UNITED STATES

10-K 1 kdsm10k_2007.htm 10-K UNITED STATES
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One) FORM 10K

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

For the fiscal year ended February 28, 2007

[ ] 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 000-30965

KLONDIKE STAR MINERAL CORP.

(Exact name of registrant as specified in its charter)

Delaware	91-198708
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Box 20116, 1031 - Ten Mile Road

Whitehorse, Yukon Y1A 7A2

(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code: (800) 579-7580

Securities registered pursuant to Section 12(b) of the At: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $0.0001 Per Share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: [ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: [ ] Yes [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d0 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 such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the bet of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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

Large accelerated filer [ ] Accelerated filer [ ] Non-Accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of August 31, 2006 (the Company's most recently completed 2^nd fiscal quarter ended), based on the last sales price as quoted on the Over-The-Counter Bulletin on that date: $96,119,737.

As of February 28, 2007, there were 29,035,782 shares outstanding of the registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

		PART I

ITEM 1.		Business
ITEM 1A.		Risk Factors
ITEM 1B.		Unresolved Staff Comments
ITEM 2.		Properties
ITEM 3.		Legal Proceedings
ITEM 4.		Submission of Matters to a Vote of Security Holders

		PART II

ITEM 5.		Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ITEM 6.		Selected Financial Data
ITEM 7.		Management's Discussion and Analysis of Financial Condition and Results of Operation
ITEM 7A.		Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.		Financial Statements and Supplementary Data
ITEM 9.		Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
ITEM 9A.		Controls and Procedures
ITEM 9B		Other Information

		PART III

ITEM 10.		Directors, Executive Officers and Corporate Governance
ITEM 11.		Executive Compensation
ITEM 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13.		Certain Relationships and Related Transactions and Director Independence
ITEM 14.		Principal Accounting Fees and Services

		PART IV

ITEM 15.		Exhibits, Financial Statement Schedules

		SIGNATURES

PART 1

Item 1. Business

As of February 28, 2007, Klondike Star Mineral Corporation is an established exploration company actively working on eight gold, base and precious metal properties, totaling approximately 463 km² or 179 mi² in the Yukon, located in the northwest corner of Canada. The Company is developing extensive surface and subsurface mineralized zones on an about 370 km² or 143 mi² land position underlying the site of the world-renowned Klondike gold producing region. These holdings include, but are not limited to properties known as the Lone Star Project and the Indian River Placer Project.

Additionally, the Company holds strategic interests in approximately 93 km² or 36 mi² of select high potential targets for gold, base and precious metals in the Watson Lake and Whitehorse mining districts of the Yukon. These include properties known as the Spice Project in the Watson Lake Mining District and the Ultra Project in the Whitehorse Mining District.

Description of the Business

From inception as a mineral exploration stage enterprise in December 2003, the Company has acquired mineral properties, negotiated joint ventures, established financing arrangements, and planned and conducted exploration activities involving 8 different projects in the Yukon, Canada. In addition, opportunities in other countries are being actively pursued.

Mineral exploration and mine development includes such activities as conventional prospecting, geological/geophysical surveys and research, as well as excavation, diamond and auger drilling, analysis of core, soil, mini and bulk samples, milling and testing of processing technologies, mineral resource assessment, facility construction and maintenance, equipment acquisition and maintenance, road and access construction, scoping studies and environmental monitoring for potential mine development.

In its first year as a mineral exploration company, Klondike Star earned a 55% and controlling interest in the Lone Star Project in the Dawson Mining District, Yukon. This property includes the site of the original Klondike Gold Rush. Since then, the Company has expanded systematically to a total of eight exploration and development projects: six gold prospects in the Klondike region of the Yukon and two gold, base and precious mineral properties in other parts of the Yukon.

In support of its mission, Klondike Star has established corporate goals relating to mineral production, capital formation and durable investor relationships, employer of choice, sustainable development and good corporate governance.

Klondike Star is advancing its projects operating under a multi-prong strategy. This involves a long-term, systematic and results-oriented approach towards exploration research, supported by a scaled expansion of field operations on carefully selected assets, combined with a concurrent investment in planning for potential mine development. The strategy is founded on and features such elements as:

* undertaking mineral exploration and development within a sustainable development paradigm;

* selecting and advancing quality mineral exploration projects managed and evaluated by a team of qualified industry professionals;

* establishing links with internationally recognized university-based geology resources for expertise and access to leading technology in geological science;

* demonstrating substantive focus on good corporate governance and best practices;

* forging strong relationships with financial professionals in order to provide adequate capital investment for its projects with the goal of bringing new mining production on-stream in the future;

* investing in relationships with and collaborative efforts involving First Nations, local suppliers and contractors;

* acquiring and supporting a large and growing shareholder base;

* practicing proactive, balanced and timely disclosure addressing what is newsworthy from a shareholder point of view in a manner that meets and exceeds regulatory requirements; and

* building shareholder value through every aspect of the Company's business and operations.

All of the long-lived assets, in the form of mineral property rights, are located in Canada as of year-end.

Following the end of the year ended February 28, 2007, Klondike Star established Klondike Star Canada Inc., a wholly owned Canadian subsidiary.

The Company currently has a year-round full-time equivalent labour force of about 15-20 employees that expands to 60-80 employees, contractors and consultants during the summer/fall exploration season, with a winter seasonal labour force of about 10 employees.

Klondike Star Mineral Corporation is listed on the NASD.OTCBB trading under the symbol "KDSM".

Available Information

We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). Copies of these reports, proxy statements and other information can be read and copies obtained at:

SEC Public Reference Room

100 F Street NE

Washington, D.C. 20549

Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual and quarterly reports, current reports on Form 8K, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC's website at www.sec.gov.

We make available, free of charge on our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the SEC. These documents are posted on our website at www.klondikestar.com. We also make available, free of charge on our website the charters of the Board of Directors, the Audit Committee and the Environment, Health and Safety Charter, press releases and other information. Copies of the above-referenced documents will also be made available, free of charge, upon written request to:

Klondike Star Mineral Corporation

Attention: Investor Relations

Box 20116

Whitehorse, Yukon

Canada, Y1A 7A2

Item 1A. Risk Factors

Risks related to Company business

The Company's business model may not be sustainable:

The Company began active operations in late 2003 as a mineral exploration enterprise. Although the mineral properties acquired already have had substantial funds spent on research, exploration and development, including infrastructure such as roads, exploration camp facilities, core shack and test mill, the Company expects to incur significant additional development, exploration and communication expenses in connection with the business. To date, the Company has generated no revenue. It is expected the Company will continue to incur operating losses for the foreseeable future, and the Company may never achieve or sustain profitability. There are no assurances the Company will effectively build an operating mine.

The Company's future operating results are unpredictable:

Due to the absence of any revenues generated from our business model, and given the period of expenditures envisioned by our mineral explorations plans for the next several years, it is foreseeable that the Company may require further capital injections in order to finance planned exploration activities.

Mineral exploration and development involves a high degree of risk, and few properties which are explored are ultimately developed into producing mines. The Company's properties are still in the developmental and testing stages and may never reach a production stage. The Company's revenue model is dependant upon identifying and accessing a viable ore body that can prove feasible for production. The failure to identify and finance such a mine could have detrimental effects on the Company.

The Company may never generate revenues. Even if the Company does generate revenues, there is no assurance the Company will ever be profitable.

