---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q/A(Amendment No. 1)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
December 31, 2011

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to
________



Commission file number: 333-127635

GRYPHON GOLD CORPORATION(Exact Name of Registrant as Specified in its Charter)

|Nevada                                                               | 92-0185596                          
|-------------------------------------------------------------------- | ------------------------------------
|(State of other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|611 N Nevada Street                                                  |                                     
|Carson City, Nevada                                                  | 89703                               
|(Address of Principal Executive Offices)                             | (Zip Code)                          

(604) 261-2229(Registrants Telephone Number,
including Area Code)

_______________________________________________________________(Former
name, former address and former fiscal year, if changed since last report)

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 the
filing requirements for the past 90 days. [X] Yes [_] 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). [_] Yes [X] 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 definition of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check
one):

|Large accelerated filer [_] | Accelerated filer [_]          
|--------------------------- | -------------------------------
|Non-accelerated filer [_]   | Smaller reporting
  company [X]

Indicate by check mark whether the Registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act) Yes [_]
No [X]

Number of common shares outstanding at February 17, 2012
194,103,382

---

Explanatory Note

This Amendment No.1 on Form 10-Q/A (Amendment No. 1) to the
Companys Quarterly Report on Form 10−Q for the quarter ended
December 31,
2011, originally filed with the Securities and Exchange Commission on February
17, 2012 (Form 10−Q), amends the Cover Page of the Form 10-Q to correct a
typographical error that incorrectly identified the Reporting Issuer as a Shell
Company. The Cover Page has been updated accordingly.
No other changes have been made to the Form 10−Q. This Form 10−Q/A does not
reflect events that may have occurred subsequent to the original filing date,
and does not modify or update in any way disclosures made in the Form 10−Q.

---

GRYPHON GOLD CORPORATIONDecember 31, 2011

INDEX

|                                     |                                                                                              | **Page No.(s)**
|------------------------------------ | -------------------------------------------------------------------------------------------- | ---------------
|PART I - FINANCIAL
      INFORMATION |                                                                                             
|Item 1.                              | Financial Statements.                                                                        | 2              
|Item 2.                              | Managements Discussion and
      Analysis of Financial Condition and Results of Operations. | 16             
|Item 3.                              | Quantitative and Qualitative Disclosures
      About Market Risk.                            | 24             
|Item 4.                              | Controls and Procedures.                                                                     | 24             
|PART II - OTHER INFORMATION          |                                                                                             
|Item 1.                              | Legal Proceedings.                                                                           | 24             
|Item 1A.                             | Risk Factors.                                                                                | 24             
|Item 2.                              | Unregistered Sales of Equity
      Securities and Use of Proceeds.                           | 25             
|Item 3.                              | Defaults Upon Senior Securities.                                                             | 25             
|Item 4.                              | Mine Safety Disclosures                                                                      | 25             
|Item 5.                              | Other Information.                                                                           | 25             
|Item 6.                              | Exhibits.                                                                                    | 26             
|SIGNATURES                           |                                                                                              | 27             

i

---

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Gryphon Gold Corporation Consolidated Balance Sheets(Unaudited) (Stated in U.S. Dollars)

|                                            |   | As at        |   |   | As at       |  
|------------------------------------------- | - | ------------ | - | - | ----------- | -
|                                            |   | December 31, |   |   | March 31,   |  
|                                            |   | 2011         |   |   | 2011        |  
|ASSETS                                      |   |              |   |   |             |  
|Current Assets                              |   |              |   |   |             |  
|Cash                                        | $ | 1,380,077    |   | $ | 837,457     |  
|Accounts receivable                         |   | 527,869      |   |   | 29,892      |  
|Note receivable                             |   | -            |   |   | 2,975       |  
|Prepaid expenses                            |   | 279,842      |   |   | 122,716     |  
|Inventories                                 |   | 3,537,564    |   |   | -           |  
|Deferred issue costs                        |   | 557,547      |   |   | 281,278     |  
|**Total
      Current Assets**              |   | 6,282,899    |   |   | 1,274,318   |  
|Property, plant and equipment, net          |   | 18,934,418   |   |   | 2,760,330   |  
|Reclamation bonds                           |   | 2,259,393    |   |   | 225,893     |  
|Total Assets                                | $ | 27,476,710   |   | $ | 4,260,541   |  
|                                            |   |              |   |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY        |   |              |   |   |             |  
|Current Liabilities                         |   |              |   |   |             |  
|Accounts payable and accrued liabilities    | $ | 2,175,149    |   | $ | 397,106     |  
|Current portion of the long term debt       |   | 424,333      |   |   | -           |  
|Notes payable, net of discount              |   | 7,020,065    |   |   | -           |  
|Total Current Liabilities                   |   | 9,619,547    |   |   | 397,106     |  
|                                            |   |              |   |   |             |  
|Asset retirement obligation                 |   | 2,067,195    |   |   | 51,300      |  
|Long-term debt                              |   | 2,983,693    |   |   | -           |  
|Total Liabilities                           |   | 14,670,435   |   |   | 448,406     |  
|                                            |   |              |   |   |             |  
|Commitments & contingencies [note
      15] |   |              |   |   |             |  
|                                            |   |              |   |   |             |  
|Stockholders' Equity                        |   |              |   |   |             |  
|Common stock                                |   | 194,103      |   |   | 96,984      |  
|Additional paid-in capital                  |   | 53,105,922   |   |   | 41,665,952  |  
|Accumulated deficit                         |   | (40,493,750  | ) |   | (37,950,801 | )
|Total Stockholders' Equity                  |   | 12,806,275   |   |   | 3,812,135   |  
|Total Liabilities & Stockholders' Equity    | $ | 27,476,710   |   | $ | 4,260,541   |  

See Note 1  Nature of Operations and
Going Concern Uncertainty

The accompanying notes are an integral part of these
consolidated financial statements.

2

---

Gryphon Gold Corporation Consolidated Statements of
Operations(Unaudited) (Stated in US Dollars)

|                                                                             |   | Three months |   |   | Three months |   |   | Nine months  |   |   | Nine months  |  
|---------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | - | - | ------------ | -
|                                                                             |   | ended        |   |   | ended        |   |   | ended        |   |   | ended        |  
|                                                                             |   | December 31, |   |   | December 31, |   |   | December 31, |   |   | December 31, |  
|                                                                             |   | 2011         |   |   | 2010         |   |   | 2011         |   |   | 2010         |  
|Continuing operations:                                                       |   |              |   |   |              |   |   |              |   |   |              |  
|Sales of product                                                             | $ | 931,794      |   |   | -            |   | $ | 931,794      |   |   | -            |  
|Cost of sales and other
      direct production costs                        |   | 930,219      |   |   | -            |   |   | 930,219      |   |   | -            |  
|Depreciation, depletion, amortization                                        |   | 41,678       |   |   | -            |   |   | 41,678       |   |   | -            |  
|Gross profit (loss)                                                          |   | (40,103      | ) |   | -            |   |   | (40,103      | ) |   | -            |  
|Other operating expenses:                                                    |   |              |   |   |              |   |   |              |   |   |              |  
|Exploration
      (refund)                                                   |   | (26,394      | ) | $ | 115,930      |   |   | 68,860       |   | $ | 694,358      |  
|Salaries & consulting fees                                                   |   | 364,297      |   |   | 303,421      |   |   | 836,465      |   |   | 845,552      |  
|General and
      administrative                                             |   | 152,554      |   |   | 135,336      |   |   | 527,164      |   |   | 483,267      |  
|Legal and audit                                                              |   | 62,202       |   |   | 48,865       |   |   | 203,202      |   |   | 232,686      |  
|Travel and
      accommodation                                               |   | 66,328       |   |   | 36,366       |   |   | 159,589      |   |   | 105,659      |  
|Depreciation                                                                 |   | 17,714       |   |   | 13,145       |   |   | 35,176       |   |   | 40,767       |  
|Asset retirement
      obligation accretion                                  |   | 10,284       |   |   | -            |   |   | 27,280       |   |   | -            |  
|Income (loss) from operations                                                |   | (687,088     | ) |   | (653,063     | ) |   | (1,897,839   | ) |   | (2,402,289   | )
|Other income (expense):                                                      |   |              |   |   |              |   |   |              |   |   |              |  
|Gain on disposal of equipment                                                |   | -            |   |   | (99          | ) |   | -            |   |   | (99          | )
|Foreign exchange
      loss                                                  |   | 94,653       |   |   | 1,894        |   |   | 189,449      |   |   | 18,632       |  
|Realized loss on securities                                                  |   | -            |   |   | -            |   |   | -            |   |   | 75,772       |  
|Interest income                                                              |   | (7,926       | ) |   | 32           |   |   | (11,153      | ) |   | (1,974       | )
|Interest expense,
      net of capitalized interest                          |   | 381,212      |   |   | 123          |   |   | 466,814      |   |   | 997          |  
|Loss for the period from
      continuing operations                         |   | (1,155,027   | ) |   | (655,013     | ) |   | (2,542,949   | ) |   | (2,495,617   | )
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |  
|Discontinued operations:                                                     |   |              |   |   |              |   |   |              |   |   |              |  
|Loss from discontinued operations                                            |   | -            |   |   | -            |   |   | -            |   |   | (18,241      | )
|Gain on sale of discontinued
      operations                                |   | -            |   |   | -            |   |   | -            |   |   | 653,949      |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |  
|Income from discontinued
      operations                                    |   | -            |   |   | -            |   |   | -            |   |   | 635,708      |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |  
|Net loss for the period                                                      | $ | (1,155,027   | ) | $ | (655,013     | ) | $ | (2,542,949   | ) | $ | (1,859,909   | )
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |  
|Basic and diluted income
      (loss) per share:                             |   |              |   |   |              |   |   |              |   |   |              |  
|Loss from continuing operations                                              | $ | (0.006       | ) | $ | (0.007       | ) | $ | (0.014       | ) | $ | (0.028       | )
|Income from
      discontinued operations                                    |   | -            |   |   | -            |   |   | -            |   |   | 0.007        |  
|Total loss per share                                                         | $ | (0.006       | ) | $ | (0.007       | ) | $ | (0.014       | ) | $ | (0.021       | )
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |  
|Basic and diluted weighted average number
      of common shares outstanding |   | 193,992,040  |   |   | 89,755,784   |   |   | 177,175,447  |   |   | 88,357,009   |  

The accompanying notes are an integral part of these
consolidated financial statements.

