UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



|Q                                            |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ACT OF 1934 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------
|                                            
|For the quarterly period ended June 30, 2008
|                                            
|OR                                          
|                                             |  |                                                                                           
|£                                            |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ACT OF 1934



For the transition period from _____ to _____



Commission file number: 333-127635







GRYPHON GOLD CORPORATION

(Exact Name of Registrant as Specified in its Charter)



|Nevada                                                         |  | 92-0185596                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State of other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|1130 West Pender Street, Suite 810                             |  |                                     
|Vancouver, British Columbia                                    |  | V6E 4A4                             
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          



(604) 261-2229

(Registrants Telephone Number, including Area Code)





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





Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.      Q
Yes     £
No



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

|                           |                            
|-------------------------- | ---------------------------
|Large accelerated filer

£ | Accelerated filer

£       
|                           |                            
|Non-accelerated filer

£   | Smaller reporting company Q



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

£      No

Q



Number of common shares outstanding at August 13, 2008:  61,977,065



---



GRYPHON GOLD CORPORATION

June 30, 2008



INDEX

|                                   |                                                                                                                              | Page
    No.(s)
|---------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ---------------
|                                   |                                                                                                                              |                
|PART I
    - FINANCIAL INFORMATION |                                                                                                                             
|                                   |                                                                                                                              |                
|Item 1.                            | Financial
    Statements.                                                                                                    |                
|                                   |                                                                                                                              |                
|                                   | Unaudited Interim
    Consolidated Financial Statements as of June 30, 2008                                                  | 2              
|                                   |                                                                                                                              |                
|                                   | Unaudited Consolidated
    Balance Sheet as of June 30, 2008 and Audited Consolidated Balance Sheet as
    of March 31, 2008 | 2              
|                                   |                                                                                                                              |                
|                                   | Unaudited Consolidated
    Statements of Operations for the three months ended June 30, 2008 and 2007                        | 3              
|                                   |                                                                                                                              |                
|                                   | Unaudited Consolidated
    Statements of Stockholders Equity                                                                | 4              
|                                   |                                                                                                                              |                
|                                   | Unaudited Consolidated
    Statements of Cash Flows for the three months ended June 30, 2008 and 2007                        | 5              
|                                   |                                                                                                                              |                
|                                   | Notes to Unaudited
    Interim Consolidated Financial Statements                                                             | 6              
|                                   |                                                                                                                              |                
|Item 2.                            | Managements
    Discussion and Analysis of Financial Condition and Results of Operation.                                    | 16             
|                                   |                                                                                                                              |                
|Item 3.                            | Quantitative and
    Qualitative Disclosures About Market Risk.                                                              | 26             
|                                   |                                                                                                                              |                
|Item 4.                            | Controls and
    Procedures.                                                                                                 | 26             
|                                   |                                                                                                                              |                
|PART II
    - OTHER INFORMATION    |                                                                                                                             
|                                   |                                                                                                                              |                
|Item 1.                            | Legal Proceedings.                                                                                                           | 27             
|                                   |                                                                                                                              |                
|Item 1A.                           | Risk Factors.                                                                                                                | 27             
|                                   |                                                                                                                              |                
|Item 2.                            | Unregistered Sales
    of Equity Securities and Use of Proceeds.                                                             | 27             
|                                   |                                                                                                                              |                
|Item 3.                            | Defaults Upon
    Senior Securities.                                                                                         | 27             
|                                   |                                                                                                                              |                
|Item 4.                            | Submission of
    Matters to a Vote of Security Holders.                                                                     | 27             
|                                   |                                                                                                                              |                
|Item 5.                            | Other Information.                                                                                                           | 27             
|                                   |                                                                                                                              |                
|Item 6.                            | Exhibits.                                                                                                                    | 28             
|                                   |                                                                                                                              |                
|SIGNATURES                         | 29                                                                                                                          



i

---





Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED BALANCE SHEETS

(Stated in U.S. dollars)

(Unaudited)



|                                                 | As at
June 30,
2008
$ | As at
March 31,
2008
$
|------------------------------------------------ | --------------------- | ----------------------
|                                                 |                       |                       
|ASSETS                                           |                       |                       
|Current                                          |                       |                       
|Cash                                             | 2,637,991             | 4,196,394             
|Held for trading securities                      | 116,411               | 151,543               
|Accounts receivable                              | 98,116                | 92,104                
|Prepaid expenses                                 | 112,429               | 142,540               
|Total Current Assets                             | 2,964,947             | 4,582,581             
|                                                 |                       |                       
|Equipment [note 4]                               | 148,460               | 142,511               
|Mineral properties [notes 3 & 5]                 | 12,177,866            | 12,209,864            
|Other assets [note 7]                            | 268,100               | 257,844               
|                                                 | 15,559,373            | 17,192,800            
|                                                 |                       |                       
|LIABILITIES AND STOCKHOLDERS EQUITY             |                       |                       
|Current                                          |                       |                       
|Accounts payable and accrued liabilities         | 289,441               | 626,843               
|Current portion of capital lease [note 8]        |                      | 18,127                
|Total current liabilities                        | 289,441               | 644,970               
|                                                 |                       |                       
|Convertible promissory note [note 9]             | 4,499,337             | 4,432,134             
|                                                 |                       |                       
|Commitments and contingencies [note 12]          |                       |                       
|                                                 |                       |                       
|Stockholders equity                             |                       |                       
|Common stock                                     | 61,777                | 61,735                
|Additional paid-in capital                       | 37,979,312            | 37,885,549            
|Deficit accumulated during the exploration stage | (27,270,494)          | (25,831,588)          
|Total stockholders equity                       | 10,770,595            | 12,115,696            
|                                                 | 15,559,373            | 17,192,800            

See accompanying notes



2

---



Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in U.S. dollars)