Operations and management:

A practical operational risk factor relates to the timely availability of necessary skilled labor and resources through recruitment, contracting or joint ventures. Although Klondike Star has and continues to invest proactively in solutions to these risks, one risk that is pervasive in the mineral exploration industry relates to the shortage of experienced diamond drillers in North America. Demand is outstripping qualified supply of these technical services so essential to advancing the understanding of potential mineral resources. Klondike Star requires diamond drilling capability on a timely basis for four Projects: Lone Star, Dominion, Spice and Ultra.

In order to achieve its objectives, the Company may add key people to the management team. The Company requires highly skilled technical, administrative, fleet management, sales and marketing, accounting, communications, research and development personnel, who are in high demand and are often subject to competing offers. As the Company grows, it will continue to need an increased number of management and support personnel.

Intense competition may affect Company profitability:

The Company faces many competitors that have been in business longer than we have. These competitors have the advantage of having entered the market earlier than the Company. There are a number of other projects currently existing in the Company's market place. These competitors are already accepted in the market place. The Company may therefore be unable to gain adequate market support to meet financial projections. The Company cannot assure you that its competitors will not develop projects that are equal or superior to those of the Company, or that achieve greater market acceptance.

Risk of equipment failures and loss of proprietary information:

The Company's operations depend on our ability to protect our proprietary information. Additionally, the Company is dependent upon its consultants and contractors.

The Company's projects are subject to, in part, damage from potential dangers such as fire, earthquake, power loss, vandalism, computer viruses, telecommunications failures and other acts beyond its control. Any temporary or permanent loss of one or more of these systems or facilities from an accident, an equipment malfunction, or some other cause could cause a loss. The Company has taken measures to protect its systems and equipment from these dangers, however there can be no assurances that these measures will be successful as planned.

The Company may also be faced with the misappropriation or theft of its proprietary information. The Company cannot ensure its proprietary information will not be stolen or otherwise misappropriated. The Company will undertake legal means to protect its information, but it cannot ensure it will be successful in such endeavours.

The inability of the Company to adequately protect its assets and properties could have a materially adverse effect on the financial condition of the Company.

Rights to mineral claims and leases involve uncertainties:

Rights to surface and subsurface mining properties involve certain inherent risks due to the difficulties of determining the validity of certain claims, as well as the potential for problems arising from the frequently ambiguous conveyance history, characteristic of many mining properties. Although the Company has taken steps to verify and protect the title to, and ownership interests and options in, the mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company's rights or interests. These rights or interests may be subject to unregistered prior agreements or transfers and be affected by undetected defects.

Additional capital may be needed:

The Company requires substantial working capital to fund its business. The Company will need to raise additional funds through public or private financing. Selling additional stock could dilute the equity interests of the Company's stockholders. If the Company borrows money, it will have to pay interest and may also have to agree to restrictions on its operating flexibility. The borrowing of additional monies may put a strain on the Company and its ability to develop and or expand.

Risks related to the mineral exploration and production industry

Commodity cycles:

The Company's projects are characterized by rapidly changing market cycles, extensive research and new mine introductions. The Company believes that its future success will depend in part upon its ability to continue to enhance its existing properties and to advance one or more projects to a production decision. As a result, the Company expects to continue to make a significant investment in exploration research and development, subject to the availability of working capital. The Company presently has limited working capital and is dependent upon its ability to raise further working capital to conduct its work.

Mineral exploration and development involves a high degree of risk and few properties which are explored are ultimately developed into producing mines. There can be no assurance that the Company will be able to advance its properties to a production decision. The failure of the Company to develop new mines and finance them to production successfully and in a timely manner could adversely affect the Company's competitive position, financial condition and results of operation.

Adoption of new laws and government regulations relating to the mining industry could harm the Company's business:

The Company's business is subject to various local, territorial, provincial, First Nations, national and international laws that affect mining and the building of new mines. Other laws and regulations related to health, safety, working conditions, environment, land and water use, and other related laws and regulations may also affect the Company.

The Company relies upon various mining land use permits and water licenses to operate and grow the business. As the regulatory agencies change and introduce new requirements, the Company may incur difficulties in acquiring such permits and licenses in the future, which could adversely affect future development of the Company's properties.

There can be no assurances that governmental action will not adversely affect the Company and its business.

Health and safety risks:

Health and safety for employees and contractors is a known risk factor for any mineral exploration and development business. Despite an uncompromising commitment to superior safety performance and healthy workplace, incidents can and do happen with the potential for material consequences.

Under the guidance of the Board Environment, Health and Safety Committee, the Company has established policy and guidelines, and employs industry best practices to address this risk effectively and efficiently. Klondike Star Mineral Corporation has an uncompromising commitment to superior safety performance and a healthy work place.

Environmental and permitting risks:

The Company also relies upon various mining land use permits and water licenses to operate and expand the business. As the regulatory agencies change and introduce new requirements, the Company may incur difficulties in acquiring such permits and licenses in the future, which could adversely affect future development of the Company's properties. The J.A.E. claim block acquired as an expansion of the Dominion Project during the second quarter came with an existing mining land use permit. The Indian River placer properties acquired in the second quarter came with the benefit of both mining land use permits and water use authorization.

Company policy is based on the view that solid environmental performance within a sustainable development approach is a leading indicator of a well-managed, efficient and competitive corporation acting in the best interests of its business, its shareholders, its employees and the communities in which it operates.

Dependence upon third parties:

The Company is reliant, in part, upon third parties for its success. The Company may utilize third parties to assist in the exploration and development work, communications, management and financial consulting and other services. The Company cannot ensure the actions of one or more third parties will not adversely affect its business.

Additional business risks:

The occurrence of any of the foregoing, alone or in combination, may cause our business to fail and result in the loss of your entire investment. Even if the business avoids the foregoing, our success may still be impeded by the following: (a) the Company may be accused of infringing the proprietary rights of third parties; or (b) the Company may enter into strategic relationships that fail to provide anticipated benefits.

Item 1B. Unresolved Staff Comments

The Company is not aware of any unresolved staff comments.

Item 2. Properties

The Company owns capital assets totaling $2,227,683 that include movable structures, leasehold improvements, vehicles, equipment, all-terrain vehicles, trailers, computer equipment and software, furniture and fixtures and gold samples.

The Company holds interests in quartz and placer mining claims, crown grants and leases in the Dawson City Mining District, Watson Lake Mining District and the Whitehorse Mining District in the Yukon, Canada. As of February 28, 2007, the Company holds 2,396 quartz mining claims and crown grants totaling 418.3 square kilometers/161.5 square miles and 329 placer mining claims plus 43 miles of leases totaling 43.9 square kilometers/17 square miles.

The mineral rights are organized into eight discrete exploration and development projects in which the Company has an ownership interest or an exclusive option to explore, earn or purchase ownership.

Property Synopsis
Project	Exploration stage	Location	Metal	Total area	Ownership
Lone Star Quartz	advanced	Klondike	gold	152 km²/59 mi²	55% and exclusive option to acquire up to 75% of 1056 mineral claims and crown grants
Indian River Placer	advanced	Klondike	gold	50 km²/19 mi²	100% ownership of 185 placer claims and 17 leases and 49% ownership of 29 placer claims
Dominion Quartz	intermediate with one advanced target	Klondike	gold and silver	63 km²/24 mi²	100% ownership of 174 mineral claims, 55% ownership of 112 claims with exclusive option to acquire 75%, exclusive option to purchase 100% of 56 claims, and exclusive option to purchase 100% of 29 claims
Spice Quartz	intermediate	East Yukon	gold	11 km²/4 mi²	Exclusive option to acquire 75% ownership
Ultra Quartz	intermediate	West Yukon	multiple precious and base	82 km²/32 mi²	Exclusive option to acquire 75% ownership
Bonanza Quartz	early	Klondike	gold	40 km²/16 mi²	100% registered interest
Indian River Quartz	early	Klondike	gold	62 km²/24 mi²	Exclusive option to acquire 75% ownership
Eldorado Placer	early	Klondike	gold	7 km²/3 mi²	55% ownership and exclusive option to acquire up to 75% ownership

Item 3. Legal Proceedings

There are no material or pending legal proceedings to which the Registrant is a party or of which any of its property is subject.

