---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2010

OR

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

For the transition period
from              
to

Commission file number:333-127635

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

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

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

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

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

[X] Yes   
[   ] No

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

[   ]
Yes     [   ] No

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

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

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

[  
]Yes     [X] No

Number of common shares outstanding at February 11, 2011:
96,760,132

---

GRYPHON GOLD CORPORATION
  December 31, 2010

INDEX

|                                   |                                                                                                                                                                                                  | **Page No.(s)**
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------
|                                   |                                                                                                                                                                                                  |                
|**PART I - FINANCIAL INFORMATION** |                                                                                                                                                                                                 
|                                   |                                                                                                                                                                                                  |                
|Item 1.                            | Financial Statements.                                                                                                                                                                            |                
|                                   |                                                                                                                                                                                                  |                
|                                   | Unaudited Consolidated Balance Sheet as of December 31, 2010
      and Audited Consolidated Balance Sheet as of March 31, 2010                                                                   | 2              
|                                   |                                                                                                                                                                                                  |                
|                                   | Unaudited Consolidated Statements of Operations for the three
      and nine months ended December 31, 2010 and 2009; and the period of inception
      from April 24, 2003 to December 31, 2010 | 3              
|                                   |                                                                                                                                                                                                  |                
|                                   | Unaudited Consolidated Statements of Stockholders Equity
      for the period of inception from April 24, 2003 to December 31, 2010                                                             | 4              
|                                   |                                                                                                                                                                                                  |                
|                                   | Unaudited Consolidated Statements of Cash Flows for the nine
      months ended December 31, 2010 and 2009, and the period of inception from
      April 24, 2003 to December 31, 2010           | 5              
|                                   |                                                                                                                                                                                                  |                
|                                   | Notes to Unaudited Interim Consolidated Financial Statements                                                                                                                                     | 6              
|                                   |                                                                                                                                                                                                  |                
|Item 2.                            | Managements Discussion and Analysis of Financial
      Condition and Results of Operation.                                                                                                      | 13             
|                                   |                                                                                                                                                                                                  |                
|Item 3.                            | Quantitative and Qualitative Disclosures About Market
      Risk.                                                                                                                                | 17             
|                                   |                                                                                                                                                                                                  |                
|Item 4.                            | Controls and Procedures.                                                                                                                                                                         | 17             
|                                   |                                                                                                                                                                                                  |                
|**PART II - OTHER INFORMATION**    |                                                                                                                                                                                                 
|                                   |                                                                                                                                                                                                  |                
|Item 1.                            | Legal Proceedings.                                                                                                                                                                               | 17             
|                                   |                                                                                                                                                                                                  |                
|Item 1A.                           | Risk Factors.                                                                                                                                                                                    | 18             
|                                   |                                                                                                                                                                                                  |                
|Item 2.                            | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                                                                                     | 18             
|                                   |                                                                                                                                                                                                  |                
|Item 3.                            | Defaults Upon Senior Securities.                                                                                                                                                                 | 18             
|                                   |                                                                                                                                                                                                  |                
|Item 4.                            | [REMOVED AND RESERVED]                                                                                                                                                                           | 18             
|                                   |                                                                                                                                                                                                  |                
|Item 5.                            | Other Information.                                                                                                                                                                               | 18             
|                                   |                                                                                                                                                                                                  |                
|Item 6.                            | Exhibits.                                                                                                                                                                                        | 18             
|                                   |                                                                                                                                                                                                  |                
|**SIGNATURES**                     | 19                                                                                                                                                                                              

1

---

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

|                                                                              |  | As at        |   |  | As at       |  
|----------------------------------------------------------------------------- |  | ------------ | - |  | ----------- | -
|                                                                              |  | December 31, |   |  | March 31,   |  
|                                                                              |  | 2010         |   |  | 2010        |  
|                                                                              |  | **$**        |   |  | **$**       |  
|                                                                              |  |              |   |  |             |  
|ASSETS                                                                        |  |              |   |  |             |  
|Current                                                                       |  |              |   |  |             |  
|Cash                                                                          |  | 474,076      |   |  | 937,056     |  
|Held for trading securities                                                   |  | -            |   |  | 191,966     |  
|Accounts receivable                                                           |  | 13,997       |   |  | 20,183      |  
|Accounts receivable  option agreement                                        |  | -            |   |  | 16,230      |  
|Current portion of note receivable                                            |  | 4,938        |   |  | 11,441      |  
|Prepaid expenses                                                              |  | 272,122      |   |  | 30,980      |  
|Assets held for sale at discontinued operations [note
      3]                |  | -            |   |  | 3,788,691   |  
|Total Current
      Assets                                                    |  | 765,133      |   |  | 4,996,547   |  
|Equipment                                                                     |  | 119,876      |   |  | 90,286      |  
|Mineral properties [note 4]                                                   |  | 1,841,912    |   |  | 1,930,909   |  
|Other assets [note 6]                                                         |  | 985,050      |   |  | 721,679     |  
|Non-current
      portion of note receivable                                  |  | -            |   |  | 2,131       |  
|Total Assets                                                                  |  | 3,711,971    |   |  | 7,741,552   |  
|                                                                              |  |              |   |  |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                          |  |              |   |  |             |  
|Current                                                                       |  |              |   |  |             |  
|Accounts payable and accrued liabilities                                      |  | 277,488      |   |  | 832,977     |  
|Share consideration payable to former owners of
      discontinued operations |  | -            |   |  | 270,000     |  
|Liabilities held for resale and in discontinued operations
      [note 3]     |  | -            |   |  | 2,170,223   |  
|Total Current
      Liabilities                                               |  | 277,488      |   |  | 3,273,200   |  
|                                                                              |  |              |   |  |             |  
|Common stock payable                                                          |  | 88,000       |   |  | -           |  
|Asset retirement obligation liability                                         |  | 48,254       |   |  | -           |  
|Total liabilites                                                              |  | 413,742      |   |  | 3,273,200   |  
|                                                                              |  |              |   |  |             |  
|Commitments & contingencies [note 8]                                          |  |              |   |  |             |  
|                                                                              |  |              |   |  |             |  
|Stockholders' Equity                                                          |  |              |   |  |             |  
|Common stock                                                                  |  | 89,860       |   |  | 86,034      |  
|Additional paid-in capital                                                    |  | 40,271,188   |   |  | 39,585,228  |  
|Deficit accumulated during the exploration stage                              |  | (37,062,819  | ) |  | (35,202,910 | )
|Total
      Stockholders' Equity                                              |  | 3,298,229    |   |  | 4,468,352   |  
|Total Liabilities & Stockholders' Equity                                      |  | 3,711,971    |   |  | 7,741,552   |  

