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 September 30, 2008
|                                                 
|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.)
|                                                               |  |                                     
|1130 West Pender Street, Suite 810                             |  |                                     
|Vancouver, British Columbia                                    |  | V6E 4A4                             
|(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 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

Number of common shares outstanding at November 14, 2008: 61,957,065

---

GRYPHON GOLD CORPORATION

September 30, 2008



INDEX

|                                   |                                                                                                                                   | Page No.(s)
|---------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | -----------
|PART I - FINANCIAL
    INFORMATION |                                                                                                                                  
|                                   |                                                                                                                                   |            
|Item 1.                            | Financial Statements.                                                                                                             |            
|                                   |                                                                                                                                   |            
|                                   | Unaudited Interim Consolidated
    Financial Statements as of September 30, 2008                                                  | 2          
|                                   |                                                                                                                                   |            
|                                   | Unaudited Consolidated Balance
    Sheet as of September 30, 2008 and Audited Consolidated Balance Sheet as of
    March 31, 2008 | 2          
|                                   |                                                                                                                                   |            
|                                   | Unaudited Consolidated Statements
    of Operations for the three and six months ended September 30, 2008 and 2007                | 3          
|                                   |                                                                                                                                   |            
|                                   | Unaudited Consolidated Statements
    of Stockholders' Equity                                                                     | 4          
|                                   |                                                                                                                                   |            
|                                   | Unaudited Consolidated Statements
    of Cash Flows for the three and six months ended September 30, 2008 and 2007                | 5          
|                                   |                                                                                                                                   |            
|                                   | Notes to Unaudited Interim
    Consolidated Financial Statements                                                                  | 6          
|                                   |                                                                                                                                   |            
|Item 2.                            | Management's Discussion and
    Analysis of Financial Condition and Results of Operation.                                         | 18         
|                                   |                                                                                                                                   |            
|Item 3.                            | Quantitative and Qualitative
    Disclosures About Market Risk.                                                                   | 30         
|                                   |                                                                                                                                   |            
|Item 4.                            | Controls and Procedures.                                                                                                          | 30         
|                                   |                                                                                                                                   |            
|PART II - OTHER
    INFORMATION    |                                                                                                                                  
|                                   |                                                                                                                                   |            
|Item 1.                            | Legal Proceedings.                                                                                                                | 32         
|                                   |                                                                                                                                   |            
|Item 1A.                           | Risk Factors.                                                                                                                     | 32         
|                                   |                                                                                                                                   |            
|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.                                                                                                                | 34         
|                                   |                                                                                                                                   |            
|Item 6.                            | Exhibits.                                                                                                                         | 35         
|                                   |                                                                                                                                   |            
|SIGNATURES                         | 36                                                                                                                               

i



---



Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED BALANCE SHEETS

(Stated in U.S. dollars)

(Unaudited)





|                                                 | As at
September 30,
2008
$ | As at
March 31,
2008
$
|------------------------------------------------ | -------------------------- | ----------------------
|                                                 |                            |                       
|ASSETS                                           |                            |                       
|Current                                          |                            |                       
|Cash                                             | 1,409,955                  | 4,196,394             
|Held for trading securities                      | 14,305                     | 151,543               
|Accounts receivable                              | 14,822                     | 92,104                
|Prepaid expenses                                 | 57,000                     | 142,540               
|Total Current Assets                             | 1,496,082                  | 4,582,581             
|                                                 |                            |                       
|Equipment [note 4]                               | 147,591                    | 142,511               
|Mineral properties [notes 3 & 5]                 | 7,322,356                  | 12,209,864            
|Other assets [note 7]                            | 209,437                    | 257,844               
|                                                 | 9,175,466                  | 17,192,800            
|                                                 |                            |                       
|LIABILITIES AND STOCKHOLDERS' EQUITY             |                            |                       
|Current                                          |                            |                       
|Accounts payable and accrued liabilities         | 464,739                    | 626,843               
|Current portion of capital lease [note 8]        | -                          | 18,127                
|Total current liabilities                        | 464,739                    | 644,970               
|                                                 |                            |                       
|Convertible promissory note [note 9]             | 4,568,313                  | 4,432,134             
|                                                 |                            |                       
|Commitments and contingencies [note 12]          |                            |                       
|                                                 |                            |                       
|Stockholders' equity                             |                            |                       
|Common stock                                     | 61,957                     | 61,735                
|Additional paid-in capital                       | 38,267,763                 | 37,885,549            
|Deficit accumulated during the exploration stage | (34,187,306)               | (25,831,588)          
|Total stockholders' equity                       | 4,142,414                  | 12,115,696            
|                                                 | 9,175,466                  | 17,192,800            

See accompanying notes



See Note 1  Nature of Operations and Going Concern Uncertainty

2

---



Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in U.S. dollars)

(Unaudited)



|                                                                       | Three months ended      | Six months ended        | Period from April 24, 2003 (inception) to September 30, 2008
$
|---------------------------------------------------------------------- | ----------------------- | ----------------------- | --------------------------------------------------------------
|                                                                       | September 30, 
  2008
$ | September 30, 
  2007
$ | September 30, 
  2008
$                                       
|Exploration [note 6]                                                   | 594,651                 | 1,274,926               | 1,281,319                                                     
|Management salaries and consulting fees [note 11]                      | 659,367                 | 695,068                 | 987,393                                                       
|General and administrative                                             | 194,144                 | 314,743                 | 343,216                                                       
|Legal and audit                                                        | 67,000                  | 126,560                 | 156,090                                                       
|Travel and accommodation                                               | 88,984                  | 51,052                  | 116,919                                                       
|Depreciation & amortization                                            | 15,479                  | 16,390                  | 32,361                                                        
|(Gain) loss on disposal of equipment                                   | (2,354)                 | 6,552                   | (3,174)                                                       
|Foreign exchange (gain) loss                                           | 22,427                  | 12,102                  | 16,914                                                        
|Lease revenue                                                          | (22,598)                | -                       | (22,598)                                                      
|Interest income                                                        | (8,108)                 | (55,411)                | (24,150)                                                      
|Interest expense                                                       | 132,189                 | 58,553                  | 262,358                                                       
|Impairment of carrying value of exploration properties [note 3]        | 5,100,000               | -                       | 5,100,000                                                     
|                                                                       |                         |                         |                                                               
|Unrealized (gain) loss on securities                                   | (61,260)                | -                       | (27,821)                                                      
|Realized loss on sale of securities                                    | 136,891                 | -                       | 136,891                                                       
|                                                                       |                         |                         |                                                               
|Net loss for the period                                                | (6,916,812)             | (2,500,535)             | (8,355,718)                                                   
|                                                                       |                         |                         |                                                               
|Basic and diluted loss per share                                       | $(0.11)                 | $(0.04)                 | $(0.14)                                                       
|                                                                       |                         |                         |                                                               
|Basic and diluted weighted average number of common shares outstanding | 61,939,263              | 52,673,678              | 61,827,891                                                    

See accompanying notes



See Note 1  Nature of Operations and Going Concern Uncertainty



3

---



Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED STATEMENTS OF 
STOCKHOLDERS' EQUITY

(Stated in U.S. dollars)

(Unaudited)



|                                                                               |              |         |             | Deficit      |             
|------------------------------------------------------------------------------ | ------------ | ------- | ----------- | ------------ | ------------
|                                                                               |              |         |             | accumulated  |             
|                                                                               |              |         | Additional  | during the   |             
|                                                                               | Common stock | paid-in | exploration |             
|                                                                               | Shares       | Amount  | capital     | stage        | Total       
|                                                                               | #            | $       | $           | $            | $           
|                                                                               |              |         |             |              |             
|Balance, inception April 24, 2003                                              |              |         |             |              |             
|Shares issued:                                                                 |              |         |             |              |             
|For private placements                                                         | 38,326,370   | 38,326  | 20,731,825  |             | 20,770,151  
|Share issue costs                                                              |             |        | (740,553)   |             | (740,553)   
|Initial Public Offering (IPO)                                                  | 6,900,000    | 6,900   | 5,029,597   |             | 5,036,497   
|Share issue costs (IPO)                                                        |             |        | (2,241,940) |             | (2,241,940) 
|Compensation component of shares issued                                        |             |        | 226,000     |             | 226,000     
|Fair value of agents' warrants issued on private placements [note 10[b]]       |             |        | 168,137     |             | 168,137     
|Fair value of options granted to        consultants [note 10[c]]               |             |        | 49,558      |             | 49,558      
|Fair value of underwriters' compensation warrants on IPO [note 10[b]]          |             |        | 135,100     |             | 135,100     
|Fair value of options granted [note 10[c]]                                     |             |        | 1,314,961   |             | 1,314,961   
|Fair value of vested stock grants                                              | 108,000      | 108     | 151,138     |             | 151,246     
|Exercise of warrants                                                           | 1,855,775    | 1,856   | 1,742,979   |             | 1,744,835   
|Exercise of options                                                            | 107,500      | 108     | 83,066      |             | 83,174      
|Net loss since inception                                                       |             |        |            | (17,980,822) | (17,980,822)
|Balance, March 31, 2007                                                        | 47,297,645   | 47,298  | 26,649,868  | (17,980,822) | 8,716,344   
|Shares issued:                                                                 |              |         |             |              |             
|For private placements [note [10[a]]                                           | 9,486,500    | 9,487   | 7,346,431   |             | 7,355,918   
|Share issue costs                                                              |             |        | (523,288)   |             | (523,288)   
|For mineral properties [note 3]                                                | 4,500,000    | 4,500   | 3,444,918   |             | 3,449,418   
|Fair value of agents' warrants issued on private placements [note 10[a] &[b]]] |             |        | 54,490      |             | 54,490      
|Fair value of options granted [note 10[c]]                                     |             |        | 459,519     |             | 459,519     
|Fair value of vested stock grants [notes 10 [a] &[d]]                          | 321,250      | 320     | 369,241     |             | 369,561     
|Exercise of warrants [note 10[b]]                                              | 130,000      | 130     | 84,370      |             | 84,500      
|Net loss for the period                                                        |             |        |            | (7,850,766)  | (7,850,766) 
|Balance, March 31, 2008                                                        | 61,735,395   | 61,735  | 37,885,549  | (25,831,588) | 12,115,696  
|Shares issued:                                                                 |              |         |             |              |             
|Shares issue cost                                                              |             |        | (9,246)     |             | (9,246)     
|Fair value of options granted [note 10[c]]                                     |             |        | 370,045     |             | 370,045     
|Fair value of vested stock grants [notes 10 [a] &[d]]                          | 221,670      | 222     | 21,415      |             | 21,637      
|Net loss for the period                                                        |             |        |            | (8,355,718)  | (8,355,718) 
|Balance, September 30, 2008                                                    | 61,957,065   | 61,957  | 38,267,763  | 34,187,306   | 4,142,414   

