---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

|[X]   | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 
|----- | ---------------------------------------------------------------------------------------------
|      |                                                                                              
|      | For the quarterly period ended June 30,
      2010                                           
|      |                                                                                              
|      | OR                                                                                           
|      |                                                                                              
|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the transition period from _____ to ______



|Commission
      file number: 333-127635              
|------------------------------------------------------
|                                                      
|                                                      
|GRYPHON GOLD CORPORATION                              
|(Exact Name of Registrant as Specified in its Charter)

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

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

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

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

[ X ] Yes             No
[    ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).

[    ] Yes             
No [     ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check
one):

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

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

[   ] Yes No [ X ]

Number of common shares outstanding at August 13, 2010:
87,935,132

---

GRYPHON GOLD CORPORATIONJune 30, 2010

INDEX

|                                     |                                                                                                                                                                                | **Page
      No.(s)**
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------
|PART I - FINANCIAL
      INFORMATION |                                                                                                                                                                               
|                                     |                                                                                                                                                                               
|Item 1.                              | Financial Statements.                                                                                                                                                          |                      
|                                     |                                                                                                                                                                                |                      
|                                     | Unaudited Consolidated Balance
      Sheet as of June 30, 2010 and Audited Consolidated Balance Sheet as of
      March 31, 2010                                               | 2                    
|                                     |                                                                                                                                                                                |                      
|                                     | Unaudited Consolidated
      Statements of Operations for the Three months ended June 30, 2010 and 2009
      and the period of inception from April 24, 2003 to June 30, 2010 | 3                    
|                                     |                                                                                                                                                                                |                      
|                                     | Unaudited Consolidated
      Statements of Stockholders Equity for the period of inception from April
      24, 2003 to June 30, 2010                                         | 4                    
|                                     |                                                                                                                                                                                |                      
|                                     | Unaudited Consolidated
      Statements of Cash Flows for the three months ended June 30, 2010 and 2009
      and the period of inception from April 24, 2003 to June 30, 2010 | 5                    
|                                     |                                                                                                                                                                                |                      
|                                     | Notes to Unaudited Interim
      Consolidated Financial Statements                                                                                                             | 6                    
|                                     |                                                                                                                                                                                |                      
|Item 2.                              | Managements Discussion and
      Analysis of Financial Condition and Results of Operation.                                                                                    | 19                   
|                                     |                                                                                                                                                                                |                      
|Item 3.                              | Quantitative and Qualitative
      Disclosures About Market Risk.                                                                                                              | 29                   
|                                     |                                                                                                                                                                                |                      
|Item 4.                              | Controls and Procedures.                                                                                                                                                       | 29                   
|                                     |                                                                                                                                                                                |                      
|PART II - OTHER
      INFORMATION    |                                                                                                                                                                               
|                                     |                                                                                                                                                                               
|Item 1.                              | Legal Proceedings.                                                                                                                                                             | 31                   
|                                     |                                                                                                                                                                                |                      
|Item 1A.                             | Risk Factors.                                                                                                                                                                  | 31                   
|                                     |                                                                                                                                                                                |                      
|Item 2.                              | Unregistered Sales of Equity
      Securities and Use of Proceeds.                                                                                                             | 33                   
|                                     |                                                                                                                                                                                |                      
|Item 3.                              | Defaults Upon Senior
      Securities.                                                                                                                                         | 33                   
|                                     |                                                                                                                                                                                |                      
|Item 4.                              | [REMOVED AND RESERVED]                                                                                                                                                         | 33                   
|                                     |                                                                                                                                                                                |                      
|Item 5.                              | Other Information.                                                                                                                                                             | 33                   
|                                     |                                                                                                                                                                                |                      
|Item 6.                              | Exhibits.                                                                                                                                                                      | 34                   
|                                     |                                                                                                                                                                                |                      
|SIGNATURES                           |                                                                                                                                                                                | 36                   

i

---

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Gryphon Gold Corporation(An exploration stage
company) Consolidated Balance Sheets(Unaudited) (Stated in U.S.
dollars)

|                                                                                        |  | As at       |   |  | As at       |  
|--------------------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                                        |  | June 30,    |   |  | March 31,   |  
|                                                                                        |  | 2010        |   |  | 2010        |  
|                                                                                        |  | **$**       |   |  | $           |  
|                                                                                        |  |             |   |  |             |  
|ASSETS                                                                                  |  |             |   |  |             |  
|Current                                                                                 |  |             |   |  |             |  
|Cash                                                                                    |  | 2,138,151   |   |  | 937,056     |  
|Held for trading securities                                                             |  | 45,040      |   |  | 191,966     |  
|Accounts receivable                                                                     |  | 24,073      |   |  | 20,183      |  
|Accounts receivable  option agreement [note 3]                                         |  | 88,355      |   |  | 16,230      |  
|Current portion of note receivable [note
      4]                                       |  | 10,730      |   |  | 11,441      |  
|Prepaid expenses                                                                        |  | 96,450      |   |  | 30,980      |  
|Assets held for sale at discontinued operations [notes
      5]                         |  | -           |   |  | 3,788,691   |  
|Total Current
      Assets                                                              |  | 2,402,799   |   |  | 4,996,547   |  
|Equipment [note 6]                                                                      |  | 121,529     |   |  | 90,286      |  
|Mineral properties [note 7]                                                             |  | 1,841,912   |   |  | 1,930,909   |  
|Other assets [note 9]                                                                   |  | 750,442     |   |  | 721,679     |  
|Non-current
      portion of note receivable [note 4]                                   |  | -           |   |  | 2,131       |  
|Total Assets                                                                            |  | 5,116,682   |   |  | 7,741,552   |  
|                                                                                        |  |             |   |  |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                    |  |             |   |  |             |  
|Current                                                                                 |  |             |   |  |             |  
|Accounts payable and accrued liabilities                                                |  | 476,037     |   |  | 832,977     |  
|Share consideration payable to former owners of
      discontinued operations [note 10] |  | 270,000     |   |  | 270,000     |  
|Liabilities held for resale and in discontinued operations
      [notes 5 & 10]         |  | -           |   |  | 2,170,223   |  
|Total current
      liabilities                                                         |  | 746,037     |   |  | 3,273,200   |  
|                                                                                        |  |             |   |  |             |  
|Commitments & contingencies [note 13]                                                   |  |             |   |  |             |  
|                                                                                        |  |             |   |  |             |  
|Stockholders' equity                                                                    |  |             |   |  |             |  
|Common stock                                                                            |  | 87,935      |   |  | 86,034      |  
|Additional paid-in capital                                                              |  | 39,878,213  |   |  | 39,585,228  |  
|Deficit accumulated during the exploration stage                                        |  | (35,595,503 | ) |  | (35,202,910 | )
|Total
      Stockholders' equity                                                        |  | 4,370,645   |   |  | 4,468,352   |  
|Total liabilities & stockholders' equity                                                |  | 5,116,682   |   |  | 7,741,552   |  
|See
      Note 1  Nature of Operations and Going Concern Uncertainty                   |  |             |   |  |             |  

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

2

---

Gryphon Gold Corporation(An exploration stage
company) Consolidated Statements of Operations(Unaudited)
(Stated in US Dollars)

|                                                                             |  | Three months |   |  | Three months |   |  | Period from    |  
|---------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | - |  | -------------- | -
|                                                                             |  | ended        |   |  | ended        |   |  | April 24, 2003 |  
|                                                                             |  | June 30,     |   |  | June 30,     |   |  | (inception) to |  
|                                                                             |  | 2010         |   |  | 2009         |   |  | June 30, 2010  |  
|                                                                             |  | **$**        |   |  | **$**        |   |  | **$**          |  
|                                                                             |  |              |   |  |              |   |  |                |  
|Exploration [note 8]                                                         |  | 385,639      |   |  | 274,878      |   |  | 16,987,641     |  
|Management salaries and consulting fees                                      |  | 313,928      |   |  | 95,764       |   |  | 9,677,297      |  
|General and administrative                                                   |  | 139,833      |   |  | 55,234       |   |  | 3,898,362      |  
|Legal and audit                                                              |  | 57,413       |   |  | 22,688       |   |  | 2,162,851      |  
|Travel and accommodation                                                     |  | 33,538       |   |  | 4,914        |   |  | 1,178,936      |  
|Depreciation & amortization                                                  |  | 13,409       |   |  | 11,153       |   |  | 267,039        |  
|Loss (gain) on disposal of equipment                                         |  | -            |   |  | (18,928      | ) |  | 5,624          |  
|Foreign exchange (gain) loss                                                 |  | 10,932       |   |  | (1,475       | ) |  | 18,104         |  
|Gain on change in liability of warrants
      [note 11[b]]                   |  | -            |   |  | (86,220      | ) |  | (2,676,000     | )
|Interest income                                                              |  | (100         | ) |  | (114         | ) |  | (739,098       | )
|Interest expense                                                             |  | 593          |   |  | 90           |   |  | 8,750          |  
|Unrealized (gain) loss on securities                                         |  | 92,176       |   |  | (72,846      | ) |  | (10,035        | )
|Realized (gain) loss on sale of securities                                   |  | (19,060      | ) |  | 13,484       |   |  | 133,662        |  
|Loss for the period from continuing operations                               |  | (1,028,301   | ) |  | (298,622     | ) |  | (30,913,133    | )
|                                                                             |  |              |   |  |              |   |  |                |  
|Discontinued operations:                                                     |  |              |   |  |              |   |  |                |  
|Loss from discontinued operations                                            |  | (18,241      | ) |  | (97,094      | ) |  | (5,336,319     | )
|Gain on sale of
      discontinued operations                                |  | 653,949      |   |  | -            |   |  | 653,949        |  
|Income (loss) from discontinued operations                                   |  | 635,708      |   |  | (97,094      | ) |  | (4,682,370     | )
|                                                                             |  |              |   |  |              |   |  |                |  
|Net loss for the period                                                      |  | (392,593     | ) |  | (395,716     | ) |  | (35,595,503    | )
|                                                                             |  |              |   |  |              |   |  |                |  
|Basic and diluted income (loss) per share:                                   |  |              |   |  |              |   |  |                |  
|Loss from continuing operations                                              |  | (0.01        | ) |  | (0.01        | ) |  |                |  
|Income from discontinuing operations                                         |  | 0.01         |   |  | Nil          |   |  |                |  
|Total loss per share                                                         |  | Nil          |   |  | (0.01        | ) |  |                |  
|                                                                             |  |              |   |  |              |   |  |                |  
|Basic and diluted
      weighted average number of common shares outstanding |  | 86,646,541   |   |  | 62,070,815   |   |  |                |  

See Note 1  Nature of Operations and Going Concern
Uncertainty

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

3

---

Gryphon Gold Corporation(An exploration stage
company) Consolidated Statements of Stockholders Equity(Unaudited) (Stated in US dollars)

Deficit**accumulated**Additional
    
    
    during theCommon stock
    
    
    paid-in
    
    
    explorationShares
    
    
    Amount
    
    
    capital
    
    
    stage
    
    
    Total#
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Balance, inception April 24, 2003Shares issued:For private placements
    
    47,812,870
    
    
    47,813
    
    
    28,078,256
    
    
    
    
    
    28,126,069Share issue costs
    
    
    
    
    
    
    
    (1,273,087
    )
    
    
    
    
    (1,273,087
    )For mineral properties
    
    4,500,000
    
    
    4,500
    
    
    3,444,918
    
    
    
    
    
    3,449,418Initial Public Offering (IPO)
    
    6,900,000
    
    
    6,900
    
    
    5,029,597
    
    
    
    
    
    5,036,497Share issue costs (IPO)
    
    
    
    
    
    
    
    (2,241,940
    )
    
    
    
    
    (2,241,940
    )Compensation component of shares issued
    
    
    
    
    
    
    
    226,000
    
    
    
    
    
    226,000Fair value of agents warrants issued on private placements
      [note 11[b]]
    