See Note 1  Nature of Operations and Going Concern
Uncertainty

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

2

---

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

|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   | Period from    |  
|---------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | - | - | ------------ | - | - | -------------- | -
|                                                                             |   | Three months |   |   | Three months |   |   | Nine months  |   |   | Nine months  |   |   | April 24, 2003 |  
|                                                                             |   | ended        |   |   | ended        |   |   | ended        |   |   | ended        |   |   | (inception) to |  
|                                                                             |   | December 31, |   |   | December 31, |   |   | December 31, |   |   | December 31, |   |   | December 31,   |  
|                                                                             |   | 2010         |   |   | 2009         |   |   | 2010         |   |   | 2009         |   |   | 2010           |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|                                                                             |   | **$**        |   |   | **$**        |   |   | **$**        |   |   | **$**        |   |   | **$**          |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Exploration [note 5]                                                         |   | 115,930      |   |   | 252,245      |   |   | 694,358      |   |   | 1,107,289    |   |   | 17,296,362     |  
|Management salaries and consulting fees                                      |   | 303,421      |   |   | 207,461      |   |   | 845,552      |   |   | 456,673      |   |   | 10,208,921     |  
|General and administrative                                                   |   | 135,336      |   |   | 168,264      |   |   | 483,267      |   |   | 357,154      |   |   | 4,241,796      |  
|Legal and audit                                                              |   | 48,865       |   |   | 71,989       |   |   | 232,686      |   |   | 215,434      |   |   | 2,338,124      |  
|Travel and accommodation                                                     |   | 36,366       |   |   | 56,819       |   |   | 105,659      |   |   | 85,385       |   |   | 1,251,057      |  
|Depreciation & amortization                                                  |   | 13,145       |   |   | 10,753       |   |   | 40,767       |   |   | 32,856       |   |   | 294,397        |  
|Loss (gain) on disposal of
      equipment                                   |   | (99          | ) |   | -            |   |   | (99          | ) |   | (18,928      | ) |   | 5,525          |  
|Foreign exchange (gain) loss                                                 |   | 1,894        |   |   | (7,739       | ) |   | 18,632       |   |   | (40,769      | ) |   | 25,804         |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Gain on change in liability of warrants
      [note 7[b]]                    |   | -            |   |   | (42,560      | ) |   | -            |   |   | 212,130      |   |   | (2,676,000     | )
|Interest income                                                              |   | 32           |   |   | (70          | ) |   | (1,974       | ) |   | (960         | ) |   | (740,972       | )
|Interest expense                                                             |   | 123          |   |   | 196          |   |   | 997          |   |   | 500          |   |   | 9,152          |  
|Unrealized (gain) loss on
      securities                                   |   | -            |   |   | (4,893       | ) |   | 104,293      |   |   | (88,653      | ) |   | -              |  
|Realized (gain) loss on sale of securities                                   |   | -            |   |   | -            |   |   | (28,521      | ) |   | 13,484       |   |   | 126,283        |  
|Loss for the period from
      continuing operations                         | $ | (655,013     | ) | $ | (712,465     | ) | $ | (2,495,617   | ) | $ | (2,331,595   | ) | $ | (32,380,449    | )
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Discontinued operations:                                                     |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Loss from discontinued
      operations                                      |   | -            |   |   | (141,568     | ) |   | (18,241      | ) |   | (579,523     | ) |   | (5,336,319     | )
|Gain
      on sale from discontinued operations                              |   | -            |   |   | -            |   |   | 653,949      |   |   | -            |   |   | 653,949        |  
|Income (loss) from discontinued operations                                   |   | -            |   |   | (141,568     | ) |   | 635,708      |   |   | (579,523     | ) |   | (4,682,370     | )
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Net loss for period                                                          | $ | (655,013     | ) | $ | (854,033     | ) | $ | (1,859,909   | ) | $ | (2,911,118   | ) | $ | (37,062,819    | )
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Basic and diluted (loss) per share:                                          |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Loss from continuing
      operations                                        |   | (0.007       | ) |   | (0.010       | ) |   | (0.028       | ) |   | (0.036       | ) |   |                |  
|Income (loss) from discontinued operations                                   |   | -            |   |   | (0.002       | ) |   | 0.007        |   |   | (0.009       | ) |   |                |  
|Total loss per share                                                         | $ | (0.007       | ) | $ | (0.012       | ) | $ | (0.021       | ) | $ | (0.045       | ) |   |                |  
|                                                                             |   |              |   |   |              |   |   |              |   |   |              |   |   |                |  
|Basic and diluted weighted average number of common shares
      outstanding |   | 89,755,784   |   |   | 70,197,405   |   |   | 88,357,009   |   |   | 64,582,997   |   |   |                |  

See Note 1  Nature of Operations and Going Concern
Uncertainty

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

3

---

Gryphon Gold Corporation(An exploration stage
company) Consolidated Statements of Stockholders' Equity
  (Unaudited) (Stated in US dollars)

