UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

FORM 20-F/A(Amendment No. 1)

|£REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
|-----------------------------------------------------------------------------------------------
|OR                                                                                             
|QANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|For the fiscal
    year ended December 31, 2006                                                
|OR                                                                                             
|£
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     
|OR                                                                                             
|£
SHELL COMPANY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
|Date of event requiring
this shell company report______________                                
|                                                                                               
|For the transition period from ___________________________ to
    _______________________      

Commission file number 001-32475

BIRCH MOUNTAIN RESOURCES LTD.

Not Applicable 
(Translation of Registrants name into English)

Alberta, Canada (Jurisdiction of incorporation or organization)

Suite 300, 250 - 6th Avenue S.W. 
Calgary, Alberta,
Canada 
T2P 3H7 (Address of principal executive offices)

Securities registered or to be registered pursuant to Section
12(b) of the Act: None

Securities registered or to be registered pursuant to Section
12(g) of the Act: Common shares, without par value and Shareholders Rights(Title of Class)

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the
issuers classes of capital stock as of the close of the period covered by the
annual report. 81,278,487 Common Shares

Indicate by check mark if the registrant is a well-seasoned
issuer, as defined in Rule 405 of the Securities Act.

| | Yes
    £ | No
    Q | 
| | --------- | -------- | 

If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.

| | Yes
    £ | No
    Q | 
| | --------- | -------- | 

Note  Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from their obligations under those sections.

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

| | Yes
    Q | No
    £ | 
| | --------- | -------- | 

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 accredited filer in Rule 12b-2 of
the Exchange Act (Check one):

|Large accelerated
    filer   £ | Accelerated
    filerQ | Non-accelerated
    filer   £
|------------------------------- | ---------------------- | -----------------------------

Indicated by check mark which financial statement item the
registrant has elected to follow.

| | Item 17Q | Item 18
    £ | 
| | -------- | ------------- | 

If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).

| | Yes
    £ | No
    Q | 
| | --------- | -------- | 
| |           |          | 

---



AMENDED EXPLANATORY NOTE



This amendment no.1 to our annual report
on Form 20-F for the fiscal year ended December 31, 2006 is being filed to
correct a clerical error appearing in Item 17 of the Form 20-F filed on April 2,
2007 (the Initial Form 20-F). Item 17 is hereby replaced in its entirety.



This Form 20-F/A consists of a cover page,
this explanatory note, Item 17 (as amended), the signature page and the required
certifications of our chief executive officer and our acting chief financial
officer.



This amendment does not reflect events
occurring after the filing of the Initial Form 20-F and should not be viewed as
updating any information contained therein. Except as described above, no change
has been made to the Initial Form 20-F.









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ITEM 17:



|REPORTING FINANCIALS
|--------------------











AUDITED CONSOLIDATED 
FINANCIAL STATEMENTS



December 31, 2006









---



|Birch Mountain Resources Ltd.
|-----------------------------
|Report of Management         



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

The management of Birch Mountain Resources Limited is
responsible for establishing and maintaining adequate internal control over
financial reporting. The Securities and Exchange Act of 1934 in Rule 13a-15(f)
and 15d-15(f) defines this as a process designed by, or under the supervision
of, the Companys principal executive and principal financial officer and
effected by the Companys Board of Directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedure that:

- Pertain to the maintenance of records that, in reasonable
  detail, accurately and fairly reflect the transactions and dispositions of the
  assets of the Company;
- Provide reasonable assurance that transactions are recorded
  as necessary to permit preparation of financial statements in accordance with
  GAAP, and that receipts and expenditures of the Company are being made only in
  accordance with authorizations of management and directors of the Company; and
- Provide reasonable assurance regarding prevention or timely
  detection of unauthorized acquisition, use or disposition of the Companys
  assets that could have a material effect on the consolidated financial
  statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of December 31, 2006. In
making this assessment, the Companys management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.

The Chief Executive Officer and acting Chief Financial
Officer, together with management, have reviewed the design and effectiveness of
the Companys internal control over financial reporting as part of Section 404
of the U.S. Sarbanes-Oxley Act of 2002 and have concluded that there were no
changes in our internal control over financial reporting that occurred during
2006 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting other than the changes
made to address the following material weaknesses:

1. Design weaknesses relating to controls and processes due to
  (i) insufficient communication of the Companys policies and Code of the
  Conduct to employees of the Company, (ii) a lack of a formal management
  override policy relating to the Companys policies and Code of Conduct, and
  (iii) monitoring process to confirm responsibility of financial results.
  Management believes that weaknesses in these areas aggregated to a material
  weakness for effective company level controls and require more formalization
  of existing controls and processes.
2. Design weaknesses related to the processes and
  communication of operational information, which may have a financial
  implication, to accounting and finance, in a timely manner.
3. Control design weaknesses relating to a lack of segregation
  of various accounting duties resulting from the small size of the Companys
  accounting department, lack of certain formal accounting procedures for the
  documentation of various approvals and reviews, as well as, control weaknesses
  inherent in accounting software employed by the Company which is not a
  sophisticated enterprise application.

The Company is experiencing rapid growth and has implemented
new policies and processes to address the design weaknesses described above.
During fiscal 2006, the Company undertook a comprehensive assessment of its
internal control over financial reporting by conducting regular reviews and
audits to identify weaknesses and to ensure that an environment of continuous
improvement becomes a part of the culture of the Company. The Company further
intends to systematically and regularly provide and explain its policies and
Code of Conduct to employees. In addition, the Company intends to introduce
additional internal control procedures during the next fiscal year to ensure
that appropriate internal control over financial reporting is in place and that
such controls keep pace with the growth of the Company. The Company has and will
continue to implement improvements in segregation of accounting duties, increase
controls for review, approval and documentation, and will upgrade during 2007
its accounting software to address inherent limitations.

---



|                                                   |                                                         
|-------------------------------------------------- | --------------------------------------------------------
|"signed"                                           | "signed"                                                
|                                                   |                                                         
|Douglas J. Rowe, President and
    Chief Executive | Dan J. Rocheleau, Acting Chief
    Financial Officer and
|Officer                                            | Director of Financial Reporting                         













---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Managements Responsibility for Financial Statements

TO THE SHAREHOLDERS OF BIRCH MOUNTAIN RESOURCES LTD.

Management is responsible for the preparation of the
financial statements and for the consistency therewith of all other financial
and operating data presented in this Annual Report. In preparation of these
financial statements, management selects appropriate accounting policies and
uses its judgment and best estimates to report events and transactions as they
occur. Management has determined such amounts on a reasonable basis in order to
ensure that the financial statements are presented fairly, in all material
respects.

Management maintains a system of internal controls to ensure,
on a reasonable and cost effective basis, that the Companys assets are
safeguarded and to facilitate the preparation of relevant, reliable and timely
financial information. Management has the responsibility for preparation and
fair presentation of the accompanying financial statements, including the
financial processes that give rise to such consolidated financial statements.
This responsibility includes selecting appropriate accounting principles and
making objective judgments and estimates in accordance with Canadian generally
accepted accounting principles and providing a reconciliation to generally
accepted accounting principles in the United States.

It is the responsibility of the Audit Committee and the Board
of Directors to review the financial statements in detail with management prior
to their approval of the financial statements for publication. In addition, the
Audit Committee meets regularly with management and the external auditor to
review accounting policies, financial reporting and internal controls. The Audit
Committee is comprised of three independent and financially literate directors.
The Audit Committee is responsible for the compensation of the external auditor
and pre-approves their retention for the appointment and any such fees related
to non-audit services.

External auditors appointed by the shareholders have examined
the financial statements. Their report is attached to the audited consolidated
financial statements that follow. The Audit Committee has reviewed these
statements with management and the auditors and has reported to the Board of
Directors. The Board has approved the financial statements.

|"signed"                                           | "signed"                                                
|-------------------------------------------------- | --------------------------------------------------------
|                                                   |                                                         
|                                                   |                                                         
|Douglas J.
    Rowe, President and Chief Executive | Dan J.
    Rocheleau, Acting Chief Financial Officer and
|Officer                                            | Director of Financial Reporting                         



---



|Birch Mountain Resources Ltd.                              
|-----------------------------------------------------------
|Report of Independent
    Registered Public Accounting Firm

To the Shareholders ofBirch Mountain Resources Ltd.

We have audited the consolidated balance sheets of Birch
Mountain Resources Ltd. as at December 31, 2006 and 2005, and the consolidated
statements of loss and deficit, and cash flows for each of the years then ended.
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 Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. 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, these financial statements present fairly, in
all material respects, the consolidated financial position of Birch Mountain
Resources Ltd. as at December 31, 2006 and 2005, and the results of its
operations and its cash flows for each of the years then ended in conformity
with Canadian generally accepted accounting principles.