    
    
    
    
    
    
    222,627
    
    
    
    
    
    222,627Fair value of options granted to
      consultants [note 11[c]]
    
    
    
    
    
    
    
    49,558
    
    
    
    
    
    49,558Fair value of underwriters compensation warrants on IPO
      [note 11[b]]
    
    
    
    
    
    
    
    135,100
    
    
    
    
    
    135,100Fair value of options granted [note
      11[c]]
    
    
    
    
    
    
    
    2,274,508
    
    
    
    
    
    2,774,508Fair value of vested stock grants
    
    429,250
    
    
    428
    
    
    520,379
    
    
    
    
    
    520,807Fair value of stock granted [note
      11[d]]
    
    221,670
    
    
    222
    
    
    21,415
    
    
    
    
    
    21,637Exercise of warrants
    
    1,985,775
    
    
    1,986
    
    
    1,827,349
    
    
    
    
    
    1,829,335Exercise of options
    
    107,500
    
    
    108
    
    
    83,066
    
    
    
    
    
    83,174Net loss since
      inception
    
    
    
    
    
    
    
    
    
    
    (35,774,819
    )
    
    (35,774,819
    )Balance, March 31, 2009
    
    61,957,065
    
    
    61,957
    
    
    38,397,746
    
    
    (35,774,819
    )
    
    2,684,884Shares issued:For private placements
    
    10,897,353
    
    
    10,897
    
    
    1,751,804
    
    
    
    
    
    1,762,701Share issue costs
    
    
    
    
    
    
    
    (172,379
    )
    
    
    
    
    (172,379
    )Fair value of options granted [note
      11[c]]
    
    
    
    
    
    
    
    166,088
    
    
    
    
    
    166,088Fair value of vested stock grants [notes 11 [a]
      &[d]]
    
    112,500
    
    
    113
    
    
    
    
    
    
    
    
    113Exercise of warrants
    
    7,161,500
    
    
    7,162
    
    
    1,453,204
    
    
    
    
    
    1,460,366Settlement of debt [notes 10 & 11[a]]
    
    5,905,356
    
    
    5,905
    
    
    964,095
    
    
    
    
    
    970,000Reclassification of warrants to liability
      FASB ASC 815-40-55 [note 2]
    
    
    
    
    
    
    
    (2,975,330
    )
    
    2,888,130
    
    
    (87,200
    )Net loss for the
      period
    
    
    
    
    
    
    
    
    
    
    (2,316,221
    )
    
    (2,316,221
    )Balance, March 31, 2010
    
    86,033,774
    
    
    86,034
    
    
    39,585,228
    
    
    (35,202,910
    )
    
    4,468,352Shares issued:For private placements
    
    1,464,429
    
    
    1,464
    
    
    198,536
    
    
    
    
    
    200,000Share issue costs
    
    
    
    
    
    
    
    (5,252
    )
    
    
    
    
    (5,252
    )Fair value of options granted [note
      11[c]]
    
    
    
    
    
    
    
    40,139
    
    
    
    
    
    40,139Settlement of accounts payable [note 11[a]]
    
    436,929
    
    
    437
    
    
    59,563
    
    
    
    
    
    60,000Net loss for the period
    
    
    
    
    
    
    
    
    
    
    (392,593
    )
    
    (392,593
    )Balance, June
      30, 2010
    
    87,935,132
    
    
    87,935
    
    
    39,878,213
    
    
    (35,595,503
    )
    
    4,370,645


See Note 1  Nature of Operations and Going Concern
Uncertainty

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

4

---

Gryphon Gold Corporation(An exploration stage
company) Consolidated Statements of Cash Flows(Unaudited)
(Stated in US dollars)

|                                                                                   |  | Three months |   |  | Three months |   |  | Period from April   |  
|---------------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | - |  | ------------------- | -
|                                                                                   |  | ended        |   |  | ended        |   |  | 24, 2003            |  
|                                                                                   |  | June 30,     |   |  | June 30,     |   |  | (inception) to June |  
|                                                                                   |  | 2010         |   |  | 2009         |   |  | 30, 2010            |  
|                                                                                   |  | **$**        |   |  |              |   |  | **$**               |  
|OPERATING ACTIVITIES                                                               |  |              |   |  |              |   |  |                     |  
|Net loss for the period                                                            |  | (392,593     | ) |  | (395,716     | ) |  | (35,595,503         | )
|Items not involving cash:                                                          |  |              |   |  |              |   |  |                     |  
|Depreciation                                                                       |  | 13,409       |   |  | 11,153       |   |  | 267,039             |  
|(Gain) loss on disposal of
      equipment                                         |  | -            |   |  | (18,928      | ) |  | 5,624               |  
|Fair value of options, warrants and other
      non-cash compensation [note 11[c]] |  | 40,139       |   |  | 49,364       |   |  | 3,377,112           |  
|Non-cash interest expense on
      discontinued operations [note 10]               |  | 10,364       |   |  | 125,427      |   |  | 725,304             |  
|(Gain) loss on securities                                                          |  | (19,060      | ) |  | 13,484       |   |  | 133,662             |  
|Unrealized (gain) loss on sale
      of securities                                 |  | 92,176       |   |  | (72,846      | ) |  | (10,035             | )
|Held for trading securities included in lease
      revenue                        |  | -            |   |  | -            |   |  | (9,598              | )
|Impairment of carrying value
      of exploration properties [note 5]              |  | -            |   |  | -            |   |  | 5,100,000           |  
|Loss (gain) on disposal of mineral properties                                      |  | -            |   |  | (42,761      | ) |  | 53,168              |  
|Gain on change in liability of
      warrants [note 11[b]]                         |  | -            |   |  | (86,220      | ) |  | (2,676,000          | )
|Gain on extinguishment of debt [note
      10]                                     |  | -            |   |  | -            |   |  | (1,327,076          | )
|Gain on sale of discontinued
      operations [note 5]                             |  | (653,949     | ) |  | -            |   |  | (653,949            | )
|Changes in non-cash working capital items:                                         |  |              |   |  |              |   |  |                     |  
|Accounts receivable                                                                |  | (76,015      | ) |  | 21,077       |   |  | (108,678            | )
|Accounts payable and accrued liabilities                                           |  | (296,940     | ) |  | 84,773       |   |  | 417,852             |  
|Prepaid expenses                                                                   |  | (65,471      | ) |  | 21,603       |   |  | (96,450             | )
|Cash used in
      operating activities                                            |  | (1,347,940   | ) |  | (289,590     | ) |  | (30,397,528         | )
|INVESTING ACTIVITIES                                                               |  |              |   |  |              |   |  |                     |  
|Other assets [note 9]                                                              |  | (57,525      | ) |  | -            |   |  | (218,302            | )
|Sage Gold Inc. option payment received                                             |  | -            |   |  | -            |   |  | 100,000             |  
|Purchase of equipment                                                              |  | (32,600      | ) |  | (734         | ) |  | (338,794            | )
|Cash received from sale of discontinued
      operations                           |  | 2,250,000    |   |  |              |   |  | 2,250,000           |  
|Nevada Eagle acquisition and related non-compete agreement
      [note 5]          |  | -            |   |  | -            |   |  | (3,068,340          | )
|Mineral property expenditures [note 5
      & 7]                                   |  | -            |   |  | -            |   |  | (1,992,130          | )
|Mineral property lease payments received                                           |  | -            |   |  | 55,100       |   |  | 1,499,854           |  
|Proceeds from sale of mineral properties                                           |  | 117,760      |   |  | 50,000       |   |  | 217,760             |  
|Option payment to amend royalty [note 9]                                           |  | -            |   |  | -            |   |  | (310,902            | )
|Proceeds from sales of held for trading
      securities                           |  | 73,810       |   |  | 9,951        |   |  | 134,764             |  
|Proceeds from note receivable                                                      |  | 2,842        |   |  | 2,000        |   |  | 13,270              |  
|Proceeds from sale of equipment                                                    |  | -            |   |  | 1,571        |   |  | 16,403              |  
|Cash provided
      by investing activities                                        |  | 2,354,287    |   |  | 117,888      |   |  | (1,696,417          | )
|FINANCING ACTIVITIES                                                               |  |              |   |  |              |   |  |                     |  
|Cash paid on extinguishment of debt [note 10]                                      |  | -            |   |  | -            |   |  | (500,000            | )
|Capital lease principal payments                                                   |  | -            |   |  | -            |   |  | (53,523             | )
|Exercise of warrants                                                               |  | -            |   |  | -            |   |  | 1,161,036           |  
|Shares and warrants issued for cash                                                |  | 200,000      |   |  | -            |   |  | 36,570,369          |  
|Share issue costs                                                                  |  | (5,252       | ) |  | -            |   |  | (3,334,911          | )
|Subscription receivables collected                                                 |  | -            |   |  | -            |   |  | 389,125             |  
|Cash provided
      by financing activities                                        |  | 194,748      |   |  | -            |   |  | 34,232,096          |  
|                                                                                   |  |              |   |  |              |   |  |                     |  
|Increase (decrease) in cash during the period                                      |  | 1,201,095    |   |  | (171,702     | ) |  | 2,138,151           |  
|Cash, beginning of period                                                          |  | 937,056      |   |  | 799,517      |   |  | -                   |  
|Cash, end of
      period                                                          |  | 2,138,151    |   |  | 627,815      |   |  | 2,138,151           |  
|NON-CASH INVESTING AND FINANCING
      ACTIVITIES:                                 |  |              |   |  |              |   |  |                     |  
|Shares issued for settlement of accounts payable                                   |  | 60,000       |   |  |              |   |  | 60,000              |  
|Extinguishment of note payable by sale of discontinued
      operations            |  | 2,180,587    |   |  |              |   |  | 2,180,587           |  
|See Note 1  Nature of Operations and Going
      Concern Uncertainty              |  |              |   |  |              |   | 

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

5

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

1. NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY

Gryphon Gold Corporation was incorporated in the State of
Nevada in 2003 and wholly owns its subsidiaries, Borealis Mining Company, and
Gryphon Nevada Eagle Holding Company (collectively, Gryphon Gold or the
Company). The Company is an exploration stage company in the process of
exploring its mineral properties, and has not yet determined whether these
properties contain reserves that are economically recoverable.

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

On April 23, 2010, the Company sold its wholly owned
subsidiary, Nevada Eagle Resources LLC (Nevada Eagle), however, management
recognizes that the Company must generate additional resources to enable it to
continue operations. Management intends to raise additional funds through debt
and/or equity financing or through other means that it deems necessary, such as
the sale of interests in its remaining mineral properties (see note 7). However,
no assurance can be given that the Company will be successful in raising
additional capital. Further, even if the Company raises additional capital,
there can be no assurance that the Company will achieve profitability or
positive cash flow. If management is unable to raise additional capital and
possible future revenues do not result in positive cash flow, the Company will
not be able to meet its obligations and may have to suspend or cease operations.
The Company has an accumulated deficit of $35,595,503 and at June 30, 2010 has
cash on hand of $2,138,151. These conditions raise substantial doubt about the
Companys ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments related to the
recoverability and classification of assets or the amounts and classifications
of liabilities that might be necessary should the Company be unable to continue
as a going concern.

Basis of Presentation

The unaudited financial statements have been prepared by the
Company in accordance with accounting principles generally accepted in the
United States of America for interim financial information, as well as the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of the Companys management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of the interim
financial statements have been included. Operating results for the three-month
period ended June 30, 2010 are not necessarily indicative of the results that
may be expected for the full fiscal year ending March 31, 2011.

