---

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, 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: December
31, 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.)1130 WEST PENDER STREET,
      SUITE 810VANCOUVER, BC
      V6E 4A4(Address of principal executive offices)
      (zip code)


Issuers Telephone Number: (604) 261-2229

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 December 31, 2006 there were 42,129,645 shares of
common stock outstanding.

Transitional Small Business Disclosure Format (check one)

Yes ___   No X

---



GRYPHON GOLD CORPORATION
December 31, 2006

INDEX

|                               |                                                                  | Page No.(s)
|------------------------------ | ---------------------------------------------------------------- | -----------
|PART I - FINANCIAL INFORMATION |                                                                 
|                               |                                                                  |            
|Item 1.                        | Unaudited Interim Consolidated Financial
    Statements as of    | 2          
|                               | December 31, 2006                                                |            
|                               |                                                                  |            
|                               | Unaudited Consolidated Balance Sheet as of
    December 31, 2006 |            
|                               | and Audited Consolidated Balance Sheet as of
    March 31, 2006  | 2          
|                               |                                                                  |            
|                               | Unaudited Consolidated Statements of
    Operations for the      |            
|                               | three and nine months ended December 31, 2006
    and 2005       | 3          
|                               |                                                                  |            
|                               | Unaudited Consolidated Statements of
    Stockholders Equity    | 4          
|                               |                                                                  |            
|                               | Unaudited Consolidated Statements of Cash
    Flows for the      |            
|                               | three and nine months ended December 31, 2006
    and 2005       | 5          
|                               |                                                                  |            
|                               | Notes to Unaudited Interim Consolidated
    Financial Statements | 6          
|                               |                                                                  |            
|Item 2.                        | Plan of Operation                                                | 15         
|                               |                                                                  |            
|Item 3                         | Controls and Procedures                                          | 21         
|                               |                                                                  |            
|PART II - OTHER INFORMATION    |                                                                 
|                               |                                                                  |            
|Item 1.                        | Legal Proceedings                                                | 22         
|                               |                                                                  |            
|Item 2.                        | Unregistered Sales of Equity Securities and
    Use of Proceeds  | 22         
|                               |                                                                  |            
|Item 3.                        | Defaults Upon Senior Securities                                  | 23         
|                               |                                                                  |            
|Item 4.                        | Submission of Matters to a Vote of Security
    Holders          | 23         
|                               |                                                                  |            
|Item 5.                        | Other Information                                                | 24         
|                               |                                                                  |            
|Item 6.                        | Exhibits                                                         | 25         
|                               |                                                                  |            
|SIGNATURES                     | 27                                                              

i

---

Gryphon Gold Corporation 
(an exploration stage company)

