Summary of GILLA INC. - Yahoo! Finance

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.

On June 25, 2012 entered into a Letter of Intent to acquire all of the outstanding common shares of Snoke Distribution Canada Ltd. ("Snoke Distribution") through the issuance of 25 million common shares of Gilla to the shareholders of Snoke Distribution and Snoke Distribution satisfying Gilla's outstanding debt. Snoke Distribution is the holder of a distribution agreement with German manufacturer Ecoreal GmbH & Co. KG ( www.isnoke.com ) for the exclusive rights to distribute all Snoke electronic cigarette ("e-cigarette") products in North America, the United Kingdom, Mexico and the Caribbean ("Snoke Rights"). The Snoke Rights have a five year term, which automatically renews in perpetuity unless there is a breach of the distribution agreement or Snoke Distribution becomes insolvent.

The Snoke e-cigarette was invented by leading German Oncologist Dr. Jürgen Ruhlmann. It is the only e-cigarette manufactured in Germany and is done so to the GMP2000 pharmaceutical standard. The Snoke comes in both premium version, which is rechargeable, and a disposable version that is the equivalent of 1.5-2 packages of regular cigarettes. SNO-Caps (the inhaled flavor packages inside the tip) are available in nicotine and non-nicotine and come in a range of pleasant flavours: tobacco, tobacco mild, mint, menthol, coffee, espresso, chocolate, vanilla, apple, cherry, green-tea, and energy.

On April 15, 2011, Gilla Inc. ("Gilla" or the "Company") entered into a Loan Agreement with Credifinance Capital Corp. ("CFCC" or the "Note holder") for the provision of a credit facility for an aggregate principal amount of Two Hundred Thousand Dollars ($200,000) in order to provide working capital and other resources for the business of Gilla. The Loan Agreement will mature on December 31, 2012 and interest of ten percent (10%) per annum is payable annually. CFCC has already provided loans and advances to Gilla. In consideration for the credit facility provided to Gilla, CFCC or its designee shall receive a 15% non-dilution interest in all real and personal properties held by the Company through its 99% GISOR SA subsidiary in the Democratic Republic of the Congo as of the date hereof, and not as security for the payment of the Note, but subject to any liens or other security interests arising from bona fide indebtedness of Gilla and its subsidiaries.

on June 25, 2012, the entered into a Share Purchase Agreement with Credifinance Capital Corp. ("CFCC") to sell all of the Company's shares in GISOR SA, a private company registered in the Democratic Republic of the Congo to CFCC in reduction of a portion of the the Company's outstanding debt to CFCC.

The company is currently not in the exploration stage and was in "explorative stage" till June 30, 2011

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011

The Registrant conducted no actual mining operation during the three months ended June 30, 2012. As such, it had no revenues as described in the interim unaudited condensed consolidated financial statements, attached hereto. However, the Company had a net income of $481,424 for the three months ended June 30, 2012 and a net loss of $35,019 for the three months ended June 30, 2011. The net income of $481,424 during the three months ended June 30, 2012, was a result of gain on change in the fair value of derivative liability of $518,241, offset by operating expenses of $14,962 and interest expense of $21,855.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

The Registrant conducted no actual mining operation during the six months ended June 30, 2012. As such, it had no revenues as described in the interim unaudited condensed consolidated financial statements, attached hereto. However, the Company had a net loss of $134,260 and $66,920 for the six months ended June 30, 2012 2011. The net loss of $134,260 during the six months ended June 30, 2012, was a result of operating expenses of $28,287, loss on change in the fair value of derivative liability of $62,359 and interest expense of $43,614.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital deficits of $211,764 and $98,502 as of June 30, 2012 and December 31, 2011, respectively. Cash were $18 and $118 as of June 30, 2012 and December 31, 2011, respectively.

Cash from operating activities

The Company's cash outflow from operations of $4,150 for the six months ended June 30, 2012 which was $35,794 below cash outflow from operations of $39,944 for the six months ended June 30, 2011.

Cash from financing activities

The Company had $4,050 net cash inflow from financing activities for the six months ended June 30, 2012 which was $35,950 below the cash inflow from financing activities for the six months ended June 30, 2011, which was $40,000.

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, 2011 consolidated financial statements includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to lack of operations and revenue and 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 unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 Unaudited Condensed Consolidated Financial Statements. Several of those critical accounting policies are as follows:

Use of Estimates

The preparation of consolidated 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.

Net Income (Loss) per Common Share

The Company computes earnings per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share ("ASC 260-10"). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. There is no effect on diluted loss per share since the common stock equivalents are anti-dilutive. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and the exercise of the Company's stock options and warrants.