---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



|Q                                                |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 
|------------------------------------------------ |  | --------------------------------------------------------------------------------------------
|                                                
|For the quarterly period ended December 31, 2009
|                                                
|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.)
|                                                               |  |                                     
|675 West Hastings Street, Suite 711                            |  |                                     
|Vancouver, British Columbia                                    |  | V6B 1N2                             
|(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.      Q
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 (§232.405 of this chapter) during the preceding 12 months (or
  for such shorter period that the registrant was required to submit and post
  such files).  Q
Yes     £ 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 Q



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







---

GRYPHON GOLD CORPORATIONDecember 31, 2009

INDEX

|                                     |                                                                                                                                      | **Page
      No.(s)**
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | ---------------------
|                                     |                                                                                                                                      |                      
|PART I - FINANCIAL
      INFORMATION |                                                                                                                                     
|Item 1.                              | Financial Statements.                                                                                                                |                      
|                                     | Unaudited
      Interim Consolidated Financial Statements as of December 31, 2009                                                    | 2                    
|                                     | Unaudited Consolidated
      Balance Sheet as of December 31, 2009 and Audited Consolidated Balance
      Sheet as of March 31, 2009 | 2                    
|                                     | Unaudited
      Consolidated Statements of Operations for the three and nine months ended
      December 31, 2009 and 2008           | 3                    
|                                     | Unaudited Consolidated
      Statements of Stockholders Equity                                                                      | 4                    
|                                     | Unaudited
      Consolidated Statements of Cash Flows for the three and nine months ended
      December 31, 2009 and 2008           | 5                    
|                                     | Notes to Unaudited Interim
      Consolidated Financial Statements                                                                   | 6                    
|Item 2.                              | Managements Discussion and Analysis of Financial
      Condition and Results of Operation.                                          | 19                   
|Item 3.                              | Quantitative and
      Qualitative Disclosures About Market Risk.                                                                    | 29                   
|Item 4.                              | Controls
      and Procedures.                                                                                                       | 29                   
|PART II - OTHER
      INFORMATION    |                                                                                                                                     
|Item 1.                              | Legal
      Proceedings.                                                                                                             | 31                   
|Item 1A.                             | Risk Factors.                                                                                                                        | 31                   
|Item 2.                              | Unregistered Sales of Equity Securities and Use of
      Proceeds.                                                                   | 33                   
|Item 3.                              | Defaults Upon Senior
      Securities.                                                                                               | 33                   
|Item 4.                              | Submission
      of Matters to a Vote of Security Holders.                                                                           | 33                   
|Item 5.                              | Other Information.                                                                                                                   | 33                   
|Item 6.                              | Exhibits.                                                                                                                            | 34                   
|SIGNATURES                           | 36                                                                                                                                  

i

---

PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

Gryphon Gold Corporation (an exploration stage company)

CONSOLIDATED BALANCE SHEETS(Stated in U.S. dollars)
(Unaudited)

|                                                      |  | As at        |   |  | As at       |  
|----------------------------------------------------- |  | ------------ | - |  | ----------- | -
|                                                      |  | December 31, |   |  | March 31,   |  
|                                                      |  | 2009         |   |  | 2009        |  
|                                                      |  | **$**        |   |  | $           |  
|ASSETS                                                |  |              |   |  |             |  
|Current                                               |  |              |   |  |             |  
|Cash                                                  |  | 442,008      |   |  | 799,517     |  
|Held for trading securities                           |  | 160,810      |   |  | 80,015      |  
|Accounts receivable                                   |  | 12,122       |   |  | 23,943      |  
|Current portion of note receivable [note 3]           |  | 11,441       |   |  | -           |  
|Prepaid expenses                                      |  | 32,704       |   |  | 48,278      |  
|Total Current
      Assets                            |  | 659,085      |   |  | 951,753     |  
|Equipment [note 5]                                    |  | 79,201       |   |  | 117,967     |  
|Mineral properties [note 4 & 6]                       |  | 6,010,583    |   |  | 6,401,929   |  
|Other assets [note 8]                                 |  | 571,679      |   |  | 446,679     |  
|Non-current
      portion of note receivable [note 3] |  | 4,938        |   |  | -           |  
|                                                      |  | 7,325,486    |   |  | 7,918,328   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                   |  |              |   |  |             |  
|Current                                               |  |              |   |  |             |  
|Accounts payable and accrued liabilities              |  | 872,483      |   |  | 451,159     |  
|Convertible promissory note [note 9]                  |  | 5,059,337    |   |  | 4,782,285   |  
|Total current
      liabilities                       |  | 5,931,820    |   |  | 5,233,444   |  
|Commitments & contingencies [note 12]                 |  |              |   |  |             |  
|Stockholders' equity[note 10]                         |  |              |   |  |             |  
|Common stock                                          |  | 70,197       |   |  | 61,957      |  
|Additional paid-in capital                            |  | 37,121,276   |   |  | 38,397,746  |  
|Deficit accumulated during the exploration stage      |  | (35,797,807  | ) |  | (35,774,819 | )
|Total
      stockholders' equity                      |  | 1,393,666    |   |  | 2,684,884   |  
|                                                      |  | 7,325,486    |   |  | 7,918,328   |  

See accompanying notes

See Note 1  Nature of Operations and Going Concern
Uncertainty

2

---

Gryphon Gold Corporation (an exploration stage company)

CONSOLIDATED STATEMENT OF OPERATIONS(Stated in US
dollars) (Unaudited)

Period fromThree months
    
    
    Three months
    
    
    Nine months
    
    
    Nine months
    
    
    April 24, 2003ended
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    (inception) toDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009**$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Exploration [note 7]
    
    250,001
    
    
    141,667
    
    
    1,207,102
    
    
    1,422,985
    
    
    16,454,362Management salaries and consulting fees [note 10[c]
      & 11]
    
    207,461
    
    
    258,876
    
    
    456,673
    
    
    1,246,269
    
    
    9,137,228General and administrative
    
    168,495
    
    
    167,209
    
    
    358,717
    
    
    510,425
    
    
    3,598,455Legal and audit
    
    72,689
    
    
    52,077
    
    
    216,553
    
    
    208,167
    
    
    1,898,382Travel and accommodation
    
    58,706
    
    
    2,412
    
    
    87,272
    
    
    119,332
    
    
    1,112,931Depreciation & amortization
    
    10,753
    
    
    11,694
    
    
    32,856
    
    
    44,055
    
    
    241,658Loss (gain) on disposal of equipment
    
    -
    
    
    1,309
    
    
    (18,928
    )
    
    (1,865
    )
    
    5,624Loss on disposal of mineral properties
    
    -
    
    
    34,360
    
    
    58,553
    
    
    34,360
    
    
    360,829Foreign exchange (gain) loss
    
    (7,739
    )
    
    9,675
    
    
    (40,769
    )
    
    26,589
    
    
    (17,403
    )Loss (gain) on change in liability of warrants [note
      10[b]]
    
    (42,560
    )
    
    -
    
    
    212,130
    
    
    -
    
    
    (2,676,000
    )Lease revenue
    
    -
    
    
    -
    
    
    
    
    
    (22,598
    )
    
    (23,598
    )Interest income
    
    (70
    )
    
    (1,386
    )
    
    (960
    )
    
    (25,536
    )
    
    (740,407
    )Interest expense
    
    141,190
    
    
    133,129
    
    
    417,088
    
    
    395,487
    
    
    1,263,827Impairment of
      carrying value of exploration properties [note 4]
    
    -
    
    
    -
    
    
    -
    
    
    5,100,000
    
    
    5,100,000Loss for the period before the undernoted
      items
    
    (858,926
    )
    
    (811,022
    )
    
    (2,986,287
    )
    
    (8,246,648
    )
    
    (35,715,890
    )Unrealized (gain) loss on securities
    
    (4,893
    )
    
    7,496
    
    
    (88,653
    )
    
    (20,325
    )
    
    (69,637
    )Realized loss on sale of securities
    
    -
    
    
    -
    
    
    13,484
    
    
    136,891
    
    
    151,555Net loss for the
      period
    
    (854,033
    )
    
    (818,518
    )
    
    (2,911,118
    )
    
    (9,174,236
    )
    
    (35,797,807
    )Basic and diluted loss per share
    
    (0.01
    )
    
    (0.01
    )
    
    (.05
    )
    
    (0.15
    )Basic and diluted
      weighted average number of common shares outstanding
    
    70,197,405
    
    
    61,957,065
    
    
    64,582,997
    
    
    61,796,947


See accompanying notes

3

---

Gryphon Gold Corporation (an exploration stage company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY(Stated in US dollars) (Unaudited)

Deficit**accumulated**Additional
    
    
    during theCommon stock
    
    
    paid-in
    
    
    explorationShares
    
    
    Amount
    
    
    capital
    
    
    stage
    
    
    Total#
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Balance, inception April 24,
      2003Shares issued:For private placements
    
    47,812,870
    
    
    47,813
    
    
    28,078,256
    
    
    
    
    
    28,126,069Share issue costs
    
    
    
    
    
    
    
    (1,263,841
    )
    
    
    
    
    (1,263,841
    )For mineral properties
    
    4,500,000
    
    
    4,500
    
    
    3,444,918
    
    
    
    
    
    3,449,418Initial Public Offering (IPO)
    
    6,900,000
    
    
    6,900
    
    
    5,029,597
    
    
    
    
    
    5,036,497Share issue costs (IPO)
    
    
    
    
    
    
    
    (2,241,940
    )
    
    
    
    
    (2,241,940
    )Compensation component of shares issued
    
    
    
    
    
    
    
    226,000
    
    
    
    
    
    226,000Fair value of agents
      warrants issued on private placements [note 10[b]]
    
    
    
    
    
    
    
    222,627
    
    
    
    
    
    222,627Fair value of options granted to
      consultants [note 10[c]]
    
    
    
    
    
    
    
    49,558
    
    
    
    
    
    49,558Fair value of underwriters
      compensation warrants on IPO [note 10[b]]
    
    
    
    
    
    
    
    135,100
    
    
    
    
    
    135,100Fair value of options granted [note
      10[c]]
    
    
    
    
    
    
    
    1,774,480
    
    
    
    
    
    1,774,480Fair value of vested stock
      grants
    
    429,250
    
    
    428
    
    
    520,379
    
    
    
    
    
    520,807Exercise of warrants
    
    1,985,775
    
    
    1,986
    
    
    1,827,349
    
    
    
    
    
    1,829,335Exercise of options
    
    107,500
    
    
    108
    
    
    83,066
    
    
    
    
    
    83,174Net
      loss since inception
    
    
    
    
    
    
    
    
    
    
    (25,831,588
    )
    
    (25,831,588
    )Balance, March 31,
      2008
    
    61,735,395
    
    
    61,735
    
    
    37,885,549
    
    
    (25,831,588
    )
    
    12,115,696Shares issued:Share issue costs
    
    
    
    
    
    
    
    (9,246
    )
    
    
    
    
    (9,246
    )Fair value of options granted [note
      10[c]]
    
    
    
    
    
    
    
    500,028
    
    
    
    
    
    500,028Fair value of vested stock
      grants [notes 10 [a] &[d]]
    
    221,670
    
    
    222
    
    
    21,415
    
    
    
    
    
    21,637Net
      loss for the period
    
    
    
    
    
    
    
    
    
    
    (9,943,231
    )
    
    (9,943,231
    )Balance, March 31,
      2009
    
    61,957,065
    
    
    61,957
    
    
    38,397,746
    
    
    (35,774,819
    )
    
    2,684,884Fair value of options granted [note
      10[c]]
    
    
    
    
    
    
    
    121,622
    
    
    
    
    
    121,622Fair value of vested stock
      grants [notes 10 [a] &[d]]
    
    112,500
    
    
    113
    
    
    
    
    
    
    
    
    113Exercise of warrants
    
    7,161,500
    
    
    7,161
    
    
    1,453,204
    
    
    
    
    
    1,460,365Settlement of debt [notes
      8 & 10[a]]
    
    966,340
    
    
    966
    
    
    124,034
    
    
    
    
    
    125,000Reclassification of warrants to liability
      FASB ASC 815-40-55 [note 2]
    
    
    
    
    
    
    
    (2,975,330
    )
    
    2,888,130
    
    
    (87,200
    )Net loss for the period
    
    
    
    
    
    
    
    
    
    
    (2,911,118
    )
    
    (2,911,118
    )Balance, December 31, 2009
    
    70,197,405
    
    
    70,197
    
    
    37,121,276
    
    
    (35,797,807
    )
    
    1,393,666


See accompanying notes

4

---

Gryphon Gold Corporation (an exploration stage company)

CONSOLIDATED STATEMENT OF CASH FLOWS(Stated in US
dollars) (Unaudited)

Period from AprilThree months
    
    
    Three months
    
    
    Nine months
    
    
    Nine months
    
    
    24, 2003ended
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    (inception) toDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2009**$**
    
    
    
    
    
    
    
    
    
    
    
    **$**OPERATING ACTIVITIESNet loss for the period
    
    (854,033
    )
    
    (818,518
    )
    
    (2,911,118
    )
    
    (9,174,236
    )
    
    (35,797,807
    )Items not involving cash:Depreciation
    
    10,753
    
    
    11,694
    
    
    32,856
    
    
    44,055
    
    
    241,658Loss (gain) loss
      on disposal of equipment
    
    -
    
    
    1,309
    
    
    (18,928
    )
    
    (1,865
    )
    
    5,624Fair value of
      options    and other non-cash compensation
      [note    *10[a]*]
    
    49,656
    
    
    70,174
    
    
    121,735
    
    
    461,856
    
    
    3,292,620Non-cash
      interest expense [note 9]
    