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

|                                                 | As at        | As at      
|------------------------------------------------ | ------------ | -----------
|                                                 | December 31, | March 31,  
|                                                 | 2006         | 2006       
|                                                 | $            | $          
|                                                 | (Unaudited)  | (Audited)  
|                                                 |              |            
|ASSETS                                           |              |            
|Current                                          |              |            
|Cash                                             | 4,874,822    | 9,390,925  
|Accounts receivable                              | 54,576       | 81,250     
|Prepaid expenses                                 | 123,973      | 110,090    
|Total current assets                             | 5,053,371    | 9,582,265  
|Reclamation deposit [note 8]                     | 111,900      | 59,800     
|Equipment [note 3]                               | 186,826      | 152,946    
|Mineral property costs [note 4]                  | 1,920,371    | 1,898,207  
|                                                 | 7,272,468    | 11,693,218 
|                                                 |              |            
|LIABILITIES AND STOCKHOLDERS EQUITY             |              |            
|Current                                          |              |            
|Accounts payable and accrued liabilities         | 710,527      | 1,197,823  
|Current portion of capital lease [note 10]       | 35,217       | 10,058     
|Total current liabilities                        | 745,744      | 1,207,881  
|                                                 |              |            
|Capital lease [note 10]                          | 20,661       | 19,324     
|                                                 |              |            
|Commitments and contingencies [notes 8 &
    9]  |              |            
|                                                 |              |            
|Stockholders equity                             |              |            
|Common stock                                     | 42,130       | 40,295     
|Additional paid-in capital                       | 22,199,292   | 19,669,399 
|Deficit accumulated during the exploration stage | (15,735,359) | (9,243,681)
|Total stockholders equity                       | 6,506,063    | 10,466,013 
|                                                 | 7,272,468    | 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 |              | Nine months ended | (inception) to
|                                   | December 31,       | December 31, |                   | December 31,   | December 31, | December 31,  
|                                   | 2006               | 2005         |                   | 2006           | 2005         | 2006          
|                                   | $                  | $            |                   | $              | $            | $             
|                                   |                    |              |                   |                |              |               
|Exploration [note 5]               | 1,328,514          | 926,361      |                   | 3,649,732      | 1,764,827    | 8,758,147     
|Management salaries and consulting |                    |              |                   |                |              |               
|fees [note 6c]                     | 855,562            | 478,582      |                   | 1,746,164      | 919,525      | 4,356,522     
|General and administrative         | 240,219            | 120,549      |                   | 721,437        | 251,462      | 1,405,370     
|Legal and audit                    | 106,258            | 58,223       |                   | 271,017        | 247,694      | 901,499       
|Travel and accommodation           | 96,678             | 6,317        |                   | 282,117        | 102,474      | 646,662       
|Depreciation                       | 14,625             | 5,421        |                   | 40,107         | 9,565        | 72,169        
|Loss on disposal of equipment      | 19,135             |             |                   | 19,135         |             | 19,135        
|Foreign exchange (gain) loss       | 25,776             | (3,886)      |                   | 4,801          | 6,337        | (1,677)       
|Interest income                    | (66,303)           | (33,921)     |                   | (242,832)      | (113,050)    | (422,468)     
|Net loss for the period            | (2,620,464)        | (1,557,646)  |                   | (6,491,678)    | (3,188,834)  | (15,735,359)  
|                                   |                    |              |                   |                |              |               
|Basic and diluted loss per share   | $(0.06)            | $(0.05)      |                   | $(0.16)        | $(0.12)      |               
|                                   |                    |              |                   |                |              |               
|Basic and diluted weighted average |                    |              |                   |                |              |               
|number of common shares            |                    |              |                   |                |              |               
|outstanding                        | 41,703,926         | 28,472,370   |                   | 40,518,405     | 27,453,037   |               

See accompanying notes

3

---

Gryphon Gold Corporation 
(an exploration stage company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY 
(Stated in U.S. dollars) 
(Unaudited)

|                                      |              |         |             | Deficit      |            
|------------------------------------- | ------------ | ------- | ----------- | ------------ | -----------
|                                      |              |         |             | accumulated  |            
|                                      |              |         | Additional  | during the   |            
|                                      | Common stock | paid-in | exploration |             
|                                      | Shares       | Amount  | capital     | stage        | Total      
|                                      | #            | $       | $           | $            | $          
|                                      |              |         |             |              |            
|Balance, 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]]                           |             |        | 779,747     |             | 779,747    
|Exercise of warrants                  | 1,658,275    | 1,658   | 1,548,894   |             | 1,550,552  
|Exercise of options                   | 47,500       | 48      | 39,063      |             | 39,111     
|Net loss for the period               |             |        |            | (6,491,678)  | (6,491,678)
|Balance, December 31, 2006            | 42,129,645   | 42,130  | 22,199,292  | (15,735,359) | 6,506,063  

See accompanying notes

4

---

Gryphon Gold Corporation 
(an exploration stage company)