See accompanying notes



See Note 1  Nature of Operations and Going Concern Uncertainty

4

---

Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. dollars)

(Unaudited)



|                                                                    | Three months ended      | Six months ended        | Period from April 24, 2003 (inception) to September 30, 2008
$
|------------------------------------------------------------------- | ----------------------- | ----------------------- | --------------------------------------------------------------
|                                                                    | September 30, 
  2008
$ | September 30, 
  2007
$ | September 30, 
  2008
$                                       
|OPERATING ACTIVITIES                                                |                         |                         |                                                               
|Net loss for the period                                             | (6,916,812)             | (2,500,535)             | (8,355,718)                                                   
|Items not involving cash:                                           |                         |                         |                                                               
|Depreciation                                                        | 15,479                  | 16,390                  | 32,361                                                        
|(Gain) loss on disposal of equipment                                | (2,354)                 | 6,552                   | (3,174)                                                       
|Fair value of options, warrants and other non-cash compensation     | 288,631                 | 271,462                 | 391,682                                                       
|Non-cash interest expense[note 9]                                   | 68,976                  | 28,367                  | 136,179                                                       
|Loss on sale of securities                                          | 136,891                 | -                       | 136,891                                                       
|Unrealized (gain) loss on securities                                | (61,260)                | -                       | (27,821)                                                      
|Held for trading securities included in lease revenue               | (9,598)                 | -                       | (9,598)                                                       
|Impairment of carrying value of exploration properties [note 3]     | 5,100,000               | -                       | 5,100,000                                                     
|Changes in non-cash working capital items:                          |                         |                         |                                                               
|Amounts receivable                                                  | 83,294                  | 29,696                  | 77,282                                                        
|Accounts payable and accrued liabilities                            | 173,605                 | 416,128                 | (162,104)                                                     
|Prepaid expenses                                                    | 55,429                  | 162,356                 | 85,540                                                        
|Cash used in operating activities                                   | (1,067,719)             | (1,569,584)             | (2,598,480)                                                   
|                                                                    |                         |                         |                                                               
|INVESTING ACTIVITIES                                                |                         |                         |                                                               
|Reclamation deposit                                                 | -                       | (45,000)                | (13,801)                                                      
|Purchase of equipment                                               | (12,059)                | (16,391)                | (45,198)                                                      
|Nevada Eagle acquisition and related non-compete agreement [note 3] | -                       | (2,964,527)             | -                                                             
|Mineral property expenditures [note 5]                              | (277,373)               | (3,710)                 | (313,375)                                                     
|Mineral property lease payments received                            | 88,000                  | 5,000                   | 156,000                                                       
|Proceeds from sales of held for trading securities                  | 37,766                  | -                       | 37,766                                                        
|Proceeds from sale of equipment                                     | 3,349                   | 2,314                   | 3,349                                                         
|Cash used by investing activities                                   | (160,317)               | (3,022,314)             | (175,259)                                                     
|                                                                    |                         |                         |                                                               
|FINANCING ACTIVITIES                                                |                         |                         |                                                               
|Capital lease principal payments                                    | -                       | (5,917)                 | (3,454)                                                       
|Cash received for shares                                            | -                       | 3,789,197               | -                                                             
|Share issue costs                                                   | -                       | (246,414)               | (9,246)                                                       
|Subscription receivables collected                                  | -                       | -                       | -                                                             
|Cash provided by financing activities                               | -                       | 3,536,866               | (12,700)                                                      
|                                                                    |                         |                         |                                                               
|(Decrease) increase in cash during the period                       | (1,228,036)             | (1,050,032)             | (2,786,439)                                                   
|Cash and cash equivalents, beginning of period                      | 2,637,991               | 4,982,886               | 4,196,394                                                     
|Cash and cash equivalents, end of period                            | 1,409,955               | 3,927,854               | 1,409,955                                                     

See accompanying notes



See Note 1  Nature of Operations and Going Concern Uncertainty

5

---

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 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. 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 significant 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 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.



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, 2008 (the "Annual Financial Statements"). 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 SFAS No. 157, " Fair
Value Measurements". The objective of SFAS 157 is to increase consistency
and comparability in fair value measurements and to expand disclosures about
fair value measurements. SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements and
does not require any new fair value measurements. The provisions of SFAS 157 are
effective for fair value measurements made in fiscal years beginning after
November 15, 2007. The adoption of SFAS No. 157 did not have a material effect
on its financial statements.



---

NEW POLICIES ADOPTED (cont'd)

The Company measures its held for trading securities at fair
value in accordance with SFAS 157. SFAS 157 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:

- 





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 September 30, 2008 is:

Fair Value Measurements at Reporting Date Using

|         | Quoted Prices in |                   |   |             |  
|-------- | ---------------- | ----------------- | - | ----------- | -
|         | Active Markets   | Significant Other |   | Significant
|         |                  | for Identical     |   | Observable  |  
|         |                  | Assets            |   | Inputs      |  
|Total    |                  | (Level 1)         |   | (Level 2)   |  
|$ 14,305 | $                | 14,305            | $ |            | $

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities("FAS
159"). FAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value, with theobjective 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 FAS 159 are effective for
the Company's fiscal year beginning April 1, 2008. Effective April 1, 2008, the
Company adopted FAS 159, which did not have a material impact on the Company's
interim unaudited consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of
ARB No. 51. SFAS 160 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.
Earlier adoption is prohibited. The Company believes that SFAS 160 should not
have a material impact on its financial position or results of operations.

In December 2007, the FASB issued FASB Statement No. 141(R),
Business Combinations, which amends SFAS No. 141, 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. SFAS No. 141(R) is effective for the Company's fiscal year
beginning April 1, 2009 and is to be applied prospectively.



---

RECENT ACCOUNTING PRONOUNCEMENTS (cont'd)

In March 2008, the FASB issued FAS No. 161, "Disclosures
about Derivative Instruments and Hedging Activities" ("FAS 161"). FAS 161
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 FAS 133, and how derivative instruments and related hedged
items affect an entity's operating results, financial position, and cash flows. FAS 161 is effective for fiscal years beginning after November 15, 2008. Early
adoption is permitted. We are currently reviewing the provisions of FAS 161 and
have not yet adopted the statement. However, as the provisions of FAS 161 are
only related to disclosure of derivative and hedging activities, we do not
believe the adoption of FAS 161 will have a material impact on our consolidated
operating results, financial position, or cash flows.

3. 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"), pursuant to a membership interest purchase
agreement (the "Purchase Agreement"), dated July 4, 2007, by and between the
Company, Gerald W. Baughman and Fabiola Baughman, as sellers ("Sellers"), and
Nevada Eagle. Under the Purchase Agreement, the company acquired all of the
outstanding limited liability company interests of Nevada Eagle from the Sellers
(the "Acquisition") for the following consideration, paid on August 21, 2007
(the "Closing Date"):

(a) $2,500,000 in cash;

(b) 4,500,000 shares of common stock of the Company
(the "Common Shares") 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].

|Consideration
    paid for acquisition of Nevada Eagle |            
|------------------------------------------------------ | -----------
|Cash at closing                                        | $2,500,000 
|Cash due diligence costs                               |            
|and other expenses                                     | 568,340    
|                                                       | 3,068,340  
|                                                       |            
|Common shares                                          | 3,449,418  
|Convertible note and value                             |            
|of conversion feature                                  | 4,272,359  
|                                                       | $10,790,117
|Allocation of Purchase
    Price                       |            
|Mineral properties                                     | 10,719,209 
|Non-competition agreement                              | 70,908     
|                                                       | $10,790,117

Subsequent to the purchase of NER, the value for exploration
properties has 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 provided by an independent
investment-banking firm. 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. In determining
the value of each parameter, an independent investment-banking firm examined
both recent similar transactions in the marketplace and the market values of a
sample of publicly traded gold exploration companies.