The financial statements as at December 31, 2004 and for the
year then ended were audited by another auditor who expressed an opinion without
reservation on those statements in their report dated February 25, 2005 (except
for notes 3 and 8, which are as of July 25, 2005, and note 19, which is as of
November 10, 2006).

|                | "signed"             
|--------------- | ---------------------
|                |                      
|Calgary, Canada | Ernst & Young LLP    
|March 29, 2007  | Chartered Accountants



COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. 
REPORTING DIFFERENCES

In the United States, reporting standards for auditors
require the addition of an explanatory paragraph, following the opinion
paragraph, when the financial statements are affected by conditions and events
that cast substantial doubt on the Companys ability to continue as a going
concern, such as those described in note 1 to the consolidated financial
statements. Our report to the shareholders dated March 29, 2007 is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such events and conditions in the auditors report when these are adequately
disclosed in the financial statements.

|                | "signed"             
|--------------- | ---------------------
|                |                      
|Calgary, Canada | Ernst & Young LLP    
|March 29, 2007  | Chartered Accountants
|                |                      

---



|Birch Mountain Resources Ltd.
|-----------------------------
|Consolidated Balance Sheets  
|Canadian dollars             





|                                            |              |            
|------------------------------------------- | ------------ | -----------
|As At
    December 31                       | 2006         | 2005       
|                                            |              |            
|Assets                                      |              |            
|Current                                     |              |            
|Cash and cash equivalents (Note 3)          | 1,345,483    | 32,322,603 
|Accounts receivable                         | 2,202,698    | 476,455    
|Inventory (Note 4)                          | 5,703,196    | -          
|Prepaids and deposits (Note 5)              | 7,995,965    | 441,545    
|                                            | 17,247,342   | 33,240,603 
|                                            |              |            
|Restricted cash(Note 6)                     | 4,250,000    | 1,000,000  
|Long-term prepaid(Note 7)                   | 137,294      | 232,489    
|Property, plant and equipment(Note
    8)   | 18,729,682   | 425,112    
|Mineral
    properties(Note 9)              | 44,608,237   | 13,662,648 
|Total Assets                                | 84,972,555   | 48,560,852 
|                                            |              |            
|Liabilities                                 |              |            
|Current                                     |              |            
|Accounts payable and accrued liabilities    | 4,113,610    | 3,369,083  
|Current portion of long term debt (Note 13) | 1,580,858    | -          
|Deferred revenue (Note 11)                  | 50,306       | 50,306     
|Other current liabilities (Note 12)         | 2,437,781    | 3,346,264  
|                                            | 8,182,555    | 6,765,653  
|                                            |              |            
|Long term debt(Note 13)                     | 6,911,321    | -          
|Asset retirement obligation(Note
    14)    | 1,100,000    | 360,000    
|Convertible debentures(Note 15)             | 28,537,087   | -          
|                                            | 44,730,963   | 7,125,653  
|Commitments
    (Note 22)                   |              |            
|                                            |              |            
|Shareholders equity                        |              |            
|Share capital(Note 16)                      | 47,489,830   | 46,950,953 
|Contributed surplus(Note 17)                | 10,236,663   | 1,774,873  
|Deficit(Note 19)                            | (17,484,901) | (7,290,627)
|                                            | 40,241,592   | 41,435,199 
|Total Liabilities and Shareholders Equity  | 84,972,555   | 48,560,852 

See accompanying notes to the audited consolidated financial statements.

Approved on behalf of the Board:

|"signed"         | Director | "signed"       | Director
|---------------- | -------- | -------------- | --------
|Larry W. Shelley |          | Kerry E. Sully |         



---



|                 | Birch Mountain Resources
    Ltd.          
|---------------- | -------------------------------------------
|                 | Consolidated Statements of Loss and Deficit
|Canadian Dollars |                                            

|                                       |              |             |             
|-------------------------------------- | ------------ | ----------- | ------------
|Year Ended December 31                 | 2006         | 2005        | 2004        
|                                       |              |             |             
|Revenue                                |              |             |             
|Sales
    (Note 20)                    | 895,455      | -           | -           
|Cost of sales                          | 989,412      | -           | -           
|Gross profit                           | (93,957)     | -           | -           
|Other limestone sale
    (Note 21)     | 645,109      | -           | -           
|                                       | 551,152      | -           | -           
|                                       |              |             |             
|Expenses
    (Note 24)                 |              |             |             
|Amortization, accretion and depletion  | 285,577      | 63,424      | 50,336      
|Consulting                             | 102,384      | 96,027      | 79,973      
|Interest and bank charges              | 442,447      | 4,746       | -           
|Mineral exploration costs
    (Note 9) | 858,964      | 540,481     | 762,371     
|Office                                 | 458,806      | 937,756     | 683,316     
|Professional fees                      | 1,474,021    | 746,377     | 396,552     
|Indirect quarry costs                  | 2,544,028    | -           | -           
|Salaries and benefits                  | 1,052,387    | 597,714     | 386,579     
|Shareholder services and promotion     | 1,179,043    | 742,439     | 329,993     
|Stock-based compensation
    (Note 22) | 2,845,797    | 1,245,422   | 246,127     
|                                       | 11,243,454   | 4,974,386   | 2,935,247   
|Loss before other income               | (10,692,302) | (4,974,386) | (2,935,247) 
|                                       |              |             |             
|Interest and other income              | 498,028      | 332,568     | 48,190      
|Net loss for year(Note 25)             | (10,194,274) | (4,641,818) | (2,887,057) 
|                                       |              |             |             
|                                       |              |             |             
|Deficit,
    beginning of year         | (7,290,627)  | (2,648,809) | (27,510,684)
|Elimination of deficit(Note 19)        | -            | -           | 27,748,932  
|Deficit, end of year                   | (17,484,901) | (7,290,627) | (2,648,809) 
|                                       |              |             |             
|                                       |              |             |             
|                                       |              |             |             
|Loss per
    share                     |              |             |             
|Basic and fully diluted(Note 18)       | (0.13)       | (0.07)      | (0.05)      

See accompanying notes to the audited consolidated financial statements.

---



|                 | Birch
    Mountain Resources Ltd.       
|---------------- | ----------------------------------------
|                 | Consolidated Statement of
    Cash Flows
|                 | For the years ended
    December 31     
|Canadian Dollars |                                         



|                                                                 | 2006         | 2005        | 2004       
|---------------------------------------------------------------- | ------------ | ----------- | -----------
|                                                                 |              |             |            
|OPERATING ACTIVITIES                                             |              |             |            
|Net loss                                                         | (10,194,274) | (4,641,818) | (2,887,057)
|Adjustments for non-cash items:                                  |              |             |            
|Accretion of unamortized debenture discount                      | 76,930       | -           | -          
|Amortization, accretion, and depletion                           | 285,577      | 63,424      | 50,336     
|Depletion recorded in cost of sales                              | 140,921      | -           | -          
|Stock-based compensation                                         | 2,942,536    | 1,442,536   | 282,049    
|Changes in non-cash working capital balances:                    |              |             |            
|Accounts receivable                                              | (1,726,243)  | (242,996)   | (181,237)  
|Inventory                                                        | (4,795,102)  | -           | -          
|Prepaids and deposits                                            | (7,554,420)  | (257,437)   | 125,006    
|Accounts payable and accrued liabilities                         | 744,527      | 593,815     | (1,348,125)
|Other current liabilities                                        | (908,483)    | 546,264     | 1,803,355  
|Cash used in operating activities                                | (20,988,031) | (2,496,212) | (2,155,673)
|FINANCING
    ACTIVITIES                                         |              |             |            
|Issue of common shares for cash, net of share
    issue costs    | 440,488      | 38,027,595  | 8,834,703  
|Proceeds from long-term debt                                     | 8,492,179    | -           | -          
|Issue of convertible debentures, net of
    financing costs      | 33,031,974   | -           | -          
|Advances on share subscriptions upon the
    exercise of options | -            | (173,252)   | 173,252    
|Cash provided by financing activities                            | 41,964,641   | 37,854,343  | 9,007,955  
|INVESTING
    ACTIVITIES                                         |              |             |            
|Mineral exploration costs                                        | (30,377,246) | (6,939,447) | (3,153,233)
|Restricted cash                                                  | (3,250,000)  | (1,000,000) | -          
|Long term prepaid                                                | 95,195       | (232,489)   | -          
|Acquisition of capital assets                                    | (18,421,679) | (308,922)   | (73,071)   
|Proceeds from disposal of
    capital assets                     | -            | 1,062       | -          
|Cash used in investing activities                                | (51,953,730) | (8,479,798) | (3,226,304)
|(Decrease)
    Increase in cash and cash equivalents             | (30,977,120) | 26,878,333  | 3,625,978  
|Cash and
    cash equivalents, beginning of year                 | 32,322,603   | 5,444,270   | 1,818,292  
|Cash and cash equivalents, end of year                           | 1,345,483    | 32,322,603  | 5,444,270  

