Cautionary Statement on Forward-Looking Statements

Certain statements in this report constitute "forwarding-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Certain of such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. All statements other than statements of historical fact, included in this report regarding our financial position, business and plans or objectives for future operations are forward-looking statements. Without limiting the broader description of forward-looking statements above, we specifically note that statements regarding exploration, costs, grade, production and recovery rates, permitting, financing needs and the availability of financing on acceptable terms or other sources of funding are all forward-looking in nature.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including but not limited to, the factors discussed below in Part II; Item 1A. "Risk Factors," which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements and other factors referenced in this report. We do not undertake and specifically decline any obligation to publicly release the results of any revisions which may be made to any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

We utilize certain Non-GAAP performance measures and ratios in managing the business and may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, the reported operating results or cash flow from operations or any other measure of performance prepared in accordance with accounting principles generally accepted in the United States. In addition, the presentation of these measures may not be comparable to similarly titled measures other companies use.

General

Through wholly owned subsidiaries, Capital Gold Corporation (the "Company" or "we") owns 100% of 16 mining concessions located in the Municipality of Altar, State of Sonora, Republic of Mexico totaling approximately 3,544 hectares (8,756 acres or 13.7 square miles). We commenced mining operations on two of these concessions in late March 2007 and achieved gold production and revenue from operations in early August 2007. We sometimes refer to the operations on these two concessions as the El Chanate Project.

On August 30, 2007, Independent Mining Consultants, Inc. ("IMC") of Tucson, AZ delivered to us an updated resource block model and an updated mine plan and mine production schedule (the "2007 Report"). According to the 2007 Report, our proven and probable reserve tonnage increased by approximately 98% from 19.9 million to 39.5 million metric tonnes with a gold grade of 0.66 grams per tonne (43.5 million US short tons at 0.019 ounces per ton). The open pit stripping ratio is 0.6:1 (0.6 tonnes of waste to one tonne of ore). The updated pit design for the revised plan in the 2007 Report is based on a plant recovery of gold that varies by rock types, but is expected to average 66.8%. A gold price of US$550 (three year average as of July 31, 2007 as determined by IMC) per ounce was used to re-estimate the reserves compared with a gold price of $450 per ounce used in the previous estimate.

The following production summary estimate has been extracted from the 2007 Report. Please note that the reserves as stated are an estimate of what can be economically and legally recovered from the mine and, as such, incorporate losses for dilution and mining recovery. The 832,280 ounces of contained gold represent ounces of gold contained in ore in the ground, and therefore do not reflect losses in the recovery process. Total gold produced is estimated to be 555,960 ounces, or approximately 66.8% of the contained gold. The gold recovery rate is expected to average approximately 66.8% for the entire ore body. Individual portions of the ore body may experience varying recovery rates ranging from about 73% to 48%. Oxidized and sandstone ore types may have recoveries of about 73%; fault zone ore type recoveries may be about 64%; siltstone ore type recoveries may be about 48% and latite intrusive ore type recoveries may be about 50%.

                               Metric                                 U.S.

Materials
Reserves
Proven                         26.7 Million Tonnes @  0.68  g/t*      29.4 Million Tons @ 0.0198 opt*
Probable                       12.8 Million Tonnes @ 0.61  g/t*       14.1 Million Tons @ 0.0179 opt*
Total Reserves                 39.5 Million Tonnes @ 0.66  g/t*       43.5 Million Tons @ 0.0192 opt*
Waste                          24.1 Million Tonnes                    26.6 Million Tons
Total                          63.6 Million Tonnes                    70.1 Million tons

Contained Gold                 25.89 Million grams                    832,280 Oz

Production
Ore Crushed**                  2.6 Million Tonnes /Year               2.87 Million Tons/Year
                               7,500 Mt/d                             8,267 t/d

Operating Days/Year            365 Days per year                      365 Days per year
Gold Plant Average Recovery    66.8 %                                 66.8%
Average Annual Production**    1.35 Million grams                     43,414 Oz
Total Gold Produced            17.29 Million grams                    555,960 Oz

* "g/t" means grams per metric tonne, "opt" means ounces per ton, "Mt/d" means metric tonnes per day and "t/d" means tons per day. The reserve estimates are based on a recovered gold cutoff grade of 0.17 to 0.21 grams per metric tonne, depending on the operating year, and as described below.

