SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q








(Mark One)





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





For the quarterly period ended June 30, 2010





OR





[    ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934





From the transition period from ___________ to ____________.





Commission File Number 333-150829





HALL TEES, INC.


(Exact name of small business issuer as specified in its charter)





Nevada
26-0875401(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)








7405 Armstrong, Rowlett, Texas 75088


(Address of principal executive offices)





(214) 883-0140


(Issuer's telephone number)


N/A


(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) 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 is a large accredited filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accredited filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:





Large Accredited Filer
[   ]
Accelerated Filer
[   ]Non-Accredited Filer
[   ]
Smaller Reporting Company
[X]


Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act:  Yes []   No [  X  ].





As of August 1, 2010, there were 7,605,400 shares of Common Stock of the issuer outstanding.




















TABLE OF CONTENTS











PART I FINANCIAL STATEMENTSItem 1
Financial Statements
3Item 2
Management's Discussion and Analysis or Plan of Operation
12Item 3
Controls and Procedures
14PART II OTHER INFORMATIONItem 6
Exhibits and Reports on Form 8-K
15























2







HALL TEES, INC.

Consolidated Balance Sheets

June 30, 2010 and December 31, 2009








2010

(Unaudited)


2009ASSETSCurrent AssetsCash and Cash Equivalents

$
257,753


$
3,469Accounts Receivable, Net of Allowancefor Doubtful Accounts of $2,735 and $11,266


2,720



2,007Total Current Assets


260,473



5,476Fixed Assets, Net of Accumulated Depreciation of $40,425 and $31,461


83,881



67,759TOTAL ASSETS

$
344,354


$
73,235LIABILITIES AND STOCKHOLDERS' EQUITY(Deficit)Current LiabilitiesAccounts Payable

$
22,042


$
30,706Accrued Expenses


18,379



12,203Amounts due Shareholder


34,467



34,740Current Portion of Capital Lease


5,844



5,844Total Current Liabilities


80,732



83,493Long Term LiabilitiesCapitalized Lease Obligation


14,610



17,532Less: Current Portion


(5,844
)


(5,844
)Total Long Term Liabilities


8,766



11,688Total Liabilities


89,498



95,181Stockholders' Equity (Deficit)Preferred Stock, $.001 par value, 25,000,000 shares authorized,0 and 0 shares issued and outstanding


0



0Common Stock, $.001 par value, 50,000,000 shares authorized,7,605,400 and 7,000,000 shares issued and outstanding


7,605



7,000Additional Paid-In Capital


365,095



63,000Accumulated Deficit


(117,844
)


(91,946
)Total Stockholders' Equity (Deficit)


254,856



(21,946
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit)

$
344,354


$
73,235





The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.











3










HALL TEES, INC.

Unaudited Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2010 and 2009











Three Months Ended


Six Months EndedJune 30, 2010


June 30, 2009


June 30, 2010


June 30, 2009REVENUE

$
17,696


$
20,112


$
28,824


$
34,888COST OF SALES


8,468



7,885



13,134



9,483GROSS PROFIT


9,228



12,227



15,690



25,405OPERATING EXPENSESDepreciation


5,333



3,790



8,965



7,607Selling and Advertising Expenses


1,059



6,901



1,251



6,501Other General Expenses


16,163



13,627



31,506



30,159TOTAL OPERATING EXPENSES


22,555



24,318



41,722



44,267NET OPERATING LOSS


(13,327
)


(12,091
)


(26,032
)


(18,862
)OTHER INCOME (EXPENSE)Interest Income


132



-



134



-Interest Expense


-



(32
)


-



(32
)TOTAL OTHER INCOME (EXPENSE)


132



(32
)


134



(32
)NET LOSS BEFORE INCOME TAXES


(13,195
)


(12,123
)


(25,898
)


(18,894
)Provision for Income Taxes (Expense) Benefit


-



-



-



-NET LOSS

$
(13,195
)

$
(12,123
)

$
(25,898
)

$
(18,894
)EARNINGS PER SHARE, Basic and DilutedWeighted Average of Outstanding Shares


7,599,449



7,000,000



7353,917



7,000,000Income (Loss) for Common Stockholders

$
(0.00
)

$
(0.00
)


(0.00
)

$
(0.00
)





The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.














