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 September 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 oAccelerated filer oNon-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:
 o o
  27,781,388 November 12, 2008




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##### 



PART I Financial InformationItem 1. Financial StatementsUnaudited Consolidated Balance Sheet as of September 30, 2008.
    
    
    3Unaudited Consolidated Statements of Operations for the three and nine
months ended September 30, 2008 and 2007.
    
    
    4Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 2008 and 2007.
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    11Item 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
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETSCash
    
    $
    44,373
    
    
    $
    670,142Other receivable
    
    
    4,493
    
    
    
    3,970Prepaid expenses
    
    
    1,221
    
    
    
    TOTAL CURRENT ASSETS
    
    
    50,087
    
    
    
    674,112NON CURRENT ASSETSMining rights
    
    
    12,744,110
    
    
    
    Mining camp
    
    
    
    
    
    
    50,000TOTAL NON CURRENT ASSETS
    
    
    12,744,110
    
    
    
    50,000TOTAL ASSETS
    
    $
    12,794,197
    
    
    $
    724,112LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    3,094
    
    
    $
    6,731Accrued expenses
    
    
    3,941
    
    
    
    4,158TOTAL LIABILITIES
    
    
    7,035
    
    
    
    10,889Commitments and ContingenciesSHAREHOLDERS EQUITYCommon stock, .0002 par value, 300,000,000 shares authorized;
27,781,388 shares issued and outstanding, September 30, 2008;
and 5,646,069 shares issued and outstanding at December 31, 2007
    
    
    5,556
    
    
    
    1,135Additional paid in capital
    
    
    24,537,692
    
    
    
    11,237,285Accumulated deficit
    
    
    (11,756,086
    )
    
    
    (10,525,197
    )TOTAL SHAREHOLDERS EQUITY
    
    
    12,787,162
    
    
    
    713,223TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    12,794,197
    
    
    $
    724,112
  3




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##### 



GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 For the Period FromFor the Three Months Ended
    
    
    For the Nine Months Ended
    
    
    March 28, 1995September 30,
    
    
    September 30,
    
    
    (Inception) to2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    September 30, 2008REVENUES
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    TOTAL REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EXPENSES:Exploration cost
    
    
    
    
    
    
    2,338
    
    
    
    44,650
    
    
    
    4,916
    
    
    
    1,660,122General and administrative
    
    
    26,159
    
    
    
    211,423
    
    
    
    1,120,012
    
    
    
    563,075
    
    
    
    14,143,056TOTAL OPERATING EXPENSES
    
    
    26,159
    
    
    
    213,761
    
    
    
    1,164,662
    
    
    
    567,991
    
    
    
    15,803,178NET LOSS FROM OPERATIONS
    
    
    (26,159
    )
    
    
    (213,761
    )
    
    
    (1,164,662
    )
    
    
    (567,991
    )
    
    
    (15,803,178
    )OTHER INCOME (EXPENSES)Loss on abandonment of mining camp
    
    
    
    
    
    
    
    
    
    
    (50,000
    )
    
    
    
    
    
    
    (50,000
    )Gain on sale of mining properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,100,000Gain on forgiveness of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167,553
    
    
    
    1,824,991Bad debt (write off)
    
    
    (81
    )
    
    
    
    
    
    
    (13,874
    )
    
    
    
    
    
    
    (13,874
    )Gain (loss) on foreign exchange rate transactions
    
    
    (117
    )
    
    
    (6,235
    )
    
    
    (2,353
    )
    
    
    (8,867
    )
    
    
    148,735Interest income
    
    
    
    
    
    
    4,958
    
    
    
    
    
    
    
    31,904
    
    
    
    40,517Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,277
    )
    
    
    (3,277
    )TOTAL OTHER EXPENSES
    
    
    (198
    )
    
    
    (1,277
    )
    
    
    (66,227
    )
    
    
    187,313
    
    
    
    4,047,092NET LOSS
    
    $
    (26,357
    )
    
    $
    (215,038
    )
    
    $
    (1,230,889
    )
    
    $
    (380,678
    )
    
    $
    (11,756,086
    )WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-BASIC AND DILUTED
    
    
    27,781,388
    
    
    
    5,646,069
    
    
    
    25,280,421
    
    
    
    5,646,069EARNINGS (LOSS) PER COMMON SHARES-
BASIC AND DILUTED
    
    $
    (0.00
    )
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.07
    )
  4




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##### 



GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
(Unaudited)
 For the Period FromFor the Nine Months Ended
    
    
    March 28, 1995September 30,
    
    
    (Inception) to2008
    
    
    2007
    
    
    September 30, 2008CASH FLOW FROM OPERATING ACTIVITIESNet (loss) from operations
    
    $
    (1,230,889
    )
    
    $
    (380,678
    )
    
    $
    (11,756,086
    )Adjustments to reconcile net (loss) to net
cash
used in operating activities:Stock compensation
    
    
    800,718
    
    
    
    
    
    
    
    9,906,021(Increase) in assets:Other receivable
    
    
    (523
    )
    
    
    1,728
    
    
    
    (4,494
    )Prepaid expenses
    
    
    (1,221
    )
    
    
    (8,293
    )
    
    
    (1,221
    )Mining camp
    
    
    50,000
    
    
    
    
    
    
    
    50,000Increase (decrease) in current liabilities:Accounts payable
    
    
    (3,637
    )
    
    
    (130,503
    )
    
    
    377,909Accrued expenses
    
    
    (217
    )
    
    
    (51,480
    )
    
    
    3,940Net cash used in operating activities
    
    
    (385,769
    )
    
    
    (569,226
    )
    
    
    (1,423,931
    )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
    
    
    
    
    
    
    1,058,613
    
    
    
    Net cash provided by investing activities
    
    
    
    
    
    
    1,058,613
    
    
    
    Net increase (decrease) in cash
    
    
    (625,769
    )
    
    
    489,387
    
    
    
    44,373Cash and cash equivalents at beginning of
period
    
    
    670,142
    
    
    
    335,594
    
    
    
    Cash and cash equivalents at end of period
    
    $
    44,373
    
    
    $
    824,981
    
    
    $
    44,373Supplemental 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
  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 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
 Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities
  Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an entitys Own Stock
  Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement)
  8




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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 The Hierarchy of Generally Accepted Accounting Principles
  Determination of the Useful Life of Intangible Assets
  Disclosure about Derivative Instruments and Hedging Activities
  Determination of the Useful Life of Intangible Assets
  9




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NOTE 3  MINING RIGHTS
  NOTE 4  EQUITY
       NOTE 5  SUBSEQUENT EVENTS
    10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
    OVERVIEW
    CERTAIN BUSINESS RISK FACTORS
  11




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MINERAL EXPLORATION IS HIGHLY SPECULATIVE, INVOLVES SUBSTANTIAL EXPENDITURES, AND IS FREQUENTLY
NON-PRODUCTIVE
  
    
    the identification of potential gold mineralization based on superficial analysis;
    
    the quality of our management and our geological and technical expertise; and
    
    the capital available for exploration and development.
  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.
  12




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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
  13




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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 September 30, 2008
  LIQUIDITY AND CAPITAL RESOURCES
    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 BenarrochGeorges Benarroch, President &Chief Financial Officer  Name
    
    Title
    
    Date/s/  Georges Benarroch
    
    President
Chief Financial Officer
Director
    
    November 12, 2008
 16