3

---

Gryphon Gold CorporationConsolidated Statements
of Changes in Stockholders Equity(Unaudited) (Stated in US Dollars)

**Additional**Common stock
    
    
    **paid-in**Shares
    
    
    Amount
    
    
    **capital**
    
    
    **Accumulated
      deficit**
    
    
    Total#Balance, March 31, 2010
    
    86,033,774
    
    $
    86,034
    
    $
    39,585,228
    
    $
    (35,202,910
    )
    $
    4,468,352Shares issued:For private placements
    
    7,964,429
    
    
    7,964
    
    
    1,500,593
    
    
    
    
    
    1,508,558Option consideration
    
    1,500,000
    
    
    1,500
    
    
    268,500
    
    
    
    
    
    270,000Consultant compensation
    
    550,000
    
    
    550
    
    
    125,950
    
    
    
    
    
    126,500Share issue costs
    
    
    
    
    
    
    
    (104,729
    )
    
    
    
    
    (104,729
    )Settlement of accounts
      payable
    
    436,929
    
    
    437
    
    
    59,563
    
    
    
    
    
    60,000Fair value of restricted stock units granted
    
    275,000
    
    
    275
    
    
    41,923
    
    
    
    
    
    42,198Fair value of options granted
    
    
    
    
    
    
    
    142,212
    
    
    
    
    
    142,212Exercise of warrants
    
    223,500
    
    
    224
    
    
    46,712
    
    
    
    
    
    46,935Net loss for the period
    
    
    
    
    
    
    
    
    
    
    (2,747,891
    )
    
    (2,747,891
    )Balance, March
      31, 2011
    
    96,983,632
    
    
    96,984
    
    
    41,665,952
    
    
    (37,950,801
    )
    
    3,812,135Shares issued:For public offering
    
    89,060,000
    
    
    89,060
    
    
    10,979,302
    
    
    
    
    
    11,068,362Exercise of option to reduce
      royalty
    
    7,726,250
    
    
    7,726
    
    
    1,073,949
    
    
    
    
    
    1,081,675Share issue costs
    
    
    
    
    
    
    
    (13,177
    )
    
    
    
    
    (13,177
    )Public offering costs
    
    
    
    
    
    
    
    (1,466,723
    )
    
    
    
    
    (1,466,723
    )Exercise of options
    
    150,000
    
    
    150
    
    
    19,930
    
    
    
    
    
    20,080Exercise of warrants
    
    183,500
    
    
    183
    
    
    45,691
    
    
    
    
    
    45,874Fair value of options granted
    
    
    
    
    
    
    
    181,041
    
    
    
    
    
    181,041Fair value of warrants issued on debt
    
    
    
    
    
    
    
    619,957
    
    
    
    
    
    619,957Net loss for the
      period
    
    
    
    
    
    
    
    
    
    
    (2,542,949
    )
    
    (2,542,949
    )Balance December 31, 2011
    
    194,103,382
    
    $
    194,103
    
    $
    53,105,922
    
    $
    (40,493,750
    )
    $
    12,606,275


The accompanying notes are an integral part of these
consolidated financial statements.

4

---

Gryphon Gold Corporation Consolidated Statements of Cash
Flows(Unaudited) (Stated in US dollars)

|                                                               |   | Nine months  |   |   | Nine months  |  
|-------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                               |   | ended        |   |   | ended        |  
|                                                               |   | December 31, |   |   | December 31, |  
|                                                               |   | 2011         |   |   | 2010         |  
|                                                               |   |              |   |   |              |  
|OPERATING ACTIVITIES                                           |   |              |   |   |              |  
|Net loss for the period                                        | $ | (2,542,949   | ) | $ | (1,859,909   | )
|Items not involving cash:                                      |   |              |   |   |              |  
|Depreciation                                                   |   | 76,854       |   |   | 40,767       |  
|Asset retirement
      obligation accretion                    |   | 27,280       |   |   | -            |  
|Gain on disposal of equipment:                                 |   | -            |   |   | (99          | )
|Write down of accrued
      liability:                         |   | -            |   |   | (124,008     | )
|Share based compensation                                       |   | 181,041      |   |   | 142,022      |  
|Amortization of debt offering
      costs                      |   | 199,947      |   |   |              |  
|Amortization of notes payable discount                         |   | 199,877      |   |   | 10,364       |  
|Unrealized gain on foreign
      exchange                      |   | 20,141       |   |   |              |  
|Realized loss on securities                                    |   | -            |   |   | 75,771       |  
|Gain on extinguishment
      of debt                           |   | -            |   |   | (653,949     | )
|Changes in non-cash working                                    |   |              |   |   |              |  
|Capital items:                                                 |   |              |   |   |              |  
|Accounts receivable                                            |   | (497,977     | ) |   | 22,416       |  
|Accounts payable and accrued
      liabilities                 |   | 1,239,602    |   |   | (371,481     | )
|Inventories                                                    |   | (3,537,564   | ) |   | -            |  
|Prepaid expenses                                               |   | (157,126     | ) |   | (121,643     | )
|Cash used in
      operating activities                        |   | (4,790,874   | ) |   | (2,839,748   | )
|                                                               |   |              |   |   |              |  
|INVESTING ACTIVITIES                                           |   |              |   |   |              |  
|Reclamation bonds purchased                                    |   | (2,033,500   | ) |   | (69,115      | )
|Option payment received                                        |   | -            |   |   | 100,000      |  
|Purchase of equipment                                          |   | (414,225     | ) |   | (54,307      | )
|Payments on construction in progress, ADR                      |   | (1,491,363   | ) |   | -            |  
|Payments on leach pad 1A                                       |   | (1,897,882   | ) |   | -            |  
|Payment on plant                                               |   | (4,929,259   | ) |   | -            |  
|Cash received from sale of discontinued
      operations       |   | -            |   |   | 2,250,000    |  
|Mineral property expenditures                                  |   | (248,203     | ) |   | (11,003      | )
|Option payment to amend and reduce royalty                     |   | (175,000     | ) |   | (150,000     | )
|Proceeds from sales of held for trading securities             |   | -            |   |   | 116,195      |  
|Proceeds from note receivable                                  |   | 2,975        |   |   | 8,634        |  
|Proceeds from sale
      equipment                             |   | -            |   |   | 100          |  
|Cash used in investing activities                              |   | (11,186,457  | ) |   | 2,190,504    |  
|FINANCING ACTIVITIES                                           |   |              |   |   |              |  
|Payments on notes payable                                      |   | (46,693      | ) |   | -            |  
|Proceeds from notes payable                                    |   | 7,480,676    |   |   | -            |  
|Shares and warrants issue for cash net of
      offering costs |   | 11,134,317   |   |   | 200,000      |  
|Share issues costs                                             |   | (13,177      | ) |   | (13,736)     |  
|Public offering costs                                          |   | (1,185,444   | ) |   | -            |  
|Debt offering
      costs                                      |   | (829,587     | ) |   | -            |  
|Cash provided by financing activities                          |   | 16,540,092   |   |   | 186,264      |  
|                                                               |   |              |   |   |              |  
|Effect of foreign exchange on cash                             |   | (20,141      | ) |   | -            |  
|Increase (decrease) in cash during the period                  |   | 542,620      |   |   | (462,980     | )
|Cash, beginning of period                                      |   | 837,457      |   |   | 937,056      |  
|Cash, end of
      period                                      | $ | 1,380,077    |   | $ | 474,076      |  

See Note 1 Nature of Operations and Going Concern
Uncertainty

The accompanying notes are an integral part of these
consolidated financial statements.

5

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Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

1. NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY

Gryphon Gold Corporation was incorporated in the State of
Nevada in 2003 and wholly owns its subsidiary, Borealis Mining Company
(collectively, Gryphon Gold or the Company). The Company has historically
reported as an exploration and development company. On June 6, 2011, the Company
began constructing an oxide heap leach mine and related processing facility on
its Borealis property (the Borealis Oxide Heap Leach Project). During the
period ended December 31, 2011, the Company commenced mining operations, and the
Company has determined the Company is no longer in the exploration/development
stage. Accordingly, the Company has ceased its financial reporting in accordance
with Accounting Standards Codification (ASC) 915 Development Stage Entities,
during the nine months ended December 31, 2011.

Going Concern

The audit opinion for the Companys financial statements for
the fiscal year ended March 31, 2011 includes a going concern qualification.
Additional financing will be required to complete the Adsorption Desorption
Recovery Plant (ADR), to provide capital for the expansion of crushing and
procession facilities, to fund additional bonding requirements and to provide
working capital until the Company receives positive cash flow from sales of
gold. The Company is currently conducting negotiations with multiple parties to
obtain the needed financing, subject to its ability to obtain the necessary
consent and approvals. If future revenues do not result in positive cash flow,
and the Company is unable to raise additional capital, we will not be able to
meet our obligations and may have to suspend or cease operations. The Companys
ability to raise additional capital may be inhibited by the restrictive
covenants of the debentures the Company issued in November of 2011, which
restrict the Companys ability to issue equity and debt securities absent
consent of the Noteholders. No assurance can be given that the Company will be
successful in achieving profitability, generating positive cash flow or raising
additional capital through placements of debt or equity. The Company has an
accumulated deficit of $40,493,750 as at December 31, 2011, ($37,950,801 as at
March 31, 2011), and without positive operating cash flow or additional
financing, the Company does not have sufficient cash on hand to fund normal
operations for the next twelve months or satisfy the current $7 million notes
payable. These conditions raise substantial doubt about the Companys ability to
continue as a going concern.

The accompanying consolidated financial statements have been
prepared under the assumption that the Company will continue as a going concern.
Such assumption contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The recoverability of amounts
shown for mineral property interests in the Companys consolidated balance
sheets is dependent upon the existence of economically recoverable reserves, the
ability of the Company to arrange appropriate financing to complete the
development of its properties, the receipt of necessary permitting and upon
achieving future profitable production or receiving proceeds from the
disposition of properties. The timing of such events occurring, if at all, is
not yet determinable. The accompanying consolidated financial statements do not
include any adjustments related to the recoverability and classification of
assets or the amounts and classifications of liabilities that might be necessary
should the Company be unable to continue as a going concern.

Basis of Presentation

The unaudited financial statements have been prepared by the
Company in accordance with accounting principles generally accepted in the
United States of America for interim financial information, as well as the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of the Companys management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of the interim
financial statements have been included. Operating results for the three and
nine month periods ended December 31, 2011 are not necessarily indicative of the
results that may be expected for the full fiscal year ending March 31, 2012.

