---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

OR

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

For the transition period from _____ to
_____



Commission file number: 333-127635

GRYPHON GOLD CORPORATION(Exact Name of Registrant as Specified in its Charter)

|Nevada                                                               | 92-0185596                          
|-------------------------------------------------------------------- | ------------------------------------
|(State of other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)

|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 shorter period
that the Registrant was required to file such reports), and (2)
has been subject to the filing requirements for the past 90 days.

[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 [X] No

Number of common shares outstanding at November 12, 2010:
89,710,132

---

GRYPHON GOLD CORPORATIONSeptember 30, 2010

INDEX

Page No.(s)

PART I - FINANCIAL INFORMATION

|Item 1. | Financial Statements.                                                                                                                                                                                   |   
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --
|        | Unaudited Consolidated Balance Sheet as of
      September 30, 2010 and Audited Consolidated Balance Sheet as of March 31,
      2010                                                                   | 2 
|        | Unaudited Consolidated
      Statements of Operations for the three and six months ended September 30,
      2010 and 2009; and the period of inception from April 24, 2003 to
      September 30, 2010 | 3 
|        | Unaudited Consolidated Statements of
      Stockholders Equity for the period of inception from April 24, 2003 to
      September 30, 2010                                                             | 4 
|        | Unaudited Consolidated
      Statements of Cash Flows for the six months ended September 30, 2010 and
      2009, and the period of inception from April 24, 2003 to September 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.                                                                                                             | 13
|Item 3. | Quantitative and Qualitative Disclosures
      About Market Risk.                                                                                                                                       | 17
|Item 4. | Controls and Procedures.                                                                                                                                                                                | 17

PART II - OTHER INFORMATION

|Item 1.    | Legal Proceedings.                                                 | 17
|---------- | ------------------------------------------------------------------ | --
|Item 1A.   | Risk Factors.                                                      | 17
|Item 2.    | Unregistered Sales of Equity
      Securities and Use of Proceeds. | 18
|Item 3.    | Defaults Upon Senior Securities.                                   | 18
|Item 4.    | [REMOVED AND RESERVED]                                             | 18
|Item 5.    | Other Information.                                                 | 18
|Item 6.    | Exhibits.                                                          | 18
|SIGNATURES |                                                                    | 19

---

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       |  
|----------------------------------------------------------------------------- |  | ------------- | - |  | ----------- | -
|                                                                              |  | September 30, |   |  | March 31,   |  
|                                                                              |  | 2010          |   |  | 2010        |  
|                                                                              |  | **$**         |   |  | $           |  
|                                                                              |  |               |   |  |             |  
|ASSETS                                                                        |  |               |   |  |             |  
|Current                                                                       |  |               |   |  |             |  
|Cash                                                                          |  | 1,257,812     |   |  | 937,056     |  
|Held for trading securities                                                   |  | -             |   |  | 191,966     |  
|Accounts receivable                                                           |  | 6,453         |   |  | 20,183      |  
|Accounts receivable  option agreement                                        |  | -             |   |  | 16,230      |  
|Current portion of note receivable                                            |  | 8,815         |   |  | 11,441      |  
|Prepaid expenses                                                              |  | 41,021        |   |  | 30,980      |  
|Assets held for sale at discontinued operations [note
      3]                |  | -             |   |  | 3,788,691   |  
|Total Current
      Assets                                                    |  | 1,314,101     |   |  | 4,996,547   |  
|Equipment                                                                     |  | 133,021       |   |  | 90,286      |  
|Mineral properties [note 4]                                                   |  | 1,841,912     |   |  | 1,930,909   |  
|Other assets [note 6]                                                         |  | 974,512       |   |  | 721,679     |  
|Non-current
      portion of note receivable                                  |  | -             |   |  | 2,131       |  
|Total Assets                                                                  |  | 4,263,546     |   |  | 7,741,552   |  
|                                                                              |  |               |   |  |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                          |  |               |   |  |             |  
|Current                                                                       |  |               |   |  |             |  
|Accounts payable and accrued liabilities                                      |  | 335,112       |   |  | 832,977     |  
|Share consideration payable to former owners of
      discontinued operations |  | -             |   |  | 270,000     |  
|Liabilities held for resale and in discontinued operations
      [note 3]     |  | -             |   |  | 2,170,223   |  
|Total Current
      Liabilities                                               |  | 335,112       |   |  | 3,273,200   |  
|                                                                              |  |               |   |  |             |  
|Asset retirement
      obligation liability                                   |  | 48,254        |   |  | -           |  
|                                                                              |  |               |   |  |             |  
|Commitments & contingencies [note 9]                                          |  |               |   |  |             |  
|                                                                              |  |               |   |  |             |  
|Stockholders' Equity                                                          |  |               |   |  |             |  
|Preferred stock                                                               |  | -             |   |  | -           |  
|Common stock                                                                  |  | 89,710        |   |  | 86,034      |  
|Additional paid-in capital                                                    |  | 40,198,276    |   |  | 39,585,228  |  
|Deficit
      accumulated during the exploration stage                        |  | (36,407,806   | ) |  | (35,202,910 | )
|Total Stockholders' Equity                                                    |  | 3,880,180     |   |  | 4,468,352   |  
|Total
      Liabilities & Stockholders' Equity                                |  | 4,263,546     |   |  | 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)

