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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 September 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 November 9, 2010, there were 7,605,400 shares of Common Stock of the issuer outstanding.

 
 
 

 
 
 
 

 
 




TABLE OF CONTENTS
 
 

 
PART I FINANCIAL STATEMENTS 
 
     
Item 1
Financial Statements
  3
     
Item 2
Management's Discussion and Analysis or Plan of Operation
12
     
Item 3
Quantitative and Qualitative Disclosures about Market Risk
14
     
 Item 4
Controls and Procedures
                                14
     
 
PART II OTHER INFORMATION 
 
     
Item 6 
Exhibits and Reports on Form 8-K 
15








 
 
 
2

 
 


 
 
  
HALL TEES, INC.
Consolidated Balance Sheets
September 30, 2010 and December 31, 2009
 

   
2010
(Unaudited)
   
2009
 
ASSETS
           
Current Assets
           
Cash and Cash Equivalents
 
$
202,018
   
$
3,469
 
Accounts Receivable, Net of Allowance
               
   for Doubtful Accounts of $4,660 and $11,266
   
7,862
     
2,007
 
Total Current Assets
   
209,880
     
5,476
 
                 
                 
Fixed Assets, Net of Accumulated Depreciation of $45,539 and $31,461
   
86,601
     
67,759
 
                 
                 
TOTAL ASSETS
 
$
296,481
   
$
73,235
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY(Deficit)
               
Current Liabilities
               
Accounts Payable
 
$
1,565
   
$
30,706
 
Accrued Expenses
   
21,234
     
12,203
 
Amounts due Shareholder
   
38,743
     
34,740
 
Current Portion of Capital Lease
   
5,844
     
5,844
 
Total Current Liabilities
   
67,386
     
83,493
 
                 
Long Term Liabilities
               
Capitalized Lease Obligation
   
13,149
     
17,532
 
Less: Current Portion
   
(5,844
)
   
(5,844
)
Total Long Term Liabilities
   
7,305
     
11,688
 
Total Liabilities
   
74,691
     
95,181
 
                 
Stockholders' Equity (Deficit)
               
Preferred Stock, $.001 par value, 25,000,000 shares authorized,
               
0 and 0 shares issued and outstanding
   
0
     
0
 
Common Stock, $.001 par value, 50,000,000 shares authorized,
               
7,605,400 and 7,000,000 shares issued and outstanding
   
7,605
     
7,000
 
Additional Paid-In Capital
   
365,095
     
63,000
 
Accumulated Deficit
   
(150,910
)
   
(91,946
)
Total Stockholders' Equity (Deficit)
   
221,790
     
(21,946
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit)
 
$
296,481
   
$
73,235
 

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




 
 
 
3

 
 

 

 
  
HALL TEES, INC.
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2010 and 2009
(Unaudited)
 

   
Three Months Ended
   
Nine Months Ended
 
   
September 30, 2010
   
September 30, 2009
   
September 30, 2010
   
September 30, 2009
 
                         
REVENUE
 
$
29,645
   
$
11,548
   
$
58,469
   
$
46,436
 
 
COST OF SALES
   
22,159
     
6,548
     
35,293
     
16,031
 
 
GROSS PROFIT
   
7,486
     
5,000
     
23,176
     
30,405
 
                                 
OPERATING EXPENSES
                               
Depreciation
   
5,115
     
3,763
     
14,080
     
11,370
 
Selling and Advertising Expenses
   
-
     
2,436
     
1,251
     
8,937
 
Other General Expenses
   
35,605
     
7,089
     
67,111
     
37,248
 
TOTAL OPERATING EXPENSES
   
40,720
     
13,288
     
82,442
     
57,555
 
                                 
NET OPERATING LOSS
   
(33,234
)
   
(8,288
)
   
(59,266
)
   
(27,150
)
                                 
OTHER INCOME (EXPENSE)
                               
Interest Income
   
168
     
-
     
302
     
-
 
Interest Expense
   
-
             
-
     
(32
)
TOTAL OTHER INCOME (EXPENSE)
   
168
     
-
     
302
     
(32
)
                                 
NET LOSS BEFORE INCOME TAXES
   
(33,066
)
   
(8,288
)
   
(58,964
)
   
(27,182
)
                                 
Provision for Income Taxes (Expense) Benefit
   
-
     
-
     
-
     
-
 
                                 
NET LOSS
 
$
(33,066
)
 
$
(8,288
)
 
$
(58,964
)
 
$
(27,182
)
                                 
EARNINGS PER SHARE, Basic and Diluted
                               
                                 
Weighted Average of Outstanding Shares
   
7,605,400
     
7,000,000
     
7,353,917
     
7,000,000
 
Income (Loss) for Common Stockholders
 
$
(0.00
)
 
$
(0.00
)
   
(0.01
)
 
$
(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 Nine Months Ended September 30, 2010 and
The Year Ended December 31, 2009
 

   
Common Stock
   
Paid-In
             
   
Shares
   
Amount
   
Capital
   
(Deficit)
   