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

|                                    |                    |              |                   |                |              | Period from   
|----------------------------------- | ------------------ | ------------ | ----------------- | -------------- | ------------ | --------------
|                                    |                    |              |                   |                |              | April 24, 2003
|                                    | Three months ended |              | Nine months ended | (inception) to
|                                    | December 31,       | December 31, |                   | December 31,   | December 31, | December 31,  
|                                    | 2006               | 2005         |                   | 2006           | 2005         | 2006          
|                                    | $                  | $            |                   | $              | $            | $             
|                                    |                    |              |                   |                |              |               
|OPERATING ACTIVITIES                |                    |              |                   |                |              |               
|Net loss for the period             | (2,620,464)        | (1,557,646)  |                   | (6,491,678)    | (3,188,834)  | (15,735,359)  
|Items not involving cash:           |                    |              |                   |                |              |               
|Depreciation                        | 14,625             | 5,421        |                   | 40,107         | 9,565        | 72,169        
|Loss on disposal of
    equipment   | 19,135             |             |                   | 19,135         |             | 19,135        
|Fair value of
    options, warrants |                    |              |                   |                |              |               
|and other non-cash
    compensation | 529,683            | 7,560        |                   | 779,747        | 7,560        | 1,133,680     
|Changes in non-cash working         |                    |              |                   |                |              |               
|capital items:                      |                    |              |                   |                |              |               
|Amounts receivable                  | 5,325              | (36,129)     |                   | 26,674         | (47,924)     | (54,576)      
|Accounts payable and
    accrued    |                    |              |                   |                |              |               
|liabilities                         | 101,677            | 86,988       |                   | (506,431)      | 543,192      | 691,392       
|Prepaid expenses                    | (54,536)           | 707,300      |                   | (13,883)       | (25,658)     | (123,973)     
|Cash used in operating activities   | (2,004,555)        | (786,506)    |                   | (6,146,329)    | (2,702,099)  | (13,997,532)  
|                                    |                    |              |                   |                |              |               
|INVESTING ACTIVITIES                |                    |              |                   |                |              |               
|Reclamation deposit                 |                   | (28,400)     |                   | (52,100)       | (28,400)     | (111,900)     
|Purchase of equipment               | (17,802)           | (73,060)     |                   | (35,173)       | (113,513)    | (190,799)     
|Mineral property expenditures       |                   | (250,000)    |                   | (22,164)       | (849,865)    | (1,920,371)   
|Cash used by investing activities   | (17,802)           | (351,460)    |                   | (109,437)      | (991,778)    | (2,223,070)   
|                                    |                    |              |                   |                |              |               
|FINANCING ACTIVITIES                |                    |              |                   |                |              |               
|Capital lease principal payments    | (5,437)            |             |                   | (12,318)       |             | (12,318)      
|Cash received for shares            | 662,053            | 5,036,497    |                   | 1,755,514      | 8,956,262    | 23,317,278    
|Share issue costs                   |                   | (2,106,840)  |                   | (3,533)        | (2,167,128)  | (2,598,661)   
|Subscription receivables collected  |                   |             |                   |               | 54,360       | 389,125       
|Cash provided by financing          |                    |              |                   |                |              |               
|activities                          | 656,616            | 2,929,657    |                   | 1,739,663      | 6,843,494    | 21,095,424    
|                                    |                    |              |                   |                |              |               
|Increase (decrease) in cash during  |                    |              |                   |                |              |               
|the period                          | (1,365,741)        | 1,791,691    |                   | (4,516,103)    | 3,149,617    | 4,874,822     
|Cash, beginning of period           | 6,240,563          | 4,423,362    |                   | 9,390,925      | 3,065,436    |              
|Cash and cash equivalents, end of   |                    |              |                   |                |              |               
|year                                | 4,874,822          | 6,215,053    |                   | 4,874,822      | 6,215,053    | 4,874,822     

See accompanying notes

5

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Stated in U.S. dollars) 
(Unaudited)

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 stage company in the
process of exploring its mineral properties and has not yet determined whether
these properties contain reserves that are economically recoverable.

The recoverability of amounts shown for mineral property
interests in the Companys consolidated balance sheets are dependent upon the
existence of economically recoverable reserves, the ability of the Company to
arrange appropriate financing to complete the development of its properties, the
receipt of necessary permitting and upon achieving future profitable production
or receiving proceeds from the disposition of the properties. The timing of such
events occurring, if at all, is not yet determinable.

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. The Companys total employees are
relatively few in number and turnover is considered remote, therefore the
Company currently estimates forfeitures to be zero. Estimation of forfeitures
will be reviewed on a quarterly basis. As a result of adopting FAS 123(R) the
net loss for the quarter ending and
for the nine months ended December 31, 2006 increased by $490,567 and $679,941
respectively. Both basic and diluted loss per share for the three months and
nine months ended December 31, 2006 increased by $0.01 and $0.02, respectively.



---

Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Stated in U.S. dollars) 
(Unaudited)

3. EQUIPMENT

|                           | December 31, 2006
|-------------------------- | -----------------
|                           |                  
|                           | Cost             
|                           | $                
|                           |                  
|Office and lab equipment   | 183,813          
|Trucks under capital lease | 71,319           
|Total                      | 255,132          
|                           |                  
|                           | 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, December 31, 2006 | 1,920,371

7

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in U.S. dollars) 
(Unaudited)

