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, 2009
 ORo
    
    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 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:
 þ o
  38,898,055 July 30, 2009




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PART I Financial InformationItem 1. Financial StatementsUnaudited Consolidated Balance Sheet as of June 30, 2009, and Audited Consolidated Balance Sheet
as of December 31, 2008
    
    
    3Unaudited
Consolidated Statements of Operations for the six months ended June 30, 2009 and 2008
    
    
    4Unaudited
Consolidated Statements of Cash Flows for the six months ended June 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
  2




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##### 



GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
 
 CONSOLIDATED BALANCE SHEETS
 June 30
    
    
    December 31,2009
    
    
    2008(UNAUDITED)
    
    
    AUDITEDASSETSCURRENT ASSETSCash
    
    $
    101,390
    
    
    $
    235,774Other receivable
    
    
    
    
    
    
    2,333Prepaid expenses
    
    
    3,000
    
    
    
    TOTAL CURRENT ASSETS
    
    
    104,390
    
    
    
    238,107NON CURRENT ASSETSMining rights
    
    
    4,600,000
    
    
    
    17,344,110TOTAL ASSETS
    
    $
    4,704,390
    
    
    $
    17,582,217LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    5,103
    
    
    $
    7,293TOTAL LIABILITIES
    
    
    5,103
    
    
    
    7,293SHAREHOLDERS EQUITYCommon stock, .0002 par value, 300,000,000 shares authorized;
38,898,055 shares issued and outstanding, respectively
    
    
    7,780
    
    
    
    7,780Additional paid in capital
    
    
    30,341,239
    
    
    
    30,341,239Accumulated deficit
    
    
    (25,649,732
    )
    
    
    (12,774,095
    )TOTAL SHAREHOLDERS EQUITY
    
    
    4,699,287
    
    
    
    17,574,924TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    4,704,390
    
    
    $
    17,582,217
  3




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##### 



GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 March 28, 1995For the Quarter Ended
    
    
    For the Six Months Ended
    
    
    For the Period FromJune 30,
    
    
    June 30,
    
    
    (Inception) to2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    June 30, 2009REVENUES
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    TOTAL REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EXPENSES:Exploration cost
    
    
    
    
    
    
    
    
    
    
    40,038
    
    
    
    44,650
    
    
    
    1,700,160General and administrative
    
    
    46,223
    
    
    
    401,990
    
    
    
    94,369
    
    
    
    1,143,854
    
    
    
    15,259,684TOTAL OPERATING EXPENSES
    
    
    46,223
    
    
    
    401,990
    
    
    
    134,407
    
    
    
    1,188,504
    
    
    
    16,959,844NET LOSS FROM OPERATIONS
    
    
    (46,223
    )
    
    
    (401,990
    )
    
    
    (134,407
    )
    
    
    (1,188,504
    )
    
    
    (16,959,844
    )OTHER INCOME (EXPENSES)Loss on abandonment of mining camp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )Gain of forgiveness of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,828,932Gain on sale of mining properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,100,000Bad Debt (write off)
    
    
    (3,774
    )
    
    
    
    
    
    
    (3,774
    )
    
    
    (13,793
    )
    
    
    (17,648
    )Asset impairment expenses
    
    
    (12,744,110
    )
    
    
    
    
    
    
    (12,744,110
    )
    
    
    
    
    
    
    (12,744,110
    )Miscellaneous Income
    
    
    
    
    
    
    
    
    
    
    6,097
    
    
    
    
    
    
    
    6,097Gain (loss) on foreign exchange rate transactions
    
    
    (1,604
    )
    
    
    10
    
    
    
    544
    
    
    
    (2,236
    )
    
    
    149,588Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,277
    )Interest income
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    40,530TOTAL OTHER EXPENSES
    
    
    (12,749,488
    )
    
    
    10
    
    
    
    (12,741,230
    )
    
    
    (16,029
    )
    
    
    (8,689,888
    )NET LOSS
    
    $
    (12,795,711
    )
    
    $
    (401,980
    )
    
    $
    (12,875,637
    )
    
    $
    (1,204,533
    )
    
    $
    (25,649,732
    )WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  BASIC
    
    
    38,898,055
    
    
    
    24,016,196
    
    
    
    38,898,055
    
    
    
    24,016,196
    
    
    
    25,933,983LOSS PER COMMON SHARES-
BASIC
    
    $
    (0.33
    )
    
    $
    (0.02
    )
    
    $
    (0.33
    )
    
    $
    (0.05
    )
    
    $
    (0.99
    )WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING  DILUTED
    
    
    44,042,859
    
    
    
    24,016,196
    
    
    
    44,042,859
    
    
    
    24,016,196
    
    
    
    27,224,445LOSS PER
COMMON SHARES  DILUTED
    
    $
    (0.29
    )
    
    $
    (0.02
    )
    
    $
    (0.29
    )
    
    $
    (0.05
    )
    
    $
    (0.94
    )
  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 Six Months Ended
    
    
    March 28, 1995June 30
    
    
    (Inception) to2009
    
    
    2008
    
    
    June 30, 2009CASH FLOW FROM OPERATING ACTIVITIESNet (loss) from operations
    
    $
    (12,875,637
    )
    
    $
    (1,444,533
    )
    
    
    
    
    
    $
    (25,649,732
    )Adjustment to reconcile (loss) to net cash
used in operating activities:Stock compensation
    
    
    
    
    
    
    1,013,972
    
    
    
    
    
    
    
    10,836,792(Increase) decrease in assets:Prepaid
    
    
    (3,000
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    (3,000
    )Other receivable
    
    
    2,333
    
    
    
    76,253
    
    
    
    
    
    
    
    Asset impairment expenses
    
    
    12,744,110
    
    
    
    
    
    
    
    
    
    
    
    12,744,110Mining camp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Increase(decrease) in current liabilitiesAccounts payable
    
    
    (2,190
    )
    
    
    9,600
    
    
    
    
    
    
    
    375,760Accrued expenses
    
    
    
    
    
    
    5,119
    
    
    
    
    
    
    
    4,156Net cash (used in) operating activities
    
    
    (134,384
    )
    
    
    (343,589
    )
    
    
    
    
    
    
    (1,641,914
    )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
    
    
    (134,384
    )
    
    
    (583,589
    )
    
    
    
    
    
    
    101,390Cash and cash equivalents at beginning of period
    
    
    235,774
    
    
    
    670,142
    
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    101,390
    
    
    $
    86,553
    
    
    
    
    
    
    $
    101,390Supplemental 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
   9




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




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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.
  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 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
  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 SIX MONTHS ENDED JUNE, 2009
  LIQUIDITY AND CAPITAL RESOURCES
    13




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Item 3. Disclosure Controls and Procedures
   
 PART II
 
 ITEM 1. LEGAL PROCEEDINGS
 st
 
 ITEM 2. CHANGES IN SECURITIES
 st
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  14




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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
    
    August 14, 2009Chief Financial OfficerDirector
 15