See accompanying notes to the audited consolidated financial statements.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

1. Nature of operations and going concern uncertainty

Birch Mountain Resources Ltd. (the
"Company"), incorporated under the jurisdiction of the Business Corporations Act
of Alberta, is exploring and developing its mineral leases and permits and
operating a limestone quarry on its mineral leases, in Northern Alberta. At
inception, the efforts of the Company were focused on exploration of precious
metals and research into precious metals technology. However, over the past four
and a half years its focus has been on the development of its industrial
minerals. The mineral rights of the Company are to develop, extract and sell
limestone products. The Company has two projects in its industrial minerals
division, the Muskeg Valley Quarry and the Hammerstone Project, both of which
are development of and commercialization of the limestone contained on the
Companys mineral leases. The Muskeg Valley Quarry is a limestone aggregate
quarry approved by the government regulators. The Hammerstone Project is a
planned quarry expansion and quicklime and cement plants. The Company must
comply with conditions of the regulatory approvals such as to monitor ground
water, report extraction and pay royalties thereon and the reclaim the site at
the end of production.

As at December 31, 2006, the
Company had incurred a net loss of $10.2 million for the year then ended and had
an accumulated deficit of $17.5 million. The Companys ability to continue as a
going concern is uncertain and dependent upon its ability to obtain additional
financing and/or achieve profitable operations. The Muskeg Valley Quarry is
operational and the Hammerstone Project is considered to be in the development
stage. The Company is currently exploring a range of strategic opportunities.
The outcome of this review cannot be predicted at this time. If the Company is
unable to obtain adequate additional financing, management may be required to
curtail the Companys operations.

On August 2, 2006, the Company
released an independent technical report, which indicates the existence of a
limestone quarry in the Fort McMurray area and reports an estimated value for
the mineral reserves significantly in excess of the current carrying value of
the mineral properties. The financial statements have been prepared on a going
concern basis, which presumes the realization of assets and settlement of
liabilities through the normal course of operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets or liabilities that maybe necessary should the Company be unable
to continue as a going concern. The ability of the Company to continue as a
going concern is dependant upon the existence of economically recoverable
reserves, securing and maintaining title and beneficial interest in the
properties, and the ability of the Company to obtain the necessary financing or
cash flow to continue the development and operation of its mineral properties.

2.

(a)   Basis of presentation

These consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in Canada. The principal accounting policies followed by the Company,
which have been consistently applied in the preparation of these consolidated
financial statements, are summarized below. A summary of the difference between
accounting principles generally accepted in Canada and those generally accepted
in the United States is contained in note 27 to these consolidated financial
statements. All amounts are reported in Canadian dollars unless otherwise
stated.

(b)   Principles of
consolidation

The consolidated financial
statements are expressed in Canadian dollars and are prepared in accordance with
Canadian generally accepted accounting principles. These financial statements
include the accounts of the Company and its wholly owned subsidiaries, Dawson
Bay Minerals Inc., Muskeg Valley Minerals Ltd. and Rockyview Development Limited
and its subsidiaries, which have been inactive for some time. All intercompany
balances and transactions have been eliminated.

(c)   Use of estimates

The preparation of the consolidated
financial statements in conformity with Canadian generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of contingent
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those reported. Significant areas requiring the use of
management estimates include estimates related to the determination of
impairment of mineral exploration costs, reclamation obligations and
determination of qualifying renouncements and the assumptions used in
calculating stock option compensation expense. These estimates are reviewed
periodically and, as adjustments become necessary, they are reported in earnings
in the periods in which they become known.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

2.

(d)   Revenue recognition

The Company recognizes revenue on the sale of its
products when delivery occurs.

(e)   Cash and cash equivalents

Cash and cash equivalents include
balances with Canadian chartered banks and investment certificates with
maturities of three months or less at the date of purchase. Cash equivalents are
carried at cost, plus accrued interest, which approximates market value.

(f)   Inventory

Inventory is valued at the lower of average cost
and net realizable value. Average cost includes direct materials, direct labour,
operational overhead expenses and depletion.

(g)   Property, plant and
equipment

Property, plant and equipment are recorded at cost.
Assets are not amortized until they are put into use. Amortization is provided
over their estimated useful lives, using the following methods and rates:

| |                            | Method            | Annual Rate | 
| | -------------------------- | ----------------- | ----------- | 
| | Plant and
    equipment    | Declining balance | 20%         | 
| | Computer                   | Declining balance | 30% - 100%  | 
| | Leasehold
    improvements | Straight line     | 5 years     | 

(h)   Mineral properties

The Company expenses mineral
exploration costs in the year they are incurred, unless on a
property-by-property basis the deferral criteria are met and it is probable that
they will be recoverable from the future operations of the related project. When
it is determined that a mining property can be economically developed as a
result of established proven and probable reserves, the costs of further
exploration and development to further delineate the reserve on such a property
are capitalized. Determination as to the establishment of proven and probable
reserves is based on results of technical reports, which indicate whether a
property is economically feasible. These expenditures are depleted according to
the unit-of-production method. This method allocates the costs of these assets
to each accounting period. The amount of depletion is measured by the portion of
the mines economically recoverable proven reserves which are recovered during
the period.

The Company reviews its capitalized
costs on a mineral property under development on an annual basis, or more
frequently if events warrant, and will recognize an impairment in value on each
property to the extent that the recoverable amount based on estimated future
cash flows on a discounted basis is less than the carrying amount of the
property. Future cash flows are estimated based on future recoverable minerals
based on proven and probable reserves. Future cash flow estimates will also
incorporate expected sales prices for recoverable minerals, costs of production
and taxes, capital expenditures and development costs, remediation and closure
costs, utilizing assumptions from its feasibility studies and subsequent
engineering, geological or financial information where operations have not yet
commenced.

Managements estimates of mineral
prices, recoverable proven and probable reserves and operating and capital costs
are subject to certain risks and uncertainties, which may affect the
recoverability of mineral property costs. Although management has made its best
estimate of these factors, it is possible that changes could occur in the near
term, which could adversely affect the future net cash flows to be generated
from the properties or the financial position of the Company.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

2.

(i)   Asset retirement
obligation

The Company recognizes a liability
for the fair value of environmental and site restoration obligations when the
obligations are incurred and the fair value can be reasonably estimated. The
fair value of the obligations is based on the estimated cash flow required to
settle the obligations discounted using the Companys credit adjusted risk-free
rate. The fair value of the obligation is recorded as a liability with the same
amount recorded as an increase in capitalized costs. The amounts included in
capitalized costs are depleted using the unit-of-production method. The
liability is adjusted for accretion expense representing the increase in the
fair value of the obligations and amortized over the mines useful life. The
accretion expense is recorded as an operating expense through periodic charges
to earnings. The Companys estimate of reclamation costs could change as a
result of changes in regulatory requirements and cost estimates.

(j)   Capital lease obligations

Leases meeting certain criteria are
accounted for as capital leases. The imputed interest is charged against income.
If the lease contains a term that allows ownership to pass to the Company or
there is a bargain purchase option the capitalized value is depreciated over the
estimated useful life of the related asset. Obligations under capital leases are
reduced by rental payments net of imputed interest.

(k)   Future income taxes

The Company follows the liability
method of accounting for income taxes. Under this method, future income tax
assets and liabilities are recorded based on temporary differences between the
carrying amount of balance sheet items and their corresponding tax bases. In
addition, the future benefits of income tax assets, including unused tax losses,
are recognized, subject to a valuation allowance, to the extent that it is more
likely than not that such future benefits will ultimately be realized. Future
income tax assets and liabilities are measured using substantively enacted tax
rates and laws expected to apply when the tax liabilities or assets are to be
either settled or realized.

(l)   Stock-based compensation
and contributed surplus

The Company uses the fair value
method of accounting for all stock options granted whereby stock-based
compensation on options granted is charged as an expense or capitalized
depending on the nature of the grant, in the period the options are vested,
based on the estimated fair value at the date of grant using the Black-Scholes
Option Pricing Model. Consideration paid by the option holders to the Company
upon exercise of options is credited to common share capital.

(m)   Loss per share amounts

Loss per share amounts are computed
using the weighted-average number of common shares outstanding during the
period. Diluted loss per share is calculated based on the treasury stock method,
which assumes that any proceeds obtained on the exercise of options and warrants
would be used to purchase common shares at the average trading price for the
period.