4








HALL TEES, INC.

Consolidated Statement of Changes in Stockholders’ Equity(Deficit)

For the Six Months Ended June 30, 2010 and

The Year Ended December 31, 2009








Common Stock


Paid-InShares


Amount


Capital


(Deficit)


TotalsStockholders' Equity,January 1, 2009


7,000,000


$
7,000


$
63,000


$
(43,933
)

$
26,067Net Loss














(48,013
)


(48,013
)Stockholders' Deficit,December 31, 2009 (Audited)


7,000,000


$
7,000


$
63,000


$
(91,946
)

$
(21,946
)Issuance of Stock for Cash


605,400



605



302,095







302,700Net Loss














(25,898
)


(25,898
)Stockholders' Equity,June 30, 2010 (Unaudited)


7,605,400


$
7,605


$
365,095


$
(117,844
)

$
254,856




















The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.

















5











HALL TEES, INC.

Unaudited Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2010 and 2009








2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet Loss

$
(25,898
)

$
(18,894
)Adjustments to reconcile net loss to net cash used(provided) by operating activities:Depreciation


8,965



7,607Bad Debt Expense


102



6,823Changes in assets and liabilities:(Increase) in Accounts Receivable


(815
)


(8,942
)Increase in Accounts Payable


(8,664
)


9,850Increase in Accrued Expenses


6,176



6,533Net Cash Provided/(Used) by Operating Activities


(20,134
)


2,977CASH FLOWS FROM INVESTING ACTIVITIESPurchase of Fixed Assets


(25,087
)


-Net Cash Provided/(Used) by Investing Activities


(25,087
)


-CASH FLOWS FROM FINANCING ACTIVITIESCapitalized Lease Payments


(2,922
)


(2,922
)Proceeds from Sale of Stock


302,700



-(Payments) Borrowings: Stockholder Advances


(273
)


3,391Net Cash Provided/(Used) by Financing Activities


299,505



469NET INCREASE IN CASH AND CASH EQUIVALENTS


254,284



3,446CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


3,469



668CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
257,753


$
4,114SUPPLEMENTAL DISCLOSURESCash Paid During the Year for Interest Expense

$
-


$
525Cash Paid During the Year for Taxes

$
-


$
-





The Accompanying Notes are an Integral Part of these Consolidated Financial Statements.














6




HALL TEES, INC.


NOTES TO FINANCIAL STATEMENTS


June 30, 2010











NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES





Nature of Activities, History and Organization:





Hall Tees, Inc. (The “Company”) operates as a printer and silk screener.  The Company is located in Rowlett, Texas and was incorporated on September 13, 2007 under the laws of the State of Nevada.





Hall Tees, Inc., is the parent company of Hall Tees & Promotions, L.L.C., (“Hall Tees Texas”), a company incorporated under the laws of the State of Texas. Hall Tees Texas was established in 2007 and for the past fifteen months has been operating a single facility in Texas.





On September 12, 2007, Hall Tees, Inc. ("Hall Tees Nevada"), a private holding company established under the laws of Nevada, was formed in order to acquire 100% of the outstanding membership interests of Hall Tees Texas.  On September 15, 2007, Hall Tees Nevada issued 7,000,000 shares of common stock in exchange for a 100% equity interest in Hall Tees Texas.  As a result of the share exchange, Hall Tees Texas became the wholly owned subsidiary of Hall Tees Nevada.  As a result, the members of Hall Tees Texas owned a majority of the voting stock of Hall Tees Nevada.  The transaction was regarded as a reverse merger whereby Hall Tees Texas was considered to be the accounting acquirer as its members retained control of Hall Tees Nevada after the exchange, although Hall Tees Nevada is the legal parent company.  The share exchange was treated as a recapitalization of Hall Tees Nevada.  As such, Hall Tees Texas (and its historical financial statements) is the continuing entity for financial reporting purposes. The financial statements have been prepared as if Hall Tees Nevada had always been the reporting company and, on the share exchange date, changed its name and reorganized its capital stock.