Totals
 
                               
Stockholders' Equity,
                                       
    January 1, 2009
   
7,000,000
   
7,000
   
63,000
   
(43,933
 
 26,067
 
                                         
Net Loss
                           
(48,013
)
   
(48,013
)
                                         
Stockholders' Deficit,   
                                       
    December 31, 2009
   
7,000,000
   
$
7,000
   
$
63,000
   
$
(91,946
)
 
$
(21,946
)
                                         
Issuance of Stock for Cash
   
605,400
     
605
     
302,095
             
302,700
 
                                         
Net Loss
                           
(58,964
)
   
(58,964
)
                                         
Stockholders' Equity,
                                       
    September 30, 2010 (Unaudited)
   
7,605,400
   
$
7,605
   
$
365,095
   
$
(150,910
)
 
$
221,790
 
 
 
 
 

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

 

 


 
 
 
5

 
 

 

 
 
HALL TEES, INC.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2010 and 2009
(Unaudited)

   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net Loss
 
$
(58,964
)
 
$
(27,182
)
Adjustments to reconcile net loss to net cash used
               
   (provided) by operating activities:
               
  Depreciation
   
14,080
     
11,370
 
  Bad Debt Expense
   
2,027
     
11,812
 
Changes in assets and liabilities:
               
  (Increase) in Accounts Receivable
   
(7,882
)
   
(9,169
)
  Increase (Decrease) in Accounts Payable
   
(29,141
)
   
9,335
 
  Increase in Accrued Expenses
   
9,031
     
9,175
 
Net Cash Provided/(Used) by Operating Activities
   
(70,849
)
   
5,341
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of Fixed Assets
   
(32,922
)
   
-
 
Net Cash Provided/(Used) by Investing Activities
   
(32,922
)
   
-
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Capitalized Lease Payments
   
(4,383
)
   
(4,383
)
Proceeds from Sale of Stock
   
302,700
     
-
 
(Payments) Borrowings: Stockholder Advances
   
4,003
     
4,770
 
Net Cash Provided/(Used) by Financing Activities
   
302,320
     
387
 
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
   
198,549
     
5,728
 
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
   
3,469
     
668
 
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
202,018
   
$
6,396
 
                 
SUPPLEMENTAL DISCLOSURES
               
                 
Cash Paid During the Year for Interest Expense
 
$
-
   
$
32
 
Cash 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
September 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 nine months ended September 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 $4,660 and $11,266 at September 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.
 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.


 
8

 

NOTE 2 – FIXED ASSETS

Fixed assets at September 30, 2010 and December 31, 2009 are as follows:
   
2010
   
2009
 
Furniture & Equipment
 
$
102,920
   
$
70,000
 
Capitalized Leases
   
29,220
     
29,220
 
Gross Fixed Assets
   
132,140
     
99,220
 
Less: Accumulated Depreciation
   
(45,539
)
   
(31,461
)
Net Fixed Assets
 
$
86,601
   
$
67,759
 

Depreciation expense for the three month periods ended September 30, 2010 and 2009 was $5,115 and $3,763, respectively.   Depreciation expense for the nine month periods ended September 30, 2010 and 2009 was $14,080 and $11,370, respectively.  The Company purchased $7,833 of equipment during the three months ended September 30, 2010 and $32,920 of production, computer and equipment in the nine month period ended September 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 September 30, 2010 and 2009, and $9,000 for the nine month periods ended September 30, 2010 and 2009 .
 
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 September 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 September 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 nine months ended September 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 “Income Taxes”, 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 September 30, 2010 and December 31, 2009 consisted of the following:

   
2010
   
2009
 
Deferred Tax Asset
 
$
37,930
   
$
22,987
 
Less: Valuation Allowance
   
(37,930
)
   
(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 $151,730 at September 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 September 30, 2010 and December 31, 2009.
 
 
 
9

 
 

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

NOTE 6 – RELATED PARTY TRANSACTIONS

The President and a Stockholder of the Company has advanced the Company $38,743 and $34,740 as of September 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 $2,300 and $1,000 for the three months ended September 30, 2010 and 2009, respectively and $8,500 and $7,500 for the nine months ended September 30, 2010 and 2009, respectively.

The Company pays rent of $1,000 per month to the President for warehouse facilities.  Total charges were $9,000 in each of the nine months ended September 30, 2010 and 2009.
 
 
NOTE 7– FINANCIAL CONDITION AND GOING CONCERN

The Company has minimal operations and has working capital of approximately $142,500 at September 30, 2010 and negative $78,000 as of December 31, 2009. This positive working capital at September 30, 2010 is a result of raising $302,700 under the Form S-1/A that was filed on December 7, 2009 and became effective on December 23, 2009.  Without this money the working capital at September 30, 2010 would have been approximately negative $161,200.  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:
 
 ASC 860:  "Accounting for Transfers of Financial Assets, which was effective for the Company as of January 1, 2010.
 
ASC 810-10:  "Accounting for Transfers of Financial Assets", which was be effective for the Company as of January 1, 2010.

ASC 825:  “Interim Disclosures about Fair Value of Financial Instruments”

ASC 320-10-65-4:  “Recognition and Presentation of Other-Than-Temporary Impairments”.
 
