---

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September
30, 2006

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

Commission file number: 333-127635

Gryphon Gold Corporation(Exact name of small business issuer
      as specified in its charter)


Nevada
      92-0185596(State or other jurisdiction of
      (I.R.S. Employerincorporation or organization)
      Identification No.)390
      UNION BLVD, SUITE 360LAKEWOOD, CO
      80228(Address of principal executive
      offices)
      (zip code)


Issuer's Telephone Number: (303) 988-5777

Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes X     No __

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).

Yes __    No X

As of September 30, 2006 there were 41,373,120 shares of
common stock outstanding. Transitional Small Business Disclosure Format (check
one)

Yes __    No X

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GRYPHON GOLD CORPORATION
September 30, 2006
INDEX

|                               |                                                                                                                                   | Page No.(s)
|------------------------------ | --------------------------------------------------------------------------------------------------------------------------------- | -----------
|                               |                                                                                                                                   |            
|PART I - FINANCIAL INFORMATION |                                                                                                                                  
|                               |                                                                                                                                   |            
|Item 1.                        | Unaudited Interim Consolidated Financial
    Statements as of September 30, 2006                                                  | 2          
|                               |                                                                                                                                   |            
|                               | Unaudited Consolidated Balance Sheet as of
    September 30, 2006 and Audited Consolidated Balance Sheet as of March 31,
    2006 | 2          
|                               |                                                                                                                                   |            
|                               | Unaudited Consolidated Statements of
    Operations for the three and six months ended September 30, 2006 and 2005                | 3          
|                               |                                                                                                                                   |            
|                               | Unaudited Consolidated Statements of
    Stockholders' Equity                                                                     | 4          
|                               |                                                                                                                                   |            
|                               | Unaudited Consolidated Statements of Cash
    Flows for the three and six months ended September 30, 2006 and 2005                | 5          
|                               |                                                                                                                                   |            
|                               | Notes to Unaudited Interim Consolidated
    Financial Statements                                                                  | 6          
|                               |                                                                                                                                   |            
|Item 2.                        | Plan of Operation                                                                                                                 | 14         
|                               |                                                                                                                                   |            
|Item 3                         | Controls and Procedures                                                                                                           | 19         
|                               |                                                                                                                                   |            
|PART II - OTHER INFORMATION    |                                                                                                                                  
|                               |                                                                                                                                   |            
|Item 1.                        | Legal Proceedings                                                                                                                 | 20         
|                               |                                                                                                                                   |            
|Item 2.                        | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                   | 20         
|                               |                                                                                                                                   |            
|Item 3.                        | Defaults Upon Senior Securities                                                                                                   | 21         
|                               |                                                                                                                                   |            
|Item 4.                        | Submission of Matters to a Vote of Security
    Holders                                                                           | 21         
|                               |                                                                                                                                   |            
|Item 5.                        | Other Information                                                                                                                 | 21         
|                               |                                                                                                                                   |            
|Item 6.                        | Exhibits                                                                                                                          | 21         
|                               |                                                                                                                                   |            
|SIGNATURES                     | 24                                                                                                                               

i

---

Gryphon Gold Corporation(an exploration stage company)

CONSOLIDATED BALANCE SHEETS

|                                                 | As at        | As at      
|------------------------------------------------ | ------------ | -----------
|                                                 | September 30 | March 31,  
|                                                 | 2006         | 2006       
|                                                 | $            | $          
|                                                 | (Unaudited)  | (Audited)  
|                                                 |              |            
|ASSETS                                           |              |            
|Current                                          |              |            
|Cash                                             | 6,240,563    | 9,390,925  
|Accounts receivable                              | 59,901       | 81,250     
|Prepaid expenses                                 | 69,437       | 110,090    
|Total current assets                             | 6,369,901    | 9,582,265  
|Reclamation deposit [note 8]                     | 111,900      | 59,800     
|Equipment [note 3]                               | 183,649      | 152,946    
|Mineral
    property costs [note 4]              | 1,920,371    | 1,898,207  
|                                                 | 8,585,821    | 11,693,218 
|                                                 |              |            
|LIABILITIES AND STOCKHOLDERS' EQUITY             |              |            
|Current                                          |              |            
|Accounts payable and accrued liabilities         | 589,715      | 1,197,823  
|Current
    portion of capital lease [note 10]   | 18,963       | 10,058     
|Total current liabilities                        | 608,678      | 1,207,881  
|                                                 |              |            
|Capital
    lease [note 10]                      | 42,352       | 19,324     
|                                                 |              |            
|Commitments [note 8 & 9]                         |              |            
|                                                 |              |            
|Stockholders' equity                             |              |            
|Common stock                                     | 41,373       | 40,295     
|Additional paid-in capital                       | 21,008,313   | 19,669,399 
|Deficit accumulated during the exploration stage | (13,114,895) | (9,243,681)
|Total stockholders' equity                       | 7,934,791    | 10,466,013 
|                                                 | 8,585,821    | 11,693,218 
|                                                 |              |            
|See accompanying notes                           |              |            

2

---



Gryphon Gold Corporation 
(an exploration stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS (Stated in U.S. dollars) 
(Unaudited)

|                                   |                    |                  |                |               | Period from   
|---------------------------------- | ------------------ | ---------------- | -------------- | ------------- | --------------
|                                   |                    |                  |                |               | April 24, 2003
|                                   | Three months ended | Six months ended | (inception) to
|                                   | September 30,      | September 30,    | September 30,  | September 30, | September 30, 
|                                   | 2006               | 2005             | 2006           | 2005          | 2006          
|                                   | $                  | $                | $              | $             | $             
|                                   |                    |                  |                |               |               
|Exploration [note 5]               | 1,067,703          | 503,248          | 2,321,218      | 843,320       | 7,429,633     
|Management salaries and consulting |                    |                  |                |               |               
|fees                               | 482,009            | 244,643          | 890,602        | 440,943       | 3,500,960     
|General and administrative         | 240,176            | 46,968           | 481,218        | 126,059       | 1,165,151     
|Legal and audit                    | 87,393             | 19,612           | 164,759        | 189,471       | 795,241       
|Travel and accommodation           | 65,762             | 42,170           | 185,439        | 96,157        | 549,984       
|Depreciation                       | 13,937             | 2,409            | 25,482         | 4,144         | 57,544        
|Foreign exchange (gain) loss       | (1,798)            | (4,540)          | (20,975)       | 10,223        | (27,453)      
|Interest
    income                | (84,102)           | (41,240)         | (176,529)      | (79,129)      | (356,165)     
|Net loss for the period            | (1,871,080)        | (813,270)        | (3,871,214)    | (1,631,188)   | (13,114,895)  
|                                   |                    |                  |                |               |               
|Basic and diluted loss per share   | $(0.05)            | $(0.03)          | $(0.10)        | $(0.06)       |               
|                                   |                    |                  |                |               |               
|Basic and diluted weighted average |                    |                  |                |               |               
|number of common shares            |                    |                  |                |               |               
|outstanding                        | 41,154,718         | 27,722,370       | 40,435,024     | 26,940,586    |               