    76,389
    
    
    143,321
    
    
    277,052
    
    
    279,500
    
    
    786,978Loss on securities
    
    -
    
    
    -
    
    
    13,484
    
    
    136,891
    
    
    151,555Unrealized
      (gain) loss on sale of securities
    
    (4,893
    )
    
    7,496
    
    
    (88,653
    )
    
    (20,325
    )
    
    (69,637
    )Held for trading securities
      included in lease revenue
    
    -
    
    
    -
    
    
    -
    
    
    (9,598
    )
    
    (9,598
    )Impairment
      of carrying value of    exploration properties
      [note 4]
    
    -
    
    
    -
    
    
    -
    
    
    5,100,000
    
    
    5,100,000Loss on disposal of mineral
      properties
    
    -
    
    
    34,360
    
    
    58,553
    
    
    34,360
    
    
    360,829Loss (gain)
      on change in liability of    warrants [note
      10[b]]
    
    (42,690
    )
    
    -
    
    
    212,749
    
    
    -
    
    
    (2,675,381
    )Changes in non-cash working capital items:Accounts
      receivable
    
    (3,552
    )
    
    (3,276
    )
    
    11,821
    
    
    74,006
    
    
    (12,122
    )Accounts payable and accrued
      liabilities
    
    84,606
    
    
    24,326
    
    
    421,324
    
    
    (137,778
    )
    
    872,483Prepaid expenses
    
    (17,897
    )
    
    (21,067
    )
    
    15,575
    
    
    64,473
    
    
    (32,701
    )Cash used in operating activities
    
    (701,661
    )
    
    (550,181
    )
    
    (1,853,550
    )
    
    (3,148,661
    )
    
    (27,785,499
    )INVESTING ACTIVITIESReclamation deposit
    
    -
    
    
    -
    
    
    -
    
    
    (13,801
    )
    
    (160,777
    )Purchase of equipment
    
    -
    
    
    -
    
    
    (734
    )
    
    (45,198
    )
    
    (297,574
    )Nevada Eagle acquisition and related
      non-compete agreement [note 4]
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,068,340
    )Mineral property expenditures
      [note 6]
    
    (15,254
    )
    
    (2,499
    )
    
    (24,333
    )
    
    (313,375
    )
    
    (1,988,975
    )Option payment to amend royalty [note
      8]
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (285,902
    )Mineral property lease
      payments received [note 6]
    
    184,800
    
    
    102,500
    
    
    291,550
    
    
    258,500
    
    
    898,055Proceeds from sale of mineral properties
    
    -
    
    
    50,000
    
    
    50,000
    
    
    50,000
    
    
    100,000Proceeds from sales of held
      for trading securities
    
    -
    
    
    -
    
    
    9,951
    
    
    37,766
    
    
    60,704Proceeds from note receivable
    
    2,000
    
    
    -
    
    
    7,000
    
    
    -
    
    
    7,000Proceeds from sale of equipment
    
    -
    
    
    4,902
    
    
    1,571
    
    
    8,251
    
    
    16,403Cash provided by investing activities
    
    171,546
    
    
    154,904
    
    
    335,005
    
    
    (20,355
    )
    
    (4,719,406
    )FINANCING ACTIVITIESCapital lease principal payments
    
    -
    
    
    -
    
    
    -
    
    
    (3,454
    )
    
    (53,523
    )Cash received for shares
    
    -
    
    
    -
    
    
    1,161,036
    
    
    -
    
    
    35,768,591Share issue costs
    
    -
    
    
    -
    
    
    -
    
    
    (9,246
    )
    
    (3,157,280
    )Subscription receivables collected
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    389,125Cash provided by financing activities
    
    -
    
    
    -
    
    
    1,161,036
    
    
    (12,700
    )
    
    32,946,913Increase (decrease) in cash
      during the period
    
    (530,115
    )
    
    (1,228,036
    )
    
    (357,509
    )
    
    (3,181,716
    )
    
    442,008Cash, beginning of period
    
    972,123
    
    
    2,637,991
    
    
    799,517
    
    
    4,196,394
    
    
    -Cash, end of period
    
    442,008
    
    
    1,409,955
    
    
    442,008
    
    
    1,014,678
    
    
    442,008


See accompanying notes

5

---

Gryphon Gold Corporation(an exploration stage
company)

NOTES TO INTERIM 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 subsidiaries, Borealis Mining Company,
Gryphon Nevada Eagle Holding Company and Nevada Eagle Resources LLC
(collectively, the Company). The Company is an exploration stage company in
the process of exploring its mineral properties, and has not yet determined
whether these properties contain reserves that are economically
recoverable.

The Companys current liabilities significantly exceed its
current assets. In addition, the recoverability of amounts shown for mineral
property interests in the Companys consolidated balance sheets are 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 the
properties. The timing of such events occurring, if at all, is not yet
determinable. As a result, the Companys ability to continue as a going concern
is in substantial doubt.

Management recognizes that the Company must generate additional
resources to enable it to continue operations. Management intends to raise
additional funds through debt and/or equity financing or through other means
that it deems necessary, such as the sale of certain mineral properties.
However, no assurance can be given that the Company will be successful in
raising additional capital. Further, even if the Company raises additional
capital, there can be no assurance that the Company will achieve profitability
or positive cash flow. If management is unable to raise additional capital and
possible future revenues do not result in positive cash flow, the Company will
not be able to meet its obligations and may have to suspend or cease operations.
The Company has an accumulated deficit of $35,797,635 and at December 31, 2009
has cash on hand of $442,008. Please see subsequent events [note 13].The
accompanying 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.

2. BASIS OF PRESENTATION

These interim unaudited consolidated financial statements were
prepared by the Company in accordance with U.S. generally accepted accounting
principles (GAAP) for interim financial statements applied on a consistent
basis. These interim financial statements follow the same significant accounting
policies and methods of application as those disclosed in Note 2 to the
Companys audited consolidated financial statements as at and for the year ended
March 31, 2009 (the Annual Financial Statements), except as disclosed below
under New Policies Adopted. Accordingly, they do not include all disclosures
required for annual financial statements. These interim unaudited consolidated
financial statements and notes thereon should be read in conjunction with the
Annual Financial Statements.

The preparation of these interim unaudited consolidated
financial statements and the accompanying notes requires management to make
estimates and assumptions that affect the amounts reported. In the opinion of
management, these interim unaudited consolidated financial statements reflect
all adjustments (which include only normal, recurring adjustments) necessary to
state fairly the results for the periods presented. Actual results could vary
from these estimates and the operating results for the interim periods presented
are not necessarily indicative of the results expected for the full year.

NEW POLICIES ADOPTED

In September 2006, the FASB issued FSP FASB ASC 820-10-55
(Prior authoritative literature: FASB FSP 157-2/Statement 157, Effective Date of
FASB Statement No. 157.), Fair Value Measurements. The objective
of FASB ASC 820-10-55 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value measurements. FASB ASC
820-10-55 defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. FASB ASC 820-10-55 applies under other accounting
pronouncements that require or permit fair value measurements and does not
require any new fair value measurements. The provisions of FASB ASC 820-10-55
are effective for fair value measurements made in fiscal years beginning after
November 15, 2007. The adoption of FASB ASC 820-10-55 did not have a material
effect on the Companys financial statements.

6

---

NEW POLICIES ADOPTED (contd)

The Company measures its held for trading securities at fair
value in accordance with FASB ASC 820-10-55. FASB ASC 820-10-55 specifies a
valuation hierarchy based on whether the inputs to those valuation techniques
are observable or unobservable. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect the Companys own
assumptions. These two types of inputs have created the following fair value
hierarchy:

- Level 1  Quoted prices for identical instruments in active markets;
- Level 2  Quoted prices for similar instruments in active markets, quoted
  prices for identical or similar instruments in markets that are not active,
  and model-derived valuations in which all significant inputs and significant
  value drivers are observable in active markets; and
- Level 3  Valuations derived from valuation techniques in which one or
  more significant inputs or significant value drivers are unobservable.

This hierarchy requires the Company to minimize the use of
unobservable inputs and to use observable market data, if available, when
estimating fair value. The fair value of the held for trading securities using
the following inputs at December 31, 2009 is:

Fair Value Measurements at Reporting Date Using

Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsTotal
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)$160,810
    $
    158,420
    
    $
    2,390
    
    $
    


In February 2007, the FASB issued FSP FASB ASC 825-10-55 (Prior
authoritative literature: FASB FSP 159, The Fair Value Option for Financial
Assets and Financial Liabilities(FASB ASC 825-10-55). FASB ASC 825-10-55
permits entities to choose to measure many financial instruments and certain
other items at fair value, with the objective of improving financial reporting
by mitigating volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting
provisions. The provisions of FASB ASC 825-10-55 are effective for the Companys
fiscal year beginning April 1, 2008. Effective April 1, 2008, the Company
adopted FASB ASC 825-10-55, which did not have a material impact on the
Companys consolidated financial statements.

In December 2007, the FASB issued FSP FASB ASC 810-10-55 (Prior
authoritative literature: FASB FSP 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51). FASB ASC
810-10-55 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which
is sometimes referred to as minority interest, is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. Among other requirements, this statement requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS 160 is effective for our fiscal year commencing
April 1, 2009, including interim periods within that fiscal year. The adoption
of FASB ASC 810-10-55 did not have a material impact on the Companys financial
position or results of operations.

In December 2007, the FASB issued FASB ASC 805-10-55 (Prior
authoritative literature: FASB FSP 141(R), Business Combinations), which
amends FASB ASC 805-10-55, and provides revised guidance for recognizing and
measuring identifiable assets and goodwill acquired, liabilities assumed, and
any non-controlling interest in the acquiree. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. FASB ASC 805-10-55 is
effective for the Companys fiscal year beginning April 1, 2009 and is to be
applied prospectively. FASB ASC 805-10-55 may have an impact on the Companys
consolidated financial statements in the future, but the nature and magnitude of
the specific effects will depend upon the nature, terms and size of any
acquisition the Company may consummate after the effective date.

7

---

NEW POLICIES ADOPTED (contd)

In March 2008, the FASB issued FASB ASC 815-10-15 (Prior
authoritative literature, FASB Statement 161), Disclosures about Derivative
Instruments and Hedging Activities. FASB ASC 815-10-15 changes the
disclosure requirements for derivative instruments and hedging activities by
requiring enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB ASC 815-20-25, and how derivative instruments and related hedged
items affect an entitys operating results, financial position, and cash flows.
FASB ASC 815-10-15 is effective for fiscal years beginning after November 15,
2008. The provisions of FASB ASC 815-10-15 are only related to disclosure of
derivative and hedging activities, and the adoption of FASB ASC 815-10-15 did
not have a material impact on our consolidated operating results, financial
position, or cash flows.

In June 2008, the EITF reached consensus on FASB ASC 815-40-55
(Prior authoritative literature EITF 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entitys Own Stock)(FASB ASC
815-40-55). FASB ASC 815-40-55 clarifies the determination of whether an
instrument (or an embedded feature) is indexed to an entitys own stock, which
would qualify as a scope exception under FASB ASC 815-20-25 (Prior authoritative
literature: FASB Statement 133, Accounting for Derivative Instruments and
Hedging Activities).If the terms of an instrument, or embedded
feature, are such that it is not considered to be indexed to the entitys own
stock, equity classification would be precluded and the instrument would not be
within the scope of FASB ASC 815-40-55 (Prior authoritative literature EITF
00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled In, a Companys Own Stock). FASB ASC 815-40-55 is
effective for our fiscal year beginning April 1, 2009 and required the
reclassification of the value of all warrants denominated in Canadian dollars
from equity to liabilities, and this liability is stated at fair market value
each reporting period. At April 1, 2009, a reclassification of $2,975,330
reduced additional paid in capital (the value of the warrants using
Black-Scholes at time of original issue), retained deficit was reduced by
$2,888,130 and a liability of $87,200 (the value of the warrants at April 1,
2009) was recorded. During the nine months ended December 31, 2009, the
liability was reduced by $87,200, and the value of the warrants was nil at the
end of the reporting period as the warrants were exercised or expired.

On May 9, 2008, the FASB issued FASB ASC 470-20-55, (Prior
authoritative literature APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)). FASB ASC 470-20-55 clarifies that convertible debt instruments
that may be settled in cash upon conversion (including partial settlement) are
not addressed by paragraph 12 of FASB ASC 470-20-55, Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally,
FASB ASC 470-20-55-1 specifies that issuers of such instruments should
separately account for the liability and equity components in a manner that will
reflect the entitys nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. FSP FASB ASC 470-20-55 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The adoption of FSP FASB ASC
470-20-55 did not have a material impact on our consolidated operating results,
financial position, or cash flows.

In May 2009, the Financial Accounting Standards Board (FASB)
issued FASB ASC 855-10-25 (Prior authoritative literature: FASB Statement 165,
Subsequent Events) (FASB ASC 855-10-25), which establishes accounting
and reporting standards for events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. The
statement sets forth (i) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, (ii)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet in its financial statements, and (iii) the
disclosures that an entity should make about events or transactions occurring
after the balance sheet date in its financial statements. FASB ASC 855-10-25 is
effective for our fiscal year commencing April 1, 2009. The adoption of FASB ASC
855-10-25 had no impact on the Companys consolidated financial position,
results of operations or cash flows.