Item 4. Submission of Matters to a Vote of Security Holders

In its third quarter, on November 15, 2006, continued until November 27, 2006, the Company held its annual shareholder meeting. The Proposals presented and voted on are reported on a

Current Reports on Form 8K filed with the SEC on December 12, 2006.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

a)	Market Information Prior to May 2001, there was no trading market for Company common stock. The Company obtained a trading symbol of "UBFI" and began trading on the NASD Over-the-Counter Bulletin Board in May 2001. In December, 2003, the Company changed its name to Klondike Star Mineral Corporation. The Company received the new trading symbol of "KDSM." Although listed on the Bulletin Board, there is no assurance that an active, liquid market for Company common stock will develop or that a trading market will continue. Our common stock is quoted on the NASD Over-the-Counter Bulletin Board at the present time and that is the source of the high and low quarterly price information compiled by the Company. The Securities and Exchange Commission has adopted a rule that defines a "penny stock", for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is presently considered a "penny stock" and is subject to such market rules. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation. The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
b)	Holders There are approximately 5,550 holders of the common stock of the Company.
c)	Dividends The Registrant has never paid any dividends, cash or otherwise, on the common shares of the Company. There is no plan to pay dividends for the foreseeable future.
d)	Unregistered Sales During the period covered by this report, the Company has sold or issued 3,832,982 shares of common stock for a total cash of $9,090,299 under Rule 506 of Regulation D.
e)	Options, Grants and Warrants During the year ended February 28, 2007, the Company issued no (0) options to its principal officers and directors in lieu of cash payments for services rendered.

Item 6. Selected Financial Data

Financial indicators
	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Year-end February 29, 2004	From Inception of Exploration Stage December 8, 2003 to February 28, 2007
Total expenses	$ 9,967,672	$ 8,778,272	$ 3,037,382	$ 29,777,080	$ 51,560,406
Net loss from continuing operations	($10,043,789)	($8,741,926)	($ 2,952,975)	($ 29,776,153)	($ 51,514,843)
Cash raised by financing activities	$ 9,090,299	$ 8,068,568	$ 3,121,651	$ 1,849,955	$ 22,130,474
Cash used in operating activities	$ 8,621,116	$ 5,610,326	$ 2,375,184	$ 4,668	$ 16,611,293
Cash and cash equivalents on hand	$ 2,390,876	$ 3,514,176	$ 2,106,580	$ 1,845,287	-
Net loss per common share: Basic and Diluted	$ (0.38)	$ (0.39)	$ (0.14)	$ (1.53)	-
Weighted average number of common shares outstanding: Basic and diluted	26,512,538	22,562,923	20,631,975	19,494,723	-
Cash dividends declared per common share	0	0	0	0	0
Property, plant and equipment, net	$ 2,227,683	$ 1,211,138	$ 412,387	-	-
Long-term debt	0	0	0	0	0
Shareholders' equity	$ 4,271,141	$ 4,612,131	$ 2,507,879	$ 1,823,802	-

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation

(a) Overview

Klondike Star Mineral Corporation is an established exploration and development company actively working on eight gold, base and precious metal major projects totaling 463 km² or 179 mi² in the Yukon, Canada. The Company is developing extensive surface and subsurface mineralized zones on a 370 km² or 143 mi² land position underlying in the site of the world-renowned Klondike gold producing region, and 93 km² or 36 mi² of select high potential targets in other parts of the Yukon. During the coming year, the company expects to continue increasing its land holdings, projects and exploration effort.

Overall Performance

Highlights for the twelve-months ending February 28, 2007 include:

Operational

- Completing aggressive exploration programs on Company properties, with some expansions from planned activity, such as more bulk sampling, IP geophysical surveys and delineation of new drill target zones on Lone Star Project, and bulk sampling on the Dominion Project; along with some adjustments from planned activities, such as a lower level of diamond drilling on Lone Star and Ultra Projects (both due to North American shortage of drilling resources) and re-scheduling of diamond drilling on the Spice Project from the winter 2006 to spring of 2007;

- Announcing new discoveries on the Lone Star and Ultra properties;

- Substantially completing the Lone Star Project scoping study and releasing results to date;

- Expanding the Dominion and Bonanza Projects by 65 mineral claims helping to further consolidate and strengthen these properties, and completing major baseline evaluation and exploration of the Dominion and Spice properties making them drill ready;

- Releasing Lone Star Project diamond drilling results that continue to increase the estimated mineralized area/resource, without yet defining limits most directions, along with the discovery of a new target zone and the identification of entirely new drill target zones for future investigation;

- Purchasing a new, flyable diamond drilling rigs, thereby managing a risk for planned and future exploration objectives;

- Completing the first stage of the test mining program on the Indian River Placer Project; the results validated placer gold estimates from previous auger drilling and confirmed the justification of an expanded test mining program in 2007 and business planning towards mine development;

- Opening the winter exploration base facility, mobilizing crews and launching the winter auger drilling program at the Indian River Placer Project with a target of 150 holes between November and April 2007.

Financial

- The loss from continuing operations for the year ending February 28, 2007 was $10,043,789 (loss of $0.38 per common share) (February 28, 2006 - $8,778,272 loss from continuing operations and $0.39 loss per common share) and cash used in operating activities for the twelve months ended February 28, 2007 was approximately $8,621,116 compared with approximately $5,610,326 for the twelve months ended February 28, 2006;

- During the year ended February 28, 2007, the Company issued restricted common stock and warrants for cash, with cash proceeds of $7,290,299 net of commissions and related expenses, which was used to finance working capital for current and future exploration activities;

- The changes in cash flow used in operations from February 2006, to February 2007, are related to the increased number of exploration projects underway in the fourth quarter ending February 28, 2007, and the scope of activities on certain of the projects as compared to February, 2006.

- Year-over-year financial indicators are outlined under Item 6 (above).

Investor relations indicators
	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Common shares issued and outstanding	29,035,782	25,202,800	21,779,800	Increase of 3,832,982 or 13.2%
Restricted shares	9,943,734	18,025,906	16,430,906 at August 31, 2005	Decrease of 8,082,172 or 44.8%
Free trading shares	19,092,048	7,176,894	6,626,894 at August 31, 2005	Increase of 11,915,154 or 166 %
Warrants outstanding and exercisable	3,032,982	1,300,000	50,000	Increase of 1,732,982 or 133.3%
Share price range by low and high	Monthly range of $1.50 to $3.98	Monthly range of $2.75 to $3.40	Monthly range of $3.03 to $3.68	Not applicable
Share volume monthly high	4,223,025	2,359,551	729,450	Not applicable
Shareholders	About 5,550	About 4,200	About 950	Increase of 1,350 or 32.1%
Material event press releases and 8-K reports	36	22	24	Increase of 14 or 64%
Share options authorized and unexercised (total in reporting period)	1,580,000 authorized and issued and 400,000 authorized	1,230,000 authorized and issued and 400,000 authorized	1,200,000 authorized	350,000 authorized and issued

Share price from February 2004 to year-end February 28, 2007

(Source: Bell Globemedia Publishing Inc. 2007)