See accompanying notes

3

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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, March 31, 2004               | 14,376,000   | 14,376  | 2,480,824   | (1,115,925)  | 1,379,275  
|Shares issued:                        |              |         |             |              |            
|For private placements                | 7,315,962    | 7,316   | 4,598,059   |             | 4,605,375  
|Share issue costs                     |             |        | (156,015)   |             | (156,015)  
|Compensation component of shares      |              |         |             |              |            
|issued                                |             |        | 150,000     |             | 150,000    
|Fair value of agent's warrants issued |              |         |             |              |            
|[note 6[b]]                           |             |        | 45,100      |             | 45,100     
|Fair value of options granted to a    |              |         |             |              |            
|consultant [note 6[c]]                |             |        | 34,300      |             | 34,300     
|Net loss for
    the year             |             |        |            | (2,525,420)  | (2,525,420)
|Balance,
    March 31, 2005           | 21,691,962   | 21,692  | 7,152,268   | (3,641,343)  | 3,532,615  
|Shares issued:                        |              |         |             |              |            
|For private placements                | 11,505,408   | 11,505  | 9,762,404   |             | 9,773,909  
|Share issue costs                     |             |        | (489,013)   |             | (489,013)  
|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)
|Fair value of agents' warrants        |              |         |             |              |            
|issued on private placements          |              |         |             |              |            
|[note 6[b]]                           |             |        | 111,640     |             | 111,640    
|Fair value of underwriters'           |              |         |             |              |            
|compensation warrants on IPO          |              |         |             |              |            
|[note 6[b]]                           |             |        | 135,100     |             | 135,100    
|Exercise of warrants                  | 197,500      | 198     | 194,085     |             | 194,283    
|Fair value of options granted to      |              |         |             |              |            
|consultants [note 6[c]]               |             |        | 15,258      |             | 15,258     
|Net loss for
    the year             |             |        |            | (5,602,336)  | (5,602,336)
|Balance,
    March 31, 2006           | 40,294,870   | 40,295  | 19,669,399  | (9,243,681)  | 10,466,013 
|Shares issued:                        |              |         |             |              |            
|For private placements                | 129,000      | 129     | 165,722     |             | 165,851    
|Share issue costs                     |             |        | (3,533)     |             | (3,533)    
|Fair value of options granted         |              |         |             |              |            
|[note 6[c]]                           |             |        | 250,064     |             | 250,064    
|Exercise of warrants                  | 901,750      | 901     | 887,598     |             | 888,499    
|Exercise of options                   | 47,500       | 48      | 39,063      |             | 39,111     
|Net loss for
    the period           |             |        |            | (3,871,214)  | (3,871,214)
|Balance, September 30, 2006           | 41,373,120   | 41,373  | 21,008,313  | (13,114,895) | 7,934,791  
|                                      |              |         |             |              |            
|See accompanying notes                |              |         |             |              |            

4

---



Gryphon Gold Corporation 
(an exploration stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                       |                    |                  |                |               |               
|-------------------------------------- | ------------------ | ---------------- | -------------- | ------------- | --------------
|                                       |                    |                  |                |               | Period from   
|                                       |                    |                  |                |               | April 24, 2003
|                                       | Three months ended | Six months ended | (inception) to
|                                       | September 30,      | September 30,    | September 30,  | September 30, | September 30, 
|                                       | 2006               | 2005             | 2006           | 2005          | 2006          
|                                       | $                  | $                | $              | $             | $             
|                                       |                    |                  |                |               |               
|OPERATING ACTIVITIES                   |                    |                  |                |               |               
|Net loss for the period                | (1,871,080)        | (813,270)        | (3,871,214)    | (1,631,188)   | (13,114,895)  
|Items not involving cash:              |                    |                  |                |               |               
|Depreciation                           | 13,937             | 2,409            | 25,482         | 4,144         | 57,544        
|Fair value of options, warrants        |                    |                  |                |               |               
|and other non-cash compensation        | 225,691            |                 | 250,064        |              | 603,997       
|Changes in non-cash working            |                    |                  |                |               |               
|capital items:                         |                    |                  |                |               |               
|Amounts receivable                     | 45,527             | (17,222)         | 21,349         | (11,795)      | (59,901)      
|Accounts payable and accrued           |                    |                  |                |               |               
|liabilities                            | (55,280)           | 512,026          | (608,108)      | 456,204       | 589,715       
|Prepaid
    expenses                   | 17,655             | (732,177)        | 40,653         | (732,958)     | (69,437)      
|Cash used in operating activities      | (1,623,550)        | (1,048,234)      | (4,141,774)    | (1,915,593)   | (11,992,977)  
|                                       |                    |                  |                |               |               
|INVESTING ACTIVITIES                   |                    |                  |                |               |               
|Reclamation deposit                    | (52,100)           |                 | (52,100)       |              | (111,900)     
|Purchase of equipment                  | (3,015)            | (37,837)         | (17,370)       | (40,453)      | (172,996)     
|Mineral
    property expenditures      | (665)              | (349,865)        | (22,164)       | (599,865)     | (1,920,371)   
|Cash used by investing activities      | (55,780)           | (387,702)        | (91,634)       | (640,318)     | (2,205,267)   
|                                       |                    |                  |                |               |               
|FINANCING ACTIVITIES                   |                    |                  |                |               |               
|Capital lease principal payments       | (4,466)            |                 | (6,881)        |              | (6,881)       
|Cash received for shares               | 399,302            |                 | 1,093,460      | 3,919,765     | 22,655,224    
|Share issue costs                      |                   |                 | (3,533)        | (60,288)      | (2,598,661)   
|Subscription
    receivables collected |                   |                 |               | 54,360        | 389,125       
|Cash
    provided by financing         |                    |                  |                |               |               
|activities                             | 394,836            |                 | 1,083,046      | 3,913,837     | 20,438,807    
|                                       |                    |                  |                |               |               
|Increase (decrease) in cash during     |                    |                  |                |               |               
|the period                             | (1,284,494)        | (1,435,936)      | (3,150,362)    | 1,357,926     | 6,240,563     
|Cash,
    beginning of period          | 7,525,057          | 5,859,298        | 9,390,925      | 3,065,436     |              
|                                       | 6,240,563          | 4,423,362        | 6,240,563      | 4,423,362     | 6,240,563     
|                                       |                    |                  |                |               |               
|See accompanying notes                 |                    |                  |                |               |               

5

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND CONTINUANCE OF OPERATIONS

Gryphon Gold Corporation and its wholly owned subsidiary,
Borealis Mining Company (collectively, "the Company"), were incorporated in the
State of Nevada in 2003. The Company is an exploration and pre-development stage
company in the process of exploring its mineral properties and developing,
subject to financing, its fully permitted Borealis Heap Leach Gold Mine.

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.