ASC 820-10-65-4:   “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”.
 
Management has reviewed these new standards and believes they will have no material impact on the financial statements of the Company.
 


 
10

 


NOTE 9 – REVENUE CONCENTRATION

The Company’s four largest customers account for 63% ($36,591) of the 2010 year-to-date revenues.  In the nine months ended September 30, 2009 the Company’s three largest customers accounted for 55% of the year-to-date revenues. The table below discloses the customers and their sales revenue for the nine months ending September 30, 2010 and 2009.
 
 
   
 YTD 2010 Sales
 YTD 2009 Sales
 Customer
 $
 %
 $
 %
 GV Marine Service
             15,387
26%
                    -
0%
 DIRECT TECH
             12,319
21%
             14,950
32%
 Lobo Tortilla Factory
               5,094
9%
               7,349
16%
 Lakeshore Church
               3,791
6%
               2,561
6%
 Other
 
             21,878
37%
             21,576
46%
 TOTAL
 
           58,469
100%
           46,436
100%

 
NOTE 10 – SUBSEQUENT EVENTS
 
In May 2009, the FASB issued ASC 855-10, “Subsequent Events”, which establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The pronouncement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued.  In conjunction with the preparation of these financial statements, an evaluation of subsequent events was performed through November 9, 2010, which is the date the financial statements were issued.  No reportable subsequent events were noted.
 


 
 
 
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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 third quarter of 2010 we saw top line revenue increase vs. the prior year as we began to silk screen ‘KoolVest’ which are very popular in the summer months.  Revenue in the nine months ended September 30, 2010 was up by 26% versus the same period in 2009.


RESULTS FOR THE THREE AND NINE MONTHS ENDED September 30, 2010

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

REVENUE.  Revenue for the three months ended September 30, 2010 was $29,645 compared to $11,548 for the three month period ended September 30, 2009.  Revenue increased $18,097 or 157% and the increase is attributed to new customers generating about $20,000 in new sales.  Most of this increase is due to one customer, ($15,000), and their purchase of silk-screened ‘KoolVests’ which, as it sounds, keeps customers cool in hot weather.  Repeat customers improved $5,000 and lost customers impacted sales about $7,000.

Revenue for the nine months ended September 30, 2010 was $58,469 compared to $46,436 for the nine month period ended September 30, 2009.  Revenue increased $12,033 or 26%.  As described above the single customer increase of $15,000 of KoolVests is what drove the period-over-period revenue improvement.  All-in-all there were 22 new customers in 2010 totaling $27,800.
 
COST OF SALES: Cost of sales (COS) were $22,159 (or 75% of revenue) for the three months ended September 30, 2010 compared to $6,548 (or 57% of revenue) for the same period in 2009. COS for the nine months ended September 30, 2010 were $35,293 (60%) compared to $16,031 (35%) for the same period in 2009.  The increase in COS is due to net vendor price increases that Hall Tees, Inc. was unable to pass on to the customer and product mix. The most significant change is from the sale of Kool-Vest as this has a lower margin (20-25%) impact of about $4,500.  We continually search for alternative suppliers and will follow-up on supplier options in the 4th quarter of 2010.

OPERATING EXPENSES. Operating expenses, exclusive of depreciation expense of $5,115 and $3,763, were $35,605 and $9,525 for the three month periods ended September 30, 2010 and 2009 respectively.  The Company paid $12,000 in business development consulting fees and $10,000 in security listing fees.  After prior quarters of reduced expense there were increases in expense across the board (maintenance, contract services, office expense).

Operating expenses, exclusive of depreciation expense of $14,080 and $11,370, were $68,362 and $46,185 for the nine month periods ended September 30, 2010 and 2009 respectively.  The increased expenses trend followed along the same lines for the nine periods ended September 30, 2010 as they did for the three months ended September 30, 2010.
 
NET LOSS. The Net Loss for the three months ended September 30, 2010 and 2009 was $33,066 versus $8,288.  The main driver behind the slight increase in the net loss was the increased material costs and product mix as discussed above and the increased operating expenses.  The Net Loss for the nine months ended September 30, 2010 and 2009 was $58,964 versus $27,182.
 
 
 

 
 
 
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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 September 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 $38,743 and $34,740 as of September 30, 2010 and December 31, 2009, respectively, for working capital.  No interest is paid on this advance.  This is also disclosed in Note 6..
 
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 operations for the nine months ended September 30, 2010 was approximately $70,800.  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 September 30, 2010 was $13,149 and at December 31, 2009 was $17,532.  The funds to fulfill this commitment will be primarily sourced through operations.  As of September 30, 2010 the Company had negative cash used by operating activities of $70,849, 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 $220,000 to $142,500 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 September 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 $243,700 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 nine months ended September 30, 2010 of $58,964 partially offset the cash increase.
 
  

 
 
 
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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 September 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 September 30, 2010, our Chief Executive and Chief Financial Officer as of September 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.
 




 
 
 
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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

 
None noted
 
(b)
Exhibits
 
 
 Exhibit Number 
 
 Name of Exhibit
   
 31.1 
 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: November 9, 2010

 

 
 
 
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