Ownership of mineral rights and resources
Project	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Lone Star	No change	55% and exclusive option to acquire up to 75%	55% and exclusive option to acquire up to 75%	None
Eldorado Placer	No change	55% and exclusive option to acquire up to 75%	55% and exclusive option to acquire up to 75%	None
Indian River Placer	100% ownership of 185 placer claims and 17 leases and 49% ownership of 29 placer claims	100%		Acquisition of 49% ownership of 29 claims in Q2
Indian River Conglomerate	No change	Exclusive option to acquire 75%		Project reduced by release of 26 claims
Spice	No change	Exclusive option to acquire 75%		Project expanded through staking in Q1
Ultra	No change	Exclusive option to acquire 75%		None
Dominion	100% ownership of 174 mineral claims, 55% ownership of 112 claims with exclusive option to acquire 75%, exclusive option to purchase 100% of 56 claims, and exclusive option to purchase 100% of 29 claims			New acquisitions in Q1 (85 claims) and Q2 (92 claims) and project expanded through staking in Q3 (26 claims)
Bonanza	100% registered interest			New acquisition in Q1 and project expanded through staking in Q3 (39 claims)

(b) Liquidity

The percentage of common shares that are now free trading has increased significantly. Trading volumes on the NASD.OTCBB continue to be substantial at various price levels over the course of the fiscal year ended February 28, 2007, indicating a healthy interest from investors in buying and selling.

The Company has no material commitments for capital expenditures as of February 28, 2007. Pursuant to its business plan, resources are targeted to corporate development priorities.

At the end of the fiscal year, the cash resources of the Company remain healthy, although the volatility of share prices in the fourth quarter may impact on the ability to raise additional funds through private placements in a timely manner.

(d) Results of operations

As of February 28, 2007, the Company has a majority ownership interest in five projects and an exclusive option to explore, earn or purchase an ownership interest in three projects.

Two projects are advanced-stage exploration and early development projects:

* Lone Star Quartz

* Indian River Placer

Three projects are drill-ready, intermediate-stage exploration projects:

* Dominion Quartz

* Spice Quartz

* Ultra Quartz

Three projects are early-stage exploration projects:

* Indian River Quartz

* Bonanza Quartz

* Eldorado Placer

The summer/fall exploration season on six projects concluded towards the end of October. Consolidated assessments of results were completed in the fourth quarter ended February 28, 2007 and the following quarter. A winter exploration drilling program was started in the fourth quarter on the Indian River Placer Project. The arrangement to option mining on the Eldorado Placer Project to another placer miner was cancelled in the second quarter, and following a review of options, discussions with other parties commenced..

Following an assessment of alternatives for increasing the company's capacity to meet its planned and future diamond drilling requirements, the Company acquired a newly constructed, flyable diamond drilling rigs and has initiated plans to hire and train local crews on a phased basis. This initiative is anticipated to give Klondike Star more capacity, flexibility and control over its drilling programs. These resources would be in addition to those currently provided by other suppliers.

Klondike Star is continuing to work towards industry-standard mineralized material/mineral resource assessments, and a scoping study for the Lone Star and a business plan for Indian River Placer mining projects.

Mineral rights indicators
	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Exploration projects	8	6	2	Increase of 2 projects - Dominion and Bonanza
Quartz mining claims	2,396	1921	1753	Increase of 475 or 24.7%
Total area of quartz claims and crown grants	418.3 km²/161.5 mi²	352 km²/ 135.9 mi²	239 km²(estimate)/ 92.3 mi²	Increase of 66.3 km²/25.6 mi² or 18.8%
Placer mining claims	329 plus 43 mi of leases	300 plus 43 miles of leases	114 plus 60 miles of leases	29 claims or 9.7%
Total area of placer claims and leases	43.9 km²/17 mi²	42 km²/ 16.2 mi²	21 km² (estimate)/ 8.1 km²	Increase of 1.9 km² or 0.8 mi² or 4.5%

Exploration and development stage by project (Footnote 1)
	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from 2006 year-end to year-end February 28, 2007
Lone Star	No change	Advanced-stage exploration, additional staking and scoping study initiated	Intermediate exploration	Diamond drilling, bulk sampling, geophysical surveys
Indian River Placer	Business planning initiated, permit applications completed, winter drilling program in progress	Advanced- stage exploration and staking	Intermediate exploration	Mine development business planning initiated, sites prepared and bulk sampling and technology processing completed
Dominion	Property acquisition, Intermediate exploration with one advanced-stage target, additional staking and property acquisition, intermediate-stage property that is drill ready with plans for expanded bulk sampling			New project and major exploration program of soil sampling, trenching, bulk sampling completed
Bonanza	Property acquisition; early-stage exploration			New project, initial information gathering and consolidation initiated
Spice	Intermediate-stage property that is drill ready	Property acquisition and drill ready		Additional staking completed, additional soil geo-chemistry and other activities; and preparations made for drilling in spring 2007
Ultra	Intermediate-stage property that is drill ready	Property acquisition, ground and airborne geophysical surveys, staking and drill ready		Modified exploration program completed with two discoveries
Indian River Conglomerate	No change	Early exploration	Property acquisition	Modest exploration program completed
Eldorado Placer	No change and project repatriated	Property optioned to joint venture		No change and project under review

Operational indicators
	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007

Diamond drill holes and total meters (feet)	23 holes totaling 2,892 meters or 9,488 feet	32 holes totaling 4,830 meters or 15,846 feet	0	Although drilling season successfully extended, drilling did not achieve target due to unavailability of diamond drilling capacity and shortage of skilled labor
Auger drill holes and total meters (feet)	141 holes totaling 967 meters (3,173 feet)	184 holes totaling 1,615 meters (5,299 feet)	90 holes totaling 811 meters (2,661 feet)	Drilling program met the target objective
Surface trenching and sampling	Full details not yet available; generally increased on Lone Star and Dominion, Trenching not available, 1095 rock samples, and 1,592 soil samples	3,986 meters (13,077 feet) trenching, 551 trench samples, 300 rock samples, 57 bulk chip samples, 388 soil samples	1,300 meters (4,265 feet) trenching, 1,024 rock samples, 1,165 soil samples	Trenching, rock and soil sampling has increased on Lone Star and Dominion projects
Assay and other analysis	Full details not yet available; generally core assay decreased, soil and other analysis increased; 1,883 core samples shipped for assay	5095 core samples from drilling, core fire assays (first round) at 1250, trench ICP totaled 551 samples and 92 trench fire assays	1165 soil samples by ICP; also refer to the 2004 assessment report	Threshold for assay requirements has been adjusted based on prior year experience, thus significantly reducing the volume of assay required.
Health and safety incidents	1 with lost time; 1 incident with no injury or lost; 3 vehicle incidents with no injuries or lost time; 1 incident with no injury or lost time; 1 incident involving an geophysical exploration contractor	2 vehicle accidents, no injuries or lost time	2	1 contractor incident in Q1, 1 employee incident in Q2 and 5 incidents in Q3 (3 relate to early on-set of winter conditions)
Environment-al incidents	0	0	0	0

Footnote 1: Definitions of exploration stage

Where a project fits on the spectrum of exploration and development is in part a matter of judgment exercised by management;

Early stage exploration - grass roots prospecting, mapping, analysis of regional/site geology, trenching and chip sampling, staking of claims possibly with a few holes drilled with useful results;

Intermediate stage exploration - exploration continues including mini-bulk sampling, soil chemistry, geophysical surveys and analysis as appropriate with more holes drilled with useful results;

Advanced stage exploration - full-scale bulk sampling, mineral assessment establishes resource development potential, scoping or pre-feasibility study completed or nearing completion with positive results, environmental baseline research and assessment in progress;

Early development - bulk sampling and test mining, on-site testing of processing technology for throughput and mineral recovery; decision made to proceed with pre- or full feasibility study in progress or completed; scoping of environmental assessment and permitting completed and necessary steps initiated;

Development - environmental assessment completed, permits obtained, financing lined up, construction to begin in the next 6 - 12 months; or mine under construction through commissioning;

Production - operating mine with sales and revenue.