2. BASIS OF PRESENTATION

These interim unaudited consolidated financial statements
have been 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, 2006 (the "Annual Financial Statements''), with the exception of
Stock Based Compensation. 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.

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. As a result of adopting FAS 123(R) the
net loss for the quarter ending September 30, 2006 increased by $179,261 and for
the six months ended September 30, 2006 by $189,374.



---

Gryphon Gold Corporation 
(an exploration stage company)NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. dollars) 
(Unaudited)

3. EQUIPMENT

|                             | September 30, 2006
|---------------------------- | ------------------
|                             |                   
|                             | Cost              
|                             | $                 
|                             |                   
|Office and lab
    equipment | 166,012           
|Trucks under capital lease   | 71,319            
|Total                        | 237,331           
|                             |                   
|                             | March 31, 2006    
|                             |                   
|                             | Cost              
|                             | $                 
|                             |                   
|Office and lab
    equipment | 152,504           
|Truck under capital lease    | 32,504            
|Total                        | 185,008           

4. MINERAL PROPERTY

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.

|                                               | Total    
|---------------------------------------------- | ---------
|                                               | $        
|                                               |          
|Mineral property
    costs, March 31, 2005     | 1,775,326
|Expenditures during the year                   | 122,881  
|Mineral property costs, March 31,
    2006     | 1,898,207
|Expenditures during the period                 | 22,164   
|Mineral property costs, September
    30, 2006 | 1,920,371

7

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

5. EXPLORATION

|                     |                    |                  |                |               | Period from       
|-------------------- | ------------------ | ---------------- | -------------- | ------------- | ------------------
|                     |                    |                  |                |               | April
    24, 2003
|                     | Three months ended | Six months ended | (inception) to
|                     | September 30,      | September 30,    | September 30,  | September 30, | September 30,     
|                     | 2006               | 2005             | 2006           | 2005          | 2006              
|                     | $                  | $                | $              | $             | $                 
|                     |                    |                  |                |               |                   
|NEVADA, USA          |                    |                  |                |               |                   
|Borealis property    |                    |                  |                |               |                   
|Exploration :        |                    |                  |                |               |                   
|Property maintenance | 224,231            | 127,118          | 431,360        | 193,921       | 1,732,071         
|Project management   | 145,660            | 8,224            | 275,244        | 13,247        | 883,470           
|Drilling             | 540,855            | 221,866          | 1,108,357      | 382,228       | 3,078,501         
|Engineering          | 37,006             | 68,015           | 151,870        | 68,015        | 599,418           
|Geological           | 119,526            | 76,585           | 336,028        | 184,469       | 901,991           
|Metallurgy           | 425                | 1,440            | 18,359         | 1,440         | 234,182           
|Total exploration    | 1,067,703          | 503,248          | 2,321,218      | 843,320       | 7,429,633         

6. 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.

On April 4, 2006, the Board of
Directors approved, reserving 1,000,000 common shares to be granted as
Restricted Stock Units. On July 24, 2006 the plan name was revised to the 2006
Omnibus Incentive Plan. On April 4, 2006, 8,000 common shares were granted to an
officer of the company which will vest over 12 to 24 months.

During the quarter ended June 30,
2006, the Company completed private placements to an officer and an employee of
129,000 units at Cdn$1.35, with each unit comprising of one common share and 1⁄2
of one common share 'series D' warrant. Each whole warrant entitles the holder
to purchase a common share at a price of Cdn$1.82 per share until June 10, 2007.
Compensation expense in the amount of $7,740 was recorded in relation to the
discount received by the participants of the private placement.



---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

b]    Warrants:

The following table contains information with
respect to all warrants:

|                                                         | Number of Warrants | Fair
    Value of Warrants
|-------------------------------------------------------- | ------------------ | --------------------------
|                                                         | #                  | $                         
|                                                         |                    |                           
|Warrants outstanding, March 31, 2004                     |                   |                          
|Issued for:                                              |                    |                           
|Private placements                                       | 3,407,981          |                          
|Agents' compensation                                     | 141,008            | 45,100                    
|Exercised                                                |                   |                          
|Warrants outstanding, March 31, 2005                     | 3,548,989          | 45,100                    
|Issued for:                                              |                    |                           
|Private placements                                       | 3,015,204          |                          
|Agents' compensation on private placement                | 130,000            | 35,100                    
|Initial Public Offering (IPO)  Series A                 | 6,900,000          |                          
|Underwriters' compensation on IPO                        | 690,000            | 135,100                   
|Private placements  Series B                            | 2,737,500          |                          
|Agents' compensation on private placement 
    Series C | 280,500            | 76,540                    
|Exercised                                                | (197,500)          |                          
|Warrants outstanding, March 31, 2006                     | 17,104,693         | 291,840                   
|Issued for:                                              |                    |                           
|Private placements  Series D                            | 64,500             |                          
|Exercised                                                | (901,750)          |                          
|Warrants outstanding, September 30, 2006                 | 16,267,443         | 291,840                   

9

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

6. CAPITAL STOCK (cont'd.)

The following table summarizes information about
warrants outstanding and exercisable as at September 30, 2006:

|Warrants Outstanding and Exercisable
|------------------------------------
|                                    
|                                    
|Warrants                            
|#                                   
|                                    
|572,250                             
|6,355,685                           
|5,986,000                           
|280,500                             
|2,737,500                           
|130,000                             
|64,500                              
|141,008                             
|16,267,443                          

* Based on the
September 30, 2006 exchange rate of Cdn$1.1172 equals US$1.

c]    Stock options:

On April 4, 2006 (amended July 24,
2006), the Board of Directors approved the 2006 Omnibus Incentive Plan, which
increased the number of reserved shares of common stock for issuance to
employees, officers, directors, consultants and advisors, from 3,000,000 to
6,000,000 shares. The 2006 Omnibus Incentive Plan authorizes the Company to
grant 3,000,000 options. On April 4, 2006, 1,570,000 options were granted to
directors, officers and a consultant, of which 1,475,000 have been granted under
the 2006 Omnibus Incentive Plan. On vesting, the options granted are exercisable
for 5 years at a price of Cdn$1.37 per share.

On April 18, 2006, the Board of
Directors approved the grant of 290,000 stock options to an officer, employee
and a consultant. The options vest over 12 to 30 months and are exercisable,
once vested, for 5 years at a price of Cdn$1.37 per share.

On May 26, 2006, the Board of
Directors approved the grant of 30,000 stock options to an outside consulting
firm who will be providing certain investor relations services to the company.
The options vest over the next 24 months and are exercisable for 5 years from
the date of grant at a price of Cdn$1.60 per share.

On July 24, 2006, the Board of
Directors approved the grant of 80,000 stock options to two outside consulting
firms who will be providing certain investor relations and consulting services
to the company. The options vest within 12 months and are exercisable for 5
years from the date of grant at a price of Cdn$1.29 per share.