5. EXPLORATION

|                     |                    |              |                   |                |              | Period from   
|-------------------- | ------------------ | ------------ | ----------------- | -------------- | ------------ | --------------
|                     |                    |              |                   |                |              | April 24, 2003
|                     | Three months ended |              | Nine months ended | (inception) to
|                     | December 31,       | December 31, |                   | December 31,   | December 31, | December 31,  
|                     | 2006               | 2005         |                   | 2006           | 2005         | 2006          
|                     | $                  | $            |                   | $              | $            | $             
|                     |                    |              |                   |                |              |               
|NEVADA, USA          |                    |              |                   |                |              |               
|Borealis property    |                    |              |                   |                |              |               
|Exploration :        |                    |              |                   |                |              |               
|Property maintenance | 96,035             | 242,593      |                   | 527,395        | 438,600      | 1,828,107     
|Project management   | 215,037            |             |                   | 490,281        | 8,393        | 1,098,506     
|Drilling             | 764,180            | 426,554      |                   | 1,872,538      | 808,782      | 3,842,681     
|Engineering          | 123,777            | 147,168      |                   | 275,646        | 215,381      | 723,195       
|Geological           | 109,950            | 41,612       |                   | 445,978        | 223,797      | 1,011,941     
|Metallurgy           | 19,535             | 68,434       |                   | 37,894         | 69,874       | 253,717       
|Total exploration    | 1,328,514          | 926,361      |                   | 3,649,732      | 1,764,827    | 8,758,147     

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.

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.

8

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in U.S. dollars) 
(Unaudited)

6. CAPITAL STOCK (contd.)

[b]   Warrants:

The following table contains information with respect
to all warrants:

| |                                                          | Number of Warrants | Fair Value of Warrants
| | -------------------------------------------------------- | ------------------ | ----------------------
| |                                                          | #                  | $                     
| |                                                          |                    |                       
| | Warrants outstanding, March 31, 2004                     |                   |                      
| | Issued for:                                              |                    |                       
| | Private placements                                       | 3,407,981          |                      
| | Agents compensation                                     | 141,008            | 45,100                
| | 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                                                | (1,658,275)        |                      
| | Expired                                                  | (12,157,410)       |                      
| | Warrants outstanding, December 31, 2006                  | 3,353,508          | 291,840               

The following table summarizes information about
warrants outstanding and exercisable as at December 31, 2006:

| |           | Warrants Outstanding and Exercisable |               
| | --------- | ------------------------------------ | --------------
| |           |                                      |               
| |           | Average Remaining Life               |               
| | Warrants  | Years                                | Exercise Price
| | #         | #                                    |               
| |           |                                      |               
| | 280,500   | 0.2                                  | Cdn$1.40      
| | 2,737,500 | 0.2                                  | Cdn$1.65      
| | 130,000   | 0.3                                  | $0.65         
| | 64,500    | 0.5                                  | Cdn$1.82      
| | 141,008   | 1.1                                  | $0.65         
| | 3,353,508 | 0.2                                  | $1.01*        

* Based on the December 31, 2006 exchange rate of
Cdn$1.1654 equals US$1.

9

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in U.S. dollars) 
(Unaudited)

6. CAPITAL STOCK (contd.)

[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. 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 and 95,000 options were granted under the previous
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.

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 that were 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.

On October 31, 2006, the Board of Directors approved
the grant of 50,000 stock options to an outside consulting firm who are
providing certain investor relations services to the company. The options vest
over the next 15 months and are exercisable for 5 years from the date of grant
at a price of Cdn$1.34 per share.

The Company recognizes stock-based
compensation expense over the requisite service period of the individual grants,
which generally equals the vesting period. SFAS 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Stock-based
compensation is expensed on a straight-line basis over the requisite service
period.

10

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in U.S. dollars) 
(Unaudited)

6. CAPITAL STOCK (contd.)

For the three months and nine months ended December
31, 2006, the Company recorded total stock-based compensation expense related to
stock options and restricted stock units as follows:

| |                                | Three Months | Three Months | Nine Months  | Nine Months 
| | ------------------------------ | ------------ | ------------ | ------------ | ------------
| |                                | Ended        | Ended        | Ended        | Ended       
| |                                | December 31, | December 31, | December 31, | December 31,
| |                                | 2006         | 2005         | 2006         | 2005        
| | Management salaries            | 490,567      |             | 679,941      |            
| | Consulting fees                | 39,116       | 7,560        | 99,806       | 7,560       
| | Total stock-based compensation | 529,683      | 7,560        | 779,747      | 7,560       