(Unaudited)



|                                                                       | Three months ended | Period from
  April 24, 2003 
  (inception) to 
  June 30, 2008
$
|---------------------------------------------------------------------- | ------------------ | -----------------------------------------------------------------
|                                                                       | June 30, 
  2008
$ | June 30, 
  2007
$                                               
|Exploration [note 6]                                                   | 686,668            | 1,478,472                                                        
|Management salaries and consulting fees [note 11]                      | 328,026            | 438,363                                                          
|General and administrative                                             | 149,072            | 242,861                                                          
|Legal and audit                                                        | 89,090             | 71,297                                                           
|Travel and accommodation                                               | 27,935             | 52,652                                                           
|Depreciation & amortization                                            | 16,882             | 13,847                                                           
|(Gain) loss on disposal of equipment                                   | (820)              |                                                                 
|Foreign exchange (gain) loss                                           | (5,513)            | 3,200                                                            
|Interest income                                                        | (16,042)           | (74,139)                                                         
|Interest expense                                                       | 130,169            |                                                                 
|                                                                       |                    |                                                                  
|Unrealized loss on securities                                          | 33,439             |                                                                 
|                                                                       |                    |                                                                  
|Net loss for the period                                                | (1,438,906)        | (2,226,553)                                                      
|                                                                       |                    |                                                                  
|Basic and diluted loss per share                                       | $(0.02)            | $(0.05)                                                          
|                                                                       |                    |                                                                  
|Basic and diluted weighted average number of common shares outstanding | 61,759,206         | 47,485,585                                                       

See accompanying notes



3

---





Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED STATEMENTS OF 
STOCKHOLDERS EQUITY

(Stated in U.S. dollars)

(Unaudited)



|                                                                               |              |         |             | Deficit      |             
|------------------------------------------------------------------------------ | ------------ | ------- | ----------- | ------------ | ------------
|                                                                               |              |         |             | accumulated  |             
|                                                                               |              |         | Additional  | during the   |             
|                                                                               | Common Stock | paid-in | exploration |             
|                                                                               | Shares       | Amount  | capital     | stage        | Total       
|                                                                               | #            | $       | $           | $            | $           
|                                                                               |              |         |             |              |             
|Balance, inception April 24, 2003                                              |              |         |             |              |             
|Shares issued:                                                                 |              |         |             |              |             
|For private placements                                                         | 38,326,370   | 38,326  | 20,731,825  |             | 20,770,151  
|Share issue costs                                                              |             |        | (740,553)   |             | (740,553)   
|Initial Public Offering (IPO)                                                  | 6,900,000    | 6,900   | 5,029,597   |             | 5,036,497   
|Share issue costs (IPO)                                                        |             |        | (2,241,940) |             | (2,241,940) 
|Compensation component of shares issued                                        |             |        | 226,000     |             | 226,000     
|Fair value of agents warrants issued on private placements [note 10[b]]       |             |        | 168,137     |             | 168,137     
|Fair value of options granted to        consultants [note 10[c]]               |             |        | 49,558      |             | 49,558      
|Fair value of underwriterscompensation warrants on IPO[note 10[b]]            |             |        | 135,100     |             | 135,100     
|Fair value of options granted [note 10[c]]                                     |             |        | 1,314,961   |             | 1,314,961   
|Fair value of vested stock grants                                              | 108,000      | 108     | 151,138     |             | 151,246     
|Exercise of warrants                                                           | 1,855,775    | 1,856   | 1,742,979   |             | 1,744,835   
|Exercise of options                                                            | 107,500      | 108     | 83,066      |             | 83,174      
|Net loss since inception                                                       |             |        |            | (17,980,822) | (17,980,822)
|Balance, March 31, 2007                                                        | 47,297,645   | 47,298  | 26,649,868  | (17,980,822) | 8,716,344   
|Shares issued:                                                                 |              |         |             |              |             
|For private placements [note [10[a]]                                           | 9,486,500    | 9,487   | 7,346,431   |             | 7,355,918   
|Share issue costs                                                              |             |        | (523,288)   |             | (523,288)   
|For mineral properties [note 3]                                                | 4,500,000    | 4,500   | 3,444,918   |             | 3,449,418   
|Fair value of agents warrants issued on private placements [note 10[a] &[b]]] |             |        | 54,490      |             | 54,490      
|Fair value of options granted [note 10[c]]                                     |             |        | 459,519     |             | 459,519     
|Fair value of vested stock grants [notes 10 [a] &[d]]                          | 321,250      | 320     | 369,241     |             | 369,561     
|Exercise of warrants [note 10[b]]                                              | 130,000      | 130     | 84,370      |             | 84,500      
|Net loss for the period                                                        |             |        |            | (7,850,766)  | (7,850,766) 
|Balance, March 31, 2008                                                        | 61,735,395   | 61,735  | 37,885,549  | (25,831,588) | 12,115,696  
|Shares issued:                                                                 |              |         |             |              |             
|Shares issue cost                                                              |             |        | (9,246)     |             | (9,246)     
|Fair value of options granted [note 10[c]]                                     |             |        | 71,156      |             | 71,156      
|Fair value of vested stock grants [notes 10 [a] &[d]]                          | 41,670       | 42      | 31,853      |             | 31,895      
|Net loss for the period                                                        |             |        |            | (1,438,906)  | (1,438,906) 
|Balance, June 30, 2008                                                         | 61,777,065   | 61,777  | 37,979,312  | (27,270,494) | 10,770,595  

See accompanying notes

4

---



Gryphon Gold Corporation

(an exploration stage company)



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. dollars)

(Unaudited)



|                                                                    |                    |                | Period from   
|------------------------------------------------------------------- | ------------------ | -------------- | --------------
|                                                                    |                    |                | April 24, 2003
|                                                                    | Three months ended | (inception) to
|                                                                    | June 30,           | June 30,       | June 30,      
|                                                                    | 2008               | 2007           | 2008          
|                                                                    | $                  | $              | $             
|OPERATING ACTIVITIES                                                |                    |                |               
|Net loss for the period                                             | (1,438,906)        | (2,226,553)    | (27,270,494)  
|Items not involving cash:                                           |                    |                |               
|Depreciation                                                        | 16,882             | 13,847         | 170,371       
|(Gain) loss on disposal of equipment                                | (820)              |               | 25,454        
|Fair value of options, warrants and other non-cash compensation     | 103,051            | 213,032        | 2,752,271     
|Non-cash interest expense [note 9]                                  | 67,203             |               | 226,978       
|Unrealized loss on securities                                       | 33,439             |               | 74,926        
|Changes in non-cash working capital items:                          |                    |                |               
|Amounts receivable                                                  | (6,012)            | (21,769)       | (98,116)      
|Accounts payable and accrued liabilities                            | (335,709)          | 21,119         | 291,134       
|Prepaid expenses                                                    | 30,111             | (108,348)      | (112,429)     
|Cash used in operating activities                                   | (1,530,761)        | (2,108,672)    | (23,939,905)  
|                                                                    |                    |                |               
|INVESTING ACTIVITIES                                                |                    |                |               
|Reclamation deposit                                                 | (13,801)           | (9,700)        | (209,437)     
|Purchase of equipment                                               | (33,139)           | (23,830)       | (284,781)     
|Nevada Eagle acquisition and related non-compete agreement [note 3] |                   | (103,813)      | (3,068,340)   
|Mineral property expenditures [note 5]                              | (36,002)           |               | (1,965,492)   
|Mineral property lease payments received                            | 68,000             |               | 313,805       
|Proceeds from sale of equipment                                     |                   |               | 6,264         
|Cash used by investing activities                                   | (14,942)           | (137,343)      | (5,207,981)   
|                                                                    |                    |                |               
|FINANCING ACTIVITIES                                                |                    |                |               
|Capital lease principal payments                                    | (3,454)            | (5,753)        | (53,523)      
|Cash received for shares                                            |                   | 84,500         | 34,607,555    
|Share issue costs                                                   | (9,246)            |               | (3,157,280)   
|Subscription receivables collected                                  |                   |               | 389,125       
|Cash provided by financing activities                               | (12,700)           | 78,747         | 31,785,877    
|                                                                    |                    |                |               
|(Decrease) increase in cash during the period                       | (1,558,403)        | (2,167,268)    | 2,637,991     
|Cash and cash equivalents, beginning of period                      | 4,196,394          | 7,150,154      |              
|Cash and cash equivalents, end of period                            | 2,637,991          | 4,982,886      | 2,637,991     