(n)   Foreign currency
translation

Foreign currency denominated assets
and liabilities are translated at the exchange rate prevailing at the balance
sheet date for monetary items. Non-monetary assets and liabilities are
translated at the rates prevailing at the transaction date. Revenues and
expenses are converted at average exchange rates for the period. Any exchange
gain or loss that arises on translation is included in the consolidated
statement of loss for the period.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

3. Cash and cash equivalents

At December 31, 2006, cash equivalents included
$683,962 (2005 - $31,911,272) invested in guaranteed investment certificates
earning interest at rates of 2.9% (2005 - 2.15% to 2.55%).

4. Inventory

During the year ended December 31,
2006, the Company began production of limestone, which is crushed for use in
various marketable products. The inventory consists of crushed limestone
stockpiles (considered to be finished product), unprocessed limestone stockpiles
and blasted but unexcavated material. Inventory includes direct production costs
such as fuel, labour, contractors, production overhead and direct rock
excavation work. Inventory is recorded at the lower of cost or net realizable
value. The cost of finished products and in-process inventories is determined on
an average cost basis. At December 31, 2006, the Company has recorded inventory
for work in progress of $3,063,613 (2005  nil) and for finished product of
$2,639,584 (2005  nil).

5. Prepaids and deposits

Prepaids and deposits consist of
$5.6 million of costs management expects to recover within the next twelve
months. Due to the short-term nature of this asset, it has been classified as a
current asset. The Company also has a $2 million refundable deposit on the
Cedarapids crushing equipment (Note 13) which was refunded subsequent to
December 31, 2006.

6. Restricted cash

The Company pledged as collateral
$3,250,000 against a demand operating line and a revolving lease line of credit,
through assignment of one-year term deposits to the Royal Bank of Canada. The
Company has drawn on the operating line for a stand-by letter of credit, which
is explained in Note 10 and has drawn on the revolving lease line, which is
explained in Note 13.

The Company pledged as collateral $1,000,000
against future debt repayments of a crushing spread, through assignment of a
guaranteed investment certificate to the Canadian Western Bank.

7. Long-term prepaid

The Company made a payment for the
estimated timber damage charges for the clearing of the currently approved
limestone quarry. The trees will be cleared as the limestone is accessed over a
number of years of planned production. This long-term prepaid will be reduced as
the clearing occurs on a basis of hectares cleared over the total amount of
hectares for which the timber damage payment was based, being the total approved
area.

8. Property, plant and equipment

| |                            |            | 2006         |            |         | 2006         |         
| | -------------------------- | ---------- | ------------ | ---------- | ------- | ------------ | --------
| |                            |            | Accumulated  | Net Book   |         | Accumulated  | Net Book
| |                            | Cost       | Amortization | Value      | Cost    | Amortization | Value   
| | Computers and software     | 430,514    | 294,960      | 135,554    | 333,238 | 251,222      | 82,016  
| | Leasehold
    improvements | 42,076     | 39,025       | 3,051      | 38,382  | 31,198       | 7,184   
| | Limestone
    processing   |            |              |            |         |              |         
| | plant                      | 8,812,323  | -            | 8,812,323  | 106,326 | -            | 106,326 
| | Mining
    equipment       | 9,433,692  | 6,193        | 9,427,499  | 112,638 | -            | 112,638 
| | Office equipment           | 640,450    | 289,195      | 351,255    | 346,791 | 229,843      | 116,948 
| |                            | 19,359,055 | 629,372      | 18,729,682 | 937,375 | 512,263      | 425,112 

Included in mining equipment are
assets under capital lease with an original cost of $1,235,000 and related
accumulated amortization of $nil (2005  nil).

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

9. Mineral properties

The Company holds a significant number of permits,
applications to convert permits to leases and leases on mineral rights in the
Athabasca region of Northern Alberta.

At December 31, 2006, the Companys mineral
property in the Athabasca region consisted of 17 (2005  32) permits, 50 (2005
22) lease applications and 68 (2005  69) leases for a total area of 380,136
(2005  402,748) hectares.

The Company has capitalized expenditures related to
its industrial mineral projects and expensed amounts related to its mineral
exploration and technology division. Amounts capitalized and expensed related to
mineral properties are as follows:

| | Mineral
    properties capitalized    |             |                    |            |                    |           
| | ------------------------------------- | ----------- | ------------------ | ---------- | ------------------ | ----------
| |                                       | At Dec 31,  | For the year ended | At Dec 31, | For the year ended | At Dec 31,
| |                                       | 2006        | Dec 31, 2006       | 2005       | Dec 31, 2005       | 2004      
| | Asset
    retirement obligation       | 1,040,656   | 680,656            | 360,000    | 335,000            | 25,000    
| | Administration                        | 1,946,473   | 1,151,868          | 794,606    | 715,223            | 79,383    
| | Assay and
    geological              | 114,835     | 9,091              | 105,744    | 28,004             | 77,740    
| | Equipment                             | 1,109,140   | 1,109,140          | -          | -                  | -         
| | Land lease
    and permit             | 328,580     | 268,772            | 59,808     | 9,278              | 50,530    
| | Materials,
    services and drilling  | 12,792,987  | 7,798,478          | 4,994,509  | 2,473,842          | 2,520,667 
| | Site
    preparation                  | 24,269,407  | 18,267,580         | 6,001,827  | 5,941,257          | 60,570    
| | Stripping
    costs during operations | 1,750,000   | 1,750,000          | -          | -                  | -         
| | Salaries                              | 1,896,069   | 833,059            | 1,063,010  | 478,755            | 584,255   
| | Travel and accommodations             | 543,126     | 259,982            | 283,144    | 191,920            | 91,224    
| |                                       | 45,791,275  | 32,128,627         | 13,662,648 | 10,173,279         | 3,489,369 
| |                                       |             |                    |            |                    |           
| | Depletion                             | (1,183,038) | (1,183,038)        | -          | -                  | -         
| |                                       |             |                    |            |                    |           
| |                                       | 44,608,237  | 30,945,589         | 13,662,648 | 10,173,279         | 3,489,369 
| |                                       |             |                    |            |                    |           
| |                                       |             |                    |            |                    |           
| | Mineral exploration costs             |             |                    |            |                    |           
| |                                       | 2006        | 2005               | 2004       |                    |           
| | Administration                        | 35,476      | 36,209             | 34,276     |                    |           
| | Assay and
    geological              | 3,929       | 84                 | 654        |                    |           
| | Land lease
    and permit             | 666,655     | 390,088            | 611,857    |                    |           
| | Materials,
    services and drilling  | 75,134      | 18,130             | 45,737     |                    |           
| | Salaries                              | 36,297      | 89,715             | 66,708     |                    |           
| | Travel and accommodations             | 41,473      | 6,255              | 3,139      |                    |           
| |                                       | 858,964     | 540,481            | 762,371    |                    |           

Since inception, the Company has
spent a total of $50,721,637 (2005 - $17,734,046) on mineral exploration and
development of which, $45,791,275 (2005 - $13,662,648) has been capitalized.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

10.   Operating line of credit

The Company has a revolving credit
facility with a Canadian chartered bank that provides two types of credit. The
first is a revolving demand loan, by way of either, banks prime based loans,
letters of credit or letters of guarantee in the amount of $2,000,000. The
second provides for a revolving lease line of credit by way of approved lease
agreements to acquire capital assets in the amount of $1,455,663. The Company
provided a general security agreement over all assets as collateral for this
credit facility. A $2,000,000 (2005  $670,000) letter of credit was drawn
against the revolving demand facility as guarantee to the Alberta Government for
future site reclamation obligations as outlined in Note 14 and $1,154,806 (2005
 nil) was drawn against the lease line as outlined in Note 13.

11.   Deferred revenue

In September 2003, the Company
signed an agreement to sell limestone to Syncrude Canada Ltd. within Syncrudes
Aurora mine, which would be extracted by Syncrude and reported monthly. The
Company received a non-refundable $100,000 payment and a payment of $50,306 to
be applied against future extraction. During the current year, no limestone was
extracted (2005  nil; 2004 - nil)

12.   Other current liabilities

The Company raised capital through
the issuance of flow through shares in 2003 and 2004, which provided for an
indemnity to the subscriber for additional taxes payable if Birch was unable to
or failed to renounce the qualifying expenditures as agreed, without limiting
the recourse of the subscriber. The Company applied for and filed the necessary
forms to qualify for and renounce expenditures in 2002, 2003 and 2004 and has
subsequently determined some of these expenditures do not qualify for flow
through tax treatment. The Company is exposed to costs for the indemnification
of the subscribers and any assessed corporate taxes. The Company has estimated
and accrued a potential liability in the amount of $2,437,781 (2005 -
$3,346,264). Subsequent to December 31, 2005, the Company amended its tax
filings and the related reported tax balances have been revised to reflect this
change. Based on information available at the time of these amended filings, in
2005 the Company increased its original estimate of the potential liability by
$300,000. This change has been accounted for as a change in estimate due to
better information becoming available. The offsetting entry is recorded to share
capital as the amount is attributable to flow through share capital issued in
prior years. The accrued amount is subject to measurement uncertainty due to the
tax filing positions of the subscribers, their tax rates and the amount of
corporate taxes, penalties or interest that may be payable, which will not be
known until any potentially affected subscribers as reassessed for their tax
positions by the Canada Revenue Agency and these amounts become known to the
Company. To date, the Company has refunded $32,732 (2005  nil) to affected
subscribers who were reassessed by the Canada Revenue Agency. The Company
believes the accrued estimate could vary higher or lower by up to fifteen
percent.