Period fromThree months
    
    
    Three months
    
    
    Six months
    
    
    Six months
    
    
    April 24, 2003ended
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    (inception) toSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Exploration [note 5]
    
    192,789
    
    
    580,167
    
    
    578,429
    
    
    855,044
    
    
    17,180,431Management salaries and consulting fees
    
    228,203
    
    
    153,448
    
    
    542,131
    
    
    249,212
    
    
    9,905,500General and administrative
    
    208,098
    
    
    133,432
    
    
    347,931
    
    
    188,891
    
    
    4,106,460Legal and audit
    
    126,408
    
    
    120,757
    
    
    183,821
    
    
    143,444
    
    
    2,289,259Travel and accommodation
    
    35,755
    
    
    23,652
    
    
    69,293
    
    
    28,566
    
    
    1,214,691Depreciation & amortization
    
    14,213
    
    
    10,950
    
    
    27,622
    
    
    22,103
    
    
    281,252Loss (gain) on disposal of equipment
    
    -
    
    
    -
    
    
    -
    
    
    (18,928
    )
    
    5,624Foreign exchange (gain) loss
    
    5,806
    
    
    (31,555
    )
    
    16,738
    
    
    (33,030
    )
    
    23,910Gain on change in liability of warrants
      [note 7[b]]
    
    -
    
    
    340,910
    
    
    -
    
    
    254,690
    
    
    (2,676,000
    )Interest income
    
    (1,906
    )
    
    (776
    )
    
    (2,006
    )
    
    (890
    )
    
    (741,004
    )Interest expense
    
    280
    
    
    214
    
    
    873
    
    
    304
    
    
    9,030Unrealized (gain) loss on securities
    
    -
    
    
    (10,914
    )
    
    104,293
    
    
    (83,760
    )
    
    -Realized (gain) loss on sale of securities
    
    2,656
    
    
    -
    
    
    (28,521
    )
    
    13,484
    
    
    126,283Loss for the period from continuing operations
    
    (812,302
    )
    
    (1,320,285
    )
    
    (1,840,604
    )
    
    (1,619,130
    )
    
    (31,725,436
    )Discontinued operations:Loss from discontinued operations
    
    -
    
    
    (341,085
    )
    
    (18,241
    )
    
    (437,955
    )
    
    (5,336,319
    )Gain on sale from
      discontinued operations
    
    -
    
    
    -
    
    
    653,949
    
    
    -
    
    
    653,949Income (loss) from discontinued operations
    
    -
    
    
    (341,085
    )
    
    635,708
    
    
    (437,955
    )
    
    (4,682,370
    )Net loss for period
    
    (812,302
    )
    
    (1,661,370
    )
    
    (1,204,896
    )
    
    (2,057,085
    )
    
    (36,407,806
    )Basic and diluted income (loss) per share:Loss from continuing operations
    
    (0.009
    )
    
    (0.020
    )
    
    (0.021
    )
    
    (0.026
    )Income (loss) from
      discontinued operations
    
    -
    
    
    (0.005
    )
    
    0.007
    
    
    (0.007
    )Total loss per share
    
    (0.009
    )
    
    (0.025
    )
    
    (0.014
    )
    