|                                                               |  |                    |  |  |         |  |  |             |   |  | Deficit         |   |  |             |  
|-------------------------------------------------------------- |  | ------------------ |  |  | ------- |  |  | ----------- | - |  | --------------- | - |  | ----------- | -
|                                                               |  |                    |  |  |         |  |  |             |   |  | **accumulated** |   |  |             |  
|                                                               |  |                    |  |  |         |  |  | Additional  |   |  | during the      |   |  |             |  
|                                                               |  | Common
      stock |  |  | paid-in |  |  | exploration |   |  |                 |  
|                                                               |  | Shares             |  |  | Amount  |  |  | capital     |   |  | stage           |   |  | Total       |  
|                                                               |  | #                  |  |  | **$**   |  |  | **$**       |   |  | $               |   |  | **$**       |  
|                                                               |  |                    |  |  |         |  |  |             |   |  |                 |   |  |             |  
|                                                               |  |                    |  |  |         |  |  |             |   |  |                 |   |  |             |  
|Balance, inception April 24, 2003                              |  |                    |  |  |         |  |  |             |   |  |                 |   |  |             |  
|Shares issued:                                                 |  |                    |  |  |         |  |  |             |   |  |                 |   |  |             |  
|For private placements                                         |  | 47,812,870         |  |  | 47,813  |  |  | 28,078,256  |   |  |                |   |  | 28,126,069  |  
|Share issue costs                                              |  |                   |  |  |        |  |  | (1,273,087  | ) |  |                |   |  | (1,273,087  | )
|For mineral properties                                         |  | 4,500,000          |  |  | 4,500   |  |  | 3,444,918   |   |  |                |   |  | 3,449,418   |  
|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                                             |  |                   |  |  |        |  |  | 222,627     |   |  |                |   |  | 222,627     |  
|Fair value of options granted to consultants                   |  |                   |  |  |        |  |  | 49,558      |   |  |                |   |  | 49,558      |  
|Fair value of underwriters compensation
      warrants on IPO |  |                   |  |  |        |  |  | 135,100     |   |  |                |   |  | 135,100     |  
|Fair value of options granted                                  |  |                   |  |  |        |  |  | 2,274,508   |   |  |                |   |  | 2,274,508   |  
|Fair value of vested stock grants                              |  | 429,250            |  |  | 428     |  |  | 520,379     |   |  |                |   |  | 520,807     |  
|Fair value of stock granted                                    |  | 221,670            |  |  | 222     |  |  | 21,415      |   |  |                |   |  | 21,637      |  
|Exercise of warrants                                           |  | 1,985,775          |  |  | 1,986   |  |  | 1,827,349   |   |  |                |   |  | 1,829,335   |  
|Exercise of options                                            |  | 107,500            |  |  | 108     |  |  | 83,066      |   |  |                |   |  | 83,174      |  
|Net loss since inception                                       |  |                   |  |  |        |  |  |            |   |  | (35,774,819     | ) |  | (35,774,819 | )
|Balance, March 31, 2009                                        |  | 61,957,065         |  |  | 61,957  |  |  | 38,397,746  |   |  | (35,774,819     | ) |  | 2,684,884   |  
|Shares issued:                                                 |  |                    |  |  |         |  |  |             |   |  |                 |   |  |             |  
|For private placements                                         |  | 10,897,353         |  |  | 10,897  |  |  | 1,751,804   |   |  |                |   |  | 1,762,701   |  
|Share issue costs                                              |  |                   |  |  |        |  |  | (172,379    | ) |  |                |   |  | (172,379    | )
|Fair value of options granted                                  |  |                   |  |  |        |  |  | 166,088     |   |  |                |   |  | 166,088     |  
|Fair value of vested stock grants                              |  | 112,500            |  |  | 113     |  |  |            |   |  |                |   |  | 113         |  
|Exercise of warrants                                           |  | 7,161,500          |  |  | 7,162   |  |  | 1,453,204   |   |  |                |   |  | 1,460,366   |  
|Settlement of debt                                             |  | 5,905,356          |  |  | 5,905   |  |  | 964,095     |   |  |                |   |  | 970,000     |  
|Reclassification of warrants to liability FASB ASC 815-40-55   |  |                   |  |  |        |  |  | (2,975,330  | ) |  | 2,888,130       |   |  | (87,200     | )
|Net loss for the period                                        |  |                   |  |  |        |  |  |            |   |  | (2,316,221      | ) |  | (2,316,221  | )
|Balance, March
      31, 2010                                  |  | 86,033,774         |  |  | 86,034  |  |  | 39,585,228  |   |  | (35,202,910     | ) |  | 4,468,352   |  
|Shares issued:                                                 |  |                    |  |  |         |  |  |             |   |  |                 |   |  |             |  
|For private placements                                         |  | 1,464,429          |  |  | 1,464   |  |  | 198,536     |   |  |                |   |  | 200,000     |  
|Option consideration                                           |  | 1,500,000          |  |  | 1,500   |  |  | 268,500     |   |  |                |   |  | 270,000     |  
|Consultant compensation                                        |  | 150,000            |  |  | 150     |  |  | 31,350      |   |  |                |   |  | 31,500      |  
|Share issue costs                                              |  |                   |  |  |        |  |  | (13,736     | ) |  |                |   |  | (13,736     | )
|Fair value of stock granted                                    |  | 275,000            |  |  | 275     |  |  | 42,198      |   |  |                |   |  | 42,473      |  
|Fair value of options granted [note 7[c]]                      |  |                   |  |  |        |  |  | 99,549      |   |  |                |   |  | 99,549      |  
|Settlement of accounts payable [note 7[a]]                     |  | 436,929            |  |  | 437     |  |  | 59,563      |   |  |                |   |  | 60,000      |  
|Net loss for the period                                        |  |                   |  |  |        |  |  |            |   |  | (1,859,909      | ) |  | (1,859,909  | )
|Balance, December
      31, 2010                               |  | 89,860,132         |  |  | 89,860  |  |  | 40,271,188  |   |  | (37,062,819     | ) |  | 3,298,229   |  