13.   Long term debt

| |                       | 2006      | 2005
| | --------------------- | --------- | ----
| | Equipment loan (a)    | 7,337,373 | -   
| | Capital lease (b)     | 1,154,806 | -   
| | Total long term debt  | 8,492,179 | -   
| | Less: current portion | 1,580,858 | -   
| | Long term portion     | 6,911,321 | -   

(a) In 2006, the
Company entered into a financing agreement with a Canadian lending institution
to finance a spread of crushing equipment costing $6,922,050 plus GST. The
original loan amount was $7,337,373 with an interest rate of 6.02%. The loan is
to be paid off over five years based on blended principal and interest payments
of $114,932 per month commencing on January 22, 2007. The loan is non-revolving
and is collateralized by the equipment and a $1,000,000 guaranteed investment
certificate on deposit at the institution. Interest expense relating to the
equipment loan for the year was $11,255.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

Principal payment requirements on
the equipment loan over the next five years are as follows:

| | 2007                 | 1,396,166
| | -------------------- | ---------
| | 2008                 | 1,049,243
| | 2009                 | 1,115,176
| | 2010                 | 1,184,193
| | 2011 and thereafter  | 2,592,595
| |                      | 7,337,373
| | Less current portion | 1,396,166
| | Long term portion    | 5,941,207

(b) As part of the Companys
operating line of credit, outlined in Note 9, the Company financed a piece of
quarry equipment costing $1,235,000 at an annualized interest rate of 6.6% with
a five year repayment term. The equipment has a residual value of $200,000,
which is the purchase option at the end of the lease. The Company is treating
the arrangement as a capital lease. The principal and interest payments are
$21,282 per month commencing on August 3, 2006. Interest expense relating to the
capital lease for the year was $26,218.

Future minimum annual lease payments under the
capital lease obligation over the next five years are as follows:

| | 2007                                            | 255,389  
| | ----------------------------------------------- | ---------
| | 2008                                            | 255,389  
| | 2009                                            | 255,389  
| | 2010                                            | 255,389  
| | 2011 and thereafter                             | 348,977  
| | Total minimum lease
    payments                | 1,370,533
| | Less amounts representing
    interest at 6.60% | (215,727)
| |                                                 | 1,154,806
| | Less current portion                            | 184,692  
| | Long term portion                               | 970,114  

14.    Asset retirement obligation

The Company has
estimated the total discounted future cost of reclaiming the site of its
limestone quarry to be $1,100,000 (2005 -$360,000). The total future
undiscounted costs are estimated at $2,849,650 (2005 - $1,100,000). This amount
is based on estimates provided by consulting engineers to the Company for costs
that would be incurred by third parties to return the quarry to its reclaimed
status as defined under the Companys environmental and operating permits. Costs
are allocated to two categories and the future site reclamation timing is
determined by management for each category. Site infrastructure will service the
quarry for its estimated fifty five year life and the initial production quarry
area is estimated not to be reclaimed for ten years. The discounted future cost
estimates have been determined by management using a 3% inflation rate and a
7.5% credit adjusted risk free rate. The amounts are subject to measurement
uncertainty with respect to costs in the local market for third parties to
perform this work, the actual timing of reclamation, the inflation rate used and
the discount rate used. A $2,000,000 (2005 - $670,000) irrevocable standby
letter of credit was drawn on the Companys operating line of credit as a
guarantee to Alberta Environment for the estimated future reclamation.

| |                                | 2006      | 2005   
| | ------------------------------ | --------- | -------
| | Balance
    beginning of year  | 360,000   | -      
| | Change in
    estimate         | (34,415)  |        
| | Additional
    provision       | 715,071   | 360,000
| | Accretion expense (Note
    2) | 59,344    | -      
| | Balance end of year            | 1,100,000 | 360,000



---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

15.    Convertible debentures

| | Convertible
    debentures | 34,500,000 
| | -------------------------- | -----------
| | Debt issuance costs        | (1,264,842)
| | Unamortized
    discount   | (4,698,071)
| | Carrying value             | 28,537,087 

The Company issued convertible
unsecured subordinated debentures having a face value of $34.5 million during
the year. The debentures were issued pursuant to a public offering and mature on
December 31, 2011. The debentures are convertible into common shares of the
Company at any time prior to maturity at the option of the debenture holder at a
conversion price of $3.30 per share. In the year ended December 31, 2006 no
debentures were converted into shares.

The debentures are unsecured and bear interest at
6% and interest is payable semi-annually commencing on June 30, 2007. Interest
expense relating to the debentures for the year was $141,781 (2005  nil) and
has been included in accrued liabilities.

The Company has classified the
debentures in the financial statements according to the separate debt and equity
component parts using the effective interest rate method resulting in (i)
$4,775,000 being allocated to contributed surplus representing the relative fair
value of the conversion feature as determined by the effective interest method,
and (ii) $29,725,000 being allocated to the carrying value of the convertible
debentures.

In connection with the debenture
issue, the Company paid professional fees in the sum of $1,468,025. These fees
have been allocated to debt and equity on the same pro-rata basis used to
allocate the original proceeds. The debentures are shown net of the issue costs
of $1,264,842 and the resulting carrying value of the convertible debentures of
$28,460,158 will be accreted to the $34,500,000 principal amount over the term
to maturity using the effective interest method with the corresponding interest
expense being included in the consolidated statements of loss. The accretion of
the discount on the convertible debentures for the year amounted to $76,930 and
is included in interest and bank charges.

16.   Share capital

(a)    Authorized capital

Unlimited number of common voting shares, no par
value 
Unlimited number of preferred shares, issuable in series 
Unlimited number of non-voting shares

(b)    Issued - Common shares

| |                                                                    | Number     | Amount     
| | ------------------------------------------------------------------ | ---------- | -----------
| | Balance
    December 31, 2004                                      | 66,306,799 | 8,761,876  
| | Issued for cash                                                    |            |            
| | Public offering (i)                                                | 9,000,000  | 36,000,000 
| | Issued on exercise of options                                      | 2,229,500  | 1,430,848  
| | Issued on exercise of warrants                                     | 2,885,188  | 2,900,600  
| | Reclassified from contributed surplus upon
    exercise of options | -          | 461,482    
| | Share issuance costs (i)                                           | -          | (2,303,853)
| | Reduction in
    share capital for flow through shares (Note 12)   |            | (300,000)  
| | Balance
    December 31, 2005                                      | 80,421,487 | 46,950,953 
| | Issued for cash                                                    |            |            
| | Issued on exercise of options                                      | 857,000    | 440,487    
| | Reclassified
    from contributed surplus upon exercise of options | -          | 98,390     
| | Balance December 31, 2006                                          | 81,278,487 | 47,489,830 

(i)    On
September 2, 2005, the Company closed a public equity offering of 9,000,000
shares at $4.00 per share for gross proceeds of $36,000,000. Share issue costs
of $2,303,853 were incurred in connection with this offering. These fees are
reflected as a reduction in the proceeds from the share issuance.

(c)    Options

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

The Company has a stock option plan
that was established in 1994 and has been subsequently amended by the
shareholders, including most recently in 2006. The purpose of the plan is to
offer persons who provide services to the Company, whether directors, officers,
consultants or employees, an opportunity to obtain an interest in the Company
through the purchase of common shares and to aid in attracting, retaining and
encouraging the continued involvement of such persons. The plan contains
provisions stating that the option period may not exceed five years and the
aggregate number of shares issuable upon the exercise of all options granted
under the Plan shall not exceed 10% of the issued and outstanding common shares
of the Corporation from time to time. The options currently vest over a period
of eighteen moths. The plan is administered by the Compensation Committee of the
Board of Directors who determines to whom options shall be granted including the
terms and vesting of the grants. When options are granted, the Compensation
Committee sets the strike price equal to the closing price on the Toronto Stock
Exchange for the previous day.