Unaudited Interim Financial Statements:





The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States and applicable Securities and Exchange Commission (“SEC”) regulations for interim financial information. These financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary to present fairly the balance sheets, statements of operations and statements of cash flows for the periods presented in accordance with accounting principles generally accepted in the United States. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. It is presumed that users of this interim financial information have read or have access to the audited financial statements and footnote disclosure for the preceding fiscal year contained in the Company’s Annual Report on Form 10-K. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.





Significant Accounting Policies:





The Company’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application.  The application of accounting principles requires the estimating, matching and timing of revenue and expense.  Below is a summary of certain significant accounting policies selected by management.





The financial statements and notes are representations of the Company’s management which is responsible for their integrity and objectivity. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud.  The Company's system of internal  accounting control is designed to assure, among other items, that  1) recorded  transactions  are valid;  2) valid  transactions  are recorded;  and  3) transactions  are  recorded in the proper  period in a timely  manner to produce financial  statements which present fairly the financial  condition,  results of operations  and cash  flows of the  Company  for the  respective  periods  being presented.





Management believes that all adjustments necessary for a fair statement of the results of the six months ended June 30, 2010 and 2009 have been made.





Basis of Presentation:





The Company prepares its financial statements on the accrual basis of accounting.  All intercompany balances and transactions are eliminated.  The Company’s subsidiaries are consolidated with the parent company.











7








Cash and Cash Equivalents:





All highly liquid investments with original maturities of three months or less are included in cash and cash equivalents.  All deposits are maintained in FDIC insured depository accounts in local financial institutions and balances are insured up to $250,000.





Fair Value of Financial Instruments:





The carrying amounts of cash, cash equivalents, accounts receivable, capital leases, accounts payable and notes payable approximate their fair values due to the short-term maturities of these instruments.





Accounts Receivable:





Accounts receivable are carried at their face amount, less an allowance for doubtful accounts.  On a periodic basis, the Company evaluates accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions, based on a history of write offs and collections.  The Company’s policy is generally not to charge interest on trade receivables after the invoice becomes past due.  A receivable is considered past due if payments have not been received within agreed upon invoice terms.   The Company provides an allowance for all receivables that are greater than 90 days old. Allowances for Doubtful Accounts totaled $2,735 and $11,266 at June 30, 2010 and December 31, 2009 respectively.  Write offs are recorded at a time when a customer receivable is deemed uncollectible.





Fixed Assets:





Fixed assets are stated at cost if purchased, or at fair value in a nonmonetary exchange, less accumulated depreciation.  Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are charged to current operations. Depreciation is computed by applying the straight-line method over the estimated useful lives which are generally three to seven years.  Leases that meet the requirements of ASC 840-10, Accounting for Leases are capitalized and included in fixed assets.





Revenue Recognition:





The Company recognizes revenue in accordance with ASC 605-10, "Revenue Recognition in Financial Statements," Revenue will be recognized only when all of the following criteria have been met:





·
Persuasive evidence of an arrangement exists;


·
Ownership and all risks of loss have been transferred to buyer, which is generally upon shipment or at the time the service is provided;


·
The price is fixed and determinable; and


·
Collectability is reasonably assured.














8








Earnings per Share:





Earnings per share (basic) is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period covered.  As the Company has no potentially dilutive securities, fully diluted earnings per share is identical to earnings per share (basic).





Income Taxes:





Income from the corporation is taxed at regular corporate rates per the Internal Revenue Code.  There are no provisions for current taxes due to net available operating losses.





Recent Accounting Pronouncements:





The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.





Use of Estimates:





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.