For further information refer to the financial statements and
footnotes thereto in the Companys Annual Report on Form 10-K for the year ended
March 31, 2010.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Codification

In June 2009, the Company adopted ASC 105-10-65, the accounting
standards codification and the hierarchy of generally accepted accounting
principles. Under ASC 105-10-65 codification will become the exclusive source of
authoritative U.S. generally accepted accounting principles (U.S. GAAP) it
will be applied by all nongovernmental entities. ASC 105-10-65 was effective for
the Companys 2009 second fiscal quarter. The adoption of FASB ASC 105-10-65 did
not have a material impact on the Companys consolidated financial statements.
All references to U.S. GAAP provided in the notes to the consolidated financial
statements have been updated to conform to the Codification.

Fair value measurements

The Company measures fair value in accordance with ASC
820-10-55 Fair Value Measurements. The objective of ASC 820-10-55 is to
increase consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements. ASC 820-10-55 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
The adoption of ASC 820-10-55 did not have a material effect on the Companys
consolidated financial statements.

6

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

Fair value measurements, continued:

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

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

This hierarchy requires the Company to minimize the use of
unobservable inputs and to use observable method data, if available when
estimating fair value. The fair value of the Companys held for trading
securities is based on the quoted market prices (level 1). The Companys cash,
accounts and notes receivable, and accounts payable and accrued liabilities are
carried at cost, which the Company believes approximates fair value because of
the short- term maturities of these instruments.

ADOPTED ACCOUNTING PRONOUNCEMENTS

The Company accounts for non-controlling interests in
accordance with ASC 810-10-55, this policy establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Among other requirements, this policy
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the non-controlling interest. It
also requires disclosure, on the face of the consolidated statement of
operations, of the amounts of consolidated net income attributable to the parent
and to the non-controlling interest. ASC 810-10-55 is effective for our fiscal
year commencing April 1, 2009, including interim periods within that fiscal
year. The adoption of this policy did not have a material impact on the
Companys financial position or results of operations.

The Company accounts for Business Combinations in accordance
with ASC 805-10-55, this guidance calls for the recognizing and measuring of
identifiable assets and goodwill acquired, liabilities assumed, and any
non-controlling interest in the acquiree. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. ASC 805-10-55 is effective
for the Companys fiscal year beginning April 1, 2009 and is applied
prospectively. ASC 805-10-55 may have an impact on the Companys consolidated
financial statements in the future, but the nature and magnitude of the specific
effects will depend upon the nature, terms and size of any acquisition the
Company may consummate after the effective date.

The Company accounts for derivative instruments and hedging
activates in accordance with ASC 815-10-15. This policy requires enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for, and how
derivative instruments and related hedged items affect an entitys operating
results, financial position, and cash flows. ASC 815-10-15 is effective for
fiscal years beginning after November 15, 2008. The provisions of ASC 815-10-15
are only related to disclosure of derivative and hedging activities, and the
adoption of this policy did not have a material impact on our consolidated
operating results, financial position, or cash flows.

7

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS, CONTINUED:

The Company accounts for convertible debt instruments that may
be settled in cash upon conversion in accordance with ASC 470-20-55 which
specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entitys
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. ASC 470-20-55 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of ASC 470-20-55 did not have a material impact
on our consolidated operating results, financial position, or cash flows.

In June 2008, The Company adopted ASC 815-40-55 for determining
whether an instrument or embedded feature is indexed to an entitys own stock.
ASC 815-40-55 clarifies the determination of whether an instrument or an
embedded feature is indexed to an entitys own stock, which would qualify as a
scope exception under ASC 815-20-25 If the terms of an instrument, or embedded
feature, are such that it is not considered to be indexed to the entitys own
stock, equity classification would be precluded and the instrument would not be
within the scope of ASC 815-40-55. ASC 815-40-55 is effective for our fiscal
year beginning April 1, 2009 and required the reclassification of the value of
all warrants with an exercise price denominated in Canadian dollars from equity
to liabilities, and this liability is stated at fair value each reporting
period. At April 1, 2009, a reclassification of $2,975,330 reduced additional
paid in capital (the value of the warrants using Black-Scholes at time of
original issue), deficit accumulated during the exploration stage was reduced by
$2,888,130 and a liability of $87,200 (the value of the warrants at April 1,
2009) was recorded.

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

During 2009 the Company adopted ASC 820-10-65 for determining
fair value when the volume and level of activity for the asset or liability have
significantly decreased and identifying transactions that are not orderly. ASC
820-10-65:

- Affirms that the objective of fair value when the market for an asset is
  not active is the price that would be received to sell the asset in an orderly
  transaction.
- Clarifies and includes additional factors for determining whether there
  has been a significant decrease in market activity for an asset when the
  market for that asset is not active.
- Eliminates the proposed presumption that all transactions are distressed
  (not orderly) unless proven otherwise. ASC 820-10-65 instead requires an
  entity to base its conclusion about whether a transaction was not orderly on
  the weight of the evidence.
- Includes an example that provides additional explanation on estimating
  fair value when the market activity for an asset has declined significantly.
- Requires an entity to disclose a change in valuation technique (and the
  related inputs) resulting from the application of ASC 820-10-65 and to
  quantify its effects, if practicable.
- Applies to all fair value measurements when appropriate.

8

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS, CONTINUED:

The Company applied ASC 820-10-65 prospectively, retrospective
application is not permitted. ASC 820-10-65 is effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. An entity that adopts ASC 820-10-65 early must also
early adopt ASC 320-10-65, which covers the recognition and presentation of
other-than-temporary impairments.The adoption of ASC 820-10-65 had no
impact on the Companys consolidated operating results, financial position, or
cash flows.

The Company adopted ASC 320-10-65 in the second quarter of
2009. ASC Topic 320-10-65 establishes a new method of recognizing and reporting
other-than-temporary impairments of debt securities. It also contains additional
disclosure requirements related to debt and equity securities and changes
existing impairment guidance. The Companys adoption of ASC 320-10-65 is
effective for interim and annual periods ending after June 15, 2009, with early
adoption permitted. The Company elected to adopt ASC 320-10-65 in the first
quarter of 2009. The adoption of ASC 320-10-65 had no impact on the Companys
consolidated operating results, financial position, or cash flows.

In April 2009, the Company adopted ASC 270-10-05, interim
disclosures about fair value of financial instruments. ASC 270-10-05 enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures. This guidance relates to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet of companies
at fair value. Before this guidance was adopted, fair values for these assets
and liabilities were disclosed only once a year. The guidance requires these
disclosures to be made on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. This pronouncement
is effective for periods ending after June 15, 2009. The Company adopted this
standard effective June 30, 2009, the adoption of ASC 270-10-05 did not have a
material impact on the Companys financial position and results of operations.

Reclassification

Certain comparative figures have been reclassified to conform
to the current quarter presentation. The Statement of Operations relating to
costs of discontinued operations for the three month period ended June 30, 2009
have been classified as such for comparative purposes for the three month period
ended June 30, 2010.

Revenue recognition

Mineral lease rentals are treated as reductions of the cost of
the property as the payor is accumulating an interest in the mineral property;
payments in excess of capitalized costs are recognized in income. Under the
Option Agreement with Sage ,Sage is required to reimburse the Company 50% of
Borealis expenditures, which will be recorded as an accounts receivable and a
reduction in the corresponding expense. Some agreements provide for payments in
the form of stock and other equity instruments as well as cash payments. Stock
and other equity instruments are recognized based on their fair market value at
the time of receipt. Fluctuations incurred during the holding period are
accounted for as gains or losses from held for trading securities. The leases
provide for the receipt of royalty payments upon production being generated from
the property. Royalty payments will be recognized in the period in which
production occurs. There are no properties in the production stage at this time.

3. ACCOUNTS RECEIVABLE  OPTION AGREEMENT

On March 5, 2010, the Company entered into an Option Agreement
with Sage to which the Company agreed to grant Sage the option to enter into a
joint venture agreement to earn 50% joint venture interest Borealis Mining
Company BMC, subject to certain terms and conditions. The obligations of Sage
during the option period require Sage to pay 50% of all costs and expenses
whatsoever, direct or indirect, with respect to the Borealis property. As of
June 30, 2010, the Company had an amount totaling $88,355 due from Sage.

9

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

4. NOTE RECEIVABLE

During the year ended March 31, 2010, the Company sold an asset
by signing a 24-month lease agreement with an individual. In accordance with ASC
840-10-55 the Company accounted for the transaction as a sales type lease. The
net present value at the time of the sale was $22,794 and was reported on the
consolidated balance sheet as a note receivable. Interest income to be
recognized over the two-year life is $1,206. Each payment received will be
allocated by reduction of the face value of the note receivable and the
recognition of interest income. Three lease payments were received during the
quarter ended June 30, 2010. The current portion of the note receivable totals
$10,730.

5. NEVADA EAGLE RESOURCES LLC

On August 21, 2007, Gryphon Gold closed the acquisition of
Nevada Eagle Resources LLC (Nevada Eagle). On April 23, 2010, Gryphon Gold
sold its wholly owned subsidiary, Nevada Eagle Resources LLC to Fronteer
Development (USA) Inc. (Fronteer) for $4,750,000. Fronteer paid $2,250,000 in
cash and $2,500,000 by assuming Gryphon Gold's obligations under a convertible
note, which was retired. In addition, Gryphon Gold retained the Copper Basin
property located in Idaho. The Company recognized a gain of $653,949 in
connection with the sale. The Company completed the sale of Nevada Eagle during
the three months ended June 30, 2010, Nevada Eagles results have been
classified and presented in Discontinued Operations.

6. EQUIPMENT

|                         |  | June 30, 2010 | 
|------------------------ |  | ------------- | 
|                         |  |               | 
|                         |  | Cost          | 
|                         |  | **$**         | 
|                         |  |               | 
|Office and lab equipment |  | 233,660       | 
|Trucks                   |  | 85,597        | 
|Total                    |  | 319,257       | 

|                         |  | March 31, 2010 | 
|------------------------ |  | -------------- | 
|                         |  |                | 
|                         |  | Cost           | 
|                         |  | **$**          | 
|                         |  |                | 
|Office and lab equipment |  | 210,510        | 
|Trucks                   |  | 64,097         | 
|Total                    |  | 274,607        | 

7. MINERAL PROPERTIES

|                                                      |  | Total     |  
|----------------------------------------------------- |  | --------- | -
|                                                      |  | **$**     |  
|Mineral property costs, March 31,
      2006          |  | 1,898,207 |  
|Expenditures
      during the year                    |  | 22,164    |  
|Mineral property costs, March 31, 2007                |  | 1,920,371 |  
|Mineral property costs, March 31, 2008                |  | 1,920,371 |  
|Expenditures during the year                          |  | 10,538    |  
|Mineral property
      costs, March 31, 2009 and 2010 |  | 1,930,909 |  
|Sage Gold Inc. option payment received                |  | (100,000  | )
|Property retained
      from sale of Nevada Eagle     |  | 11,003    |  
|Mineral property costs, June 30, 2010                 |  | 1,841,912 |  

