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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 000-28107

GILLA INC.

(Exact Name of Registrant as Specified in its Charter)

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 (416) 884-8807

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, .0002 PAR VALUE PER SHARE
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ  Yes     o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes       o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  Yes     þ  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. þ  Yes     o  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

39,650,018 Common Shares-$0.0002 Par Value as of November 10, 2009

 

 

PART I Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet as of September 30, 2009, and Audited Consolidated Balance Sheet as of December 31, 2008			3
Unaudited Consolidated Statements of Operations for the Three and Nine months ended September 30, 2009 and 2008.			4
Unaudited Consolidated Statements of Cash Flows for the Nine months ended September 30, 2009 and 2008			5
Notes to Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation			10
Item 3. Quantitative and Disclosures About Market Risk			14
PART II-Other Information
Item 1. Legal Proceedings			14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 3. Defaults Upon Senior Securities			14
Item 4. Submission of Matters to a Vote of Security Holders			14
Item 5. Exhibits and Reports on Form 8-K			15
SIGNATURES			15
CERTIFICATIONS			16

GILLA, INC.
(FORMERLY OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

		September 30				December 31,
		2009				2008
		(UNAUDITED)				(AUDITED)
ASSETS
CURRENT ASSETS
Cash		$	61,720			$	235,774
Other receivable			—				2,333
Prepaid expenses			3,000				—
TOTAL CURRENT ASSETS			64,720				238,107
Mining rights			4,600,000				17,344,110
TOTAL ASSETS		$	4,664,720			$	17,582,217
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	5,223			$	7,293
TOTAL LIABILITIES			5,223				7,293
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Common stock, $0.0002 par value, 300,000,000 shares authorized; 38,898,055 shares issued and outstanding			7,780				7,780
Additional paid — in capital			30,341,239				30,341,239
Accumulated deficit			(25,689,522	)			(12,774,095	)
TOTAL SHAREHOLDERS’ EQUITY			4,659,497				17,574,924
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	4,664,720			$	17,582,217

The accompanying notes are an integral part of these financial statements

GILLA, INC.
(FORMERYLY OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

																		March 28, 1995
		For the Three Months Ended								For the Nine Months Ended								For the Period From
		September 30,								September 30,								(Inception) to
		2009				2008				2009				2008				September 30, 2009
REVENUES		$	—			$	—			$	—			$	—			$	—
TOTAL REVENUES			—				—				—				—				—
EXPENSES:
Exploration cost			—				—				40,038				44,650				1,700,160
General and administrative			39,671				26,159				134,042				1,120,012				15,299,357
TOTAL OPERATING EXPENSES			39,671				26,159				174,080				1,164,662				16,999,517
NET 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			—				—				—				—				1,828,932
Gain on sale of mining properties			—				—				—				—				2,100,000
Write Off			—				(81	)			(3,774	)			(13,874	)			(17,648	)
Asset impairment expenses			—				—				(12,744,110	)			—				(12,744,110	)
Miscellaneous Income			—				—				6,097				—				6,097
Gain (loss) on foreign exchange rate transactions			(118	)			(117	)			427				(2,353	)			149,471
Interest expense			—				—				—				—				(3,277	)
Interest income			—				—				13				—				40,530
TOTAL 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				25,280,421
LOSS 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				27,781,388
LOSS PER COMMON SHARES- DILUTED		$	(0.00	)		$	(0.00	)		$	(0.29	)		$	(0.04	)

The accompanying notes are an integral part of these financial statements

GILLA, INC.
(formerly OSPREY GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS

(UNAUDITED)