    (0.033
    )Basic and diluted weighted average number
      of common shares outstanding
    
    88,620,186
    
    
    64,786,284
    
    
    87,653,800
    
    
    62,515,493


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 Stockholders' 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
    
    
    
    
    
    
    
    222,627
    
    
    
    
    
    222,627Fair value of options granted to consultants
    
    
    
    
    
    
    
    49,558
    
    
    
    
    
    49,558Fair value of underwriters compensation
      warrants on IPO
    
    
    
    
    
    
    
    135,100
    
    
    
    
    
    135,100Fair value of options granted
    
    
    
    
    
    
    
    2,274,508
    
    
    
    
    
    2,274,508Fair value of vested stock grants
    
    429,250
    
    
    428
    
    
    520,379
    
    
    
    
    
    520,807Fair value of stock granted
    
    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
    
    
    
    
    
    
    
    166,088
    
    
    
    
    
    166,088Fair value of vested stock grants
    
    112,500
    
    
    113
    
    
    
    
    
    
    
    
    113Exercise of warrants
    
    7,161,500
    
    
    7,162
    
    
    1,453,204
    
    
    
    
    
    1,460,366Settlement of debt
    
    5,905,356
    
    
    5,905
    
    
    964,095
    
    
    
    
    
    970,000Reclassification of warrants to liabilityFASB ASC 815-40-55
    
    
    
    
    
    
    
    (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
    
    
    
    
    
    200,000Option consideration
    
    1,500,000
    
    
    1,500
    
    
    268,500
    
    
    
    
    
    270,000Share issue costs
    
    
    
    
    
    
    
    (12,486
    )
    
    
    
    
    (12,486
    )Fair value of stock granted
    
    275,000
    
    
    275
    
    
    42,473
    
    
    
    
    
    42,748Fair value of options granted [note
      7[c]]
    
    
    
    
    
    
    
    56,462
    
    
    
    
    
    56,462Settlement of accounts payable [note 7[a]]
    
    436,929
    
    
    437
    
    
    59,563
    
    
    
    
    
    60,000Net loss for the period
    
    
    
    
    
    
    
    
    
    
    (1,204,896
    )
    
    (1,204,896
    )Balance,
      September 30, 2010
    
    89,710,132
    
    
    89,710
    
    
    40,198,276
    
    
    (36,407,806
    )
    
    3,880,180


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)