** Based on mining rate of 7,500 metric tonnes per day of ore. It does not take into account the anticipated increase of 10,000 metric tonnes per day or more.

El Chanate Project

Production Summary

In the mineral resource block model developed, with blocks 6m (meters) x 6m x 6m high, Measured and Indicated resources (corresponding to Proven and Probable reserves respectively when within the pit design) were classified in accordance with the following scheme:

· Blocks with 2 or more drill holes within a search radius of 80m x 70m x 40m and with a relative kriging (a geostatistical calculation technique) standard deviation less than or equal to 0.45 were classified as Measured (corresponding to Proven);

· Blocks with 1 hole within the search radius of 80m x 70m x 40m and with a relative kriging standard deviation of 0.60 or less, blocks with 2 holes and a kriging standard deviation of 0.70 or less, blocks with 3 holes and a kriging standard deviation of 0.80 or less, blocks with 4 holes and a relative kriging standard deviation of 0.90 or less and all blocks with 5 or more holes within the search radius were classified as Indicated (corresponding to Probable), unless they met the above criterion for Proven;

· Blocks with a grade estimate that did not meet the above criteria were classified as Inferred (and were classified as waste material in the mining reserves estimate);

· Blocks outside the above search radii or outside suitable geological zones were not assigned a gold grade or a resource classification.

The Proven and Probable reserve estimates are based on a recovered gold cutoff grade of 0.17 to 0.21 grams/tonne, depending on the operating year. The variation is due to balancing the mine and plant production capacities on a year by year basis for the plan. (A recovered gold cutoff grade was used for reserves calculation as the head gold grade cutoff varies with the different ore types due to their variable gold recoveries.) The internal (in-pit) and break even cutoff grade calculations are as follows:

Cutoff Grade Calculation           Internal Cutoff Grade    Break Even Cutoff Grade
Basic Parameters
Gold Price                          US$550/oz                US$550/oz
Shipping and Refining               US$ 4.14/oz              US$ 4.14/oz
Gold Recovery                       66.8%                    66.8%
Royalty                             4% of NSR                4% of NSR

Operating Costs per Tonne of Ore   $ per Tonne of Ore       $ per Tonne of Ore
Mining *                            0.070                    1.360
Processing/Leach Pad                1.980                    1.980
G&A                                 0.800                    0.800
Total                               2.850                    4.140

Internal Cutoff Grade              Grams per Tonne          Grams per Tonne
Head Grade Cutoff (66.8% recov.)    0.25                     0.37
Recovered Gold Grade Cutoff         0.17                     0.25

* The calculation of an internal cutoff grade does not include the basic mining costs (which are considered to be sunk costs for material within the designed pit). The $0.07 per tonne cost included is the incremental (added) cost of hauling ore over hauling waste, and which is included in the calculation.

We commenced production at the El Chanate property on July 31, 2007. For the nine months ended April 30, 2009 and 2008, we sold 38,037 and 28,210 ounces of gold, respectively, an increase of 35%. Gold production at El Chanate is currently at a level of approximately 5,000 ounces of gold per month. We completed the procurement and installation of our new secondary crusher and tunnel conveyor in May 2009. The total capital expenditure for this equipment was approximately $1,012. We completed the leach pad expansion and ADR plant improvements in January 2009. We believe that these steps that we initiated and completed during this fiscal year will effectively increase annualized production rates to approximately 70,000 ounces per year in 2009. Management has been able and anticipates that it will continue to, fund expansion costs with its cash on hand as well as through revenues from gold sales.

The following table represents a summary of our proven and probable mineral reserves.