See accompanying notes



5

---





1. NATURE OF OPERATIONS AND CONTINUANCE OF OPERATIONS



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



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



2. BASIS OF PRESENTATION



These interim unaudited consolidated financial statements were prepared by the Company in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial statements applied on a consistent basis.  These interim financial statements follow the same significant accounting policies and methods of application as those disclosed in Note 2 to the Companys audited consolidated financial statements as at and for the year ended March 31, 2008 (the Annual Financial Statements).  Accordingly, they do not include all disclosures required for annual financial statements.  These interim unaudited consolidated financial statements and notes thereon should be read in conjunction with the Annual Financial Statements.



The preparation of these interim unaudited consolidated financial statements and the accompanying notes  requires management to make estimates and assumptions that affect the amounts reported.  In the opinion of management, these interim unaudited consolidated financial statements reflect all adjustments (which include only normal, recurring adjustments) necessary to state fairly the results for the periods presented. Actual results could vary from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.



NEW POLICIES ADOPTED



September 2006, the FASB issued SFAS No. 157,  Fair Value Measurements. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 did not have a material effect on its financial statements.



The Company measures its held for trading securities at fair value in accordance with SFAS 157. SFAS 157 specifies a valuation hierarchy based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys own assumptions. These two types of inputs have created the following fair value hierarchy:

- 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.

6

---



This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value. The fair value of the held for trading securities using the following inputs at June 30, 2008 is:



Fair Value Measurements at Reporting Date Using

|          |   |                                                         |  |   |                                       |  |   |                                   | 
|--------- | - | ------------------------------------------------------- |  | - | ------------------------------------- |  | - | --------------------------------- | 
|          |   | Quoted Prices in 
Active Markets 
for Identical 
Assets |  |   | Significant Other 
Observable 
Inputs |  |   | Significant 
Unobservable 
Inputs | 
|Total     |   | (Level 1)                                               |  |   | (Level 2)                             |  |   | (Level 3)                         | 
|$ 116,411 | $ | 116,411                                                 |  | $ |                                      |  | $ |                                  | 



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



RECENT ACCOUNTING PRONOUNCEMENTS



In December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations, which amends SFAS No. 141, and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for the Companys fiscal year beginning April 1, 2009 and is to be applied prospectively.



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



3. ACQUISTION OF NEVADA EAGLE RESOURCES LLC



On August 21, 2007 Gryphon Gold Corporation closed the acquisition of Nevada Eagle Resources LLC, a privately held Nevada limited liability company (Nevada Eagle), pursuant to a membership interest purchase agreement (the Purchase Agreement), dated July 4, 2007, by and between the Company, Gerald W. Baughman and Fabiola Baughman, as sellers (Sellers), and Nevada Eagle. Under the Purchase Agreement, the company acquired all of the outstanding limited liability company interests of Nevada Eagle from the Sellers (the Acquisition) for the following consideration, paid on August 21, 2007 (the Closing Date):



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



(b) 4,500,000 shares
of common stock of the Company (the "Common Shares") valued at $3,449,418; and



(c) a 5% convertible
note in the principal amount of $5,000,000 (the "Convertible Note") with an
issue date of August 21, 2007 and a fair value of $4,272,359.



7

---





3. ACQUISITION OF NEVADA EAGLE RESOUCES LLC (contd.)



The Convertible Note, due March 30, 2010, bears interest at an annual rate of 5% and is convertible at the option of the holder into common shares of the Registrant at an initial conversion price of $1.00 per share during first the twelve-month period following the Closing Date, $1.25 per share during the second twelve-month period following the Closing Date, $1.50 per share thereafter, and $1.75 per share if converted on March 30, 2010. The interest payments are due beginning on January 1, 2008, and payable thereafter on each January 1, and June 1.



In addition to the purchase consideration, the Sellers were entitled to all revenues of Nevada Eagle (payable in cash, stock, or other consideration) calculated to be received and received on the Assets and Properties from January 1, 2007 through midnight on December 31, 2007; however, pursuant to a letter agreement between the Company and the Sellers, dated August 21, 2007, the Sellers revenue right does not include revenues generated or arising from any new agreements entered into by the Company regarding the acquired properties executed after August 21, 2007.

Considerationpaid for acquisition of Nevada Eagle



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



4. EQUIPMENT



|                           | June 30, 2008
|-------------------------- | -------------
|                           | Cost
$       
|Office and lab equipment   | 199,532      
|Trucks under capital lease | 64,097       
|Total                      | 263,629      







|                           | March 31, 2008
|-------------------------- | --------------
|                           | Cost
$        
|Office and lab equipment   | 197,986       
|Trucks under capital lease | 71,319        
|Total                      | 269,305       



8

---





5. MINERAL PROPERTIES



The Company initially entered into a property option agreement dated July 21, 2003 to acquire up to a 70% interest in the Borealis property in Nevada, USA from Golden Phoenix Minerals, Inc. for cash consideration of $125,000 and the obligation to make qualifying expenditures over several years. On January 28, 2005, the Company purchased outright the rights to a full 100% interest in the property for $1,400,000. A cash payment of $400,000 was made on closing.  The Company paid the full outstanding consideration of $1,000,000, in four quarterly payments of $250,000 during the year ended March 31, 2006.