---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

6. CAPITAL STOCK (cont'd.)

The 2006 Omnibus Incentive Plan
was ratified by the shareholders at the company's annual general meeting on
September 12, 2006, along with all options previously granted thereunder,
pending such ratification.

On September 25, 2006, the Board of
Directors approved the grant of 40,000 stock options to an employee of the
Company. The options vest over 4 to 24 months and are exercisable for 5 years at
a price of Cdn$1.37 per share.

Total compensation expense for the
quarter ended September 30, 2006 related to the expensing of options totalled
$225,691 [September 30, 2005  $Nil]. Included in this amount is compensation
expense related to consulting services totalling $46,430.

The following table summarizes
information about stock options outstanding as at September 30, 2006:

|Stock Options Outstanding and
    Exercisable
|---------------------------------------------
|                                             
|Stock Options                                
|#                                            
|Outstanding                                  
|2,262,500                                    
|215,000                                      
|90,000                                       
|100,000                                      
|255,000                                      
|1,765,000                                    
|30,000                                       
|80,000                                       
|40,000                                       
|4,837,500                                    

* Based on the September 30, 2006 exchange rate of
Cdn$1.1172 equals US$1.

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:

|                        | 2007              | 2006            
|----------------------- | ----------------- | ----------------
|                        |                   |                 
|Dividend yield          | 0%                | 0%              
|Expected volatility     | 59%               | 53% -
    70%   
|Risk free interest rate | 4.54%
    - 5.21% | 3.38%
    - 4.7%
|Expected lives          | 3 years           | 3 years         

Options pricing models require the
input of highly subjective assumptions, particularly as to the expected price
volatility of the stock. 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.



---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

7. 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.

During the six months ended September 30, 2006, the Company
paid consulting fees to a non-independent director in the amount of $90,882
[September 30, 2005 - $37,102] for services rendered on the exploration of the
Borealis property.

8. RECLAMATION DEPOSIT

During the six months ended September 30, 2006, the Company
increased the amount of their performance bond from $59,800 to $90,900 by
purchasing a further performance bond in the amount of $31,100 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 deposited directly $21,000 with the Bureau of Land
Management ("BLM") in support of its potential future obligations for
reclamation during the Company's exploration activities within the BLM area. At
September 30, 2006, the Company recorded a reclamation liability of $5,600
(September 30, 2005  $10,000) representing future obligations related to its
drilling activities completed to September 30, 2006. The Company continues to
hold the bond in support of potential future obligations under the Plan of
Operation for exploration filed with the U.S. Forest Service.

9. COMMITMENTS

[a]    A
portion of the Borealis Property is subject to a mining lease. The Company is
required to make monthly lease payments of $8,916, 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 activity 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 Lakewood, CO and Vancouver, BC for 5 and 3 year terms, respectively.
The following are related commitments in the next 5 fiscal years:

|     | $     
|---- | ------
|2007 | 35,942
|2008 | 72,287
|2009 | 52,180
|2010 | 38,016
|2011 | 22,412

[c]    During
September 2006, the Company entered into an advisory services agreement with a
consulting company mandated to assist the Company with securing of debt
financing for the Borealis Heap Leach Gold project. As part of the consideration
for these services, the consulting company will be able to earn, dependant on
the achievement of certain milestones outlined in the agreement, warrants to
purchase up to 180,000 common shares of the Company. Each whole warrant entitles
the holder to purchase one common share at a price of Cdn$1.86 per share until
September 11, 2008.

12

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

10. CAPITAL LEASE

The Company entered into a lease, maturing in May 2008, to
acquire a second truck. The trucks are both accounted for as capital leases,
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 actual combined
lease payments are $2,371 per month with a residual payment of $12,000 due
October 2007 and $13,854 due May 2008.

The present value of required payments per each fiscal year:

|     | $     
|---- | ------
|     |       
|2007 | 11,849
|2008 | 32,158
|2009 | 17,307

13

---



Item 2. Plan of Operation.

Overview

Gryphon Gold
Corporation was incorporated in Nevada on April 24, 2003 and has corporate
offices in Lakewood, Colorado and Vancouver, British Columbia. Our objective is
to establish a producing gold company through the development and extraction of
gold deposits, beginning with the Borealis Property. Currently, our sole asset
is a 100% interest in the Borealis Property, located in Mineral County, Nevada.
We have not determined if the mineralized material from the Borealis Property
can be economically exploited.

In July 2003, we
initially acquired from Golden Phoenix Minerals, Inc. ("Golden Phoenix") an
option to earn a 70% joint venture interest in the Borealis Property by
incurring qualified development expenditures. On January 28, 2005 we acquired
the remaining interest held by Golden Phoenix in the Borealis Property for
$1,400,000. Our subsidiary, Borealis Mining, paid to Golden Phoenix $400,000
upon closing of the purchase on January 28, 2005, with four additional quarterly
payments of $250,000 due to Golden Phoenix. On January 24, 2006, with a final
payment of $250,000, Borealis Mining completed all of its financial requirements
with respect to Golden Phoenix.

As sole shareholder
of Borealis Mining, we control all of the lease rights to a portion of the
Borealis Property, subject to advance royalty, production royalty, and other
payment obligations imposed by the lease. Our acquisition of the interest of
Golden Phoenix in the Borealis Property terminated the July 2003 Option and
Joint Venture Agreement.

In addition to our
leasehold interest to a portion of the Borealis Property, through Borealis
Mining we also own numerous unpatented mining claims that make up the balance of
the Borealis Property, and we also own all of the documentation and samples from
years of exploration and development programs carried out by the previous
operators of the Borealis Property (totaling thousands of pages of data
including, but not limited to, geophysical surveys, mineralogical studies and
metallurgical testing reports).

A portion of the
Borealis Property is subject to the mining lease. We are required to make
monthly lease payments of $8,916, adjusted annually based on change in the
Consumer Price Index. In addition, the 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 terms of the mining lease and royalty are described below
under "Borealis Property". We have also entered into office lease arrangements
for offices in Lakewood, Colorado; Vancouver, British Columbia; and Hawthorne,
Nevada.

On June 10, 2006, we
completed private placements to an officer and employee of 129,000 units for
gross proceeds of Cdn$174,150. The units were sold at a price of Cdn$1.35 each
and consist of one common share and one half of one purchase warrant. Each
warrant is exercisable until June 10, 2007 at a price of Cdn$1.82.

On June 26, 2006, we
announced that the USDA Forest Service and the Nevada Bureau of Mining
Regulation and Reclamation have both approved the Plan of Operations and
Reclamation Plan, allowing Gryphon Gold to proceed with the development of a
heap leach mine at the Borealis Gold Project. These approvals, combined with the
previously approved operating permits from the State of Nevada, represent the
key regulatory approvals required to place the Borealis gold mineralization into
production.

For the fiscal year
ended March 31, 2006, our exploration work focused on extension and definition
drilling and the broadening of district exploration and we expended $3.6 million
on exploration of the Borealis property.