10

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

7. MINERAL PROPERTIES, CONTINUED:

On March 5, 2010, the Company and Sage entered into an Option
Agreement (the Option Agreement) pursuant to which the Company granted Sage
the option (the Option) to enter into a Joint Venture Agreement (the Joint
Venture Agreement) and earn a 50% joint venture interest (the Joint Venture)
in the Companys wholly owned subsidiary Borealis Mining Company. The Option
Agreement was negotiated and entered into pursuant to the terms of a binding
Letter of Intent between the Company and Sage, dated February 23, 2010. Under
the terms of the Option Agreement, Sage has the right to exercise the Option and
enter into the Joint Venture Agreement with the Company upon the satisfaction of
the following conditions:

| | (a) | Sage will make a $9,000,000 capital contribution to
      Borealis Mining or a corporate entity formed for the purposes of the Joint
      Venture on or before the earlier of (A) any time prior to December 31,
      2010 (the Option Period) or (B) within sixty (60) days after receipt by
      the Parties (or as soon thereafter as is practicable for Sage using its
      best efforts) of a binding commitment letter for the remainder of the
      project financing required to bring the Borealis Project into production
      on terms acceptable to the Parties, acting reasonably.                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (b) | Upon the classification of an additional 100,000 ounces
      of gold Reserves as Proven and Probable, Sage will make a cash payment to
      the Company of $1,000,000, and cash payments up to an additional
      $1,000,000 for up to an additional 100,000 ounces of gold Reserves
      classified as Proven and Probable (a maximum $2,000,000).                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (c) | Sage will issue to the Company common shares of Sage with
      a value equal to $1,000,000, subject to TSX Venture Exchange approval or,
      will make the payment in cash upon exercise of the option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (d) | Sage will agree to invest $400,000 in a private placement
      in the Companys units on June 16, 2010 ($200,000) and on August 16, 2010
      ($200,000). Each unit consisting of one share of common stock of the
      Company and one half of a share purchase warrant at an issue price equal
      to the greater of (i) the maximum discounted price permitted under Part VI
      of the TSX Company Manual and (ii) a 5% premium to the 30 day volume
      weighted closing price of the common stock of the Company ending on the
      day immediately prior the subscription date, but not less than Cdn$0.18
      per unit and not more than Cdn.$0.25, subject to TSX approval.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (e) | Sage will pay 50% of the approved expenditures on the
      Borealis Property during the Option Period, subject to certain exceptions
      and adjustments. If Sage fails to fund its portion of the expenditures,
      the Company will have the option to terminate the Option Agreement,
      subject to an applicable cure period.                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (f) | Sage will deliver to the Company (i) evidence that Sage
      has obtained regulatory approval for the performance of the transactions
      and obligations under the Option Agreement and that the terms of such
      regulatory approvals have been satisfied; and (ii) evidence of a binding
      commitment for the remainder of the project financing required to bring
      the Borealis Project into production.                                                                                                                                                                                                                                                                     

8. EXPLORATION

|                           |  | Three months  |  |  | Three months  |  |  | Period from April    | 
|-------------------------- |  | ------------- |  |  | ------------- |  |  | -------------------- | 
|                           |  | ended         |  |  | ended         |  |  | 24, 2003 (inception) | 
|                           |  | June 30, 2010 |  |  | June 30, 2009 |  |  | to June 30, 2010     | 
|                           |  | $             |  |  | $             |  |  | $                    | 
|NEVADA, USA                |  |               |  |  |               |  |  |                      | 
|Borealis property          |  |               |  |  |               |  |  |                      | 
|Exploration:               |  |               |  |  |               |  |  |                      | 
|Drilling                   |  | 225,739       |  |  | 458           |  |  | 7,583,735            | 
|Property
      maintenance |  | 57,668        |  |  | 120,576       |  |  | 3,566,873            | 
|Geologic and assay         |  | 21,439        |  |  | 910           |  |  | 2,054,726            | 
|Project
      management   |  | 5,547         |  |  | -             |  |  | 1,877,077            | 
|Engineering                |  | 65,596        |  |  | 154,759       |  |  | 1,522,165            | 
|Metallurgy                 |  | -             |  |  | -             |  |  | 331,210              | 
|Subtotal Borealis property |  | 375,989       |  |  | 276,703       |  |  | 16,935,786           | 
|Other exploration          |  | 9,650         |  |  | 750           |  |  | 51,855               | 
|Total
      exploration    |  | 385,639       |  |  | 277,453       |  |  | 16,987,641           | 

11

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

9. OTHER ASSETS

|                                                     |  | June 30, 2010 |  |  | March 31, 2010 | 
|---------------------------------------------------- |  | ------------- |  |  | -------------- | 
|                                                     |  | **$**         |  |  | $              | 
|Reclamation bond & deposits                          |  | 189,539       |  |  | 160,777        | 
|Option to amend
      Borealis Property mining lease |  | 560,903       |  |  | 560,902        | 
|                                                     |  | 750,442       |  |  | 721,679        | 

On June 30, 2010 the Company had $191,125 (March 31, 2010 -
$133,600) on deposit to support a performance bond with the United States Forest
Service. The Company also has a deposit with the Bureau of Land Management
(BLM) for $27,177 (March 31, 2009 - $27,177), which supports its potential
future obligations for reclamation during the Companys exploration activities
within the BLM area. The United States Forest Bond was increased during the
quarter ended June 30, 2010 by $57,525 of which $28,762 was invoiced to Sage
reducing our carrying value of the bond. At June 30, 2010, the Company has
recorded an estimated reclamation liability of $5,600 (March 31, 2010  $5,600)
representing future obligations related to its general property activities
completed to June 30, 2010.

On August 22, 2008, the Company entered into a 12-month option
agreement, at a cost of $250,000 and an additional $35,902 to cover legal costs,
to amend the Borealis Property mining lease. If exercised, the net smelter
return royalty rate will be fixed at 5%, versus the current uncapped variable
rate. Payment upon exercise of the option is $1,750,000 in cash, 7,726,250
common shares of the Company and a three year, $1,909,500, 5% note payable. On
August 19, 2009 the option was extended for six months at a cost of $125,000,
which was settled through the issuance of 966,340 shares. On March 22, 2010 the
option was extended until August 22, 2010 at a cost of $150,000, which was
settled through the issuance of $25,000 and 939,016 shares.

10. CONVERTIBLE PROMISSORY NOTE

Gryphon Gold issued a Convertible Promissory Note to the former
owners of Nevada Eagle (See Note 5) [the Debt holders] with a face amount of
$5 million, due March 30, 2010, bearing interest at 5% per annum, payable on
January 1 and June 1 of each year. The note was convertible at the holders
option into shares for the first 12 months after closing at a conversion price
of $1 per common share; for the next 12 months at $1.25 per common share; for
the period 24 months from closing to March 29, 2010 at $1.50 per common share
and on March 30, 2010 at $1.75 per common share. The Convertible Promissory
Note, including the conversion feature and change in control event of default
acceleration feature embedded derivative, was recorded at its estimated issue
date fair value of $4,272,359.

On February 5, 2010, the Company and the Debt holders entered
into Amendment No. 1 to a certain Option Agreement dated August 5, 2008
(Amendment No. 1) pursuant to which, (i) the Company obtained the right, in
lieu of the $500,000 cash payment required to exercise the option, to issue a
$500,000 promissory note to the Debt holders payable on the earlier of the
receipt of proceeds of $500,000 from a contemplated private placement or
February 19, 2010; and (ii) to delete the unmet conditions required to be
satisfied by the Company in order to be permitted to exercise the option. The
promissory note was fully repaid prior to year end.

As consideration for entering into Amendment No. 1, the Company
and the Debt holders entered into an Option Consideration Agreement (the Option
Consideration Agreement) pursuant to which the Company agreed to (i) issue the
Debt holders an additional 1,500,000 common shares of the Company and (ii) amend
the terms of the Amended Note to reduce the conversion price (the Amendment
Consideration), which Amendment Consideration is subject to obtaining Company
shareholder and TSX approval (the Approvals). The conversion price of Amended
Note will be amended upon receipt of such Approvals to be convertible at $0.60
per share from February 5, 2010 through March 30, 2010, at $0.70 per share from
March 31, 2010 through March 30, 2011 and at $0.80 per share from March 31, 2011
to March 30, 2012. In the event that the Approvals are not obtained within five
business days following the first meeting of the Companys shareholders, but no
later than August 22, 2010, then the Company agreed to pay the Amendment
Consideration by issuing unsecured, one-year note(s) with fixed interest rates
of 5% per annum as follows: (a) $300,000 in lieu of issuing the Debt holders
1,500,000 common shares and/or (b) $100,000 in lieu of reducing the conversion
price of the Amended Note. As a result of the consideration for entering into
the Amendment No.1, the Company recorded a liability of $270,000 based on the
fair value of the shares to be issued to the Debt Holders at the time the
agreement was executed.

12

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

10. CONVERTIBLE PROMISSORY NOTE, CONTINUED:

On February 5, 2010, the Company exercised the Option to
restructure the Convertible Note by converting $2,500,000 of principal of the
Convertible Note, through the issuance of 4,000,000 common shares and a
promissory note in the principal amount of $500,000 to the Debt holders, and
issuing the Amended Note for the remaining $2,500,000 of principal of the
Convertible Note to the Debt holders due and payable on March 30, 2012.

On April 23, 2010, the Companys wholly owned subsidiary,
Nevada Eagle Resources LLC, was sold to Fronteer Development (USA) Inc.
(Fronteer), as part of the purchase price paid by Fronteer, the convertible
note was assumed by Fronteer.

11. CAPITAL STOCK

|[a] | Authorized capital stock consists of 250,000,000 common
      shares with a par value of $0.001 per share and 15,000,000 preferred
      shares with a par value of $0.001 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | During the quarter ended June 30, 2010, the Company
      issued 436,929 common shares with a fair value of $60,000 to Telesto
      Nevada Inc. which was applied against accounts payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On June 16, 2010, the Company completed a private
      placement relating to its Option Agreement with Sage, of 1,464,429 units
      at Cdn$0.14 for gross proceeds of $200,000 (Cdn$205,020). Each unit
      consisted of one common share and one half series M warrant. Each series M
      warrant entitles the holder to purchase a common share at a price of
      US$0.20 per share for a period of 24 months. 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$0.60 per common share,
      for a period of twenty consecutive days.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|[b] | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The following table contains information with respect to
      all warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                                            |  | Number of Warrants |  
| | ---------------------------------------------------------- |  | ------------------ | -
| |                                                            |  | #                  |  
| | Warrants outstanding, March 31, 2004                       |  |                   |  
| | Issued for:                                                |  |                    |  
| | Private placements                                         |  | 3,407,981          |  
| | Agents compensation                                       |  | 141,008            |  
| | Exercised                                                  |  |                   |  
| | Warrants outstanding, March 31, 2005                       |  | 3,548,989          |  
| | Issued for:                                                |  |                    |  
| | Private placements                                         |  | 3,015,204          |  
| | Agents compensation on
      private placement            |  | 130,000            |  
| | Initial Public Offering (IPO)  Series
      A             |  | 6,900,000          |  
| | Underwriters
      compensation on IPO                    |  | 690,000            |  
| | Private placements  Series B                              |  | 2,737,500          |  
| | Agents compensation on
      private placement  Series C |  | 280,500            |  
| | Exercised                                                  |  | (197,500           | )

13

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

11. CAPITAL STOCK, CONTINUED:

|Warrants outstanding, March 31, 2006                       |  | 17,104,693  |  
|---------------------------------------------------------- |  | ----------- | -
|Issued for:                                                |  |             |  
|Private placements 
      Series D                        |  | 64,500      |  
|Private placements  Series E                              |  | 5,000,000   |  
|Agents compensation on
      private placement  Series F |  | 85,050      |  
|Exercised                                                  |  | (1,658,275  | )
|Expired                                                    |  | (15,175,410 | )
|Warrants outstanding, March 31, 2007                       |  | 5,420,558   |  
|Issued for:                                                |  |             |  
|Private placements  Series G                              |  | 5,000,000   |  
|Private placements  Series I                              |  | 4,486,500   |  
|Agents compensation on private placement 
      Series H |  | 265,050     |  
|Agents compensation on private
      placement  Series J |  | 89,530      |  
|Exercised                                                  |  | (130,000    | )
|Expired                                                    |  | (290,558    | )
|Forfeited                                                  |  | (14,000     | )
|Warrants outstanding, March 31, 2008                       |  | 14,827,080  |  
|Expired                                                    |  | (5,340,580  | )
|Warrants outstanding, March 31, 2009                       |  | 9,486,500   |  
|Exercised                                                  |  | (7,161,500  | )
|And Expired                                                |  | (2,325,000  | )
|Issued for:                                                |  |             |  
|Private placements  Series K                              |  | 5,448,667   |  
|Private
      placements  Series L                        |  | 990,500     |  
|Warrants outstanding, March 31, 2010                       |  | 6,439,167   |  
|Issue for:                                                 |  |             |  
|Private placements  Series M                              |  | 732,215     |  
|Warrants outstanding June 30, 2010                         |  | 7,171,382   |  