8

---

NEW POLICIES ADOPTED (contd)

During the second quarter of 2009, the FASB issued FASB Staff
Position (FSP) FASB ASC 320-10-65, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. This FSP:

- Affirms that the objective of fair value when the market for an asset is
  not active is the price that would be received to sell the asset in an orderly
  transaction.
- Clarifies and includes additional factors for determining whether there
  has been a significant decrease in market activity for an asset when the
  market for that asset is not active.
- Eliminates the proposed presumption that all transactions are distressed
  (not orderly) unless proven otherwise. The FSP instead requires an entity to
  base its conclusion about whether a transaction was not orderly on the weight
  of the evidence.
- Includes an example that provides additional explanation on estimating
  fair value when the market activity for an asset has declined significantly.
- Requires an entity to disclose a change in valuation technique (and the
  related inputs) resulting from the application of the FSP and to quantify its
  effects, if practicable.
- Applies to all fair value measurements when appropriate.

FASB ASC 820-10-65 must be applied prospectively and
retrospective application is not permitted. FASB ASC 820-10-65 is effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity early adopting FASB
ASC 820-10-65 must also early adopt FASB ASC 320-10-65, Recognition and
Presentation of Other-Than-Temporary Impairments.The adoption of FASB ASC
820-10-65 had no impact on the companys consolidated operating results,
financial position, or cash flows.

During the second quarter of 2009, the FASB issued FASB ASC
320-10-65 (Prior authoritative literature: FASB FSP 115-2/124-2, Recognition
and Presentation of Other-Than-Temporary Impairments). ASC Topic 320-10-65-1
establishes a new method of recognizing and reporting other-than-temporary
impairments of debt securities. It also contains additional disclosure
requirements related to debt and equity securities and changes existing
impairment guidance under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("ASC
Topic 320-10"). For debt securities, the "ability and intent to hold" provision
is eliminated, and impairment is considered to be other-than-temporary if an
entity (i) intends to sell the security, (ii) more likely than not will be
required to sell the security before recovering its cost, or (iii) does not
expect to recover the security's entire amortized cost basis (even if the entity
does not intend to sell). This new framework does not apply to equity securities
(i.e., impaired equity securities will continue to be evaluated under previously
existing guidance).The "probability" standard relating to the collectability of
cash flows is eliminated, and impairment is now considered to be
other-than-temporary if the present value of cash flows expected to be collected
from the debt security is less than the amortized cost basis of the security.
ASC Topic 320-10-65-1 also provides that for debt securities which (i) an entity
does not intend to sell and (ii) it is not more likely than not that the entity
will be required to sell before the anticipated recovery of its remaining
amortized cost basis, the impairment is separated into the amount related to
estimated credit losses and the amount related to all other factors. The amount
of the total impairment related to all other factors is recorded in other
comprehensive loss and the amount related to estimated credit loss is recognized
as a charge against current period earnings. ASC Topic 320-10-65-1 is effective
for interim and annual periods ending after June 15, 2009, with early adoption
permitted. The Company elected to adopt ASC Topic 320-10-65-1 in the first
quarter of 2009.FASB ASC 320-10-65 had no impact on the Companys consolidated
operating results, financial position, or cash flows.

In April 2009, the FASB issued FASB ASC Topic 270-10-05,
Interim Disclosures about Fair Value of Financial Instruments (FSP FAS
107-1 and APB 28-1). FASB ASC Topic 270-10-05 enhances consistency in financial
reporting by increasing the frequency of fair value disclosures. This guidance
relates to fair value disclosures for any financial instruments that are not
currently reflected on the balance sheet of companies at fair value. Before this
guidance was adopted, fair values for these assets and liabilities were
disclosed only once a year. The guidance now requires these disclosures to be
made on a quarterly basis, providing qualitative and quantitative information
about fair value estimates for all those financial instruments not measured on
the balance sheet at fair value. This pronouncement is effective for periods
ending after June 15, 2009. We adopted this standard effective June 30, 2009,
and it did not have a material impact on our financial position and results of
operations.

9

---

2. NEW POLICIES ADOPTED (contd)

In June 2009, the FASB issued FASB ASC 105-10-65 (Prior
authoritative literature: FASB Statement 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles).
Under FASB ASC 105-10-65 (Prior authoritative literature: FASB Statement 168,
The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles), the FASB Accounting Standards Codification
TM (the Codification) will become the exclusive source of authoritative U.S.
generally accepted accounting principles (U.S. GAAP) recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The
Codification will supersede all then-existing non-SEC accounting and reporting
standards, with the exception of certain non- SEC accounting literature which
will become non-authoritative.

FASB ASC 105-10-65 (Prior authoritative literature: FASB
Statement 168, The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles) was effective for the Companys
2009 second fiscal quarter. The adoption of FASB ASC 105-10-65 (Prior
authoritative literature: FASB Statement 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles)
did not have a material impact on the Companys Financial Statements. All
references to U.S. GAAP provided in the notes to the Financial Statements have
been updated to conform to the Codification.

RECLASSIFICATION

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

3. NOTE RECEIVABLE

During the nine months ended December 31, 2009, the Company
sold an asset by signing a 24-month lease agreement with an individual. In
accordance with FASB ASC 840-10-55 (Prior authoritative literature: FASB
Statement 13) the Company accounted for the transaction as a sales type lease.
The net present value at the time of the sale was $22,794 and was reported on
the balance sheet as a note receivable. Interest income to be recognized over
the two-year life is $1,206. Each payment received will be allocated by
reduction of the face value of the note receivable and the recognition of
interest income. Seven lease payments were received during the nine months ended
December 31, 2009. The current portion of the note receivable totals $11,441 and
the total receivable due is $16,379.

4. NEVADA EAGLE RESOURCES LLC

On August 21, 2007 Gryphon Gold Corporation closed the
acquisition of Nevada Eagle Resources LLC; a privately held Nevada limited
liability company (Nevada Eagle). Under the Purchase Agreement, the Company
acquired all of the outstanding limited liability company interests of Nevada
Eagle for the following consideration:

| | (a) | $2,500,000 in cash:                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                
| | (b) | 4,500,000 shares of common stock of the Company valued at
      $3,449,418; and                                                                                                
| |     |                                                                                                                                                                                
| | (c) | a 5% convertible note in the principal amount of
      $5,000,000 (the Convertible Note) with an issue date of August 21, 2007
      and a fair value of $4,272,359 [note 9].

Allocation of Purchase Price

Mineral properties
    $
    10,719,209Non-competition agreement
    
    70,908$
    10,790,117


Subsequent to the purchase of NER, the value for exploration
properties declined as evidenced by lower publically quoted stock values for
gold exploration companies. As the decline in value is an indicator of
impairment, an impairment test was performed for the quarter ended September 30,
2008. The Company also determined that undiscounted cash flows were not likely
to recover the carrying values of the properties.

The original purchase price allocation for the acquisition of
the NER properties was based on a valuation model. The model was driven by three
parameters;

|1- | the value of an exploration property;                             
|-- | ------------------------------------------------------------------
|   |                                                                   
|2- | the value of an acre of exploration property;
      and           
|   |                                                                   
|3- | the value of an identified mineral resource on
      the property.

The value of each parameter was determined from recent similar
acquisition transactions in the marketplace and the market values of a sample of
publicly traded gold exploration companies.

10

---

4. NEVADA EAGLE RESOURCES LLC (contd)

To measure for impairment, the Company updated the valuation
parameters that were utilized for the purchase price allocation. The updated
parameters were input into the valuation model. It was determined that the
Nevada Eagle exploration properties [note 6] and the non-competition
agreement were impaired by $5,044,883 and $55,117, respectively, for a total of
$5,100,000 effective September 30, 2008. On December 31, 2009, the same
parameters were inputted into the valuation model and it was determined that the
values were not lower than their carrying value; therefore, no additional
impairment was recorded at December 31, 2009.

5. EQUIPMENT

|                         |  | December 31, 2009 | 
|------------------------ |  | ----------------- | 
|                         |  |                   | 
|                         |  | Cost              | 
|                         |  | **$**             | 
|Office and lab equipment |  | 187,453           | 
|Trucks                   |  | 64,097            | 
|Total                    |  | 251,550           | 

|                         |  | March 31, 2009 | 
|------------------------ |  | -------------- | 
|                         |  |                | 
|                         |  | Cost           | 
|                         |  | **$**          | 
|Office and lab equipment |  | 197,730        | 
|Trucks                   |  | 64,097         | 
|Total                    |  | 261,827        | 

6. MINERAL PROPERTIES

|                                                                      |  | Total      |  
|--------------------------------------------------------------------- |  | ---------- | -
|                                                                      |  | **$**      |  
|Mineral property costs, March 31,
      2006                          |  | 1,898,207  |  
|Expenditures
      during the year                                    |  | 22,164     |  
|Mineral property costs, March 31,
      2007                          |  | 1,920,371  |  
|Nevada Eagle acquisition [note 4]                                     |  | 10,719,209 |  
|Lease payments received (cash)                                        |  | (245,805   | )
|Lease payments received (shares & warrants)                           |  | (193,030   | )
|Expenditures during the period                                        |  | 9,119      |  
|Mineral property costs, March 31, 2008                                |  | 12,209,864 |  
|Lease payments received (cash)                                        |  | (386,700   | )
|Lease payments received (shares)                                      |  | (13,130    | )
|Disposal of exploration properties                                    |  | (424,374   | )
|Expenditures during the period                                        |  | 61,151     |  
|Impairment of carrying value of exploration properties
      [note 3] |  | (5,044,883 | )
|Mineral property costs, March 31, 2009                                |  | 6,401,929  |  
|Lease payments received (cash)                                        |  | (291,550   | )
|Lease payments received (shares)                                      |  | (15,576    | )
|Expenditures during the period                                        |  | 24,333     |  
|Disposal of
      exploration properties                              |  | (108,553   | )
|Mineral property costs, December 31, 2009                             |  | 6,010,583  |  

The Company initially entered into a property option agreement
dated July 21, 2003 to acquire up to a 70% interest in the Borealis property in
Nevada, USA from Golden Phoenix Minerals, Inc. for cash consideration of
$125,000 and the obligation to make qualifying expenditures over several years.
On January 28, 2005, the Company purchased outright the rights to a full 100%
interest in the property for $1,400,000. A cash payment of $400,000 was made on
closing. The Company paid the full outstanding consideration of $1,000,000, in
four quarterly payments of $250,000 during the year ended March 31, 2006.

Effective August 21, 2007, the Company purchased all the rights
and interests of Nevada Eagle, as described in note 4. $10,719,209 of the
purchase price was allocated to the value of the exploration properties
acquired.

11

---

7. EXPLORATION

Nine
    
    
    Nine
    
    
    Period fromThree months
    
    
    Three months
    
    
    months
    
    
    months
    
    
    April 24, 2003ended
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    (inception) toDecember
    
    
    December
    
    
    December
    
    
    December
    
    
    December 31,31, 2009
    
    
    31, 2008
    
    
    31, 2009
    
    
    31,2008
    
    
    2009$
    
    
    $
    
    
    $
    
    
    $
    
    
    $NEVADA, USABorealis propertyExploration:Drilling
    
    49,569
    
    
    21,083
    
    
    212,832
    
    
    423,291
    
    
    7,344,485Property maintenance
    
    68,712
    
    
    42,711
    
    
    455,841
    
    
    399,766
    
    
    3,455,556Geologic and assay
    
    172
    
    
    955
    
    
    910
    
    
    64,787
    
    
    2,034,020Project management
    
    67,695
    
    
    50,137
    
    
    193,807
    
    
    204,883
    
    
    1,801,035Engineering
    
    63,175
    
    
    12,401
    
    
    341,982
    
    
    283,096
    
    
    1,455,772Metallurgy
    
    -
    
    
    14,002
    
    
    -
    
    
    34,373
    
    
    331,209Subtotal Borealis property
    
    249,323
    
    
    141,329
    
    
    1,205,372
    
    
    1,410,196
    
    
    16,422,077Other exploration
    
    678
    
    
    338
    
    
    1,730
    
    
    12,789
    
    
    32,285Total exploration
    
    250,001
    
    
    141,667
    
    
    1,207,102
    
    
    1,422,985
    
    
    16,454,362


8. OTHER ASSETS

|                                                      |  | December |  |  | March 31, | 
|----------------------------------------------------- |  | -------- |  |  | --------- | 
|                                                      |  | 31, 2009 |  |  | 2009      | 
|                                                      |  | **$**    |  |  | **$**     | 
|Reclamation bond & deposits                           |  | 160,777  |  |  | 160,777   | 
|Option to amend Borealis Property mining lease        |  | 285,902  |  |  | 285,902   | 
|Fair value of shares issued to extend Borealis Option |  | 125,000  |  |  | -         | 
|                                                      |  | 571,679  |  |  | 446,679   | 

On December 31, 2009 the Company had $133,600 (March 31, 2009 -
$133,600) on deposit to support a performance bond with the United States Forest
Service. The Company also has a deposit with the Bureau of Land Management
(BLM) for $27,177 (March 31, 2009 - $27,177), which supports its potential
future obligations for reclamation during the Companys exploration activities
within the BLM area. At December 31, 2009, the Company has recorded an estimated
reclamation liability of $5,600 (March 31, 2009  $5,600) representing future
obligations related to its general property activities completed to December 31,
2009.

On August 22, 2008, the Company entered into a 12 month option
agreement, at a cost of $250,000 and an additional $35,902 to cover legal costs,
to amend the Borealis Property mining lease. If exercised, the net smelter
return royalty rate will be fixed at 5%, versus the current uncapped variable
rate. Payment upon exercise of the option is $1,750,000 in cash, 7,726,250
common shares of the Company and a three year, $1,909,500, 5% note payable. On
August 19, 2009 the option was extended for six months at a cost of $125,000,
which was settled through the issuance of 966,339 shares.