For further information refer to the financial statements and
footnotes thereto in the Companys Annual Report on Form 10-K for the year ended
March 31, 2011.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Loss per share

Loss per common share is determined based on the weighted
average number of common shares outstanding during the period. Diluted loss per
share is calculated by the treasury stock method. Under the treasury stock
method, the weighted average number of common shares outstanding for the
calculation of diluted earnings per share assumes that the proceeds to be
received on the exercise of diluted stock options and warrants classified as
equity instruments are applied to repurchase common shares at the average market
price for the period.

6

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

Loss per share, continued:

In addition, outstanding convertible promissory notes are
assumed to be converted into common stock at the then applicable rate. Stock
options and warrants are dilutive when the Company has income from continuing
operations and when the average market price of the common shares during the
period exceeds the exercise price of the options and warrants. The convertible
promissory notes are dilutive when the Company has income from continuing
operations, and the impact from the dilution exceeds the impact from the
reduction in interest expense resulting from the conversion of the notes.

Fair value measurements

Accounting principles require an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. ASC establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to measure fair
value. A financial instruments categorization within the fair value hierarchy
is based upon the lowest level of input that is significant to the fair value
measurement. ASC prioritizes the inputs into three levels that may be used to
measure fair value:

- Level 1: applies to assets or liabilities for which there are quoted
  prices in active markets for identical assets or liabilities.
- Level 2: applies to assets or liabilities for which there are inputs other
  than quoted prices that are observable for the asset or liability such as
  quoted prices for similar assets or liabilities in active markets; quoted
  prices for identical assets or liabilities in markets with insufficient volume
  or infrequent transactions (less active markets); or model-derived valuations
  in which significant inputs are observable or can be derived principally from,
  or corroborated by, observable market data.
- Level 3: applies to assets or liabilities for which there are unobservable
  inputs to the valuation methodology that are significant to the measurement of
  the fair value of the assets or liabilities.

Our financial instruments consist principally of cash,
reclamation bond, long-term debt and notes payable. The table below sets forth
our assets and liabilities measured at fair value, on a recurring basis and the
fair value calculation input hierarchy level that management has determined
applies to each asset and liability category.

|                          |   | Balance December 31, |  |   | Balance March 31, |  |  | Input           | 
|------------------------- | - | -------------------- |  | - | ----------------- |  |  | --------------- | 
|                          |   | 2011                 |  |   | 2011              |  |  | Hierarchy level | 
|                          |   |                      |  |   |                   |  |  |                 | 
|Cash and cash equivalents | $ | 1,380,077            |  | $ | 837,457           |  |  | Level 1         | 
|Reclamation bonds         | $ | 2,259,393            |  | $ | 225,893           |  |  | Level 1         | 

Inventories

Material on Heap Leach Inventory

The Company records gold in process, gold doré, and saleable
gold on carbon at average cost, less provisions required to reduce inventory to
market value. Costs capitalized to in process and finished goods inventory
include the cost of mineralized material processed; direct and indirect
materials and consumables; direct labor; repairs and maintenance; utilities;
amortization of property, plant and equipment; and local mine administrative
expenses.

Supplies Inventory

Mine operating supplies are recorded at the lower of purchase
cost or net realizable value. The Company records provisions to reduce inventory
to net realizable value to reflect changes in economic factors that impact
inventory value or to reflect present intentions for the use of slow moving and
obsolete supplies inventory.

Revenue Recognition

Revenues and the corresponding accounts receivable for sales of
gold and silver products are recorded upon shipment.

7

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

Property, Plant and Equipment

Reserves are a key component in our valuation of our property,
plant and equipment. Reserve estimates in our pre-feasibility study entitled NI
43-101 Pre-Feasibility Study Update of the Mineral Resources of the Borealis
Gold Project Located in Mineral County, Nevada, USA dated April 25, 2011, (the
Pre-Feasibility Study) are used in determining appropriate rates of units-of
production depreciation.

Reclassifications

Certain comparative figures have been reclassified to conform
to the current quarter presentation.

3. NEVADA EAGLE RESOURCES LLC

On August 21, 2007, Gryphon Gold closed the acquisition of
Nevada Eagle Resources LLC (Nevada Eagle). On April 23, 2010, Gryphon Gold
sold its wholly owned subsidiary, Nevada Eagle Resources LLC to Fronteer
Development (USA) Inc. (Fronteer) for $4,750,000. Fronteer paid $2,250,000 in
cash and $2,500,000 by assuming Gryphon Gold's obligations under a convertible
note, which was retired. In addition, Gryphon Gold retained the Copper Basin
property located in Idaho. The Company recognized a gain of $653,949 in
connection with the sale.

The Company completed the sale of Nevada Eagle during the six
months ended September 30, 2010; Nevada Eagles results have been classified and
presented as Discontinued Operations.

4. INVENTORIES

The recovery of gold and silver from certain oxide ores is
achieved through the heap leaching process. Under this method, mineralized
material is placed on leach pads where it is treated with a chemical solution,
which dissolves the gold or silver contained in the material. The resulting
pregnant solution is further processed in a plant where gold and silver are
recovered. For accounting purposes, costs are added to material on leach pads
based on current mining and leaching costs, including applicable depreciation,
depletion and amortization relating to mining operations. Costs are removed from
ore on leach pads as ounces are recovered based on the average cost per
recoverable ounce of gold or silver on the leach pad.

Estimates of recoverable gold or silver on the leach pads are
calculated from the quantities of material placed on the leach pads (measured
tons added to the leach pads), the grade of material placed on the leach pads
(based on assay data) and an estimated recovery percentage (based on ore type).
Although the quantities of recoverable gold or silver placed on the leach pads
are reconciled by comparing the grades of material placed on pads to the
quantities of gold or silver actually recovered (metallurgical balancing), the
nature of the leaching process inherently limits the ability to precisely
monitor inventory levels. As a result, the metallurgical balancing process is
regularly monitored and estimates are refined based on actual results over time.
As of December 31, 2011 the Company had a limited operating history and actual
results only over that short period of time. Due to this, estimates of
recoverable gold and silver are based primarily on initial tests and only
limited refinements derived from metallurgical balancing.

Variations between actual and estimated quantities resulting
from changes in assumptions and estimates that do not result in write-downs to
net realizable value are accounted for on a prospective basis. The ultimate
recovery of gold or silver from a leach pad will not be known until the leaching
process is concluded. The quantification of material inventory on the leach pad
is based on estimates of the quantities of gold or silver at each balance sheet
date that the Company expects to recover during the next 12 months.

During the third quarter the Company estimated its recoverable
material on the leach pad and its gold in carbon inventory based on net
realizable value less processing and selling costs of the inventories, as third
quarter production costs exceed net realizable value.

At December 31, 2011, our inventories were as follows:

|                                |   | December 31, 2011 | 
|------------------------------- | - | ----------------- | 
|Material on leach pad inventory | $ | 2,816,582         | 
|Gold in carbon inventory        |   | 580,861           | 
|Supplies inventory              |   | 140,120           | 
|Total inventory costs           | $ | 3,537,564         | 

8

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

5. PROPERTY, PLANT AND EQUIPMENT

During the nine months ended December 31, 2011, the Company
acquired assets in connection with the construction of the Borealis Heap Leach
Oxide Project and also began construction of the ADR plant through the debt
financing that was completed on July 27, 2011.

|                                                |   | December 31, 2011 | 
|----------------------------------------------- | - | ----------------- | 
|                                                |   |                   | 
|                                                |   | Cost              | 
|Mineral properties                              | $ | 7,574,547         | 
|Borealis asset retirement obligation            |   | 2,036,869         | 
|Leach pad 1A                                    |   | 1,897,882         | 
|Plant                                           |   | 5,477,528         | 
|Construction in progress, ADR                   |   | 1,491,363         | 
|Equipment                                       |   | 764,783           | 
|Property,
      plant and equipment total costs | $ | 19,242,972        | 

|                                                |   | March 31, 2011 | 
|----------------------------------------------- | - | -------------- | 
|                                                |   |                | 
|                                                |   | Cost           | 
|Equipment                                       | $ | 340,963        | 
|Mineral properties                              |   | 2,651,069      | 
|Property,
      plant and equipment total costs | $ | 2,992,032      | 

On June 6, 2011, the Company commenced construction of Phase 1A
of the Borealis Oxide Heap Leach Project. The majority of construction of Phase
1A was completed late in the second quarter. Construction activities included
building a new leach pad, barren and pregnant solution ponds, carbon columns,
roads and infrastructure. Direct costs of materials, labor, equipment and
supplies used in construction activities are capitalized during the period they
are incurred. Additionally, certain indirect costs are capitalized during the
period. Interest expense of $164,902 was capitalized during the period ended
December 31, 2011 in construction in progress.

6. RECLAMATION BONDS

At December 31, 2011 and March 31, 2011, reclamation bonds and
deposits were as follows:

|                             |   | December 31, |  |   | March 31, | 
|---------------------------- | - | ------------ |  | - | --------- | 
|                             |   | 2011         |  |   | 2011      | 
|Reclamation bonds & deposits | $ | 2,259,393    |  | $ | 225,893   | 
|Total                        | $ | 2,259,393    |  | $ | 225,893   | 

On December 31, 2011 the Company had $2,250,385 (March 31, 2011
- $216,885) on deposit to support performance bonds with the United States
Forest Service. The Company also has a deposit with the Bureau of Land
Management (BLM) for $9,008 (March 31, 2011 - $9,008), which partially
supports its potential future obligations for reclamation during the Companys
exploration activities within the BLM area. The United States Forest Service
reclamation bonds were increased during the nine months ended December 31, 2011,
by $2,033,500. These bonds are required in connection with the construction of
the Borealis Oxide Heap Leach Project and to perform infill drilling.

9

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

7. NOTES PAYABLE

On July 27, 2011, the Company closed a $3.17 million debt
offering of units of the Company. The offering was led by Acumen Capital Finance
Partners Limited in Canada and by Roth Capital Partners in the United States.
Each unit consists of $1,000 CAD principal amount of 10% secured subordinated
debentures maturing July 28, 2012 and 1,500 warrants. Each warrant entitles the
holder thereof to purchase one common share of the Company at a price of $0.20
USD per share. The warrants expire on January 27, 2013.