See Note 1  Nature of Operations and Going Concern
Uncertainty

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

4

---

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

|                                                                           |  | Nine         |   |  | Nine         |   |  | Period from    |  
|-------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | - |  | -------------- | -
|                                                                           |  | months ended |   |  | months ended |   |  | April 24, 2003 |  
|                                                                           |  | December 31, |   |  | December 31, |   |  | (inception) to |  
|                                                                           |  | 2010         |   |  | 2009         |   |  | December 31,   |  
|                                                                           |  |              |   |  |              |   |  | 2010           |  
|                                                                           |  | $            |   |  | $            |   |  | **$**          |  
|OPERATING ACTIVITIES                                                       |  |              |   |  |              |   |  |                |  
|Net loss for the period                                                    |  | (1,859,909   | ) |  | (2,911,118   | ) |  | (37,062,819    | )
|Items not involving cash:                                                  |  | -            |   |  |              |   |  |                |  
|Depreciation                                                               |  | 40,767       |   |  | 32,856       |   |  | 294,397        |  
|(Gain) loss on disposal of
      equipment                                 |  | (99          | ) |  | (18,928      | ) |  | 5,525          |  
|Write down of accrued liability                                            |  | (124,008     | ) |  | -            |   |  | (124,008       | )
|Fair value of options,
      warrants                                      |  | -            |   |  |              |   |  |                |  
|and other non-cash compensation [note
      7[c]]                          |  | 142,022      |   |  | 121,735      |   |  | 3,478,995      |  
|Non-cash interest expense on
      discontinued operations [note 3]        |  | 10,364       |   |  | 277,052      |   |  | 725,304        |  
|Realized (gain) loss on securities                                         |  | (28,521      | ) |  | 13,484       |   |  | 126,282        |  
|Unrealized (gain) loss on sale
      of securities                         |  | 104,292      |   |  | (88,653      | ) |  | -              |  
|Held for trading securities included in lease
      revenue                |  | -            |   |  | -            |   |  | (9,598         | )
|Impairment of carrying value
      of exploration properties [note 3]      |  | -            |   |  | -            |   |  | 5,100,000      |  
|Loss (gain) on disposal of mineral properties                              |  | -            |   |  | 58,553       |   |  | 53,168         |  
|Loss (gain) on change in
      warrant liability [note 7[b]]               |  | -            |   |  | 212,749      |   |  | (2,676,000     | )
|Gain on extinguishment of debt [note 3]                                    |  | -            |   |  | -            |   |  |                |  
|Gain on sale of discontinued
      operations [note 3]                     |  | (653,949     | ) |  | -            |   |  | (1,981,025     | )
|Changes in non-cash working capital items:                                 |  |              |   |  |              |   |  |                |  
|Accounts receivable                                                        |  | 22,416       |   |  | 11,821       |   |  | (10,247        | )
|Accounts payable and accrued liabilities                                   |  | (371,481     | ) |  | 421,324      |   |  | 343,311        |  
|Prepaid expenses                                                           |  | (121,642     | ) |  | 15,575       |   |  | (152,620       | )
|Cash used in
      operating activities                                    |  | (2,839,248   | ) |  | (1,853,550   | ) |  | (31,889,335    | )
|INVESTING ACTIVITIES                                                       |  |              |   |  |              |   |  |                |  
|Other assets [note 6]                                                      |  | (69,115      | ) |  | -            |   |  | (225,892       | )
|Option payment received [note 4]                                           |  | 100,000      |   |  | -            |   |  | 100,000        |  
|Purchase of equipment                                                      |  | (58,307      | ) |  | (734         | ) |  | (364,502       | )
|Cash received from sale of discontinued
      operations                   |  | 2,250,000    |   |  | -            |   |  | 2,250,000      |  
|Nevada Eagle acquisition and related non-compete agreement
      [note 3]  |  | -            |   |  | -            |   |  | (3,068,340     | )
|Mineral property expenditures [note
      4]                               |  | (11,003      | ) |  | (24,333      | ) |  | (2,003,133     | )
|Mineral property lease payments received                                   |  | -            |   |  | 291,550      |   |  | 1,499,854      |  
|Proceeds from sale of mineral properties                                   |  | -            |   |  | 50,000       |   |  | 200,000        |  
|Option payment to amend royalty [note 6]                                   |  | (150,000     | ) |  | -            |   |  | (460,902       | )
|Proceeds from sales of held for trading
      securities                   |  | 116,195      |   |  | 9,951        |   |  | 177,149        |  
|Proceeds from note receivable                                              |  | 8,634        |   |  | 7,000        |   |  | 19,062         |  
|Proceeds from sale of equipment                                            |  | 100          |   |  | 1,571        |   |  | 16,503         |  
|Cash provided
      (used) by investing activities                         |  | 2,190,504    |   |  | 335,005      |   |  | (1,860,201     | )
|FINANCING ACTIVITIES                                                       |  |              |   |  |              |   |  |                |  
|Cash paid on extinguishment of debt [note 3]                               |  | -            |   |  | -            |   |  | (500,000       | )
|Capital lease principal payments                                           |  | -            |   |  | -            |   |  | (53,523        | )
|Exercise of warrants                                                       |  | -            |   |  | 1,161,036    |   |  | 1,161,036      |  
|Shares issued for cash                                                     |  | 200,000      |   |  | -            |   |  | 36,570,369     |  
|Share issue costs                                                          |  | (13,736      | ) |  | -            |   |  | (3,343,395     | )
|Subscription receivables collected                                         |  | -            |   |  | -            |   |  | 389,125        |  
|Cash provided
      by financing activities                                |  | 186,264      |   |  | 1,161,036    |   |  | 34,223,612     |  
|Increase (decrease) in cash                                                |  |              |   |  |              |   |  |                |  
|during the period                                                          |  | (462,980     | ) |  | (357,509     | ) |  | 474,076        |  
|Cash, beginning of period                                                  |  | 937,056      |   |  | 799,517      |   |  |                |  
|Cash, end of
      period                                                  |  | 474,076      |   |  | 442,008      |   |  | 474,076        |  
|NON-CASH INVESTING AND FINANCING
      ACTIVITIES:                         |  |              |   |  |              |   |  |                |  
|Shares issued for settlement of accounts payable                           |  | 60,000       |   |  |              |   |  | 60,000         |  
|Extinguishment of note payable by sale of
      discontinued operations    |  | 2,180,587    |   |  |              |   |  | 2,180,587      |  
|Share consideration paid to former owners of discontinued
      operations |  | 270,000      |   |  |              |   |  | 270,000        |  
|Asset retirement obligation                                                |  | 48,254       |   |  |              |   |  | 48,254         |  
|Stock issued for prepaid asset                                             |  | 31,500       |   |  |              |   |  | 31,500         |  
|Stock payable for prepaid asset                                            |  | 88,000       |   |  |              |   |  | 88,000         |  

See Note 1  Nature of Operations and Going Concern
Uncertainty

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

5

---

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

1. NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY

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

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

On April 23, 2010, the Company sold its wholly owned
subsidiary, Nevada Eagle Resources LLC (Nevada Eagle), and management
recognizes that the Company must generate additional resources to enable it to
continue operations. Management intends to raise additional funds through debt
and/or equity financing or through other means that it deems necessary. No
assurance can be given that the Company will be successful in raising additional
capital. Further, even if the Company raises additional capital, there can be no
assurance that the Company will achieve profitability or positive cash flow. If
management is unable to raise additional capital and possible future revenues do
not result in positive cash flow, the Company will not be able to meet its
obligations and may have to suspend or cease operations. The Company has an
accumulated deficit of $37,062,819 as at December 31, 2010 and has cash on hand
of $474,076. These conditions raise substantial doubt about the Companys
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments related to the recoverability and
classification of assets or the amounts and classifications of liabilities that
might be necessary should the Company be unable to continue as a going concern.

On January 21, 2010 the company closed a private placement with
net proceeds to the Company of C$1,230,839, see Note 9, Subsequent Events.

Basis of Presentation

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Codification

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

Fair value measurements

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

6

---

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, COUNTINUED:

Fair value measurements, continued:

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

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

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

Asset Retirement Obligations

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

NEW ACCOUNTING PRONOUNCEMENTS

Fair Value Accounting

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

Reclassification

Certain comparative figures have been reclassified to conform
to the current quarter presentation. The Statement of Operations relating to
costs of discontinued operations for the three and nine month periods ended
December 31, 2009 have been classified as such for comparative purposes for the
three and nine-month periods ended December 31, 2010.