9. CONVERTIBLE PROMISSORY NOTE

|                                                                                                                                                                                                                                                                                                              |  | December  |  |  | March     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  |  | --------- | 
|                                                                                                                                                                                                                                                                                                              |  | 31, 2009  |  |  | 31, 2009  | 
|                                                                                                                                                                                                                                                                                                              |  | **$**     |  |  | **$**     | 
|Convertible promissory note, with a face value of
      $5,000,000 due March 30, 2010, unsecured, bearing interest at 5%. Interest
      is payable each January 1stand June 1st. Discount
      accretion for the period from August 21, 2007 (date of issue) to December
      31, 2009, totalled $660,777. |  | 5,059,337 |  |  | 4,782,285 | 

12

---

9. CONVERTIBLE PROMISSORY NOTE (contd)

Gryphon Gold issued a Convertible Promissory Note to the former
owner of Nevada Eagle with a face amount of $5,000,000, due March 30, 2010,
bearing interest at 5% per annum, payable on January 1 and June 1 of each year.
The note is convertible at the holders option into shares for the first 12
months after closing at a conversion price of $1 per common share; for the next
12 months at $1.25 per common share; for the period 24 months from closing to
March 29, 2010 at $1.50 per common share and on March 30, 2010 at $1.75 per
common share. The conversion rate is subject to certain anti-dilution
adjustments and is subject to adjustment on payment of cash dividends by Gryphon
Gold. Upon an event of default, which includes amongst other things a change in
control of Gryphon Gold, the holder may demand repayment of the principal amount
of the debenture or exercise the conversion feature for a fixed number of
shares. After an event of default, the interest rate on the convertible
debenture increases to 9%. The change in control event of default acceleration
feature is considered an embedded derivative however its issue date fair value
was not considered to be significant, nor is it considered to be significant at
March 31, 2009 or December 31, 2009. The conversion feature does not require
bifurcation in the financial statements because it is not a beneficial
conversion feature and a cash payment is not required if common shares issued at
time of conversion are never successfully registered. The Convertible Promissory
Note, including the conversion feature and change in control event of default
acceleration feature embedded derivative, was recorded at its estimated issue
date fair value of $4,272,359. Interest and discount accretion of $192,451 and
$224,136, for the nine months ended December 31, 2009, has been recorded as
interest expense in the unaudited consolidated income statement. The former
owner of Nevada Eagle is also an employee of the Company [note 4].

Effective August 5, 2008, the Company entered into an option
agreement with Gerald W. Baughman and Fabiola Baughman (the Debt holders) to
amend the $5 million face value note payable to them at a cost of $35,000. The
option period was twelve months and was extended for another six months at a
cost of $35,000.

On February 5, 2010, the Company exercised the option through
payment of $500,000 in the form of a promissory note, due February 19, 2010, and
issuance of 4,000,000 common shares of the Company. Upon exercise of the option,
the note payable was reduced to $2.5 million and the maturity date was extended
from March 30, 2010 to March 30, 2012. Additionally, the conversion rate of the
remaining $2.5 million note payable was amended to $0.80 per common share until
March 30, 2010, $0.90 per common share until March 30, 2011 and $1.00 per common
share until March 30, 2012. The $2.5 million note is secured by certain
exploration properties.

In the agreement dated February 5, 2010 the Debt holders agreed
to a waiver of the conditions precedent to the exercise by the Company of its
rights under the option. As consideration for the waiver, the Company agreed,
subject to required approvals, to the issuance of 1,500,000 common shares of the
Company and the reduction of the conversion price of the $2.5 million note
payable to $0.60 per common share until March 30, 2010, $0.70 per common share
until March 30, 2011 and $0.80 per common share until March 30, 2012. In the
event required approvals of the Companys shareholders and of the Toronto Stock
Exchange are not obtained by August 22, 2010, the Company will issue the Debt
holders two 12-month interest bearing (5% per annum) promissory notes in the
amounts of $300,000 and $100,000, respectively.

On November 10, 2008, the 5% convertible promissory note was
amended so that cash interest payments shall be $73,288 and $51,713 each January
1 and June 1, respectively, or one half of the previous amounts. The unpaid
interest will be added to the principal balance of the note, compounded monthly
at 5% and become due and payable at the due date of the note, March 30,
2010.

13

---

10. 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 April 1, 2009, the Company issued 112,500 common
      shares to a former director (retired April 8, 2009) due to the vesting of
      RSUs granted in the prior year. The issuance was provided under a
      transition agreement.                                                                 
|    |                                                                                                                                                                                                                                                                                                          
|    | During the quarter ended September 30, 2009, the Company
      issued an aggregate of 7,161,500 common shares for gross proceeds of
      $1,161,036 on the exercise of 7,161,500 warrants, whose terms were amended
      on July 8, 2009. Each warrant had an amended exercise price of
      CDN$0.18.
|    |                                                                                                                                                                                                                                                                                                          
|    | During the quarter ended September 30, 2009, the Company
      issued 966,340 common shares with a fair market value of $176,396 to
      extend the option to fix the variable rate NSR royalty on the Borealis
      property for six months.                                                          
|    |                                                                                                                                                                                                                                                                                                          
|[b] | Warrants:                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                          
|    | The following table contains information with respect to
      all warrants:                                                                                                                                                                                                                             

| |                                                            |  | Number of Warrants |   |  | Fair Value of Warrants |  
| | ---------------------------------------------------------- |  | ------------------ | - |  | ---------------------- | -
| |                                                            |  | #                  |   |  | $                      |  
| | Warrants outstanding, March 31, 2004                       |  |                   |   |  |                       |  
| | Issued for:                                                |  |                    |   |  |                        |  
| | Private placements                                         |  | 3,407,981          |   |  |                       |  
| | Agents compensation                                       |  | 141,008            |   |  | 45,100                 |  
| | Exercised                                                  |  |                   |   |  |                       |  
| | Warrants outstanding, March 31, 2005                       |  | 3,548,989          |   |  | 45,100                 |  
| | Issued for:                                                |  |                    |   |  |                        |  
| | Private placements                                         |  | 3,015,204          |   |  |                       |  
| | Agents compensation on
      private placement            |  | 130,000            |   |  | 35,100                 |  
| | Initial Public Offering (IPO)  Series
      A             |  | 6,900,000          |   |  |                       |  
| | Underwriters
      compensation on IPO                    |  | 690,000            |   |  | 135,100                |  
| | Private placements  Series B                              |  | 2,737,500          |   |  |                       |  
| | Agents compensation on
      private placement  Series C |  | 280,500            |   |  | 76,540                 |  
| | Exercised                                                  |  | (197,500           | ) |  |                       |  
| | Warrants outstanding, March 31, 2006                       |  | 17,104,693         |   |  | 291,840                |  
| | Issued for:                                                |  |                    |   |  |                        |  
| | Private placements 
      Series D                        |  | 64,500             |   |  |                       |  
| | Private placements  Series E                              |  | 5,000,000          |   |  |                       |  
| | Agents compensation on
      private placement  Series F |  | 85,050             |   |  | 11,397                 |  
| | Exercised                                                  |  | (1,658,275         | ) |  |                       |  
| | Expired                                                    |  | (15,175,410        | ) |  |                       |  
| | Warrants outstanding, March 31, 2007                       |  | 5,420,558          |   |  | 303,237                |  
| | Issued for:                                                |  |                    |   |  |                        |  
| | Private placements  Series G                              |  | 5,000,000          |   |  |                       |  
| | Private placements  Series I                              |  | 4,486,500          |   |  |                       |  
| | Agents compensation on private placement 
      Series H |  | 265,050            |   |  | 44,040                 |  
| | Agents compensation on
      private placement  Series J |  | 89,530             |   |  | 10,450                 |  
| | Exercised                                                  |  | (130,000           | ) |  |                       |  
| | Expired                                                    |  | (290,558           | ) |  |                       |  
| | Forfeited                                                  |  | (14,000            | ) |  |                       |  
| | Warrants outstanding, March 31, 2008                       |  | 14,827,080         |   |  | 357,727                |  
| | Expired                                                    |  | (5,340,580         | ) |  |                       |  
| | Warrants outstanding, March 31, 2009                       |  | 9,486,500          |   |  | 357,727                |  
| | Exercised                                                  |  | (7,161,500         | ) |  | (315,167               | )
| | Expired                                                    |  | (2,325,000         | ) |  | (42,560                | )
| | Warrants
      outstanding, December 31, 2009              |  |                   |   |  |                       |  

14

---

10. CAPITAL STOCK (contd)

The fair value of agents and
underwriters warrants issued during 2008, 2007 and 2006 has been estimated
using the Black-Scholes Option Pricing Model based on the following assumptions:
a risk-free interest rate of 1.16% to 5.21% as of the date of transaction;
expected life of 1 to 3 years depending on their terms; an expected volatility
of 48% to 171% (based on the average volatility of companies in the industry at
date of issuance for period equivalent to the expected life); and no expectation
for the payment of dividends.

On July 8, 2009, the Company announced
the extension of warrants and repricing. 9,486,500 warrants were amended to
expire December 31, 2009, and the exercise price was reduced to Cdn$0.18 if
exercised by September 20, 2009 and Cdn$0.40 thereafter until December 31, 2009.
The warrants were revalued to their fair market value on the date of the
repricing and extension, which resulted in a charge to operations of
$290,050.

On or before September 20, 2009,
7,161,500 warrants were exercised. The exercised warrants were revalued to fair
market value on the date of exercise resulting in a charge to operations of
$79,630.

On December 31, 2009, the remainder of
the Companys Canadian dollar denominated warrants expired. Through the nine
months ended December 31, 2009, the Company recognized a gain of $157,550 due to
the revaluation of the warrants to their fair market value at each reporting
period.

|[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. FASB ASC 718-10- 55 (Prior
authoritative literature: FASB Statement 123(R)) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. The Companys total employees
are relatively few in number and turnover is considered remote, therefore the
Company currently estimates forfeitures to be 5%. Estimate of forfeitures is
reviewed on a quarterly basis. Stock-based compensation is expensed on a
straight-line basis over the requisite service period.

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     | 
| | ---------------------------------------------------------------- |  | ------------ |  |  | ------------ |  |  | --------------- |  |  | -------- | 
| |                                                                  |  | ended        |  |  | ended        |  |  | ended           |  |  | months   | 
| |                                                                  |  | December 31, |  |  | December 31, |  |  | December        |  |  | ended    | 
| |                                                                  |  | 2009         |  |  | 2008         |  |  | 31, 2009        |  |  | December | 
| |                                                                  |  | **$**        |  |  | **$**        |  |  | **$**           |  |  | 31, 2008 | 
| |                                                                  |  |              |  |  |              |  |  |                 |  |  | **$**    | 
| | Management salaries, exploration expense & consulting
      fees |  | 49,656       |  |  | 70,174       |  |  | 121,735         |  |  | 461,856  | 

Stock option activity

The following table summarizes the
Companys stock option activity for the nine months ended December 31, 2009:

| |                                                                               |  | Number of |  |   | Weighted Average |  
| | ----------------------------------------------------------------------------- |  | --------- |  | - | ---------------- | -
| |                                                                               |  | Stock     |  |   | exercise price   |  
| |                                                                               |  | Options   |  |   |                  |  
| | Outstanding, April 1, 2009                                                    |  | 4,642,000 |  | $ | 0.56             | *
| | Granted                                                                       |  | 700,000   |  | $ | 0.21             |  
| | Total outstanding at December 31, 2009                                        |  | 5,342,000 |  | $ | 0.52             | *
| | Vested and
      exercisable at December 31, 2009                             |  | 4,642,000 |  | $ | 0.55             | *
| | * Based on the December 31, 2009
      exchange rate of Cdn$1 equals US$0.95. |  |           |  |   |                  |  

15

---

10. CAPITAL STOCK (contd)

The following table summarizes
information about stock options outstanding as at December 31, 2009:

Stock Options Outstanding and ExercisableAverageStock Options
    Average Remaining
    Stock Options
    Remaining Life
    Exercise priceOutstanding
    Life
    Exercisable
    of Exercisable(Years)
    
    (Years)825,000
    0.2
    825,000
    0.2
    $0.7595,000
    0.9
    95,000
    0.9
    Cdn$0.8520,000
    1.2
    20,000
    1.2
    Cdn$1.37395,000
    1.3
    395,000
    1.3
    Cdn$1.3720,000
    1.3
    20,000
    1.3
    Cdn$1.3730,000
    1.4
    30,000
    1.4
    Cdn$1.6050,000
    1.6
    50,000
    1.6
    Cdn$1.2950,000
    1.8
    50,000
    1.8
    Cdn$1.3490,000
    2.0
    90,000
    2.0
    Cdn$0.8120,000
    2.1
    20,000
    2.1
    Cdn$0.88125,000
    2.2
    125,000
    2.2
    Cdn$0.8020,000
    2.4
    20,000
    2.4
    Cdn$0.9585,000
    2.7
    85,000
    2.7
    Cdn$0.9047,000
    2.8
    47,000
    2.8
    Cdn$0.88150,000
    3.1
    75,000
    3.1
    Cdn$0.6220,000
    3.2
    20,000
    3.2
    Cdn$0.43300,000
    3.3
    300,000
    3.3
    Cdn$0.4162,500
    3.5
    62,500
    3.5
    Cdn$0.40362,500
    3.5
    362,500
    3.5
    Cdn$0.38750,000
    3.6
    475,000
    3.6
    Cdn$0.41200,000
    3.7
    200,000
    3.7
    Cdn$0.28150,000
    3.7
    150,000
    3.7
    Cdn$0.26150,000
    3.9
    150,000
    3.9
    Cdn$0.07275,000
    3.9
    275,000
    3.9
    Cdn$0.07250,000
    3.9
    250,000
    3.9
    Cdn$0.26100,000
    4.2
    100,000
    4.2
    Cdn$0.28150,000
    4.6
    75,000
    4.6
    $0.17550,000
    4.7
    275,000
    4.7
    $0.225,342,000
    
    4,642,000


Valuation assumptions

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

| |                         | 2009          | 2008         
| | ----------------------- | ------------- | -------------
| | Dividend yield          | 0%            | 0%           
| | Expected volatility     | 51% - 105%    | 49% - 55%    
| | Risk free interest rate | 1.31% - 2.06% | 1.79% - 4.63%
| | Expected lives          | 3
      years | 3
      years

The risk-free interest rate is
determined based on the rate at the time of grant for US government zero-coupon
bonds for a 3 year term, which is a term equal to the estimated life of the
option. Dividend yield is based on the stock options exercise price and
expected annual dividend rate at the time of grant. Volatility is 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 3 years.

