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, 2009
 OR
  ̈
              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 incorporation or 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  ̈
  No 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  ̈
  No 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 x
  No  ̈
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes  ̈  No
 ̈
  Indicate
by check mark 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.   ̈
  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  ̈
                    Accelerated
      Filer  ̈Non-Accelerated
      Filer  ̈
                    Smaller
      reporting company x(Do
      not check if a smaller reporting
company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes x
  No  ̈
  As of
September 30, 2008, 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 $622,500
based on the closing price of $0.15 for the registrant’s common stock on
September 30, 2008.
  As of
June 25, 2009, 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
                            
                            4ITEM
      1B.
                            UNRESOLVED
      STAFF COMMENTS
                            
                            5ITEM
      2.
                            PROPERTIES
                            
                            5ITEM
      3.
                            LEGAL
      PROCEEDINGS
                            
                            5ITEM
      4.
                            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                            
                            5PART
      II
                            
                            
                            5ITEM
      5.
                            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                            
                            5ITEM
      6.
                            SELECTED
      FINANCIAL DATA
                            
                            6ITEM
      7.
                            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 ON ACCOUNTING 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 AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                            
                            12ITEM
      13.
                            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                            
                            13ITEM
      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” 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
  May
2009 Loan
  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.
  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.
  4
  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.               SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
  No
matters were submitted to a vote of our shareholders during the quarter ended
March 31, 2009.
  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.
  Quarter Ended
                    
                    High Bid
                    
                    
                    Low BidMarch
      31, 2009
                    
                    $
                    0.15
                    
                    
                    $
                    0.10December
      31, 2008
                    
                    $
                    0.15
                    
                    
                    $
                    0.15September
      30, 2008
                    
                    $
                    0.15
                    
                    
                    $
                    0.15June
      30, 2008
                    
                    $
                    0.15
                    
                    
                    $
                    0.15March
      31, 2008
                    
                    $
                    0.15
                    
                    
                    $
                    0.15December
      31, 2007
                    
                    $
                    0.15
                    
                    
                    $
                    0.15September
      30, 2007
                    
                    $
                    0.15
                    
                    
                    $
                    0.15June
      30, 2007
                    
                    $
                    0.15
                    
                    
                    $
                    0.15
  5
  As of
June 1, 2009, 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,
2009.
  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, 2009, we had no revenues and
incurred net operating losses of $633,533.  For the year ended March
31, 2009, we incurred a net operating loss of $64,507, 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.
  Liquidity
and Capital Resources
  Our cash
at March 31, 2009, was $12.  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.
  6
  Net cash
used in operating activities during the year ended March 31, 2009, was
$22,360.  Net cash used in operating activities from inception through
March 31, 2009 was $232,488. Net cash provided by financing activities from
inception through March 31, 2009 was $232,500.  We had no financing
activity during the year ended March 31, 2009.  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, 2009 and March 31,
2008.
 
 Use of
Estimates
 The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
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 pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (hereinafter "SFAS No. 109"). Under this approach, deferred income taxes
are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end. A valuation allowance is recorded against the deferred
tax asset if management does not believe the Company has met the "more likely
than not" standard imposed by SFAS No. 109 to allow recognition of such an
asset.
 
 Basic and Diluted Earnings
(Loss) Per Share
 The
Company utilizes Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". Basic earnings per share is calculated on the weighted effect of all
common shares issued and outstanding, and is calculated by dividing net income
available to common stockholders by the weighted average shares outstanding
during the period. Diluted earnings per share, which is calculated by dividing
net income available to common stockholders by the weighted average number of
common shares used in the basic earnings per share calculation, plus the number
of common shares that would be issued assuming conversion of all potentially
dilutive securities outstanding, is not presented separately as it is
anti-dilutive.
 
 Off
Balance Sheet Arrangements
  None.
  Contractual
Obligations
  Not
applicable.
  7
  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 ensure 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 ensure 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, 2009, our disclosure controls and procedures
were effective.
  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, 2009 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 not effective as of March 31, 2009 due to a material weakness. A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. More specifically, the material
weakness relates to a lack of sufficient personnel with appropriate knowledge,
experience and training in U.S. GAAP resulting in a lack of sufficient analysis
and documentation of the application of U.S. GAAP to transactions. Due to our
small size and limited financial resources, our part-time outside accountant has
been the only individual involved in our accounting and financial reporting. As
a result, there has been no segregation of duties within the accounting
function. This lack of segregation of duties represents a material weakness. In
efforts to address this material weakness, we are planning to add additional
personnel to the internal accounting operation.
  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, 2009, 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.
  9
  The
following table sets forth certain information, as of March 31, 2009, with
respect to our directors and executive officers.
  Name
                      