To measure for impairment, the investment-banking firm
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 and the non-competition
agreement were impaired by $5,044,883 and $55,117, respectively, for a total of
$5,100,000.

The impairment charge was first allocated to the carrying
value of the non-compete agreement of $55,117, net of accumulated amortization
and the remaining impairment charge was allocated to the mineral properties.



---

4. EQUIPMENT

|                           | September 30, 2008
|-------------------------- | ------------------
|                           |                   
|                           | Cost              
|                           | $                 
|                           |                   
|Office and lab equipment   | 209,301           
|Trucks                     | 64,097            
|Total                      | 273,398           
|                           |                   
|                           |                   
|                           | March 31, 2008    
|                           |                   
|                           | Cost              
|                           | $                 
|                           |                   
|Office and lab equipment   | 197,986           
|Trucks under capital lease | 71,319            
|Total                      | 269,305           

5. MINERAL PROPERTIES

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.

On August 22, 2008, the Company entered into a 12 month
option agreement, at a cost of $250,000 and an additional $25,000 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. The option period can be extended for an additional six months for a
payment of $125,000.

Effective August 21, 2007, the Company purchased all the rights and interests
of Nevada Eagle, as described in note 3. $10,719,209 of the purchase price was
allocated to the value of the exploration properties acquired.

|                                                                | 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 3]                               | 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)                              | (156,000)  
|Expenditures during the period                                  | 38,375     
|Option to amend Borealis
    Property mining lease              | 275,000    
|Impairment of carrying value of exploration properties [note 3] | (5,044,883)
|Mineral property cost, September 30, 2008                       | 7,322,356  

9

---

6. EXPLORATION

|                           |                   |                 |           |           | Period from April
|-------------------------- | ----------------- | --------------- | --------- | --------- | -----------------
|                           | Three month ended | Six month ended | 24, 2003 
|                           |                   |                 |           |           | (inception) to   
|                           | September         | September       | September | September | September 30,    
|                           | 30, 2008          | 30, 2007        | 30, 2008  | 30, 2007  | 2008             
|                           | $                 | $               | $         | $         | $                
|NEVADA, USA                |                   |                 |           |           |                  
|Borealis property          |                   |                 |           |           |                  
|Exploration:               |                   |                 |           |           |                  
|Drilling                   | 116,709           | 733,390         | 402,208   | 1,728,537 | 7,107,589        
|Property maintenance       | 219,809           | 218,626         | 357,055   | 351,579   | 2,902,145        
|Geologic and assay         | 28,755            | 202,349         | 63,791    | 502,641   | 2,032,116        
|Project management         | 86,645            | 84,629          | 154,749   | 119,873   | 1,556,536        
|Engineering                | 140,203           | 5,000           | 270,694   | 5,000     | 1,096,480        
|Metallurgy                 | 2,382             | 10,932          | 20,371    | 25,768    | 317,207          
|Subtotal Borealis property | 594,503           | 1,254,926       | 1,268,868 | 2,733,398 | 15,012,073       
|Other exploration          | 148               | 20,000          | 12,451    | 20,000    | 42,878           
|Total exploration          | 594,651           | 1,274,926       | 1,281,319 | 2,753,398 | 15,054,951       

7. OTHER ASSETS

|                               | September 30, | March 31,
|------------------------------ | ------------- | ---------
|                               | 2008          | 2008     
|                               | $             | $        
|Reclamation bond & deposits    | 209,437       | 195,636  
|Non-compete agreement [note 3] | -             | 62,208   
|                               | 209,437       | 257,844  

During the six months ended September 30, 2008, the Company
increased the amount of their performance bond from $168,459 to $182,260 by
purchasing a further performance bond totaling $13,801 from an insurance
company. The total bond purchase is in support of the potential future
obligations the Company may incur under a Plan of Operation for exploration
within the brown-field area of the Borealis property filed with the U.S. Forest
Service. The Company also holds a deposit with the Bureau of Land Management ("BLM")
for $27,177 (March 31, 2008 - $27,177), which supports its potential future
obligations for reclamation during the Company's exploration activities within
the BLM area. At September 30, 2008, the Company has recorded an estimated
reclamation liability of $5,600 (March 31, 2008  $5,600) representing future
obligations related to its general property activities completed to September
30, 2008.

As part of the acquisition of Nevada Eagle, the primary
interest holder entered into a non-compete agreement. The non-compete agreement
was being amortized on a straight line basis over 5 years. At September 30,
2008, the value of the non-compete agreement was reduced to zero in conjunction
with the recording of an impairment in value of the Nevada Eagle exploration
properties [note 3].

8. CAPITAL LEASE

The Company leased a truck that was accounted for as a
capital lease, with the present value of the required lease payments recorded as
a liability and an asset at inception and thereafter lease payments reduce the
liability and result in interest expense and the asset is depreciated. The truck
was returned to the leasing company at the end of the minimum term of the lease,
during the quarter ended June 30, 2008, which extinguished any further required
lease payments.

10

---

9. CONVERTIBLE PROMISSORY NOTE

|                                                                                          | September 30, | March 31,
|----------------------------------------------------------------------------------------- | ------------- | ---------
|                                                                                          | 2008          | 2008     
|                                                                                          | $             | $        
|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 1st and June 1st. | 4,568,313     | 4,432,134
|Discount accretion for the period from August
    21, 2007 (date of issue) to             |               |          
|September 30, 2008, totalled $295,954.                                                    |               |          

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
is not considered to be significant, nor is it considered to be significant at
September 30, 2008. 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 at date of issue. Interest and discount accretion of $125,342 and
$136,179, for the six months ended September 30, 2008, 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 (see note 3).

Effective August 5, 2008, the Company entered into an option
agreement with Gerald W. Baughman and Fabiola Baughman to amend the $5 million
face value note payable to them at a cost of $35,000. The option period is
twelve months and extendable for another six months for an additional $35,000.
At the time the option is exercised, the note payable will be reduced by $2.5
million by a payment of $500,000 in cash and 4,000,000 common shares of the
Company. Upon exercise of the option, the conversion rate of the remaining $2.5
million note payable would be amended to $0.70 per common share until March 30,
2009, $0.80 per common share until March 30, 2010, and the maturity date would
be extended from March 30, 2010 to March 30, 2012 and secured by certain
exploration properties. The Company may exercise the option if the royalty on
the Borealis property has been fixed at 5% or lower, and there is an arrangement
to merge the Company or the financing of a mine on the Borealis property has
been completed.

On November 10, 2008, the terms of the note were amended (see
note 13).

10. CAPITAL STOCK

[a]

Authorized
capital stock consists of 150,000,000 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.

During the quarter ended September
30, 2008, the company issued 180,000 common shares to directors. The issuance
was the last vesting of restricted stock grants dated January 10, 2007.

During the quarter ended June 30,
2008, the company issued 41,670 common shares to a director (retired April 8,
2008). The issuance was provided under a transition agreement, which allowed
2,778 restricted stock units to vest monthly commencing January 2007 and until
such time as this individual retired from the board of directors. See also note
10[d].

11

---

10. CAPITAL STOCK (cont'd)

[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
      45,100Exercised
      
      Warrants outstanding, March 31, 2005
      3,548,989
      45,100Issued for:Private placements
      3,015,204
      Agents' compensation on private placement
      130,000
      35,100Initial Public Offering (IPO)  Series A
      6,900,000
      Underwriters' compensation on IPO
      690,000
      135,100Private placements  Series B
      2,737,500
      Agents' compensation on private placement 
      Series C
      280,500
      76,540Exercised
      (197,500)
      Warrants outstanding, March 31, 2006
      17,104,693
      291,840Issued for:Private placements  Series D
      64,500
      Private placements  Series E
      5,000,000
      Agents' compensation on private placement 
      Series F
      85,050
      11,397Exercised
      (1,658,275)
      Expired
      (15,175,410)
      Warrants outstanding, March 31, 2007
      5,420,558
      303,237Issued for:Private placements  Series G
      5,000,000
      Private placements  Series I
      4,486,500
      Agents' compensation on private placement 
      Series H
      265,050
      44,040Agents' compensation on private placement 
      Series J
      89,530
      10,450Exercised
      (130,000)
      Expired
      (290,558)
      Forfeited
      (14,000)
      Warrants outstanding, March 31, 2008
      14,827,080
      357,727Expired
      (340,580)
      Warrants outstanding, September 30, 2008
      14,486,500
      357,727


The following table summarizes information about
warrants outstanding and exercisable as at September 30, 2008:

Warrants Outstanding and Exercisable

Average Remaining LifeWarrants
      Years
      Exercise Price
      Expiry date#
      #5,000,000
      0.3
      Cdn$1.35
      February 9, 20095,000,000
      0.8
      Cdn$1.25
      August 3, 20093,254,000
      1.2
      Cdn$1.00*
      November 22, 20091,050,000
      1.2
      Cdn$1.00*
      November 27, 2009182,500
      1.3
      Cdn$1.00*
      December 14, 200914,486,500
      1.0
      $1.13**




**

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 3.38% to 5.21% as of the date of transaction;
expected life of 1 to 3 years depending on their terms; an expected volatility
of 51% to 70% (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.