|                                                                                  |  | Six           |   |  | Six           |   |  | Period from    |  
|--------------------------------------------------------------------------------- |  | ------------- | - |  | ------------- | - |  | -------------- | -
|                                                                                  |  | months ended  |   |  | months ended  |   |  | April 24, 2003 |  
|                                                                                  |  | September 30, |   |  | September 30, |   |  | (inception) to |  
|                                                                                  |  | 2010          |   |  | 2009          |   |  | September 30,  |  
|                                                                                  |  |               |   |  |               |   |  | 2010           |  
|                                                                                  |  | $             |   |  | $             |   |  | $              |  
|                                                                                  |  |               |   |  |               |   |  |                |  
|OPERATING ACTIVITIES                                                              |  |               |   |  |               |   |  |                |  
|Net loss for the period                                                           |  | (1,204,896    | ) |  | (2,057,085    | ) |  | (36,407,806    | )
|Items not involving cash:                                                         |  |               |   |  |               |   |  |                |  
|Depreciation                                                                      |  | 27,622        |   |  | 22,103        |   |  | 281,252        |  
|(Gain) loss on
      disposal of equipment                                        |  | -             |   |  | (18,928       | ) |  | 5,624          |  
|Write down of accrued liability                                                   |  | (124,008      | ) |  | -             |   |  | (124,008       | )
|Fair value of
      options, warrants and other non-cash compensation [note 7[c]] |  | 99,210        |   |  | 72,079        |   |  | 3,436,183      |  
|Non-cash interest expense on
      discontinued operations [note 3]               |  | 10,364        |   |  | 200,663       |   |  | 725,304        |  
|Realized (gain)
      loss on securities                                          |  | (28,521       | ) |  | 13,484        |   |  | 126,282        |  
|Unrealized (gain) loss on sale
      of securities                                |  | 104,292       |   |  | (83,760       | ) |  | -              |  
|Held for trading
      securities included in lease revenue                       |  | -             |   |  | -             |   |  | (9,598         | )
|Impairment of carrying value of
      exploration properties [note 3]             |  | -             |   |  | -             |   |  | 5,100,000      |  
|Loss (gain) on
      disposal of mineral properties                               |  | -             |   |  | 58,553        |   |  | 53,168         |  
|Loss (gain) on change in warrant
      liability [note 7[b]]                      |  | -             |   |  | 255,439       |   |  | (2,676,000     | )
|Gain on
      extinguishment of debt [note 3]                                     |  | -             |   |  | -             |   |  | (1,327,076     | )
|Gain on sale of discontinued
      operations [note 3]                            |  | (653,949      | ) |  | -             |   |  | (653,949       | )
|Changes in non-cash working
      capital items:                                  |  |               |   |  |               |   |  |                |  
|Accounts receivable                                                               |  | 29,960        |   |  | 15,373        |   |  | (2,703         | )
|Accounts payable
      and accrued liabilities                                    |  | (313,857      | ) |  | 336,718       |   |  | 276,927        |  
|Prepaid expenses                                                                  |  | (10,040       | ) |  | 33,472        |   |  | (41,017        | )
|Cash used in operating activities                                                 |  | (2,063,822    | ) |  | (1,151,889    | ) |  | (31,113,409    | )
|INVESTING ACTIVITIES                                                              |  |               |   |  |               |   |  |                |  
|Other assets [note 9]                                                             |  | (54,578       | ) |  | -             |   |  | (215,355       | )
|Option payment received [note 4]                                                  |  | 100,000       |   |  | -             |   |  | 100,000        |  
|Purchase of equipment                                                             |  | (58,307       | ) |  | (734          | ) |  | (364,502       | )
|Cash received from sale of discontinued
      operations                          |  | 2,250,000     |   |  | -             |   |  | 2,250,000      |  
|Nevada Eagle acquisition and
      related non-compete agreement [note 3]         |  |               |   |  |               |   |  | (3,068,340     | )
|Mineral property expenditures [note 4]                                            |  | (11,003       | ) |  | (9,079        | ) |  | (2,003,133     | )
|Mineral property lease
      payments received                                    |  | -             |   |  | 106,750       |   |  | 1,499,854      |  
|Proceeds from sale of mineral properties                                          |  | -             |   |  | 50,000        |   |  | 200,000        |  
|Option payment to amend
      royalty [note 6]                                    |  | (150,000      | ) |  | -             |   |  | (460,902       | )
|Proceeds from sales of held for trading
      securities                          |  | 116,195       |   |  | 9,951         |   |  | 177,149        |  
|Proceeds from note receivable                                                     |  | 4,757         |   |  | 5,000         |   |  | 15,185         |  
|Proceeds from sale of equipment                                                   |  | -             |   |  | 1,571         |   |  | 16,403         |  
|Cash provided (used) by investing activities                                      |  | 2,197,064     |   |  | 163,459       |   |  | (1,853,641     | )
|FINANCING ACTIVITIES                                                              |  |               |   |  |               |   |  |                |  
|Cash paid on extinguishment
      of debt [note 3]                                |  | -             |   |  | -             |   |  | (500,000       | )
|Capital lease principal payments                                                  |  | -             |   |  | -             |   |  | (53,523        | )
|Exercise of warrants                                                              |  | -             |   |  | 1,161,036     |   |  | 1,161,036      |  
|Shares issued for cash                                                            |  | 200,000       |   |  | -             |   |  | 36,570,369     |  
|Share issue costs                                                                 |  | (12,486       | ) |  | -             |   |  | (3,342,145     | )
|Subscription receivables collected                                                |  | -             |   |  | -             |   |  | 389,125        |  
|Cash provided by financing activities                                             |  | 187,514       |   |  | 1,161,036     |   |  | 34,224,862     |  
|Increase (decrease) in cash during
      the period                               |  | 320,756       |   |  | 172,606       |   |  | 1,257,812      |  
|Cash, beginning of period                                                         |  | 937,056       |   |  | 799,517       |   |  |                |  
|Cash, end of period                                                               |  | 1,257,812     |   |  | 972,123       |   |  | 1,257,812      |  
|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      |  
|Share consideration paid to former owners of
      discontinued operations        |  | 270,000       |   |  |               |   |  | 270,000        |  
|Asset retirement obligation                                                       |  | 48 254        |   |  |               |   |  | 48 254         |  