Advanced-stage exploration projects:

LONE STAR PROJECT

The Lone Star Project is an advanced-stage gold exploration property that is being studied for potential mine development. The Project consists of 1056 mineral claims and crown grants totaling 152 km2 (58.7 mi2). Lone Star is the largest project of six in the gold-producing Klondike region of Yukon, Canada.

The property is situated in the Tintina Gold Belt which spans Alaska and the Yukon and includes producing mines and major deposits. The Lone Star Project is located 20 km (12.4 mi) from Dawson City and is accessible by summer-maintained, graded gravel roads linking to the Klondike Highway.

First assembled by Canadian mine-finder Richard Hughes, the initial 500 mineral claims in the Klondike were optioned to Klondike Star in December 2003. It is the site of the former producing Lone Star Mine (1912-14) and decades of previous exploration.

Since acquiring the property, the Company has become the majority owner and operator, increased the size of the project from 500 to 1056 mineral claims and crown grants, constructed a 65-person exploration complex, with core processing and milling infrastructure on site, and completed extensive soil, chip and bulk sampling, diamond drilling, IP (induced polarization) geophysical surveys, assay and other analysis.

Exploration results and professional analysis to date indicate that the Lone Star Project represents an extensive mineralized area with a large-tonnage, low-grade gold target augmented by higher grade zones that warrants an expanded exploration effort and intensive evaluation for potential mine feasibility and development. The Company is working towards a mineral resource assessment consistent with industry and international standards and best practices.

Assay results from the 2005 exploration season were released sequentially October 6, 2005 to January 24, 2006. During the May to October, 2006 summer exploration program, the focus was on diamond drilling, bulk sampling, and ground and airborne geophysical surveys along with continuation of the sponsored Klondike Research Project with the Canadian University of British Columbia Mineral Deposit Research Unit (UBC MDRU).

Diamond drilling is delineating the extent of the known gold-bearing ore body in the primary zones of interest, including the Lone Star and extensions, the Buckland Shear between Gay Gulch and 27 Pup, and the Nugget Zone above Oro Grande Gulch.

A full-scale scoping study is in progress to assess the economic viability of the Lone Star mineral deposit, provide a baseline assessment of environmental and socio-economic considerations, along with a base case conceptual mine design, key factors such as energy and water supply, and capital and operating cost estimates.

Progressive exploration results, including the discovery of a new target, the JF Zone, were announced between December 2006 and February 2007 and a progress report on scoping study findings to date was released in March 2007 (filed with the SEC as an 8-K report, March 21, 2007). A summary report on the UBC MDRU geological studies on the Klondike region was also released in March 2007.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims and crown grants	No change	1056	500
Total area	No change	152 km²/58.7 mi²	100 km² estimated/38.6 mi²
Drilling - no. of diamond drill holes and total meters	23 holes totaling 2,892 meters/9,488 feet; 17 holes totaling 2,100 meters/6,890 feet	32 holes totaling 4830 meters/15,846 feet	0	Drilling did not achieve target due to unavailability of diamond drilling capability and shortage of skilled labor
Bulk sampling, surface trenching and sampling	16 bulk samples totaling 78 tonnes; trenching; 640 chip samples, 393 soil samples; 3 IP geophysical grids totaling 35 km or 21.7 mi of line; Trenching not available, bulk samples not available, 470 rock samples, and 134 soil samples	14 trenches totaling 2858 m³/3,738 yd³, 421 soil samples, 551 trench samples, 23 rock samples and 57 bulk chip samples	17 trenches totaling 1,300 m³/1,700 yd³, 1,024 rock samples, 1,165 soil samples	Substantive increase in bulk sampling; completion of IP survey
Assay and other analysis	2866 core samples shipped for assay; 1,883 core samples shipped for assay	5095 core samples from drilling and core fire assays (1^st round) at 1250 samples, trench ICP totaled 551 samples and 92 trench fire assays	1165 soil samples by ICP; also refer to the 2004 assessment report	The threshold for assay requirements was adjusted based on prior year experience, thus significantly reducing the volume of assay required.
Ownership	No change	55% with exclusive option up to 75%	55% with exclusive option up to 75%	None

During the year-ended February 28, 2006, the stage of exploration moved to advanced exploration including diamond drilling, bulk sampling and on-site processing, and the initiation of a scoping study.

Assay results from the 2005 exploration season were released sequentially October 6, 2005 - January 24, 2006, and the majority of the results from the 2006 season were released in Q3.

The 2006 summer exploration program ran May through October as planned. Diamond drilling, bulk sampling, as well as a major geophysical survey proceeded alongside a scoping study to further delineate the potential mineral resource/reserve and assess the economic viability of the mineral deposit. New infrastructure, including a camp accommodation annex, a fitness and recreation centre, and expanded kitchen and dining facilities were constructed in the vicinity of the Eldorado Camp.

The drilling program was designed to further delineate the extent of the known gold bearing ore body in the primary zones of interest, including the Lone Star and extensions, the Buckland between Gay Gulch and 27 Pup, and the Nugget zone above Oro Grande Gulch. Due to lack of diamond drilling capability, drilling did not keep pace and steps were taken to address this, including an extended season and acquisition of a company owned diamond drill.

The exploration program was supplemented with ground and airborne IP geophysical surveys and extensive bulking sampling.

A consolidated assessment, preliminary analysis and an exploration plan for 2007 were completed in the first quarter of the year-ended February 28, 2008.

INDIAN RIVER PLACER PROJECT

The Indian River Placer Project is an advanced-stage placer gold exploration property. It is located 40 km from Dawson City in the heart of the Klondike gold-producing region of the Yukon, Canada. The Company's goal is to develop a large-scale placer mine.

The Indian River Placer Project consists of 214 mineral claims plus 17 leases totaling 37 km2 (14.3 mi2). The Indian River is emerging as one of the active areas of new investment and productive placer mining in the Klondike region. With the exception of a 49% interest in a small group of 29 claims acquired in the second quarter, Klondike Star holds 100% ownership of the project.

During the 2005-2006 winter drilling program, the Company completed 184 holes (double the 2004-2005 drilling) for a cumulative total of 274 holes or 2,426 meters. The winter drilling recovered gold from 90% of the holes, with gold recovered from 100% of the holes drilled in the main target area along the Indian River. In 2005, drilling resulted in gold recovery from 87% of the holes drilled.

During 2006, the shift was made from winter exploration (drilling) only to bulk sampling and testing mining using conventional processing technology (for throughput and gold recovery). This proceeded alongside pre-production activities, including the preparation of business plan to determine the economic viability of the mineral deposit.

Using a newly acquired trommel, 2006 summer bulk sampling and test processing was conducted on one site prepared for this purpose through stripping, clearing and permitting. Test mining is being supervised by an established Canadian firm specializing in mine engineering and processing technology. Initial results from the first stage of test mining were announced in November 2006. The Company believes the test mining results, at this one site, correlate and improve on the general findings of the previous drill-holes on the site. The grade indicated by auger drilling is only an indication of true grade, and in the Company's opinion, it must be checked and calibrated by test mining. The test resulted in the recovery of 45.08 ounces of raw placer gold. A conventional sluicing system was used to assess throughput and gold recovery, and the findings will be used in mine planning.