                      Positions Held
                      
                      Age
                      
                      Date of Election or
                        Appointment as
                        DirectorPeter
      A. Reichard
                      
                      President,
      Treasurer, Chief Executive Officer, Chief Financial Officer, and
      Director
                      
                      53
                      
                      September
      2003Peter
      L. Coker
                      
                      Secretary
      and Director
                      
                      67
                      
                      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 an 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.
  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, 2009, 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, except as follows:
  ·
              Peter
      Reichard and Peter Coker filed Forms 5 on a late
  basis.
  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.
  11
  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, 2009, 2008 and 2007
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,
2009; (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, 2009; and (iii) all individuals that served as executive officers of
ours at any time during the fiscal year ended March 31, 2009 that received
annual compensation during the fiscal year ended March 31, 2009 in excess of
$100,000.
  Summary
Compensation Table
  Name
      and
                          Principal
                          Position
                        
                        Year
                        
                        Salary
                          ($)
                        
                        
                        Bonus
                          ($)
                        
                        
                        Stock
                          Awards
                          ($)
                        
                        
                        Option
                          Awards
                          ($)
                        
                        
                        Non-
                          Equity
                          Incentive
                          Plan
                          Compen-
                          sation
      ($)
                        
                        
                        Change
                          in
                          Pension
                          Value
                          and
                          Non-
                          qualified
                          Deferred
                          Compen-
                          sation
                          Earnings
                          ($)
                        
                        
                        All
                          Other
                          Compen-
                          sation
      ($)
                        
                        
                        Total
      ($)(a)
                        
                        (b)
                        
                        (c)
                        
                        
                        (d)
                        
                        
                        (e)
                        
                        
                        (f)
                        
                        
                        (g)
                        
                        
                        (h)
                        
                        
                        (i)
                        
                        
                        (j)Peter
      A. Reichard,
                        
                        2009
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0Principal
      Executive
                        
                        2008
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0and
      Financial Officer
                        
                        2007
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
  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.
  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, 2009 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.
  12
  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, 2009. 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,
      2009.
  (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.
  13
  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, 2009 and 2008 are set forth in the table
below:
  Fee Category
                  
                  Fiscal
      year ended
                    March 31, 2009
                  
                  
                  Fiscal
      year ended
                    March 31, 2008Audit
      fees (1)
                  
                  $
                  19,500
                  
                  
                  $
                  12,000Audit-related
      fees (2)
                  
                  
                  0
                  
                  
                  
                  0Tax
      fees (3)
                  
                  
                  0
                  
                  
                  
                  0All
      other fees (4)
                  
                  
                  0
                  
                  
                  
                  0Total
      fees
                  
                  $
                  19,500
                  
                  
                  $
                  12,000
  (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.
  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, 2009, were approved by our
board of directors.
  14
  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, 2009 and 2008 (Audited)
                    
                    F-3Statements
      of Operations for the years ended March 31, 2009 and 2008 (Audited) and
      for the period from April 2, 2003 (Inception) to March 31, 2009
      (Unaudited)
                    
                    F-4Statements
      of Stockholders’ Equity (Deficit) for the years ended March 31, 2009 and
      2008 (Audited) and for the period from April 2, 2003 (Inception) to March
      31, 2009 (Unaudited)
                    
                    F-5Statements
      of Cash Flows for the years ended March 31, 2009 and 2008(Audited) and for
      the period from April 2, 2003 (Inception) to March 31, 2009
      (Unaudited)
                    
                    F-6Notes
      to Financial Statements (Audited)
                    
                    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;
  •
              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.
  15
  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
                
                *
                
                Convertible
      $80,000 Promissory Note of Registrant Issued May 8,
200914
                
                14.1
                
                Code
      of Ethics  (2)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 (2)99.3
                
                99.3
                
                Disclosure
      Committee Charter (2)
  * 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.
  (2)
              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.
  16
  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
      29, 2009
                  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 29th day of
June, 2009.
  /s/ Peter A. ReichardPeter
      A. Reichard, Chief Executive Officer, Chief Financial and Accounting
      Officer, and Director
                  