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 Corporation(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 subsidiary, Borealis Mining Company,
(collectively, Gryphon Gold or the Company). The Company is an exploration
stage company in the process of exploring 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), and 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. 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 $36,407,806 and at September 30, 2010 has cash on hand of
$1,257,812. 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 and six
month periods ended September 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 became the exclusive source of
authoritative U.S. generally accepted accounting principles (U.S. GAAP) to 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 Corporation(An Exploration Stage
Company)Notes to Consolidated Financial Statements (Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, COUNTINUED:
Fair value measurements, continued:

The Company measures its 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.

Asset Retirement Obligations

The Company accounts forreclamation costs by the
allocation of the expense over the life of the related assets which are
periodically adjusted to reflect changes in the estimated present value
resulting from the passage of time and revisions to the estimates of either the
timing or amount of the reclamation and abandonment costs. Such costs include
care and maintenance, removal of mining infrastructure, filling in of the mine
area, and re-vegetation of the land. The asset retirement obligation is based on
when the spending for an existing environmental disturbance and activity to date
will occur. The Company reviews, on an annual basis, unless otherwise deemed
necessary, its asset retirement obligation in accordance with Accounting
Standards Codification 410, Asset Retirement and Environmental
Obligations.

NEW ACCOUNTING PRONOUNCEMENTSFair Value
Accounting

In January 2010, the ASC guidance for fair value measurements
and disclosure was updated to require additional disclosures related to: i)
transfers in and out of level 1 and 2 fair value measurements and ii) enhanced
detail in the level 3 reconciliation. The guidance was amended to provide
clarity about: i) the level of disaggregation required for assets and
liabilities and ii) the disclosures required for inputs and valuation techniques
used to measure fair value for both recurring and nonrecurring measurements that
fall in either level 2 or level 3. The updated guidance was effective beginning
January 1, 2010, with the exception of the level 3 disaggregation which is
effective for the Companys fiscal year beginning March 31, 2010. The adoption
of this guidance is not expected to have an impact on the Companys consolidated
financial position, results of operations, or cash flows.

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 and six-month period ended
September 30, 2009 have been classified as such for comparative purposes for the
three and six-month period ended September 30, 2010.

7

---

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

3. 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.

4. 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  | )
|Mineral property
      expenditures                   |  | 11,003    |  
|Mineral property costs, September 30, 2010            |  | 1,841,912 |  

5. EXPLORATION

Period fromThree months
    
    
    Three months
    
    
    Six months
    
    
    Six months
    
    
    April 24, 2003ended
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    (inception) toSeptember
    
    
    September
    
    
    September
    
    
    **September**
    
    
    **September
      30,**30, 2010
    
    
    30, 2009
    
    
    30, 2010
    
    
    30,2009
    
    
    2010$
    
    
    $
    
    
    $
    
    
    $
    
    
    $NEVADA, USABorealis property Exploration:Drilling
    
    20,996
    
    
    (133
    )
    
    246,736
    
    
    324
    
    
    7,604,732Property maintenance
    
    154,537*
    
    
    167,486
    
    
    212,204
    
    
    285,487
    
    
    3,721,410Geologic and
      assay
    
    17,732
    
    
    162,352
    
    
    39,172
    
    
    163,262
    
    
    2,072,458Project management
    
    4,037
    
    
    126,112
    
    
    9,584
    
    
    126,112
    
    
    1,881,114Engineering
    
    3,645
    
    
    124,049
    
    
    69,241
    
    
    278,808
    
    
    1,525,810Metallurgy
    
    
    
    
    
    
    
    
    
    
    
    
    
    331,210Subtotal Borealis property
    
    200,947
    
    
    579,866
    
    
    576,937
    
    
    853,993
    
    
    17,136,734Other exploration
    
    (8,158
    )
    
    301
    
    
    1,492
    
    
    1,051
    
    
    43,697Total exploration
    
    192,789
    
    
    580,167
    
    
    578,429
    
    
    855,044
    
    
    17,180,431


*Property maintenance was reduced by $124,008 during the
three months ended September 30, 2010, due to an accrued liability at year end
that was written down as the Company has determined it has no legal obligation
to pay.