The Black-Scholes option-pricing model
used by the Company to calculate option values was 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.
Options 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.

16

---

10. CAPITAL STOCK (contd)

|[d] | Restricted stock units:                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The RSU stock grant entitles 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.                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | On April 1, 2009, 112,500 RSUs vested for a former
      director.                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | 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
      restricted stock units outstanding as at December 31,
  2009:                                                                                                                                                                                                                                                                                                      

RSUs
    RSUs
    RSUs
    RSUs
    WeightedGranted
    Vested
    Forfeited
    Outstanding
    AverageFair Valueat GrantDateOutstanding 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
    607,500
    488,750
    118,750
    
    Cdn$0.82Issued May 1, 2007
    10,000
    
    10,000
    
    Issued September 6, 2007
    154,170
    154,170
    
    
    Cdn$0.77Outstanding at December 31, 200
    808,670
    665,920
    142,750
    
    


11. RELATED PARTY TRANSACTIONS

All transactions with related parties have occurred in the
normal course of operations and are measured at their exchange amount as
determined by management. All material transactions and balances with related
parties not disclosed elsewhere are described below:

In November 2008, the Company entered into two Consulting
Agreements with two former employees for certain financial services and
geological consulting services. During the nine months ended December 31, 2009
the consultants were paid $32,585 and $36,852.

12. COMMITMENTS & CONTINGENCIES

[a] A portion of the Borealis Property is subject to a mining
lease. The Company is required to make monthly lease payments of $9,590,
adjusted annually based on the Consumer Price Index, for the duration of the
lease term. 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 mining lease expired on January 24, 2009, but is automatically
renewed thereafter, so long as mining related activity, including exploration
drilling, continues on the Borealis Property. The Lessor confirmed in a letter
that the lease is valid and in full force and effect through December 31, 2009.

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

|     | $     
|---- | ------
|2010 | 17,001
|2011 | 58,105
|2012 | 59,734
|2013 | 59,734
|2014 | 24,899

17

---

12. COMMITMENTS & CONTINGENCIES (contd)

The Vancouver office has been sub-leased commencing February 1,
2009 for 4 years and 7 months (remaining life on lease) for Cdn$4,000 per month.
The subtenant has an option to terminate the lease on January 31, 2011; such
option must be exercised before October 31, 2010. If the option to terminate the
Sublease Agreement is not executed by the Subtenant, then the agreement shall
continue until the expiration date. As at December 31, 2009, the Company has
accrued $53,566, being the difference between the required lease payments and
the estimated future sub-lease receipts.

13. SUBSEQUENT EVENTS

On January 6, 2010, Mr. R. William Wilson was appointed Chief
Financial Officer.

On January 19, 2010, Mr. R. William Wilson was granted an
option to acquire 100,000 shares of the Companys shares, which vests 25% each
quarter commencing March 31, 2010. The option is exercisable at $0.20 for a term
of five years.

On January 22, 2010, the Company announced a proposed offering
of units for sales at a price of CDN$0.17. Each unit will consist of one share
of common stock and one-half (1/2) of a common stock purchase warrant. The
warrants will be exercisable for a period of 24 months from date of issue at a
price of US$0.25. The closing date of the offering is scheduled for February 18,
2010.

On February 5, 2010, the Company exercised its option to amend
the $5,000,000 convertible promissory note [see Note 9].

18

---

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

Forward-Looking Statements

The information in this quarterly report on Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business plans and expectations. Such
forward-looking statements involve risks and uncertainties regarding the market
price of metals, commodities and precious metals, availability of funds,
government regulations, common share prices, operating costs, capital costs,
outcomes of ore reserve exploration and other factors. Forward-looking
statements are made, without limitation, in relation to operating plans,
property exploration, availability of funds, environmental reclamation,
operating costs and permit acquisition. Any statements contained herein that are
not statements of historical facts may be deemed to be forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, expect, plan, intend,
anticipate, believe, estimate, predict, potential or continue, the
negative of such terms or other comparable terminology. Actual events or results
may differ materially. In evaluating these statements, you should consider
various factors, including the risks outlined below, and, from time to time, in
other reports we file with the Securities and Exchange Commission (SEC),
including, but not limited to our annual report on Form 10-K as filed on June
26, 2009. These factors may cause our actual results to differ materially from
any forward-looking statement. We disclaim any obligation to publicly update
these statements, or disclose any difference between our actual results and
those reflected in these statements. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.

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 of America
requires the company 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, the company reviews its estimates
and assumptions. The estimates were based on historical experience and other
assumptions that the company believes to be reasonable under the circumstances.
Actual results are likely to differ from those estimates under different
assumptions or conditions, but the company does not believe such differences
will materially affect our financial position or results of operations. Critical
accounting policies, the policies the company believes are most important to the
presentation of its financial statements and require the most difficult,
subjective and complex judgments, are outlined below in Critical Accounting
Policies, and have not changed significantly.

Overview:

Borealis Property

In May 2005, we initiated a drilling program on our Borealis
property in the State of Nevada (the Borealis Property). As of December 31,
2009, approximately 203 holes and 142,220 feet of reverse circulation drilling
have been completed. A majority of the holes were in the area of existing
mineralization in order to allow us to start a feasibility study with the aim of
identifying gold reserves and, if economically feasible, building a mine.

In April of 2008, we completed a CIM compliant, National
Instrument 43-101 of the Canadian Securities Administrators ("NI 43-101") report
(the Technical Report) that included all drilling results to date, which was
furnished to the SEC as Exhibit 99.1 to the Companys Form 8-K filed on May 12,
2008. The Technical Report details mineralization on our Borealis Property. The
Technical Report states that the recommended course of action for Gryphon Gold
is to increase gold mineralization by completing additional drilling primarily
in the previously mined areas, to complete a technical report to determine the
feasibility of near term production, and through continued drilling and
exploration, delineate possible new mineralization on the Borealis Property.
Cautionary Note to U.S. Investors: The Technical Report uses 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.
Investors are cautioned not to assume that any part or all of mineral deposits
in these categories will ever be converted into 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.

19

---

During September 2008, we released the independent Preliminary
Assessment (PA) on the development of an oxide heap leach mine on the Borealis
Property. The PA was furnished to the SEC as Exhibit 99.1 to our Form 8-K as
filed on October 7, 2008. The report outlines the possibility of developing a
mineable oxidized gold deposit on the Borealis Property. Gryphon Gold is
undertaking a detailed economic evaluation of the potential for developing an
open-pit heap leach gold mining operation on the Borealis Property. The PA is
not a bankable feasibility study and cannot form the basis for proven or
probable reserves on the Borealis Property.

There was no exploration drilling completed during the three
months ended December 31, 2009 on the Borealis Property. As of December 31,
2009, approximately 203 holes and 142,220 feet of reverse circulation drilling
had been completed on the Borealis Property. A majority of the holes were in the
area of existing mineralization in order to allow us to complete the PA with the
aim of identifying gold reserves and, if economically feasible, building a mine.
During fiscal 2008, the majority of the holes drilled were to attempt to expand
the Graben mineralization or complete exploration in the Pediment areas of the
Borealis property.

On July 15, 2009, we announced the completion and results of
our pre-feasibility study for the development of the Borealis Property. On
September 22, 2009, we filed our pre-feasibility study entitled "NI 43-101
Pre-Feasibility Study of the Mineral Resources of the Borealis Gold Project
Located in Mineral County, Nevada, USA, Revised and Restated" dated September
17, 2009 (the "Pre-Feasibility Study") with securities regulatory authorities in
Canada, pursuant to Canadian securities laws and the rules of Toronto Stock
Exchange, and furnished it to the SEC as Exhibit 99.1 to the Companys Form 8-K,
filed on September 22, 2009. The report shows an average annual production of
over 50,000 ounces a year gold-equivalent for five years, a initial construction
cost of $14.8 million, including a $1million contingency and average life of
mine cash operating cost of $476 per ounce of gold. Cautionary Note to U.S.
Investors: The Pre-Feasibility Study uses the terms "mineral reserve", "proven
mineral reserve" and "probable mineral reserve" as defined in accordance with NI
43-101. These definitions differ from the definitions in Guide 7. Under Guide 7
standards, a "final" or "bankable" feasibility study is required to report
reserves, the three-year historical average price is used in any reserve or cash
flow analysis to designate reserves and the primary environmental analysis or
report must be filed with the appropriate governmental authority. The
Pre-Feasibility Study also uses 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 Guide 7 and are
normally not permitted to be used in reports and registration statements filed
with the SEC. Investors are cautioned not to assume that any part or all of
mineral deposits in these categories will ever be converted into 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.

On October 15, 2009, a water monitoring well was installed.
Under our water rights permit for the Borealis Property, this well needed to be
installed by December 31, 2009 in order to keep our permit active.

Administration and Capital Resource Activities

In July 2008, we announced the appointment of John L. Key as
President and CEO, replacing Mr. Tony Ker. Mr. Key is a mining engineer with
over 40 years experience and has run, in succession, the Magmont, Polaris and
Red Dog mines in the Teck Cominco organization. Mr. Key had been acting as our
Chief Operating Officer for the previous six months, and his primary focus has
been overseeing the completion the Preliminary Assessment on the Borealis
Property and advancing the project towards production.

Mr. Keys employment contract provides for the granting of
350,000 stock options, which were granted August 1, 2008. Mr. Ker entered into a
Transition Agreement (the TA) with us in August 2008, under which, Mr. Ker
ceased to be an employee effective August 31, 2008 and ceased to be a director
of the Company upon the election of directors at our Annual General Meeting
September 5, 2008. Mr. Ker will receive monthly payments of $12,500 and certain
incidental expenses for 12 monthly beginning September 2008. The Company
recorded a charge to expense during the quarter ended September 30, 2008 to
accrue the cost of the agreement. Mr. Ker entered into a consulting agreement
with the Company that became effective in September 2008. Under the agreement,
he was eligible to receive 200,000 stock options and a success fee of 0.67% of
any financing initiated during the term of the agreement. The consulting
agreement was terminated effective September 28, 2008. The TA was amended on
December 12, 2008 terminating the monthly payments of $12,500. A consulting
agreement was entered into on December 12, 2008 and Mr. Ker received Cdn$50,000
on January 1, 2009 for full settlement of the consulting agreement.

20

---

Effective August 5, 2008, the Company entered into an option
agreement with Gerald W. Baughman and Fabiola Baughman (the Debt holders) to
amend the $5 million face value note payable to them at a cost of $35,000. The
option period was twelve months and was extended for another six months at a
cost of $35,000.

On February 5, 2010, the Company exercised the option through
payment of $500,000 in the form of a promissory note, due February 19, 2010, and
issuance of 4,000,000 common shares of the Company. Upon exercise of the option,
the note payable was reduced to $2.5 million and the maturity date was extended
from March 30, 2010 to March 30, 2012. Additionally, the conversion rate of the
remaining $2.5 million note payable was amended to $0.80 per common share until
March 30, 2010, $0.90 per common share until March 30, 2011 and $1.00 per common
share until March 30, 2012. The $2.5 million note is secured by certain
exploration properties.

In the agreement dated February 5, 2010 the Debt holders agreed
to a waiver of the conditions precedent to the exercise by the Company of its
rights under the option. As consideration for the waiver, the Company agreed,
subject to required approvals, to the issuance of 1,500,000 common shares of the
Company and the reduction of the conversion price of the $2.5 million note
payable to $0.60 per common share until March 30, 2010, $0.70 per common share
until March 30, 2011 and $0.80 per common share until March 30, 2012. In the
event required approvals of the Companys shareholders and of the Toronto Stock
Exchange are not obtained by August 22, 2010, the Company will issue the Debt
holders two 12-month interest bearing (5% per annum) promissory notes in the
amounts of $300,000 and $100,000, respectively.

On November 10, 2008, we amended our 5% convertible note and
ongoing cash interest payments will be $73,288 and $51,713 each January 1 and
June 1, respectively, or one half of their previous amounts. The unpaid interest
will be added to the principal balance of the note, compound monthly at 5% and
become due and payable at the due date of the note, March 30, 2010.

On August 22, 2008, the Company entered into a 12-month option
agreement, at a cost of $250,000 and an additional $35,902 to cover legal costs,
to amend the Borealis Property mining lease. If exercised, the net smelter
return royalty rate will be fixed at 5%, versus the current uncapped variable
rate. Payment upon exercise of the option is $1,750,000 in cash, 7,726,250
common shares of the Company and a three year, $1,909,500, 5% note payable. On
August 19, 2009, the option was extended for six months at a cost of $125,000,
which was settled through the issuance of 966,339 shares of common stock.

Effective November 2008, our then Chief Executive Officer and
VP Business Development became part time, and we terminated our Chief Financial
Officer, VP Exploration, administrative assistant and Field Supervisor for the
Borealis Property. The VP of Exploration entered into consulting agreements with
us. Our then Chief Financial Officer entered into a consulting agreement with us
at that time.