Stock option activity

The following table summarizes the Companys stock
option activity for the nine months ended December 31, 2006:

| |                                             | Options  
| | ------------------------------------------- | ---------
| | Outstanding at April 1, 2006                | 2,879,000
| | Granted                                     | 2,060,000
| | Exercised                                   | (47,500) 
| | Forfeited                                   | (144,000)
| | Outstanding at December 31, 2006            | 4,747,500
| | Vested and exercisable at December 31, 2006 | 2,587,500

The following table summarizes information about
stock options outstanding as at December 31, 2006:

| | Stock Options Outstanding and Exercisable
| | -----------------------------------------
| |                                          
| | Stock Options                            
| | Outstanding                              
| |                                          
| | 2,262,500                                
| | 215,000                                  
| | 90,000                                   
| | 50,000                                   
| | 255,000                                  
| | 1,715,000                                
| | 30,000                                   
| | 80,000                                   
| | 50,000                                   
| | 4,747,500                                

* Based on the December 31, 2006 exchange rate of
Cdn$1.1654 equals US$1.



---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in U.S. dollars) 
(Unaudited)

6. CAPITAL STOCK (contd.)

Valuation assumptions

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

| |                             | 2007          | 2006        
| | --------------------------- | ------------- | ------------
| |                             |               |             
| | Dividend yield              | 0%            | 0%          
| | Expected
    volatility     | 55%           | 53% - 70%   
| | Risk free
    interest rate | 4.54% - 5.21% | 3.38% - 4.7%
| | Expected lives              | 3 years       | 3 years     

The risk-free interest rate is determined based on
the rate at the time of grant for US government zero-coupon bonds for a 3 year
term on the grant date which is a term equal to the estimated life of the
option. Dividend yield is based on the stock options exercise price and
expected annual dividend rate at the time of grant. Changes in these assumptions
can materially affect the fair value estimate and therefore it is managements
view that the existing models do not necessarily provide a single reliable
measure of the fair value of the Companys equity instruments.

The Black-Scholes option-pricing
model used by the Company to calculate option values was developed to estimate
the fair value of freely tradeable, fully transferable options without vesting
restrictions, which significantly differ from the Companys stock option awards.
Options pricing models require the input of highly subjective assumptions,
including future stock price volatility and expected time until exercise, which
greatly affect the calculated values.

[d]   Restricted stock units:

On April 4, 2006, the Board of
Directors approved the grant of 8,000 restricted stock units (RSU) to an
officer of the company. The RSUs will vest over 12 to 24 months from the date
of grant and once vested will entitle the grantee to 8,000 common shares in the
Company.

On December 12, 2006, the Board of
Directors approved the grant of 15,000 restricted stock units (RSU) to an
employee of the company. The RSUs will vest over 12 months from the date of
grant and once vested will entitle the grantee to 15,000 common shares in the
Company.

The following table summarizes information about
restricted stock units outstanding as at December 31, 2006:

|                                 |        |                      
|-------------------------------- | ------ | ---------------------
|                                 | RSUs  | Weighted Average Fair
|                                 |        | Value at Grant Date  
|Outstanding at April 1, 2006     |       |                     
|Issued April 18,
    2006        | 8,000  | Cdn$1.37             
|Issued December 12, 2006         | 15,000 | Cdn$0.84             
|Outstanding at December 31, 2006 | 23,000 | $0.88                

12

---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in U.S. dollars) 
(Unaudited)



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 nine months ended December 31, 2006, the Company
paid consulting fees to a non-independent director in the amount of $127,303
[December 31, 2005 - $70,484] for services rendered on the exploration of the
Borealis property.

8. RECLAMATION DEPOSIT

During the nine months ended December 31, 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
December 31, 2006, the Company recorded a reclamation liability of $5,600
(December 31, 2005  $10,000) representing future obligations related to its
drilling activities completed to December 31, 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 & CONTINGENCIES

[a]   A
portion of the Borealis Property is subject to a mining lease. The Company is
required to make monthly lease payments of $9,094, 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 Vancouver, BC for a 3 year term. The following are rental lease
commitments in relation to the office lease:

| |      | $     
| | ---- | ------
| |      |       
| | 2007 | 8,537 
| | 2008 | 34,149
| | 2009 | 14,229

[c]  
During December 2006, the Company closed its Lakewood, Colorado office and
terminated certain office staff. Estimated closure costs in the amount of
$96,964, which includes various lease buyouts, were recorded during the quarter.

[d]   On
January 18, 2007, the Company was served with a motion to compel arbitration
regarding the nonpayment of severance totaling $228,511 to the former Chief
Operating Officer. The Company believes the claim for severance is without merit
and is investigating all legal options and intends to vigorously defend itself.