8

---

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

|6. OTHER ASSETS                                |  |               |  |  |           | 
|---------------------------------------------- |  | ------------- |  |  | --------- | 
|                                               |  | September 30, |  |  | March 31, | 
|                                               |  | 2010          |  |  | 2010      | 
|                                               |  | $             |  |  | $         | 
|                                               |  |               |  |  |           | 
|Reclamation bond & deposits                    |  | 215,355       |  |  | 160,777   | 
|Option to amend Borealis Property mining lease |  | 710,903       |  |  | 560,902   | 
|Asset retirement obligation                    |  | 48,254        |  |  | -         | 
|Total                                          |  | 974,512       |  |  | 721,679   | 

On September 30, 2010 the Company had $195,525 (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 $19,830 (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 six months ended September 30, 2010 by $61,925.

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 February 12, 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. On August 11, 2010
the option was extended until February 22, 2011 at a cost of $150,000 paid in
cash.

Reclamation and mine closure costs are based principally on
legal and regulatory requirements. Management estimates costs associated with
reclamation of mining properties as well as remediation costs for inactive
properties. The Company uses assumptions about future costs, mineral prices,
mineral processing recovery rates, production levels, capital costs and
reclamation costs. Such assumptions are based on the Companys current mining
plan and the best available information for making such estimates. In
calculating the present value of the asset retirement obligation the Company
used a risk free interest rate of 4%. On an ongoing basis, management evaluates
its estimates and assumptions; however, actual amounts could differ from those
based on such estimates and assumptions.

Changes to the Companys asset retirement obligations on its
Borealis property are as follows:

|                                                      |  | Six months    | 
|----------------------------------------------------- |  | ------------- | 
|                                                      |  | ended         | 
|                                                      |  | September 30, | 
|                                                      |  | 2010          | 
|                                                      |  | $             | 
|                                                      |  |               | 
|Asset retirement obligation  beginning
      balance |  | -             | 
|Incurred                                              |  | 48,254        | 
|Accretion                                             |  | -             | 
|Addition and changes in estimates                     |  | -             | 
|Settlements                                           |  | -             | 
|Asset retirement
      obligation ending balance      |  | 48,254        | 

7. 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 six months ended September 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.

9

---

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

7. CAPITAL STOCK, CONTINUED:

On February 5, 2010 the Company and the Debt holders, also
previous owners of the Companys discontinued operations, 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
was subject to obtaining Company shareholder and TSX approval (the Approvals).
In connection with the amendment the Company recorded a liability of $270,000
based upon the fair value of the common shares. On August 22, 2010 after
obtaining shareholder approval, the Company issued these 1,500,000 common shares
and extinguished the liability.

On September 20, 2010 the Company issued 275,000 restricted
stock units to three employees valued at $42,748.

[b] Warrants:

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

|Warrants Outstanding and Exercisable | 
|------------------------------------ | 
|                                     | 
|Warrants                             | 
|#                                    | 
|                                     | 
|5,448,667                            | 
|990,500                              | 
|732,215                              | 
|7,171,382                            | 

[c] Stock options:

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

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

|                                                                 |  | Three months  |  |  | Three months      |  |  | **Six months** |  |  | Six months | 
|---------------------------------------------------------------- |  | ------------- |  |  | ----------------- |  |  | -------------- |  |  | ---------- | 
|                                                                 |  | ended         |  |  | ended             |  |  | ended          |  |  | ended      | 
|                                                                 |  | September 30, |  |  | **September 30,** |  |  | **September**  |  |  | September  | 
|                                                                 |  | 2010          |  |  | 2009              |  |  | 30, 2010       |  |  | 30, 2009   | 
|                                                                 |  | $             |  |  | $                 |  |  | $              |  |  | $          | 
|                                                                 |  |               |  |  |                   |  |  |                |  |  |            | 
|Management salaries, exploration expense & consulting
      fees |  | 59,071        |  |  | 22,715            |  |  | 99,210         |  |  | 72,079     | 