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



|                                            | Total
$   
|------------------------------------------- | ----------
|Mineral property costs, March 31, 2006      | 1,898,207 
|Expenditures during the year                | 22,164    
|Mineral property costs, March 31, 2007      | 1,920,371 
|Nevada Eagle acquisition [note 3]           | 10,719,209
|Lease payments received (cash)              | (245,805) 
|Lease payments received (shares & warrants) | (193,030) 
|Expenditures during the period              | 9,119     
|Mineral property costs, March 31, 2008      | 12,209,864
|Lease payments received (cash)              | (68,000)  
|Expenditures during the period              | 36,002    
|Mineral property cost, June 30, 2008        | 12,177,866



6. EXPLORATION



|                           | Three Months Ended | Period from 
  April 24, 2003 
  (inception) to 
  June 30, 2008
$
|-------------------------- | ------------------ | ------------------------------------------------------------------
|                           | June 30, 2008
$    | June 30, 2007
$                                                   
|NEVADA, USA                |                    |                                                                   
|Borealis property          |                    |                                                                   
|Exploration:               |                    |                                                                   
|Drilling                   | 285,500            |                                                                   
|Property maintenance       | 137,246            |                                                                   
|Geologic and assay         | 35,036             |                                                                   
|Project management         | 68,101             |                                                                   
|Engineering                | 130,492            |                                                                   
|Metallurgy                 | 17,990             |                                                                   
|Subtotal Borealis property | 674,365            |                                                                   
|Other exploration          | 12,303             |                                                                   
|Total exploration          | 686,668            |                                                                   



9

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7. OTHER ASSETS



|                                                                 | June 30,  2008
$ | March 31, 2008
$
|---------------------------------------------------------------- | ---------------- | ----------------
|Reclamation bond & deposits                                      | 209,437          | 195,636         
|Non-compete agreement (net of  accumulated amortization $12,245) | 58,663           | 62,208          
|                                                                 | 268,100          | 257,844         



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



As part of the acquisition of Nevada Eagle (note 3), the primary interest holder entered into a non-compete agreement.  The non-compete agreement is being amortized over 5 years.



8. CAPITAL LEASE



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



9. CONVERTIBLE PROMISSORY NOTE



|                                                                                                                                                                                                                                                                                             | June 30, 2008
$ | March 31, 2008
$
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ----------------
|Convertible promissory note, with a face value of $5,000,000 due March 30, 2010, unsecured, bearing interest at 5%.  
  Interest is payable each January 1st and June 1st.  Discount accretion for the period from August 21, 2007 (date of issue)
  
  to June 30, 2008, totalled $226,980. | 4,499,337       | 4,432,134       



Gryphon Gold issued a Convertible Promissory Note to the former owner of Nevada Eagle with a face amount of $5,000,000, due March 30, 2010, bearing interest at 5% per annum, payable on January 1 and June 1 of each year.  The note is convertible at the holders option into shares for the first 12 months after closing at a conversion price of $1 per common share; for the next 12 months at $1.25 per common share; for the period 24 months from closing to March 29, 2010 at $1.50 per common share and on March 30, 2010 at $1.75 per common share.  The conversion rate is subject to certain anti-dilution adjustments and is subject to adjustment on payment of cash dividends by Gryphon Gold.  Upon an event of default, which includes amongst other things a change in control of Gryphon Gold, the holder may demand repayment of the principal amount of the debenture or exercise the conversion feature for a fixed number of shares. After an event of default, the interest rate on the convertible debenture increases to 9%.  The change in control event of default acceleration feature is considered an embedded derivative however its issue date fair value is not considered to be significant, nor is it considered to be significant at June 30, 2008.  The conversion feature does not require bifurcation in the financial statements because it is not a beneficial conversion feature and a cash payment is not required if common shares issued at time of conversion are never successfully registered.  The Convertible Promissory Note, including the conversion feature and change in control event of default acceleration feature embedded derivative, was recorded at its estimated issue date fair value of $4,272,359 at date of issue.  Interest and discount accretion of $62,329 and $67,203, for the quarter ended June 30, 2008, has been recorded as interest expense in the unaudited consolidated income statement.  The former owner of Nevada Eagle is also an employee of the Company (see note 3) and subsequent to June 30, 2008 an option agreement to amend the terms of the note payable was executed (see note 13).



10

---





10. CAPITAL STOCK



[a]

Authorized capital stock consists of 150,000,000 common shares with a par value of $0.001 per share and 15,000,000 preferred shares with a par value of $0.001 per share.



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



[b]

Warrants:



The following table contains information with respect to all warrants:



Number of Warrants
  Fair Value of Warrants#
  $Warrants outstanding, March 31, 2004
  
  Issued for:Private placements
  3,407,981
  Agents compensation
  141,008
  45,100Exercised
  
  Warrants outstanding, March 31, 2005
  3,548,989
  45,100Issued for:Private placements
  3,015,204
  Agents compensation on private placement
  130,000
  35,100Initial Public Offering (IPO)  Series A
  6,900,000
  Underwriters compensation on IPO
  690,000
  135,100Private placements  Series B
  2,737,500
  Agents compensation on private placement  Series C
  280,500
  76,540Exercised
  (197,500)
  Warrants outstanding, March 31, 2006
  17,104,693
  291,840Issued for:Private placements  Series D
  64,500
  Private placements  Series E
  5,000,000
  Agents compensation on private placement  Series F
  85,050
  11,397Exercised
  (1,658,275)
  Expired
  (15,175,410)
  Warrants outstanding, March 31, 2007
  5,420,558
  303,237Issued for:Private placements  Series G
  5,000,000
  Private placements  Series I
  4,486,500
  Agents compensation on private placement  Series H
  265,050
  44,040Agents compensation on private placement  Series J
  89,530
  10,450Exercised
  (130,000)
  Expired
  (290,558)
  Forfeited
  (14,000)
  Warrants outstanding, March 31, 2008
  14,827,080
  357,727Expired
  (265,050)
  Warrants outstanding, June 30, 2008
  14,562,030
  357,727


11

---





10. CAPITAL STOCK (contd)



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

Warrants Outstanding and Exercisable

Average Remaining LifeWarrants
      Years
      Exercise Price
      Expiry date#
      #5,000,000
      0.6
      Cdn$1.35
      February 9, 20095,000,000
      1.1
      Cdn$0.80*
      August 3, 20093,254,000
      1.4
      Cdn$1.00**
      November 22, 20091,050,000
      1.4
      Cdn$1.00**
      November 27, 2009182,500
      1.5
      Cdn$1.00**
      December 14, 200917,780
      0.2
      Cdn$0.80
      August 22, 200857,750
      0.2
      Cdn$0.80
      August 27, 200814,562,030
      0.9
      $1.10***