                  June
      29, 2009/s/ Peter L. CokerPeter
      L. Coker, Director
                  
                  June
      29, 2009
  17
  FINANCIAL
STATEMENTS
 
 INDEX
TO FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                F-2Balance
      Sheets as of March 31, 2009 and 2008 (Audited)
                F-3Statements
      of Operations for the years ended March 31, 2009 and 2008 (Audited) and
      for the period from April 2, 2003 (Inception) to March 31, 2009
      (Unaudited)
                F-4Statements
      of Stockholders’ Equity (Deficit) for the years ended March 31, 2009 and
      2008 (Audited) and for the period from April 2, 2003 (Inception) to March
      31, 2009 (Unaudited)
                F-5Statements
      of Cash Flows for the years ended March 31, 2009 and 2008(Audited) and for
      the period from April 2, 2003 (Inception) to March 31, 2009
      (Unaudited)
                F-6Notes
      to Financial Statements (Audited)
                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, 2009 and 2008, and the related statements of
operations, stockholders' equity (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, 2009 and March 31, 2008, and the results of
operations and cash flows for the year ended March 31, 2009 and March 31, 2008,
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 25,
2009
  F-2
  DESIGN
SOURCE, INC.
 (A
Development Stage Company)
 BALANCE
SHEETS
 
 March
      31
                    
                    
                    March
      312009
                    
                    
                    2008ASSETSCURRENT
      ASSETSCash
                    
                    $
                    12
                    
                    
                    $
                    22,372TOTAL
      ASSETS
                    
                    $
                    12
                    
                    
                    $
                    22,372LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
                    
                    $
                    47,147
                    
                    
                    $
                    5,000TOTAL
      CURRENT LIABILITIES
                    
                    
                    47,147
                    
                    
                    
                    5,000TOTAL
      LIABILITIES
                    
                    
                    47,147
                    
                    
                    
                    5,000COMMITMENTS
      AND CONTINGENCIES
                    
                    
                    -
                    
                    
                    
                    -STOCKHOLDERS'
      EQUITY (DEFICIT)Common
      stock, $0.00001 par value, 100,000,000 shares authorized, 11,218,457
      shares issued and outstanding
                    
                    
                    113
                    
                    
                    
                    113Additional
      paid-in capital
                    
                    
                    585,810
                    
                    
                    
                    585,810Accumulated
      deficit during development stage
                    
                    
                    (633,058
                    )
                    
                    
                    (568,551
                    )TOTAL
      STOCKHOLDERS' EQUITY (DEFICIT)
                    
                    
                    (47,135
                    )
                    
                    
                    17,372TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                    
                    $
                    12
                    
                    
                    $
                    22,372
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3





DESIGN
SOURCE, INC.


(A
Development Stage Company)


STATEMENTS
OF OPERATIONS





FromInception(April 2, 2003)throughFor the Year Ended
                    
                    
                    March 31March
      31
                    
                    
                    March
      31
                    
                    
                    20092009
                    
                    
                    2008
                    
                    
                    (Unaudited)REVENUES
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -EXPENSESGeneral
      and administrative
                    
                    
                    1,185
                    
                    
                    
                    314
                    
                    
                    
                    64,313Professional
      fees
                    
                    
                    63,086
                    
                    
                    
                    35,331
                    
                    
                    
                    211,529Taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,036Management
      fees
                    
                    
                    236
                    
                    
                    
                    -
                    
                    
                    
                    29,155Stock
      compensation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    327,500Total
      Expenses
                    
                    
                    64,507
                    
                    
                    
                    35,645
                    
                    
                    
                    633,533LOSS
      FROM OPERATIONS
                    
                    
                    (64,507
                    )
                    
                    
                    (35,645
                    )
                    
                    
                    (633,533
                    )OTHER
      INCOME (EXPENSE)Interest
      income
                    
                    
                    -
                    
                    
                    
                    6
                    
                    
                    
                    2,128Interest
      expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,653
                    )Total
      Other Income (Expense)
                    
                    
                    -
                    
                    
                    
                    6
                    
                    
                    
                    475LOSS
      BEFORE TAXES
                    
                    
                    (64,507
                    )
                    
                    
                    (35,639
                    )
                    
                    
                    (633,058
                    )INCOME
      TAX EXPENSE
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -NET
      LOSS
                    
                    $
                    (64,507
                    )
                    
                    $
                    (35,639
                    )
                    
                    $
                    (633,058
                    )NET
      LOSS PER SHARE, BASIC AND DILUTED
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.00
                    )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND
    DILUTED
                    
                    
                    11,218,457
                    
                    
                    
                    11,218,457




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


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
                  )




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)throughFor the Year Ended
                
                
                March 31March 31
                
                
                March 31
                
                
                20092009
                
                
                2008
                
                
                (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (64,507
                )
                
                $
                (35,639
                )
                
                $
                (633,058
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Increase
      in accounts payable
                
                
                42,147
                
                
                
                2,752
                
                
                
                47,147Stock
      issued for compensation
                
                
                -
                
                
                
                -
                
                
                
                327,500Issuance
      of common stock for reimbursement of expenses
                
                
                -
                
                
                
                -
                
                
                