Klondike Star completed upgrading and extension of the access road, set up a camp, and prepared additional bulk sample test sites for the 2007 test mining program, to commence following spring break-up. The third consecutive winter drilling program commenced in late November 2006 and concluded in April 2007. A total of 141 auger drill holes were completed, almost entirely in the main target zone. Results are currently being compiled and analyzed.

Permit applications to facilitate future mining operations have been submitted and are under review by environmental assessment and regulatory authorities. Based upon conventional mining methods and the nature of the permitting regime for placer mining, it could be feasible to bring a placer mine into production in the short-term. A placer mining operation could generate cash flow for the Company to finance its major exploration and development initiatives.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims	214 claims and 17 leases	185 claims and 17 leases		Increase of 29 claims or 16%
Total area	37.0 km² (14.3 mi²)	35 km² (13.5 mi²)		Increase of 2 km² (0.8 mi²) or 5.7%
Drilling - no. of auger drill holes and total meters	141 holes totaling x meters/y feet (winter season November - April)	184 holes totaling 2,426 meters/7,959 feet (winter season December - April)	90 holes totaling 811 meters/2,661 feet (winter season December - April)	Increases cumulative drilling to 415 holes totaling x meters/y feet
Bulk sampling	1 site of 7,249 cubic yards processed	None		Completion of initial phase of first-ever bulk sampling and test mining program
Ownership	100% ownership of 185 claims and 17 leases and 49% ownership of 29 claims	100%		Addition of 49% ownership in block of 29 claims

Intermediate-stage exploration projects:

DOMINION PROJECT

An intermediate-stage gold and silver exploration project at the headwaters of Dominion Creek, the Dominion Project consists of 371 claims totaling 62.8 km² (24.2 mi²). Klondike Star holds 100% or majority interest in 286 claims and an additional exclusive option to purchase an undivided 100% interest in 85 claims acquired in the first quarter ending May 31, 2006 and the and second quarter ending August 31, 2006.

On April 27, 2006, the Company announced the acquisition from Klondike Source Limited's (KSL) subsidiary, KSL Exploration (Yukon) Limited, of the exclusive right to purchase an undivided 100% interest in up to 56 quartz claims in the DOM block located on Hunker Dome in the eastern part of the Klondike goldfield. On August 8, 2006, Klondike Star announced the acquisition of the exclusive option to explore and purchase the J.A.E. claim group on King Solomon's Dome bordering on mineral claims already held by the Company. The Company has also staked an additional 118 claims to further consolidate the property into a single contiguous area.

Since 1999, a portion of the property has been explored by KSL Exploration (Yukon) Limited, including drilling, soil sampling and trenching. Before that, United Keno Hill Mines Limited, a longstanding operator of gold and silver properties, such as the Elsa and Keno Hill mines, invested significant effort on the other portion of the property. Significant exploration work has been conducted on the J.A.E. claim block by successive owners. Regional and project-specific infrastructure includes good seasonal road access.

The area covers several mineralized vein systems, some shafts and a long tunnel, and has been the subject of percussion drilling, soil geochemistry and trenching. Various broad zones of disseminated mineralization have been identified. The 2006 exploration objective was to consolidate and ground-truth previous exploration results, advance knowledge of the mineral resources, take advantage of extensive trenching in situ, identify future drill targets on a systematic and expedited basis, and consolidate the property and mineral interests through a strategic claim staking program. Activities included detailed mapping, extensive chip and soil sampling and geochemistry, evaluation of more than 60 existing trenches and assessment of selected targets, and bulk sampling and processing through the Eldorado test plant. A satellite camp was installed to support project operations.

The 2006 field work confirmed the presence of multiple, continuous gold-bearing structures that warrant testing by drilling. In addition, several significant new gold-in-soil anomalies were identified in areas with no apparent prior exploration.

Drilling is proposed for 2007 at the JAE claim block. This lies at the headwaters of Dominion, Gold Bottom and Hunker creeks, all of which have been significant producers of placer gold, and are still being actively mined. This area of the Dominion project hosts at least seven parallel gold and silver vein zones within an area of highly anomalous soil geochemistry that measures about 1.5 km by 1 km (0.9 mi by 0.6 mi). Two of these zones, the Mitchell and Sheba have been outlined along hundreds of meters of length by previous exploration efforts since 1900, including numerous trenches and shallow shafts, direct shipping of hand selected silver-rich ore (7.2 tonnes averaging 6090 g/t silver = 178 oz/ton), soil geochemistry and geophysics. Only three shallow drill holes, directed at the high-grade silver, have previously been drilled on the property. It is expected that further surface work on the other parallel zones will result in additional drill targets, possibly during the 2007 program.

Work at JAE in 2006 included extending the soil geochemical anomaly to the southwest, mapping and chip sampling various new and existing trenches, and processing two bulk samples from the Mitchell and Hunker Dome zones. The Mitchell sample consisted of 5.7 tonnes of rusty schist without quartz veining, and returned 1.3 g/t gold. This indicates potential for bulk mineable material beyond the higher grade veins. The Hunker Dome zone bulk sample consisted of 2.3 tonnes across several narrow quartz veins, and returned 4.0 g/t gold.

Klondike Star tested claims to the southeast of the JAE area with widespread MMI soil geochemical survey lines, identifying several large areas of gold in soil anomalies, up to 500 meters by 1000 meters. The surveys successfully confirmed some areas with known mineralization, and identified new areas with no evidence of previous exploration.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims	371	168	112	claims or %
Total area	62.8 km² or 24.2 mi²	33.5 km² or 13 mi²	23.5 km² or 9 mi²	29.3 km² or 11.2 mi² or 87.5%
Ownership	- 100% ownership of 174 claims - 55% ownership of 112 claims with exclusive option for up to 75% - exclusive option to acquire 100% of 56 claims - exclusive option to acquire 100% of 29 claims	- 100% ownership of 56 claims - 55% ownership with exclusive option of 75% of 112 claims	55% with exclusive option for up to 75% of 112 claims	- 100% ownership of 174 claims - exclusive option for 100% ownership of 56 claims
Exploration activity	Trenching, mapping, sampling including 2 bulk sampling, soil geochemistry and staking			First year of comprehensive exploration program
Bulk Sampling	2 bulk samples totaling 8 tonnes			Completion of initial phase of first-ever bulk sampling

SPICE PROJECT

The Spice Project is an intermediate-stage gold exploration project that has moved to a drill ready stage of exploration. As of February 28, 2007, the Spice Project consists of 51 mineral claims totaling 10.9 km² (4.2 mi² ). The property is located 28 km east of Ross River and 8 km south of the North Canol Road in the Watson Lake Mining District, Yukon, Canada. The Spice Project falls within the Tintina Gold Belt that hosts numerous gold deposits, producing mines, notably the Fort Knox, Pogo and (former) Brewery Creek, as well as active exploration projects.

The property has only been explored since 2000, when a regional geochemical survey conducted by the Yukon Geological Survey, Yukon Government, identified strong, coincident gold, silver and epithermal pathfinder elements. Follow-up geochemical sampling identified an open-ended anomalous zone and samples assayed up to 13.9 grams/tonne gold. An IP chargeability high and low resistivity coincides with the highest geochemical values.