NOTE 2 – FIXED ASSETS





Fixed assets at June 30, 2010 and December 31, 2009 are as follows:


2010


2009Furniture & Equipment

$
95,086


$
70,000Capitalized Leases


29,220



29,220Gross Fixed Assets


124,306



99,220Less: Accumulated Depreciation


(40,425
)


(31,461
)Net Fixed Assets

$
83,881


$
67,759





Depreciation expense for the three month periods ended June 30, 2010 and 2009 was $5,333 and $3,790, respectively.   Depreciation expense for the six month periods ended June 30, 2010 and 2009 was $8,965 and $7,607, respectively.  The Company purchased $15,706 of production and computer equipment in the three month period ended June 30, 2010 and $25,087 in the six month period ended June 30, 2010.








NOTE 3 – CAPITALIZED AND OPERATING LEASES





The Company entered into a capitalized lease obligation during 2008 for a total of $29,220. Payments of $487 including principal and interest at 12% are due monthly through December 2012.





The Company leases a 1,200 square foot warehouse space on a month to month basis for $1,000 per month. Rent expense was $3,000 for the three month periods ended June 30, 2010 and 2009, and $6,000 for the six month periods ended June 30, 2010 and 2009 .







9





NOTE 4 – EQUITY





The Company is authorized to issue 25,000,000 preferred shares at a par value of $0.001 per share. These shares have full voting rights.  At June 30, 2010 and December 31, 2009, there were zero shares outstanding.





The Company is authorized to issue 50,000,000 common shares at a par value of $0.001 per share. These shares have full voting rights.  At June 30, 2010 and December 31, 2009, there were 7,605,400 and 7,000,000 shares outstanding respectively.





On December 23, 2009, our Form S-1/A that was filed on December 7, 2009, became effective.  Under this registration statement for the six months ended June 30, 2010, the Company has raised $302,700 by selling 605,400 shares at $0.50 per share.





The Company does not have any stock option plans or warrants.






NOTE 5 – INCOME TAXES





The Company has adopted ASC 740-10 “Income Taxes”, which supplemented SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”)), which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset).   Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be.





Deferred tax assets at June 30, 2010 and December 31, 2009 consisted of the following:





2010


2009Deferred Tax Asset

$
29,460


$
22,987Less: Valuation Allowance


(29,460
)


(22,987
)Net Deferred Tax Asset

$
0


$
0





The net deferred tax asset generated primarily by the Company’s net operating loss carryforward has been fully reserved. The cumulative net operating loss carry-forward is approximately $117,844 at June 30, 2010 and $91,900 at December 31, 2009, and will expire in the years 2025 through 2030.





The difference in the income tax benefit not shown in the consolidated statements of operations and the amount that would result if the U.S. Federal statutory rate of 25% were applied to pre-tax loss for 2010 and 2009 is attributable to the valuation allowance.





The realization of deferred tax benefits is contingent upon future earnings, therefore, is fully reserved at June 30, 2010 and December 31, 2009.





Upon adoption of ASC 740-10, the Company had no gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods.  The Company has not accrued any additional interest or penalties as a result of the adoption of ASC 740-10.





The Company recognizes interest and penalties related to unrecognized tax benefits in general and administrative expense. During the six months ended June 30, 2010 and the year ended December 31, 2009 the Company recognized no interest and penalties.





10





NOTE 6 – RELATED PARTY TRANSACTIONS





The President and a Stockholder of the Company has advanced the Company $34,467 and $34,740 as of June 30, 2010 and December 31, 2009, respectively, for working capital. No interest is paid on this advance.





Under a contract with the Company beginning November 6, 2007 and ending December 31, 2011, the President provides general management services to the Company for $3,000 to $4,000 per month.  Payroll expense incurred under this contract totaled approximately $4,500 and $2,150 for the three months ended June 30, 2010 and 2009, respectively and $6,200 and $6,450 for the six months ended June 30, 2010 and 2009, respectively.





The Company pays rent of $1,000 per month to the President for warehouse facilities.  Total charges were $6,000 in each of the six months ended June 30, 2010 and 2009.