The following table summarizes information about warrants
outstanding and exercisable as at June 30, 2010:

Warrants Outstanding and Exercisable

|          | Average Remaining Life |                |                  
|--------- | ---------------------- | -------------- | -----------------
|Warrants  | Years                  | Exercise Price | Expiry date      
|#         | #                      |                |                  
|5,448,667 | 1.6                    | $0.25          | February 18, 2012
|990,500   | 0.6                    | $0.21          | February 18, 2011
|732,215   | 1.9                    | $0.20          | June 16, 2012    
|7,171,382 | 1.4                    | $0.22          |                  

14

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

11. CAPITAL STOCK, CONTINUED:

[c] Stock options:

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

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

Three Months
    
    
    Three MonthsEnded June 30,
    
    
    Ended June 30,2010
    
    
    2009**$**
    
    
    **$**Management salaries, exploration expense & consulting
      fees
    
    40,139
    
    
    49,364


Stock option activity

The following table summarizes the Companys stock option
activity for the three months ended June 30, 2010:

|                                                                            |  | Number of |   |   | Weighted Average |  
|--------------------------------------------------------------------------- |  | --------- | - | - | ---------------- | -
|                                                                            |  | Stock     |   |   | exercise price   |  
|                                                                            |  | Options   |   |   |                  |  
|Outstanding, April 1, 2010                                                  |  | 4,507,500 |   | $ | 0.46             | *
|Granted                                                                     |  | 200,000   |   | $ | 0.15             |  
|Forfeited                                                                   |  | (250,000  | ) | $ | 0.31             | *
|Total outstanding
      at June 30, 2010                                    |  | 4,457,500 |   | $ | 0.45             | *
|Vested and exercisable at June 30, 2010                                     |  | 4,170,000 |   | $ | 0.46             | *
|* Based on the June 30, 2010 exchange rate of
      Cdn$1 equals US$0.9393. |  |           |   |  

15

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

11. CAPITAL STOCK, CONTINUED:

The following table summarizes information about stock options
outstanding as at June 30, 2010:

Stock Options Outstanding and ExercisableAverageStock Options
    Average Remaining
    Stock Options
    Remaining Life
    Exercise priceOutstanding
    Life
    Exercisable
    of Exercisable(Years)
    
    (Years)95,000
    0.4
    95,000
    0.4
    Cdn$0.8520,000
    0.7
    20,000
    0.7
    Cdn$1.37395,000
    0.8
    395,000
    0.8
    Cdn$1.3720,000
    0.8
    20,000
    0.8
    Cdn$1.3730,000
    0.9
    30,000
    0.9
    Cdn$1.6050,000
    1.1
    50,000
    1.1
    Cdn$1.2950,000
    1.3
    50,000
    1.3
    Cdn$1.3490,000
    1.5
    90,000
    1.5
    Cdn$0.8120,000
    1.6
    20,000
    1.6
    Cdn$0.88125,000
    1.7
    125,000
    1.7
    Cdn$0.8020,000
    1.9
    20,000
    1.9
    Cdn$0.9585,000
    2.2
    85,000
    2.2
    Cdn$0.90150,000
    2.6
    150,000
    2.6
    Cdn$0.6220,000
    2.8
    20,000
    2.8
    Cdn$0.43300,000
    2.8
    300,000
    2.8
    Cdn$0.41362,500
    3.0
    362,500
    3.0
    Cdn$0.38550,000
    3.1
    462,500
    3.1
    Cdn$0.41200,000
    3.2
    200,000
    3.2
    Cdn$0.28150,000
    3.2
    150,000
    3.2
    Cdn$0.26150,000
    3.4
    150,000
    3.4
    Cdn$0.07275,000
    3.4
    275,000
    3.4
    Cdn$0.07250,000
    3.4
    250,000
    3.4
    Cdn$0.26100,000
    3.7
    100,000
    3.7
    Cdn$0.28150,000
    4.1
    150,000
    4.1
    $0.17500,000
    4.2
    500,000
    4.2
    $0.22100,000
    4.6
    25,000
    4.6
    $0.22100,000
    4.8
    25,000
    4.8
    $0.15100,000
    4.9
    50,000
    4.9
    $0.144,457,500
    
    4,170,000


16

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

11. CAPITAL STOCK, CONTINUED:

Valuation assumptions

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

| |                         | 2010          | 2009         
| | ----------------------- | ------------- | -------------
| |                         |               |              
| | Dividend yield          | 0%            | 0%           
| | Expected volatility     | 100% -105%    | 51% - 80%    
| | Risk free interest rate | 1.40% -1.62%  | 1.31% - 2.06%
| | Expected lives          | 3
      years | 3
      years

|    | The risk-free interest rate is determined based on the
      rate at the time of grant for US government zero-coupon bonds for a 3-year
      term, which is a term equal to the estimated life of the option. Dividend
      yield is based on the stock options exercise price and expected annual
      dividend rate at the time of grant. Volatility is derived by measuring the
      average share price fluctuation of the Companys stock. The period of
      historical volatility is the same period as the expected life of the
      options being 3 years.                                                                                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Black-Scholes option-pricing model used by the
      Company to calculate option values was developed to estimate the fair
      value of freely tradable, fully transferable options without vesting
      restrictions, which significantly differ from the Companys stock option
      awards. Option pricing models require the input of highly subjective
      assumptions, including future stock price volatility and expected time
      until exercise, which greatly affect the calculated values. Changes in
      these assumptions can materially affect the fair value estimate and
      therefore it is managements view that the existing models do not
      necessarily provide a single reliable measure of the fair value of the
      Companys equity instruments.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|[d] | Restricted stock units (RSUs):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The RSU stock grants entitle the recipient to receive
      shares of common stock of the Company upon vesting. The RSU grants can
      vest immediately or over a period for up to five years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company recognizes stock-based compensation expense
      based on the grant date fair value of the award on a straight-line basis
      over the requisite service period of the individual grants, which
      generally equals the vesting period. The grant date fair value of the
      restricted stock unit is calculated using the closing price of the
      Companys common stock on the date of the grant.                                                                                                                                                                                                                                                                                                                                                                      

The following table summarizes information about RSUs
outstanding as at June 30, 2010:

RSUs
    RSUs
    RSUs
    RSUs
    WeightedGranted
    Vested
    Forfeited
    Outstanding
    AverageFair Valueat GrantDateOutstanding at April 1, 2006
    
    
    
    
    Issued April 18, 2006
    8,000
    8,000
    
    
    Cdn$1.63Issued December 12, 2006
    29,000
    15,000
    14,000
    
    Cdn$0.84Issued January 10, 2007
    607,500
    488,750
    118,750
    
    Cdn$0.82Issued September 6, 2007
    154,170
    154,170
    
    
    Cdn$0.77Outstanding at June 30, 2010
    798,670
    665,920
    132,750
    
    


17

---

Gryphon Gold Corp(An Exploration Stage Company)Notes to Consolidated Financial Statements (Unaudited)

12. RELATED PARTY TRANSACTIONS

All transactions with related parties have occurred in the
normal course of operations and are measured at their exchange amount as
determined by management.

13. 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 $9,762,
adjusted annually based on the Consumer Price Index, for the duration of the
lease term. In addition, production of precious metals from the Borealis
Property will be subject to the payment of a royalty under the terms of the
mining lease. The mining lease expired on January 24, 2009, but is automatically
renewed thereafter, so long as mining related activity, including exploration
drilling, continues on the Borealis Property.

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

|     | $     
|---- | ------
|2011 | 54,408
|2012 | 59,344
|2013 | 58,144
|2014 | 24,227

The Vancouver office has been sub-leased commencing February 1,
2009 for 4 years and 7 months (remaining life on lease) for Cdn$4,000 per month.
The subtenant has an option to terminate the lease on January 31, 2011; such
option must be exercised before October 31, 2010. If the option to terminate the
Sublease Agreement is not executed by the Subtenant, then the agreement shall
continue until the expiration date. As at June 30, 2010 the Company has accrued
$44,958 being the difference between the required lease payments and the
estimated future sub-lease receipts.

On January 31, 2010 the lessees in the Vancouver office vacated
the premises. The office has been subsequently sub-leased to another party
commencing May 1, 2010 for 3 years and 5 months (remaining life on lease) for
Cdn$4,200 per month.

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

18

---

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

Forward-Looking Statements

The information in this quarterly report on Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties, including statements
regarding our capital needs, business plans and expectations. Such
forward-looking statements involve risks and uncertainties regarding the market
price of metals, commodities and precious metals, availability of funds,
government regulations, common share prices, operating costs, capital costs,
outcomes of ore reserve exploration and other factors. Forward-looking
statements are made, without limitation, in relation to operating plans,
property exploration, availability of funds, environmental reclamation,
operating costs and permit acquisition. Any statements contained herein that are
not statements of historical facts may be deemed to be forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, expect, plan, intend,
anticipate, believe, estimate, predict, potential or continue, the
negative of such terms or other comparable terminology. Actual events or results
may differ materially. In evaluating these statements, you should consider
various factors, including the risks outlined below, and, from time to time, in
other reports we file with the Securities and Exchange Commission (SEC),
including, but not limited to our annual report on Form 10-K as filed on June
28, 2010. These factors may cause our actual results to differ materially from
any forward-looking statement. We disclaim any obligation to publicly update
these statements, or disclose any difference between our actual results and
those reflected in these statements. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.

Cautionary Note Regarding Managements Discussion and
Analysis

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

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

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

19

---

Overview

Business Objectives

We are in the business of acquiring, exploring, and developing
gold properties in the United States, emphasizing the state of Nevada. Our
objective is to increase value of our shares through the exploration,
development and extraction of gold deposits, beginning with our Borealis
Property. The development and extraction may be performed by us or by potential
partners. We will also consider the acquisition and exploration of other
potential gold bearing properties within Nevada or areas that have a similar
political risk profile. The Plan of Operations for the Borealis property that
has been approved by the U.S. Forest Service does not present an economic
analysis, and we have not placed any information in the Plan of Operations
regarding capital expenditures, operating costs, ore grade, anticipated
revenues, or projected cash flows. The Plan of Operation was based on the
general economic concepts as presented in the Preliminary scoping study.

Borealis Property

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

In April of 2008, we completed a CIM compliant, National
Instrument 43-101 of the Canadian Securities Administrators ("NI 43-101") report
(the Technical Report) that included all drilling results to date, which was
furnished to the SEC as Exhibit 99.1 to the Companys Form 8-K filed on May 12,
2008. The Technical Report details mineralization on our Borealis Property. The
Technical Report states that the recommended course of action for Gryphon Gold
is to increase gold mineralization by completing additional drilling primarily
in the previously mined areas, to complete a technical report to determine the
feasibility of near term production, and through continued drilling and
exploration, delineate possible new mineralization on the Borealis Property.
Cautionary Note to U.S. Investors: The Technical Report uses the terms "mineral
resource," "measured mineral resource," "indicated mineral resource" and
"inferred mineral resource". We advise investors that these terms are defined in
and required to be disclosed by NI 43-101; however, these terms are not defined
terms under Guide 7 and are normally not permitted to be used in reports and
registration statements filed with the SEC. See Cautionary Note to U.S.
Investors Regarding Mineral Reserve and Resource Estimates above.