*The warrants are exercisable through August 3, 2008 at Cdn$0.80 and exercisable at Cdn$1.10 per unit thereafter until expiry

**The warrants are exercisable through November 21, November 26, and December 13, 2008 at Cdn$1.00 and exercisable at Cdn$1.25per unit  thereafter until expiry

***Based on the June 30, 2008 exchange rate of Cdn$1 equals US$0.9807.



The fair value of agents and underwriters warrants issued during 2008, 2007 and 2006 has been estimated using the Black-Scholes Option Pricing Model based on the following assumptions: a risk-free interest rate of 3.38% to 5.21% as of the date of transaction; expected life of 1 to 3 years depending on their terms; an expected volatility of 51% to 70% (based on the average volatility of companies in the industry at date of issuance for period equivalent to the expected life); and no expectation for the payment of dividends.



[c]

Stock options:



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



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



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



Three Months EndedJune 30, 2008
$
  June 30, 2007
$Management salaries, exploration expense & consulting fees
  103,051
  187,921




Stock option activity



The following table summarizes the Companys stock option activity for the three month ended June 30, 2008:

Three months ended  June 30, 2008
  Weighted Average exercise priceOutstanding, April 1, 2008
  6,069,500
  $0.97Granted
  500,000
  $0.40Exercised
  -
  -Forfeited
  (125,000)
  $0.83Total outstanding at June 30, 2008
  6,444,500
  $0.91Vested and exercisable at June 30, 2008
  5,127,000
  $0.97


* Based on the June 30, 2008 exchange rate of Cdn$1 equals US$0.9807.



12

---





10. CAPITAL STOCK (contd)



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



Stock Options Outstanding and ExercisableStock Options
Outstanding
  Average Remaining Life
(Years)
  Stock Options
Exercisable
  Average Remaining Life
of Exercisable (Years)
  Exercise price1,912,500
  1.8
  1,912,500
  1.9
  $0.75115,000
  2.3115,000
  2.4
  Cdn$0.8590,000
  2.5
  90,000
  2.5
  Cdn$1.1550,000
  2.550,000
  2.5
  Cdn$1.25185,000
  2.8
  185,000
  2.7
  Cdn$1.371,490,000
  3.81,490,000
  3.8
  Cdn$1.3730,000
  2.9
  30,000
  2.9
  Cdn$1.6050,000
  3.150,000
  3.1
  Cdn$1.2950,000
  3.3
  50,000
  3.3
  Cdn$1.34165,000
  3.5165,000
  3.5
  Cdn$0.8120,000
  3.6
  20,000
  3.6
  Cdn$0.88425,000
  3.7425,000
  3.7
  Cdn$0.8020,000
  3.8
  10,000
  3.8
  Cdn$0.95100,000
  4.2
  50,000
  4.2
  Cdn$0.7710,000
  0.3
  10,000
  0.3
  Cdn$0.81750,000
  4.2
  187,500
  4.2
  Cdn$0.9047,000
  4.3
  47,000
  4.3
  Cdn$0.88150,000
  4.50
  4.5
  Cdn$0.62250,000
  4.8
  100,000
  4.8
  Cdn$0.4935,000
  4.815,000
  4.8
  Cdn$0.43500,000
  4.8
  125,000
  4.8
  Cdn$0.416,444,500
  
  5,127,000




Valuation assumptions

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



2009
  2008Dividend yield
  0%
  0%Expected volatility
  54%
  49% - 55%Risk free interest rate
  2.06%
  1.79% -4.63%Expected lives
  3 years
  3 years




The risk-free interest rate is determined based on the rate at the time of grant for US government zero-coupon bonds for a 3 year term, which is a term equal to the estimated life of the option.  Dividend yield is based on the stock options exercise price and expected annual dividend rate at the time of grant.  Volatility is derived by measuring the average share price fluctuation of three publicly listed companies that operate in the same industry.  The period of historical volatility is the same period as the expected life of the option being 3 years.



The Black-Scholes option-pricing model used by the Company to calculate option values was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Companys stock option awards.  Options pricing models require the input of highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated values. Changes in these assumptions can materially affect the fair value estimate and therefore it is managements view that the existing models do not necessarily provide a single reliable measure of the fair value of the Companys equity instruments.



13

---





10. CAPITAL STOCK (contd)



The weighted-average fair value of options granted during the three months ended June 30, 2008 was US$0.24(exercise price Cdn$0.41).  Options granted under the Company Option Plan are not available to be granted again under the Company Option Plan upon exercise.



[d]

Restricted stock units:



The RSU stock grant entitles the recipient to receive shares of common stock of the Company upon vesting. The RSU grants can vest immediately or over a period for up to five years.

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



The Company recognizes stock-based compensation expense based on the grant date fair value of the award on a straight-line basis over the requisite service period of the individual grants, which generally equals the service period.  The grant date fair value of the restricted stock unit is calculated using the closing price of the Companys common stock on the date of the grant.



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



RSUs 
  Granted
  RSUs
Vested
  RSUs 
  Forfeited
  RSUs 
  Outstanding
  Weighted Average 
  Fair Value 
  at Grant DateOutstanding 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
  627,500
  308,750
  118,750
  200,000
  Cdn$0.82Issued May 1, 2007
  10,000
  
  10,000
  
  Issued September 6, 2007
  154,170
  41,670
  
  112,500
  Cdn$0.77Outstanding at June 30, 2008
  828,670
  373,420
  142,750
  312,500
  $0.80*


*Based on the June 30, 2008 exchange rate of Cdn$1 equals US$0.9807



11. RELATED PARTY TRANSACTIONS



All transactions with related parties have occurred in the normal course of operations and are measured at their exchange amount as determined by management. All material transactions and balances with related parties not disclosed elsewhere are described below:



On March 20, 2008, the Company entered into a consulting agreement with a director, former employee and shareholder for certain financial services.  The individual was paid $31,500 during the quarter ended June 30, 2008.