										For the Period From
		For the Nine Months Ended								March 28, 1995
		September 30								(Inception) to
		2009				2008				September 30, 2009
CASH FLOW FROM OPERATING ACTIVITIES
Net 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				10,836,792
Changes in operating assets and liabilities:
Prepaid			(3,000	)			(1,221	)			(3,000	)
Other receivable			2,333				(523	)			—
Asset impairment expenses			12,744,110				—				12,744,110
Mining camp			—				50,000				50,000
Accounts payable			(2,070	)			(3,637	)			375,880
Accrued expenses			—				(217	)			4,156
Net cash used in operating activities			(174,054	)			(385,769	)			(1,681,584	)
CASH FLOW FROM FINANCING ACTIVITIES
Dividends			—				(240,000	)			(240,000	)
Sale of common stock			—				—				1,983,304
Net cash provided by (used in) financing activities			—				(240,000	)			1,743,304
Net Increase (decrease) in cash			(174,054	)			(625,769	)			61,720
Cash and cash equivalents at beginning of period			235,774				670,142				—
Cash and cash equivalents at end of period		$	61,720			$	44,373			$	61,720
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest			—				—				—
Taxes			—				—				—

The accompanying notes are an integral part of these financial statements

NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS

Gilla Inc. (“Gilla” or the “Company”) was incorporated under the Laws of the State of Nevada on March 28, 1995 under the name of Truco, Inc. The shareholders approved name changes on March 22, 1996, March 18, 1997, September 13, 1999, October 3, 2000, April 23, 2003 and March 30, 2007 to Web Tech, Inc., Cynergy, Inc., Mercantile Factoring Credit Online Corp., Incitations, Inc., Osprey Gold Corp. and to its present name, respectively. On February 5, 2007 the board of directors approved the creation of two subsidiaries of the Company, a United States Subsidiary and a Canadian Subsidiary. Prior to the merger in September 1999, the Company’s activities had been in the development of proprietary technology and services using smart and remote memory cards and wireless and landline networks in the fields of commerce, publishing and network based systems. The Company’s activities are currently focused on mineral-property development specializing in acquiring and consolidating mineral properties with production potential and future growth through exploration discoveries.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of Gilla, Inc. include the accounts of the following companies: Gilla, Inc. and Free Mining Company S.A. All material intercompany transactions have been eliminated.

Basis of Accounting

The financial statements are prepared using the accrual basis of accounting where revenues and expenses are recognized in the period in which they were incurred. The basis of accounting conforms to accounting principles generally accepted in the United States of America.

Interim Reporting

While the information presented in the accompanying interim nine months financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the December 31, 2008 audited annual financial statements of Gilla Inc. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s December 31, 2008 annual audited financial statements.

Operating results for the nine ended September 30, 2009 are not necessarily indicative of the results that can be expected for the year ended December 31, 2009.

Going Concern

As reflected in the accompanying financial statements, the Company has had recurring losses. The Company’s net loss was $12,915,427 and $1,230,889 for the nine months ended September 30, 2009 and 2008, respectively and net cash used in operations totaled $174,054 and $385,769 for the nine months ended September 30, 2009 and 2008, respectively. Shareholders equity of $4,659,497 and an accumulated deficit of $25,689,522 at September 30, 2009 raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.

Our ability to continue as a going concern is dependent on the ability to further implement our business plan, raise capital, and generate revenues. Our management recognizes that we must generate additional resources and that we must successfully implement our business plan and achieves profitable operations. We cannot assure that we will be successful in any of these activities. Should any of these events not occur, our financial condition will be materially adversely affected.

The time required for us to become profitable from operations is highly uncertain, and we cannot assure you that we will achieve or sustain operating profitability or generate sufficient cash flow to meet our planned capital expenditures. If required, our ability to obtain additional financing from other sources also depends on many factors beyond our control, including the state of the capital markets and the prospects for our business. The necessary additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

We cannot assure that we will generate sufficient cash flow from operations or obtain additional financing to meet our obligations. The financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities, which may result from the inability of the Company to continue as a going concern.

Management’s Plans

The Company is currently exploring options to raise capital and maximize shareholder returns.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of these financials statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 3 — MINING RIGHTS

Through the acquisition of Free Mining Company S.A., Gilla, Inc. acquired 100% of the rights to exploration, development and production of all mineral rights of Mfoumou and Sele in Cameroon. On June 8th, 2009, Gilla was advised by its attorney in Cameroon that the exploration permits for Mfoumou and Sele were withdrawn from FMC, consequently management has determined the fair value of the Cameroon mining rights at June 30, 2009 to be $0. Asset impairment of expenses of $12,744.110 has been recorded for the period ending September 30. 2009.