Stock option activity

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

|                                                                                 |  | Number of |   |   | Weighted Average | 
|-------------------------------------------------------------------------------- |  | --------- | - | - | ---------------- | 
|                                                                                 |  | Stock     |   |   | exercise price   | 
|                                                                                 |  | Options   |   |   |                  | 
|                                                                                 |  |           |   |   |                  | 
|Outstanding, April 1, 2010                                                       |  | 4,507,500 |   | $ | 0.47*            | 
|Granted                                                                          |  | 1,125,000 |   | $ | 0.11             | 
|Forfeited                                                                        |  | (350,000  | ) | $ | 0.28*            | 
|Total outstanding
      at September 30, 2010                                    |  | 5,282,500 |   | $ | 0.41*            | 
|Vested and exercisable at September 30, 2010                                     |  | 4,457,500 |   | $ | 0.46*            | 
|* Based on the September 30, 2010 exchange
      rate of Cdn$1 equals US$0.9718.

10

---

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

7. 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% -108%    |  |  | 51% - 80%     | 
|Risk free interest rate |  | 0.72% -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 September 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$0.77Issued September
      20, 2010
    
    275,000
    
    
    275,000
    
    
    
    
    
    
    
    
    $0.16Outstanding at September 30, 2010
    
    1,073,670
    
    
    940,920
    
    
    132,750
    
    
    
    
    
    .


All issued restricted stock units have vested.

8. 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.

11

---

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

9. COMMITMENTS & CONTINGENCIES

[a] A portion of the Borealis Property is subject to a mining
lease. The Company is required to make monthly lease payments of $9,762,
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, office space in Hawthorne, Nevada for a
one year term, and office space in Carson City, Nevada for a one year term. The
following are the remaining rental lease commitments in relation to the office
lease:

|     | $     
|---- | ------
|2011 | 47,433
|2012 | 66,433
|2013 | 60,156
|2014 | 25,065

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 September 30, 2010 the Company has
accrued $40,646 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.

12

---

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.

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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

During the six months ended September 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
September 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 an independent
Preliminary Assessment (PA), which we released in 2008, with the aim of
identifying gold reserves and, if economically feasible, building a mine.

For a complete history of our Borealis Property, please see our
10-K for the fiscal year ended March 31, 2010 filed with the SEC.

Administration and Capital Resource Activities

The Company had no changes in its Administrative and Capital
resources during the three months ended September 30, 2010.

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 the 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 our 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 within
  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.

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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 September 30, 2010 compared to three
months ended September 30, 2009

For the three months ended September 30, 2010, we had a net
loss of $812,302 or $0.01 per share from continued operations compared to a net
loss of $1,320,285 or $0.02 per share from continuing operations and $341,085
net loss or $0.005 per share from discontinued operations in the same period in
the prior year.

Exploration expenses during the quarter ended September 30,
2010 were $192,789 or 24% of our total expenses compared to $580,167 or 44% of
our total expenses in the same period in the prior year. Most of the exploration
costs recognized in the current quarter were for the annual claim maintenance
fees and ongoing property lease payments.

Management salaries and consulting fees in the quarter ended
September 30, 2010 were $228,203 compared to $153,448 incurred in the quarter
ended September 30, 2009. Total non-cash compensation expense due to the
recognition of costs related to stock options was $59,170 in the quarter ended
September 30, 2010 compared to the prior years fiscal second quarter of
$22,715. 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
the hiring of a General Manager of Projects. General and administrative costs
increased to $208,098 compared to $133,432 the prior years quarter as a result
of increased investor relations activity. Legal and audit fees for the period
were $126,408, an increase from the prior years quarter of $120,757. Travel and
accommodation costs during the quarter ended September 30, 2010 were $35,755,
compared to $23,652 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 increased activity in connection with seeking financing.

We held certain securities for trading. During the quarter
ended September 30, 2010, we sold all remaining securities and received $42,385
in proceeds and recorded a realized gain of $9,461. 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.

Six months ended September 30, 2010 compared to six
months ended September 30, 2009

For the six-month period ended September 30, 2010 we incurred a
net loss of $1,840,604 or $0.023 per share from continuing operations and a net
income of $635,708 or $0.01per share from discontinued operations compared to a
net loss of $1,619,130 or $0.03 per share from continuing operations and a net
loss of $437,955 or $0.01 per share from discontinued operations incurred during
the same period in the prior year.