Since acquiring the Spice properties, Klondike Star has stepped up exploration efforts, and in the first quarter/spring 2006, a staking program also increased the land base to 51 mineral claims totaling 10.9 square kilometers (4.2 square miles), an increase of 63%. Exploration to date has involved till, soil, silt and rock geochemistry, hand/blast pitting and trenching, ground magnetic, induced polarization/resistivity and VLF-EM geophysical surveys, and during the third quarter 2006 included additional soil geo-chemistry, a property evaluation, the delineation of drill targets and petrography.

The property is drill ready and a diamond drilling program of identified targets will proceed in the spring of 2007.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims	51	32	0	19 additional claims or 59.4%
Total area	10.9 km² or 4.2 mi²	6.7 km² or 2.6 mi²	0	Increase in area of 62.7%
Exploration activity	Soil geochemistry and identification of targets for planned drill program			Additional property evaluation and specific plans for diamond drilling program
Drilling - no. of diamond drill holes and total meters	Drill targets identified for spring 2007 drill program	0	0	None
Ownership	No change	Exclusive option for up to 75% ownership	0	New acquisition in 2006

ULTRA PROJECT

The Ultra Project is an intermediate-stage base and precious metals exploration project that has moved to a drill ready stage in exploration. Following additional staking in the fall of 2005 and the fall of 2006, the Ultra Project consists of 404 mineral claims totaling 82 km2 (31.7 mi2). The targets include VMS zinc-copper-silver-gold and poly-metallic nickel-copper-platinum-palladium-gold. Two significant discoveries were announced following 2006 exploration.

The property is located in southwest Yukon, 42 km (26.1 mi) northwest of Haines Junction, Yukon, Canada, only 140 km (87 mi) from a deepwater port. Ten kilometers (6.2 miles) west of the Alaska Highway, it is accessible by rough gravel road. It is near the former nickel-platinum Wellgreen Mine. Ultra is also in the same geological zone as the world-class zinc-copper-gold Windy Craggy deposit in northern British Columbia.

In February 2007, based on the 2006 exploration program, the Company announced the discovery of two volcanogenic massive sulphide zones including a major VMS horizon with economically interesting grades and widths. The massive sulphide grades up to 3.23% copper, 6.75% zinc, 17.8 ppm silver and 0.15 ppm gold over a 4 meter thickness. Maximum values of 13.4% copper, 6.75% zinc, 56 ppm silver and 0.25 pp. gold were obtained from one zone. The second zone reported results of 11.54% copper, 1514 ppm zinc and 7.2 ppm silver over a three meter thickness.

The property is drill-ready based on a multi-year investment in prospecting, mapping, sampling, airborne and ground geophysical surveys and geochemistry analysis.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims	No change	404 claims	0	None
Total area	No change	82 km² or 31.7 mi²	0	None
Drilling	Drill sites prepared	0	0	None
Surface trenching and sampling	152 chip and 265 soil samples, along with hand and blast trenching	86 rock and soil samples	0	Doubling of rock samples and new soil sampling and trenching activity
Ownership	No change	Exclusive option for up to 75% ownership	0	None

During the 2006 exploration program, beep mat survey was also conducted, along with hand trenching, blast trenching and soil geo-chemistry. Although specific sites were prepared, diamond drilling was deferred due to unavailability of required technical services including skilled labor.

Early-stage exploration projects:

BONANZA PROJECT

On May 19, 2006, Klondike Star acquired a controlling interest in 269 mineral claims in the Klondike region of the Yukon, Canada. Known as the Bonanza Project, the property totals 40.1 km2 (15.5 mi2). It is located in the heart of the Klondike gold fields and proven gold producing ground, 10 km from Dawson City.

Since 1999, building on previous exploration efforts, the property has been explored by KSL Exploration (Yukon) Ltd, a wholly-owned subsidiary of Klondike Source Limited, and PacRim Resources Limited (formerly Barramundi Gold Ltd.) using advanced-exploration techniques, geological mapping and geochemical soil surveys.

KSL Exploration (Yukon) Limited considers the property to have a number of prospects on the basis of reasonably well-defined geochemical gold anomalies. In an independent geologist's report, KSL (Yukon) Limited reported that, "These surveys have identified several prospective targets with potential for hosting large tonnage, primary gold mineralization." (Roy Cox & Associates, November 10, 2003).

Although recently acquired, Klondike Star has initiated a preliminary exploration program including consolidation of mapping, sampling results, and all accessible assessment work on the property. Mineral claim staking was undertaken in the third quarter to supplement the property.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims	308	0	0	New acquisition with 39 additional claims staked in Q3
Total area	47.0 km² or 18.1 mi²	0	⁰	New acquisition increased by 5.9 km² or 2.6 mi² in Q3
Ownership	100% registered	0	0	New acquisition

INDIAN RIVER CONGLOMERATE PROJECT

The Indian River Quartz Project is an early-stage gold exploration property for the Company. The property is located 40 km (24.9 mi) from Dawson City in the heart of the Klondike gold-producing region of the Yukon and the Tintina Gold Belt spanning Alaska and the Yukon. Access to the region is by good gravel road.

Additional geological mapping, rock and soil sampling and geochemistry analysis, trenching and a magnetometer survey were completed from May to September 2005. Auger drilling provided bedrock samples between January and April 2005. This work built on extensive reconnaissance and geological mapping, bulk sampling, diamond drilling and core analysis, and geochemical surveys completed by previous exploration companies.

During 2006, additional baseline work was undertaken to consolidate and ground-truth previous exploration results, with the focus on two claim blocks. The first involved an eastern extension of 2005 soil and rock sampling done to determine the presence of gold anomalies on the property (Reka claim block). The second (RMB claim block) pursued 2005 rock chip assays with elevated PGM values, targeting platinum group minerals to identify any PGM, as well as Ni, Cu and Au targets.

Mineral claims with low probability of having exploration value were released.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims	179 claims	205 claims	0	26 claims or 12.7% were released in Q3
Total area	62.1 km² or 24.0 mi²	67.3 km² or 26 mi²	0	Reduction of 5.2 km² or 2 mi²
Drilling - no. of auger drill holes	No change	49 holes (winter season January - April)	0	None
Surface trenching and sampling	16 rock samples, 20 soil samples	8 trenches totaling 1128 m³(1,475 yd³), 12 test pits, 52 rock samples, 333 soil samples	0	Modest exploration activity to date
Assay and other analysis	Not available	36 rock samples, 333 soil samples	0	None
Ownership	No change	Exclusive option for up to 75%	0	None, although total project area reduced

ELDORADO PLACER PROJECT

Located 20 km from Dawson City, Yukon, Canada, the Eldorado Placer Project is a placer gold project situated within the boundaries of the Lone Star Project. The placer mineral claims (surface) overlap some of Lone Star's quartz mineral claims (subsurface).

The property is in the heart of a longstanding gold-producing area. There are many placer mines operating in the general vicinity. The claims were originally assembled by Canadian mine-finder Richard Hughes and optioned to the Company in December 2003. The property has known placer gold potential. However, the Company has not itself conducted substantive exploration work to date. Over the last two years the right to conduct placer mining on the property has been optioned to an experienced Klondike placer miner and this arrangement was expected to continue. Following a second quarter assessment the Company has terminated this arrangement and taken direct responsibility for the project. Currently, consideration is being given to entering into a joint venture with an experienced Yukon placer miner to develop the property in 2007.