                                                        April 30,        July 31,
Proven and probable mineral reserve (Ktonnes of ore)       2009            2008
Ore                                                               -               -
Beginning balance (Ktonnes)                                  35,286          38,785
Additions                                                         -               -
Reductions                                                   (2,771 )        (3,499 )
Ending Balance                                               32,515          35,286

Contained gold
Beginning balance (thousand of ounces)                          719             814
Additions                                                         -               -
Reductions                                                      (75 )           (95 )
Ending Balance                                                  644             719

In September 2008, we initiated a 10 hole, deep core drilling campaign at our El Chanate mine consisting of 2,500 meters, which targeted the southern extremity of the main pit. Once this data has been compiled and analyzed, it will be combined with results from a previous drilling campaign initiated in December 2007 which consisted of 26 reverse circulation holes amounting to 4,912 meters. These drill holes were mainly positioned to test the outer limits of the currently known ore zones within the main pit.
All data will be combined with the intention of increasing proven and probable reserves.

During 2007 and 2008, we conducted exploration activities in the El Chanate pit area including, a ground magnetic survey and two drilling campaigns totaling 4,912 meters of reverse circulation drilling and 2,891 meters of core drilling, to evaluate the ongoing potential for expanding its reserves. The knowledge obtained about the geology of the deposit during mining, combined with the assays from the samples from this exploration drilling, was used to expand the information in our mine database. We have used this data to re-estimate El Chanate's mineral reserves. The table below shows the updated Proven and Probable reserves at El Chanate as of May 2009:

Mineral Reserve Class                                Ore (tonnes)      Grade (g/t)       Contained Gold (oz.)

Proven Mineral Reserve                                  20,896,000             0.772                    519,000

Probable Mineral Reserve                                14,926,000             0.702                    337,000

Low Grade Stockpile (Probable)                           7,318,000             0.246                     58,000

Proven and Probable Mineral Reserve                     43,140,000             0.659                    913,000

The new mineral reserves are based on an updated resource block model and an updated mine plan and mine production schedule developed by Independent Mining Consultants, Inc. (IMC) of Tucson, Arizona, an independent consulting firm. The updated pit design for the revised plan is based on a plant recovery of gold that varies by rock types, but is expected to average 64.2%. A gold price of $750 (SEC three year average as of March 20, 2009) per ounce was used to estimate the reserves. The stated proven and probable mineral reserves have been prepared in accordance with CIM Definitions. A technical report supporting this estimate is being finalized that complies with Canada's National Instrument 43-101 Standards of Disclosure for Mineral Projects and will be filed on SEDAR shortly. These reserves are equivalent to proven and probable reserves as defined by the United States Securities and Exchange Commission (SEC) Industry Guide 7.

We recently leased 12 mining concessions totaling 1,790 hectares located northwest of Saric, Sonora. In addition, we own a claim for approximately 2,200 additional hectares adjacent to this property. These concessions and this claim are about 60 miles northeast of the El Chanate project. Mineralization is evident throughout and is hosted by shear zones and quartz veins in granite intrusive. A short drill program, along with geochemical work, remains underway.

We continue to actively investigate other exploration projects in northern Mexico.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim financial statements and related notes included elsewhere in this report.

Three months ended April 30, 2009 compared to three months ended April 30, 2008

Net income for the three months ended April 30, 2009 and 2008 was approximately $2,554 and $2,740, respectively, representing a decrease of approximately 7% over the prior period. Net income decreased primarily as a result of the settlement, on February 24, 2009, with Standard Bank, Plc., the remaining 58,233 ounces of gold under the original Gold Price Protection arrangements entered into in March 2006. The purpose of these arrangements at the time was to protect the Company in the event the gold price dropped below $500 per ounce. Total remuneration to unwind these arrangements was approximately $1,906. In conjunction with the settlement of the gold price protection agreement, we incurred an Other Expense of approximately $1,391 during the fiscal quarter ended April 30, 2009.

Net income per common share was $0.01 for the three months ended April 30, 2009 on both a basic and diluted basis and $0.02 and $0.01 for the three months ended April 30, 2008 on a basic and diluted basis, respectively.

Revenues & Costs Applicable to Sales

Gold sales in the current period totaled approximately $12,395 as compared to $8,730 in the prior period representing an increase of approximately $3,665 or 42%. We sold 13,347 ounces at an average realizable price per ounce of approximately $929 in the current period. We sold 9,466 ounces at an average realizable price per ounce of $922 during the same period last year.