The Company has outstanding options on common
shares as follows:

| |                       | Number of | Exercise    | Weighted Average   | Expiry    
| | --------------------- | --------- | ----------- | ------------------ | ----------
| |                       | Options   | Price Range | Exercise Price ($) | Date      
| |                       |           | ($)         |                    |           
| | December 31,
    2004 | 7,316,070 | 0.26  0.74 | 0.37               | 2005-2009 
| | Granted               | 2,465,000 | 2.09  7.81 | 2.60               | 2009      
| | Cancelled             | 350,000   | 2.35  2.48 | 2.41               | 2009      
| | Exercised             | 2,229,500 | 0.26  2.48 | 0.78               | 2007-2010 
| | December 31, 2005     | 7,201,570 | 0.26  7.81 | 0.84               | 2006 -2010
| | Granted               | 907,500   | 4.40  8.78 | 7.92               | 2011      
| | Exercised             | 857,000   | 0.26  2.48 | 0.51               | 2006-2010 
| | December 31, 2006     | 7,252,070 | 0.26  8.78 | 2.00               | 2007 -2011

Stock options outstanding and
exercisable as at December 31, 2006 are as follows:

| | Exercise  | Number of           | Number of           | Expiry       
| | --------- | ------------------- | ------------------- | -------------
| | Price ($) | Options Outstanding | Options Exercisable | Date         
| | 0.26      | 490,000             | 490,000             | March 2007   
| | 0.34      | 875,000             | 875,000             | April 2007   
| | 0.30      | 1,420,000           | 1,420,000           | October 2008 
| | 0.53      | 125,000             | 125,000             | May 2009     
| | 0.55      | 1,633,250           | 1,633,250           | August 2009  
| | 0.74      | 7,500               | 7,500               | November 2009
| | 2.35      | 217,500             | 217,500             | January 2010 
| | 2.48      | 1,088,820           | 1,088,820           | March 2010   
| | 2.09      | 262,500             | 262,500             | April 2010   
| | 7.81      | 225,000             | 168,750             | November 2010
| | 8.78      | 592,500             | 296,250             | January 2011 
| | 8.60      | 30,000              | 15,000              | April 2011   
| | 8.00      | 125,000             | 62,500              | May 2011     
| | 4.40      | 160,000             | 40,000              | August 2011  
| | 2.00      | 7,252,070           | 6,702,070           | 2007 - 2011  



---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

17.    Contributed surplus

| | Balance, December 31, 2004                                                                                         | 338,569   
| | ------------------------------------------------------------------------------------------------------------------ | ----------
| |                                                                                                                    |           
| | Options granted to
    employees, directors and officers                                                           | 1,700,671 
| | Options granted to advisors                                                                                        | 197,114   
| | Options exercised and
    reclassed to share capital                                                               | (461,482) 
| | Balance December 31, 2005                                                                                          | 1,774,873 
| |                                                                                                                    |           
| | Options granted to
    employees, directors and officers                                                           | 4,018,711 
| | Options granted to advisors                                                                                        | 96,739    
| | Options exercised and
    reclassed to share capital                                                               | (98,390)  
| | Cancellation of options
    granted to advisors                                                                    | (127,087) 
| | Convertible debenture
    proceeds allocated to contributed 
    surplus, net of debt issuance costs
    (Note 15) | 4,571,817 
| | Balance December 31, 2006                                                                                          | 10,236,663

18.   Loss per share amounts

Basic loss per share is calculated
using the weighted-average number of shares outstanding for the year. For
purposes of the calculations, the weighted-average number of shares outstanding
was 81,002,073 (2005  71,644,531; 2004  56,596,951). All of the outstanding
options have been excluded from the calculation of diluted loss per share for
all periods presented as the effect common shares issuable upon exercise of
share options is anti-dilutive. All of the Companys outstanding options are
available for dilution in future periods.

The Company issued convertible
unsecured subordinated debentures having a face value of $34.5 million during
the year. The debentures are convertible into common shares of the Company at
any time prior to maturity at the option of the debenture holder at a conversion
price of $3.30 per share resulting in a potential for an additional 10,454,545
shares being issued. All of the outstanding debentures have been excluded from
the calculation of diluted loss per share for all periods as the effect common
shares issuable upon conversion is anti-dilutive.

19.   Deficit

Pursuant to Section 38 of the
Business Corporations Act of Alberta, the shareholders approved a reduction in
the stated capital by the amount of the accumulated deficit as of June 30, 2004.
As a result, the deficit and share capital were reduced by $27,748,932.

20.   Concentration of credit risk

Assets that potentially subject the
Company to concentration of credit risk are sales and accounts receivable. The
Company provides credit to most of its customers in the ordinary course of
business, and generally collateral or other security is not required. The
Company conducts ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. During 2006, the Company had two major
customers that accounted for 87% of our revenues and accounts receivable. The
loss of any one of our large customers could have a material adverse effect on
our financial position, results of operations and cash flows, however, these
particular customers are large, well-known and respected entities in their
industry and management does not consider the risk unmanageable.



---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

21.    Other limestone sale

The Company earned income from the
sale of limestone on leases outside of the active quarry, hence the Companys
only direct cost of sale for this income is government royalties, which are
netted against the gross sales.

22.    Stock-based compensation and stock-based expenses

| |                                                                                                                                                              | 2006        | 2005      | 2004   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------- | --------- | -------
| | Stock-based compensation
    for stock issued and vested in the current period (i)                                                                           | 2,165,572   | 798,569   | 112,765
| | Stock-based compensation
    for stock issued in prior periods and vested in the current period                                                              | 1,726,051   | 902,102   | 133,362
| | Less stock-based
    compensation capitalized in mineral properties                                                                                          | (1,045,826) | (455,248) | -      
| | Net stock-based
    compensation expense                                                                                                                     | 2,845,797   | 1,245,422 | 246,127
| | Stock-based expenses for
    options issued to advisors included in professional fees in the period (ii)                                                     | 96,739      | 197,114   | 35,922 
| | Total stock-based expenses                                                                                                                                   | 2,942,536   | 1,442,536 | 282,049
| | (i)     During 2005,
    350,000 stock options at a weighted average price of $2.41 were forfeited by
    a director.                                       
| | (ii)    Expenses included
    in professional fees in the period were valued based on the value of the
    services provided at the time of the transaction.

The Company uses the Black-Scholes
option-pricing model to estimate the fair-value for stock-based compensation for
employees, directors, officers and advisors. The vesting period of the options
is eighteen months and their fair value was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:

| |                                                         | 2006       | 2005           | 
| | ------------------------------------------------------- | ---------- | -------------- | 
| | Weighted
    average fair value                         | $3.55      | $1.46 to $1.94 | 
| | Total fair value of
    options granted during the year | $3,220,421 | $3,728,556     | 
| | Expected
    life                                       | 2 years    | 2 years        | 
| | Risk-free
    interest rate                             | 4.00%      | 4.3 to 4.8%    | 
| | Expected
    volatility                                 | 74%-81%    | 85% - 100%     | 
| | Annual
    dividends                                    | nil        | nil            | 

Prior to January 1, 2003, the
Company was not required to recognize compensation expense for options granted
to employees, directors, officers and advisors. Had the fair-value method been
used from January 1, 2001 to January 1, 2003, the Companys net loss and net
loss per share, adjusted for the amortization of stock options issued in prior
periods into stock based expenses, would have been as follows:

| |                       | 2006         | 2005        | 2004       
| | --------------------- | ------------ | ----------- | -----------
| | Pro-forma loss        | (10,248,274) | (4,714,830) | (2,960,069)
| | Loss per share, basic | (0.13)       | (0.07)      | (0.05)     



---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

23.   Commitments

The Company has land lease agreements
on exploration properties and rents premises and equipment under operating
leases. Commitments under these agreements require the following payments over
the next five years:

| |      | Land      | Other     | Total     | 
| | ---- | --------- | --------- | --------- | 
| | 2007 | 431,901   | 493,338   | 925,239   | 
| | 2008 | 431,901   | 505,513   | 937,414   | 
| | 2009 | 431,901   | 441,504   | 873,405   | 
| | 2010 | 431,901   | 421,489   | 853,390   | 
| | 2011 | 431,901   | 421,489   | 853,390   | 
| |      | 2,159,505 | 2,283,333 | 4,442,838 | 

Not included in the above amounts
is a contingent royalty commitment on one land lease to pay $0.15 per tonne of
limestone used, should limestone be produced from minerals on that specific
lease and a $0.10 per tonne marketing fee to be paid on all limestone sold from
the Muskeg Valley Quarry.