The debentures bear interest from the date of issue at 10.0%
per annum, payable quarterly on March 31, June 30, September 30 and December 31,
commencing on September 30, 2011. The debentures will mature 12 months from the
closing date of the offering on July 28, 2012. The debentures were issued under
a Trust Indenture, which contains customary terms, conditions and covenants. The
debentures are secured by a pledge of the shares of Borealis Mining Company and
a general security interest in the assets of the Company under the terms of a
Pledge and Security Agreement.

The fair value of the warrants issued to note holders and
brokers pursuant to the July 2011 offering was $383,670, which was calculated
using Black-Scholes model with a risk free interest rate of 0.30%, volatility of
86.59%, 549 days expected term and an exercise and market price of $0.20 per
share. This valuation was recorded as a discount to the notes payable and will
be amortized over the twelve-month term of the notes and as at December 31,
2011, $166,082 had been amortized and charged to interest expense.

On November 22, 2011, the Company closed another $4.3 million
debt offering of units of the Company. The offering was led by Acumen Capital
Finance Partners Limited in Canada and by Roth Capital Partners in the United
States. Each unit consists of $1,000 CAD principal amount of 10% secured
subordinated debentures maturing November 23, 2012 and 750 warrants. Each
warrant entitles the holder thereof to purchase one common share of the Company
at a price of $0.40 USD per share. The warrants expire on May 22, 2013.

The debentures bear interest from the date of issue at 10.0%
per annum, payable quarterly on March 31, June 30, and September 30. The
debentures will mature 12 months from the closing date of the offering on
November 23, 2012. The debentures were issued under a Trust Indenture, which
contains terms, conditions, covenants and restrictive covenants, including
restrictions on issuing additional debt or equity. The debentures are secured
under the terms of a Pledge and Security Agreement by a pledge of the shares of
Borealis Mining Company and a general security interest in the assets of the
Company, which is subordinate to the security interest granted to holders of the
debentures issued on July 27, 2011.

Acumen and Roth Capital were paid a cash commission of 6.5% of
the gross proceeds of the offering.

The fair value of the warrants issued to note holders and
brokers pursuant to the November 2011 offering was $308,379, which was
calculated using Black-Scholes model with a risk free interest rate of 0.40%,
volatility of 84.11%, 548 days expected term and an exercise and market price of
$0.2794 per share. This valuation was recorded as a discount to the notes
payable and will be amortized over the twelve-month term of the notes and as at
December 31, 2011 $33,795 had been amortized and charged to interest expense

8. DEBT OFFERING COSTS

The debt offering costs in connection with the notes payable
transaction closed on July 27, 2011 [See note 7] totaled $405,520 paid in cash,
of which $43,788 was accounted for in additional paid in capital, netting
$361,732 in debt offering costs. These costs will be amortized over the
twelve-month term of the notes and as at December 31, 2011, $156,585 was
amortized and charged to interest expense.

The debt offering costs in connection with the notes payable
transaction closed on November 22, 2011 [See note 7] totaled $424,067 paid in
cash, of which $28,304 was accounted for in additional paid in capital, netting
$395,763 in debt offering costs. These costs will be amortized over the
twelve-month term of the notes and as at December 31, 2011, $43,362 was
amortized and charged to interest expense.

10

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

9. ASSET RETIREMENT OBLIGATION

At December 31, 2011, and March 31, 2011, our asset retirement
obligation was as follows:

|                                                       |   | Nine      |  |   | Year      | 
|------------------------------------------------------ | - | --------- |  | - | --------- | 
|                                                       |   | months    |  |   | ended     | 
|                                                       |   | ended     |  |   | March 31, | 
|                                                       |   | December  |  |   | 2011      | 
|                                                       |   | 31, 2011  |  |   |           | 
|Asset retirement obligation, beginning
      of period | $ | 51,300    |  |   | -         | 
|Incurred                                               |   | 1,928,733 |  | $ | 48,254    | 
|Accretion                                              |   | 30,326    |  |   | 3,046     | 
|Additions and changes in estimates                     |   | 56,836    |  |   | -         | 
|Settlements                                            |   | -         |  |   | -         | 
|Asset retirement
      obligation, end of period       | $ | 2,067,195 |  | $ | 51,300    | 

The asset retirement obligation at March 31, 2011 was
calculated based on responsibilities the Company had to reclaim certain
disturbed acreage relating to exploration on the Borealis property. The asset
retirement obligation at December 31, 2011 includes the Companys estimate of
reclamation costs for Phase 1A of the Borealis Heap Leach Project and in fill
drilling that commenced in the quarter ended December 31, 2011.

10. OPTION TO REDUCE ROYALTY

In August 2008, Gryphon and its wholly-owned subsidiary,
Borealis Mining Company, entered into an option agreement with the lessors of
the Borealis property to amend the mining lease for the Borealis Property to fix
the gold price based sliding scale royalty at a 5% Net Smelter Royalty.
Effective May 20, 2011, the Company exercised the option to fix the Net Smelter
Return (NSR) royalty on its Borealis property at 5%.

Under the terms of the option agreement, as amended, Gryphon
exercised the option by paying the lessors aggregate consideration of $7,000,000
(less the $250,000 previously paid by Gryphon to the lessors upon execution of
the option agreement) as follows:

| | (a) | $150,000 in cash;                                                                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                  
| | (b) | 7,726,500 shares of common stock at an agreed value of
      $0.40 per share (an agreed value of $3,090,500, and a fair value of
      $1,081,675 based on the market price of the Companys common shares at the
      date the option was exercised);                          
| |     |                                                                                                                                                                                                                                                                                  
| | (c) | 5% promissory notes in the aggregate principal amount of
      $1,600,000, due May 20, 2013, with installment payments due upon
      commencement of production on the Borealis property; and                                                                                   
| |     |                                                                                                                                                                                                                                                                                  
| | (d) | 5% convertible notes in the aggregate principal amount of
      $1,909,500, due May 20, 2014, convertible into shares of Gryphon common
      stock at $0.70 per share through May 20, 2012, $0.80 per share through May
      20, 2013 and $0.90 per share through May 20, 2014.

Accordingly, at December 31, 2011 and at March 31, 2011, the
Companys mineral properties include the following payments made to the Borealis
Property lessors:

|                             |   | Nine months  |  |   | Year           | 
|---------------------------- | - | ------------ |  | - | -------------- | 
|                             |   | ended        |  |   | ended          | 
|                             |   | December 31, |  |   | March 31, 2011 | 
|                             |   | 2011         |  |   |                | 
|Balance, beginning of period | $ | 760,903      |  | $ | 560,903        | 
|Cash paid                    |   | 175,000      |  |   | 200,000        | 
|Promissory notes payable     |   | 1,600,000    |  |   | -              | 
|Convertible notes payable    |   | 1,909,500    |  |   | -              | 
|Common stock issued          |   | 1,081,675    |  |   | -              | 
|Balance, end of period       | $ | 5,527,078    |  | $ | 760,903        | 

[See Note 14]

11

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

11. LONG TERM DEBT

In connection with the exercise of the option to reduce the
royalty [note 10], the Company entered into a series of convertible and
promissory notes.

Promissory notes

The promissory notes bear interest at 5% per annum payable
monthly. Principal installments are due monthly, commencing on the date in which
Borealis Mining is required to commence production royalty payments. Payments on
the notes are interest only until production commences. During the quarter ended
December 31, 2011 the Company paid $101,474 in principal payments. All unpaid
principal and accrued interest, if any, is due and payable on May 21, 2013. The
aggregate balance due on the notes as of December 31, 2011 is $1,498,526 with
interest payable of $6,603 paid on January 1, 2012.

Convertible notes

The convertible notes bear interest at 5% per annum payable
monthly. Monthly payments on the notes are interest only for a period of 12
months from the commencement of the construction of the mine. Subsequent to the
twelvemonth period, the notes are payable in monthly installments of principal
and interest. All unpaid principal and accrued interest, if any, is due and
payable on May 21, 2014. The aggregate balance due on the notes as of December
31, 2011 is $1,909,500 with interest payable of $8,109 paid on January 1, 2012.

12. CAPITAL STOCK

|[a] | Authorized capital stock consists of 250,000,000 common
      shares with a par value of $0.001 per share and 15,000,000 preferred
      shares with a par value of $0.001 per share.                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                
|    | On May 20, 2011, the Company issued 7,726,250 common
      shares in connection with the exercise of the option to reduce the royalty
      [Note 10]. The shares were valued at $1,081,675, which was based upon the
      market value of the shares on the date of exercise.
|    |                                                                                                                                                                                                                                                                                
|    | On May 24, 2011, the Company issued 89,060,000 common
      shares in connection with a public offering for net cash proceeds of
      $9,601,639, after offering costs of $1,466,723.                                                                                         
|    |                                                                                                                                                                                                                                                                                
|    | During the quarter ended December 31, 2011, 150,000
      options were exercised for proceeds of $20,080.                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                
|    | During the quarter ended December 31, 2011, 183,500
      warrants were exercised for proceeds of $45,875.                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                
|[b] | Warrants:                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                
|    | The following table summarizes information about warrants
      outstanding and exercisable as at December 31,
2011:                                                                                                                                                           

| | Warrants Outstanding and
      Exercisable
| | ------------------------------------------
| |                                           
| | Warrants                                  
| |                                           
| | 5,265,177                                 
| | 732,215                                   
| | 3,250,000                                 
| | 4,725,000                                 
| | 3,359,250                                 
| | 2,226,500                                 
| | 19,558,142                                

|[c] | Stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The Company recognizes stock-based compensation expense
      over the requisite service period of the individual grants, which
      generally equals the vesting period. The Companys total employees are
      relatively few in number and turnover is considered minimal, therefore the
      Company currently estimates forfeitures to be 20%. Estimate of forfeitures
      is reviewed on a quarterly basis. Stock-based compensation is expensed on
      a straight-line basis over the requisite service period.

12

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

12. CAPITAL STOCK, CONTINUED:

The Company recorded total stock-based compensation expense
related to stock options and restricted stock units as follows:

Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine monthsended
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Management salaries
    $
    79,714
    
    $
    11,669
    
    $
    171,405
    
    $
    104,951Consulting expense
    
    2,675
    
    
    31,143
    
    
    9,996
    
    
    37,071Total
    $
    82,389
    
    $
    42,812
    
    $
    181,401
    
    $
    142,022


Stock option activity

The following table summarizes the Companys stock option
activity (excluding options issued to a consultant, above) for the nine months
ended December 31, 2011:

Number of Stock
    
    
    Weighted AverageOptions
    
    
    Exercise PriceOutstanding, April 1, 2011
    
    4,917,500
    
    $
    0.41*Granted
    
    1,855,000
    
    $
    0.26Exercised
    
    (150,000
    )
    $
    0.13Forfeited
    
    (555,000
    )
    $
    0.87*Total outstanding at December 31,
      2011
    
    6,067,500
    
    $
    0.32*Vested and exercisable at December 31, 2011
    
    5,068,750
    
    $
    0.34*


* Based on the December 31, 2011 exchange rate of Cdn$1
equals US$0.9972.

