GRYPHON GOLD CORP - FORM 10-Q - XML - IDEA: XBRL DOCUMENT - February 17, 2012

7. NOTES PAYABLE

On July 27, 2011, the Company closed a $3.17 million debt offering of units of the Company. The offering was led by Acumen Capital Finance Partners Limited in Canada and by Roth Capital Partners in the United States. Each unit consists of $1,000 CAD principal amount of 10% secured subordinated debentures maturing July 28, 2012 and 1,500 warrants. Each warrant entitles the holder thereof to purchase one common share of the Company at a price of $0.20 USD per share. The warrants expire on January 27, 2013.

The debentures bear interest from the date of issue at 10.0% per annum, payable quarterly on March 31, June 30, September 30 and December 31, commencing on September 30, 2011. The debentures will mature 12 months from the closing date of the offering on July 28, 2012. The debentures were issued under a Trust Indenture, which contains customary terms, conditions and covenants. The debentures are secured by a pledge of the shares of Borealis Mining Company and a general security interest in the assets of the Company under the terms of a Pledge and Security Agreement.

The fair value of the warrants issued to note holders and brokers pursuant to the July 2011 offering was $383,670, which was calculated using Black-Scholes model with a risk free interest rate of 0.30%, volatility of 86.59%, 549 days expected term and an exercise and market price of $0.20 per share. This valuation was recorded as a discount to the notes payable and will be amortized over the twelve-month term of the notes and as at December 31, 2011, $166,082 had been amortized and charged to interest expense.

On November 22, 2011, the Company closed another $4.3 million debt offering of units of the Company. The offering was led by Acumen Capital Finance Partners Limited in Canada and by Roth Capital Partners in the United States. Each unit consists of $1,000 CAD principal amount of 10% secured subordinated debentures maturing November 23, 2012 and 750 warrants. Each warrant entitles the holder thereof to purchase one common share of the Company at a price of $0.40 USD per share. The warrants expire on May 22, 2013.

The debentures bear interest from the date of issue at 10.0% per annum, payable quarterly on March 31, June 30, and September 30. The debentures will mature 12 months from the closing date of the offering on November 23, 2012. The debentures were issued under a Trust Indenture, which contains terms, conditions, covenants and restrictive covenants, including restrictions on issuing additional debt or equity. The debentures are secured under the terms of a Pledge and Security Agreement by a pledge of the shares of Borealis Mining Company and a general security interest in the assets of the Company, which is subordinate to the security interest granted to holders of the debentures issued on July 27, 2011.

Acumen and Roth Capital were paid a cash commission of 6.5% of the gross proceeds of the offering.

The fair value of the warrants issued to note holders and brokers pursuant to the November 2011 offering was $308,379, which was calculated using Black-Scholes model with a risk free interest rate of 0.40%, volatility of 84.11%, 548 days expected term and an exercise and market price of $0.2794 per share. This valuation was recorded as a discount to the notes payable and will be amortized over the twelve-month term of the notes and as at December 31, 2011 $33,795 had been amortized and charged to interest expense