24.   Related-party transactions

The Company incurs transactions with related
parties, in the normal course of business. The transactions are measured at the
exchange amount, which is the consideration established and agreed to by the
related party and were as follows:

- Included in shareholder
  services and promotion is $5,700 (2005 - $7,874; 2004 - $14,656) paid to a
  company controlled by the spouse of a director.
- Included in professional
  fees is $282,820 (2005 - $85,734; 2004  $37,159) of consulting and legal fees
  paid to companies owned by officers.
- Included in professional
  fees is $264,354 (2005 - $240,859; 2004  $99,145) of legal fees paid to a law
  firm in which an officer was a partner.
- Included in salaries and
  benefits are amounts paid to a related party employee of $53,649 (2005 
  $2,498).
- Included in accounts payable
  is $3,151 (2005 - $18,789; 2004 - $7,945) relating to these transactions.

25.    Income taxes

The income tax recovery differs from the amount
that is expected by applying the current tax rates for the following reasons:

| |                                                                       | 2006        | 2005      | 2004     
| | --------------------------------------------------------------------- | ----------- | --------- | ---------
| | Loss before taxes                                                     | 10,194,274  | 4,641,818 | 2,887,057
| | Expected tax recovery at
    (200632.50%; 2005 33.62%; 200436.70%) | 3,313,139   | 1,560,579 | 1,059,550
| | Non-deductible expenses for tax                                       | (1,247,690) | (593,026) | (120,779)
| | Other                                                                 | 366,572     | 179,941   | (9,665)  
| | Change in
    enacted tax rates                                       | (1,363,242) | (602,277) | -        
| | Valuation allowance                                                   | (1,068,269) | (545,217) | (929,106)
| | Future income tax recovery                                            | -           | -         | -        

The realization of income tax benefits related to
these future potential tax deductions is uncertain and cannot be viewed as more
likely than not. Accordingly, no future income tax asset has been recognized for
accounting purposes.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

Future income tax assets
consist of the following temporary differences:

| |                                                                                                                                                                                  | 2006        | 2005        | 2004       
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----------- | -----------
| | Industrial mineral mines (i)                                                                                                                                                     | 4,862,490   | 4,974,118   | 6,590,913  
| | Property and equipment (i)                                                                                                                                                       | (131,768)   | -           | 69,911     
| | Scientific Research and
    Experimental Development expenditures unclaimed (ii)                                                                                                 | 61,400      | 85,141      | 77,702     
| | Non-capital loss carry
    forwards (iii)                                                                                                                                        | 3,843,248   | 2,815,375   | 654,525    
| | Share issuance costs and
    other                                                                                                                                               | 825,865     | 754,824     | 154,518    
| | Asset retirement
    obligation                                                                                                                                                  | 357,390     | 121,032     | -          
| | Valuation allowance                                                                                                                                                              | (9,818,625) | (8,750,490) | (7,547,569)
| | Future tax assets (net of
    valuation allowance)                                                                                                                               | -           | -           | -          
| | (i)     The Company has
    undepreciated capital cost allowance of $79,650,754 (2005 - $28,880,000;
    2004 - $21,480,000), which may be carried forward indefinitely.        
| | (ii)    The Company has
    Scientific Research and Experimental Development costs of $211,000 (2005 -
    $211,000), which may be carried forward indefinitely.                
| | (iii)    Non-capital loss
    carry forwards of approximately $13,252,000 (2005 - $8,400,000) are
    available to offset future income. If unused, they will expire as follows:

2007
      $ 185,0002008
      719,0002009
      20,0002010
      190,0002011
      -2012
      -2013
      -2014
      1,680,0002015
      3,336,0002016
      7,122,000




---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

26.   Segmented information

The Companys principal business
segment, Industrial Minerals, is the acquisition, exploration, development and
operation of its mineral leases and permits. The Company also engages in ongoing
exploration and research of mineral technology. In identifying these segments
the Company considers the organizational structural and areas of budget
responsibility as well as the general corporate philosophy. The Industrial
Minerals division generates its revenue from the sale of limestone products such
as aggregates and reagent products. The Mineral Exploration and Technology
division could generate income from the sale of technology patents or
significant valuable mineral or metals discoveries. The accounting for revenue,
expense and assets attributed to each segment is based on each transaction,
which is coded to separate general ledger department codes for each segment. The
Companys activities are focused in Western Canada and the Companys assets are
located in Alberta.

| |                           | Industrial  | Mineral         |              |             
| | ------------------------- | ----------- | --------------- | ------------ | ------------
| |                           |             | Exploration and | Corporate    | Total       
| |                           | Minerals    | Technology      |              |             
| | 2006                      |             |                 |              |             
| | Sales revenue             | 895,455     | -               | -            | 895,455     
| | Cost of sales             | (989,412)   | -               | -            | (989,412)   
| | Other limestone sale      | 645,109     | -               | -            | 645,109     
| | Interest and other income | -           | -               | 498,028      | 498,028     
| | Expenses                  | 2,544,028   | 858,964         | 7,840,462    | 11,243,454  
| | Loss                      | (1,992,876) | (858,964)       | (7,342,434)  | (10,194,274)
| | Assets                    | 79,023,053  | 26,264          | 5,923,238    | 84,972,555  
| | 2005                      |             |                 |              |             
| | Sales revenue             | -           | -               | -            | -           
| | Cost of sales             | -           | -               | -            | -           
| | Interest income           | -           | -               | 332,568      | 332,568     
| | Expenses                  | -           | 540,481         | 4,433,905    | 4,974,386   
| | Loss                      | -           | (540,481)       | (4,101,337)  | (4,641,818) 
| | Assets                    | 14,424,221  | 33,798          | 34,102,833   | 48,560,852  
| | 2004                      |             |                 |              |             
| | Sales revenue             | -           | -               | -            | -           
| | Cost of sales             | -           | -               | -            | -           
| | Interest income           | -           | -               | 48,190       | 48,190      
| | Expenses                  | -           | 762,371         | 2,172,876    | 2,935,247   
| | Loss                      | -           | (762,371)       | (2,124,686 ) | (2,887,057) 
| | Assets                    | 3,585,938   | 59,393          | 5,887,092    | 9,532,423   

Financial instruments

Fair values

The carrying amount of cash and
cash equivalents, restricted cash, accounts receivable, deposits, accounts
payable and accrued liabilities, long-term debt, other current liabilities and
convertible debentures approximates their fair value because of the short-term
maturities of these items.

Foreign currency risk

The Company maintains cash balances
and occasionally enters into transactions to purchase goods and services
denominated in United States currency for which the related expenses and
accounts payable balances are subject to exchange rate fluctuations. The
transactions and balances have been stated in Canadian dollars in accordance
with the Companys foreign currency translation policy.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

27.   Material differences between Canadian and United States generally
accepted accounting principles

The consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principals in Canada ("Canadian GAAP"), which in most
respects conform to accounting principles generally accepted in the United
States ("U.S. GAAP").

If these consolidated financial statements were
prepared in accordance with U.S. GAAP, the impact would be as follows:

| |                                                                           |            | 2006         | 2005         | 
| | ------------------------------------------------------------------------- | ---------- | ------------ | ------------ | 
| | Mineral properties 
    Canadian GAAP                                    |            | 44,608,237   | 13,662,648   | 
| | Exploration expenditures
    capitalized (a)                              |            | (26,067,542) | (13,662,648) | 
| | Depletion (a)                                                             |            | 670,969      | -            | 
| | Stripping costs
    capitalized (b)                                       |            | (1,750,000)  | -            | 
| | Mineral properties - U.S.
    GAAP                                        |            | 17,461,664   | -            | 
| |                                                                           |            |              |              | 
| |                                                                           |            | 2006         | 2005         | 
| | Inventory  Canadian GAAP                                                 |            | 5,703,196    | -            | 
| | Depletion (a)                                                             |            | (464,815)    | -            | 
| | Stripping costs
    capitalized (b)                                       |            | 1,479,787    | -            | 
| | Inventory - U.S. GAAP                                                     |            | 6,718,168    | -            | 
| |                                                                           |            |              |              | 
| |                                                                           |            | 2006         | 2005         | 
| | Convertible debentures 
    Canadian GAAP                                |            | 28,537,087   | -            | 
| | Debt issuance costs                                                       |            | 1,264,842    | -            | 
| | Unamortized discount (c)                                                  |            | 4,698,071    | -            | 
| |                                                                           |            | 34,500,000   | -            | 
| | Unamortized debt issuance
    costs                                       |            | (1,448,584)  | -            | 
| | Convertible debentures -
    U.S. GAAP                                    |            | 33,051,416   | -            | 
| |                                                                           |            |              |              | 
| |                                                                           |            |              |              | 
| | Shareholders equity 
    Canadian GAAP                                  |            | 40,241,592   | 41,435,199   | 
| | Exploration expenditures
    capitalized (a)                              |            | (26,067,542) | (13,662,648) | 
| | Accretion of convertible
    debentures (c)                               |            | 57,489       | -            | 
| | Unamortized discount of
    convertible debentures (c)                    |            | (4,698,071)  | -            | 
| | Cost of sales  depletion
    (a)                                         |            | 72,131       | -            | 
| |  stripping costs (b)                                                     |            | (229,639)    | -            | 
| | Shareholders equity -
    U.S. GAAP                                      |            | 9,375,960    | 27,772,551   | 
| |                                                                           |            |              |              | 
| | The impact on the
    consolidated statement of loss would be as follows: |            |              |              | 
| |                                                                           | 2006       | 2005         | 2004         | 
| | Loss for the year -
    Canadian GAAP                                     | 10,194,274 | 4,641,818    | 2,887,057    | 
| | Exploration expenditures
    capitalized (a)                              | 12,404,894 | 10,173,279   | 3,153,233    | 
| | Cost of sales  depletion
    (a)                                         | (72,131)   | -            | -            | 
| | stripping costs (b)                                                      | 229,639    | -            | -            | 
| | Accretion of convertible
    debentures (c)                               | (57,489)   | -            | -            | 
| | Loss for the year - U.S.
    GAAP                                         | 22,699,187 | 14,815,097   | 6,040,290    | 
| | Loss per share - U.S. GAAP                                                |            |              |              | 
| | Basic and fully diluted                                                   | (0.28)     | (0.21)       | (0.11)       | 