During September 2008, we released the independent Preliminary
Assessment (PA) on the development of an oxide heap leach mine on the Borealis
Property. The PA was furnished to the SEC as Exhibit 99.1 to our Form 8-K as
filed on October 7, 2008. The report outlines the possibility of developing a
mineable oxidized gold deposit on the Borealis Property. Gryphon Gold is
undertaking a detailed economic evaluation of the potential for developing an
open-pit heap leach gold mining operation on the Borealis Property. The PA is
not a bankable feasibility study and cannot form the basis for proven or
probable reserves on the Borealis Property. Cautionary Note to U.S. Investors:
The PA uses the terms "mineral resource," "measured mineral resource,"
"indicated mineral resource" and "inferred mineral resource". We advise
investors that these terms are defined in and required to be disclosed by NI
43-101; however, these terms are not defined terms under Guide 7 and are
normally not permitted to be used in reports and registration statements filed
with the SEC. See Cautionary Note to U.S. Investors Regarding Mineral Reserve
and Resource Estimates above.

During the quarter ended June 30, 2010, approximately 21 holes
and 5,580 feet of reverse circulation drilling and 3 holes and 110 feet of
metallurgical core drilling was completed on the Borealis Property. As of June
30, 2010, approximately 224 holes and 147,800 feet of reverse circulation
drilling and 3 holes and 110 feet of metallurgical core drilling has been
completed on the Borealis Property. The majority of the holes were in the area
of existing mineralization in order to allow us to complete the PA with the aim
of identifying gold reserves and, if economically feasible, building a mine.
During fiscal 2008, the majority of the holes drilled were to attempt to expand
the Graben mineralization or complete exploration in the Pediment areas of the
Borealis property.

On July 15, 2009, we announced the completion and results of
our Pre-Feasibility Study for the development of the Borealis Property. On
September 22, 2009, we filed our Pre-Feasibility Study entitled "NI 43-101
Pre-Feasibility Study of the Mineral Resources of the Borealis Gold Project
Located in Mineral County, Nevada, USA, Revised and Restated" dated September
17, 2009 (the "Pre-Feasibility Study") with securities regulatory authorities in
Canada, pursuant to Canadian securities laws and the rules of Toronto Stock
Exchange, and furnished it to the SEC as Exhibit 99.1 to the Companys Form 8-K,
filed on September 22, 2009. The report shows an average annual production of
over 50,000 ounces a year gold-equivalent for five years, an initial
construction cost of $14.8 million, including a $1million contingency and
average life of mine cash operating cost of $476 per ounce of gold. Cautionary
Note to U.S. Investors: The Pre-Feasibility Study uses the terms "mineral
resource," "measured mineral resource," "indicated mineral resource" and "inferred mineral resource". We advise
investors that these terms are defined in and required to be disclosed by NI
43-101; however, these terms are not defined terms under Guide 7 and are
normally not permitted to be used in reports and registration statements filed
with the SEC. See Cautionary Note to U.S. Investors Regarding Mineral Reserve
and Resource Estimates above.

20

---

On March 5, 2010, the Company and Sage entered into an Option
Agreement (the Option Agreement) pursuant to which the Company granted Sage
the option (the Option) to enter into a Joint Venture Agreement (the Joint
Venture Agreement) and earn a 50% joint venture interest (the Joint Venture)
in the Companys Borealis gold project located in the Walker Lane Mineral Belt
of Southwest Nevada (the Borealis Project). The Option Agreement was
negotiated and entered into pursuant to the terms of a binding Letter of Intent
between the Company and Sage, dated February 23, 2010. For a further discussion
of the Option Agreement see Liquidity and Capital Resources  Borealis Mine
below.

Administration and Capital Resource Activities

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

On January 6, 2010, the Registrant announced that R. William
Wilson had been appointed as Chief Financial Officer of the Company. On May 28,
2010, R. William Wilson resigned as Chief Financial Officer and Matthew A.
Fowler of Sharp Executives Associates was appointed Interim Chief Financial
Officer of the Company

On February 5, 2010, the Company and the Debt holders entered
into Amendment No. 1 to the Option Agreement dated August 5, 2008 (Amendment
No. 1) pursuant to which, among other items, the Company obtained the right (i)
in lieu of the $500,000 cash payment, to issue a $500,000 promissory note to the
Debt holders payable on the earlier of the receipt of proceeds $500,000 from a
contemplated private placement or February 19, 2010 (the Amended Note); (ii)
to delete certain unmet conditions required to be satisfied by the Company in
connection with the exercise of the Option; and (iii) to update the schedule of
properties listed to secure repayment of the Amended Note.

As consideration for entering into Amendment No. 1, on February
5, 2010, the Company and the Debt holders entered into an Option Consideration
Agreement (the Option Consideration Agreement) pursuant to which the Company
agreed to (i) issue the Debt holders 1,500,000, valued at $270,000 at the time
of the amendment, common shares of the Company and (ii) amend the terms of the
Amended Note to reduce the conversion price (the Amendment Consideration),
which Amendment Consideration is subject to obtaining Company shareholder and
Toronto Stock Exchange approval (the Approvals). The conversion price of the
Amended Note will be amended upon receipt of such Approvals to be convertible at
$0.60 per share from February 5, 2010 through March 30, 2010, at $0.70 per share
from March 31, 2010 through March 30, 2011 and at $0.80 per share from March 31,
2011 to March 30, 2012. In the event that the Approvals are not obtained within
five business days following the first meeting of the Companys shareholders,
but no later than August 22, 2010, then the Company agreed to pay the Amendment
Consideration by issuing unsecured, one-year note(s) with fixed interest rates
of 5% per annum as follows: (a) $300,000 in lieu of issuing the Debt holders
1,500,000 common shares and/or (b) $100,000 in lieu of reducing the conversion
price of the Amended Note.

On February 5, 2010, the Company exercised the Option to
restructure the Convertible Note by converting $2,500,000 of principal of the
Convertible Note, through the issuance of 4,000,000 common shares and a
promissory note in the principal amount of $500,000 to the Debt holders, and
issuing the Amended Note for the remaining $2,500,000 of principal of the
Convertible Note to the Debt holders due and payable on March 30, 2012

On April 23, 2010, Gryphon Gold sold its wholly owned
subsidiary, Nevada Eagle Resources LLC to Fronteer for $4,750,000. Fronteer paid
$2,250,000 in cash and $2,500,000 by assuming Gryphon Gold's obligations under a
convertible note, which was retired. In addition, Gryphon Gold retained the
Copper Basin property located in Idaho.

On June 16, 2010, the Company closed the private placement with
Sage Gold, Inc. (Sage) and issued 1,464,429 units at a purchase price of
Cdn$0.14 per unit for gross proceeds of $200,000 (Cdn$205,000). Each unit
consisted of one share of common stock and one half of one common stock purchase
warrant. Each whole common stock purchase warrant is exercisable for a period of
two years from the date of closing of the private placement to purchase one
additional share of common stock at an exercise price of US$0.20.

21

---

Fiscal 2010 Plan of Operations

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

During September 2008, we released an independent Preliminary
Assessment (PA) on the development of an oxide heap leach mine. We may perform
more drilling to expand the oxide base and take other steps as necessary to
advance the potential oxide heap leach mine. We will also consider extension
drilling, focused on the expansion of the Graben deposit and exploration
drilling for new gold deposits within the two newly identified potentially
gold-bearing hydrothermal systems in the pediments.

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

We intend to continue to take all steps necessary to preserve
our rights to the Borealis property under the existing terms of the property
lease. We also expect to work with the United States Forest Service with the
objectives of maintaining our permits under the Plan of Operations and obtaining
necessary permits for the construction of the leach pad.

The following activities are currently planned for the duration
of fiscal 2011:

- Obtain financing necessary to begin the Borealis Oxide Heap Leach mine
  project.
- Begin construction and bring the Borealis resource into production with-in
  six months of receiving financing and board approval to proceed.
- Execute a drill program to expand the oxide resource within the permitted
  footprint of the Borealis project.
- Execute a drill program on the three anomalies defined in the pediments of
  the Borealis property for the purpose of potentially discovering additional
  oxide and sulphide resources.
- Raise additional capital as required to fund our exploration, development
  and working capital requirements.

Results of Operations

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

Three months ended June 30, 2010 compared to three months
ended June 30, 2009

For the three months ended June 30, 2010, we had a net loss of
$392,593or $0.01 from continued operations and net income of $653,949 or $0.01
from discontinued operations compared to a net loss of $395,716 or $0.01 per
share in the same period in the prior year.

Exploration expenses during the quarter ended June 30, 2010
were $385,639 or 37% of our total expenses compared to $277,453 or 70% of our
total expenses in the prior year. Most of the exploration costs recognized in
the current quarter were for completing all ongoing property lease payments and
a small oxide drill program. During the quarter ended June 30, 2010,
approximately 21 holes and 5,580 feet of reverse circulation drilling and 3
holes and 110 feet of metallurgical core drilling was completed on the Borealis
Property. There was no drilling in the prior years comparable quarter.

Management salaries and consulting fees in the quarter ended
June 30, 2010 were $313,928 compared to $95,764 incurred in the quarter ended
June 30, 2009. Total non-cash compensation expense due to the recognition of
costs related to stock options was $40,139 in the quarter ended June 30, 2010
compared to the prior years fiscal first quarter of $49,364. Management
salaries and consulting fees during the quarter increased due to the CEO
returning to full time, the hiring of a VP of Exploration and a bonus of $97,500
paid to the CEO. General and administrative costs increased to $139,833 compared
to $56,342 the prior years quarter as a result of our efforts to increase
investor relations activity. Legal and audit fees for the period were $57,413,
an increase from the prior years quarter of $23,107. These costs increased due
to the sale of Nevada Eagle Resources and the Option Agreement with Sage. Travel
and accommodation costs during the quarter ended June 30, 2010 were $33,538,
compared to $4,914 expended on travel in the prior years comparable quarter. The
increase in travel and entertainment cost is due primarily to travel costs
incurred in relation to the Option Agreement with Sage.

22

---

Interest income earned on cash deposits was $100 for the
quarter ended June 30, 2010, compared to $114 in the prior year quarter.

We hold certain securities for trading. We receive these
securities as partial payment of lease obligations for Nevada Eagle exploration
properties. When we receive these shares, they have trading restrictions and we
cannot sell them for approximately four to six months from the date of receipt.
During the quarter ended June 30, 2010, we sold a number of these securities and
received $73,810 in proceeds and recorded a realized gain of $19,060. This
realized gain was partially offset by unrealized losses recorded in prior
reporting periods as we reduced the carrying value of the securities to their
quoted market value.

Liquidity and Capital Resources

Our principal source of liquidity is cash that is raised by way
of sale of common stock from treasury and other equity securities.

Convertible Debt

On April 23, 2010, Gryphon Gold sold its wholly owned
subsidiary, Nevada Eagle Resources LLC to Fronteer Development (USA) Inc. for
$4,750,000. Fronteer paid $2,250,000 in cash and $2,500,000 by assuming Gryphon
Gold's obligations under a convertible note, which was retired. In addition,
Gryphon Gold retained the Copper Basin property located in Idaho.

Borealis Mine

Sage Option Agreement

Our objective is to preserve our rights to the Borealis
property under the existing terms of the property lease. We will also work with
the USFS to maintain our permits under the Plan of Operations. These steps are
intended to preserve the existing value of the Borealis property for our
shareholders.