---



Gryphon Gold Corporation 
(an exploration stage company)

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
(Stated in U.S. dollars) 
(Unaudited)

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 during each fiscal year:

|     | $     
|---- | ------
|     |       
|2007 | 6,412 
|2008 | 32,158
|2009 | 17,308

11. SUBSEQUENT EVENTS

[a]   On
January 10, 2007, the Board of Directors approved the grant of 240,000 stock
options and 650,000 restricted stock units to officers, employees, directors and
a consulting firm of the Company. The options vest over 6  12 months and are
exercisable for 5 years from the date of grant at a price of Cdn$0.81 per share.
The restricted stock units vest over 3  18 months with 100,000 units vesting at
the date of grant.

[b]   On
February 12, 2007, the Company completed a private placement of 5,000,000 units
at Cdn$0.90 for net proceeds of approximately C$4,390,000. Each unit consisted
of one common share and one series E warrant. Each series E warrant entitles the
holder to purchase a common share at a price of Cdn$1.10 per share in year one
and Cdn$1.35 per share in year two until February 9, 2009. 85,050 compensation
warrants (series F) were issued to agents and are exercisable until February 9,
2008 at a price of Cdn$0.90 per share. The Company has a right to force warrant
holders to exercise warrants, if the common share price of the Company remains
equal to or greater than, Cdn$1.85 per common share, for a period of twenty
consecutive days. The proceeds will be used to continue exploration and
development of the Borealis gold property.

14

---



Item 2. Plan of Operation.

Overview

Gryphon Gold Corporation was
incorporated in Nevada on April 24, 2003 and has corporate offices in Hawthorne,
Nevada 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 our acquisition of the interest held by 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
$9,094, 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 the heading
"Borealis Property". We have also entered into lease arrangements for offices in
Vancouver, British Columbia and Hawthorne, Nevada and recently we terminated our
office lease in Lakewood, Colorado.

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.

On November 30, 2006, our board of
directors concluded that we would not proceed with construction and production
financing of the Borealis heap leach mine. The feed for the proposed mine was
remnants from the previously mined open pits, and heap and dump material
associated with the historical mining operations. The decision not to proceed
was made due to the impact of certain technical corrections to the previously
announced Feasibility Study and related NI 43-101 Technical Report, dated August
15, 2006. The technical corrections reduced the anticipated quantity of
recoverable gold and silver over the project life, and resulted in a marginal
projected return on investment. In light of the decision not to proceed with
development of a mine, in December 2006, we closed our Denver office and
terminated operations and engineering staff, including our Chief Operating
Officer Mr. Allen Gordon and Mr. Matt Bender, our Vice President of Borealis
Project Development. Mr. Steven Craig, our Vice President of Exploration, was
relocated to Nevada. As of December 1, 2006, our Chief Financial Officer, Mr.
Michael Longinotti commenced working on a part-time basis. Under this agreement,
his time spent in the office was reduced by 50% along with his salary.



---

On January 11, 2007, we announced the
results of the revised CIM compliant resource estimate in accordance with NI
43-101 which had been compiled by Mr. Alan C. Noble, P.E. of Ore Reserves
Engineering. The results of the report were independently reviewed by AMEC to
insure the methodology and assumptions used in the calculations were consistent
with industry standards. The resource estimate includes the results of
exploration drilling through February 28, 2006. The measured, indicated and
inferred gold resource reported in January 2007 is:

|Date              | Measured | Indicated | Inferred
|----------------- | -------- | --------- | --------
|                  | Tons     | Grade     | Ozs of  
|                  | (000s)  | opt       | Gold    
|January, 11, 2007 | 16,360   | 0.031     | 503,700 

The updated report confirmed a total gold resource
(measured, indicated and inferred) of 1,822,700 ounces contained in the Borealis
property.

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.

We expect to report a CIM compliant resource estimate
in accordance with NI 43-101 by April 2007. This report will include the effect
of drill results from March 2006 to date.

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.

In December 2006, we completed the
geophysical survey, which commenced in September 2006. The positive geophysical
results obtained from induced polarization (IP) surveys identified multiple
chargeability and resisitivity anomalies coincident with aeromagnetic lows which
extended several kilometers (km) to the north and northwest of the Graben
sulphide deposit. The IP surveys identified two new mineralized exploration
targets located under the pediments 3.0 km (Central Pediments) and 5.3 km
(Western Pediment) northwest of the Graben sulphide deposit.