7

---

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

3.NEVADA EAGLE RESOURCES LLC

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

The Company completed the sale of Nevada Eagle during the three
months ended June 30, 2010; Nevada Eagles results have been classified and
presented in Discontinued Operations.

4. MINERAL PROPERTIES

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

5. EXPLORATION

Nine
    
    
    Nine
    
    
    Period fromThree months
    
    
    Three months
    
    
    months
    
    
    months
    
    
    April 24, 2003ended
    
    
    ended
    
    
    ended
    
    
    ended
    
    
    (inception) toDecember 31
    
    
    December
    
    
    December
    
    
    December
    
    
    December 31,31, 2010
    
    
    31, 2009
    
    
    31, 2010
    
    
    31, 2009
    
    
    2010$
    
    
    $
    
    
    $
    
    
    $
    
    
    $NEVADA, USABorealis propertyExploration:Drilling
    
    28,755
    
    
    49,569
    
    
    275,490
    
    
    212,832
    
    
    7,633,487Property maintenance
    
    41,555
    
    
    70,956
    
    
    253,760*
    
    
    356,028
    
    
    3,762,965Geologic and
      assay
    
    5,585
    
    
    172
    
    
    44,757
    
    
    910
    
    
    2,078,043Project management
    
    15,635
    
    
    67,695
    
    
    25,218
    
    
    193,807
    
    
    1,896,749Engineering
    
    3,200
    
    
    63,175
    
    
    72,441
    
    
    341,982
    
    
    1,529,010Metallurgy
    
    6,800
    
    
    
    
    
    6,800
    
    
    
    
    
    338,010Subtotal Borealis property
    
    101,530
    
    
    251,567
    
    
    678,466
    
    
    1,105,559
    
    
    17,238,264Other exploration
    
    14,400
    
    
    678
    
    
    15,892
    
    
    1,730
    
    
    58,097Total exploration
    
    115,930
    
    
    252,245
    
    
    694,358
    
    
    1,107,289
    
    
    17,296,361


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

8

---

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

6. OTHER ASSETS

|                                               |  | December 31, |  |  | March 31, | 
|---------------------------------------------- |  | ------------ |  |  | --------- | 
|                                               |  | 2010         |  |  | 2010      | 
|                                               |  | **$**        |  |  | $         | 
|Reclamation bond & deposits                    |  | 225,893      |  |  | 160,777   | 
|Option to amend Borealis Property mining lease |  | 710,903      |  |  | 560,902   | 
|Asset retirement obligation                    |  | 48,254       |  |  | -         | 
|Total                                          |  | 985,050      |  |  | 721,679   | 

On December 31, 2010 the Company had $216,885 (March 31, 2010 -
$133,600) on deposit to support a performance bond with the United States Forest
Service. The Company also has a deposit with the Bureau of Land Management
(BLM) for $9,008 (March 31, 2010 - $27,177), which supports its potential
future obligations for reclamation during the Companys exploration activities
within the BLM area. The United States Forest bond was increased during the nine
months ended December 31, 2010 by $83,285.

On August 22, 2008, the Company entered into a 12-month option
agreement, at a cost of $250,000 and an additional $35,902 to cover legal costs,
to amend the Borealis Property mining lease. If exercised, the net smelter
return royalty rate will be fixed at 5%, versus the current uncapped variable
rate. Payment upon exercise of the option is $1,750,000 in cash, 7,726,250
common shares of the Company and a three year, $1,909,500, 5% note payable. On
August 19, 2009 the option was extended for six months at a cost of $125,000,
which was settled through the issuance of 966,340 shares. On February 12, 2010
the option was extended until August 22, 2010 at a cost of $150,000, which was
settled through the issuance of $25,000 and 939,016 shares. On August 11, 2010
the option was extended until February 22, 2011 at a cost of $150,000 paid in
cash.

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

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

|                                                      |  | Nine months  | 
|----------------------------------------------------- |  | ------------ | 
|                                                      |  | ended        | 
|                                                      |  | December 31, | 
|                                                      |  | 2010         | 
|                                                      |  | $            | 
|Asset retirement obligation  beginning
      balance |  | -            | 
|Incurred                                              |  | 48,254       | 
|Accretion                                             |  | -            | 
|Addition and changes in estimates                     |  | -            | 
|Settlements                                           |  | -            | 
|Asset retirement
      obligation ending balance      |  | 48,254       | 

9

---

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

7. CAPITAL STOCK

|[a] | Authorized capital stock consists of 250,000,000 common
      shares with a par value of $0.001 per share and 15,000,000 preferred
      shares with a par value of $0.001 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | During the nine months ended December 31, 2010, the
      Company issued 436,929 common shares with a fair value of $60,000 to
      Telesto Nevada Inc., which was applied against accounts payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On June 16, 2010, the Company completed a private
      placement relating to its Option Agreement with Sage Gold Inc. (Sage),
      of 1,464,429 units at Cdn$0.14 for gross proceeds of $200,000
      (Cdn$205,020). Each unit consisted of one common share and one-half series
      M warrant. Each series M warrant entitles the holder to purchase a common
      share at a price of US$0.20 per share for a period of 24 months. The
      Company has a right to force warrant holders to exercise warrants, if the
      common share price of the Company remains equal to or greater than
      Cdn$0.60 per common share, for a period of twenty consecutive
  days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On February 5, 2010 the Company and the Debt holders,
      also previous owners of the Companys discontinued operations, entered
      into an Option Consideration Agreement (the Option Consideration
      Agreement) pursuant to which the Company agreed to (i) issue the Debt
      holders an additional 1,500,000 common shares of the Company and (ii)
      amend the terms of the Amended Note to reduce the conversion price (the
      Amendment Consideration), which Amendment Consideration was subject to
      obtaining Company shareholder and TSX approval (the Approvals). In
      connection with the amendment the Company recorded a liability of $270,000
      based upon the fair value of the common shares. On August 22, 2010 after
      obtaining shareholder approval, the Company issued these 1,500,000 common
      shares and extinguished the liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On September 20, 2010 the Company issued 275,000
      restricted stock units to three employees valued at $42,473.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On October 21, 2010 (effective date) the Company
      entered into a consulting agreement with a stock media consultant whereby
      the Company had agreed to pay the consultant cash, shares of common stock
      and options. The consulting agreement called for the payment of $100,000
      in cash upon signing of the agreement, $25,000 paid in cash over five
      monthly installments, 550,000 shares of the Companys restricted common
      stock payable over 90 days from the effective date of the agreement, and
      550,000 stock options vesting over 90 days from the effective date of the
      agreement. In connection with the agreement the Company recorded a prepaid
      expense based upon the fair value of the shares of restricted common stock
      and stock options to be paid to the consultant. The prepaid expense is
      being amortized ratable over the life of the a consulting agreement (180
      days). During the quarter ended December 31, 2010 the Company had issued
      150,000 shares of its common stock valued at $31,500 to the consultant and
      recorded a common stock payable of $88,000 relating to the 400,000 shares
      yet to be issued at December 31, 2010. In addition, the stock options were
      valued at $69,355 at the time of the effective date using a Black Scholes
      option pricing model.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|[b] | Warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The following table summarizes information about warrants
      outstanding and exercisable as at December 31,
2010:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | Warrants
      Outstanding and Exercisable |                       
| | ------------------------------------------ | ----------------------
| |                                            |                       
| |                                            | Average Remaining Life
| | Warrants                                   | Years                 
| | #                                          | #                     
| | 5,448,667                                  | 1.1                   
| | 990,500                                    | 0.1                   
| | 732,215                                    | 1.5                   
| | 7,171,382                                  | 0.9                   