During the nine months ended December 31, 2011 the total fair
value of options granted was $359,940 of which $181,401 was expensed.

Out of the 1,855,000 granted during the nine months ended
December 31, 2011, 150,000 were granted to a consultant, the remaining were
granted to employees.

Valuation assumptions

Compensation and consulting expense recorded in the
consolidated financial statements has been estimated using the Black-Scholes
option-pricing model. The weighted average assumptions used in the pricing model
include:

Nine months
    Nine monthsended
    EndedDecember 31, 2011
    December 31, 2010Dividend yield
    0%
    0%Expected volatility
    102%-118%
    99% -119%Risk free interest rate
    0.31%-0.78%
    0.52% -1.62%Expected lives
    1.5-3
      years
    2-3
      years


The risk-free interest rate was determined based on the rate at
the time of grant for US government zero-coupon bonds for a 2-3-year term, which
is a term equal to the estimated life of the option. Dividend yield was based on
the stock options exercise price and expected annual dividend rate at the time
of grant. Volatility was derived by measuring the average share price
fluctuation of the Companys stock. The period of historical volatility is the
same period as the expected life of the options being three years.

The Company uses a Black-Scholes option-pricing model for fair
value measurement of options. This model was independently developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Companys stock option awards.
Option pricing models require the input of highly subjective assumptions,
including future stock price volatility and expected time until exercise, which
greatly affect the calculated values. Changes in these assumptions can
materially affect the fair value estimate and therefore it is managements view
that the existing models do not necessarily provide a single reliable measure of
the fair value of the Companys equity instruments.

13

---

Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

12. CAPITAL STOCK, CONTINUED:

|[d] | Restricted stock units (RSUs):                                                                                                                                                                                                                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The RSU grants entitle the recipient to receive shares of
      common stock of the Company upon vesting. The RSU grants can vest
      immediately or over a period for up to five years.                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company recognizes stock-based compensation expense
      based on the grant date fair value of the award on a straight-line basis
      over the requisite service period of the individual grants, which
      generally equals the vesting period. The grant date fair value of the
      restricted stock unit is calculated using the closing price of the
      Companys common stock on the date of the grant.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The following table summarizes information about RSUs
      outstanding as at December 31, 2011:                                                                                                                                                                                                                                                                                                                          

RSUs
    
    
    RSUs
    
    
    RSUs
    
    
    RSUs
    
    
    WeightedGranted
    
    
    Vested
    
    
    Forfeited
    
    
    Cancelled
    
    
    Averageand Cash in
    
    
    Fair Valuelieu of
    
    
    at Grantissued
    
    
    DateOutstanding at April 1, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued April 18, 2006
    
    8,000
    
    
    8,000
    
    
    
    
    
    
    
    
    Cdn$1.63Issued December 12, 2006
    
    29,000
    
    
    15,000
    
    
    14,000
    
    
    
    
    
    Cdn$0.84Issued January 10, 2007
    
    650,000
    
    
    488,750
    
    
    118,750
    
    
    42,500
    
    
    Cdn$0.82Issued September 6, 2007
    
    154,170
    
    
    154,170
    
    
    
    
    
    
    
    
    Cdn$0.77Issued September 20, 2010
    
    275,000
    
    
    275,000
    
    
    
    
    
    
    
    $
    0.16Outstanding at December 31, 2011
    
    1,116,170
    
    
    940,920
    
    
    132,750
    
    
    42,500
    
    
    .


All issued restricted stock units have vested.

13. COMMITMENTS & CONTINGENCIES

[a] A portion of the Borealis Property is subject to a mining
lease. The Company was required to make advanced royalty payments monthly of
$9,869, adjusted annually based on the Consumer Price Index. The last advance
royalty payment was made in November 2011 as the Company moved from exploration
to production. In addition, production of precious metals from the Borealis
Property will be subject to the payment of a royalty under the terms of the
mining lease. The Company deducts advance royalty payments from production
royalties due under the mining lease, pursuant to the mining lease. The
Companys royalty holders have disputed this practice [See Note 14]. The Company
is currently preparing a response to the complaint.. The mining lease expired on
January 24, 2009, but was and is automatically renewed thereafter, so long as
mining related activity, including exploration drilling, continues on the
Borealis Property.

[b] The Company rents office space in Vancouver, BC for a
5-year term, commencing September 2008, office space in Hawthorne, Nevada for a
one year term, and office space in Carson City, Nevada for a two year term. The
following are the remaining rental lease commitments in relation to the office
leases:

|       |   | December 31, | 
|------ | - | ------------ | 
|FY2012 | $ | 29,352       | 
|FY2013 |   | 104,208      | 
|FY2014 |   | 66,229       | 
|FY2015 |   | 9,907        | 
|Total  | $ | 209,696      | 

14

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Gryphon Gold CorporationNotes to Consolidated
Financial Statements (Unaudited)

13. COMMITMENTS & CONTINGENCIES, CONTINUED

[c]Mining operations and properties in the United
States are subject to regulation by the Federal Mine Safety and Health
Administration (MSHA) under the Federal Mine Safety and Health Act of 1977
(the Mine Act). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), issuers are
required to disclose specified health and safety violations, orders and
citations, related assessments and legal actions, and mining-related fatalities.
On October 22, 2011, a worker was injured at the Borealis oxide gold heap leach
worksite. The Company took immediate actions to mitigate risks of future actions
and terminated 3 employees, who failed to comply with mine safety regulations at
Borealis. On November 2, 2011, MSHA inspected our Borealis operation following
the accident and issued the Company three Section 104(a) citations and three
Section 104(d) citations. Section 104(a) citations, include citations for health
or safety standards that could significantly and substantially contribute to a
serious injury if left unabated, and Section 104(d) citations, include citations
for unwarrantable failure to comply with mandatory health or safety standards.
When the MSHA issues a citation or order, it generally proposes a civil penalty,
or fine, as a result of the alleged violation, that the operator is ordered to
pay. No such penalty or fine has yet been proposed. Citations and orders can be
contested and appealed, and as part of that process, are often reduced in
severity and amount, and are sometimes dismissed. Subsequent to quarter end we
received a fee of $200.

[d] Due to the size, complexity, and nature of the Companys
operations, various legal and tax matters are outstanding from time to time. In
the opinion of management, these matters will not have a material effect on the
Companys financial position or results of operations.

14. SUBSEQUENT EVENTS

On January 31, 2012, the Company was served with a complaint
alleging breach of contract that was filed in the First Judicial District Court
for the State of Nevada in Carson City by Borealis royalty holders which include
the Cavell Trust, Hardrock Mining Company and John W. Whitney. The royalty
holders allege that advance royalties which have been paid by Gryphon Gold are
not recoverable and are payable during the duration of the mining lease. Gryphon
Gold deducts previously paid advance royalties from production royalties
payable under the Borealis mining lease agreement. The Company believes their
claims are without merit and intends to vigorously defend against the claims.
The Company is currently preparing a response to the complaint. As of December
31, 2011, no accrual had been made for an unfavorable outcome as the Company
does not have sufficient information to base an accrual on.

15. NON-CASH INVESTING AND FINANCING ACTIVITIES

During the nine months ended December 31, 2011 and 2010, the
Company engaged in the following non-cash investing and financing activities:

|                                                                                                                                       |   | December 31, |  |   | December 31, | 
|-------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ |  | - | ------------ | 
|                                                                                                                                       |   | 2011         |  |   | 2010         | 
|Issuance of 7,726,500 shares at a fair
      value of $0.14 per share related to exercise of the option to fix the
      royalty at 5% | $ | 1,081,675    |  |   | -            | 
|Promissory and convertible notes issued related to exercise
      of the option to fix the royalty at 5%                               |   | 3,509,500    |  |   | -            | 
|Capitalized construction in progress
      purchased with accounts payable                                                             |   | 538,442      |  |   |              | 
|Discount on notes payable by issuing warrants                                                                                          |   | 692,049      |  |   |              | 
|Shares issued for settlement of accounts
      payable                                                                                 |   | -            |  | $ | 60,000       | 
|Extinguishment of note payable by sale of discontinued
      operations                                                                |   | -            |  |   | 2,180,587    | 
|Share consideration paid to former owners
      of discontinued operations                                                             |   |              |  |   | 270,000      | 

15

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

Forward-Looking Statements

This quarterly report on Form 10-Q and the exhibits attached
hereto contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
concern our anticipated results and developments in our operations in future
periods, planned exploration and development of our properties, plans related to
its business and other matters that may occur in the future. These statements
relate to analyses and other information that are based on forecasts of future
results, estimates of amounts not yet determinable and assumptions of
management. Any statements that express or involve discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives, assumptions
or future events or performance (often, but not always, using words or phrases
such as expects or does not expect, is expected, anticipates or does
not anticipate, plans, estimates or intends, or stating that certain
actions, events or results may, could, would, might or will be taken,
occur or be achieved) are not statements of historical fact and may be
forward-looking statements.

With respect to forward-looking statements and information
contained in this quarterly report, we have made assumptions regarding, among
other things:

- the future price of gold;
- estimates related to gold and silver production and our ability to sell
  production in a timely manner and on acceptable terms;
- estimates related to future costs of production, establishing mining
  operations, capital requirements, bonding requirements, operating and
  exploration expenditures;
- continued government regulation of mining operations in accordance with
  past regulatory practices;
- our ability to phase-in production at the Borealis Property to reach full
  production within expected timeframes; and
- our ability to raise any additional capital required to fund our
  exploration, construction and working capital requirements.

Forward-looking statements are subject to a variety of known
and unknown risks, uncertainties and other factors that could cause actual
events or results to differ from those expressed or implied by the
forward-looking statements, including, without limitation:

- the timing and possible outcome of pending regulatory and permitting
  matters;
- the timing and outcome of our feasibility study;
- the parameters and design of any potential mining facilities on the
  Borealis Property;
- future financial or operating performances of Gryphon Gold, its
  subsidiaries, and its projects;
- the estimation of mineralization and the realization of mineral reserves,
  if any, based on mineralization estimates;
- the timing of exploration, development, and production activities and
  estimated future production, if any;
- estimates related to costs of production, capital, operating and
  exploration expenditures;
- requirements for additional capital and our ability to raise additional
  capital;
- government regulation of mining operations, environmental risks,
  reclamation and rehabilitation expenses;
- title disputes or claims;
- operational risks related to mining hazards, worker safety, employee
  matters and labor;
- limitations of insurance coverage; and
- the future price of gold, silver, or other minerals.