NOTE 7– FINANCIAL CONDITION AND GOING CONCERN





The Company has minimal operations and has working capital of approximately $179,700 at June 30, 2010 and negative $78,000 as of December 31, 2009. This positive working capital at June 30, 2010 is a result of raising $302,700 under the Form S-1/A that was filed on December 12, 2009 and became effective on December 23, 2009.  Without this money the working capital at June 30, 2010 would have been approximately negative $123,000.  Because of this negative working capital and limited operating history and limited operations, the Company may require additional working capital to survive. The Company has begun to raise additional working capital through private placements and if this is not sufficient will also consider bank loans or additional shareholder loans. There are no assurances that the Company will be able to obtain any of these. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital cannot be generated, the Company may not be able to continue its operations.





These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.








NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS





The FASB has recently issued the following guidance:





SFAS No. 166:  "Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140", which was codified into ASC 860, which was effective for the Company as of January 1, 2010.





SFAS No. 167:  "Accounting for Transfers of Financial Assets",which was codified into ASC 810-10, which was be effective for the Company as of January 1, 2010.





FSP No. FAS 107-1 and APB 28-1:  “Interim Disclosures about Fair Value of Financial Instruments”, which was codified into ASC 825.





FSP No. FAS 115-2 and FAS 124-2:  “Recognition and Presentation of Other-Than-Temporary Impairments”, which was codified into ASC 320-10-65-4.





FSP No. FAS 157-4:   “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, which was codified into ASC 820-10-65-4.





Management has reviewed these new standards and believes they will have no material impact on the financial statements of the Company.











11







Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS





This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.





General





During the second quarter of 2010 we were well positioned to experience increased revenue as the economy began to recover.  Although revenue in the six months ended June 30, 2010 was less than the same period in 2009, revenue for the three months ended June 30, 2010 versus the three months ended March 31, 2010 was up 59% (or $6,568) from $11,128 to $17,696.








RESULTS FOR THE THREE AND SIX MONTHS ENDED June 30, 2010





Our quarter ended on June 30, 2010.  Any reference to the end of the fiscal quarter refers to the end of the second quarter for the period discussed herein.





REVENUE.  Revenue for the three months ended June 30, 2010 was $17,696 compared to $20,112 for the three month period ended June 30, 2009.  Revenue decreased $2,416 or 12% and the decline is attributed to the slowing economy that started in the fourth quarter of 2008 and has continued into 2010.  This decline has been predominately in our corporate merchandising business and four corporate customers totaled a reduction of about $2,300.   New customer and repeat accounts grossed about $5,300 but were off-set by small one-time customers in 2009 that did not repeat in 2010 of about $5,300.





Revenue for the six months ended June 30, 2010 was $28,824 compared to $34,888 for the six month period ended June 30, 2009.  Revenue decreased $6,064 or 17%.  As above the economy has impacted year-over-year revenues and the decline was due to three customers in our corporate merchandising business with a reduction of about $$6,500.   New customer and repeat accounts grossed about $11,900 but were off-set by small one-time customers in 2009 that did not repeat in 2010 of about $11,500.





COST OF SALES: Cost of sales (COS) were $8,468 (or 48% of revenue) for the three months ended June 30, 2010 compared to $7,885 (or 40% of revenue) for the same period in 2009. COS for the six months ended June 30, 2010 were $13,134 (46%) compared to $9,483 (27%) for the same period in 2009.  The increase in COS is due to net vendor price increases that we were not able to pass on to the customer and product mix.  We continually search for alternative suppliers and will follow-up on supplier options in 2010.





OPERATING EXPENSES. Operating expenses, exclusive of depreciation expense of $5,333 and $3,790, were $17,222 and $20,528 for the three month periods ended June 30, 2010 and 2009 respectively.  With the reduced revenue the Company reduced costs related to advertising  and marketing by about $5,400 which were partially off-set by increased payroll of $2,100.





Operating expenses, exclusive of depreciation expense of $8,965 and $7,607, were $32,757 and $36,660 for the six month periods ended June 30, 2010 and 2009 respectively.  The reduced expenses trend along the same lines as the second quarter as advertising and marketing are down about $5,200 and were partially off-set by higher office expenses of $1,300.





