                            535,815
                            
                            
                            
                            -
                            
                            
                            
                            (532,912
                            )
                            
                            
                            3,011Sale
      of common stock at $0.10 per share
                            
                            
                            500,000
                            
                            
                            
                            5
                            
                            
                            
                            49,995
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            50,000Net
      loss for the period ended March 31, 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (35,639
                            )
                            
                            
                            (35,639
                            )Balance,
      March 31, 2008 (Audited)
                            
                            
                            11,218,457
                            
                            
                            
                            113
                            
                            
                            
                            585,810
                            
                            
                            
                            -
                            
                            
                            
                            (568,551
                            )
                            
                            
                            17,372Net
      loss for the period ended March 31, 2009
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (64,507
                            )
                            
                            
                            (64,507
                            )Balance,
      March 31, 2009 (Audited)
                            
                            
                            11,218,457
                            
                            
                            
                            113
                            
                            
                            
                            585,810
                            
                            
                            
                            -
                            
                            
                            
                            (633,058
                            )
                            
                            
                            (47,135
                            )Net
      loss for the period ended March 31, 2010
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (61,972
                            )
                            
                            
                            (61,972
                            )Balance,
      March 31, 2010 (Audited)
                            
                            
                            11,218,457
                            
                            
                            $
                            113
                            
                            
                            $
                            585,810
                            
                            
                            $
                            -
                            
                            
                            $
                            (695,030
                            )
                            
                            $
                            (109,107
                            )
 
 The
accompanying notes are an integral part of these financial
statements.
  F-5
 
 DESIGN SOURCE, INC.
 (A
Development Stage Company)
 STATEMENTS
OF CASH FLOWS
 
 From Inception(April 2, 2003)For The Year Ended
                    
                    
                    throughMarch 31,
                    
                    
                    March 31,
                    
                    
                    March 31,2010
                    
                    
                    2009
                    
                    
                    2010(Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                    
                    $
                    (61,972
                    )
                    
                    $
                    (64,507
                    )
                    
                    $
                    (695,030
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Increase
      (decrease) in:Accounts
      payable
                    
                    
                    (23,952
                    )
                    
                    
                    42,147
                    
                    
                    
                    23,195Accrued
      interest
                    
                    
                    5,912
                    
                    
                    
                    -
                    
                    
                    
                    5,912Stock
      issued for compensation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    327,500Stock
      issued for reimbursement of expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,923Net
      cash used in operating activities
                    
                    
                    (80,012
                    )
                    
                    
                    (22,360
                    )
                    
                    
                    (312,500
                    )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
                    )
                    
                    
                    (22,360
                    )
                    
                    
                    -CASH,
      BEGINNING OF PERIOD
                    
                    
                    12
                    
                    
                    
                    22,372
                    
                    
                    
                    -CASH,
      END OF PERIOD
                    
                    $
                    -
                    
                    
                    $
                    12
                    
                    
                    $
                    -SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,653Income
      taxes paid
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
 
 The
accompanying notes are an integral part of these financial
statements.
  F-6
  DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 NOTES
TO THE FINANCIAL STATEMENTS
 MARCH
31, 2010 and 2009
  
 NOTE
1 – ORGANIZATION AND BASIS OF PRESENTATION
 
 Design
Source, Inc. (hereinafter “the Company”) was incorporated on April 2, 2003 under
the laws of the State of Nevada for the purpose of offering textiles to the
commercial designer market utilizing the internet. The Company’s headquarters is
located in Chapel Hill, North Carolina.  The Company is a development
stage enterprise.
 
 The
Company’s year end is March 31.
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 This
summary of significant accounting policies is presented to assist in
understanding the accompanying financial statements. The financial statements
and notes are representations of the Company’s management, which is responsible
for their integrity and objectivity.  These accounting policies
conform to accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of the financial
statements.
 
 Accounting
Method
 The
Company’s financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
 
 Development Stage
Activities
 The
Company has been in the development stage since its formation and has not
realized any revenue from operations.  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 net losses of $61,972 and $64,507 for the years ended March 31,
2010 and 2009, respectively.  In addition, the Company had an
accumulated deficit of $695,030 and $633,058 at March 31, 2010 and 2009,
respectively.  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 our 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, management has redirected their 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 positive 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
other business opportunities available nor the nature of the business
opportunity, nor indication of the financial resources required of any possible
business opportunity.
  F-7
  DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 NOTES
TO THE FINANCIAL STATEMENTS
 MARCH
31, 2010 and 2009
 
 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 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 and/or loans from our
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 March
31, 2010 and March 31, 2009.
 
 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,
revenues, 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.
  F-8
  DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 NOTES
TO THE FINANCIAL STATEMENTS
 MARCH
31, 2010 and 2009
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Recently Issued Accounting
Pronouncements Affecting the Company
 
 In
February 2010, the FASB issued Accounting Standards Update (ASU) No.
2010-08—Technical Corrections to Various Topics. This update’s purpose is to
eliminate GAAP inconsistencies, update outdated provisions, and provide
needed clarifications. The adoption of ASU No. 2010-08 will not have a material
impact on the Company’s financial statements.
 
 Management
does not believe that any other recently issued, but not yet effective,
accounting standards, if currently adopted, could have a material effect on the
accompanying financial statements.
 
 NOTE
3 – EQUITY TRANSACTIONS
 
 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 years ended March 31, 2010 and 2009, the Company had issued no additional
shares of common stock.
 
 NOTE
4 – 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
debt balance and accrued interest balance as of March 31, 2010 amounts to
$80,000 and $5,912, respectively.  The terms of conversion have not
been determined as of the date of the filing of the 10 K for the period ended
March 31, 2010.
  F-9
  DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 NOTES
TO THE FINANCIAL STATEMENTS
 MARCH
31, 2010 and 2009
 
 NOTE
5 – INCOME TAXES
 
 At March
31, 2010 and March 31, 2009, the Company had a deferred tax asset of
approximately $282,000 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 at March 31, 2010 and March
31, 2009 were as follows:
 
 March 31, 2010
                  
                  
                  March 31, 2009Deferred
      tax asset-net operating losses
                  
                  $
                  282,000
                  
                  
                  $
                  256,000Deferred
      tax asset valuation allowance
                  
                  
                  (282.000
                  )
                  
                  
                  (256,000
                  )Net
      deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -
 
 At March
31, 2010 and March 31, 2009, the Company has net operating loss carry forwards
of $696,000 and $569,000 respectively, which begin to expire in the year
2029.  The change in the allowance account from March 31, 2010 to
March 31, 2009 was $25,000.
 
 NOTE
6 - 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. As of March 31, 2008 and 2007, all
shareholder loans and accrued interest had been repaid.
 
 NOTE
7 – SUBSEQUENT EVENTS
 
 On May
10, 2010 the Company received a $75,000 loan from an investor and in connection
therewith issued a 10%, $75,000 convertible note dated May 10, 2010 (the
“Note”). Subject to prepayment, interest and principal are due on the Note on
November 9, 2011. At all times while the Note is outstanding, the Note is
convertible into shares of our common stock at the rate of $0.10 per share,
subject to adjustment for stock splits, business combinations, mergers,
reclassifications, sales of assets and similar transactions (the “Fixed
Conversion Price”). Further, if at any time while the Note is outstanding we
issue shares of our common stock at a price below the then Fixed Conversion
Price, the Fixed Conversion Price shall be reduced to such lower issue
price.
 
 The
Company has evaluated subsequent events from the balance sheet date, as of March
31, 2010 through June 15, 2010, the date which the financial statements were
available to be issued.
  F-10