During the remainder of fiscal 2007 and into fiscal
2008, we plan to continue extension drilling, focused on the expansion of the
Graben deposit and exploration drilling for a new gold deposit within the two
newly identified potentially gold-bearing hydrothermal systems in the pediments.
This 72-hole, $4.5 million budgeted drilling program consists of a series of
Graben deposit expansion drilling and extension drilling north of the successful
G3  G13 fence of holes. The drilling of the Graben deposit will alternate with
follow up exploration drilling in the Central and Western Pediments where 4
holes have intersected two distinct hydrothermal systems hidden beneath the
pediments. The following activities are planned for the duration of fiscal 2007:

- 





---



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 the 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), Share-Based Payment ("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 and restricted
stock units 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 significant 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 December 31, 2006 compared to three months
ended December 31, 2005

For the three months ended December
31, 2006 we had a net loss of $2,620,464 or $0.06 per share compared to a net
loss of $1,557,646 or $0.05 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 December 31, 2006 were $1,328,514 or 51% of our total expenses
compared to $926,361 or 59% 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 November 2006.
Management salaries and consulting
fees in the quarter ended December 31, 2006 were $855,562 compared to $478,582
incurred in the quarter ended December 31, 2005 as staffing increased and the
company adopted the fair value recognition provisions of SFAS No. 123(R),
"Stock-Based Payment", which resulted in additional non-cash compensation
expense of $490,567 to be recognized in the quarter. Salaries and consulting
fees are expected to decrease in future periods as we have reduced staff due to
postponing the development of our heap leach mine on the Borealis property.
Legal and audit fees for the period increased to $106,258 from $58,223 for the
three months ended December 31, 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 December 31, 2006 was $96,678,
compared to $6,317 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
$240,219, compared to $120,549 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. For the
quarter ended December 31, 2006 we have recorded $96,964 in anticipated closing
costs of our Lakewood, Colorado office, this amount was included in general and
administrative expenses. Travel and general and administrative expenses are
likely to decrease due to the closure of our Lakewood, Colorado office. Interest
income earned on cash deposits was $66,303 for the quarter ended December 31,
2006, compared to $33,921 in the prior year quarter due to higher cash balances
held on average through the current quarter versus the prior quarter.
Nine months ended December 31, 2006 compared to Nine months
ended December 31, 2005

For the nine month period ended
December 31, 2006 we incurred a net loss of $6,491,678 or $0.16 per share
compared to a net loss of $3,188,834 or $0.12 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 nine
month period ended December 31, 2006 were $3,649,732 or 56% of our total
expenses compared to $1,764,827 or 55% 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 November 2006.
19

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Management salaries and consulting
fees in the nine months ended December 31, 2006 were $1,746,164 or 27% of our
total expenses compared to $919,525 or 29% 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), additional stock-based non-cash
compensation expense of $679,941 has been recognized. It is expected that
salaries and consulting fees will decrease in future periods as we have reduced
staff due to the postponing mine development at our heap leach mine on the
Borealis property. Legal and audit fees for the nine month period increased to
$271,017 from $247,694 incurred in the prior years comparable period. The higher
costs reported in the nine months ended December 31, 2006 are associated to the
legal and auditing costs associated to maintaining a public company that reports
in both the US and Canada. Travel and accommodation during the nine months ended
December 31, 2006 was $282,117, compared to $102,474 reported in prior year nine
month period ended December 31, 2005. The increase is due to greater corporate
travel associated with investor relations and property site visits. General and
administrative expenses of $721,437, compared to $251,462 in the prior years
comparable period. The increase is due to higher spending on investor relations,
costs related to open our Lakewood, Colorado office during fiscal 2006, which
was closed in December 2006, office support and insurance. Travel, general and
administrative expenses will likely decrease due to the closure of our Lakewood,
Colorado office and the reduction of staff due to the closure this will be
somewhat offset with the continuing activity to support the exploration 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
$242,832 for the nine months ended December 31, 2006, compared to $113,050 in
the prior year comparable period due to significantly higher average cash
balances during the nine month period.
Liquidity and Capital Resources

