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, 2009
 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
 o 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:
 þ o
  39,650,018 November 10, 2009




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PART I Financial InformationItem 1. Financial StatementsUnaudited Consolidated Balance Sheet as of September 30, 2009, and
Audited Consolidated Balance Sheet as of December 31, 2008
    
    
    3Unaudited Consolidated Statements of Operations for the Three and Nine
months ended September 30, 2009 and 2008.
    
    
    4Unaudited Consolidated Statements of Cash Flows for the Nine months
ended September 30, 2009 and 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
    
    
    14PART II-Other InformationItem 1. Legal Proceedings
    
    
    14Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    14Item 3. Defaults Upon Senior Securities
    
    
    14Item 4. Submission of Matters to a Vote of Security Holders
    
    
    14Item 5. Exhibits and Reports on Form 8-K
    
    
    15SIGNATURES
    
    
    15CERTIFICATIONS
    
    
    16
 2




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##### 



GILLA, INC.
(FORMERLY OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
 CONSOLIDATED BALANCE SHEETS
 September 30
    
    
    December 31,2009
    
    
    2008(UNAUDITED)
    
    
    (AUDITED)ASSETSCURRENT ASSETSCash
    
    $
    61,720
    
    
    $
    235,774Other receivable
    
    
    
    
    
    
    2,333Prepaid expenses
    
    
    3,000
    
    
    
    TOTAL CURRENT ASSETS
    
    
    64,720
    
    
    
    238,107Mining rights
    
    
    4,600,000
    
    
    
    17,344,110TOTAL ASSETS
    
    $
    4,664,720
    
    
    $
    17,582,217LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    5,223
    
    
    $
    7,293TOTAL LIABILITIES
    
    
    5,223
    
    
    
    7,293COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITYCommon stock, $0.0002 par value,
300,000,000 shares authorized;
38,898,055 shares issued and outstanding
    
    
    7,780
    
    
    
    7,780Additional paid  in capital
    
    
    30,341,239
    
    
    
    30,341,239Accumulated deficit
    
    
    (25,689,522
    )
    
    
    (12,774,095
    )TOTAL SHAREHOLDERS EQUITY
    
    
    4,659,497
    
    
    
    17,574,924TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    4,664,720
    
    
    $
    17,582,217
  3




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##### 



GILLA, INC.
(FORMERYLY OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 March 28, 1995For the Three Months Ended
    
    
    For the Nine Months Ended
    
    
    For the Period FromSeptember 30,
    
    
    September 30,
    
    
    (Inception) to2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    September 30, 2009REVENUES
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    TOTAL REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EXPENSES:Exploration cost
    
    
    
    
    
    
    
    
    
    
    40,038
    
    
    
    44,650
    
    
    
    1,700,160General and administrative
    
    
    39,671
    
    
    
    26,159
    
    
    
    134,042
    
    
    
    1,120,012
    
    
    
    15,299,357TOTAL OPERATING EXPENSES
    
    
    39,671
    
    
    
    26,159
    
    
    
    174,080
    
    
    
    1,164,662
    
    
    
    16,999,517NET LOSS FROM OPERATIONS
    
    
    (39,671
    )
    
    
    (26,159
    )
    
    
    (174,080
    )
    
    
    (1,164,662
    )
    
    
    (16,999,517
    )OTHER INCOME (EXPENSES)Loss on abandonment of mining camp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )
    
    
    (50,000
    )Gain of forgiveness of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,828,932Gain on sale of mining properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,100,000Write Off
    
    
    
    
    
    
    (81
    )
    
    
    (3,774
    )
    
    
    (13,874
    )
    
    
    (17,648
    )Asset impairment expenses
    
    
    
    
    
    
    
    
    
    
    (12,744,110
    )
    
    
    
    
    
    
    (12,744,110
    )Miscellaneous Income
    
    
    
    
    
    
    
    
    
    
    6,097
    
    
    
    
    
    
    