On October 29, 2008, Gilla Inc. (“Gilla”) entered into an agreement (“Acquisition Agreement”) with Terra Merchant Resources Corporation (“Terra”) and the stockholders of Terra for substantially all of Terra assets. On December 18, 2008 9.2 million shares of Gilla Inc. were issued to Terra shareholders. By acquiring Terra mining rights, Gilla has secured a minimum 70% interest in the Salutar Comercio Mining Concession in Angola. Management has determined the fair value of the Angolan mining rights at September 30, 2009 to be $4,600,000.

NOTE 4 — ACCOUNTING STANDARDS UPDATES

In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162”. SFAS No. 168 made the FASB Accounting Standards Codification (the Codification) the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB will not consider ASUs as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification.

In August 2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall”. The update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. The amendments in this ASU clarify that a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability and also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this ASU is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of this standard did not have an impact on the Company’s consolidated financial position and results of operations.

NOTE 4 — ACCOUNTING STANDARDS UPDATES (Continued)

In September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740), “Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for nonpublic entities. For entities that are currently applying the standards for accounting for uncertainty in income taxes, this update shall be effective for interim and annual periods ending after September 15, 2009. For those entities that have deferred the application of accounting for uncertainty in income taxes in accordance with paragraph 740-10-65-1(e), this update shall be effective upon adoption of those standards. The adoption of this standard is not expected to have an impact on the Company’s (consolidated) financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.

In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) — Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures — Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted. The adoption of this standard did not have an impact on the Company’s consolidated financial position and results of operations.

In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard did not have an impact on the Company’s consolidated financial position and results of operations.

In October 2009, the FASB has published ASU 2009-14, “Software (Topic 985)-Certain Revenue Arrangements that Include Software Elements” and changes the accounting model for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality are excluded from the software revenue guidance in Subtopic 985-605, “Software-Revenue Recognition”. In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance. The guidance in this ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard did not have an impact on the Company’s consolidated financial position and results of operations.

Other ASUs not effective until after September 30, 2009, are not expected to have a significant effect on the Company’s (consolidated) financial position or results of operations.

NOTE 5 — SUBSEQUENT EVENTS

On October 28, 2009, 4,248,037 Shares were returned to Treasury.

On October 30, 2009, Gilla Inc. closed a non-brokered private placement, issuing 5,000,000 common shares at a price of $0.01 per share. Total proceeds from the private placement were $50,000. The proceeds from the issuance of shares will be used to cover legal fees related to the canceling of Certificates of certain shareholders as specified in the June 8, 2009 8-K filing and to finance the search for additional mining rights in Africa.

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

Gilla is a mineral-property development company specializing in acquiring and consolidating mineral properties with production potential, and future growth through exploration discoveries.

In 2008 Gilla added to its management, allowing Gilla to increase its focus on further developing existing properties and acquiring new properties.

On January 31, 2008, Gilla Inc. entered into an agreement with Free Mining Company S.A. (“FMC”) and the shareholders of FMC to acquire all issued and outstanding shares of FMC which is the exclusive owner of the rights to two mineral properties in Cameroon, respectively known as “MFOUMOU” and “SELE” in exchange for an aggregate of 21,240,184 common shares.

The exploration permits, granted by the Ministry of Industry, Mines and Technological Development in 2007, for MFOUMOU and SELE are respectively for the Nanga Eboko Rutile Project and the Akonolinga Rutile Project. The Mfoumou permit covers 998 square kilometers and the Sele permit covers 993 square kilometers . Each permit has a validity of three years and is renewable four times for a period of two years each.

In relation to FMC and as per the 8-K filing on June 28, 2009, the Company’s board of directors has voted for the cancellation of all the shares issued to Messrs Fotso, Djekam and Robinson and intends to demand reimbursement of all fees and expenses incurred in relation to the Cameroon permits as well as adequate compensation for damages.