On August 17, 2006,
we announced the completion and receipt of a positive feasibility study for the
Borealis Property. The study was conducted by Samual Engineering, Inc. and was
focused on an open pit mine with two-stage crushing and conventional carbon
absorption extraction through a 7,300 metric tonnes per day heap leach
operation.

The results of the
base case model assumes a gold price of $475 per ounce and a silver price of
$7.92/oz (60:1), allows for all taxes and is unlevered. The projected base case
details are:

- 



---

Initial capital cost of
  US$15.4 million, of which US$9.2 million is fixed assets and infrastructure,
  US$4.2 million is bonding and US$2 million working capital
  Cash operating cost, net of
  silver credits, is $264 per ounce of gold
  Initial mine life of 6 yearsAfter-tax internal rate of
  return (IRR) of 31 percentCrushing plant
  throughput of three million tonnes per year
  Life of mine
  strip ratio: 1.4:1Leach ore
  grade: 1.0 grams per tonne (g/t) gold and 18.5 grams per tonne (g/t) silver
  

Completion of construction and the
first gold pour is targeted within 8 months of securing the financing. We are in
discussions with several financial institutions for a debt or combination
debt/equity financing of the mine. The cash flow from this mine is expected to
fund the multi-year exploration programs required to fully assess this 27.5
square mile property, which hosts multiple-targets. It may also fund
participation in other opportunities.
The study estimates the open pit
gold deposits presently contain proven and probable leachable reserves of 13.7
million metric tonnes containing approximately 433,500 ounces of gold and 8.2
million ounces of silver, using a gold price of $475 per ounce and a silver
price of $7.92 per ounce. Estimated total gold and silver recovery from the
oxide deposits over a six year mine life will be approximately 297,000 ounces
gold and 2.9 million ounces silver.
The terms "proven mineral reserve"
and "probable mineral reserve" used in this Quarterly Report are in reference to
the mining terms defined in the Canadian Institute of Mining, Metallurgy and
Petroleum Standards, which definitions have been adopted by Canadian National
Instrument 43-101  Standards of Disclosure for Mineral Projects. The
definitions of proven and probable reserves used in NI 43-101 differ from the
definitions in the United States Securities and Exchange Commission's Industry
Guide 7. In the United States, a mineral reserve is defined as a part of a
mineral deposit which could be economically and legally extracted or produced at
the time the reserve determination is made. Accordingly, information contained
in this Form 10-QSB and the documents incorporated by reference herein
containing descriptions of our mineral deposits in accordance with NI 43-101 may
not be comparable to similar information made public by other U.S. companies
under the United States federal securities laws and the rules and regulations thereunder.
Until such time as production
financing has been secured we continue to expense costs related to the Borealis
property. Once definitive financing has been arranged we intend to capitalize
development costs.
The base case contemplates an
average production rate of 7,300 metric tonnes per day of heap leach material
(amounts vary year to year). Life-of-mine strip ratio will be 1.4:1 with annual
production averaging approximately 58,000 ounces of gold and 546,000 ounces of
silver. The cutoff gold grade for both mineral reserves and mineral resources is
0.34g/t for in-place material and 0.21 g/t for previously mined and stockpiled
material based on a gold price of $475 per ounce and a silver price of $7.92.
During fiscal 2007, we plan to
continue extension drilling within the Graben deposit. This 20-hole drilling
program consists of a series of broad step-out holes along the northern
extension of the Graben trend which commenced in September 2006. Guided by the
new geophysical surveys and reinterpreted existing geophysical data, this
program is designed to delineate the northern and western limits of the Graben
deposit's gold mineralization (budgeted at $1.4 million). Simultaneously, we
intend to begin a broader scale district exploration reconnaissance and drilling
program (budgeted at $0.55 million). This program is designed to determine which
of the six other gold mineralized targets identified to date will be the focus
of the next exploration program. The following activities are planned for fiscal
2007:Raise
  sufficient capital to begin construction of the heap leach mine at the
  Borealis Gold Project.Complete the
  geophysical survey program which commenced in September 2006. The survey was
  designed for targeting sites for the two new drilling programs. The program
  consists of three gradient array induced polarization (IP) and resistivity
  surveys to identify chargeability and resistivity highs that are coincident
  with known aeromagnetic lows indicating areas of likely mineralization.15

---

Continue the
  Graben deposit drilling extension program, a 20-hole drilling program which
  commenced in September 2006 and consists of a series of broad step-out holes
  along the northern extension of the Graben trend.
  Initiate district exploration
  program to determine which of the six other gold mineralized targets
  identified to date will be the focus of the next exploration program.

Management's Discussion and Analysis

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

We use words like "expects,"
"believes," "intends," "anticipates," "plans," "targets," "projects" or
"estimates" in this quarterly report. When used, these words and other, similar
words and phrases or statements that an event, action or result "will," "may,"
"could," or "should" occur, be taken or be achieved identify "forward-looking"
statements. Such forward-looking statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and
assumptions, including, the risks and uncertainties outlined in Exhibit 99.1
titled "Risk Factors and Uncertainties" contained in our Form 10-QSB filed on
August 14, 2006, which Exhibit is hereby incorporated by reference. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, believed, estimated or expected. Our management has included
projections and estimates in this quarterly report, which are based primarily on
management's experience in the industry, assessments of our results of
operations, discussions and negotiations with third parties and a review of
information filed by our competitors with the Securities and Exchange Commission
or otherwise publicly available. We caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made. We
disclaim any obligation subsequently to revise any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.

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

Critical Accounting Policies and Estimates

The preparation of our unaudited
interim financial statements is in accordance with U.S. GAAP. We do not
reconcile our unaudited interim financial statements to Canadian generally
accepted accounting principles. 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 which 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.



---



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 original
claim 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 and ongoing claim maintenance costs. 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

As regulated by Statement of
Financial Accounting Standards ("SFAS") No. 123(R), Accounting for Stock-Based
Compensation ("SFAS No. 123(R)"), commencing the quarter ended June 30, 2006, we
have adopted the fair value method of accounting for share-based payments to
employees and record compensation expense based on requisite service period of
options granted to its employees, directors and consultants.

Asset retirement obligations

We record the present value of an
asset retirement obligation as a liability in the period in which we incur a
legal obligation associated with the retirement of tangible long-lived assets
that result 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 depreciated over the estimated useful life of
the related assets. The liability is subsequently accreted through charges to
expense over its expected life. Currently, we have no asset retirement
obligations.

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 we have not incurred any stripping costs.
We have adopted the consensus effective April 1, 2006.



---



Results of Operations

We are in an exploration stage and currently have
no producing mineral properties and thus we had no revenues during all reporting
periods.

Three months ended September 30, 2006 compared to three months ended
September 30, 2005

For the three months ended
September 30, 2006 we had a net loss of $1,871,080 or $0.05 per share compared
to a net loss of $813,270 or $0.03 per share in the same period in the prior
year, as spending on our exploration activities increased significantly, along
with an increase in staffing levels and higher corporate administration costs.