    6,097Gain (loss) on foreign exchange rate transactions
    
    
    (118
    )
    
    
    (117
    )
    
    
    427
    
    
    
    (2,353
    )
    
    
    149,471Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,277
    )Interest income
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    40,530TOTAL OTHER EXPENSES
    
    
    (118
    )
    
    
    (198
    )
    
    
    (12,741,347
    )
    
    
    (66,227
    )
    
    
    (8,690,005
    )NET LOSS
    
    $
    (39,789
    )
    
    $
    (26,357
    )
    
    $
    (12,915,427
    )
    
    $
    (1,230,889
    )
    
    $
    (25,689,522
    )WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-BASIC
    
    
    38,898,055
    
    
    
    27,781,388
    
    
    
    38,898,055
    
    
    
    25,280,421LOSS PER COMMON SHARES-
BASIC
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.33
    )
    
    $
    (0.05
    )WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING- DILUTED
    
    
    44,042,859
    
    
    
    27,781,388
    
    
    
    44,042,859
    
    
    
    27,781,388LOSS PER COMMON SHARES-
DILUTED
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.29
    )
    
    $
    (0.04
    )
  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) to2009
    
    
    2008
    
    
    September 30, 2009CASH FLOW FROM OPERATING ACTIVITIESNet loss from operations
    
    $
    (12,915,427
    )
    
    $
    (1,230,889
    )
    
    $
    (25,689,522
    )Adjustment to reconcile net loss to net cash
used in operating activities:Stock compensation
    
    
    
    
    
    
    800,718
    
    
    
    10,836,792Changes in operating assets and liabilities:Prepaid
    
    
    (3,000
    )
    
    
    (1,221
    )
    
    
    (3,000
    )Other receivable
    
    
    2,333
    
    
    
    (523
    )
    
    
    Asset impairment expenses
    
    
    12,744,110
    
    
    
    
    
    
    
    12,744,110Mining camp
    
    
    
    
    
    
    50,000
    
    
    
    50,000Accounts payable
    
    
    (2,070
    )
    
    
    (3,637
    )
    
    
    375,880Accrued expenses
    
    
    
    
    
    
    (217
    )
    
    
    4,156Net cash used in operating activities
    
    
    (174,054
    )
    
    
    (385,769
    )
    
    
    (1,681,584
    )CASH FLOW FROM FINANCING ACTIVITIESDividends
    
    
    
    
    
    
    (240,000
    )
    
    
    (240,000
    )Sale of common stock
    
    
    
    
    
    
    
    
    
    
    1,983,304Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    (240,000
    )
    
    
    1,743,304Net Increase (decrease) in cash
    
    
    (174,054
    )
    
    
    (625,769
    )
    
    
    61,720Cash and cash equivalents at beginning of
period
    
    
    235,774
    
    
    
    670,142
    
    
    
    Cash and cash equivalents at end of period
    
    $
    61,720
    
    
    $
    44,373
    
    
    $
    61,720Supplemental Disclosure of Cash Flow
Information:Cash paid for:Interest
    
    
    
    
    
    
    
    
    
    
    Taxes
    
    
    
    
    
    
    
    
    
    
    
  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
  8




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NOTE 3  MINING RIGHTS
   NOTE 4  ACCOUNTING STANDARDS UPDATES
 "
  9




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NOTE 4
 ACCOUNTING STANDARDS UPDATES (Continued)
 (consolidated)
    (consolidated)
 10




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NOTE 5  SUBSEQUENT EVENTS
   11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
           12




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##### 



OVERVIEW
    CERTAIN BUSINESS RISK FACTORS
  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
  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.
  13




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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 DEFCIT 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
  14




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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 NINE MONTHS ENDED SEPTEMBER, 2009
  LIQUIDITY AND CAPITAL RESOURCES
    15




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Item 3. Disclosure Controls and Procedures
   PART II
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 2. CHANGES IN SECURITIES
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  16




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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 13, 2009
 17