12

---

10. CAPITAL STOCK (cont'd)

[c]

Stock options:

On April 8, 2008 directors, officers
a consultant and an employee were granted 500,000 options. 25% of these options
vested June 30, 2008 while the remaining will vest over the next three quarters
and are exercisable for 5 years at a price of Cdn$0.41 per share.

On July 2, 2008, an investor
relations firm was granted 250,000 stock options. The options vest over one year
and are exercisable at a price of Cdn$0.40 for a term of two years.

On July 7, 2008, several directors,
officers and one consultant cancelled 2,627,500 options.

On July 8, 2008, four employees and
one consultant were granted 385,000 options. These options vest over one year
and are exercisable at a price of Cdn$0.38 for a term of five years.

On July 21, 2008, a director was
granted 200,000 options. These options vest over one year and are exercisable at
a price of Cdn$0.38 for a term of five years.

On August 1, 2008, 750,000 stock
options were granted to three executive officers. 550,000 of these options vest
over the next two years, while the remaining 200,000 vest in the next six
months. The options are exercisable at a price of Cdn$0.41 for a term of five
years.

On August 5, 2008, 3 employees and
one consultant cancelled 940,000 options.

On September 5, 2008, 175,000 options
were forfeited by a director.

On September 16, 2008 550,000 options
were granted to two directors and a consultant. 400,000 options vest at date of
grant and 150,000 vest in the next nine months. The option are exercisable at a
price of Cdn$0.28 for a term of five years.

On September 18, 2008, 150,000
options were granted to a consultant which vested immediately, have a term of
five years and an exercise price of Cdn$0.26 per share.

The Company recognizes stock-based
compensation expense over the requisite service period of the individual grants,
which generally equals the vesting period. SFAS 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 7%. 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 non-cash
stock-based compensation expense related to stock options and restricted stock
units as follows:

Three months ended
      Six months endedSeptember
      September
      September
      September30,
      2008
      30,
      2007
      30,
      2008
      30,
      2007$
      $
      $
      $Management salaries, exploration
      expense &consulting fees
      288,631
      271,462
      391,682
      484,494


13

---

10.

CAPITAL STOCK (cont'd)

Stock option activity

The following table summarizes the Company's stock
option activity for the six months ended September 30, 2008:

Number of
      Weighted AverageStock Options
      exercise priceOutstanding, April 1, 2008
      6,069,500
      $0.92Granted
      2,785,000
      $0.35Exercised
      -
      -Forfeited
      (3,877,500)
      $0.66Total outstanding at September 30,
      2008
      4,977,000
      $0.59Vested and exercisable at September
      30, 2008
      3,049,500
      $0.71


* Based on the September 30, 2008
exchange rate of Cdn$1 equals US0.93967.

The following table summarizes information about
stock options outstanding as at September 30, 2008:

Stock Options Outstanding and Exercisable

Average RemainingStock Options
      Average Remaining
      Stock Options
      Life
      Exercise priceOutstanding
      Life
      Exercisable
      of
      Exercisable(Years)
      
      (Years)825,000
      1.5
      825,000
      1.5
      $0.7595,000
      2.1
      95,000
      2.1
      Cdn$0.8550,000
      2.3
      50,000
      2.3
      Cdn$1.2530,000
      2.4
      30,000
      2.4
      Cdn$1.37395,000
      2.5
      395,000
      2.5
      Cdn$1.3720,000
      2.5
      20,000
      2.5
      Cdn$1.3730,000
      2.7
      30,000
      2.7
      Cdn$1.6050,000
      2.8
      50,000
      2.8
      Cdn$1.2950,000
      3.1
      50,000
      3.1
      Cdn$1.3490,000
      3.3
      90,000
      3.3
      Cdn$0.8120,000
      3.3
      20,000
      3.3
      Cdn$0.88125,000
      3.4
      125,000
      3.4
      Cdn$0.8020,000
      3.6
      15,000
      3.6
      Cdn$0.9585,000
      4.0
      42,500
      4.0
      Cdn$0.9047,000
      4.0
      47,000
      4.0
      Cdn$0.88150,000
      4.4
      25,000
      4.4
      Cdn$0.62250,000
      4.5
      100,000
      4.5
      Cdn$0.4935,000
      4.5
      15,000
      4.5
      Cdn$0.43425,000
      4.5
      225,000
      4.5
      Cdn$0.41250,000
      4.8
      -
      4.8
      Cdn$0.40385,000
      4.8
      -
      4.8
      Cdn$0.38100,000
      4.8
      100,000
      4.8
      Cdn$0.38750,000
      4.8
      150,000
      4.8
      Cdn$0.41550,000
      5.0
      400,000
      5.0
      Cdn$0.28150,000
      5.0
      150,000
      5.0
      Cdn$0.264,977,000
      
      3,049,500


14

---

10. CAPITAL STOCK (cont'd)

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
      2008Dividend yield
      0%
      0%Expected volatility
      51%-58%
      49% - 55%Risk free interest rate
      2.06-2.83%%
      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 three publicly listed companies
that operate in the same industry. The period of historical volatility is the
same period as the expected life of the option 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.

The weighted-average fair value of
options granted during the six months ended September 30, 2008 was US$0.15.
Options granted under the Company Option Plan are not available to be granted
again under the Company Option Plan upon exercise.

[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 July 10, 2008, 180,000 RSU's
vested for four directors.

On September 5, 2007, the Company
entered into a Transition Agreement with an employee and director (see note
10(c) and note 12). Among other things, the agreement provided a grant of
112,500 RSU's that vest over two years; 18,750 RSU's that were to vest in
January 2008 were forfeited; a grant of 50,000 RSU's was forfeited and replaced
with a new RSU agreement that provides 2,778 units for each full month of
service (subject to a maximum of 50,000 RSU's) completed as a member of the
Board of Directors beginning January 1, 2007 and vest upon resignation from the
Board of Directors. Effective April 8, 2008, the individual resigned from the
Board and 41,670 RSU's vested.

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 service 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.

15

---

10. CAPITAL STOCK (cont'd)

The following table summarizes information about
restricted stock units outstanding as at September 30, 2008:

RSU's
      RSU's
      RSU's
      RSU's
      WeightedGranted
      Vested
      Forfeited
      Outstanding
      Average FairValue at 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
      41,670
      
      112,500
      Cdn$0.77Outstanding at September 30, 2008
      808,670
      553,420
      142,750
      112,500
      $0.72*


* Based on the September 30, 2008
exchange rate of Cdn$1 equals US$0.93967.

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:

On March 20, 2008, the Company entered into a consulting
agreement with a director, former employee and shareholder for certain financial
services. The individual was paid $31,500 during the quarter ended June 30,
2008. Effective September 1, 2008, the terms of the financial services agreement
were amended and the individual was paid $32,250 during the quarter ended
September 30, 2008.

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 $9,485,
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 expires in 2009, but may be renewed by the
Company annually thereafter, so long as mining related activity, including
exploration drilling, continues on the Borealis Property. The Company has the
option to terminate the mining lease at any time prior to expiry in 2009.

[b] The Company rents office space in Vancouver, BC for a 5
year term 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:

$2009
      34,8482010
      58,6952011
      56,4952012
      58,9932013
      58,9932014
      24,580


[c] In September 2007, the Company entered into a Transition
Agreement with an individual under which, the individual will cease to be an
employee and will continue as a director of the Company. The individual was
granted 112,500 Restricted Stock Units that will vest at 37,500 each on April 1,
2009, July 1, 2009 and October 1, 2009. The agreement provides for certain
incidental expenses for 18 months beginning October 2007. The Company recorded a
charge to expense of $322,464 during the quarter ended September 30, 2007 to
accrue the cost of the agreement.

[d] In August 2008, the Company entered into a Transition
Agreement with an individual under which, the individual ceased to be an
employee effective August 31, 2008 and ceased to be a director of the Company
September 4, 2008. The individual will receive monthly payments of $12,500 and
certain incidental expenses for 12 months beginning September 2008. The Company
recorded a charge to expense of $162,809 during the quarter ended September 30,
2008 to accrue the cost of the agreement.

16

---

13. SUBSEQUENT EVENTS

The market value and the market values for companies similar
to the Company have declined considerably over the past twelve months. To
preserve as much cash as possible and to ensure liquidity for the longest period
possible, the Company is taking steps to reduce the rate of cash expenditure.
These steps include reducing the number of personnel and making other personnel
part-time, and temporarily suspending development work on the Borealis property,
including engineering work. The Company is also reviewing all discretionary
spending to reduce or eliminate elective expenditures.

Effective November 2008, the Company began deferring one half
of cash compensation for the CEO, VP Business Development, and terminated the
CFO, VP Exploration, administrative assistant and Field Supervisor for the
Borealis property. The CFO and VP Exploration have entered into consulting
agreements with the Company.

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, compound monthly at
5% and become due and parable at the due date of the note, March 30, 2010.



17

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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 n Form 10KSB/S as filed on July
8, 2008. 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 Consolidated Financial Statements and related notes. The
discussion and analysis of the financial condition and results of operations are
based upon the 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:

We were established as a private company in April 2003 to
acquire and develop gold properties in the United States. Our objective is to
establish a producing gold company through the development and extraction of
gold deposits. In December of 2005, we completed our initial public offering.