Exploration expenses during the six-month period ended
September 30, 2010 were $578,429 or 31% of our net expenses compared to $855,044
or 53% of net expenses in the same period in the prior year. The decrease is due
to very minimal engineering work compared to the prior year. During the six
months ended September 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 compared to no drilling done in
the prior years six months.

Management salaries and consulting fees in the six months ended
September 30, 2010 were $542,131 compared to $249,212 for the same period in the
prior year. The increase is due to the CEO returning to full time and the
addition of two employees and two part time contractors. Total non-cash
compensation costs included in the six months ended September 30, 2009 were
$99,210 versus $72,079 in the prior years comparable period.

Legal and audit fees for the six month period increased to
$183,281 from $143,444 incurred in the prior years comparable period. Travel
and accommodation during the six months ended September 30, 2010 was $69,293
compared to $28,566 reported in prior year six-month period ended September 30,
2009. The increase resulted from increased travel surrounding the Sage Option
Agreements well as financing activities. General and administrative expenses
were $347,931, versus $188,891 in the prior years comparable period. The
increase is due to increased investor relations activity, opening of new office
in Carson City and increased activity in the field office in Hawthorne,
Nevada.

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.

Borealis Mine

Sage Option Agreement

The Sage Option Agreement was terminated by both parties on
August 16, 2010. For full disclosure on the Option Agreement, please refer to
our 10K filed on June 28, 2010.

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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. On
August 11, 2010, the option was extended until February 22, 2011 for a cash
payment of $150,000.

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 a further extension of
the agreement before February 22, 2011. 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 September 30, 2010, we had working capital of $978,989 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 $1,257,812 in cash,
$6,453 in accounts receivable, $8,815 in the note receivable, and $41,021 in
prepaid expenses. We had $335,112 in accounts payable and accrued liabilities
and a long term asset retirement obligation liability of $48,254.

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.

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.

During the six months ended September 30, 2010, we used cash in
operating activities of $2,063,822 which included our net loss during the six
months of $1,240,895 off-set by depreciation of $27,622, non-cash compensation
of $99,210, non-cash interest expense of $10,364, unrealized loss of $104,292
and a $28,521 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 $29,960 decrease in accounts receivable, a $437,865 decrease in accounts
payable, a $10,040 increase in prepaid expenses and $60,000 of accounts payable
settled through an issuance of common stock.

We received cash from investing activities of $2,197,064
including $54,578 increase in reclamation bond, $100,000 from the Sage Option
Agreement, $58,307 in purchase of equipment, $2,250,000 in sale of discontinued
operations, $11,003 in mineral property expenditures, $150,000 option payment to
amend royalty, $116,195 from the sale of securities, and $4,757 from the
payments on the note receivable.

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We received cash from financing activities of $187,514
including $200,000 from the sale of common shares, and $12,486 in share issue
costs for the six months ended September 30, 2010. Cash increased during the
period by $320,756 to $1,257,812 as at September 30, 2010.

Updated share capital as of November 12, 2010:

Basic Common Stock Issued and Outstanding
    89,710,132Warrants, Options and other Convertible Securities
    12,453,892Fully Diluted Common Stock
    102,164,024


Critical Accounting Policies and Estimates

Please see the notes to our audited financial statements
included in our 10-K for the fiscal year ended March 31, 2010 for a complete
list of our critical accounting policies and estimates.

Recent Accounting Pronouncements

Please see the notes to our unaudited financial statements for
a complete list of recent accounting pronouncements.

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 CEO and CFO, to
allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company has not been involved in any new legal proceedings
during the three or six-month period ended September 30, 2010. For more
information on past legal proceedings please see our 10-K for the fiscal year
ended March 31, 2010 filed with the SEC.

Item 1A. Risk Factors

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

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

During the six months ended September 30, 2010, all
transactions in which we have offered and sold 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.

Item 6. Exhibits

Number Description

|31.1 | CEO Certification pursuant to Rule 13a-14(a) as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated
      November 12, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 | CFO Certification pursuant to Rule 13a-14(a) as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated
      November 12, 2010.
|32.1 | CEO Certification pursuant to 18 U.S.C. 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
      November 12, 2010.
|32.2 | CFO Certification pursuant to 18 U.S.C. 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
      November 12, 2010.

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SIGNATURES

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

GRYPHON GOLD CORPORATION (Registrant)

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

Date: November 12, 2010

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

Date: November 12, 2010

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