SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NO. 000-28107
 GILLA INC.
  Nevada
    
    88-0335710(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)112 North Curry Street, Carson City, NV
    
    89703(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code
 Securities registered pursuant to Section 12(g) of the Act:
 (Title of Class)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 o þ
  APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
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PART I Financial InformationItem 1. Financial StatementsUnaudited Consolidated Balance Sheet as of June 30, 2008.
    
    
    3Unaudited Consolidated Statements of Operations for the six months ended June 30, 2008.
    
    
    4Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008.
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    10Item 3. Quantitative and Disclosures About Market Risk
    
    
    15PART II-Other InformationItem 1. Legal Proceedings
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 3. Defaults Upon Senior Securities
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    15Item 5. Exhibits and Reports on Form 8-K
    
    
    16SIGNATURES
    
    
    16CERTIFICATIONS
    
    
    17
  2




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GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
 
 CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETSCash
    
    $
    86,552
    
    
    $
    670,142Other receivable
    
    
    4,464
    
    
    
    3,970Prepaid expenses
    
    
    4,000
    
    
    
    TOTAL CURRENT ASSETS
    
    
    95,015
    
    
    
    674,112NON CURRENT ASSETSMining rights
    
    
    12,744,110
    
    
    
    Mining Camp
    
    
    
    
    
    
    50,000TOTAL NON CURRENT ASSETS
    
    
    12,744,110
    
    
    
    50,000TOTAL ASSETS
    
    $
    12,839,126
    
    
    $
    724,112LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    16,331
    
    
    $
    6,731Accrued expenses
    
    
    9,277
    
    
    
    4,158TOTAL LIABILITIES
    
    
    25,608
    
    
    
    10,889Commitments and ContingenciesSHAREHOLDERS EQUITYCommon stock, .0002 par value, 300,000,000 shares authorized;
27,781,388 shares issued and outstanding, June 30, 2008;
and 5,646,069 shares issued and outstanding at December 31,
2007
    
    
    5,556
    
    
    
    1,135Additional paid in capital
    
    
    24,777,692
    
    
    
    11,237,285Accumulated deficit
    
    
    (11,969,730
    )
    
    
    (10,525,197
    )TOTAL SHAREHOLDERS EQUITY
    
    
    12,813,518
    
    
    
    713,223TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    12,839,126
    
    
    $
    724,112
  3




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GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 March 28, 1995For the Quarter Ended
    
    
    For the Six Months Ended
    
    
    For the Period FromJune 30
    
    
    June 30
    
    
    (Inception) to2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    June 30, 2008REVENUES
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    TOTAL REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EXPENSES:Exploration cost
    
    
    
    
    
    
    2,578
    
    
    
    44,650
    
    
    
    2,578
    
    
    
    1,660,122General and administrative
    
    
    401,990
    
    
    
    193,341
    
    
    
    1,143,854
    
    
    
    351,652
    
    
    
    14,166,898TOTAL OPERATING EXPENSES
    
    
    401,990
    
    
    
    195,919
    
    
    
    1,188,504
    
    
    
    354,230
    
    
    
    15,827,020NET LOSS FROM OPERATIONS
    
    
    (401,990
    )
    
    
    (195,919
    )
    
    
    (1,188,504
    )
    
    
    (354,230
    )
    
    
    (15,827,020
    )OTHER INCOME (EXPENSES)Interest expense
    
    
    
    
    
    
    (132
    )
    
    
    
    
    
    
    (3,277
    )
    
    
    (3,277
    )Interest income
    
    
    
    
    
    
    13,713
    
    
    
    
    
    
    
    26,946
    
    
    
    40,517Bad Debt (Write Off)
    
    
    
    
    
    
    
    
    
    
    (13,793
    )
    
    
    
    
    
    
    (13,793
    )Gain on sale of mining properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,100,000Gain (loss) on foreign exchange rate transactions
    
    
    10
    
    
    
    (2,280
    )
    
    
    (2,236
    )
    
    
    (2,632
    )
    
    
    148,852Gain on forgiveness of debt
    
    
    
    
    
    
    32,797
    
    
    
    
    
    
    
    167,553
    
    
    
    1,824,991TOTAL OTHER EXPENSES
    
    
    10
    
    
    
    44,098
    
    
    
    (16,029
    )
    
    
    188,590
    
    
    
    4,097,290NET INCOME (LOSS)
    
    $
    (401,980
    )
    
    $
    (151,821
    )
    
    $
    (1,204,533
    )
    
    $
    (165,640
    )
    
    $
    (11,729,730
    )COMPREHENSIVE INCOME (LOSS)Accumulated other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividend Paid
    
    
    
    
    
    
    
    
    
    
    (240,000
    )
    
    
    
    
    
    
    (240,000
    )Foreign currency translation gain
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    TOTAL COMPREHENSIVE LOSS
    
    
    (401,980
    )
    
    
    (151,821
    )
    
    
    (1,444,533
    )
    
    
    (165,640
    )
    
    
    (11,969,730
    )WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-BASIC AND DILUTED
    
    
    24,016,196
    
    
    
    5,532,106
    
    
    
    24,016,196
    
    
    
    5,532,106
    
    
    
    7,104,198EARNINGS (LOSS) PER COMMON SHARES-
BASIC AND DILUTED
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.03
    )
    