In July 2003, through our wholly owned subsidiary Borealis
Mining, we acquired from Golden Phoenix an option to earn up to a 70% joint
venture interest in the mining lease for the Borealis Property and in January of
2006 completed the acquisition of all of the Golden Phoenix interest in the
Borealis Property. We now control, subject to a lease and royalty agreement,
approximately 23 square miles of claims located on land administered by the
Bureau of Land Management and Forest Service near Hawthorne Nevada.

We funded our early exploration activity and property acquisition through a
series of private placements and the proceeds received from our initial public
offering.



---

In January 2007, we started the process of completing a
mineral resource estimate covering the entire property that included all
drilling results obtained during calendar year 2007. The mineral resource
estimate was completed April 28, 2008 and is available for review on the System
for Electronic Document Analysis and Retrieval (SEDAR) at website: www.sedar.com and on the Company's website at
www.gryphongold.com. The report is entitled
Technical Report on the Mineral Resources of the Borealis Gold Project
Located in Mineral County, Nevada, USA,(the "Technical Report") and was
compiled by Dr. Roger Steininger, Ph.D., CPG.

On February 9, 2007 we completed a private placement of 5.0
million units at a price of Cdn$0.90 per unit for gross proceeds of Cdn$4.5
million. Each unit consisted of one common share and one full purchase warrant.
The two year warrants are exercisable at a price of Cdn$1.10 if exercised within
twelve months of the closing and at a price of Cdn$1.35 if exercised after the
first anniversary but prior to expiry. We paid qualified registered dealers a 7%
cash commission in the amount of Cdn$77,175 and issued compensation options to
acquire 85,050 common shares (at a price of Cdn$0.90 per share for a period of
12 months from closing) in respect of the 1.225 million units placed by them.
The shares, warrants and underlying shares were not qualified by prospectus and
were not registered under U.S. securities laws. We granted registration rights
to the investors in this private placement and used commercially reasonable
efforts to prepare and file a registration statement with the SEC. The proceeds
of this offering were applied to fund the continuation of our exploration and
development program on the Borealis Property.

On July 4, 2007, we entered into a membership interest
purchase agreement with Gerald W. Baughman and Fabiola Baughman, as sellers, and
Nevada Eagle, under which we agreed to purchase all of the outstanding limited
liability company interests of Nevada Eagle. Upon closing of the membership
interest purchase agreement on August 21, 2007, we acquired Nevada Eagle from
the sellers for the following consideration:

(a)

2,500,000 in
cash;

(b)

four million
five hundred thousand (4,500,000) shares of our common stock; and

(c)

a 5%
convertible note in the principal amount of $5,000,000.

The convertible note, due March 30, 2010, bears interest at
the annual rate of 5% and is convertible at the option of the holder into common
shares at an initial conversion price of $1.00 per share during first the twelve
month period following the closing date, $1.25 per share during the second
twelve month period following the closing date, $1.50 per share thereafter and
$1.75 per share if converted on March 30, 2010. The interest payments are due on
a semi-annual basis beginning on January 1, 2008. In addition to the purchase
consideration, the Baughmans were entitled to all revenues of Nevada Eagle
(payable in cash, stock, or other consideration) calculated to be received and
received on the assets and properties of Nevada Eagle from January 1, 2007
through midnight on December 31, 2007.

In addition, we granted the sellers registration rights under
which we agreed to file (within the later of (i) 90 days of the closing date or
(ii) any date in which we are required to file a registration statement for a
third-party in connection with a financing or acquisition, but no later than 120
days of the closing date) a resale registration statement to register the common
shares issuable at closing and issuable upon exercise of the convertible note
under the Securities Act of 1933, as amended. We filed a registration statement
to register the securities.



---

We executed the following agreements at closing:

(a)

A Lock-up Agreement, dated August 21, 2007, under which the Sellers agreed that
for a period of three months following the Closing Date not to sell Common
Shares issued or issuable under the Purchase Agreement and Convertible Note and,
thereafter, to limit the sale of such Common Shares to 20% of the aggregate
Common Shares issued under the Purchase Agreement and Convertible Note each
quarter (with unsold Common Shares aggregating each quarter thereafter);

(b)

An Employment Agreement between us and Mr. Baughman for a term of one year,
renewable by the parties, to serve as our Vice President of Corporate
Development; and

(c)

A Non-Competition Agreement under which the Sellers have agreed not to compete
with the Registrant for the latter of (i) twelve (12) months following the
Closing Date (the "Restricted Period"), or (ii) twelve (12) months following the
termination of the Company's employment of Gerald Baughman. The scope of the
non-competition obligation relates to the business of acquiring and/or holding
base metal and precious metal mineral assets located in the state of Nevada
within the Area of Interest and to properties that have been examined by the
Registrant or Mr. Baughman during the course of his employment by the
Registrant, in any manner or capacity. "Area of Interest" is defined as any
property owned by the Registrant, Nevada Eagle, or any affiliate of the
Registrant or Nevada Eagle on the latter of (i) Closing Date or (ii) the
termination date of Gerald Baughman's employment by the Registrant, if any,
together with any adjacent areas within one kilometer of the exterior boundary
of such properties.

On August 7, 2007, we closed a private placement of 5.0
million units at a price of Cdn. $0.80 per unit for gross proceeds of Cdn. $4.0
million. Each unit consisted of one common share and one full purchase warrant.
The two year warrants are exercisable at a price of Cdn$1.00 if exercised within
twelve months of the closing and at a price Cdn$1.25 if exercised after the
first anniversary but prior to expiry. We paid qualified registered dealers cash
commissions in the amount of Cdn$152,040 and issued warrants to acquire 265,050
common shares (at a price of Cdn$0.83 for a period of up to 9 months from
closing). The shares, warrants and underlying shares were not qualified by
prospectus, were not registered under U.S. securities laws and were subject to
resale restrictions. The Company has granted registration rights to the
investors in this private placement and used commercially reasonable efforts to
prepare and file a registration statement with the SEC. Such registration was
filed. The proceeds of this offering were applied to fund the continuation of
our exploration and development programs.

On December 14, 2007 we completed a private placement of
4,486,500 units at Cdn$0.80 for gross proceeds of approximately Cdn$3,589,200.
The private placement closed in three tranches on November 22, November 27 and
December 14, 2007. Each unit consisted of one common share and one series I
warrant. Each series I warrant entitles the holder to purchase a common share at
a price of Cdn$1.00 per share during the first 12 months after closing and
Cdn$1.25 per share during the second 12 months after closing and until expiry.
We paid qualified registered dealers a 7% cash commission in the amount of
Cdn$71,624 and issued compensation warrants (series J) to acquire 89,530 common
shares (at a price of Cdn$0.80 per share for a period of 9 months from closing)
in respect of the 1,204,000 units placed by them (14,000 of the compensation
warrants were later rejected and cancelled by one of the registered dealers). We
have a right to force warrant holders to exercise warrants, if the price of our
common stock remains equal to or greater than, Cdn$1.85 per common share, for a
period of twenty consecutive days. The shares, warrants and underlying shares
were not qualified by prospectus, have not been registered under U.S. securities
laws, and are subject to resale restrictions. We granted registration rights to
the investors in this private placement and will use commercially reasonable
efforts to prepare and file with the SEC a registration statement under the
Securities Act and to cause such statement to be declared effective. The
proceeds of this offering will be applied to fund the continuation of our
exploration and development program on the Borealis Property.

In the calendar year 2007, we continued extension drilling,
focused on the expansion of the Graben deposit and exploration drilling for a
new gold deposit within the two newly identified potentially gold-bearing
hydrothermal systems in the pediments. This drilling program consisted of a
series of Graben deposit expansion drilling and extension drilling north and
west of the successful G3  G13 fence of holes. The drilling of the Graben
deposit alternated with follow up exploration drilling in the Central and
Western Pediments where 10 holes have intersected two distinct hydrothermal
systems hidden beneath the pediments.



---

In April of 2008, we completed a CIM compliant, NI 43-101
resource report that included all drilling results to date. We have analyzed
those results and incorporated them in a Preliminary Assessment report ("PA")
examining the engineering and economic feasibility of placing the oxide
resources into production.

During September 2008, we released the independent PA on the
development of an oxide heap leach mine. The PA indicated that the project had
an unlevered internal rate of return of 26% assuming a US$775 per ounce price of
gold. The potential mine produced 232,000 ounces of gold over kts 5 year like at
an average cash operating cost of $439 per ounce of gold. The PA indicated that
for each 1% change in the price of gold, the projected internal rate of return
changed by 1.7%. We may perform more drilling to expand the oxide base and take
other steps as necessary to advance the potential oxide heap leach 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.

No exploration drilling was completed during the six months
ended September 30, 2008. A water well necessary for the construction of an
oxide heap leach mine was installed during the quarter ended June 30, 2008. As
of September 30, 2008, approximately 203 holes and 142,220 feet of RC drilling
had been completed. 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 resource or complete exploration in the Pediment areas of the Borealis
property.

Two water monitoring wells were installed during the quarter
ended September 30, 2008. Under our permits, a water monitoring program must be
active for at least six months prior to the placement of material on a leach
pad, and these wells were therefore necessary prior to the start of any leaching
operation.