On September 17, 2009, Gilla, Inc. (the “Company”) filed a lawsuit in the District Court of Nevada, Clark County, seeking a declaratory judgment and injunctive relief against Georges Fotso, Capital Venture Facilitators, LLC, Mathurin Djekam, Marie-Gisele Momo Minlo, Pauline NGO Bapa and DRR Capital Corporation (collectively, the “Defendants”). The Company is seeking a declaration by the Court affirming the Company’s cancellation of a total of 21,784,995 shares of the Company’s common stock issued to the Defendants and to temporarily and permanently enjoin the Defendants from attempting to transfer the certificates representing such shares and to require the Defendants to return such certificates for cancellation. The certificates that are the subject of this lawsuit include Certificate #31241 representing 10,000,000 shares issued to Mr. Fotso, Certificate #31240 representing 6,392,150 shares issued to Capital Venture Facilitators, LLC, Certificate #31244 representing 4,248,037 shares issued to Mr. Djekam, Certificate #31238 representing 500,000 shares issued to Ms. Minlo, Certificate #31239 representing 100,000 shares issued to Ms. Bapa and Certificate #31248 representing 544,808 shares issued to DRR Capital Corporation, represented by David Robinson. The Company’s board of directors had taken formal action to cancel these shares on June 8, 2009 based on failure of consideration and breaches of contractual and fiduciary duties on behalf of the Defendants.

In June 2009, we recorded an impairment charge of $12.7 million to write off the total remaining value of our 100% interest in FMC because we were advised by our attorney in Cameroon that the expiration permits for MFOUMOU and SELE were, on Mr. Fotso’s (a former director of Gilla) recommendation to the Ministry of Mines, withdrawn from FMC. Consequently management has determined the fair value of the mining rights at June 30, 2009 to be $0. An asset impairment expense of $12,744,110 has been recorded for the period ending September 30. 2009.

Gilla entered into a definitive agreement effective October 3, 2008 to acquire the mining rights owned by Terra Merchant Resources, (“Terra”), a private company incorporated in Ontario, Canada. Terra has secured rights to a gold exploration property in Angola, known under the name of Salutar Commercio Mining Concession, located some 120 km north of Cabinda City, Angola. The concession covers approximately 200 square kilometers. Through a Joint Venture agreement, Gilla has rights to 70% of the mineral concession.

The 2008 exploration stream sediment sampling program returned anomalous gold values on its 199 square kilometer Salutar Comercio Prospecting Licence (“PL”) in the Province of Cabinda, Angola. Predominantly metasedimentary lithologies of Pre-Cambrian age of the Mayombe tectonic system underlie the PL.

Based on the success of the 2008 exploration program the Company will carry out stream sediment sampling on the unsampled portion of the PL. In addition soil sampling of five areas upstream of the anomalous gold values is planned.

OVERVIEW

     The Company is a mineral-property development company specializing in acquiring and consolidating mineral properties with production potential and future growth through exploration discoveries. Acquisition and development emphasis is focused on properties containing precious metals and/or other strategic minerals that are located in Canada. In October 2006, the Company sold all the mining claims in the Porcupine Mining Divisions in Ontario, Canada, to a private company, Coldrock Resources Inc.

     The Company has a history of operating losses and we expect to continue to incur operating losses in the near future.

     The report of our independent accountants on our December 31, 2008 financial statements includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to substantial recurring losses from operations and significant accumulated deficit and working capital deficit. Our ability to continue as a going concern will be determined by our ability to obtain additional funding and commence and maintain successful operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

CERTAIN BUSINESS RISK FACTORS

     You should carefully consider the risks described below before purchasing our common stock. If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment. You should acquire shares of our common stock only if you can afford to lose your entire investment.