14

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12. COMMITMENTS & CONTINGENCIES



[a] A portion of the Borealis Property is subject to a mining lease. The Company is required to make monthly lease payments of $9,485, adjusted annually based on the Consumer Price Index, for the duration of the lease term. In addition, production of precious metals from the Borealis Property will be subject to the payment of a royalty under the terms of the mining lease. The mining lease expires in 2009, but may be renewed by the Company annually thereafter, so long as mining related activity, including exploration drilling, continues on the Borealis Property. The Company has the option to terminate the mining lease at any time prior to expiry in 2009.



[b] The Company rents office space in Vancouver, BC for a 3 year term. The following are the remaining rental lease commitments in relation to the office lease:





|     | $    
|---- | -----
|2009 | 6,847



In July 2008, a new 5-year lease was executed and provides for rental cost of approximately $5,010 per month for the first 3 years and $5,232 per month for the remaining two years.



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



13. SUBSEQUENT EVENTS



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



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



On July 8, 2008, four employees and one consultant were granted 235,000 options.  These options vest over one year and are exercisable at a price of Cdn$0.38 for a term of five years.



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



In August 2008, the Company entered into a Transition Agreement (TA) with an individual under which, the individual will cease to be an employee effective August 31, 2008 and cease to be a director of the Company during September, 2008.  The individual will receive monthly payments of $12,500 and certain incidental expenses for 12 monthly beginning September 2008.  The Company will record a charge to expense during the quarter ended September 30, 2008 to accrue the cost of the agreement.  The same individual has entered into a consulting agreement with the Company that becomes effective September 2008.  Under the agreement, the individual is eligible for 200,000 stock options and a success fee of 0.67% of any financing initiated during the term of agreement.



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



15

---

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, and Section 21E of the Securities Exchange
Act of 1934, as amended. 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"). 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. The information constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Given these uncertainties, readers are cautioned
not to place undue reliance on such forward-looking statements.
Cautionary Note Regarding Managements Discussion and
Analysis
This discussion and analysis should be read in conjunction
with the accompanying Consolidated Financial Statements and related notes. The
discussion and analysis of the financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of any contingent liabilities at the financial statement
date and reported amounts of revenue and expenses during the reporting period.
On an on-going basis the company reviews its estimates and assumptions. The
estimates were based on historical experience and other assumptions that the
company believes to be reasonable under the circumstances. Actual results are
likely to differ from those estimates under different assumptions or conditions,
but the company does not believe such differences will materially affect our
financial position or results of operations. Critical accounting policies, the
policies the company believes are most important to the presentation of its
financial statements and require the most difficult, subjective and complex
judgments, are outlined below in "Critical Accounting Policies," and have not
changed significantly.

Overview:

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

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

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



---



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

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

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

(a)     2,500,000
in cash;

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

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

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

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

We executed the following agreements at closing:

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

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



---



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

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

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

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

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



---



No exploration drilling was completed during the quarter
ended June 30, 2008. A water well necessary for the construction of an oxide
heap leach mine was installed during the quarter ended June 30, 2008. As of June
30, 2008, approximately 203 holes and 142,220 feet of RC drilling have been
completed. A majority of the holes were in the area of existing mineralization
in order to allow us to complete the PA with the aim of identifying gold
reserves and, if economically feasible, building a mine. During fiscal 2008, the
majority of the holes drilled were to attempt to expand the Graben resource or
complete exploration in the Pediment areas of the Borealis property.

We are currently performing exploration on the Borealis
Property for the purpose of identifying additional potential gold resources.
During calendar 2008 we expect to prepare a Preliminary Assessment report on the
previously mined area of the Borealis Property to further delineate the gold
mineralization available for the operation of a mine, design the open pit mine,
heap leach pads and gold recovery plant and to estimate the capital and
operating costs of the proposed mining scenario. Metallurgical test work
completed to date indicates the oxide material is amenable to conventional
heap-leach recovery methods. If we complete a PA during 2008 and, if warranted
have made a decision to begin development, we intend to develop our Borealis
Property and place it into production, assuming adequate additional capital is
available.

We expect that over the remainder of fiscal 2009 we will
perform exploration drilling in the pediment areas and certain of the previously
mined oxide areas, complete a Preliminary Assessment report examining the
economic viability of an oxide heap leach mine, and take steps as necessary to
ensure the permits under the existing Plan of Operation remain in place. We also
expect to complete a Scoping Study covering the possibility of mining the Graben
sulphide deposit along with sulphide resources located near the previously mined
Freedom Flats and Borealis open pits.

With respect to Nevada Eagle Resources, we expect to stake
additional properties and to continue to actively lease or joint venture
properties to third party exploration companies.

Events subsequent to June 30, 2008

In July 2008 we announced the appointment of John L. Key as
President and CEO, replacing Mr. Tony Ker. Mr. Key is a mining engineer with
over 30 years experience and has run, in succession, the Magmont, Polaris and
Red Dog mines in the Teck Cominco organization. Mr. Key had been acting as our
Chief Operating Officer for the past six months, and his primary focus has been
overseeing the completion the Preliminary Assessment on the Borealis heap leach
mine and advancing the project towards production.

Mr. Keys employment contract provides for the granting of
350,000 stock options.

Mr. Ker entered into a Transition Agreement (TA) with us in
August 2008, under which, Mr. Ker will cease to be an employee effective August
31, 2008 and cease to be a director of the Company upon the election of
directors at our Annual General Meeting September 5, 2008. Mr. Ker will receive
monthly payments of $12,500 and certain incidental expenses for 12 monthly
beginning September 2008. The Company will record a charge to expense during the
quarter ended September 30, 2008 to accrue the cost of the agreement. Mr. Ker
has entered into a consulting agreement with the Company that becomes effect
September 2008. Under the agreement, he is eligible for 200,000 stock options
and a success fee of 0.67% of any financing initiated during the term of this
agreement.

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



---



Fiscal 2009 Plan of Operations

Our 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 plan to release an independent
Preliminary Assessment ("PA") on the development of an oxide heap leach mine.
Depending on the results of the PA, 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.

The following activities are planned for the duration of
fiscal 2009:

- 









Results of Operations

We are in an exploration stage and currently have no
producing mineral properties and thus we had no revenues during all reporting
periods. Property payments we received under lease or joint venture arrangements
were recorded as a reduction in the carrying value of the property.

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

For the three months ended June 30, 2008, we had a net loss
of $1,438,906 or $0.02 per share compared to a net loss of $2,226,553 or $0.05
per share in the same period in the prior year, as spending on our exploration
program, management salaries and general and administrative costs decreased
significantly.