On August 4, 2009, we added Mr. Terence J. Cryan as a board
member. Mr. Cryan currently serves as the Managing Director of Concert Energy
Partners, LLC and as President and CEO of Medical Acoustics LLC. Formerly Mr.
Cryan has served as Senior Managing Director at Bear Stearns & Co. and as
Managing Director at Paine Webber/Kidder Peabody.

On October 8, 2009, the Company held a special meeting of
shareholders at Le Soliel Hotel, 567 Hornby Street, Vancouver, British Columbia,
Canada V6C 2E8. Shareholders representing 27,977,444 shares or 41.17% of the
shares authorized to vote (67,960,905) were present in person or by proxy,
representing a quorum for the purposes of the special meeting. Proxies were
solicited under the proxy statement filed with the Securities and Exchange
Commission on September 10, 2009. For results of the special meeting see Part
II  Item 4. Submission of Matter to a Vote of Security Holders below.

On November 20, 2009, at a special meeting of the shareholders
of the Company, an amendment to the Companys Articles of Incorporation (the
Amendment) was approved. Pursuant to the Amendment, the authorized capital of
the Company was increased from 150,000,000 shares of common stock to
250,000,0000 shares of common stock, effective upon filing of a Certificate of
Amendment with the Secretary of State for the State of Nevada. On December 10,
2009, the Company filed a Certificate of Amendment with the Secretary of State
for the State of Nevada to give effect to the Amendment.

On December 29, 2009 the Companys Board of Directors formed a
Special Committee of its independent Directors to examine and explore matters
relating to potential business combination, strategic financing and other
opportunities. The Special Committee has engaged Holland and Hart, LLP, Denver,
Colorado, as counsel to the Special Committee.

On December 31, 2009, Mr. Michael K Longinotti resigned as
Chief Financial Officer.

21

---

On January 6, 2010, the Registrant announce that R. William
Wilson has been appointed a Chief Financial Officer of the Company. Mr. Wilson
previously served as the Chief Financial Officer of El Capitan Precious Metals,
Inc. from 2007 to 2009 and a director of that company from 2005 to 2009. He was
also a principal in Two Dragons Group, LLC, a business development firm engaging
in private equity and merger and acquisition transactions, from 2003 to 2005.
From 1999 to 2003, Mr. Wilson served as the Chief Financial Officer of Pebble
Technology, Inc., a private international middle market sales and manufacturing
company From 1980 to 1999, Mr. Wilsons merchant and commercial banking career
included four years as the Executive Director of Drexel Oceania LLC, a
specialized international merchant bank located in San Francisco, and fifteen
years in domestic and international wholesale banking at Westpac Banking
Corporation, Australias largest banking institution. He has worked extensively
with public and private companies in North America, Asia and Australia in
mining, financial services, real estate, health care, building materials, and
the petrochemical industries. Mr. Wilson received a B.S. in Business
Administration/Finance from the University of San Francisco in 1979.

No warrants of the Company were exercised in the quarter ended
December 31, 2009.

Fiscal 2010 Plan of Operations

Borealis Property

Our long-term plan is to focus on moving the Borealis Property
into production through the development of an oxide heap leach mine, produce a
scoping study on the Graben sulphide deposit, and continue exploration in the
pediment areas of the Borealis Property.

During September of 2009, we released the Pre-Feasibility Study
on the development of an oxide heap leach mine. We intend to take steps to
finance the construction of the potential mine. We will also consider extension
drilling, focused on the expansion of the Graben deposit and exploration
drilling for new gold deposits within the two newly identified potentially
gold-bearing hydrothermal systems in the pediments.

We recognize that additional resources are required to enable
us to continue operations. Our objective is to raise additional funds through
convertible debt and/or equity financing, joint venture arrangements, selling
certain exploration properties, and continued leasing of exploration properties
held by Nevada Eagle Resources or through other means that we deem necessary.
However, no assurance can be given that we will be successful in raising
additional capital. Further, even if we raise additional capital, there can be
no assurance that we will achieve profitability or positive cash flow. If we are
unable to raise additional capital and expected significant revenues do not
result in positive cash flow, we will not be able to meet its obligations and
may have to suspend or cease operations.

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 for the
Borealis Property and obtaining necessary permits for the construction of the
leach pad.

On September 17, 2009 we announced that negotiations were
underway for the price and construction schedule for a turnkey Absorption,
Desorption and Recovery plant. Bid packages have been issued for the
construction of the initial heap-leach pad and approval is expected shortly for
the final heap-leach pad design.

Nevada Eagle Resources

It is our intention to continue to sell, lease and joint
venture out the exploration properties held by Nevada Eagle Resources. We will
continue to actively manage the portfolio of leases with the objective of
obtaining cash flow from them.

On April 2, 2009, we sold an exploration property held by
Nevada Eagle Resources for $50,000. On July 9, 2009 we entered into a lease
agreement with Newmont Mining Corporation for the Hole in the Wall property
located on the south eastern extent of the Lovelock-/Austin Mineral Belt. The
lease agreement requires Newmont to pay royalty payments of $15,000 at time of
signing and escalating to $25,000 per year in year three. If the property is
placed into production, Newmont must pay a variable rate net smelter return
royalty. Half of the production royalty payments and any future net smelter
royalty payments must be shared with an individual who jointly holds the claims
with us. We anticipate that we will sell certain other properties. The ability
to sell as well as the payment terms and amount of proceeds we may receive is
likely to be impacted by the general condition of the gold exploration
industry.

Planned Activities

The following activities are currently planned for the balance
of fiscal 2010:

- Obtain financing necessary to progress the Borealis Property oxide heap
  leach mine project.
- Execute a drill program to expand the oxide resource within the permitted
  footprint of the Borealis Property.
- Raise additional capital as required to fund our exploration, development
  and working capital requirements.
- Continue to stake and lease, joint venture out and sell Nevada Eagle
  Resources properties.

22

---

Results of Operations

We are in an exploration stage and currently have no producing
mineral properties and thus we had no sales revenue during all reporting
periods. Property payments we received under lease or joint venture arrangements
were recorded as a reduction in the carrying value of the property unless the
carrying value of the property was at zero, in which case the payments were
recognized as lease revenue in the Statement of Operations.

Three months ended December 31, 2009 compared to three
months ended December 31, 2008

For the three months ended December 31, 2009, we had a net loss
of $854,103 or $0.01 per share compared to a net loss of $818,518 or $0.01 per
share in the same period in the prior year. Cash spending in most areas of our
operations decreased as a result of efforts to conserve cash except for costs
incurred for the engineering design for the potential development of the
Borealis Property mine and costs incurred for travel relating to potential
financing of the Borealis Property mine.

Exploration expenses during the quarter ended December 31, 2009
were $250,001 or 29% of our net expenses compared to $141,667 or 18% of net
expenses in the prior year. Most of the exploration costs recognized in the
current quarter were for completing all ongoing property lease payments and
certain detailed engineering work for the potential Borealis Property heap leach
mine and the installation of a second water well on the Borealis Property was
also commenced during the quarter. No exploration drilling was completed during
the quarter ended December 31, 2009 nor in the prior years comparable quarter.

Management salaries and consulting fees in the quarter ended
December 31, 2009 were $207,461, compared to $258,876 incurred in the quarter
ended December 31, 2008. Total non-cash compensation expense due to the
recognition of costs related to stock options, was $49,656 in the quarter ended
December 31, 2009 compared to the prior years fiscal third quarter of $70,174.
Management salaries and consulting fees during the quarter decreased due to the
reduction in the number of staff to one full-time and two part-time employees.
General and administrative costs increased to $168,495 compared to $167,209 the
prior years quarter. Legal and audit fees for the period were $72,689, an
increase from the prior years quarter of $52,077 due to legal fees related to
the completion of the special meetings of the shareholders on October 8, 2009
and November 20, 2009 and legal costs related to M&A activity of the
Company. Travel and accommodation costs during the quarter ended December 31,
2009 were $58,706, compared to $2,412 expended on travel in the prior years
comparable quarter. The increase in travel and accommodation cost is due
primarily to the Companys efforts to finance the Borealis Property mine.

Certain warrants we have issued for the purchase of common
shares have an exercise price stated in Canadian dollars, which are classified
as a liability and marked to market each quarter. We recorded a gain of 42,560
in the current quarter for the revaluation of outstanding warrants. The warrant
exercise price was amended for 9,486,500 warrants during the second quarter to
Cdn$0.18 until September 20, 2009 and the Cdn$0.40 to December 31, 2009. The
former exercise price was Cdn$1.25. 7,161,500 of the amended warrants were
exercised during the quarter ended September 30, 2009 providing $1,161,036 in
proceeds. The remaining 2,325,000 outstanding warrants expired on December 31,
2009.

Interest income earned on cash deposits was $70 for the quarter
ended December 31, 2009, compared to $1,386 in the prior year quarter and the
decrease was due to reduced cash balances held on average through the current
quarter versus the prior years comparable quarter and the lower interest rates
received on deposits during the current years first fiscal quarter. Interest
expense on the 5% note payable incurred to purchase Nevada Eagle Resources
totalled $141,190 of which $76,389 was non-cash accreted interest.

We hold certain securities for trading. We receive these
securities as partial payment of lease obligations for Nevada Eagle Resources
exploration properties. When we receive these shares, they have trading
restrictions and we cannot sell them for approximately four to six months from
the date of receipt. During the quarter ended December 31, 2009, we did not sell
any of the securities we hold. These securities went up in value during the
quarter and we recorded a gain of $4,893 due to the change in their value.

Nine months ended December 31, 2009 compared to nine months
ended December 31, 2008

For the nine-month period ended December 31, 2009 we incurred a
net loss of $2,911,118 or $0.05 per share compared to a net loss of $9,174,236
or $0.15 per share incurred during the same period in the prior year, as
spending decreased on our exploration activities, management salaries and
consulting fees, and general and administrative. The net loss in the prior year
included a $5,100,000 non-cash impairment of the carrying value of Nevada Eagle
Resources exploration properties and the related non-competition agreement
entered into at the time of acquisition.

23

---

Exploration expenses during the nine-month period ended
December 31, 2009 were $1,207,102 or 42% of our net expenses compared to
$1,422,985 or 15% of net expenses in the prior year (35% excluding the effect of
the write-down of Nevada Eagle Resources properties). No exploration drilling
was completed during the nine months ended December 31, 2009 or in the prior
years comparable period. The majority of exploration costs incurred during the
nine months ended December 31, 2009 were to complete the Pre-Feasibility Study
for the development of an oxide heap leach gold mine on the Borealis Property.
During the nine months ended December 31, 2008, we completed a CIM compliant NI
43-101 resource report, and in September 2008, we released the results of our
Preliminary Assessment of the development of an oxide heap leach gold mine on
the Borealis Property. Much of the prior years expenses covered the completion
of these two reports plus permitting efforts for exploration drilling in the
pediment areas of the Borealis Property.

Management salaries and consulting fees in the nine months
ended December 31, 2009 were $456,673 compared to $1,246,269 for the same period
in the prior year. The decrease is due to the decrease in full-time employees
and reduced consulting fees for investor relations activities. Total non-cash
compensation costs included in the nine months ended December 31, 2009 were
$121,735 versus $461,856 in the prior years comparable period.

Legal and audit fees for the nine month period increased to
$216,553 from $208,167 incurred in the prior years comparable period. Travel
and accommodation during the nine months ended December 31, 2009 was $87,272
compared to $119,332 reported in prior year nine-month period ended December 31,
2008. The decrease resulted from less travel for investor relations activities
and fewer trips to the Borealis Property. General and administrative expenses
were $358,717, versus $510,425 in the prior years comparable period. The
decrease is due to reduced spending on investor relations, office rent and
insurance.

Interest income earned on cash deposits decreased to $960 for
the nine months ended December 31, 2009, compared to $25,536 for the nine months
ended December 31, 2008, due to lower average cash balances during the
nine-month period. Interest expense during the nine months ended December 31,
2009 on the 5% note payable incurred to purchase Nevada Eagle Resources totaled
$417,088 of which $227,052 was non-cash accreted interest versus $395,487 of
interest expense including non-cash interest of $279,500 in the prior years
comparable period.

Certain warrants we have issued for the purchase of common
shares have an exercise price stated in Canadian dollars, which are classified
as a liability and marked to market each quarter. We recorded a loss of $212,130
for the revaluation of the warrants during the nine months ended December 31,
2009.

During the nine months ended December 31, 2009, we recognized
an unrealized gain of $88,653 in the value of securities we hold for sale and
realized a loss of $13,484 for securities actually sold.

Liquidity and Capital Resources

Our principal source of liquidity is cash that is raised from
the sale of common stock from treasury and other equity securities. Our
secondary source of liquidity is cash received through lease payments and sales
of exploration properties, and the sale of shares received as lease payments on
exploration properties.

Our objective is to preserve our rights to the Borealis
Property under the existing terms of the property lease. We also expect to
continue to work with the United States Forest Service to maintain our permits
under the Plan of Operations for the Borealis Property. These steps are intended
to preserve the existing value of the Borealis Property for our shareholders.

On November 10, 2008, we amended our 5% convertible note and
ongoing cash interest payments will be $73,288 and $51,713 each January 1 and
June 1, respectively, or one half of their previous amounts. The unpaid interest
will be added to the principal balance of the note, compound monthly at 5% and
become due and payable at the due date of the note, March 30, 2010.

On July 22, 2009, we extended and repriced 9,486,500 outstanding warrants to
amend the exercise price to Cdn$0.18 through September 20, 2009 and to Cdn$0.40
from September 21, 2009 through December 31, 2009. During the period ended
September 30, 2009, 7,161,500 of these warrants were exercised at Cdn$0.18
providing cash of $1,161,036. The remaining 2,325,000 outstanding warrants were
not exercised and expired on December 31, 2009.