MINERAL EXPLORATION IS HIGHLY SPECULATIVE, INVOLVES SUBSTANTIAL EXPENDITURES, AND IS FREQUENTLY NON-PRODUCTIVE

     Mineral exploration involves a high degree of risk and exploration projects are frequently unsuccessful. Few prospects that are explored end up being ultimately developed into producing mines. To the extent that we continue to be involved in gold explorations, the long-term success of our operations will be related to the cost and success of our exploration programs. We cannot assure you that our gold exploration efforts will be successful. The risks associated with gold exploration include:

$ 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.

Substantial expenditures are required to determine if a project has economically mine able mineralization. It may take several years to establish proven and probable reserves and to develop and construct mining and processing facilities. As a result of these uncertainties, we cannot assure you that current and future exploration programs will result in the discovery of reserves, the expansion of our existing reserves and the development of mines.

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

     The profitability of gold and mineral mining operations is directly related to market prices. The market prices of gold other minerals fluctuate significantly and are affected by a number of factors beyond our control, including, but not limited to, the rate of inflation, the exchange rate of the dollar to other currencies, interest rates, development of a mine is undertaken and the time production can commence can significantly affect the profitability of a mine. Accordingly, we may begin to develop one or more of our mines at a time when the price of gold or other minerals makes such exploration economically feasible and, subsequently, incur losses because the price of gold or other minerals decreases. We cannot predict the market price or fluctuations of the gold or copper price.

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. We expect that our revenues will not be sufficient to sustain our operations for the foreseeable future. Our profitability will require the successful commercialization of our gold mines. No assurances can be given that we will be able to successfully commercialize our gold mines or that we will ever be profitable.

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the financial statements for the year ended December 31, 2008. The Company’s auditors have expressed doubt about the Company’s ability to continue as a going concern. As of September 30, 2009, the Company has current assets in the form of cash of $61,720, prepaid expense of $3,000 and current liabilities of $5,223. The Company’s net losses to date are $25,689,522

     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.

     The report of our independent accountants on our December 31, 2008 financial statements includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to substantial recurring losses from operations and significant accumulated deficit and working capital deficit. Our ability to continue as a going concern will be determined by our ability to obtain additional funding and commence and maintain successful operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

WE ARE DEPENDENT ON KEY PERSONNEL, THEIR LOSS MAY HAVE AN ADVERSE EFFECT

     We are dependent on the services of certain key executives, including Georges Benarroch, President and Director, Daniel Barrette, Chief Operating Officer, and Linda Kent, Corporate Secretary. The loss of any of these individuals could have a material adverse effect on our business and operations. We currently do not have key person insurance on these individuals.

THE MARKET PRICE OF OUR COMMON STOCK IS HIGHLY VOLATILE, WHICH COULD HINDER OUR ABILITY TO RAISE ADDITIONAL CAPITAL

     The market price of our common stock has been and is expected to continue to be highly volatile. Factors, including regulatory matters, concerns about our financial condition, operating results, litigation, government regulation, developments or disputes relating to agreements, title to our properties or proprietary rights, may have a significant impact on the market price of our stock. The range of the high and low bid prices of our common stock over the last 3 years has been between $4.75 (high) and $0.05(low). In addition, potential dilutive effects of future sales of shares of common stock by shareholders and by the company, and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the price of our securities, which could hinder our ability to raise additional capital to fully implement our business, operating and development plans.

PENNY STOCK REGULATION EFFECT OUR STOCK PRICE, WHICH MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR STOCK

     Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker-dealers make a special written determination that the penny stock is a suitable investment for the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rule. Our securities will be subject to the penny stock rules, and investors may find it more difficult to sell their securities

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:

     Free Mining Company S.A.’s Shareholders owned approximately 54.6% of our common stock; as of September 30, 2009. In January 2008, together with Mr. Mathurin Tchakounte Djekam, Messrs Fotso and Robinson received 21,240,184 common shares of Gilla Inc. in exchange for all the shares of FMC. As per the 8k filing on June 28, 2009, the Company board of directors has voted for the cancellation of all the shares issued to Messrs Fotso, Djekam and Robinson .

CRITICAL ACCOUNTING POLICIES

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make a wide variety of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain.