Our principal source of liquidity is
cash that is raised by way of sale of commons shares from treasury.
At December 31, 2006, we had working
capital of $4,307,627, and we had current assets consisting of $4,874,822 in
cash, $54,576 in accounts receivable and $123,973 in prepaid expenses. We had
$745,744 in current liabilities at December 31, 2006, consisting of $710,527 in
accounts payable and accrued liabilities and $35,217 in current portion of
capital leases.
On February 12, 2007, we completed a
private placement of 5,000,000 units at Cdn$0.90 for net proceeds of
approximately C$4,390,000. Each unit consisted of one common share and one
series E warrant. Each series E warrant entitles the holder to purchase a common
share at a price of Cdn$1.10 per share in year one and Cdn$1.35 per share in
year two until February 9, 2009. 85,050 compensation warrants (series F) were
issued to agents and are exercisable until February 9, 2008 at a price of
Cdn$0.90 per share. We have a right to force warrant holders to exercise
warrants, if the common share price of the Company remains equal to or greater
than, Cdn$1.85 per common share, for a period of twenty consecutive days. With
the receipt of these funds we believe we have sufficient working capital to fund
our drilling program, costs related to lease and claim maintenance fees and
general and administrative expenses for the next 12 months.
Summary of any product research and
development that the company will perform for the term of the plan.
We do not anticipate performing any product research and
development under our plan of operation.
Expected purchase or sale of plant and significant equipment.

We do not anticipate any significant equipment purchases or
sales.
Significant changes in number of employees.

We have reduced our staff by 3 employees to the current level
of 9 employees. We do not expect a significant change in this number.
Off-Balance Sheet Arrangements

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

20

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Contractual Obligations

We make advance royalty payments of $9,094 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
December 31, 2006, we had the following non-cancelable contractual obligations:

|                                   | Payments Due by Period
|---------------------------------- | ----------------------
|                                   | Total                 
|                                   |                       
|Capital Lease
    obligations      | $62,183               
|Operating Lease
    Obligation (1) | 59,916                
|                                   |                       
|Total                              | $122,099              

|                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)The capitalized leases is for
    the purchase of two trucks.                                                                                                         
|(2)Obligation for the rental of
    office space in Vancouver BC with an initial 3 year term, terminating August
    2008 and payments of approximately $2,839 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 and determined that we had a deficiency in
monitoring and evaluating independent engineering reports. This deficiency
resulted in an error in reporting mineral property resources during the third
calendar quarter of 2006. These errors were discovered during an internal audit
of the resource calculations. Based on the evaluation, the Company implemented
additional disclosure and monitoring procedures to ensure quality assurance and
to internally audit resource and other reports of outside consultants. After
implementation of the new policy, our principal executive officer and principal
financial officer believe that our disclosure controls and procedures are
effective and that our disclosure controls and procedures are adequately
designed 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 believe 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.

21

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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

On January 18, 2007, the Company was
served with a motion to compel arbitration regarding the termination of its
former Chief Operating Officer, Mr. Allen Gordon pursuant to his executive
compensation agreement (ECA). Mr. Gordon claims breach of contract under his ECA by failing to make severance payments of $228,511. The Company believes the
claim for $228,511 is without merit and is investigating all legal options and
intends to vigorously defend itself.

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.

22

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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

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.

On October 31, 2006, the Board of
Directors approved the grant of 50,000 stock options to an outside consulting
firm who are providing certain investor relations services to the company. The
options vest over the next 15 months and are exercisable for 5 years from the
date of grant at a price of Cdn$1.34 per share. The options were granted
pursuant to an exemption available under Section 4(2) of the Securities Act.

On December 12, 2006, the Board of
Directors approved the grant of 15,000 restricted stock units (RSU) to an
employee of the company. The RSUs will vest over 12 months from the date of
grant and once vested will entitle the grantee 15,000 common shares in the
company.

Item 3. Defaults Upon Senior Securities.

None.

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

No matters were submitted to a vote
of the shareholders during the quarter ended December 31, 2006.

Item 5. Other Information.

None.

23

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|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 andAlbert Matter                                                                                                                                                         

24

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|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

25

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SIGNATURES

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

|By:                                         | /s/ Anthony D.J. Ker     
|------------------------------------------- | -------------------------
|Anthony D.J. Ker                           
|Chief Executive Officer                    
|(On behalf of the registrant and as        
|principal executive officer)               
|                                            |                          
|Date:                                       | February 14, 2007        
|                                            |                          
|                                            |                          
|By:                                         | /s/ Michael K. Longinotti
|Michael K. Longinotti                      
|Chief Financial Officer                    
|(On behalf of the registrant and as        
|principal financial and accounting officer)
|                                            |                          
|Date:                                       | February 14, 2007        

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