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

10

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

7. CAPITAL STOCK, CONTINUED:

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

| |                     |  | Three months |  |  | Three months |  |  | Nine months  |  |  | Nine months  | 
| | ------------------- |  | ------------ |  |  | ------------ |  |  | ------------ |  |  | ------------ | 
| |                     |  | ended        |  |  | ended        |  |  | ended        |  |  | ended        | 
| |                     |  | December 31, |  |  | December 31, |  |  | December 31, |  |  | December 31, | 
| |                     |  | 2010         |  |  | 2009         |  |  | 2010         |  |  | 2009         | 
| |                     |  | **$**        |  |  | **$**        |  |  | **$**        |  |  | **$**        | 
| | Management salaries |  | 11,669       |  |  | 49,656       |  |  | 104,951      |  |  | 121,735      | 
| | Consulting expense  |  | 31,143       |  |  | -            |  |  | 37,071       |  |  | -            | 
| | Total               |  | 42,812       |  |  | 49,656       |  |  | 142,022      |  |  | 121,735      | 

Stock option activity

The following table summarizes the
Companys stock option activity (excluding options issued a consultant, above)
for the nine months ended December 31, 2010:

| |                                             |  | Number of |   | Weighted Average | 
| | ------------------------------------------- |  | --------- | - | ---------------- | 
| |                                             |  | Stock     |   | exercise price   | 
| |                                             |  | Options   |   |                  | 
| | Outstanding, April 1, 2010                  |  | 4,507,500 |   | $0.48*           | 
| | Granted                                     |  | 1,125,000 |   | $0.11            | 
| | Forfeited                                   |  | (695,000  | ) | $0.40*           | 
| | Total outstanding at December 31, 2010      |  | 4,937,500 |   | $0.41*           | 
| | Vested and exercisable at December 31, 2010 |  | 4,418,750 |   | $0.44*           | 

*
Based on the December 31, 2010 exchange rate of Cdn$1 equals US$0.9946.
Valuation assumptions

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

| |                         | 2010         | 2009         
| | ----------------------- | ------------ | -------------
| |                         |              |              
| | Dividend yield          | 0%           | 0%           
| | Expected volatility     | 99% -119%    | 51% - 80%    
| | Risk free interest rate | 0.52% -1.62% | 1.31% - 2.06%
| | Expected lives          | 2-3 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
      2-3-year term, which is a term equal to the estimated life of the option.
      Dividend yield is based on the stock options exercise price and expected
      annual dividend rate at the time of grant. Volatility is derived by
      measuring the average share price fluctuation of the Companys stock. The
      period of historical volatility is the same period as the expected life of
      the options being 3 years.                                                                                                                                                                                                                    
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Black-Scholes option-pricing model used by the
      Company to calculate option values was developed to estimate the fair
      value of freely tradable, fully transferable options without vesting
      restrictions, which significantly differ from the Companys stock option
      awards. Option pricing models require the input of highly subjective
      assumptions, including future stock price volatility and expected time
      until exercise, which greatly affect the calculated values. Changes in
      these assumptions can materially affect the fair value estimate and
      therefore it is managements view that the existing models do not
      necessarily provide a single reliable measure of the fair value of the
      Companys equity instruments.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|[d] | Restricted stock units (RSUs):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The RSU stock grants entitle the recipient to receive
      shares of common stock of the Company upon vesting. The RSU grants can
      vest immediately or over a period for up to five
years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

11

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

7. CAPITAL STOCK, CONTINUED:

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

The following table summarizes information about RSUs
outstanding as at December 31, 2010:

| |                                  |  | RSUs     |  |  | RSUs   |  |  | RSUs     |  |  | RSUs       |  |  | Weighted   | 
| | -------------------------------- |  | --------- |  |  | ------- |  |  | --------- |  |  | ----------- |  |  | ---------- | 
| |                                  |  | Granted   |  |  | Vested  |  |  | Forfeited |  |  | Outstanding |  |  | Average    | 
| |                                  |  |           |  |  |         |  |  |           |  |  |             |  |  | Fair Value | 
| |                                  |  |           |  |  |         |  |  |           |  |  |             |  |  | at Grant   | 
| |                                  |  |           |  |  |         |  |  |           |  |  |             |  |  | Date       | 
| | Outstanding at April 1, 2006     |  |          |  |  |        |  |  |          |  |  |            |  |  |           | 
| | Issued April 18, 2006            |  | 8,000     |  |  | 8,000   |  |  |          |  |  |            |  |  | Cdn$1.63   | 
| | Issued December 12, 2006         |  | 29,000    |  |  | 15,000  |  |  | 14,000    |  |  |            |  |  | Cdn$0.84   | 
| | Issued January 10, 2007          |  | 607,500   |  |  | 488,750 |  |  | 118,750   |  |  |            |  |  | Cdn$0.82   | 
| | Issued September 6, 2007         |  | 154,170   |  |  | 154,170 |  |  |          |  |  |            |  |  | Cdn$0.77   | 
| | Issued September 20, 2010        |  | 275,000   |  |  | 275,000 |  |  |          |  |  |            |  |  | $0.16      | 
| |                                  |  |           |  |  |         |  |  |           |  |  |             |  |  |            | 
| | Outstanding at December 31, 2010 |  | 1,073,670 |  |  | 940,920 |  |  | 132,750   |  |  |            |  |  |           | 

All issued restricted stock units have
vested.