Costs applicable to sales were approximately $3,698 and $2,717, respectively, for the three months ended April 30, 2009 and 2008, an increase of approximately $981 or 36%, which increased in conjunction with our increase in revenues. Cash costs of $263 per ounce of gold sold for the three months ended April 30, 2009 was 7% below the $283 reported in the same period in fiscal 2008. Total costs of $305 per ounce of gold sold for the three months ended April 30, 2009, was 9% lower than the $337 in our fiscal third quarter of 2008. Our increased production and cost efficiencies contributed to a lower cash and total cost per ounce sold during the current period.

Revenues from by-product sales (silver) are credited to Costs applicable to sales as a by-product credit. Silver sales totaled 22,991 ounces at an average price of $12.94 amounting to approximately $298 during the three months ended April 30, 2009. Silver sales totaled 10,190 ounces at a price of $19.73 amounting to approximately $201 for the three months ended April 30, 2008.

Depreciation and Amortization

Depreciation and amortization expense during the three months ended April 30, 2009 and 2008 was approximately $811 and $800, respectively, an increase of $11 or 1% over the prior period. The primary reason for the increase in units-of-production depreciation and amortization was mainly attributable to additional ounces being produced in the current period versus the same period in the prior year of approximately $183. This was offset by amortization charges incurred in the prior year of approximately $122 related to the repurchase of the 5% net profit interest acquired in 2006 for $500. This was fully amortized during the quarterly period ended April 30, 2008. Depreciation and amortization also includes deferred financing costs resulting from the credit arrangements entered into with Standard Bank Plc. This accounted for approximately $233 and $272 of depreciation and amortization expense during the three months ended April 30, 2009 and 2008, respectively.

General and Administration Expense

General and administrative expenses during the three months ended April 30, 2009 were approximately $1,361, an increase of approximately $275 or 25% from the three months ended April 30, 2008. The increase in general and administrative expenses for the current period was primarily due to: 1) higher legal and financial advisor fees incurred as a result of the proposed transaction with Gammon Gold of approximately $380, and 2) higher audit fees of approximately $92 associated with the attestation report issued on the effectiveness of our internal controls as well as fees incurred with the response to our periodic Securities and Exchange Commission comment letter received during the current period. These increases were slightly offset by reductions in consulting and professional fees of approximately $175 as compared to the three months ended April 30, 2008.

Exploration Expense

Exploration expense during the three months ended April 30, 2009 and 2008 was approximately $329 and $19, respectively, or an increase of $310. Exploration costs during the current period mainly consisted of on-going exploration, drilling and geochemical work being conducted on our leased concessions located northwest of Saric, Sonora. Exploration expense in the prior period was minimal as the drilling campaign which consisted of 26 reverse circulation holes amounting to 4,912 meters concluded during the second fiscal quarter ended January 31, 2008.

Other Income and Expense

Our loss on the change in fair value of derivative instruments during the three months ended April 30, 2009 and 2008, was approximately $1,391 and $337, respectively, and was reflected as Other Expense. The primary reason for the increase can be attributed to the settlement, on February 24, 2009, with Standard Bank, Plc., the remaining 58,233 ounces of gold under the original Gold Price Protection arrangements entered into in March 2006. The purpose of these arrangements at the time was to protect the Company in the event the gold price dropped below $500 per ounce. Total remuneration to unwind these arrangements was approximately $1,906. In conjunction with the settlement of the gold price protection agreement, we incurred an Other Expense of approximately $1,391 during the fiscal quarter ended April 30, 2009. These contracts were not designated as hedging derivatives; and therefore, special hedge accounting does not apply.

Interest expense was approximately $103 for the three months ended April 30, 2009 compared to approximately $377 for the same period a year earlier. This decrease was mainly due to lower interest charges incurred during the current period related to our credit arrangements with Standard Bank. As of April 30, 2009, there was $9,125 outstanding on our term note.