This list is not exhaustive of the factors that may affect our
forward-looking statements. Some of the important risks and uncertainties that
could affect forward-looking statements are described further under the sections
titled Risk Factors and Uncertainties, Description of the Business and
Managements Discussion and Analysis of our annual report on Form 10-K as
filed with the SEC on June 30, 2011. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, believed, estimated
or expected. We caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. We disclaim
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events, except as required by law.

We qualify all the forward-looking statements contained in this
quarterly report by the foregoing cautionary statement.

16

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Cautionary Note Regarding Managements Discussion and
Analysis

This discussion and analysis should be read in conjunction with
the accompanying interim consolidated financial statements and related notes.
The discussion and analysis of the financial condition and results of operations
are based upon the interim consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of any contingent liabilities at the financial statement
date and reported amounts of revenue and expenses during the reporting period.
On an on-going basis, we review our estimates and assumptions. The estimates
were based on historical experience and other assumptions that we believe to be
reasonable under the circumstances. Actual results are likely to differ from
those estimates under different assumptions or conditions, but we do not believe
such differences will materially affect our financial position or results of
operations. Critical accounting policies, the policies we believe are most
important to the presentation of our financial statements and require the most
difficult, subjective and complex judgments, are outlined below in Critical
Accounting Policies, and have not changed significantly.

Cautionary Note to U.S. Investors Regarding Mineral Reserve
and Resource Estimates

The pre-feasibility study referenced in this quarterly report
use the terms "mineral resource," "measured mineral resource," "indicated
mineral resource" and "inferred mineral resource". We advise investors that
these terms are defined in and required to be disclosed by NI 43-101; however,
these terms are not defined terms under the SECs Industry Guide 7 (Guide 7)
and are normally not permitted to be used in reports and registration statements
filed with the SEC. As a reporting issuer in Canada, we are required to prepare
reports on our mineral properties in accordance with NI 43-101. We reference the
report in this quarterly report for informational purposes only. Investors are
cautioned not to assume that any part or all of mineral deposits in the above
categories will ever be converted into Guide 7 compliant reserves. "Inferred
mineral resources" have a great amount of uncertainty as to their existence, and
great uncertainty as to their economic and legal feasibility. It cannot be
assumed that all or any part of an inferred mineral resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Investors are cautioned not to assume that all or
any part of an inferred mineral resource exists or is economically or legally
mineable. Disclosure of "contained pounds" in a resource is permitted disclosure
under Canadian regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute "reserves" by SEC standards as in
place tonnage and grade without reference to unit measures.

Overview

Business Objectives

Gryphon Gold is in the business of acquiring, exploring, and
developing gold properties in the United States, emphasizing the State of
Nevada. Our objective is to increase value of our shares through the
exploration, development and extraction of gold from deposits, beginning with
our Borealis property, located in Nevadas Walker Lane Gold Belt (the Borealis
Property). The development and extraction may be performed by us or by
potential partners. We will also consider the acquisition and exploration of
other potential gold bearing properties within Nevada or areas that have a
similar political risk profile.

The business plan for the Borealis Property is to develop,
operate and efficiently produce gold and silver from identified leachable oxide
reserves and to further expand the sulphide resource through exploration,
metallurgical design and project permitting and development. The successful
development of the Borealis Oxide Heap Leach Project is anticipated to provide
the revenue that would allow for the further development of the Borealis
Property. The Borealis Property consists of unpatented mining claims of
approximately 20 acres each, totaling about 15,020 acres, from which there was
production in the past. The Borealis Property is a property that we believe has
excellent potential exploration targets as defined by past exploration success,
geophysical targets and past successful mining.

On April 25, 2011, we released an the Pre-Feasibility Study
which was furnished to the SEC as Exhibit 99.1 to our Form 8-K filed on April
26, 2011 and filed pursuant to Canadian securities laws and available on
www.sedar.com. The Pre-Feasibility Study provided updated capital and operating
cost estimates for a scaled down version of the mine start-up.

The Company raised capital for Phase 1 activities to construct
the mine and processing plant and begin gold recovery; however, additional
financing will be required to complete the ADR, as well as capital for the
expansion of crushing and processing facilities, to meet additional bonding
requirements, and to provide working capital until cash from sales of gold
begins to flow to the Company. The Company is conducting negotiations with
multiple parties to obtain the needed financing, subject to its ability to
obtain the necessary consent and approvals.

17

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Phase 1 contemplates the completion of construction of a new
leach pad and ponds and anticipates the startup of heap leach operations to
extract gold from partially leached heaps already identified on the Borealis
Property. Construction of the project began in June 2011 and the leaching cycle
began in late September 2011 with the first shipment of loaded carbon
accomplished in October 2011. Despite the rapid move to commercial shipments of
loaded carbon and ultimately gold, the Project has faced a number of startup
issues resulting in considerably lower than expected production in the third
fiscal quarter ended December 31, 2011.

In the course of operations we experienced three key challenges
that have resulted in less than anticipated production rates. As previously
disclosed in a release dated November 9, 2011, the Borealis Oxide Heap Leach
Project was severely limited in the amount of material that could be placed on
the leach pad as result of the contractor being unable to produce overliner in a
timely manner. The delay in adding material to the leach pad resulted in reduced
volumes of pregnant solution for the carbon process. This first challenge was
remedied in mid December. The second challenge we faced was the lower than
planned delivery of leach pad material as a result of its crusher being removed
from site in early December for approximately two months for unscheduled
maintenance. During that time, we were provided with a temporary crusher that
did not meet the specifications for planned production levels and resulted in an
average of just over 33% of crusher utilization for the third quarter of fiscal
2012 and the majority of January 2012. Thirdly, we were advised that the pump
that delivers barren solution to the leach pad was not the correct size and
could not meet current operating requirements. As installed, it has been
providing only about 50% of original operating requirements, thus severely
reducing the volume of flows to the leach pad. We are working towards positive
cash flow from Phase 1, but will likely require additional financing to complete
the development of Phase 1.

Phase 2 is anticipated to expand the leach pad; mobilize the
crushing and mining equipment; construct the permanent gold recovery plant and
begin mining in the Borealis Propertys Borealis open pit. The main activities
associated with full production are:

- development of roads and infrastructure, and
- pre-stripping and development of the remaining oxide reserves
- Efficient mining and processing of 2 million tons of ore per year
- Processing of pregnant solutions from heap leach operations to produce
  gold and silver doré

The expected cash flow generated in Phase 1 and Phase 2 is
anticipated to provide the resources needed to continue the exploration required
to expand the oxide resources for extending the mine life.

The mine life is estimated at 6 years with additional gold
recovery in year seven with heap wash down. Expansion of the mine life past the
initial 6-year estimate is dependent on the expansion of current mineralization
or the discovery of additional mineralization through additional drilling on the
property.

As anticipated in our plan under the Pre-Feasibility Study,
groundbreaking occurred for the construction of the Borealis Oxide Heap Leach
Project on June 6, 2011. Six deliveries of loaded carbon containing 605 ounces
of gold were made to Just Refiners, Inc. of Reno, NV during the quarter ended
December 31, 2011. The approximate average settlement price was $1,700 per ounce
of gold. Just Refiners, Inc. advised us they could no longer take deliveries
thus causing us to build inventories we could not covert in to cash until the
after the end of the quarter.

A successful Borealis Oxide Heap Leach Project is expected to
provide the cash required to fulfill the long-term plan to further explore the
Borealis Property with the objective of expanding its current known
mineralization; however, additional financing will be required to complete the
ADR, as well as capital for the expansion of crushing and procession facilities,
and provide working capital until cash from sales of gold begins to flow to the
Company. The Company is conducting negotiations with multiple parties to obtain
the needed financing, which contain restrictive covenants regarding the
Companys ability to issue equity and debt securities.

The plan for the Borealis Property is based on the Plan of
Operations approved by the U.S. Forest Service. The Plan of Operations does not
present an economic analysis, and we have not placed any information in the Plan
of Operations regarding capital expenditures, operating costs, ore grade,
anticipated revenues, or projected cash flows. The Plan of Operations was based
on the general economic concepts as presented in the Pre-Feasibility Study.

Borealis Property

During the nine months ended December 31, 2011, we completed
construction of new leach pads, ponds, carbon columns, roads and infrastructure.
Direct costs of materials, labor, equipment and supplies used in construction
activities are capitalized during the period incurred. Additionally, certain
indirect costs are capitalized in the period of allocation. Interest expense
during the construction period is allocated and capitalized in the period it is
accrued. Loading of the leach pads began in early August and the leaching
process began on September 26, 2011.

For a complete history of our Borealis Property, please see our
10-K for the fiscal year ended March 31, 2011 filed with the SEC on June 30,
2011.

18

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Administration and Capital Resource Activities

May Unit Offering

On May 18, 2011, we closed a public offering of 80,000,000
shares of our common stock at a price of $0.125 per share for aggregate gross
proceeds of $10,000,000. As part of the offering, the underwriters were granted
an over-allotment option to cover over-allotments. One underwriter exercised its
over-allotment option in full for an additional 6,000,000 shares of our common
stock at $0.125 per share for additional gross proceeds of $750,000. On May 24,
2011, the second underwriter exercised its over-allotment option in part for an
additional 3,060,000 shares of our common stock at a price of $0.125 per share
for additional gross proceeds of $382,500. After fulfilling the over-allotment
options, we issued 89,060,000 shares and received $9.6 million in net proceeds.

July Debenture Offering

On July 27, 2011, we closed a $3,169,514 debt offering of units
at a price of $1,000 CAD per unit. The offering was led by Acumen Capital
Finance Partners Limited in Canada and by Roth Capital Partners in the United
States. Each unit consists of $1,000 CAD principal amount of 10% secured
subordinated debentures maturing July 28, 2012 and 1,500 warrants. Each warrant
entitles the holder thereof to purchase one common share in the capital of the
Company at a price of $0.20 USD per share. The warrants expire on January 27,
2013.