8. COMMITMENTS & CONTINGENCIES

[a] A portion of the Borealis Property is subject to a mining
lease. The Company is required to make monthly lease payments of $9,762,
adjusted annually based on the Consumer Price Index, for the duration of the
lease term. The lease payments are recorded as exploration expenses in the
Companys statements of operations. In addition, production of precious metals
from the Borealis Property will be subject to the payment of a royalty under the
terms of the mining lease. The mining lease expired on January 24, 2009, but is
automatically renewed thereafter, so long as mining related activity, including
exploration drilling, continues on the Borealis Property.

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

|     | $     
|---- | ------
|2011 | 15,507
|2012 | 64,702
|2013 | 64,702
|2014 | 26,959

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

9. SUBSEQUENT EVENTS

On January 21, 2011 the Company closed a private placement in
which we issued 6,500,000 units at C$0.20per unit for gross proceeds of
$1,300,000. Each unit consisted of one share of common stock and one half
purchase warrant, each full warrant is exercisable for a period of two years
from the date of closing at a price of US$0.30. Certain registered dealers were
paid cash commission of C$69,161. The net proceeds will be used for working
capital purposes.

On February 4, 2011 the Company announced that it had filed a
registration statement on Form S-1 with the Securities and Exchange Commission
in the United States and has submitted for filing a preliminary short form
prospectus with securities regulatory authorities in each of the Provinces of
British Columbia, Alberta, Saskatchewan and Ontario, Canada in relation to a
proposed $10,000,000 public offering of its common stock in both the United
States and Canada. Roth Capital Partners, LLC, will act as sole book-running
manager for the offering in the United States, with Acumen Capital Finance
Partners Limited acting as sole Canadian agent in Canada. The number of shares
to be sold in the proposed offering and the offering price have not yet been
determined.

12

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

Forward-Looking Statements

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

Cautionary Note Regarding Managements Discussion and
Analysis

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

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

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

13

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Overview

*Business Objectives*

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

Borealis Property

During the nine months ended December 31, 2010, three separate
drilling programs were completed on the Borealis Property. The first program
consisted of 21 holes for 5,795 feet of reverse circulation drilling, the second
consisted of 3 holes for 110 feet of metallurgical core drilling, and the third
was 28 holes of reverse circulation drilling for 1630 feet. As of December 30,
2010, we had completed approximately 252 holes and 149,430 feet of reverse
circulation drilling and 3 holes and 110 feet of metallurgical core drilling
have been completed on the Borealis Property. All the holes were in area of
existing mineralization and were drilled to upgrade the 2008 resource model and
confirm certain resources contained in the independent Feasibility study.

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

Administration and Capital Resource Activities

The Company had no changes in its Administrative and Capital
resources during the three months ended December 31, 2010.

On January 21, 2011, we closed a private placement in which we
issued 6,500,000 units at C$0.20per unit for gross proceeds of $1,300,000. Each
unit consisted of one share of common stock and one half purchase warrant, each
full warrant is exercisable for a period of two years from the date of closing
at a price of US$0.30. Certain registered dealers were paid cash commission of
C$69,161. The net proceeds will be used for working capital purposes.

On February 4, 2011, we announced that we had filed a
registration statement on Form S-1 with the Securities and Exchange Commission
in the United States and has submitted for filing a preliminary short form
prospectus with securities regulatory authorities in each of the Provinces of
British Columbia, Alberta, Saskatchewan and Ontario, Canada in relation to a
proposed $10,000,000 public offering of our common stock in both the United
States and Canada. Roth Capital Partners, LLC, will act as sole book-running
manager for the offering in the United States, with Acumen Capital Finance
Partners Limited acting as sole Canadian agent in Canada. The number of shares
to be sold in the proposed offering and the offering price have not yet been
determined.

Fiscal 2011 Plan of Operations

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

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

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

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

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

14

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- Begin construction of Phase 1 of our oxide heap leach mining project on the
  Borealis Property and begin production within six months of completing this
  offering.
- Continue our drill program to expand the oxide mineralization within the
  permitted footprint of the Borealis Property.
- Continue our drill program on the three anomalies defined in the pediments
  of the Borealis Property for the purpose of potentially discovering additional
  oxide and sulphide resources.
- Raise additional capital, if required, to fund our exploration, development
  and working capital requirements.

Results of Operations

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

Three months ended December 31, 2010 compared to three
months ended December 31, 2009

For the three months ended December 31, 2010, we had a net loss
of $655,013 or $0.007 per share from continuing operations compared to a net loss
of $712,465 or $0.010 per share from continuing operations and $141,568 net loss
or $0.002 per share from discontinued operations in the same period in the prior
year.

Exploration expenses during the quarter ended December 31, 2010
were $115,930 or 18% of our total expenses compared to $252,245 or 35% of our
total expenses in the same period in the prior year. The majority of exploration
expenses in the current quarter were from property lease payments and ongoing
water monitoring on the Borealis property. Our exploration expenses decreased
compared to the same period in the prior year primarily due to reduced
engineering work.

Management salaries and consulting fees in the quarter ended
December 31, 2010 were $303,421 compared to $207,461 incurred in the quarter
ended December 31, 2009. Total non-cash compensation expense due to the
recognition of costs related to stock options was $65,255 in the quarter ended
December 31, 2010 compared to the prior years fiscal third quarter of $49,656.
Management salaries and consulting fees during the quarter increased due to the
hiring of an investor relations consultant, the additional of geological and
engineering staff. General and administrative costs decreased to $135,336
compared to $168,264 the prior years quarter. Legal and audit fees for the
period were $48,865, a decrease from the prior years quarter of $71,989. Travel
and accommodation costs during the quarter ended December 31, 2010 were $36,366,
compared to $56,819 expended on travel in the prior years comparable
quarter.

Nine months ended December 31 2010 compared to nine months
ended December 31, 2009

For the nine-month period ended December 31, 2010 we incurred a
net loss of $2,495,617 or $0.028 per share from continuing operations and a net
income of $635,708 or $0.007 per share from discontinued operations compared to
a net loss of $2,331,595 or $0.036 per share from continuing operations and a
net loss of $579,523 or $0.009 per share from discontinued operations incurred
during the same period in the prior year.

Exploration expenses during the nine-month period ended
December 31, 2010 were $694,358 or 37% of our net expenses compared to
$1,107,289 or 47% of net expenses in the same period in the prior year. The
decrease is due to significantly less engineering work compared to the prior
year.

Management salaries and consulting fees in the nine months
ended December 31, 2010 were $845,552 compared to $456,673 for the same period
in the prior year. The increase is due to the CEO returning to full time
employment, the hiring of an investor relations consultant, and the
addition of two employees and two part time contractors. Total non-cash
compensation costs included in the nine months ended December 31, 2010 were
$142,022 versus $121,735 in the prior years comparable period.