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

On March 5, 2010, the Company and Sage entered into an Option
Agreement pursuant to which the Company granted Sage the Option to enter into a
Joint Venture Agreement and earn a 50% joint venture interest in the Companys
Borealis Project. The Option Agreement was negotiated and entered into pursuant
to the terms of a binding Letter of Intent between the Company and Sage, dated
February 23, 2010. Under the terms of the Option Agreement, as amended on April
19, 2010, April 28, 2010 and June 15, 2010, Sage has the right to exercise the
Option and enter into the Joint Venture Agreement with the Company upon the
satisfaction of the following conditions:

| | (a) | Sage will make a $9,000,000 capital contribution to
      Borealis Mining or a corporate entity formed for the purposes of the Joint
      Venture on or before the earlier of (A) any time prior to June 30, 2011
      (the Option Period) or (B) within sixty (60) days after receipt by the
      Parties (or as soon thereafter as is practicable for Sage using its best
      efforts) of a binding commitment letter for the remainder of the project
      financing required to bring the Borealis Project into production on terms
      acceptable to the Parties, acting reasonably.                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | Upon the classification of an additional 100,000 ounces
      of gold Reserves as Proven and Probable, Sage will make a cash payment to
      the Company of $1,000,000, and cash payments up to an additional
      $1,000,000 for up to an additional 100,000 ounces of gold Reserves
      classified as Proven and Probable (a maximum $2,000,000).                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (c) | Sage will issue to the Company common shares of Sage with
      a value equal to $1,000,000, subject to TSX Venture Exchange approval or,
      will make the payment in cash upon exercise of the option.                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (d) | Sage will agree to invest $400,000 in a private placement
      in the Companys units in installments of $200,000 by June 16, 2010 and
      $200,000 August 16, 2010by May 11, 2010. Each unit consisting of one share
      of common stock of the Company and one half of a share purchase warrant at
      an issue price equal to the greater of (i) the maximum discounted price
      permitted under Part VI of the TSX Company Manual and (ii) a 5% premium to
      the 30 day volume weighted closing price of the common stock of the
      Company ending on the day immediately prior the subscription
  date.

| | (e) | Sage will pay 50% of the approved expenditures on the
      Borealis Property during the Option Period, subject to certain exceptions
      and adjustments. If Sage fails to fund its portion of the expenditures,
      the Company will have the option to terminate the Option Agreement,
      subject to an applicable cure period.                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (f) | Sage will deliver to the Company (i) evidence that Sage
      has obtained regulatory approval for the performance of the transactions
      and obligations under the Option Agreement and that the terms of such
      regulatory approvals have been satisfied; and (ii) evidence of a binding
      commitment for the remainder of the project financing required to bring
      the Borealis Project into production.

23

---

Sage may not be able to complete the private placement
installment of $200,000 due to be completed by August 16, 2010. If Sage is
unable to complete the private placement installment and the parties do not
otherwise come to an agreement to amend the Option Agreement, then the Option
Agreement will terminate.

Further, Sages ability to exercise the Option is dependent
upon Sage obtaining $9,000,000 to make the necessary capital contribution under
the Option Agreement and being able to arrange for adequate project financing to
bring the Borealis Mine into production. There can be no assurance that Sage
will be able to obtain the necessary capital contribution or project financing
to permit it to exercise the Option. Further, Sage may also elect not to
exercise the Option to enter into a Joint Venture with the Company during the
Option Period.

If the Option Agreement terminates or if Sage is unable to
raise the necessary capital contribution and project financing or elects not to
exercise the Option to enter into a Joint Venture, the Company will need to seek
alternative sources of capital to fund the development of the Borealis Mine.
Such other sources of capital may include equity or debt financing or other
joint venture opportunities. Such other sources of capital may not be available
to the Company on reasonable terms, if at all. If this is the case, the Company
may not be able to develop the Borealis Mine as currently planned, if at all,
and the Companys future results of operation would be adversely affected.

The foregoing description provides the material details of the
Option Agreement, as amended. For further information please see (i) the Option
Agreement, a copy of which is filed as Exhibit 10.1 to the Companys Form 8-K
filed with the SEC on March 8, 2010, (ii) Amendment No. 1 to Option Agreement, a
copy of which is filed as Exhibit 10.1 to the Companys Form 8-K filed with the
SEC on March 30, 2010, (iii) Amendment No. 2 to Option Agreement, a copy of
which is filed as Exhibit 10.1 to the Companys Form 8-K filed with the SEC on
April 20, 2010, (iv) Amendment No. 3 to Option Agreement, a copy of which is
filed as Exhibit 10.1 to the Companys Form 8-K filed with the SEC on May 6,
2010, and (v) Amendment No. 4 to Option Agreement, a copy of which is filed as
Exhibit 10.1 to the Company's Form 8-K filed with the SEC on June 15, 2010.

Royalty Obligations

The leased portion of the Borealis Property is currently
subject to advance royalty payments of approximately $9,762 per month, payable
to each of Richard J. Cavell TTTEE F/T Richard J. Cavell Trust dated 02/23/1994,
Hardrock Mining Company, a Nevada corporation, and John W. Whitney (the
Borealis Owners). These advance royalty payments are subject to annual
adjustments based on changes in the United States Consumer Price Index.

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

On February 12, 2010 the Company entered into an agreement to
extend the option agreement from February 22, 2010 until August 22, 2010 and the
extension of the Condemnation Period from August 22, 2010 to August 22, 2011. As
consideration for entering into the agreement the Company agreed to pay $150,000
to the Borealis Owners comprised of cash in the amount of $25,000 and shares of
the Companys common stock equal to $125,000, calculated based on eighty percent
of the average five day closing price immediately prior to the payment date.

24

---

The terms of the mining lease prior to the amendment require
the payment of a net smelter return production royalty by Borealis Mining to the
Borealis Owners in respect of the sale of gold (and other minerals) extracted
from those claims within the area of interest specified in the mining lease. The
royalty rate for gold is determined by dividing the monthly average market gold
price by 100, with the result expressed as a percentage. The royalty amount is
determined by multiplying that percentage by the amount of monthly gold
production from the claims in the area of interest and by the monthly average
market gold price, after deducting all smelting and refining charges, various
taxes and certain other expenses. For example, using an assumed monthly average
market gold price of $850, the royalty rate would be 8.5% . Using an assumed
monthly production of 5,000 ounces of gold from the leased claims, the monthly
royalty amount would be 5,000 ounces times $850 per ounce, less allowable
deductions, multiplied by 8.5% .

There can be no assurance that the Company will be able to
exercise the option to buy down the royalty or negotiate as further extension of
the agreement before August 22, 2010. If the Company is unable to exercise the
option or obtain an extension, the Companys ability to put the Borealis Mine
into production would be adversely affected by the current royalty structure as
discussed above. This may make the Borealis Mine less profitable or prevent the
Company from putting the Borealis Mine into production, which would adversely
affect the Companys future results of operations.

Capital Resources

At June 30, 2010, we had working capital of $1,656,762 with an
average cash expenditure rate of $200,000 per month in a typical month based on
our current level of business activity. This level of activity is subject to
change based upon future events. Current assets consisted of $2,138,151 in cash,
$45,040 in securities held for trading, $24,073 in accounts receivable, $88,355
in accounts receivable  joint venture, $10,730 in the note receivable and
$96,450 in prepaid expenses. We had $476,037 in accounts payable and accrued
liabilities, and $270,000 in share consideration payable to former owners of
discontinued operations at June 30, 2010.

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

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

Our market value and the market values for companies similar to
us have declined considerably over the past twelve months due to market
conditions as discussed above. To preserve as much cash as possible and to
ensure liquidity for the longest period possible, we have taken steps to reduce
our rate of cash expenditure. These steps included reducing the number of
personnel to three at reduced compensation rates, terminating other employees
and temporarily suspending development work on the Borealis property, including
engineering work. We have also reduced discretionary spending, including
sub-leasing our Vancouver, British Columbia office and moving our office in
Nevada from Reno to Carson City.

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

Our current working capital is $1,656,762, with an average cash
expenditure rate of $200,000 per month in a typical month based on the current
number of employees we have. We will attempt to raise capital in one or more
financings, which may include equity offerings, joint ventures, or other asset
sales. This expenditure rate is subject to change based upon future events. The
average burn rate does not include all anticipated costs, including annual claim
maintenance fees, or the exercise of the option to fix the royalty rate on the
Borealis property at 5%.

25

---

During the quarter ended June 30, 2010, we used cash in
operating activities of $1,347,940 which included our net loss during the
quarter of $392,593 off-set by depreciation of $13,409, non-cash compensation of
$40,139, non-cash interest expense of $10,364, unrealized loss of $92,176 and a
$19,060 realized gain on the valuation of marketable securities,$653,949 gain on
sale of discontinued operations, and changes in non-cash working capital of a
$76,015 increase in accounts receivable, a $356,940 decrease in accounts
payable, a $65,470 increase in prepaid expenses and $60,000 of accounts payable
settled through an issuance of common stock.

We received cash from investing activities of $2,354,286
including $57,525 increase in reclamation bond, $32,599 in purchase of
equipment, $2,250,000 in sale of discontinued operations, $117,760 from proceeds
of sale of minerals properties, $73,810 from the sale of securities, and $2,842
from the payments on the note receivable.

We received cash from financing activities of $194,748
including $200,000 from the sale of common shares, and $5,252 in share issue
costs for the quarter ended June 30, 2010. Cash increased during the period by
$1,201,095 to $2,138,151 as at June 30, 2010.

Updated share capital as of August 13, 2010:

|Basic Common Stock Issued and Outstanding          |  | 87,935,132 | 
|-------------------------------------------------- |  | ---------- | 
|Warrants, Options and other Convertible Securities |  | 11,628,882 | 
|Fully Diluted Common Stock                         |  | 99,564,014 | 

Critical Accounting Policies and Estimates

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

Codification

In June 2009, the Company adopted ASC 105-10-65, the accounting
standards codification and the hierarchy of generally accepted accounting
principles. Under ASC 105-10-65 codification will become the exclusive source of
authoritative generally accepted accounting principles (GAAP) it will be
applied by all nongovernmental entities. ASC 105-10-65 was effective for the
Companys 2009 second fiscal quarter. The adoption of FASB ASC 105-10-65 did not
have a material impact on the Companys consolidated financial statements. All
references to GAAP provided in the notes to the consolidated financial
statements have been updated to conform to the Codification.

Revenue recognition

Mineral lease rentals are treated as reductions of the cost of
the property as the payor is accumulating an interest in the mineral property;
payments in excess of capitalized costs are recognized in income. Under the
Option Agreement with Sage, Sage is required to reimburse the Company 50% of
Borealis expenditures, which will be recorded as an accounts receivable and a
reduction in the corresponding expense. Some agreements provide for payments in
the form of stock and other equity instruments as well as cash payments. Stock
and other equity instruments are recognized based on their fair market value at
the time of receipt. Fluctuations incurred during the holding period are
accounted for as gains or losses from held for trading securities. The leases
provide for the receipt of royalty payments upon production being generated from
the property. Royalty payments will be recognized in the period in which
production occurs. There are no properties in the production stage at this time.

Mineral property acquisition costs

The cost of acquiring mineral properties are capitalized and
will be amortized over their estimated useful lives following the commencement
of production or expensed if it is determined that the mineral property has no
future economic value or the properties are sold or abandoned.

Cost includes cash consideration and the fair market value of
shares issued on the acquisition of mineral properties. Properties acquired
under option agreements, whereby payments are made at the sole discretion of the
Company, are recorded in the accounts at such time as the payments are made.

The recoverable amounts for mineral properties is dependent
upon the existence of economically recoverable reserves; the acquisition and
maintenance of appropriate permits, licenses and rights; the ability of the
Company to obtain financing to complete the exploration and development of the
properties; and upon future profitable production or alternatively upon the
Companys ability to recover its spent costs from the sale of its interests. The
amounts recorded as mineral properties reflect actual costs incurred and are not
intended to express present or future values.

26

---

The capitalized amounts may be written down if potential future
cash flows, including potential sales proceeds, related to the property are
estimated to be less than the carrying value of the property. Management of the
Company reviews the carrying value of each mineral property interest quarterly,
and whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Reductions in the carrying value of each property would
be recorded to the extent the carrying value of the investment exceeds the
estimated future net cash flows.

Exploration and development costs

Exploration costs are expensed as incurred. When it is
determined that a mining deposit can be economically and legally extracted or
produced based on established proven and probable reserves, further exploration
and development costs related to such reserves 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, capitalized
costs will be transferred to the appropriate asset category and amortized over
their estimated useful lives. Capitalized costs, net of salvage values, relating
to a deposit which is abandoned or considered uneconomic for the foreseeable
future, will be written off.