Nine months ended April 30, 2009 compared to nine months ended April 30, 2008

Net income for the nine months ended April 30, 2009 and 2008 was approximately $7,687 and $6,613, respectively, representing an increase of approximately 16% over the prior period. Net income before income taxes was $12,511 and $7,419 for the nine months ended April 30, 2009 and 2008, respectively, which represented an increase of 69%. Net income and net income before tax increased primarily as a result of higher revenues from more ounces being sold during the nine months ended April 30, 2009, as compared to the same period a year ago. Income tax expense in the prior period was lower due to two factors: 1) net income before tax was below that of the current period due to lower ounces being sold and, 2) a net operating loss carryforward within our wholly-owned subsidiary, MSR, that offset tax that would otherwise have been due in the prior period. This loss carry-forward was fully utilized as of December 31, 2007.

Net income per common share was $0.04 for the nine months ended April 30, 2009 on both a basic and diluted basis and $0.04 and $0.03 for the nine months ended April 30, 2008 on a basic and diluted basis, respectively.

Revenues & Costs Applicable to Sales

Gold sales in the current period totaled approximately $32,939 as compared to $23,299 in the prior period representing an increase of approximately $9,640 or 41%. We sold 38,037 ounces at an average realizable price per ounce of approximately $866 in the current period. We sold 28,210 ounces at an average realizable price per ounce of $826 during the same period last year.

Costs applicable to sales were approximately $10,395 and $7,343, respectively, for the nine months ended April 30, 2009 and 2008, an increase of approximately $3,052 or 42%, which increased in conjunction with our increase in revenues. Cash costs of $261 per ounce of gold sold for the nine months ended April 30, 2009 was 1% higher than the $258 for the nine months ended April 30, 2008. We have been able to maintain our cash costs as we have increased production. Total costs of $301 per ounce of gold sold for the nine months ended April 30, 2009, was 6% lower than the $321. The primary reason for this decrease in total costs was attributed to higher amortization charges recorded in the prior period related to the repurchase of the 5% net profit interest acquired in 2006 for $500.

Revenues from by-product sales, which consist of silver, are credited to Costs applicable to sales as a by-product credit. By-product sales amounted to $809 and $347 for the nine months ended April 30, 2009 and 2008, on silver ounces sold of 68,325 and 20,190, respectively.

Depreciation and Amortization

Depreciation and amortization expense during the nine months ended April 30, 2009 and 2008 was approximately $2,269 and $2,630, respectively. The primary reason for the decrease of approximately $361, or 14%, was due to amortization charges recorded in the prior period related to the repurchase of the 5% net profit interest acquired in 2006 for $500. The $500 was fully amortized during the quarterly period ended April 30, 2008. This was slightly offset by an increase in Units-of-Production depreciation and amortization mainly attributable to additional ounces being produced in the current period versus the same period in the prior year. Depreciation and amortization also includes deferred financing costs resulting from the credit arrangements entered into with Standard Bank Plc. This accounted for approximately $700 and $816 of depreciation and amortization expense during the nine months ended April 30, 2009 and 2008, respectively.

General and Administration Expense

General and administrative expenses during the nine months ended April 30, 2009 were approximately $3,800, an increase of approximately $492, or 15%, from the nine months ended April 30, 2008. The increase in general and administrative expenses for the current period was primarily due to: 1) higher legal and financial advisor fees incurred as a result of the proposed transaction with Gammon Gold of approximately $380, and 2) higher audit fees of approximately $92 associated with the attestation report issued on the effectiveness of our internal controls as well as fees incurred with the response to our periodic Securities and Exchange Commission comment letter received during the current period.

Exploration Expense

Exploration expense during the nine months ended April 30, 2009 and 2008 was approximately $1,224 and $650, respectively, or an increase of $574, or 88%. The primary reason for the increase can be attributed to increased activity during the current period associated with on-going exploration, drilling and geochemical work being conducted on our leased concessions located northwest of Saric, Sonora. Exploration expense for the current period also included costs incurred from a 10 hole, deep core drilling campaign at our El Chanate mine totaling 2,500 meters, which targeted the southern extremity of the main pit. Exploration expense in the prior period included a drilling campaign initiated in December 2007 which consisted of 26 reverse circulation holes amounting to 4,912 meters. These drill holes were mainly positioned to test the outer limits of the currently known ore zones within the main pit. All data was combined with the intention of increasing proven and probable reserves.

Other Income and Expense

. . .