Exploration expenses during the quarter ended June 30, 2008
were $686,668 or 48% of our total expenses compared to $1,478,472 or 64% of
total expenses in the prior year. Most of the activity in the current quarter
was related to the completion of the Preliminary Assessment and the construction
of a water well. No exploration drilling was completed during the quarter ended
June 30, 2008. During the prior years comparable quarter, we drilled a total of
16 reverse circulation holes (totaling 18,890 feet) on the Borealis property.

Management salaries and consulting fees in the quarter ended
June 30, 2008 were $328,026 compared to $438,363 incurred in the quarter ended
June 30, 2007. Total non-cash compensation expense was $103,051 in the quarter
ended June 30, 2008 compared to the prior years fiscal first quarter of $213,
032. Salary costs decreased from prior years because fewer management personnel
were employed. Consulting fees during the quarter decreased due to reduced
spending on investor relations and related activities. General and
administration costs decreased compared to the prior year because of reduced
expenditures on investor relations activities. Legal and audit fees for the
period were $89,090, which is an increase compared to the prior years quarter
ended June 30, 2007 of $71,297. These costs increased to the additional audit
work related to Nevada Eagle Resources. Travel and accommodation during the
quarter ended June 30, 200 was $27,935, compared to $52,652 expended on travel
in the prior years comparable quarter. The decrease in travel and entertainment
is mainly due to decreased investor relations activity.



---



Interest income earned on cash deposits was $16,042 for the
quarter ended June 30, 2008, compared to $74,139 in the prior year quarter and
the decrease was due to reduced cash balances held on average through the
current quarter versus the prior years comparable quarter. Interest expense on
the note payable incurred to purchase Nevada Eagle Resources totaled $130,169 of
which $67,203 was non-cash accreted interest. We hold certain securities for
trading. We receive these securities as partial payment of lease obligations for
Nevada Eagle properties. During the quarter ended June 30, 2008, these shares
declined $33,439 in 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.

At June 30, 2008, we had working capital of $2,675,506.
Current assets consisted of $2,637,991 in cash, $116,411 in securities held for
trading, $98,116 in accounts receivable and $112,429 in prepaid expenses. We had
$289,441 in accounts payable at June 30, 2008.

During the quarter ended June 30, 2008, we used cash in
operating activities of $1,530,761 which included our net loss during the
quarter of $1,438,906, off-set by depreciation of $16,882, non-cash compensation
of $103,051, non-cash interest expense of $67,203, unrealized loss on securities
held for trading of $33,439 and changes in non-cash working capital of a $6,012
increase in accounts receivable, a $335,709 decrease in accounts payable and a
$30,111 decrease in pre-paid expenses. We used cash in investing activities of
$14,942, including $13,801 for reclamation deposits, $33,139 for equipment
purchases, $36,002 for mineral properties, and we received $68,000 in cash
payments from the leasing of exploration properties. Financing activities used
cash of $12,700, which included $9,246 in miscellaneous legal costs related to
the issuance of shares, and by capital lease principal payments of $3,454. Cash
decreased during the period by $1,558,403 to $2,637,991 as at June 30, 2008.

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

(a)     2,500,000
in cash;

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

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

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

In addition, we granted the sellers registration rights.



---



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

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

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

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

Updated share capital as of August 13, 2008:

|Basic Common Stock Issued and Outstanding              | 61,977,065
|------------------------------------------------------ | ----------
|Warrants, Options and other Convertible
    Securities | 18,461,530
|Fully Diluted Common Stock                             | 80,438,595

Critical Accounting Policies and Estimates

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

Use of estimates

The preparation of financial statements requires us to make
estimates and assumptions which affect the reported amounts of assets and
liabilities at the date of the financial statements and the revenues and
expenses for the period reported. By their nature, these estimates are subject
to measurement uncertainty and the effect on the financial statements of changes
in such estimates in future periods could be significant. Actual results will
likely differ from these estimates.

Revenue recognition

Mineral lease rentals or option payments are treated as
reductions of the cost of the property as the payer is accumulating an interest
in the mineral property; payments in excess of capitalized costs are recognized
in income. Some agreements provide for payments in the form of stock and other
equity instruments as well as cash payments. Stock and other equity instruments
are recognized based on their fair market value at the time of receipt.
Fluctuations incurred during the holding period are accounted for as gains or
losses from held for trading securities. Privately held stock, or stock that is
not currently trading is valued at zero. The leases provide for the receipt of
royalty payments upon production of the property. Royalty payments will be
recognized in the period in which production occurs. There are no properties in
the production stage at this time.



---



Exploration of mineral property interests

We expense exploration costs as they are incurred. When we
determine that a mining deposit can be economically and legally extracted or
produced based on established proven and probable reserves, development costs
incurred after such determination will be capitalized. The establishment of
proven and probable reserves is based on results of final feasibility studies
which indicate whether a property is economically feasible. Upon commencement of
commercial production, we will transfer capitalized costs to the appropriate
asset category and amortize them over their estimated useful lives and/or ounces
produced, as appropriate. We capitalize the cost of acquiring mineral property
interests (including claims establishment) until we have determined the
viability of the property. We expense capitalized acquisition costs if we
determine that the property has no future economic value. We will also write
down capitalized amounts if estimated future cash flows, including potential
sales proceeds, related to the mineral property are estimated to be less than
the carrying value of the property.

Stock-based compensation

In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard 123R, Share-Based Payment, ("SFAS
123 (R)") a revision to SFAS 123. SFAS 123(R) requires all share-based payments
to be recognized in the financial statements based on their values using either
a modified-prospective or modified-retrospective transition method.

Prior to March 31, 2006, the Companys stock-based employee
compensation plans were accounted for under the recognition and measurement
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations, as
permitted by FASB Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). The Company did not recognize employee stock-based compensation
costs in its statement of operations for the periods prior to March 31, 2006, as
all options granted had an exercise price equal to the market value of the
underlying common stock on the date of the grant.

Effective April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R), using the
modified-prospective-transition method. The Companys total employees are
relatively few in number and turnover is considered remote, therefore the
Company currently estimates forfeitures to be 10%. Estimation of forfeitures is
reviewed on a quarterly basis.

Asset retirement obligations

The Company records the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that results from
the acquisition, construction, development or normal use of the assets with a
corresponding increase in the carrying amount of the related long-lived asset.
This amount is then depreciated over the estimated useful life of the asset.
Over time, the liability is increased to reflect an interest element considered
in its initial measurement at fair value. The amount of the liability will be
subject to re-measurement at each reporting period. Currently, the Company has a
reclamation liability of $5,600, which is disclosed further in Note79 of the
financial statements.