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 30 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 past six months, and his primary focus has been
overseeing the completion the Preliminary Assessment on the Borealis heap leach
mine 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 (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 has
entered into a consulting agreement with the Company that becomes effect
September 2008. Under the agreement, he is eligible for 200,000 stock options
and a success fee of 0.67% of any financing initiated during the term of this
agreement. The consulting agreement was terminated effective September 28, 2008,

Effective August 5, 2008, we entered into an option agreement
with Gerald W. Baughman and Fabiola Baughman to amend the $5 million face value
note payable to them at a cost of $35,000. The option period is twelve months
and extendable for another six months for an additional $35,000. At the time the
option is exercised, the note payable will be reduced by $2.5 million by a
payment of $500,000 in cash and 4,000,000 common shares. Upon exercise of the
option, the conversion rate of the remaining $2.5 million note payable would be
amended to $0.70 per common share until March 30, 2009, $0.80 per common share
until March 30, 2010, and the maturity date would be extended from March 30,
2010 to March 30, 2012 and secured by certain exploration properties. We may
exercise the option if the royalty on the Borealis property has been fixed at 5%
or lower, and there is an arrangement to merge the Company or the financing of a
mine on the Borealis property has been completed.



---

On August 22, 2008, the Company entered into a 12 month
option agreement, at a cost of $250,000, 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 is $1,750,000
in cash, 7,726,250 common shares of the Company and a three year, $1,909,500 5%
note payable. The option period can be extended for an additional six months for
a payment of $125,000.

Fiscal 2009 Plan of Operations

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 2008, we released an independent Preliminary
Assessment ("PA") on the development of an oxide heap leach mine. We may perform
more drilling to expand the oxide base and take other steps as necessary to
advance the potential oxide heap leach 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 continue operations. We intend to raise additional funds through debt and/or
equity financing or through other means that it deems 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.

Recently, the poor conditions in the U.S. housing market and
the credit quality of mortgage backed securities have continued and worsened in
2008, causing a loss of confidence in the broader U.S. and global credit and
financial markets and resulting in the collapse of, and government intervention
in, major banks, financial institutions and insurers and creating a climate of
greater volatility, less liquidity, widening of credit spreads, a lack of price
transparency, increased credit losses and tighter credit conditions. These
disruptions in the current 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 more 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.

As we expect our reliance on equity financings to continue
into the future, these current market 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.

Our market value and the market values for companies similar
to us have declined considerably over the past twelve months due the market
conditions as discussed above. To preserve as much cash as possible and to
ensure liquidity for the longest period possible, we are taking steps to reduce
our rate of ongoing cash expenditure. These steps include reducing the number of
personnel and making other personnel part-time, and temporarily suspending
development work on the Borealis property, including engineering work. We are
also reviewing all discretionary spending to reduce or eliminate elective
expenditures.

Effective November 2008, we are deferring one half of the
cash compensation for our CEO, VP Business Development, and terminated the CFO,
VP Exploration, administrative assistant and Field Supervisor for the Borealis
property. The CFO and VP Exploration have entered into consulting agreements
with us.

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 parable at the due date of the note, March 30, 2010.



---

We will continue to take all steps necessary to preserve our
rights to the Borealis property under the existing terms of the property lease.
We will also work with the USFS to maintain our permits under the Plan of
Operations. These steps will preserve the existing value of the Borealis
property for our shareholders.

The exploration properties held by Nevada Eagle Resources
will continue to be leased and joint ventured out. The leased properties will
provide a cash and liquidity for us, and therefore we will continue to actively
manage the portfolio of leases.

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 or near zero, in which case the
payments were recognized as lease revenue in the Statement of Operations.

Three months ended September 30, 2008 compared to three
months ended September 30, 2007

For the three months ended September 30, 2008, we had a net
loss of $6,916,812 or $0.11 per share compared to a net loss of $2,500,535 or
$0.04 per share in the same period in the prior year. Cash spending on our
exploration program, management salaries and general and administrative costs
decreased. During the quarter ended September 30, 2008, the Company recognized a
$5,100,000 non-cash impairment of the carrying value of the Nevada Eagle
exploration properties and the related non-competition agreement entered into at
the time of acquisition. The impairment in value was recognized because the
quoted market value of public companies holding similar type exploration
properties have declined since the acquisition of Nevada Eagle. At September 30,
2008, we have valued the Nevada Eagle properties based on the current market
prices for companies holding similar type exploration properties.

Exploration expenses during the quarter ended September 30,
2008 were $594,651 or 9% of our total expenses compared to $1,274,936 or 50% of
total expenses in the prior year. Most of the activity in the current quarter
was related to the completion of the Preliminary Assessment of the construction
and operation of a heap leach gold mine on the Borealis property. No exploration
drilling was completed during the quarter ended September 30, 2008, although two
water monitoring wells, necessary for the start of mining operations, were
installed. During the prior year's comparable quarter, we drilled a total of 10
reverse circulation holes (totaling 12,080 feet) on the Borealis property.

Management salaries and consulting fees in the quarter ended
September 30, 2008 were $659,367 compared to $695,068 incurred in the quarter
ended September 30, 2007. Total non-cash compensation expense was $288,631 in
the quarter ended September 30, 2008 compared to the prior years fiscal first
quarter of $271,462. Consulting fees during the quarter decreased due to reduced
spending on investor relations and related activities. General and
administration costs decreased compared to the prior year because of reduced
expenditures on investor relations activities. The current year cost of the
option to amend the 5% convertible note payable of $35,000 was included in
general administration. Legal and audit fees for the period were $67,000, which
is a decrease compared to the prior years quarter ended September 30, 2007 of
$126,560. These costs decreased due to the additional legal and accounting work
related to the acquisition of Nevada Eagle Resources preformed in the prior
year. Travel and accommodation during the quarter ended September 30, 2008 was
$88,984, compared to $51,052 expended on travel in the prior year's comparable
quarter. The increase in travel and entertainment is mainly due to a European
trip in the current years second fiscal quarter as part of the process of
obtaining construction financing for the possible oxide heap leach mine.

Interest income earned on cash deposits was $8,108 for the
quarter ended September 30, 2008, compared to $55,411 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. Interest expense on
the note payable incurred to purchase Nevada Eagle Resources totaled $132,189 of
which $68,976 was non-cash accreted interest.



---

We hold certain securities for trading. We receive these
securities as partial payment of lease obligations for Nevada Eagle 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 this restriction period, the market value of these shares declined
substantially. During the quarter ended September 30, 2008, we sold a number of
these securities and received $37,766 in proceeds from the sales of securities
held and recorded a realized loss of $136,891. This realized loss was partially
offset by unrealized losses recorded in prior reporting periods as we reduced
the carrying value of the securities to their quoted market value.

Six months ended September 30, 2008 compared to six months
ended September 20, 2007

For the six-month period ended September 30, 2008 we incurred
a net loss of $8,355,718 or $0.14 per share compared to a net loss of $4,727,088
or $0.09 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 increase in the net loss is
due to a $5,100,000 non-cash impairment of the carrying value of Nevada Eagle
exploration properties and the related non-competition agreement entered into at
the time of acquisition.

Exploration expenses during the six-month period ended
September 30, 2008 were $1,281,319 or 15% of our total expenses compared to
$2,753,398 or 57% of total expenses in the prior year. No exploration drilling
was completed during the six months ended September 30, 2008. During the prior
year's comparable six months, we drilled a total of 26 holes at the Borealis
property, representing 30,970 feet. During the six months ended September 30,
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 current
years 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 six months
ended September 30, 2008 were $987,393 compared to $1,133,431 for the same
period in the prior year. The decrease is due to the reduced consulting fees for
investor relations activities. Total non-cash compensation costs included in the
six months ended September 30, 200 were $391,682 versus $484,494 in the prior
year's comparable period.

Legal and audit fees for the six month period decreased to
$156,090 from $197,857 incurred in the prior year's comparable period. The lower
costs reported in the six months ended September 30, 2008 were due to reduced
spending on Nevada Eagle. Travel and accommodation during the six months ended
September 30, 2008 was $116,919 compared to $103,704 reported in prior year
six-month period ended September 30, 2007. The increase was due to an increase
in investor relations travel. General and administrative expenses were $343,216,
versus $557,605 in the prior year's comparable period. The decrease is due to
reduced spending on investor relations. The current years expense also includes
$35,000 for the cost of entering into an option agreement to amend the 5%
convertible note payable. Interest income earned on cash deposits was $24,150
for the six months ended September 30, 2008, compared to $129,550 for the six
months ended September 30, 2007, due to lower average cash balances during the
six-month period. Interest expense totaled $262,358 and arose from the issuance
of a convertible promissory note related to the purchase of Nevada Eagle
Resources LLC on August 21, 2007. $136,179 of the interest expense is non-cash.

During the six months ended September 30, 2008 we recognized
a realized loss of $136,891 from the sale of securities recognized an unrealized
gain of $27,821.

Liquidity and Capital Resources

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



---

Recently, the poor conditions in the U.S. housing market and
the credit quality of mortgage backed securities have continued and worsened in
2008, causing a loss of confidence in the broader U.S. and global credit and
financial markets and resulting in the collapse of, and government intervention
in, major banks, financial institutions and insurers and creating a climate of
greater volatility, less liquidity, widening of credit spreads, a lack of price
transparency, increased credit losses and tighter credit conditions. These
disruptions in the current 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 more 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.

As we expect our reliance on equity financings to continue
into the future, these current market 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.