Legal and audit fees for the nine month period increased to
$232,686 from $215,434 incurred in the prior years comparable period. Travel
and accommodation during the nine months ended December 31, 2010 was $105,659
compared to $85,385 reported in prior year nine-month period ended December 31,
2009. The increase resulted from increased travel surrounding the Sage Option
Agreements well as financing activities. General and administrative expenses
were $483,267, versus $357,154 in the prior years comparable period. The
increase is due to increased investor relations activity, opening of new office
in Carson City and increased activity in the field office in Hawthorne,
Nevada.

Liquidity and Capital Resources

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

Borealis Mine

Sage Option Agreement

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

15

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Royalty Obligations

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

On August 22, 2008, the Company entered into a 12-month option
agreement, at a cost of $250,000, to amend the Borealis Property mining lease.
If exercised, the net smelter return royalty rate will be fixed at 5%, versus
the current uncapped variable rate. Payment upon exercise is $1,750,000 in cash,
7,726,250 common shares of the Company and a three-year, $1,909,500 5% note
payable. The option period can and was extended for an additional six months for
a payment of $125,000 that was settled through the issuance of common stock of
the Company. On February 12, 2010, the Company entered into an agreement to
extend the option agreement from February 22, 2010 until August 22, 2010 and the
extension of the Condemnation Period from August 22, 2010 to August 22, 2011. As
consideration for entering into the agreement the Company agreed to pay $150,000
to the Borealis Owners comprised of cash in the amount of $25,000 and shares of
the Companys common stock equal to $125,000, calculated based on eighty percent
of the average five day closing price immediately prior to the payment date. On
August 11, 2010, the option was extended until February 22, 2011 for a cash
payment of $150,000.

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

There can be no assurance that the Company will be able to
exercise the option to buy down the royalty or negotiate a further extension of
the agreement before February 22, 2011. If the Company is unable to exercise the
option or obtain an extension, the Companys ability to put the Borealis Mine
into production would be adversely affected by the current royalty structure as
discussed above. This may make the Borealis Mine less profitable or prevent the
Company from putting the Borealis Mine into production, which would adversely
affect the Companys future results of operations.

Capital Resources

At December 31, 2010, we had working capital of $487,645 with
an average cash expenditure rate of $200,000 per month in a typical month based
on our current level of business activity. This level of activity is subject to
change based upon future events. Current assets consisted of $474,076 in cash,
$13,997 in accounts receivable, $4,938 in the note receivable, and $272,122 in
prepaid expenses. We had $277,488 in accounts payable and accrued liabilities, a
long term asset retirement obligation liability of $48,254, and a long term
liability to issue shares for $88,000.

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

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

During the nine months ended December 31, 2010, we used cash in
operating activities of $2,839,748 which included our net loss during the nine
months of $1,859,909 off-set by depreciation of $40,767, $99 gain on the
disposal of assets, non-cash compensation of $142,022, non-cash interest expense
of $10,364, unrealized loss of $104,292 and a $28,521 realized gain on the
valuation of marketable securities, $653,949 gain on sale of discontinued
operations, and changes in non-cash working capital of a $22,416 decrease in
accounts receivable, a $371,481 decrease in accounts payable, a $121,642
increase in prepaid expenses.

We received cash from investing activities of $2,190,504
including $65,116 increase in reclamation bond, $100,000 from the Sage Option
Agreement, $58,307 in purchase of equipment, $2,250,000 in sale of discontinued
operations, $11,003 in mineral property expenditures, $150,000 option payment to
amend royalty, $116,195 from the sale of securities, $8,634 from the payments on
the note receivable and $100 from the sale of equipment.

16

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We received cash from financing activities of $186,264
including $200,000 from the sale of common shares, and $13,736 in share issue
costs for the nine months ended December 31, 2010. Cash decreased during the
period by $462,980 to $474,076 as at December 31, 2010.

Updated share capital as of February 11, 2010:

Basic Common Stock Issued and Outstanding
    
      96,760,132Warrants, Options and other Convertible Securities
    
      15,908,892Fully Diluted Common Stock
    
      112,669,024


Critical Accounting Policies and Estimates

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

Recent Accounting Pronouncements

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

Reclassification

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

Item 3. Quantitative and Qualitative Disclosure about Market
Risk

Not Applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

Changes in Internal Controls over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1.     Legal Proceedings.

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

ITEM 1A. Risk Factors

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

17

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

During the nine months ended December 31, 2010, all
transactions in which we have offered and sold unregistered securities pursuant
to exemptions under the Securities Act of 1933, as amended, have been reported
on current reports on Form 8K.

Item 3.     Defaults upon Senior
Securities.

None.

Item 4.     [REMOVED AND RESERVED]

Item 5.      Other Information.

None.

Item 6.     Exhibits

|Number | Description                                                                                                                                                       
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                   
|10.1   | Business Consulting and Services Agreement dated October 21, 2010                                                                                                 
|       |                                                                                                                                                                   
|31.1   | CEO
        Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section
        302 of the Sarbanes-Oxley Act of
        2002 dated November 12, 2010.
|       |                                                                                                                                                                   
|31.2   | CFO
        Certification pursuant to Rule 13a-14(a) as adopted pursuant to Section
        302 of the Sarbanes-Oxley Act of
        2002 dated November 12, 2010.
|       |                                                                                                                                                                   
|32.1   | CEO
        Certification pursuant to 18 U.S.C. 1350 as adopted pursuant to Section
        906 of the Sarbanes-Oxley Act of 2002 dated November 12, 2010.        
|       |                                                                                                                                                                   
|32.2   | CFO
        Certification pursuant to 18 U.S.C. 1350 as adopted pursuant to Section
        906 of the Sarbanes-Oxley Act of
        2002 dated November 12, 2010.

18

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SIGNATURES

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

GRYPHON GOLD CORPORATION (Registrant)



|By: | /s/ John L. Key                                   | 
|--- | ------------------------------------------------- | 
|    | John L. Key                                       | 
|    | Chief Executive Officer                           | 
|    | (On behalf of the registrant and
      as         | 
|    | Principal executive officer)                      | 
|    |                                                   | 
|    | Date:         
      February 11, 2010            | 
|    |                                                   | 
|    |                                                   | 
|By: | /s/ Matthew A Fowler                              | 
|    | Matthew A. Fowler                                 | 
|    | Interim Chief Financial Officer                   | 
|    | (On behalf of the registrant and
      as         | 
|    | Principal financial and
      accounting officer) | 
|    |                                                   | 
|    | Date:         
      February 11, 2010            | 

19

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