Exploration expenses during the
three months ended September 30, 2006 were $1,067,703 or 57% of our total
expenses compared to $503,248 or 62% of total expenses in the prior year. The
increase in spending was related to continuation of permitting activities,
exploration drilling program and completing the feasibility study on our
Borealis property, which commenced May 2005 and was completed in August 2006.

Management salaries and consulting
fees in the quarter ended September 30, 2006 were $482,009 compared to $244,643
incurred in the quarter ended September 30, 2005 as staffing increased and the
company adopted the fair value recognition provisions of SFAS No. 123(R),
"Accounting for Stock-Based Compensation", which resulted in additional
compensation expense of $179,262 to be recognized in the quarter. Salaries and
consulting fees are expected to continue to increase in future periods as we
expect to hire additional personnel in anticipation of mine development and
future gold production from our heap leach mine on the Borealis property. Legal
and audit fees for the period increased to $87,393 from $19,612 for the three
months ended September 30, 2005, this is mainly due to costs associated with
being a public company that reports in both Canada and the United States and is
therefore subject to additional reporting and compliance requirements. Travel
and accommodation during the quarter ended September 30, 2006 was $65,762,
compared to $42,170 expended on travel in the prior year's comparable quarter.
The increase is due to greater corporate travel associated with investor
relations and property site visits. General and administrative expenses totaled
$240,176, compared to $46,968 in the prior year's comparable quarter. The
increase is due to higher spending on investor relations, rent related to our
Lakewood and Hawthorne offices, related office support and insurance. Travel and
general and administrative expenses will continue to increase in future periods
with the expected continuing increase in activity to support the development of
our Borealis property and with the additional obligations as a public company in
the United States and in Canada. Interest income earned on cash deposits was
$84,102 for the quarter ended September 30, 2006, compared to $41,240 in the
prior year quarter due to significantly higher cash balances then the prior
quarter.

Six months ended September 30, 2006 compared to Six months ended September
30, 2005

For the six month period ended
September 30, 2006 we incurred a net loss of $3,871,214 or $0.10 per share
compared to a net loss of $1,631,188 or $0.06 per share incurred during the same
period in the prior year, as spending increased on our exploration activities,
along with an increase in our staffing levels and higher corporate
administration costs.

Exploration expenses during the six
month period ended September 30, 2006 were $2,321,218 or 60% of our total
expenses compared to $843,320 or 56% of total expenses in the prior year. The
increase in spending was related to continuation of permitting activities,
exploration drilling program and completing the feasibility study on our
Borealis property, which commenced May 2005 and was completed in August 2006.

Management salaries and consulting
fees in the six months ended September 30, 2006 were $890,602 or 22% of our
total expenses compared to $440,943 or 23% of total expenses in the prior year
as staffing increased significantly and with the adoption of fair value
recognition provisions of SFAS No. 123(R), stock-based compensation expense of
$189,375 has been recognized. It is expected that salaries and consulting fees
will continue to increase in future periods as we expect to hire additional
personnel in anticipation of mine development and future gold production from
our heap leach mine on the Borealis property. Legal and audit fees for the six
month period decreased to $164,759 from $189,471 incurred in the prior years
comparable period. The higher costs reported in the six months ended September
30, 2006 are associated to changing reporting to US generally accepted
accounting principles (GAAP) from Canadian GAAP and the legal and auditing costs
incurred to become a public company. Travel and accommodation during the six
months ended September 30, 2006 was $185,439, compared to $96,157 reported in
prior year six month period ended September 30, 2005. The increase is due to
greater corporate travel associated with investor relations and property site
visits. General and administrative expenses of $481,218, compared to $126,059 in
the prior years comparable period. The increase is due to higher spending on
investor relations, rent related to our Lakewood office which opened during
fiscal 2006, office support and insurance. Travel, general and administrative
expenses will continue to increase in future periods with the continuing
increase in activity to support the development of our Borealis property and
with the additional obligations as a public company in the United States and in
Canada. Interest income earned on cash deposits was $176,529 for the six months
ended September 30, 2006, compared to $79,129 in the prior year comparable
period due to significantly higher average cash balances during the six month
period.



---



Liquidity and Capital Resources

Our principal source of liquidity is cash which is
raised by way of sale of commons shares from treasury.

At September 30, 2006 we had
working capital of $5,761,223, and we had current assets consisting of
$6,240,563 in cash, $59,901 in accounts receivable and $69,437 in prepaid
expenses. We had $608,678 in current liabilities at September 30, 2006,
consisting of $589,715 in accounts payable and accrued liabilities and $18,963
in current portion of capital leases. We believe we have sufficient working
capital to fund completion of our drilling program, costs related to lease and
claim maintenance fees and general and administrative expense for the next 8 to
12 months. We currently have approximately 12.8 million 'in-the-money' warrants
with exercise price ranging from $0.75 to $1.021,and an average
exercise price of $0.95, which are set to expire on December 22, 2006. We
believe that it is reasonable to anticipate that they will be exercised given
the current market price of our company stock ($1.18 per share at November 9,
2006); however, there can be no assurance that such warrants will be exercised.
If all warrants are exercised, we could realize cash proceeds of approximately
$12.2 million.

The feasibility study completed for
the Borealis Heap Leach Mine estimates an initial capital cost of approximately
$15.4 million, made up of $9.2 million in fixed assets, $4.2 million in bonding
requirements and $2 million in working capital. In order to bring the Borealis
property into production we will need to obtain additional capital, most likely
from a combination of the sale of common shares, the exercise of existing
outstanding warrants, or debt financing. We have received indicative term sheets
for a $12 million production loan from four international banks; we have
selected two of these banks to proceed with technical due diligence which is
currently in process. We anticipate we will receive a definitive term sheet from
one of the two banks on or about December 31, 2006.

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 anticipate the development of the Borealis Heap Leach Mine
subject to securing financing. Our feasibility study announced in August 2006,
shows a fixed asset investment of approximately $9.2 million. The study
estimates the following investments in fixed asset purchases:

______________
1



---



|Surface Mine Construction                                          | Amount    
|------------------------------------------------------------------ | ----------
|Initial Pads and Ponds                                             | $1,924,362
|ADR Recovery Plant                                                 | 1,413,144 
|Equipment Mobilization                                             | 1,400,000 
|Power Distribution                                                 | 1,017,818 
|Water Supply                                                       | 788,233   
|Other, including Ancillary Facilities,
    Buildings, Construction |           
|and Contingency Overheads and EPCM                                 | 2,693,310 
|Total                                                              | $9,236,867

We have signed two Letters of Intent with suppliers and
contractors who will provide us with the 'ADR plant design, supply and
construction', 'contract mining and crushing' and 'heap leach pad construction'.
The Letters of Intent are non-binding agreements which set forth a means to
enter into formal contracts with specific suppliers and/or contractors for the
aforementioned services.

Significant changes in number of employees.

We expect the number of employees to gradually increase from current level of
12 employees. We will require additional employees once we begin developing our
Borealis Property.