The debentures bear interest from the date of issue at 10.0%
per annum, payable quarterly on March 31, June 30, September 30 and December 31
of each year, commencing on September 30, 2011. The debentures will mature 12
months from the closing date of the offering on July 28, 2012. The debentures
were issued under a Trust Indenture, which contains customary terms, conditions
and covenants. The debentures are secured by a pledge of the shares of Borealis
Mining Company and a general security interest in the assets of the Company
under the terms of a Pledge and Security Agreement.

November Debenture Offering

On November 22, 2011, the Company closed another $4.3 million
debt offering of units of the Company. The offering was led by Acumen Capital
Finance Partners Limited in Canada and by Roth Capital Partners in the United
States. Each unit consists of $1,000 CAD principal amount of 10% secured
subordinated debentures maturing November 23, 2012 and 750 warrants. Each
warrant entitles the holder thereof to purchase one common share of the Company
at a price of $0.40 USD per share. The warrants expire on May 22, 2013.

The debentures bear interest from the date of issue at 10.0%
per annum, payable quarterly on March 31, June 30, and September 30. The
debentures will mature 12 months from the closing date of the offering on
November 22, 2012. The debentures were issued under a Trust Indenture, which
contains terms, conditions, covenants and restrictive covenants. The note
indenture dated November 22, 2011, which governs the debentures includes
restrictive covenants that limit the ability of the Company to issue equity and
debt securities. The debentures are secured under the terms of a Pledge and
Security Agreement by a pledge of the shares of Borealis Mining Company and a
general security interest in the assets of the Company, which is subordinate to
the security interest granted to holders of the debentures issued on July 27,
2011.

Acumen and Roth Capital were paid a cash commission of 6.5% of
the gross proceeds of the offering

Fiscal 2012 Plan of Operations

Our long-term plan is to focus on the Borealis Property
production through the Borealis Oxide Heap Leach Project. To further advance the
Borealis Property, we expect to continue exploration in the pediment areas of
the Borealis Property.

We intend to continue to take all steps necessary to preserve
our rights to the Borealis Property under the existing terms of the property
lease. We also expect to work with the United States Forest Service with the
objectives of maintaining our permits under the plan of operations.

We currently plan to accomplish the following activities for
the duration of fiscal 2012, which ends March 31, 2012 and the first quarter of
fiscal 2013:

- Complete construction of the Adsorption, Desorption and Recovery Plant
  (ADR) and commence the production of doré;
- Begin construction of Phase 1B elements, primarily the leach pad
  expansion.

19

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Results of Operations

Three months ended December 31, 2011 compared to three
months ended December 31, 2010

For the three months ended December 31, 2011, we had a net loss
of $1,155,027 or $0.006 per share from continuing operations compared to a net
loss of $655,013 or $0.007 per share from continuing operations in the same
period in the prior year. Construction of the project began in June 2011 and the
leaching cycle began in late September 2011 with the first shipment of loaded
carbon accomplished in October 2011. Despite the rapid move to commercial
shipments of loaded carbon and ultimately gold, the Project has faced a number
of startup issues resulting in considerably lower than expected production in
the third fiscal quarter ended December 31, 2011. In the course of operations we
experienced three key challenges that have resulted in less than anticipated
production rates.

- The amount of material placed on the leach pad was severely limited due to
  the contractor being unable to produce overliner in a timely manner;
- Lower than planned material delivered to the leach pad due to our crusher
  being removed from site for approximately two months and the temporary crusher
  not meeting specifications for planned production levels; and
- The pump delivering the barren solution to the leach pad is not the
  correct size and has only been providing approximately 50% of original
  operating requirements.

During the third quarter a total of 199,674 tons of material
was placed on the heap leach pad for processing. The material is estimated to
contain 6,223 ounces of gold and estimated to recover approximately 2,800 ounces
of gold. We sold loaded carbon containing 605 ounces of gold compared to no
sales in same period of the previous year. The approximate average settlement
price was $1,700 per ounce of gold.

Exploration expenses during the quarter ended December 31, 2011
were $(26,394) compared to $115,930 in the same period in the prior year. The
decrease is due to Company resources directed towards the commencement of
production, with a majority of the costs incurred on the property being
capitalized as construction in progress. The credit amount in exploration
expenses in the current quarter was a result of a refund of $63,920 from the
Bureau of Land Management for claim maintenance fees, which were expensed in the
prior year.

Management salaries and consulting fees in the quarter ended
December 31, 2011 were $334,297 compared to $303,421 incurred in the quarter
ended December 31, 2010. Total non-cash compensation expense due to the
recognition of costs related to stock options was $82,389 in the quarter ended
December 31, 2011 compared to the prior years fiscal third quarter of
$42,812.

Interest expense, net of capitalized interest, was $381,212 in
the quarter ended December 31, 2011 compared to $123 in the same period in the
prior year. This increase is due to the interest incurred on the promissory and
convertible notes issued to reduce the potential future obligations under the
royalty and the debt offering completed in July 2011 and November 2011.

Nine months ended December 31, 2011 compared to nine
months ended December 31, 2010

For the nine months ended December 31, 2011, we had a net loss
of $2,542,949 or $0.014per share from continued operations and nil from
discontinued operations compared to a net loss of $2,495,617 or $0.028 per share
from continued operations and net income of $635,708 or $0.007 per share from
discontinued operations in the same period in the prior year. Construction of
the project began in June 2011 and the leaching cycle began in late September
2011 with the first shipment of loaded carbon accomplished in October 2011.
Despite the rapid move to commercial shipments of loaded carbon and ultimately
gold, the Project has faced a number of startup issues resulting in considerably
lower than expected production in the third fiscal quarter ended December 31,
2011. In the course of operations we experienced three key challenges that have
resulted in less than anticipated production rates.

- The amount of material placed on the leach pad was severely limited due to
  the contractor being unable to produce overliner in a timely manner;
- Lower than planned material delivered to the leach pad due to our crusher
  being removed from site for approximately two months and the temporary crusher
  not meeting specifications for planned production levels; and
- The pump delivering the barren solution to the leach pad is not the
  correct size and has only been providing approximately 50% of original
  operating requirements.

During the nine months ended December 31, 2011 a total of
243,970 tons of material was placed on the heap leach pad for processing. The
material is estimated to contain 7,886 ounces of gold and estimated to recover
approximately 3,548 ounces of gold. We sold loaded carbon containing 605 ounces
of gold compared to no sales in same period of the previous year. The
approximate average settlement price was $1,700 per ounce of gold.

20

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Exploration expenses during the nine months ended December 31,
2011 were $68,860 compared to $694,358 in the prior year. The decrease is due to
Company resources directed towards commencement of production, with a majority
of the costs incurred on the property being capitalized as construction in
progress.

Management salaries and consulting fees in the nine months
ended December 31, 2011 were $836,465 compared to $845,552 incurred in the 2010
nine-month period. Total non-cash compensation expense due to the recognition of
costs related to stock options was $181,401 in the third quarter of 2011,
compared to $142,022 in the nine months ended December 31, 2010.

Interest expense, net of capitalized interest, was $466,814 in
the nine months ended December 31, 2011 compared to $997 in the same period in
the prior year. This increase is due to the interest incurred on the promissory
and convertible notes issued to reduce the potential future obligations under
the royalty and the debt offering completed in July 2011and November 2011.

Liquidity and Capital Resources

Our principal source of liquidity is cash from operations and
cash raised by way of sale of common stock from treasury and other equity
instruments, debt instruments or forms of securities. Until we are able to
complete the installation of our ADR plant, our ability to generate cash from
production is dependent on our ability to process loaded carbon through a third
party processor or to sell loaded carbon.

Going Concern

The audit opinion for the Companys financial statements for
the fiscal year ended March 31, 2011 includes a going concern qualification.
Additional financing will be required to complete the Adsorption Desorption
Recovery Plant (ADR), to provide capital for the expansion of crushing and
procession facilities, to fund additional bonding requirements and to provide
working capital until the Company receives positive cash flow from sales of gold
The Company is currently conducting negotiations with multiple parties to obtain
the needed financing, subject to its ability to obtain the necessary consent and
approvals. If future revenues do not result in positive cash flow, and the
Company is unable to raise additional capital, we will not be able to meet our
obligations and may have to suspend or cease operations. The Companys ability
to raise additional capital may be inhibited by the restrictive covenants of the
debentures the Company issued in November of 2011, which restrict the Companys
ability to issue equity and debt securities absent consent of the Noteholders.
No assurance can be given that the Company will be successful in achieving
profitability, generating positive cash flow or raising additional capital
through placements of debt or equity. The Company has an accumulated deficit of
$40,493,750 as at December 31, 2011, ($37,950,801 as at March 31, 2011), and
without positive operating cash flow or additional financing, the Company does
not have sufficient cash on hand to fund normal operations for the next twelve
months or satisfy the current $7 million notes payable. These conditions raise
substantial doubt about the Companys ability to continue as a going
concern.

The accompanying consolidated financial statements have been
prepared under the assumption that the Company will continue as a going concern.
Such assumption contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The recoverability of amounts
shown for mineral property interests in the Companys consolidated balance
sheets is dependent upon the existence of economically recoverable reserves, the
ability of the Company to arrange appropriate financing to complete the
development of its properties, the receipt of necessary permitting and upon
achieving future profitable production or receiving proceeds from the
disposition of properties. The timing of such events occurring, if at all, is
not yet determinable. The accompanying consolidated financial statements do not
include any adjustments related to the recoverability and classification of
assets or the amounts and classifications of liabilities that might be necessary
should the Company be unable to continue as a going concern.

At December 31, 2011, we had a negative working capital of
$3,336,648. Current assets consisted of $1,380,077 in cash, $527,869 in accounts
receivable, $279,842 in prepaid expenses, $3,537,564 in inventory, and $557,547
in debt issue costs. We had $2,175,149 in accounts payable and accrued
liabilities, $424,333 in the current portion of the long-term debt, and
$7,020,065 in notes payable, net of offering costs.

During the nine months ended December 31, 2011, we used cash in
operating activities of $4,790,874, which included our net loss of $2,542,949,
off-set by depreciation of $76,854, asset retirement obligation accretion of
$27,280, non-cash compensation of $181,041, amortization of debt finance costs
of $199,947, amortization of discount on notes payable of $199,877, unrealized
gain on foreign exchange of $20,141. We also experienced changes in non-cash
working capital consisting of a $497,977 increase in accounts receivable, a
$1,239,602 increase in accounts payable, an increase in inventories of
$3,537,564, and a $157,126 increase in prepaid expenses.