                25,923Net
      cash used in operating activities
                
                
                (22,360
                )
                
                
                (32,887
                )
                
                
                (232,488
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from shareholder loans
                
                
                -
                
                
                
                -
                
                
                
                21,560Repayment
      of shareholder loans
                
                
                -
                
                
                
                -
                
                
                
                (21,560
                )Proceeds
      from issuance of common stock
                
                
                -
                
                
                
                50,000
                
                
                
                232,500Net
      cash provided by financing activities
                
                
                -
                
                
                
                50,000
                
                
                
                232,500NET
      INCREASE (DECREASE) IN CASH
                
                
                (22,360
                )
                
                
                17,113
                
                
                
                12CASH,
      BEGINNING OF PERIOD
                
                
                22,372
                
                
                
                5,259
                
                
                
                -CASH,
      END OF PERIOD
                
                $
                12
                
                
                $
                22,372
                
                
                $
                12SUPPLEMENTAL
      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, 2009 and 2008





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 yearend 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 $64,507 and $35,639 for the years ended March 31,
2009 and 2008, respectively.  In addition, the Company had an
accumulated deficit of $633,058 and $568,551 at March 31, 2009 and 2008,
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.


F-7


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


MARCH
31, 2009 and 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





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.





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 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, 2009 and March
31, 2008.





Use of
Estimates


The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
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.


F-8


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


MARCH
31, 2009 and 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Provision for
Taxes


Income
taxes are provided based upon the liability method of accounting pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (hereinafter "SFAS No. 109"). Under this approach, deferred income taxes
are recorded to reflect the tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each year-end. A valuation allowance is recorded against the deferred
tax asset if management does not believe the Company has met the "more likely
than not" standard imposed by SFAS No. 109 to allow recognition of such an
asset.





Basic and Diluted Earnings
(Loss) Per Share


The
Company utilizes Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". Basic earnings per share is calculated on the weighted effect of all
common shares issued and outstanding, and is calculated by dividing net income
available to common stockholders by the weighted average shares outstanding
during the period. Diluted earnings per share, which is calculated by dividing
net income available to common stockholders by the weighted average number of
common shares used in the basic earnings per share calculation, plus the number
of common shares that would be issued assuming conversion of all potentially
dilutive securities outstanding, is not presented separately as it is
anti-dilutive.





Recently Issued Accounting
Pronouncements Affecting the Company


New
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon
adoption.





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.


F-9


DESIGN
SOURCE, INC.


(A
Development Stage Company)


NOTES
TO THE FINANCIAL STATEMENTS


MARCH
31, 2009 and 2008





NOTE
3 – EQUITY TRANSACTIONS (continued)





During
the year ended March 31, 2007, 130,000 shares of common stock were issued at
$0.05 per share for cash totaling $6,500 to outside investors; 6,550,000 share
of common stock were issued to its officers for compensation at $0.05 per share
for $327,500 and $6,000 subscription receivable was received.





During
the year ended March 31, 2008, 500,000 shares of common stock were issued at
$0.10 per share for cash totaling $50,000 to Milestone Enhanced Fund
Ltd;





During
the year ended March 31, 2009, the Company had issued no additional shares of
common stock.





NOTE
4 – INCOME TAXES





At March
31, 2009 and March 31, 2008, the Company had a deferred tax asset of
approximately $256,000 and $229,000, respectively, calculated at a combined
federal and state expected rate of 40.5%.  As management of the
Company cannot determine that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset, a valuation allowance equal
to the net deferred tax asset has been recorded.





The
significant components of the deferred tax assets at March 31, 2009 and March
31, 2008 were as follows:





March
      31, 2009
                
                
                March
      31, 2008Deferred
      tax asset-net operating losses
                
                $
                256,000
                
                
                $
                229,000Deferred
      tax asset valuation allowance
                
                
                (256,000
                )
                
                
                (229,000
                )Net
      deferred tax asset
                
                $
                -
                
                
                $
                -





At March
31, 2009 and March 31, 2008, the Company has net operating loss carry forwards
of $633,000 and $569,000 respectively, which begin to expire in the year
2028.  The change in the allowance account from March 31, 2008 to
March 31, 2009 was $27,000.





NOTE
5 - RELATED PARTY DEBT AND TRANSACTIONS





In 2004
and 2005, Company directors loaned the Company a total of $21,560. The
underlying notes were unsecured with interest at 5%, and a scheduled maturity of
October 2007 for all principal and accrued interest. There were no monthly note
payments due during the term of the loans. As of March 31, 2008 and 2007, all
shareholder loans and accrued interest had been repaid.





NOTE
6 – SUBSEQUENT EVENTS





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


F-10