At December 31, 2009, we had negative working capital of
$5,272,735, and excluding our note payable, negative working capital of
$213,398. Our level of spending activity is subject to change based upon future
events, especially if we complete a financing to fund the construction of a heap
leach mine on the Borealis Property. Current assets consisted of $442,008 in
cash, $160,810 in securities held for trading, $12,122 in accounts receivable,
and $11,441 in the note receivable and $32,704 in prepaid expenses. We had
$872,488 in accounts payable and accrued liabilities at December 31, 2009, and a
note payable of $5,059,337.

24

---

We do not have sufficient working capital for the next twelve
months. Our current working capital is negative $213,398, excluding the note
payable of $5,059,337 due on March 30, 2010, with an average cash expenditure
rate of approximately $95,000 per month in a typical month based on the current
number of employees we have and our current rate of development work on the
Borealis property. We will attempt to raise capital in one or more financings,
which may include equity offerings, joint ventures, sales of exploration
properties or other asset sales. This expenditure rate is subject to change
based upon future events. The projected expenditure rate does not include all
anticipated costs, including annual claim maintenance fees, or the exercise of
the option to fix the royalty rate on the Borealis property at 5% or the cost to
exercise the option to reduce the balance of the note payable to the Baughmans.
The projected expenditure rate does not include expected lease payments from
third parties for Nevada Eagle properties.

During the quarter ended December 31, 2009, we used cash in
operating activities of $701,661 which included our net loss during the quarter
of $854,033 off-set by depreciation of $10,753, non-cash compensation of
$49,656, non-cash interest expense of $76,389, unrealized gain of $4,893 in the
value of held for trading securities, a change in the liability of Canadian
dollar denominated warrants of $42,690 and changes in non-cash working capital
of a $3,552 increase in accounts receivable, a $84,606 increase in accounts
payable and a $17,897 increase in prepaid expenses.

During the quarter ended December 31, 2009 we generated cash
from investing activities of $171,546 including $184,800 in cash payments from
the leasing of exploration properties, $15,254 used for staking new mineral
properties, and $2,000 from the payments on the note receivable.

We intend to continue to lease and joint venture out the
exploration properties held by Nevada Eagle Resources. The leased properties
provide cash and liquidity for us, and therefore we intend to continue to
actively manage the portfolio of leases. Certain of these non-core properties
may be sold outright. During the quarter ended June 30, 2009, we sold an
unleased mineral property held by Nevada Eagle Resources for $50,000 and we
received lease payments totaling $291,550 during the nine months ended December
31, 2009.

In the event we make the decision to construct and operate a
gold heap leach mine on the Borealis Property, we will need to raise capital and
will consider debt, equity or forms of joint venture to raise the required
capital.

During 2008 and early 2009 there was severe deterioration in
global credit and equity markets. This resulted in the need for government
intervention in major banks, financial institutions and insurers and resulted in
greater volatility in the equity markets, increased credit losses and tighter
credit conditions. These disruptions in the credit and financial markets have
had a significant material adverse impact on a number of financial institutions
and have limited access to capital and credit for many companies. These
disruptions could, among other things, make it difficult for us to obtain or
increase our cost of obtaining capital and financing for our operations. Our
access to additional capital may not be available on terms acceptable to us or
at all.

We expect our reliance on equity financings to continue into
the future, and therefore a continuation of these conditions could make it
difficult or impossible for us to raise necessary funds to meet our capital
requirements. If we are unable to obtain financing through equity investments,
we will seek multiple solutions including, but not limited to, credit facilities
or debenture issuances.

To preserve as much cash as possible and to ensure liquidity
for the longest period possible, we have taken steps to reduce our rate of cash
expenditure. These steps included reducing the number of personnel to three at
reduced compensation rates, terminating other employees and temporarily
suspending certain development work on the Borealis Property, including certain
engineering work. We have also reduced general overhead spending, including
sub-leasing our Vancouver, British Columbia office and reducing the size of our
rented office in Reno.

We recognize that additional resources are required to enable
us continue operations. Our objective is to raise additional funds through debt
and/or equity financing, selling certain exploration properties, and continue
leasing exploration properties held by Nevada Eagle Resources or through other
means that we deem necessary. However, no assurance can be given that we will be
successful in raising additional capital. Further, even if we raise additional
capital, there can be no assurance that we will achieve profitability or
positive cash flow. If we are unable to raise additional capital and expected
significant revenues do not result in positive cash flow, we will not be able to
meet its obligations and may have to suspend or cease operations.

|Updated share capital as of February 10, 2010: |  |            | 
|---------------------------------------------- |  | ---------- | 
|Basic Common Stock Issued and Outstanding      |  | 74,197,405 | 
|Options and other Convertible Securities       |  | 5,342,000  | 
|Fully Diluted Common Stock                     |  | 79,539,405 | 

25

---

Subsequent Events Affecting Liquidity

Effective August 5, 2008, the Company entered into an option
agreement with Gerald W. Baughman and Fabiola Baughman (the Debt holders) to
amend the $5 million face value note payable to them at a cost of $35,000. The
option period was twelve months and was extended for another six months at a
cost of $35,000.

On February 5, 2010, the Company exercised the option through
payment of $500,000 in the form of a promissory note, due February 19, 2010, and
issuance of 4,000,000 common shares of the Company. Upon exercise of the option,
the note payable was reduced to $2.5 million and the maturity date was extended
from March 30, 2010 to March 30, 2012. Additionally, the conversion rate of the
remaining $2.5 million note payable was amended to $0.80 per common share until
March 30, 2010, $0.90 per common share until March 30, 2011 and $1.00 per common
share until March 30, 2012. The $2.5 million note is secured by certain
exploration properties.

In the agreement dated February 5, 2010 the Debt holders agreed
to a waiver of the conditions precedent to the exercise by the Company of its
rights under the option. As consideration for the waiver, the Company agreed,
subject to required approvals, to the issuance of 1,500,000 common shares of the
Company and the reduction of the conversion price of the $2.5 million note
payable to $0.60 per common share until March 30, 2010, $0.70 per common share
until March 30, 2011 and $0.80 per common share until March 30, 2012. In the
event required approvals of the Companys shareholders and of the Toronto Stock
Exchange are not obtained by August 22, 2010, the Company will issue the Debt
holders two 12-month interest bearing (5% per annum) promissory notes in the
amounts of $300,000 and $100,000, respectively.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements is in
accordance with accounting principles generally accepted in the United States.
The following are critical accounting policies and estimates, which we believe
are important to understanding our financial results.

Use of estimates

The preparation of financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the revenues and
expenses for the period reported. By their nature, these estimates are subject
to measurement uncertainty and the effect on the financial statements of changes
in such estimates in future periods could be significant. Actual results will
likely differ from these estimates.

Revenue recognition

Mineral lease rentals or option payments are treated as
reductions of the cost of the property as the payer is accumulating an interest
in the mineral property; payments in excess of capitalized costs are recognized
in income. Some agreements provide for payments in the form of stock and other
equity instruments as well as cash payments. Stock and other equity instruments
are recognized based on their fair market value at the time of receipt.
Fluctuations incurred during the holding period are accounted for as gains or
losses from held for trading securities. The leases provide for the receipt of
royalty payments upon production of the property. Royalty payments will be
recognized in the period in which production occurs. There are no properties in
the production stage at this time.

Exploration of mineral property interests

We expense exploration costs as they are incurred. When we
determine that a mining deposit can be economically and legally extracted or
produced based on established proven and probable reserves, development costs
incurred after such determination will be capitalized. The establishment of
proven and probable reserves is based on results of final feasibility studies,
which indicate whether a property is economically feasible. Upon commencement of
commercial production, we will transfer capitalized costs to the appropriate
asset category and amortize them over their estimated useful lives and/or ounces
produced, as appropriate. We capitalize the cost of acquiring mineral property
interests (including claims establishment) until we have determined the
viability of the property. We expense capitalized acquisition costs if we
determine that the property has no future economic value. We will also write
down capitalized amounts to fair value if estimated future cash flows, including
potential sales proceeds, related to the mineral property are estimated to be
less than the carrying value of the property.

Stock-based compensation

In December 2004, the FASB issued FASB ASC 718-10- 55 (Prior
authoritative literature: FASB Statement 123, Share-Based Payment, amended by
FASB 123(R)). FASB ASC 718-10- 55 requires all share-based payments to be
recognized in the financial statements based on their values using either a
modified-prospective or modified-retrospective transition method.

26

---

Prior to March 31, 2006, the Companys stock-based employee compensation plans were accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees (APB 25) and related interpretations, as permitted by FASB ASC 718-10- 55. The Company did not recognize employee stock-based compensation costs in its statement of operations for the periods prior to March 31,
2006, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant.

Effective April 1, 2006, the Company adopted the fair value recognition provisions of FASB ASC 718-10- 55, using the modified-prospective-transition method. The Companys total employees are relatively few in number and turnover is considered
remote, therefore the Company currently estimates forfeitures to be 5%. Estimation of forfeitures is reviewed on a quarterly basis.

Asset retirement obligations

The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction,
development or normal use of the assets with a corresponding increase in the carrying amount of the related long-lived asset. This amount is then depreciated over the estimated useful life of the asset. Over time, the liability is increased to
reflect an interest element considered in its initial measurement at fair value. The amount of the liability will be subject to re-measurement at each reporting period. Currently, the Company has a reclamation liability of $5,600, which is
disclosed further in Note 8 of the financial statements.

Tax valuation allowance

We have recorded a valuation allowance that fully reserves for our deferred tax assets because at this time we cannot establish that we will be able to utilize the tax loss carryforwards in the future. If in the future we determine that we will be
able to use all or a portion of our deferred tax assets in the future, based on our projections of future taxable income, we will reduce the valuation allowance, thereby increasing income in that period.

Foreign currency translation

The United States dollar is our functional currency. Transactions involving foreign currencies for items included in operations are translated into U.S. dollars using average exchange rates; monetary assets and liabilities are translated at the
exchange rate prevailing at the balance sheet date and all other balance sheet items are translated at the historical rates applicable to the transactions that comprise those amounts. Translation gains and losses are included in our determination of
net income

Recent Accounting Pronouncements

The Financial Accounting Standards Board ratified the consensus of the Emerging Issues Task Force that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory
produced during the period that the stripping costs are incurred. This consensus is effective for the first reporting period in fiscal years beginning after December 15, 2005, with early adoption permitted. To date the Company has not incurred any
stripping costs.

In December 2007, the FASB issued FSP FASB ASC 810-10-55 (Prior authoritative literature: FASB FSP 160,
Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51). FASB ASC 810-10-55 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires
disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective for our fiscal year commencing April 1, 2009, including
interim periods within that fiscal year. The adoption of FASB ASC 810-10-55 did not have a material impact on the Companys financial position or results of operations.

In December 2007, the FASB issued FASB ASC 805-10-55 (Prior authoritative literature: FASB FSP 141(R), Business Combinations), which amends FASB ASC 805-10-55, and provides revised guidance for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business
combination. FASB ASC 805-10-55 is effective for the Companys fiscal year beginning April 1, 2009 and is to be applied prospectively. FASB ASC 805-10-55 may have an impact on the Companys consolidated financial statements in the future,
but the nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisition the Company may consummate after the effective date.

27

---

In March 2008, the FASB issued FASB ASC 815-10-15 (Prior authoritative literature, FASB Statement 161), Disclosures about Derivative Instruments and Hedging Activities. FASB ASC 815-10-15 changes the disclosure requirements for
derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB ASC 815-20-25 (Prior
authoritative literature: FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities), and how derivative instruments and related hedged items affect an entitys operating results, financial position, and cash flows. FASB
ASC 815-10-15 is effective for fiscal years beginning after November 15, 2008. The provisions of FASB ASC 815-10-15 are only related to disclosure of derivative and hedging activities, and the adoption of FASB ASC 815-10-15 did not have a material
impact on our consolidated operating results, financial position, or cash flows.

In June 2008, the EITF reached consensus on FASB ASC 815-40-55 (Prior authoritative literature EITF 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock)(FASB ASC 815-40-55). FASB
ASC 815-40-55 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entitys own stock, which would qualify as a scope exception under FASB ASC 815-20-25 (Prior authoritative literature: FASB Statement
133, Accounting for Derivative Instruments and Hedging Activities).If the terms of an instrument, or embedded feature, are such that it is not considered to be indexed to the entitys own stock, equity classification would be
precluded and the instrument would not be within the scope of FASB ASC 815-40-55 (Prior authoritative literature EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled In, a Companys Own Stock).
FASB ASC 815-40-55 is effective for our fiscal year beginning April 1, 2009 and required the reclassification of the value of all warrants denominated in Canadian dollars from equity to liabilities, and this liability is stated at fair market value
each reporting period. At April 1, 2009, a reclassification of $2,975,330 reduced additional paid in capital (the value of the warrants using Black-Scholes at time of original issue), retained deficit was reduced by $2,888,131 and a
liability of $87,199 (the value of the warrants at April 1, 2009) was recorded. During the nine months ended December 31, 2009, the liability was reduced by $87,200, and the value of the warrants was nil at the end of the reporting period as
the warrants were exercised or expired.

On May 9, 2008, the FASB issued FASB ASC 470-20-55, (Prior authoritative literature APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)). FASB ASC 470-20-55
clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants. Additionally, FASB ASC 470-20-55 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods. FASB ASC 470-20-55 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB ASC 470-20-55
did not have a material impact on our consolidated operating results, financial position, or cash flows.