Our market value and the market values for companies similar
to us have declined considerably over the past twelve months due the market
conditions as discussed above. To preserve as much cash as possible and to
ensure liquidity for the longest period possible, we are taking steps to reduce
our rate of cash expenditure. These steps include reducing the number of
personnel and making other personnel part-time, and temporarily suspending
development work on the Borealis property, including engineering work. We are
also reviewing all discretionary spending to reduce or eliminate elective
expenditures.

Effective November 2008, we are deferring one half of the
cash compensation for our CEO, VP Business Development, and terminated the CFO,
VP Exploration, administrative assistant and Field Supervisor for the Borealis
property. The CFO and VP Exploration have entered into consulting agreements
with us.

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 parable at the due date of the note, March 30, 2010.

We will continue to take all steps necessary to preserve our
rights to the Borealis property under the existing terms of the property lease.
We will also work with the USFS to maintain our permits under the Plan of
Operations. These steps will preserve the existing value of the Borealis
property for our shareholders.

The exploration properties held by Nevada Eagle Resources
will continue to be leased and joint ventured out. The leased properties will
provide a cash and liquidity for us, and therefore we will continue to actively
manage the portfolio of leases.

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.

At September 30, 2008, we had working capital of $1,031,342.
Current assets consisted of $1,409,955 in cash, $14,305 in securities held for
trading, $14,822 in accounts receivable and $57,000 in prepaid expenses. We had
$464,739 in accounts payable at September 30, 2008.

During the quarter ended September 30, 2008, we used cash in
operating activities of $1,067,719 which included our net loss during the
quarter of $6,916,812 off-set by depreciation of $15,479, non-cash compensation
of $288,631, non-cash interest expense of $68,976, realized loss on securities
held for trading of $136,891, realized gain of $61,260, gain on disposal of
equipment $2,354, held for trading securities of $9,598, impairment of
$5,100,000 and changes in non-cash working capital of a $83,294 decrease in
accounts receivable, a $173,605 decrease in accounts payable and a $55,429
decrease in pre-paid expenses.



---

We used cash in investing activities of $160,317 including
$12,059 for equipment purchases, $277,373 for mineral properties (of this total,
$275,000 was to provide us the option to fix the royalty rate on the Borealis
property at 5%, the terms of this option are described below), and we received
$88,000 in cash payments from the leasing of exploration properties, $3,349 from
sale of equipment and $37,766 from the sale of held for trading securities. We
did not use or receive any cash from financing activities in the quarter ended
September 30, 2008. Cash decreased during the period by $1,228,036 to $1,409,955
as at September 30, 2008.

On August 22, 2008, we entered into a 12 month option
agreement, at a cost of $250,000 plus $25,000 is legal and consulting 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 is $1,750,000 in cash, 7,726,250 common shares of the
Company and a three year, $1,909,500 5% note payable. The option period can be
extended for an additional six months for a payment of $125,000.

On July 4, 2007, we entered into a membership interest
purchase agreement with Gerald W. Baughman and Fabiola Baughman, as sellers, and
Nevada Eagle, under which we agreed to purchase all of the outstanding limited
liability company interests of Nevada Eagle. Upon closing of the membership
interest purchase agreement on August 21, 2007, we acquired Nevada Eagle from
the sellers for the following consideration:

(a)

2,500,000 in cash;

(b)

four million five hundred thousand (4,500,000) shares of our common stock; and

(c)

a 5% convertible note in the principal amount of $5,000,000.

The convertible note, due March 30, 2010, bears interest at
the annual rate of 5% and is convertible at the option of the holder into common
shares at an initial conversion price of $1.00 per share during first the twelve
month period following the closing date, $1.25 per share during the second
twelve month period following the closing date, $1.50 per share thereafter and
$1.75 per share if converted on March 30, 2010. The interest payments are due on
a semi-annual basis beginning on January 1, 2008 and due each January 1 and June
1. In addition to the purchase consideration, the Baughman's were entitled to
all revenues of Nevada Eagle (payable in cash, stock, or other consideration)
calculated to be received and received on the assets and properties of Nevada
Eagle from January 1, 2007 through midnight on December 31, 2007.

In addition, we granted the sellers registration rights.

Under the terms of the purchase agreement, the closing of the
acquisition was subject to closing conditions, including:

(a)

A Lock-up Agreement, dated August 21, 2007, under which the Sellers agreed that
for a period of three months following the Closing Date not to sell Common
Shares issued or issuable under the Purchase Agreement and Convertible Note and,
thereafter, to limit the sale of such Common Shares to 20% of the aggregate
Common Shares issued under the Purchase Agreement and Convertible Note each
quarter (with unsold Common Shares aggregating each quarter thereafter);

(b)

An Employment Agreement between Mr. Baughman and us for a term of one year,
renewable by the parties, to serve as our Vice President of Business
Development;

(c)

A Non-Competition Agreement under which the Sellers have agreed not to compete
with the Registrant for the latter of (i) twelve (12) months following the
Closing Date, or (ii) twelve (12) months following the termination of the
Company's employment of Gerald Baughman. The scope of the non-competition
obligation relates to the business of acquiring and/or holding base metal and
precious metal mineral assets located in the state of Nevada within the Area of
Interest and to properties that have been examined by the Registrant or Mr.
Baughman during the course of his employment by the Registrant, in any manner or
capacity. "Area of Interest" is defined as any property owned by the Registrant,
Nevada Eagle, or any affiliate of the Registrant or Nevada Eagle on the latter
of (i) Closing Date or (ii) the termination date of Gerald Baughman's employment
by the Registrant, if any, together with any adjacent areas within one kilometer
of the exterior boundary of such properties.



---

|Updated share capital as of November 14,
    2008:     |           
|------------------------------------------------------ | ----------
|Basic Common Stock Issued and Outstanding              | 61,957,065
|Warrants, Options and other Convertible
    Securities | 19,576,000
|Fully Diluted Common Stock                             | 81,533,065

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. Privately held stock, or stock that is
not currently trading is valued at zero. 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 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 Financial Accounting Standards Board
issued Statement of Financial Accounting Standard 123R, Share-Based Payment, ("SFAS
123 (R)") a revision to SFAS 123. SFAS 123(R) 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.



---

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 Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). 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 SFAS No. 123(R), 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 10%. 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 Note79 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 June 2006, the FASB issued FASB interpretation No. 48 
Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in tax return. This Interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. This interpretation is
effective for fiscal years beginning after December 15, 2006. The adoption of
FIN 48 did not have a material impact on the Company's consolidated financial
statements.



---

In September 2006, the FASB issued SFAS 157, Fair Value
Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the Board having previously concluded
in those pronouncements that fair value is a relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, the application of this Statement will change current practice,
effective December 1, 2007. The adoption of SFAS 157 did not have a material
impact on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of
ARB No. 51. SFAS 160 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.
Earlier adoption is prohibited. The Company believes that SFAS 160 should not
have a material impact on its financial position or results of operations.

In December 2007, the FASB issued FASB Statement No. 141(R),
Business Combinations, which amends SFAS No. 141, 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. SFAS No. 141(R) is effective for the Company's fiscal year
beginning January 1, 2009 and is to be applied prospectively. The Company is
currently evaluating the potential impact of adopting this statement on the
Company's consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities("FAS
159"). FAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value, with theobjective of improving
financial reporting by mitigating volatility in reported earnings caused by
measuring related assets andliabilities differently without having to
apply complex hedge accounting provisions. The provisions of FAS 159 are
effective for the Company's fiscal year beginning January 1, 2008. The adoption
of FAS 159 did not have a material impact on the Company's consolidated
financial results.

In March 2008, the FASB issued FAS No. 161, "Disclosures
about Derivative Instruments and Hedging Activities" ("FAS 161"). FAS 161
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 FAS 133, and how derivative instruments and related hedged
items affect an entity's operating results, financial position, and cash flows. FAS 161 is effective for fiscal years beginning after November 15, 2008. Early
adoption is permitted. We are currently reviewing the provisions of FAS 161 and
have not yet adopted the statement. However, as the provisions of FAS 161 are
only related to disclosure of derivative and hedging activities, we do not
believe the adoption of FAS 161 will have a material impact on our consolidated
operating results, financial position, or cash flows.

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.



---

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 $9,485 per month to
certain leaseholders while exploration is proceeding on the Borealis Property.
In addition, to maintain its existing claims on the Borealis property, we make
payments totaling approximately $130,000 annually. These payments are contingent
upon us maintaining an interest in the property. Through Nevada Eagle, we also
make claim payments of approximately $50,000 annually. The definitive amount
depends on the exact number of claims and the number of unleased properties.

Under the terms of the acquisition agreement for Nevada Eagle
Resources LLC, we have a note payable outstanding for $4,568,313. Refer to the
section 'Liquidity and Capital Resources' under this document for a full
description of the acquisition and commitment.

As of September 30, 2008, we had the following non-cancelable
contractual obligations:

|                               | Payments Due by
    Period
|------------------------------ | --------------------------
|                               |                           
|                               |                           
|                               | Total                     
|Operating Lease Obligation (1) | 283,804                   
|Operating Lease Obligation (2) | 8,800                     

(1)

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"), Michael Longinotti, of the
effectiveness of the design and operations 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 Control 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 quarterly report that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.



---

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, intent 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.     Risks Factors.