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 $8,916 per month to
certain lease holders while exploration is proceeding on the Borealis Property.
Also, to maintain its existing claims, we make payments totaling approximately
$102,000 annually. These payments are contingent upon us maintaining an interest
in the property.

As of September 30, 2006, we had the following non-cancelable contractual
obligations:

|                               | Payments Due by Period
|------------------------------ | ----------------------
|                               |                       
|                               |                       
|                               |                       
|                               | Total                 
|                               |                       
|                               |                       
|Capital Lease obligations      | $61,314               
|Operating Lease Obligation (1) | 65,367                
|Operating Lease Obligation (2) | 152,499               
|                               |                       
|Total                          | $282,351              

20

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The capitalized leases is for the purchase of two trucks.

(1)

(2)Obligation for the rental of office space in
Lakewood CO with an initial term 5 year term, terminating October 2010 and
payments of approximately $2,995 per month.

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

Item 3. Controls and Procedures

We maintain disclosure controls and
procedures designed to ensure that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the specified time periods.
As of the end of the period covered by this report, our principal executive
officer and principal financial officer evaluated the effectiveness of our
disclosure controls and procedures. Based on the evaluation, which disclosed no
significant deficiencies or material weaknesses, our principal executive officer
and principal financial officer concluded that our disclosure controls and
procedures are effective and that our disclosure controls and procedures were
adequately designed and are effective to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable rules and forms. In addition, our principal executive officer and
principal financial officer have determined that the disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports that are filed under the Exchange Act are accumulated and
communicated to management, including our principal executive officer and
principal financial officer, to allow timely decisions regarding required
disclosure.

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 company's most recent fiscal quarter and
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 property, 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. 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, do not intend to participate 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
planned business operations as we currently have permits to access water from
two sites for our Borealis Property, one of which is not subject to this action
and either of which, individually, would provide a sufficient water supply for
our planned operations.
Item 1A. Risks Factors.

Refer to Exhibit 99.1
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Since March 31, 2006, we have offered and sold the
following securities in unregistered transactions pursuant to exemptions under
the Securities Act of 1933, as amended.
On April 4, 2006 (amended July 24,
2006), the Board of Directors approved a 2006 Omnibus Incentive Plan reserving
1,000,000 common shares to be granted as Restricted Stock Units. On the date of
adoption 25,000 common shares, which were later amended to 8,000 common shares
on September 12, 2006, were granted to an officer of the company, which vest
over 12 to 24 months, under section 4(2) of the Securities Act. The grant was
subject to shareholder approval which was received September 12, 2006. On April
4, 2006 (amended July 24, 2006), the Board of Directors adopted the 2006 Omnibus
Incentive Plan ("the Plan"). Under the Plan a total of 3,000,000 options may be
granted. On the date of adoption 1,590,000 options were granted to directors,
officers and a consultant, of which 1,475,000 were issued under the 2006 Omnibus
Incentive Plan and were subject to shareholder approval. The options are
exercisable for 5 years at a price of Cdn$1.37 per share. Our 2004 Stock Option
Plan authorized the grant of 3,000,000 options of which 2,990,000 were issued
and 2,942,500 remain outstanding. The options were granted pursuant to an
exemption available under Section 4(2) of the Securities Act. Shareholder
approval was received September 12, 2006.
On April 18, 2006, the Board of
Directors approved the grant of 290,000 stock options to an officer, employee
and a consultant, 270,000 options were subject to shareholder approval. The
options vest over 12 to 30 months and are exercisable for 5 years at a price of
Cdn$1.37 per share. The consultant received 20,000 options which resulted in
compensation expense of $2,553 being recorded for the portion which vested. The
options were granted pursuant to an exemption available under Section 4(2) of
the Securities Act. Shareholder approval was received September 12, 2006.22

---

On May 26, 2006, the Board of
Directors approved the grant of 30,000 stock options to an outside consulting
firm who will be providing certain investor relations services to the company.
The options vest over the next 24 months and are exercisable for 5 years from
the date of grant at a price of Cdn$1.60 per share. The options were granted
pursuant to an exemption available under Section 4(2) of the Securities Act. The
grant was subject to shareholder approval which was received September 12, 2006.
On June 10, 2006, we completed
private placements of 129,000 units at Cdn$1.35, with each unit comprising one
common share and 1⁄2 of one common share warrant. Each whole warrant entitles the
holder to purchase a common share at a price of Cdn$1.82 per share until June
10, 2007. The private placement was made to accredited investors (as defined in
Rule 501(a) of regulation D) pursuant to an exemption from registration
available under Section 4(2) of the Securities Act.
On July 24, 2006, the Board of
Directors approved the grant of 80,000 stock options, subject to shareholder
approval, to two outside consulting firms who will be providing certain investor
relations and consulting services to the company. The options vest within 12
months and are exercisable for 5 years from the date of grant at a price of
Cdn$1.29 per share. Shareholder approval was received September 12, 2006.
On September 25, 2006, the Board of
Directors approved the grant of 40,000 stock options to an employee of the
company. The options vest over 4 to 24 months and are exercisable for 5 years at
a price of Cdn$1.37 per share.
Item 3. Defaults Upon Senior Securities.

None.
Item 4. Submission of Matters to a Vote of Security Holders.

On September 12, 2006, Gryphon Gold
Corporation held its annual general meeting of shareholders at the Vancouver
Club, 915 West Hastings Street, Vancouver, BC, at 1:30PM. Shareholders
representing 23,244,397 shares or 56.55% of the shares authorized to vote
(41,105,620) 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 2007 Annual Meeting of       |               |         
|Shareholders or until
    successors are duly elected and  |               |         
|qualified:                                                 |               |         
|Allen S. Gordon                                            | 23,244,397    | 0       
|                                                           |               |         
|Albert J. Matter                                           | 23,244,397    | 0       
|                                                           |               |         
|Donald E. Ranta                                            | 23,244,397    | 0       
|                                                           |               |         
|Christopher E. Herald                                      | 23,244,397    | 0       
|                                                           |               |         
|Richard W. Hughes                                          | 23,244,397    | 0       
|                                                           |               |         
|Rohan Hazelton                                             | 23,244,397    | 0       
|                                                           |               |         
|Donald W. Gentry                                           | 23,244,397    | 0       
|                                                           |               |         
|Anthony (Tony) D.J.
    Ker                                | 23,244,397    | 0       

23

---



|Proposal #2                                        | For        | Against   | Abstain
|-------------------------------------------------- | ---------- | --------- | -------
|                                                   |            |           |        
|To ratify the
    Company's Amended and Restated   | 21,984,397 | 1,260,000 | 0      
|Bylaws                                             |            |           |        
|                                                   |            |           |        
|Proposal #3                                        | For        | Against   | Abstain
|                                                   |            |           |        
|To ratify the
    Company's 2006 Omnibus Incentive | 23,024,397 | 140,000   | 80,000 
|Plan                                               |            |           |        
|                                                   |            |           |        
|Proposal #4                                        | For        | Against   | Abstain
|                                                   |            |           |        
|To ratify the
    Company's 2006 audited financial | 23,194,397 | 0         | 50,000 
|statements                                         |            |           |        
|                                                   |            |           |        
|Proposal #5                                        | For        | Against   | Abstain
|                                                   |            |           |        
|To ratify the
    appointment of the Company's     | 23,194,397 | 0         | 50,000 
|Independent Registered Public Accounting Firm for  |            |          
|the 2007 fiscal year                               |            |           |        

Proxies were solicited under the proxy statement
filed with the Securities and Exchange Commission on August 9, 2006. Each
nominee for director was elected, and each proposal was approved by the
Shareholders.