Tax valuation allowance

We have recorded a valuation allowance that fully reserves
for our deferred tax assets because at this time we cannot establish that we
will be able to utilize the tax loss carryforwards in the future. If in the
future we determine that we will be able to use all or a portion of our deferred
tax assets in the future, based on our projections of future taxable income, we
will reduce the valuation allowance, thereby increasing income in that period.



---



Foreign currency translation

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

Recent Accounting Pronouncements

The Financial Accounting Standards Board ratified the
consensus of the Emerging Issues Task Force that stripping costs incurred during
the production phase of a mine are variable production costs that should be
included in the costs of the inventory produced during the period that the
stripping costs are incurred. This consensus is effective for the first
reporting period in fiscal years beginning after December 15, 2005, with early
adoption permitted. To date the Company has not incurred any stripping costs.

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

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

In December 2007, the FASB issued FASB Statement No. 141(R),
Business Combinations, which amends SFAS No. 141, and provides revised
guidance for recognizing and measuring identifiable assets and goodwill
acquired, liabilities assumed, and any non-controlling interest in the acquiree.
It also provides disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for the Companys fiscal year
beginning January 1, 2009 and is to be applied prospectively. The Company is
currently evaluating the potential impact of adopting this statement on the
Companys consolidated financial position, results of operations or cash flows.

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



---



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

Summary of any product research and development that the
company will perform for the term of the plan.

We do not anticipate performing any product research and
development under our plan of operation.

Expected purchase or sale of plant and significant equipment.

We do not anticipate any significant equipment purchases or
sales.

Significant changes in number of employees.

We currently have seven employees. We do not expect a
significant change in this number.

Off-Balance Sheet Arrangements

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

Contractual Obligations

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

Under the terms of the acquisition agreement for Nevada Eagle
Resources LLC, we have a note payable outstanding for $4,499,337. Refer to the
section Liquidity and Capital Resources under this document for a full
description of the acquisition and commitment.

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

|                               | Payments Due by Period
|------------------------------ | ----------------------
|                               |                       
|                               |                       
|                               | Total                 
|Operating Lease Obligation (1) | 6,847                 

(1)



---



Item 3. Quantitative and Qualitative Disclosure About Market
Risk

Not Applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

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





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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

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

Item 1A.

Risks Factors.

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

Item 2.

Unregistered
Sales of Equity Securities and Use of Proceeds.

During the quarter ended June 30, 2008, we did not offer or
sell unregistered securities pursuant to exemptions under the Securities Act of
1933, as amended, and no securities repurchases occurred during the quarter
ended June 30, 2008.

Item 3.

Defaults Upon
Senior Securities.

None.

Item 4.

Submission of
Matters to a Vote of Security Holders.

No matters were submitted to a vote of the shareholders
during the quarter ended June 30, 2008.

Item 5.

Other
Information.

None.



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Item 6.

Exhibits

|Exhibit |                                                                                                                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                 
|3.1     | Articles of Incorporation of Gryphon
    Gold Corporation, filed April 24, 2003 (Previously filed on Form SB-2 on
    August 17, 2005)                                                                          
|        |                                                                                                                                                                                                                 
|3.2     | Certificate of Amendment to Articles of Incorporation of Gryphon Gold
    Corporation, filed August 9, 2005 (Previously filed on Form SB-2 on August
    17, 2005)                                              
|        |                                                                                                                                                                                                                 
|3.3     | Bylaws of Gryphon Gold Corporation
    (Previously filed on Form SB-2 on August 17, 2005)                                                                                                                       
|        |                                                                                                                                                                                                                 
|3.4     | Articles
    of Incorporation of Borealis Mining Company, filed June 5, 2003 (Previously
    filed on Form SB-2 on August 17, 2005)                                                                             
|        |                                                                                                                                                                                                                 
|3.5     | Bylaws of Borealis Mining Company
    (Previously filed on Form SB-2 on August 17, 2005)                                                                                                                        
|        |                                                                                                                                                                                                                 
|10.1    | Financial
    and Advisory Services Agreement between Gryphon Gold Corporation and Matter
    & Associates (Vancouver, British Columbia) (Previously filed on Form 10-KSB
    on June 26, 2008 as exhibit 10.18)
|        |                                                                                                                                                                                                                 
|10.2    | Employment Agreement between Gryphon
    Gold Corporation and Michael Longinotti (Previously filed on Form 10-KSB on
    June 26, 2008 as exhibit 10.19)                                                        
|        |                                                                                                                                                                                                                 
|10.3    | Employment Agreement between Gryphon Gold Corporation and Gerald Baughman
    (Previously filed on Form 10-KSB on June 26, 2008 as exhibit 10.20)                                                               
|        |                                                                                                                                                                                                                 
|10.4    | Professional Services Agreement
    between Gryphon Gold Corporation and John L. Key (Previously filed on Form
    10-KSB on June 26, 2008 as exhibit 10.21)                                                    
|        |                                                                                                                                                                                                                 
|10.5    | Employment Agreement between the Registrant and John L. Key, dated July 21,
    2008 (Previously filed on Form 8-K on July 23, 2008 as exhibit 10.1)                                                            
|        |                                                                                                                                                                                                                 
|10.6    | Financial Services Agreement between
    the Registrant and Tony Ker, dated September 1, 2008 (Previously filed on
    Form 8-K on July 23, 2008 as exhibit 10.2)                                               
|        |                                                                                                                                                                                                                 
|10.7    | Transition Agreement between the Registrant and Tony Ker, dated July 21,
    2008 (Previously filed on Form 8-K on July 23, 2008 as exhibit 10.3)                                                               
|        |                                                                                                                                                                                                                 
|10.8    | Option to Restructure Debt Agreement
    between the Registrant and Nevada Eagle Resources, dated August 5, 2008                                                                                                
|        |                                                                                                                                                                                                                 
|31.1    | Certification Required
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                            
|        |                                                                                                                                                                                                                 
|31.2    | Certification Required
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                            
|        |                                                                                                                                                                                                                 
|32.1    | Certification Required
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                            
|        |                                                                                                                                                                                                                 
|32.2    | Certification Required
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                            



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SIGNATURES

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

GRYPHON GOLD CORPORATION

By:

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

Date:

August 12, 2008

By:

/s/ Michael
K. LonginottiMichael K. Longinotti 
Chief Financial Officer 
(On behalf of the registrant and as principal financial and accounting officer)

Date:

August 13, 2008



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