Except for the risk factors as provided below, there have
been no material changes from the risk factors as previously disclosed in our
Form 10-KSB/A, which was filed on with the SEC on July 8, 2008.

Recent market events and conditions, including disruptions in
the U.S. and international credit markets and other financial systems and the
deterioration of the U.S. and global economic conditions, could, among other
things, impede access to capital or increase the cost of capital, which would
have an adverse effect on our ability to fund our working capital and other
capital requirements.

In 2007 and into 2008, the U.S. credit markets began to
experience serious disruption due to a deterioration in residential property
values, defaults and delinquencies in the residential mortgage market
(particularly, subprime and non-prime mortgages) and a decline in the credit
quality of mortgage backed securities. These problems led to a slow-down in
residential housing market transactions, declining housing prices, delinquencies
in non-mortgage consumer credit and a general decline in consumer confidence.
These conditions continued and worsened in 2008, causing a loss of confidence in
the broader U.S. and global credit and financial markets and resulting in the
collapse of, and government intervention in, major banks, financial institutions
and insurers and creating a climate of greater volatility, less liquidity,
widening of credit spreads, a lack of price transparency, increased credit
losses and tighter credit conditions. Notwithstanding various actions by the
U.S. and foreign governments, concerns about the general condition of the
capital markets, financial instruments, banks, investment banks, insurers and
other financial institutions caused the broader credit markets to further
deteriorate and stock markets to decline substantially. In addition, general
economic indicators have deteriorated, including declining consumer sentiment,
increased unemployment and declining economic growth and uncertainty about
corporate earnings.

These unprecedented disruptions in the current 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 more 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.



---

Recent market events and current economic conditions may
negatively impact the expected cash flow to Nevada Eagle for the lease of its
exploration properties.

The rapid declines in the stock markets, much greater
volatility in equity valuations and generally weaker economic conditions
experienced during 2008, has made it more difficult for companies, and including
junior exploration companies, to raise capital. Nevada Eagle Resources leases
many of its exploration properties to junior exploration companies. Many of
these companies may experience difficulties raising money to complete their
planned exploration programs and this may negatively impact the expected cash
flow to Nevada Eagle Resources for the lease of the exploration properties, and
may result in the renegotiation of terms or cancellation of some of the leases
by the exploration companies.

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

During the six months ended September 30, 2008, 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 six months ended September 30, 2008.

Item 3.     Defaults upon Senior
Securities.

None.

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

Results of Annual General Meeting of Shareholders

On September 04, 2008, Gryphon Gold Corporation held its
annual general meeting of shareholders at the Vancouver Club, 915 West Hastings
Street, Vancouver, BC, at 2:00PM. Shareholders representing 23,039,943 shares or
37.3% of the shares authorized to vote (61,777,065) were present in person or by
proxy, representing a quorum for the purposes of the annual meeting. The
shareholders approved the following:

|Proposal #1  Election of
    Directors                                                                                                                                          | Voted For  | Withheld 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---------
|                                                                                                                                                                                 |            |          
|The election of the Nominees to
    the Company's Board to serve until the Company's 2008 Annual Meeting of
    Shareholders or until successors are duly elected and qualified: |            |          
|John L. Key                                                                                                                                                                      | 21,929,740 | 1,110,203
|Gerald W. Baughman                                                                                                                                                               | 22,947,740 | 92,203   
|Rohan Hazelton                                                                                                                                                                   | 22,975,740 | 64,203   
|Donald W. Gentry                                                                                                                                                                 | 22,981,740 | 58,203   
|                                                                                                                                                                                 |            |          
|Proposal #2                                                                                                                                                                      | For        | Against  
|                                                                                                                                                                                 |            |          
|To ratify the appointment of the
    Company's Independent Registered Public Accounting Firm for the 2008 fiscal
    year                                                        | 22,970,740 | 28,659   
|                                                                                                                                                                                 |            |          

Proxies were solicited under the proxy statement filed with
the Securities and Exchange Commission on August 7, 2008. Each nominee for
director was elected, and each proposal was approved by the Shareholders.



---

Item 5.     Other Information.

Effective November 1, 2008, we are deferring one half of the
cash compensation for John Key, our CEO and Jerry Baughman, our VP Business
Development. Effective November 12, 2008, we terminated our employment agreement
with Michael Longinotti, our CFO, and effective November 1, 2008, we terminated
our employment agreement with Steve Craig, our VP Exploration, and we terminated
our administrative assistant and Field Supervisor for the Borealis property.

On November 1, 2008, we entered into a consulting agreement
with Mr. Craig for the provision of services related to activities at the
Borealis Project. Under the terms of the consulting agreement, Mr. Craig will
provide consulting services for oversight of the Company's Borealis permits and
compliance, conducting other activities related to the Borealis Project, and any
other general activities as directed by the Company. The Company will pay Mr.
Craig a consulting fee of $600 per day for time spent by Mr. Craig in the
provision of services. The Company will also pay or reimburse Mr. Craig for all
reasonable out-of-pocket expenses directly related to the provision of services.
The consulting agreement is for a term from November 1, 2008 to December 31,
2009, and may be renewed thereafter upon mutual agreement of the parties. The
consulting agreement can be terminated by the Company for cause, as defined in
the consulting agreement, without notice, or by either party for any reason upon
fifteen days notice to the other party.

On November 12, 2008, we entered into a consulting agreement
with Mr. Longinotti for the provision of services as the CFO to the Company.
Under the terms of the consulting agreement, Mr. Longinotti will provide the
following services to the Company:

- 













Mr. Longinotti will be compensated at a rate of Cdn.$90 per
hour for actual hours spent on the Company, billed monthly and payable in
arrears. Mr. Longinotti will also be reimbursed for actual out-of-pocket
expenses incurred in the provision of the above services. The consulting
agreement is for a term of 12 months less a day beginning on November 12, 2008.
Both parties have the right to terminate the consulting agreement upon ten days
written notice to the other party.

The Financial and Advisory Services Agreement between the
Registrant and Matter & Associates, dated October 1, 2008, was amended November
13, 2008 to terminate on December 31st, 2008.



---

Item 6.     Exhibits

|Exhibit |  |            
|------- |  | -----------
|Number  |  | Description

|     |  |                                                                                                                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation of Gryphon Gold
    Corporation, filed April 24, 2003 (Previously filed on Form SB-2 on August
    17, 2005)                                                        
|3.2  |  | Certificate of Amendment to Articles of
    Incorporation of Gryphon Gold Corporation, filed August 9, 2005 (Previously
    filed on Form SB-2 on August 17, 2005)                            
|3.3  |  | Bylaws of Gryphon Gold Corporation
    (Previously filed on Form SB-2 on August 17, 2005)                                                                                                     
|3.4  |  | Articles of Incorporation of Borealis Mining
    Company, filed June 5, 2003 (Previously filed on Form SB-2 on August 17,
    2005)                                                           
|3.5  |  | Bylaws of Borealis Mining Company (Previously
    filed on Form SB-2 on August 17, 2005)                                                                                                      
|10.1 |  | Employment Agreement between the Registrant
    and John L. Key, dated July 21, 2008 (Previously filed on Form 8-K on July
    23, 2008 as exhibit 10.1)                                      
|10.2 |  | Financial Services Agreement between the
    Registrant and Tony Ker, dated September 1, 2008 (Previously filed on Form
    8-K on July 23, 2008 as exhibit 10.2)                             
|10.3 |  | Transition Agreement between the Registrant
    and Tony Ker, dated July 21, 2008 (Previously filed on Form 8-K on July 23,
    2008 as exhibit 10.3)                                         
|10.4 |  | Option to Restructure Debt Agreement between
    the Registrant and Gerald and Fabiola Baughman, dated August 5, 2008
    (Previously filed on Form 8-K on August 5, 2008 as exhibit 10.4)    
|10.5 |  | Option to Amend the Mining Lease on the
    Borealis Property, dated effective August 22, 2008 (Previously filed on Form
    8-K on August 22, 2008 as exhibit 10.5)                          
|10.6 |  | Termination of Financial Services Agreement
    between the Registrant and Tony Ker, dated effective September 28, 2008
    (Previously filed on Form 8-K on October 23, 2008 as exhibit 10.6)
|10.7 |  | Financial and Advisory Services Agreement
    between the Registrant and Matter & Associates (Vancouver, British
    Columbia), dated October 1, 2008                                         
|10.8 |  | Consulting Agreement between the Registrant
    and Steven Craig, dated November 1, 2008                                                                                                      
|10.9 |  | Consulting Agreement between the Registrant
    and Michael Longinotti, dated November 12, 2008                                                                                               
|31.1 |  | Certification Required Pursuant to Section
    302 of the Sarbanes-Oxley Act of 2002                                                                                                          
|31.2 |  | Certification Required Pursuant to Section
    302 of the Sarbanes-Oxley Act of 2002                                                                                                          
|32.1 |  | Certification Required Pursuant to Section
    906 of the Sarbanes-Oxley Act of 2002                                                                                                          
|32.2 |  | Certification Required Pursuant to Section
    906 of the Sarbanes-Oxley Act of 2002                                                                                                          

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SIGNATURES

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

|GRYPHON GOLD CORPORATION
|------------------------
|                        
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|                        
|By:                     
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|                        
|                        
|                        
|Date:                   
|                        
|                        
|By:                     
|                        
|                        
|                        
|                        
|                        
|Date:                   

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