NET INCOME (LOSS). The Net Loss for the three months ended June 30, 2010 and 2009 was $13,195 versus $12,123.  The main driver behind the slight increase in the net loss was the increased material costs and product mix as discussed above although operating expenses reduced quarter-over-quarter.  The Net Loss for the six months ended June 30, 2010 and 2009 was $25,898 versus $18,894.








12





LIQUIDITY AND CAPITAL RESOURCES. In 2008, the Company filed a Form S-1 registration statement with the U.S. Securities & Exchange Commission (“SEC”) in order to raise funds to expand its business and execute its business plan.  This Form S-1 became effective on December 23, 2009, and the Company has raised $302,700 by selling 605,400 shares at $0.50 per share as of June 30, 2010.





In addition to the preceding, the Company plans for liquidity needs on a short term and long term basis as follows:





Short Term Liquidity:





The company relies on one primary funding source for short term liquidity needs: advances from the major shareholder / President of the Company. The President has advanced the Company $34,467 and $34,740 as of June 30, 2010 and December 31, 2009, respectively, for working capital.  No interest is paid on this advance.  This is also disclosed in Note 6 to the December 31, 2009 financial statements.




Long Term Liquidity:





The long term liquidity needs of the Company are projected to be met primarily through the cash flow provided by operations. Cash flow from Operating Activities for the three months ended June 30, 2010 was negative approximately $21,951.  With an improved economy and asset investment to spur sales, the Company expects operating cash flow to improve with increased sales.








Capital Resources





In January 2008, the Company entered into a capital lease commitment that has a term of five years, ending December 2012.  The general purpose of the lease commitment is for equipment that is used in the Company’s operations of printing and puts us on the cutting edge of “Direct to Garment” printing as discussed above.  Annual commitments are $5,844 with a total five year commitment of $29,220.  The balance due at June 30, 2010 was $14,610 and at December 31, 2009 was $17,532.  The funds to fulfill this commitment will be primarily sourced through operations.  As of June 30, 2010 the Company had negative operating cash flows of $20,134, and with the implementation of its business plan, forecasts cash flows to be sufficient to source payment of this commitment.





We do not expect any significant change to our equity or debt structure and do not anticipate entering into any off-balance sheet arrangements.





Material Changes in Financial Condition





WORKING CAPITAL: Working Capital increased by approximately $258,000 to $179,700 since December 31, 2009.  This increase is due to the cash raised in selling stock under the Form S-1/A that became effective on December 31, 2009.  As of June 30, 2010 the Company has raised $302,700 by selling 605,400 shares at $0.50 per share .





SHAREHOLDERS’ EQUITY: Shareholders’ Equity increased by approximately $276,800 due to the cash raised in selling stock under the Form S-1/A that became effective on December 31, 2009.  The net loss in the six months ended June 30, 2010 of $25,900 partially offset the cash increase.









13





Item 3: Quantitative and Qualitative Disclosures About Market Risk





Not applicable.








Item 4. Controls and Procedures





Evaluation of Disclosure Controls and Procedures





We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2010.  This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our disclosure controls and procedures are not effective.





Based upon an evaluation conducted for the period ended June 30, 2010, our Chief Executive and Chief Financial Officer as of June 30, 2010 and as of the date of this Report, has concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls:





·
Reliance upon independent financial reporting consultants for review of critical accounting     areas and disclosures and material non-standard transaction.





·
Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control.





In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.




Changes in Internal Controls over Financial Reporting





We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





Changes in Internal Controls over Financial Reporting





We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.











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PART II





Items No. 1, 2, 3, 4, 5 - Not Applicable.








Item No. 6 - Exhibits and Reports on Form 8-K





(a)
The Company filed one Form 8-K during the three months ended June 30, 2010.


a.
February 28, 2010, the Company announced that it had broken escrow on the funds being raised through the Form S-1/A that became effective on December 23, 2009.


(b)
Exhibits








Exhibit Number

Name of Exhibit31.1
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.31.2
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.32.1
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.














SIGNATURES





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





HALL TEES, INC.





By /s/ William Lewis


William Lewis, President, CFO





Date: August 5, 2010

















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