    $
    (1.68
    )
  4




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GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
 
 CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
 For the Period FromFor the Six Months Ended
    
    
    March 28, 1995June 30,
    
    
    (Inception) to2008
    
    
    2007
    
    
    June 30, 2008CASH FLOW FROM OPERATING ACTIVITIESNet (loss) from operations
    
    
    (1,444,533
    )
    
    $
    (165,641
    )
    
    $
    (11,969,730
    )Adjustments to reconcile net (loss) to net cash
used in operating activities:Stock compensation
    
    
    1,013,972
    
    
    
    
    
    
    
    10,119,275(Increase) in assets:Other receivable
    
    
    76,253
    
    
    
    (41,411
    )
    
    
    72,283Prepaid expenses
    
    
    (4,000
    )
    
    
    
    
    
    
    (4,000
    )Increase (decrease) in current liabilities:Accounts payable
    
    
    9,600
    
    
    
    (44,782
    )
    
    
    391,146Accrued expenses
    
    
    5,119
    
    
    
    (51,760
    )
    
    
    9,275Net cash used in operating activities
    
    
    (343,590
    )
    
    
    (303,594
    )
    
    
    (1,381,752
    )CASH FLOW FROM FINANCING ACTIVITIESDividends paid
    
    
    (240,000
    )
    
    
    
    
    
    
    (240,000
    )Sale of common stock
    
    
    
    
    
    
    
    
    
    
    1,708,304Net cash provided by financing activities
    
    
    (240,000
    )
    
    
    
    
    
    
    1,468,304CASH FLOW FROM INVESTING ACTIVITIESRestricted cash
    
    
    
    
    
    
    (26,946
    )
    
    
    Net cash provided by investing activities
    
    
    
    
    
    
    (26,946
    )
    
    
    Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    Net increase (decrease) in cash
    
    
    (583,589
    )
    
    
    (330,540
    )
    
    
    86,552Cash and cash equivalents at beginning of period
    
    
    670,142
    
    
    
    335,594
    
    
    
    Cash and cash equivalents at end of period
    
    $
    86,552
    
    
    $
    5,054
    
    
    $
    86,552Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    Cash paid for taxes
    
    $
    
    
    
    $
    
    
    
    $
    Non-Cash Investing and Financing Transactions:Acquisition of FMC and mining rights
    
    $
    12,744,110
    
    
    $
    
    
    
    $
    12,744,110
  5




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NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
     6




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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Basis of Accounting
  Interim Reporting
  Going Concern
 7




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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Managements Plans
  Use of Estimates
  Recent accounting pronouncements
 Disclosure about Derivative Instruments and Hedging Activities
  ,
 8




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Determination of the Useful Life of Intangible Assets
  NOTE 3  MINING RIGHTS
  NOTE 4  EQUITY
       9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
    OVERVIEW
    CERTAIN BUSINESS RISK FACTORS
  10




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MINERAL EXPLORATION IS HIGHLY SPECULATIVE, INVOLVES SUBSTANTIAL EXPENDITURES, AND IS FREQUENTLY
NON-PRODUCTIVE
  $
 $
 $
  THE PRICE OF GOLD AND OTHER MINERALS ARE HIGHLY VOLATILE AND A DECREASE IN THE PRICE OF GOLD AND
OTHER MINERALS CAN HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS
  FUEL PRICE VARIABILITY
  WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES TO CONTINUE FOR THE
FORESEEABLE FUTURE
 We have yet to establish any history of profitable operations.
  11




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THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN DUE TO SIGNIFICANT
RECURRING LOSSES FROM OPERATIONS, ACCUMULATED DEFICIT AND WORKING CAPITAL DEFICIT ALL OF WHICH
MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
  WE ARE DEPENDENT ON KEY PERSONNEL, THEIR LOSS MAY HAVE AN ADVERSE EFFECT
  THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE, WHICH COULD HINDER OUR ABILITY TO RAISE
ADDITIONAL CAPITAL
  PENNY STOCK REGULATION EFFECT OUR STOCK PRICE, WHICH MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO
SELL THEIR STOCK
  12




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OWNERSHIP OF OUR SHARES IS CONCENTRATED, TO SOME EXTENT, IN THE HANDS OF A FEW INVESTORS, WHICH
COULD LIMIT THE ABILITY OF OUR OTHER STOCKHOLDERS TO INFLUENCE THE DIRECTION OF THE COMPANY:
  CRITICAL ACCOUNTING POLICIES
   DEPRECIATION AND DEPLETION.
  IMPAIRMENT OF LONG-LIVE ASSETS
  RESULTS OF OPERATIONS FOR THE QUARTER ENDED June 30, 2008
  LIQUIDITY AND CAPITAL RESOURCES
 13




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14




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Item 3. Disclosure Controls and Procedures
   
 PART II
 
 ITEM 1. LEGAL PROCEEDINGS
 st
 ITEM 2. CHANGES IN SECURITIES
 Name Change:
      
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  15




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ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
  
 SIGNATURES
  GILLA INC.
(FORMERLY OSPREY GOLD CORP.)By:
    
    /s/  Georges Benarroch

Georges Benarroch, President &Chief Financial Officer
 
 Name
    
    Title
    
    Date/s/  Georges Benarroch
    
    President
Chief Financial Officer
 Director
    
    August 14, 2008
 16