In May 2009, the Financial Accounting Standards Board (FASB) issued FASB ASC 855-10-25 (Prior authoritative literature: FASB Statement 165, Subsequent Events). (FASB ASC 855-10-25) which establishes accounting and
reporting standards for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The statement sets forth (i) the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the
balance sheet in its financial statements, and (iii) the disclosures that an entity should make about events or transactions occurring after the balance sheet date in its financial statements. FASB ASC 855-10-25 is effective for our fiscal year
commencing April 1, 2009. The adoption of FASB ASC 855-10-25 had no impact on the Companys consolidated financial position, results of operations or cash flows.

During the second quarter of 2009, the FASB issued FASB ASC 820-10-65 (Prior authoritative literature: FASB Statement 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly), This FSP:

- Affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction.
- Clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active
- Eliminates the proposed presumption that all transactions are distressed (not orderly) unless proven otherwise. The FSP instead requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence
- Includes an example that provides additional explanation on estimating fair value when the market activity for an asset has declined significantly.
- Requires an entity to disclose a change in valuation technique (and the related inputs) resulting from the application of the FSP and to quantify its effects, if practicable
- Applies to all fair value measurements when appropriate

28

---

FASB ASC 820-10-65 must be applied prospectively and retrospective application is not permitted. FASB ASC 820-10-65 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March
15, 2009. An entity early adopting FASB ASC 820-10-65 must also early adopt FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.The adoption of FAS157-4 had no impact on the companys
consolidated operating results, financial position, or cash flows.

During the second quarter of 2009, the FASB issued FASB ASC 320-10-65 (Prior authoritative literature: FASB FSP 115-2/124-2, Recognition and Presentation of Other-Than-Temporary Impairments). ASC Topic 320-10-65-1 establishes a new method of
recognizing and reporting other-than-temporary impairments of debt securities. It also contains additional disclosure requirements related to debt and equity securities and changes existing impairment guidance under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("ASC Topic 320-10"). For debt securities, the "ability and intent to hold" provision is eliminated, and impairment is considered to be other-than-temporary if an
entity (i) intends to sell the security, (ii) more likely than not will be required to sell the security before recovering its cost, or (iii) does not expect to recover the security's entire amortized cost basis (even if the entity does not intend
to sell). This new framework does not apply to equity securities (i.e., impaired equity securities will continue to be evaluated under previously existing guidance).The "probability" standard relating to the collectability of cash flows is
eliminated, and impairment is now considered to be other-than-temporary if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security. ASC Topic 320-10-65-1 also provides
that for debt securities which (i) an entity does not intend to sell and (ii) it is not more likely than not that the entity will be required to sell before the anticipated recovery of its remaining amortized cost basis, the impairment is separated
into the amount related to estimated credit losses and the amount related to all other factors. The amount of the total impairment related to all other factors is recorded in other comprehensive loss and the amount related to estimated credit loss
is recognized as a charge against current period earnings. ASC Topic 320-10-65-1 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted. The Company elected to adopt ASC Topic 320-10-65-1 in the first
quarter of 2009.FASB ASC 320-10-65 had no impact on the Companys consolidated operating results, financial position, or cash flows.

In April 2009, the FASB issued FASB ASC Topic 270-10-05, Interim Disclosures about Fair Value of Financial
Instruments (FSP FAS 107-1 and APB 28-1). FASB ASC Topic 270-10-05 enhances consistency in financial reporting by increasing the frequency of fair value disclosures. This guidance relates to fair value disclosures for any financial instruments
that are not currently reflected on the balance sheet of companies at fair value. Before this guidance was adopted, fair values for these assets and liabilities were disclosed only once a year. The guidance now requires these disclosures to be made
on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. This pronouncement is effective for periods ending after June
15, 2009. We adopted this standard effective June 30, 2009, and it did not have a material impact on our financial position and results of operations.

Certain comparative figures have been reclassified to conform to the current year presentation

Summary of any product research and development that the company will perform for the term of the plan.

We do not anticipate performing any product research and development under our plan of operation.

Expected purchase or sale of plant and significant equipment.

We do not anticipate any significant equipment purchases or sales unless we successfully finance the development of a heap leach mine on the Borealis property and approval is granted by our board of directors to begin construction.

Significant changes in number of employees.

We currently have three employees. We do not expect significant changes in this number.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.

Contractual Obligations

We make advance royalty payments of $9,590 per month to certain lease holders while exploration is proceeding on the Borealis Property. In addition, to maintain its existing claims on the Borealis property, we make payments totalling
approximately $113,000 annually. These payments are contingent upon us maintaining an interest in the property. Through Nevada Eagle, we also make claim payments of approximately $108,000 annually. The definitive amount depends on the exact
number of claims and the number of unleased properties.

29

---

Under the terms of the acquisition agreement for Nevada Eagle
Resources LLC, at December 31, 2009 we have a note payable outstanding for
$5,059,337 due March 30, 2010. Refer to the section Liquidity and Capital
Resources under this document for a full description of the acquisition and
commitment and also Note 9.

As of December 31, 2009, we had the following non-cancellable
contractual obligations:

Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    YearsOperating Lease Obligation
      (1)
    
    225,929
    
    
    56,152
    
    
    116,028
    
    
    53,749
    
    
    -Operating Lease Obligation (2)
    
    6,300
    
    
    6,300
    
    
    -
    
    
    -
    
    
    -


(1)Obligation for the rental of office
space in Vancouver, BC, 5-year term, terminating August 2013 and payments of
approximately Cdn$5,010 per month for the first 3 years and Cdn$5,232 per month
for the remaining two years.The Vancouver office has
been sub-leased commencing February 1, 2009 for 4 years and 7 months (remaining
life on lease) for Cdn$4,000 per month. The subtenant has an option to terminate
the lease on January 31, 2011; such option must be exercised during October,
2010. If the option to terminate Sublease Agreement is not executed by the
Subtenant, then the agreement shall continue until the expiration date. $65,587,
the difference between the required lease payments and the estimated future
sub-lease receipts, has been accrued as a loss at year ended March 31, 2009.
(2)Obligation for rental of office space
in Hawthorne, Nevada, one-year term, terminating April 30, 2010 and payments of
$900 per month.

Certain information contained in this Management Discussion
and Analysis constitutes forward looking information and actual results could
differ from estimates, expectations or beliefs contained in such statements.

Item 3. Quantitative and Qualitative Disclosure about Market
Risk

Not Applicable.

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 the
Companys management, including its Chief Executive Officer (CEO), John L.
Key, and Chief Financial Officer (CFO), R. William Wilson, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures (as defined in Rule 13a  15(e) and Rule 15d  15(e) under the
Exchange Act). Based on that evaluation the CEO and the CFO have concluded that
as of the end of the period covered by this report, the Companys disclosure
controls and procedures were adequately designed and effective in ensuring that:
(i) information required to be disclosed by the Company in reports that it files
or submits to the Securities and Exchange Commission under the Exchange Act is
recorded, processed, summarized and reported within the time periods 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 CEO and CFO, as appropriate, to
allow for accurate and timely decisions regarding required disclosure.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commissions rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial
reporting (as defined in Rule 13(a)-15(f) or 15(d)-15(f)) that occurred during
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

During the period covered by this report, due to the temporary,
unexpected absence of our corporate secretary and treasurer for personal
reasons, the segregation of duties between our Chief Financial Officer and the
secretary and treasurer as part of our internal control over financial reporting
were temporarily suspended. As of December 31, 2009 our corporate secretary and
treasurer had returned to full time duties and management has determined that
their temporary absence did not materially affect our internal control over
financial reporting.

30

---

PART II. OTHER INFORMATION

Item 1.Legal Proceedings.

Except as provided below, neither we nor any of our properties,
including the Borealis Property, are currently subject to any material legal
proceedings or other regulatory proceedings and to our knowledge no such
proceedings are contemplated.

On September 16, 2005, our subsidiary, Borealis Mining Company,
was named as a co-defendant in an ongoing civil action pending in the United
States District Court for the District of Nevada, entitled United States
v. Walker River Irrigation District (Court Doc. No. In Equity C-125,
Subfile C-125-B). The action seeks to determine the existence and extent of
water rights held by the federal government in the Walker River drainage area
for use on federally reserved lands such as Indian reservations, National
Forests, military reservations, and the like. The suit does not dispute nor seek
to invalidate any existing water rights (including ours); rather, it seeks to
determine the extent and priority of the federal governments water rights. On
May 27, 2003, the Court stayed all proceedings to allow the United States, the
State of Nevada, the State of California, the Walker River Paiute Tribe, the
Walker River Irrigation District, Mono County, California, Lyon County, Nevada,
Mineral County, Nevada and the Walker Lake Working Group to attempt to mediate a
settlement. No settlement has yet been reached. Borealis Mining Company was
named as one of several hundred co-defendants in this action because it owns
water rights within a portion of the Walker River drainage area in Nevada, which
were granted under a permit on September 16, 2005. We, like most private water
right owners, intend to have only minimal involvement in the merits of the
lawsuit. We do not believe that this civil action, which will determine the
extent and priority of federally reserved water rights in the area, will have
any effect on our potential business operations.

Item 1A. Risk Factors and Uncertainties.

There have been no material changes from the risk factors as
previously disclosed in our Form 10-K for the year ended March 31, 2009 which
was filed with Securities and Exchange Commission on June 26, 2009.

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

During the quarter ended December 31, 2009 we did not offer or
sell unregistered securities pursuant to exemptions under the Securities Act of
1933, as amended, and no securities repurchases occurred during the quarter
ended December 31, 2009.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security
Holders.

Results of Special Meeting of Shareholders

On October 8, 2009, Gryphon Gold Corporation held a special
meeting of shareholders at Le Soliel Hotel, 567 Hornby Street, Vancouver,
British Columbia, Canada V6C 2E8, beginning October 8, 2009, at 10:30 a.m. local
time. Shareholders representing 27,977,444 shares or 41.17% of the shares
authorized to vote (67,960,905) were present in person or by proxy, representing
a quorum for the purposes of the speical meeting. The shareholders approved the
following:

|Proposal #1  Borealis Mine Project                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | For        |  |  | Against   |  |  | Abstain | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  |  | --------- |  |  | ------- | 
|To approve the Companys proposed private placement
      financing, at the discretion of the Board, of convertible notes of
      approximately $27.5 million principal amount, which would result in the
      reservation for issuance upon conversion of the convertible notes and
      exercise of warrants of up to 144,100,000 shares of common stock to fund
      the construction of a gold mine on the Companys Borealis gold property in
      Nevada |  | 26,012,385 |  |  | 1,874,059 |  |  | 91,000  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |            |  |  |           |  |  |         | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |            |  |  |           |  |  |         | 
|Proposal #3  Option to Restructure Debt                                                                                                                                                                                                                                                                                                                                                                                                                            |  | For        |  |  | Against   |  |  | Abstain | 
|To approve a reduction in the conversion price of the
      Companys outstanding 5% $5 million principal amount
      Convertible Note, due March 30, 2010, dated August 21, 2007, as amended
      November 10, 2008, pursuant to an Option Agreement, dated August 5, 2008,
      made and entered into by the Company and Gerald W. Baughman and Fabiola
      Baughman as holders of the 5% $5 million principal amount Convertible Note                       |  | 26,203,680 |  |  | 1,581,359 |  |  | 192,405 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |            |  |  |           |  |  |         | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |            |  |  |           |  |  |         | 
|Proposal #4  Option Share Increase                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | For        |  |  | Against   |  |  | Abstain | 
|To approve an increase in the number of shares of common
      stock available for the grant of options under the Companys
      2006 Omnibus Incentive Plan                                                                                                                                                                                                                                                                                                       |  | 25,754,930 |  |  | 1,713,609 |  |  | 508,905 | 

31

---

Voting on Proposal #2 was adjourned to November 20, 2009, due
to a lack of quorum to pass the resolution to amend the Companys articles of
incorporation.

Results of Special Meeting of Shareholders

On November 20, 2009 Gryphon Gold Corporation held its
adjourned special meeting of shareholders at the offices of Borden Ladner
Gervais, 200 Burrard Street, Ste 1200, Waterfront Centre, Vancouver, British
Columbia, Canada, beginning November 20, 2009, at 10:30 a.m. local time.
Shareholders representing 35,421,522 shares or 52.1% of the shares authorized to
vote (67,960,905) were present in person or by proxy, representing a quorum for
the purposes of the special meeting. The shareholders approved the following:

|Proposal #2  Articles Amendment                                                                                                                                                                               | For        | Against | Abstain
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ------- | -------
|To approve an amendment to the Companys articles of
      incorporation to increase the authorized capital of the Company from
      150,000,000 shares of common stock to 250,000,000 shares of common stock | 35,050,808 | 284,714 | 86,000 

Proxies were solicited under the proxy statement filed with the
Securities and Exchange Commission on September 10, 2009. Proposal 2 passed by
votes of the shareholders present in person and in proxy.

Item 5.Other Information.

None.

32

---

Item 6. Exhibits

|Number | Description                                                                                             
|------ | --------------------------------------------------------------------------------------------------------
|31.1   | Certification of Chief Executive Officer
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|31.2   | Certification of Chief Financial Officer
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32.1   | Certification of Chief Executive Officer
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2   | Certification of Chief Financial Officer
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

33

---

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/ John L. Key                              
|-------------------------------------------------
|John L. Key                                      
|Chief Executive Officer                          
|(On behalf of the registrant and
    as          
|Principal executive officer)                     
|                                                 
|Date:  February 12, 2010                         
|                                                 
|                                                 
|By:  /s/ R. William Wilson                       
|R. William Wilson                                
|Chief Financial Officer                          
|(On behalf of the registrant and as              
|Principal financial and accounting
      officer)
|                                                 
|Date:  February 12, 2010                         



---