---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

27.   Material differences between Canadian and United States generally
accepted accounting principles (continued)

Significant differences between Canadian GAAP and
U.S. GAAP that would have an effect on these consolidated financial statements
are as follows:

a)     Mineral
properties are accounted for in accordance with Canadian GAAP as discussed in
Note 2. For U.S. GAAP purposes, exploration costs relating to unproven mineral
leases and permits as well as acquisition costs for leases and permits that do
not provide for unrestricted exploration, are expensed as incurred.

The Company tracks expenditures on
its mineral properties as exploration or development and under U.S. GAAP
capitalizes costs relating to the development of proven reserves as defined by
SEC Industry Guide 7.

Capitalized costs are then assessed
to determine if a writedown in the carrying value is necessary and any writedown
would be considered an operating expense and included in the determination of
operating loss for the period in which the writedown occurred.

Under Canadian GAAP, the Company
was regarded as a production stage enterprise for 2005 and under U.S. GAAP the
Company was regarded as an exploration stage enterprise. On May 24, 2006,
management concluded, based on a number of factors including the fact that the
Company filed all of the necessary applications to prove it had the legal rights
to exploit its mineral leases with their was a reasonable expectation of
on-going and further regulatory approvals, sales to various end-users at market
prices had occurred and volumes of production and expected orders were
significant, that the Hammerstone mineral reserves met SEC Industry Guide 7
requirements for qualification as a reserve. Subsequent to May 24, 2006, the
Company is regarded as a production stage enterprise under Canadian and U.S.
GAAP. Total sales volumes for 2006 were 1,539,292 tonnes of limestone including
the off-quarry sale and the Company produced 2,244,987 tonnes of limestone
during 2006.

For 2004, 2005 and to May 24, 2006,
the Companys reserves did not meet the criteria for proven reserves under SEC
Industry Guide 7, therefore, all expenditures on mineral properties capitalized
under Canadian GAAP were expensed as operating costs under U.S. GAAP, increasing
the losses and loss for each year.

b)     Under Canadian GAAP,
stripping costs related to the betterment of the mineral property are
capitalized while those related to removing overburden to access limestone for
processing are included in the cost of inventory and cost of goods sold.

Under U.S. GAAP, stripping costs
incurred during the production phase of a mine should be included in inventory
and cost of goods sold for that period.

Management has determined that
stripping costs up to May 24, 2006 under both Canadian and U.S. GAAP would be
capitalized.

c)     Under
Canadian GAAP, the conversion option embedded in the convertible debentures was
presented separately as a component of shareholders equity. Under U.S. GAAP,
the embedded conversion option was not subject to bifurcation and was thus
presented as a liability along with the balance of the convertible debentures.
The principal accretion occurring under Canadian GAAP was not required under
U.S. GAAP and the adjustment was included in the interest expense adjustment in
the reconciliation.

Under Canadian GAAP, the accretion
expense for 2006 was $76,930 and under U.S. GAAP the accretion expense was
$19,441, a difference of $57,489.

d)    
Commencing January 1, 2003, the Company adopted the fair value method of
accounting for stock options for both Canadian and U.S. GAAP purposes. The
effect of this change was that stock-based compensation is recorded as an
expense instead of disclosing the effect of granting options as pro-forma
information in the notes to the financial statements. For the year ended
December 31, 2004, these costs were calculated in accordance with the Black-Scholes
option-pricing model assuming no dividends are paid, an annual risk-free
interest rate of 3.8%, an expected volatility of 65% and an expected life of one
to two years. For 2004, the fair value of the options, calculated as $278,357,
is included in the net loss.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

27.   Material differences between Canadian and United States generally
accepted accounting principles (continued)

In December 2004, the FASB enacted
FAS 123  revised 2004 (FAS 123R), 

Had the Company adopted the fair value method for
its U.S. GAAP disclosure prior to Jan 1, 2003, the following net losses would
have been reported:

| |                                             | 2006       | 2005       | 2004     
| | ------------------------------------------- | ---------- | ---------- | ---------
| | Loss for the year - U.S.
    GAAP           | 22,699,187 | 14,815,097 | 6,040,290
| | Pro-forma stock
    compensation            | 54,000     | 73,012     | 73,012   
| | Pro-forma loss for the
    year - U.S. GAAP | 22,753,187 | 14,888,109 | 6,113,302
| | Pro-forma loss per share -
    U.S. GAAP    |            |            |          
| | Basic and diluted                           | (0.28)     | (0.21)     | (0.11)   

e)      For U.S. GAAP cash flow
statement purposes, mineral exploration costs would be shown under operating
activities rather than under investing activities.

New Accounting Pronouncements for U.S. GAAP

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"),
an interpretation of FASB Statement No. 109, "Accounting for Income Taxes". FIN
48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Interpretation requires that the
Corporation recognize in the financial statements, the impact of a tax position,
if that position is more likely than not of being sustained on audit, based on
the technical merits of the position. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods and disclosure. The provisions of FIN 48 are effective beginning January
1, 2007 with the cumulative effect of the change in accounting principle
recorded as an adjustment to the opening balance of deficit. The Corporation is
currently evaluating the impact FIN 48 will have on its consolidated financial
statements.

Fair Value Measurements

In September 2006, the FASB issued
FAS No. 157, "Fair Value Measurements" ("FAS 157"), which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. FAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years, and is applicable beginning in the first quarter of 2008.
The Company is currently evaluating the impact that FAS 157 will have on its
consolidated financial statements.

The Fair Value Option for Financial Assets and
Financial Liabilities

In February 2007, the FASB issued
FAS No. 159, "The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement No. 115", ("FAS 159")
which permits entities to choose to measure many financial instruments and
certain other items at fair value at specified election dates. A business entity
is required to report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
This statement is expected to expand the use of fair value measurement. FAS 159
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, and is
applicable beginning in the first quarter of 2008. The Company is currently
evaluating the impact that FAS 159 will have on its consolidated financial
statements.

---



|Birch Mountain Resources Ltd.                       
|----------------------------------------------------
|Notes to the Consolidated Financial Statements      
|For the years ended December 31, 2006, 2005 and 2004

28.   Subsequent events

Subsequent to year-end, an additional 725,000 stock
options were issued to employees, directors, consultants and officers.

On March 30, 2007 the Company completed a
$15,500,000 senior secured credit facility with Brookfield Bridge Lending Fund
Inc. to provide financing for the continued development and construction of the
South Haul Road, recently acquired mineral permits and for general corporate
purposes. The facility has a term of twelve months with an extension option for
an additional twelve months. The facility may be repaid at any time without
penalty.

On March 16, 2007, the Company completed a lease
buyout with the Royal Bank of Canada for the lease on the quarry equipment
costing $1,235,000 as described in Note 8. The Companys lease line of credit
was closed and the RBC released a restriction on a GIC for $1,250,000.

29.   Comparative figures

Certain comparative figures have been reclassified
to confirm with presentation adopted in the current year.







---

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this
Amendment No. 1 to the Form 20-F annual report on its behalf.

|                    | BIRCH MOUNTAIN RESOURCES LTD.        
|------------------- | -------------------------------------
|                    |                                      
|                    |                                      
|                    |                                      
|Date: April 4, 2007 |                                      
|                    | By: /s/ Douglas J. Rowe              
|                    | Douglas J. Rowe                      
|                    | President and Chief Executive Officer





---