Some Historical Info from Wikipedia
The Grand Union Flag (also the Continental Colors, the Congress Flag, the Cambridge Flag, and the First Navy Ensign) is considered to be the first national flag of the United States. This flag consisted of 13 red and white stripes with the British Union Flag of the time in the canton. The flag was first flown on December 2, 1775 by John Paul Jones (then a Continental Navy lieutenant) on the ship Alfred in Philadelphia. The Alfred flag has been credited to Margaret Manny. It was used by the American Continental forces as a naval ensign and garrison flag in 1776 and early 1777. It is widely believed that the flag was raised by George Washington's army on New Year's Day 1776 at Prospect Hill in Charlestown (now part of Somerville), near his headquarters at Cambridge, Massachusetts, and that the flag was interpreted by British observers as a sign of surrender. Some scholars dispute this traditional account, concluding that the flag raised at Prospect Hill was likely a British union flag. The Flag Act of 1777 authorized as the official national flag a design similar to that of the Grand Union, with thirteen stars (representing the thirteen seceding colonies) on a field of blue replacing the British Union flag in the canton.