We used cash from investing activities of $11,186,457,
including an increase of $2,033,500 in reclamation bonds, $1,897,882 in payments
for the leach pad 1A, equipment purchases of $414,225, payments on plant of
$4,929,259, payments on construction in progress, ADR of $1,491,363 in cash,
mineral property expenditures of $248,203, payment of $175,000 to amend the
royalty option as described above, and proceeds of $2,975 from a small note
receivable.

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We received cash from financing activities of $16,540,092,
including proceeds from the debt offering of $7,480,676 proceeds of $11,134,317
from the sale of common shares, exercise or stock options and warrants, net of
share issue costs of $13,177, public offering costs of $1,185,444 and debt
offering costs of $829,587 for the nine months ended December 31, 2011. Cash
increased during the period by $542,620 to $1,308,077 as at December 31,
2011.

Updated share capital as at February 17, 2012:

|Basic Common Stock Issued and Outstanding          |  | 194,103,382 | 
|-------------------------------------------------- |  | ----------- | 
|Warrants, Options and other Convertible Securities |  | 26,175,642  | 
|Fully Diluted Common Stock                         |  | 220,279,024 | 

Royalty Obligations

On August 22, 2008, we entered into a 12-month option
agreement, at a cost of $250,000, to amend the Borealis Property mining
lease.

On May 20, 2011, we agreed to an amendment to the option terms
and exercised the option to fix the net smelter royalty at 5%. Under the terms
of the amended option agreement, we paid the lessors aggregate consideration of
$7,000,000 (less the $250,000 previously paid by Gryphon to the Lessors upon
execution of the option agreement) as follows:

| | (a) | $150,000 in cash;                                                                                                                                                                                                                                                            
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                              
| | (b) | 7,726,500 shares of common stock at an agreed value of
      $0.40 per share (fair value $0.14, $1,081,675);                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                              
| | (c) | 5% promissory notes in the aggregate principal amount of
      $1,600,000, due May 20, 2013, with installment payments due upon
      commencement of production on the Borealis property; and                                                                               
| |     |                                                                                                                                                                                                                                                                              
| | (d) | 5% convertible notes in the aggregate principal amount of
      $1,909,500, due May 20, 2014, convertible into shares of our common stock
      at $0.70 per share through May 20, 2012, $0.80 per share through May 20,
      2013 and $0.90 per share through May 20, 2014.

Subsequent Events

On January 31, 2012, the Company was served with a complaint
alleging breach of contract that was filed in the First Judicial District Court
for the State of Nevada in Carson City by Borealis royalty holders which include
the Cavell Trust, Hardrock Mining Company and John W. Whitney. The royalty
holders allege that advance royalties which have been paid by Gryphon Gold are
not recoverable and are payable during the duration of the mining lease. Gryphon
Gold deducts previously paid advance royalties from production royalties
payable under the Borealis mining lease agreement. The Company believes their
claims are without merit and intends to vigorously defend against the claims.
The Company is currently preparing its response to the complaint.

On February 3, 2012, Mr. John L. Key, Chief Executive Officer,
and the Company entered into a mutual termination agreement under which Mr. John
L. Key terminated his employment and resigned as a director. The Board of
Directors also announced the termination by mutual agreement of John K. Key,
General Manager of Borealis Mining Company, our wholly owned subsidiary. Both of
these terminations were effective immediately.

The Company announced on February 3, 2012, the appointment of
James T. ONeil Jr., Chief Financial Officer, as Interim Chief Executive
Officer. Mr. ONeil was also appointed to the Board of Directors. Marvin Kaiser,
Director, was appointed as Chairman of the Board.

Critical Accounting Policies and Estimates

Please see the notes to our audited financial statements
included in our 10-K for the fiscal year ended March 31, 2011 for a complete
list of our critical accounting policies and estimates.

Recent Accounting Pronouncements

Please see the notes to our unaudited financial statements for
a complete list of recent accounting pronouncements.

Reclassification

Certain comparative figures have been reclassified to conform
to the current quarter presentation.

Item 3. Quantitative and Qualitative Disclosure about Market
Risk

Not Applicable.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

At the end of the period covered by this report, an evaluation
was carried out under the supervision of, and with the participation of, our
management, including the Interim Chief Executive Officer/Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a  15(e) and Rule 15d  15(e) of
the Securities and Exchange Act of 1934, as amended). Based on that evaluation,
the Interim Chief Executive Officer/Chief Financial Officer has concluded that
as of the end of the period covered by this report, our disclosure controls and
procedures were adequately designed and effective in ensuring that (i)
information required to be disclosed by us in our reports that we file or submit
to the SEC under the Exchange Act, is recorded, processed, summarized and
reported within the time period specified in applicable rules and forms and (ii)
material information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to our management, including our
Interim Chief Executive Officer/Chief Financial Officer, to allow for accurate
required disclosure to be made on a timely basis.

Changes in Internal Control over Financial Reporting

During the period covered by this report, there have been no
changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

Subsequent to the quarter ended December 31, 2011, Mr. John L.
Key, Chief Executive Officer was terminated by mutual agreement and our Chief
Financial Officer, Mr. James T. ONeil Jr. was appointed Interim Chief Executive
Officer. Mr. ONeil currently is performing duties for both principal roles.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On January 31, 2012, the Company was served with a complaint
alleging breach of contract that was filed in the First Judicial District Court
for the State of Nevada in Carson City by Borealis royalty holders which include
the Cavell Trust, Hardrock Mining Company and John W. Whitney. The royalty
holders allege that advance royalties which have been paid by Gryphon Gold are
not recoverable and are payable during the duration of the mining lease. Gryphon
Gold deducts previously paid advance royalties from production royalties
payable under the Borealis mining lease agreement. The Company believes their
claims are without merit and intends to vigorously defend against the claims.
The Company is currently preparing a response to the complaint.

For more information on past legal proceedings, please see our
10-K for the fiscal year ended March 31, 2011 filed with the SEC.

Item 1A. Risk Factors and Uncertainties

Other than as provided below, there have been no material
changes from the risk factors as previously disclosed in our Form 10-K for the
year ended March 31, 2011 which was filed with Securities and Exchange
Commission on June 30, 2011.

Covenants in the note indenture governing the debentures
we issued in July 2011 and November 2011 may inhibit our ability to raise
capital through equity or debt financings.

On July 27, 2011, we closed a $3,169,514 debt offering of units
at a price of $1,000 CAD per unit, consisting of debentures and warrants. The
debentures will mature 12 months from the closing date of the offering on July
28, 2012. The debentures were issued under a Trust Indenture, which contains
customary terms, conditions and covenants. The debentures are secured by a
pledge of the shares of Borealis Mining Company and a general security interest
in the assets of the Company under the terms of a Pledge and Security Agreement.

On November 22, 2011, we completed a $4.3 million debt offering
of units of the Company consisting of debentures and warrants. The debentures
will mature 12 months from the closing date of the offering on November [23],
2012. The debentures were issued under a Trust Indenture, which contains terms,
conditions, covenants and restrictive covenants. The note indenture limits the
ability of the Company to issue any shares of capital stock of the Company or
any warrants, rights or options to purchase or acquire shares of capital stock
or to issue certain types of debt securities or obtain certain types of loans.
The debentures are secured under the terms of a Pledge and Security Agreement by
a pledge of the shares of Borealis Mining Company and a general security
interest in the assets of the Company, which is subordinate to the security
interest granted to holders of the debentures issued on July 27, 2011. If we
cannot successfully raise additional capital to meet our ongoing operating costs
we could be forced to curtail or cease operations.

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Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.

During the nine-month period ended December 31, 2011, all
transactions in which we offered and sold unregistered securities pursuant to
exemptions under the Securities Act of 1933, as amended we reported on current
reports on Form 8K.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Mining operations and properties in the United States are
subject to regulation by the Federal Mine Safety and Health Administration
(MSHA) under the Federal Mine Safety and Health Act of 1977 (the Mine Act).
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the Dodd-Frank Act), issuers are required to disclose
specified health and safety violations, orders and citations, related
assessments and legal actions, and mining-related fatalities. During our fiscal
quarter ended December 31, 2011, on October 22, 2011, a worker was injured at
the Borealis oxide gold heap leach worksite. The Company took immediate actions
to mitigate risks of future actions and terminated 3 employees, who failed to
comply with mine safety regulations at Borealis. On November 2, 2011, MSHA
inspected our Borealis operation following the accident and issued the Company
three Section 104(a) citations and three Section 104(d) citations. Section
104(a) citations, include citations for health or safety standards that could
significantly and substantially contribute to a serious injury if left unabated,
and Section 104(d) citations, include citations for unwarrantable failure to
comply with mandatory health or safety standards. When the MSHA issues a
citation or order, it generally proposes a civil penalty, or fine, as a result
of the alleged violation, that the operator is ordered to pay. A $200 fine has
been issued. Citations and orders can be contested and appealed, and as part of
that process, are often reduced in severity and amount, and are sometimes
dismissed.

Item 5. Other Information.

None

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Item 6. Exhibits

|Exhibit 4.1  | Note Indenture, dated November
      22, 2011(1)                                                                                                                                                                                                   
|------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 4.2  | Pledge and Security Agreement, dated November
      22, 2011(1)                                                                                                                                                                                    
|Exhibit 4.3  | Subordination Agreement, dated
      November 22, 2011(1)                                                                                                                                                                                          
|Exhibit 4.4  | Form of Series Q Share Purchase Warrant(1)                                                                                                                                                                                                         
|Exhibit 10.2 | Form of Debenture and Purchase
      Agreement, dated November 22, 2011(1)                                                                                                                                                                         
|Exhibit 31.1 | Certification of James T. ONeil, Interim Chief
      Executive Officer, Chief Financial Officer and Principal Executive
      Officer, Principal Financial and Accounting Officer pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.
|Exhibit 32.1 | Certification of James T.
      ONeil, Interim Chief Executive Officer, Chief Financial Officer and
      Principal Executive Officer, Principal Financial and Accounting Officer,
      pursuant to 18 U.S.C. 1350.                              

(1) filed as exhibits to the Companys current report on Form
8-K filed with the SEC on November 29, 2011

25

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

GRYPHON GOLD CORPORATION

By: /s/ James T.
ONeil       James T.
ONeil        Chief Executive Officer and
Chief Financial Officer        (On behalf
of the registrant and as Principal Executive Officer and Principal Financial and
Accounting Officer)

Date: February 17, 2012

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