	Year-end February 28, 2007	Year-end February 28, 2006	Year-end February 28, 2005	Change from year-end 2006 to year-end 2007
Total claims	No change	115 claims	114 claims	None
Total area	No change	6.9 km² or 2.7 mi²	6.5 km² estimated or 2.5 mi²	None
Ownership	No change	55% and exclusive option to acquire up to 75%	55% and exclusive option to acquire up to 75%	None

Future financial condition

Since 2003, the Company has raised capital successfully by way of private placements. Through recent placements and warrants, the Company expects to have the resources necessary to expand its exploration program, acquire new properties and move ahead with mining feasibility planning and development. The Company has forged strong relationships with financial professionals in order to provide adequate capital investment for its projects with the goal of bringing new mining production on-stream in the future. Commencing placer mining on the advanced-stage Indian River Placer Project would create a positive cash flow and change the status of the company to that of a producer.

Sales of unregistered securities by period	Total common shares sold	Total cash value of shares sold ($USD)
Year ended February 29, 2004	1,040,000	2,600,000
Year ended February 28, 2005	1,090,000	2,725,000
Year ended February 28, 2006	3,423,000	8,029,068
Year ended February 28, 2007	3,752,982	9,090,299

Company policy is to expense mineral rights acquisitions and exploration activities to prove up resources and reserves as mineral exploration expenditures. At year-end, the Company owns the right to explore 463 km^2, or 179 mi² of mineral claims and leases. At February 2006 year end, the Company owned the right to explore 394 km², or 152.1 mi² of mineral claims and leases. At the first quarter ended May 31, 2006, the Company owned the right to explore 439 km² or 169.2 mi² of mineral claims and leases. At the second quarter ended August 31, 2006, the Company owned the right to explore 463 km^2, or 179 mi² of mineral claims, crown grants and leases. At the third quarter ended November 30, 2006, the Company owned the right to explore approximately 463 km^2, or 179 mi² of mineral claims, crown grants and leases.

Typically, the mineral exploration industry is cyclical, based upon the price of commodities and the demand for certain metals. The Company considers that it has entered this business at a time that is favorable within a long term commodity inflation cycle, and that it can sustain an enterprise in the field of mineral exploration and mining production.

Industry and economic affecting performance

The outlook for resource industries is becoming positive, as higher commodity prices result in a return to profitability for corporations, particularly in the mines and metals sector. As well, major mining companies are affected by depletion of their reserves and resources, raising concerns about shortages of metals for the future.

The outlook for gold is currently favorable, due to the present supply/demand deficit. Management is of the current opinion that the condition of declining world gold mine output may not find relief until approximately 2011, when enough new mines can come on-stream to overcome the depletion of existing mines.

7 Year Gold Price, January 1, 2000 to February 28, 2007

The increasing price of gold and precious metals may result in a new area of favorable economics in the mining industry. At a time when gold was averaging $390, subject to certain assumptions, management considered that 1 gram of gold per tonne of ore may be sufficient to achieve profitability, provided sufficient scale under specific conditions. If the future price of gold maintains current higher levels, it could mean a new understanding of the threshold of economics for large-scale gold mining operations.

The normal cyclical nature of a metals cycle is often a boom/bust scenario, often with a 5 year average. Characteristically, major mining companies do not make capital investment at the top of these cycles, rather at the bottom. Major mining companies are investing heavily, and repositioning through the acquisition of other companies and properties, as if this is going to be an extended long-term cycle. This suggests long-term demand for copper, zinc and particularly gold.

Resource Sector Outlook

There has been substantial activity within the Mines and Metal Sector during the year-ended February 28, 2007. Many major mining companies have been involved in take-over battles as the industry consolidates and shapes new 'super' mining giants at the top of the industry.

Exploration expenditures have increased globally and in all sectors and as funding increases, particularly in the early part of the year, with high metals prices and a strong market for mines and metal stocks. This will lead towards discoveries and results that will draw attention to the sector and eventually attract further investment.

The gold price broke out of a range in the mid-$400's in November 2005, and proceeded through various resistance levels to $500, $540, $570, $610 until it encountered the $650-$680 distribution, visible back in the early 1980's. The brief move above $680 to an intra-day high of $740 was short-lived. The sell-off that followed carried gold down to $540, with good base building between $570 and $650 since.

Current gold price forecasts by GFMS Ltd. and TD Economics suggest that prices will range between $US 643 and $US 675 to the end of calendar 2007. (Sources: GFMS Limited Gold Survey 2006 Update 2, January 18, 2007 cites $US 643 over period of January 1, 2007 to June 30, 2007; and, TD Economics Quarterly Commodity Price Report, February 5, 2007 cites $US 650 - 675 over period of April 1, 2007 to December 31, 2007)

In 2006, the average price of gold was $US 603.93. During the first two calendar months of 2007 daily gold prices averaged $647 .16, ranging from a low of $US 608.40 to a high of $US 685.75. (Source: World Gold Council, London PM Fix) The three-year moving average for the price of gold as of February 29, 2007 was $US 499.50. (Source: World Gold Council, London PM Fix over period of March 1, 2004 to February 28, 2007)

Management believes that the market price for gold will remain strong, despite the recent fluctuations, given fundamental concerns about the demand/supply gap, declining central bank reserves, persistent currency debasement, geo-political strife and commodity inflation. The company maintains a view that market conditions across the board will keep metal prices strong and lead to higher metal prices in the future.

Corporate governance matters

In the first quarter ended May 31, 2006, action plans were developed and approved for implementation of the Health and Safety Policy and the Environment and Sustainable Development Policy. In the third quarter ended November 30, 2006, a Company disclosure and director compensation policies were adopted.

The Annual Meeting of Shareholders was held on November 15, 2006, at Bellevue, Washington. The Shareholders elected the Board members to additional terms, approved the increase in the authorized common stock to 120,000,000 and reappointed Williams & Webster as independent auditors of the Company.

The Board met seven times during the year for regular quarterly and special meetings and a strategic planning session. The Audit Committee met on five occasions and the Environment, Health and Safety Committee meet twice.

(e) Off-balance sheet arrangements

There are no arrangements to report on.

(f) Tabular disclosure of contractual obligations

Contractual obligations
	Payments due by period
	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Long-Term Debt Obligations	0	0	0	0	0
Capital Lease Obligations	0	0	0	0	0
Operating Lease Obligations	0	0	0	0	0
Purchase Obligations	0	0	0	0	0
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP	0	0	0	0	0
Total	0	0	0

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company's functional currency is U.S. dollars. Monetary assets and liabilities of the Company's foreign operations ar translated into U.S. dollars at the year-end exchange rates, and revenue and expenses are translated at the average exchange rates during the year. Realized gains and losses from foreign currency transactions are reflected in the results of operations.

Item 8. Financial Statements and Supplementary Data

KLONDIKE STAR MINERAL CORPORATION

FINANCIAL STATEMENTS

February 28, 2007

KLONDIKE STAR MINERAL CORPORATION

February 28, 2007

TABLE OF CONTENTS

FINANCIAL STATEMENTS

OPINION PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

STATEMENT OF STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Board of Directors

Klondike Star Mineral Corp.

Whitehorse, Yukon

Canada Y1A 7A2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheets of Klondike Star Mineral Corp. as of February 28, 2007 and 2006, and the related statement of operations, stockholders' equity and cash flows for the years then ended and for the period from December 8, 2003 to February 28, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Klondike Star Mineral Corp. at February 28, 2007 and 2006 and the results of its operations, stockholders' equity, and cash flows for the years then ended and for the period from December 8, 2003 to February 28, 2007 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the financial statements, the Company has recorded significant losses from operations and has insufficient revenues to support operational cash flows which together raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Williams & Webster, P.S.

Certified Public Accountants

Spokane, Washington

May 25, 2007