Item 5. Other Information.

None.



---

Item 6. Exhibits

|Exhibit  |                                                                                                                                                                                                                                                                        
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number   | Description                                                                                                                                                                                                                                                            
|         |                                                                                                                                                                                                                                                                        
|3.1(1)   | Articles of
    Incorporation of Gryphon Gold Corporation, filed April 24, 2003                                                                                                                                                                                        
|3.2(1)   | Certificate of
    Amendment to Articles of Incorporation of Gryphon Gold Corporation, filed
    August 9, 2005                                                                                                                                                        
|3.3(1)   | Bylaws of Gryphon Gold
    Corporation                                                                                                                                                                                                                                 
|3.4(1)   | Articles of
    Incorporation of Borealis Mining Company, filed June 5, 2003                                                                                                                                                                                           
|3.5(1)   | Bylaws of Borealis
    Mining Company                                                                                                                                                                                                                                  
|4.1(4)   | Specimen Common Stock
    certificate                                                                                                                                                                                                                                  
|4.2(3)   | Form of Warrant
    Indenture                                                                                                                                                                                                                                          
|4.3(4)   | Form of Underwriters'
    Compensation Options                                                                                                                                                                                                                         
|10.1(1)  | Investor Rights
    Agreement by and among Gryphon Gold Corporation and the Stockholders Party
    Hereto, dated as of May 1, 2003, as amended                                                                                                                         
|10.2(1)  | Assignment of Borealis
    Mining Lease, dated January 10, 2005, between Golden Phoenix Mineral Company
    and Borealis Mining Company                                                                                                                                
|10.3(1)  | Agreement and Consent
    to Assignment of Borealis Mining Lease, entered into as of January 26, 2005,
    between Richard J. Cavell, Hardrock Mining Company, John W. Whitney, Golden
    Phoenix Minerals, Inc., Borealis Mining Company and Gryphon Gold Corporation
|10.4(1)  | Escrow Agreement,
    dated January 10, 2005, between Borealis Mining Company, Gryphon Gold
    Company and Lawyers Title Agency of Arizona (Regarding Purchase Agreement
    dated January 10, 2005)                                                                  
|10.5(1)  | Purchase Agreement
    dated January 10, 2005, as amended, Seller: Golden Phoenix Minerals, Inc.,
    Buyer: Borealis Mining Company and Guarantor: Gryphon Gold Corporation                                                                                           
|10.6(1)  | Agreement between
    Golden Phoenix Minerals, Inc. and Borealis Mining Company (Borealis
    Property, Mineral County, Nevada), dated July 21, 2003                                                                                                                   
|10.7(1)  | Agency Agreement/
    Investment Advisory Retainer, between Gryphon Gold Corporation and
    Desjardins Securities Inc., signed March 9, 2005                                                                                                                          
|10.8(1)  | Service Agreement
    between Gryphon Gold Corporation and The Kottmeier Resolution Group Ltd.,
    dated May 17, 2005. Replaced by Contact Financial dated December 22, 2005.                                                                                         
|10.9(1)  | Office Building Lease
    dated June 22, 2005, related to Lakewood, Colorado office                                                                                                                                                                                    
|10.10(1) | Executive Compensation
    Agreement, dated October 1, 2003, between Gryphon Gold Corporation and Allen
    Gordon dba Evergreen Mineral Ventures LLC                                                                                                                  
|10.11(1) | Assignment Assumption
    Agreement between Gryphon Gold Corporation and Allen Gordon                                                                                                                                                                                  
|10.12(1) | Executive Compensation
    Agreement, dated October 1, 2003, between Gryphon Gold Corporation and
    Albert Matter                                                                                                                                                    

25

---



|Exhibit  |                                                                                                                                           
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------
|Number   | Description                                                                                                                               
|         |                                                                                                                                           
|10.13(1) | Executive Compensation
    Agreement, dated February 1, 2004, between Gryphon Gold Corporation and Tony
    Ker                           
|10.14(1) | Executive Compensation
    Agreement, dated November 1, 2004, between Gryphon Gold Corporation and
    Thomas Sitar                       
|10.15(1) | Executive Compensation
    Agreement, dated June 1, 2005 between Gryphon Gold Corporation and Donald
    Ranta                            
|10.16(1) | Gryphon Gold
    Corporation 2004 Stock Incentive Plan                                                                                    
|10.17(4) | Form of Escrow
    Agreement                                                                                                              
|10.18(2) | Form of Lock Up
    Agreement  Shareholders                                                                                              
|10.19(2) | Form of Lock Up
    Agreement for Executive Officers and Directors                                                                        
|10.20(2) | Warrant Agreement
    dated August 10, 2005, between Gryphon Gold Corporation and Computershare
    Trust Company, Inc. (Golden, Colorado)
|14.1(2)  | Code of Business
    Conduct and Ethics                                                                                                   
|16.1(2)  | Letter on Change
    of Certifying Accountant                                                                                             
|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                                                      
|99.1     | Risk Factors and
    Uncertainties                                                                                                        
|         |                                                                                                                                           
|(1)      | Previously filed on
    Form SB-2 on August 17, 2005.                                                                                     
|         |                                                                                                                                           
|(2)      | Previously filed on
    Form SB-2 on October 6, 2005.                                                                                     
|         |                                                                                                                                           
|(3)      | Previously filed on
    Form SB-2 on October 27, 2005.                                                                                    
|         |                                                                                                                                           
|(4)      | Previously filed on
    Form SB-2 on November 9, 2005                                                                                     
|         |                                                                                                                                           

26

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SIGNATURES

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

|                                            | 
|------------------------------------------- | 
|GRYPHON GOLD CORPORATION                   
|                                            | 
|                                            | 
|                                            | 
|By:    
    /s/ Anthony D.J. Ker           
|Anthony D.J. Ker                           
|Chief Executive Officer                    
|(On behalf of the registrant and as        
|principal executive officer)               
|                                            | 
|Date:    
    November 14, 2006            
|                                            | 
|                                            | 
|By:    
    /s/ Michael K. Longinotti      
|Michael K. Longinotti                      
|Chief Financial Officer                    
|(On behalf of the registrant and as        
|principal financial and accounting officer)
|                                            | 
|Date:    
    November 14, 2006            

---