     As the number of variables and assumptions affecting the future resolution of the uncertainties increases, these judgments become even more subjective and complex. We have identified certain accounting policies that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Notes to Financial Statements. Several of those critical accounting policies are as follows:

DEPRECIATION AND DEPLETION.

     Depreciation is based on the estimated useful lives of the assets and is computed using the straight-line method.

IMPAIRMENT OF LONG-LIVE ASSETS .

     Management reviews the net carrying value of all property and equipment and other long-lived assets, including mineral properties, on a periodic basis. We estimate the net realizable value of asset based on the estimated undiscounted future cash flows that will be generated from operations at each property, the estimated salvage value of the surface plant and equipment and the value associated with property interests. These estimates of undiscounted future cash flows are dependent upon the estimates of metal to be recovered from proven and probable ore reserves, future production cost estimates and future metals price estimates over the estimated remaining life of the mineral property. If undiscounted cash flows are less than the carrying value of a property, an impairment loss will be recognized based upon the estimated expected future cash flows from the property discounted at an interest rate commensurate with the risk involved.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER, 2009

     The Registrant conducted no actual mining operation during the nine months ended September 30, 2009. As such, it had no revenues as described in the financial statements, attached hereto. However, the Company had total operating expenses of $12,915,427.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2009 we had $61,720 in cash. We anticipate total expenditures in 2009 for general and administrative and legal expenses to be approximately $200,000. The amount spent for this expense will be directly affected by our capital raising ability.

These amounts could increase or decrease significantly, at any time during the fiscal year, based on exploration/development results and decisions about releasing or acquiring additional properties, among other factors.

As of September 30, 2009, the Company had current assets of $64,720 compared to current liabilities of $5,223 resulting in working capital of $59,497.

Item 3. Disclosure Controls and Procedures

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Exchange Act Rule 13a - 15(e)), based on their evaluation of these controls and procedures as of the end of the period covered by this report, are appropriately designed to ensure that material information relating to the registrant is made known to such officers and are operating effectively.

(b) The registrant’s principal executive officer and principal financial officer have determined that there have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

On September 17, 2009, Gilla, Inc. (the “Company”) filed a lawsuit in the District Court of Nevada, Clark County, seeking a declaratory judgment and injunctive relief against Georges Fotso, Capital Venture Facilitators, LLC, Mathurin Djekam, Marie-Gisele Momo Minlo, Pauline NGO Bapa and DRR Capital Corporation (collectively, the “Defendants”). The Company is seeking a declaration by the Court affirming the Company’s cancellation of a total of 21,784,995 shares of the Company’s common stock issued to the Defendants and to temporarily and permanently enjoin the Defendants from attempting to transfer the certificates representing such shares and to require the Defendants to return such certificates for cancellation. The certificates that are the subject of this lawsuit include Certificate #31241 representing 10,000,000 shares issued to Mr. Fotso, Certificate #31240 representing 6,392,150 shares issued to Capital Venture Facilitators, LLC, Certificate #31244 representing 4,248,037 shares issued to Mr. Djekam, Certificate #31238 representing 500,000 shares issued to Ms. Minlo, Certificate #31239 representing 100,000 shares issued to Ms. Bapa and Certificate #31248 representing 544,808 shares issued to DRR Capital Corporation, represented by David Robinson. The Company’s board of directors had taken formal action to cancel these shares on June 8, 2009 based on failure of consideration and breaches of contractual and fiduciary duties on behalf of the Defendants.

ITEM 2. CHANGES IN SECURITIES

On October 28, 2009, 4,248,037 Shares were returned to Treasury.

On October 31, 2009, Gilla Inc. completed a Private Placement for 5 million shares for proceeds of $50,000 at $0.01 per share. The sole subscriber was Credifinance Capital Corp., a shareholder of the Corporation.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

See Item 2 and Item 5

ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf on September 30, 2009 by the undersigned, thereunto authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities on the date(s) indicated.

Name		Title		Date
/s/ Georges Benarroch		President Chief Financial Officer Director		November 13, 2009