Foreign currency translation

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

Equipment

Equipment is recorded at cost less accumulated depreciation and
is comprised of office furniture, trucks, computers and lab equipment. All
equipment is being amortized on a straight line basis over 5 years.

Stock-based compensation

The Company accounts for its stock options in accordance with
ASC 718-10, the Company recognizes stock-based compensation expense based on the
fair value of the stock options on the date of grant. The fair value of the
stock options at the date of grant is amortized over the vesting period, with
the offsetting credit to additional paid in capital.

Loss per share

Loss per common share is determined based on the weighted
average number of common shares outstanding during the year. Diluted loss per
share is calculated by the treasury stock method. Under the treasury stock
method, the weighted average number of common shares outstanding for the
calculation of diluted earnings per share assumes that the proceeds to be
received on the exercise of diluted stock options and warrants classified as
equity instruments are applied to repurchase common shares at the average market
price for the period. Also, outstanding convertible promissory notes are assumed
to be converted into common stock at the then applicable rate. Stock options and
warrants are dilutive when the Company has income from continuing operations and
when the average market price of the common shares during the period exceeds the
exercise price of the options and warrants. The convertible promissory notes are
dilutive when the Company has income from continuing operations, and the impact
from the dilution exceeds the impact from the reduction in interest expense
resulting from the conversion of the notes.

Asset retirement obligations

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

27

---

Fair value measurements

The Company measures fair value in accordance with ASC
820-10-55 Fair Value Measurements. The objective of ASC 820-10-55 is to
increase consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements. ASC 820-10-55 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
ASC 820-10-55 applies under other accounting pronouncements that require or
permit fair value measurements and does not require any new fair value
measurements. The adoption of ASC 820-10-55 did not have a material effect on
the Companys consolidated financial statements.

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

* Level 1  Quoted prices for identical instruments in active
markets;

* Level 2  Quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are
not active, and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets; and

* Level 3  Valuations derived from valuation techniques in
which one or more significant inputs or significant value drivers are
unobservable.

This hierarchy requires the Company to minimize the use of
unobservable inputs and to use observable method data, if available when
estimating fair value. The fair value of the Companys held for trading
securities is based on the quoted market prices (level 1). The Companys cash,
accounts and notes receivable, and accounts payable and accrued liabilities are
carried at cost, which the Company believes approximates fair value because of
the short- term maturities of these instruments.

Recent Accounting Pronouncements

The Company accounts for non-controlling interests in
accordance with ASC 810-10-55, this policy establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Among other requirements, this policy
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the non-controlling interest. It
also requires disclosure, on the face of the consolidated statement of
operations, of the amounts of consolidated net income attributable to the parent
and to the non-controlling interest. ASC 810-10-55 is effective for our fiscal
year commencing April 1, 2009, including interim periods within that fiscal
year. The adoption of this policy did not have a material impact on the
Companys financial position or results of operations.

The Company accounts for Business Combinations in accordance
with ASC 805-10-55, this guidance calls for the recognizing and measuring of
identifiable assets and goodwill acquired, liabilities assumed, and any
non-controlling interest in the acquiree. It also provides disclosure
requirements to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. ASC 805-10-55 is effective
for the Companys fiscal year beginning April 1, 2009 and is applied
prospectively. ASC 805-10-55 may have an impact on the Companys consolidated
financial statements in the future, but the nature and magnitude of the specific
effects will depend upon the nature, terms and size of any acquisition the
Company may consummate after the effective date.

The Company accounts for derivative instruments and hedging
activates in accordance with ASC 815-10-15. This policy requires enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for, and how
derivative instruments and related hedged items affect an entitys operating
results, financial position, and cash flows. ASC 815-10-15 is effective for
fiscal years beginning after November 15, 2008. The provisions of ASC 815-10-15
are only related to disclosure of derivative and hedging activities, and the
adoption of this policy did not have a material impact on our consolidated
operating results, financial position, or cash flows.

The Company accounts for convertible debt instruments that may
be settled in cash upon conversion in accordance with ASC 470-20-55 which
specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entitys
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. ASC 470-20-55 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The adoption of ASC 470-20-55 did not have a material impact
on our consolidated operating results, financial position, or cash flows.

28

---

In June 2008, The Company adopted ASC 815-40-55 for determining
whether an instrument or embedded feature is indexed to an entitys own stock.
ASC 815-40-55 clarifies the determination of whether an instrument or an
embedded feature is indexed to an entitys own stock, which would qualify as a
scope exception under ASC 815-20-25 If the terms of an instrument, or embedded
feature, are such that it is not considered to be indexed to the entitys own
stock, equity classification would be precluded and the instrument would not be
within the scope of ASC 815-40-55. ASC 815-40-55 is effective for our fiscal
year beginning April 1, 2009 and required the reclassification of the value of
all warrants with an exercise price denominated in Canadian dollars from equity
to liabilities, and this liability is stated at fair value each reporting
period. At April 1, 2009, a reclassification of $2,975,330 reduced additional
paid in capital (the value of the warrants using Black-Scholes at time of
original issue), deficit accumulated during the exploration stage was reduced by
$2,888,130 and a liability of $87,200 (the value of the warrants at April 1,
2009) was recorded.

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

During 2009 the Company adopted ASC 820-10-65 for determining
fair value when the volume and level of activity for the asset or liability have
significantly decreased and identifying transactions that are not orderly. ASC
820-10-65:

- Affirms that the objective of fair value when the market for an asset is
  not active is the price that would be received to sell the asset in an orderly
  transaction.
- Clarifies and includes additional factors for determining whether there
  has been a significant decrease in market activity for an asset when the
  market for that asset is not active.
- Eliminates the proposed presumption that all transactions are distressed
  (not orderly) unless proven otherwise. ASC 820-10-65 instead requires an
  entity to base its conclusion about whether a transaction was not orderly on
  the weight of the evidence.
- Includes an example that provides additional explanation on estimating
  fair value when the market activity for an asset has declined significantly.
- Requires an entity to disclose a change in valuation technique (and the
  related inputs) resulting from the application of ASC 820-10-65 and to
  quantify its effects, if practicable.
- Applies to all fair value measurements when appropriate.

The Company applied ASC 820-10-65 prospectively, retrospective
application is not permitted. ASC 820-10-65 is effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. An entity that adopts ASC 820-10-65 early must also
early adopt ASC 320-10-65, which covers the recognition and presentation of
other-than-temporary impairments.The adoption of ASC 820-10-65 had no
impact on the Companys consolidated operating results, financial position, or
cash flows.

The Company adopted ASC 320-10-65 in the second quarter of
2009. ASC Topic 320-10-65 establishes a new method of recognizing and reporting
other-than-temporary impairments of debt securities. It also contains additional
disclosure requirements related to debt and equity securities and changes
existing impairment guidance. The Companys adoption of ASC 320-10-65 is
effective for interim and annual periods ending after June 15, 2009, with early
adoption permitted. The Company elected to adopt ASC 320-10-65 in the first
quarter of 2009. The adoption of ASC 320-10-65 had no impact on the Companys
consolidated operating results, financial position, or cash flows.

In April 2009, the Company adopted ASC 270-10-05, interim
disclosures about fair value of financial instruments. ASC 270-10-05 enhances
consistency in financial reporting by increasing the frequency of fair value
disclosures.

29

---

This guidance relates to fair value disclosures for any
financial instruments that are not currently reflected on the balance sheet of
companies at fair value. Before this guidance was adopted, fair values for these
assets and liabilities were disclosed only once a year. The guidance requires
these disclosures to be made on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. This pronouncement
is effective for periods ending after June 15, 2009. The Company adopted this
standard effective June 30, 2009, and it did not have a material impact on the
Companys financial position and results of operations.

Reclassification

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

Item 3. Quantitative and Qualitative Disclosure about Market
Risk

Not Applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

At the end of the period covered by this report, an evaluation
was carried out under the supervision of and with the participation of the
Companys management, including its Chief Executive Officer (CEO), John L.
Key, and the Interim Chief Financial Officer (CFO), Matthew A. Fowler, of the
effectiveness of the design and operations of the Companys disclosure controls
and procedures (as defined in Rule 13a  15(e) and Rule 15d  15(e) under the
Exchange Act). Based on that evaluation the CEO and the CFO have concluded that
as of the end of the period covered by this report, the Companys disclosure
controls and procedures were adequately designed and effective in ensuring that:
(i) information required to be disclosed by the Company in reports that it files
or submits to the Securities and Exchange Commission under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable rules and forms and (ii) material information required to be
disclosed in our reports filed under the Exchange Act is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to
allow for accurate and timely decisions regarding required disclosure.

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

Changes in Internal Controls over Financial Reporting

With the exception of the reported change in Chief Financial
Officeers, there were no changes in our internal control over financial
reporting (as defined in Rule 13(a)-15(f) or 15(d)-15(f)) that occurred during
the period covered by this quarterly report that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.

30

---

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

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

ITEM 1A. RISK FACTORS AND UNCERTAINTIES

There have been no material changes from the risk factors as
previously disclosed in our Form 10-K for the year ended March 31, 2009 which
was filed with Securities and Exchange Commission on June 28, 2010.

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

During the quarter ended June 30, 2009, all transactions in
which we have offered and sold the following securities in unregistered
securities pursuant to exemptions under the Securities Act of 1933, as amended
have been reported on current reports on Form 8K.

Item 3. Defaults upon Senior Securities.

None.

Item 4. [REMOVED AND RESERVED]

Item 5. Other Information.

None.

31

---

Item 6. Exhibits

|Number | Description                                                                                                                                                                                      
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                  
|10.5   | Interim Consulting Agreement
      between the Registrant and Mr. R. William Wilson, dated January 6, 2010                                                                                       
|10.6   | Amendment No. 1 to the Option Agreement between
      the Registrant, Gerald and Fabiola Baughman, and Nevada Eagle Resources
      LLC, dated February 5, 2010(5)                               
|10.7   | Option Consideration Agreement
      between the Registrant and Gerald and Fabiola Baughman, dated February 5,
      2010(6)                                                                     
|10.8   | Amendment No. 2 to the Option Agreement between
      the Registrant, Gerald and Fabiola Baughman, and Nevada Eagle Resources
      LLC, dated February 12, 2010 (7)                             
|10.9   | Binding Letter of Intent
      between the Registrant and Sage Gold Inc., dated February 23, 2010 (8)                                                                                            
|10.10  | Option Agreement between the Registrant,
      Borealis Mining Company, and Sage Gold Inc. dated March 5, 2010 (9)                                                                               
|10.11  | Amendment No. 1 to Option
      Agreement and Amendment No. 1 to Subscription Agreement between the
      Registrant, Borealis Mining Company, and Sage Gold Inc. dated March 26,
      2010 (10)

|(5)  | Previously filed as Exhibit 10.1 to the Registrants Form
      8-K filed on February 10, 2010
|---- | ----------------------------------------------------------------------------------------------
|(6)  | Previously filed as Exhibit 10.2 to the Registrants Form
      8-K filed on February 10, 2010
|(7)  | Previously filed as Exhibit 10.1 to the Registrants Form
      8-K filed on February 18, 2010
|(8)  | Previously filed as Exhibit 99.1 to the Registrants Form
      8-K filed on February 25, 2010
|(9)  | Previously filed as Exhibit 10.1 to the Registrants Form
      8-K filed on March 8, 2010    
|(10) | Previously filed as Exhibit 10.1 to the Registrants Form
      8-K filed on March 31, 2010   

32

---

SIGNATURES

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

GRYPHON GOLD CORPORATION

By: /s/ John L.
Key       John L.
Key        Chief Executive
Officer        (On behalf of the
registrant and as Principal executive officer)

Date: August 13, 2010

By: /s/ Matthew A
Fowler       Matthew A.
Fowler        Interim Chief Financial
Officer        (On behalf of the
registrant and as Principal financial and accounting officer)

Date: August 13, 2010

33

---