<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 20-F/A4


(Mark One)

[X]      REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                                                                     or

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

         For the fiscal year ended
                                   -------------------------

                                       or



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

For the transition period from                      to
                              ---------------------    -------------------------

Commission File Number 000-31645
                       ---------


                          BIRCH MOUNTAIN RESOURCES LTD.
                          -----------------------------
             (Exact Name of Registrant as Specified in its Charter)

                                 ALBERTA, CANADA
                 (Jurisdiction of Incorporation or Organization)

           3100, 205 - 5TH AVE. S.W., CALGARY, ALBERTA, CANADA T2P 2V7
                    (Address of Principal Executive Offices)


Securities registered or to be registered pursuant to Section 12(b) of the Act:

                                      NONE

       Securities to be registered pursuant to Section 12(g) of the Act:

                                  COMMON SHARES
                                (Title of class)
<PAGE>   2
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 registrant's classes of
common stock as of the date of this registration:


                              As of April 25, 2001:

                             33,647,122COMMON SHARES

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 reports), and (2) has been subject to such filing
requirements for the past 90 days.

   (1) YES     X       NO                 (2) YES               NO       X
          ------         ----------              ----------         ---------

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

             ITEM 17        X               ITEM 18
                    ----------                  -----------

(APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) for the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                                 NOT APPLICABLE
<PAGE>   3
<TABLE>
<CAPTION>

                                               TABLE OF CONTENTS
                                                                                                      Page #
<S>                                                                                                   <C>
DESCRIPTION OF THE BUSINESS............................................................................-1-
           Introduction................................................................................-1-
                     General Development During Past Five Years........................................-2-
                               Mineral Exploration.....................................................-2-
                               Metallurgical Investigations............................................-2-
           Plan of Operation for the Next Year.........................................................-3-
                     Principal Products and Markets....................................................-4-
                     Sales and Revenue During Past Three Years.........................................-4-
           Special Characteristics of Operations or Industry...........................................-4-
                     Legal, Regulatory and Stock Exchange Listing Risks................................-4-
                     Contractual and Financing Risks...................................................-9-
                     Technology Development Risk.......................................................-9-
                     Intellectual Property Protection.................................................-10-
                     Exploration Risk.................................................................-10-
                     Environmental....................................................................-11-
                     Management.......................................................................-11-
                     Shareholders Rights Plan.........................................................-11-
                     Gold and Precious Metal Pricing Risks............................................-11-

DESCRIPTION OF PROPERTIES.............................................................................-12-
           Metallurgical Laboratory...................................................................-12-
           Core Laboratory............................................................................-12-
           Exploration Properties.....................................................................-12-
                     Alberta Properties...............................................................-13-
                     Manitoba Properties..............................................................-14-
           Prairie Gold Exploration...................................................................-14-
                     Prairie Gold Model...............................................................-14-
                     Prairie Gold in Athabasca........................................................-15-
                     Prairie Gold in Dawson Bay.......................................................-17-

LEGAL PROCEEDINGS.....................................................................................-17-

CONTROL OF THE REGISTRANT/COMPANY.....................................................................-17-

NATURE OF THE TRADING MARKET..........................................................................-18-

EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS....................................-19-
           Canadian Exchange Controls.................................................................-19-

TAXATION..............................................................................................-20-
           Disposition of Common Shares...............................................................-21-
           Dividends..................................................................................-21-
           Capital Gains..............................................................................-22-
           United States Federal Income Tax Consequences .............................................-22-
           U.S. Holders...............................................................................-22-
           Distributions on Common Shares of the Company .............................................-23-
           Foreign Tax Credit.........................................................................-23-
           Disposition of Common Shares of the Company................................................-24-
</TABLE>
<PAGE>   4
<TABLE>
<CAPTION>
<S>                                                                                                   <C>
SELECTED FINANCIAL DATA...............................................................................-24-
           Stock Based Compensation...................................................................-27-
           Shares Held in Escrow......................................................................-27-
           Recent Accounting Developments.............................................................-27-
           Dividends..................................................................................-27-

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................-28-
           Liquidity and Capital Resources............................................................-28-
           Results of Operations......................................................................-30-
           Corporate Income and Expenses..............................................................-31-

RISKS AND UNCERTAINTIES...............................................................................-32-

DIRECTORS AND EXECUTIVE OFFICERS......................................................................-33-
           Profiles of Directors and Executive Officers...............................................-33-

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS......................................................-35-

OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES........................................-35-
           Stock Option Grants........................................................................-35-

INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS........................................................-36-

DESCRIPTION OF SECURITIES TO BE REGISTERED............................................................-36-
           Rights Plan................................................................................-37-

DEFAULTS UPON SENIOR SECURITIES.......................................................................-37-

CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES...............................-38-

FINANCIAL STATEMENTS..................................................................................-38-

FINANCIAL STATEMENTS AND EXHIBITS.....................................................................-38-
</TABLE>
<PAGE>   5
FORWARD-LOOKING STATEMENTS

The information presented in or incorporated by reference in this report
includes both historical information and "forward-looking statements" (within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) relating to the future results of Birch Mountain
Resources Ltd. (including projections and business trends), which involve risks
and uncertainties. Except where the context indicates otherwise, "Company" or
"Birch" means Birch Mountain Resources Ltd., its predecessors and subsidiaries.

Numerous factors could cause actual results to differ materially from those in
the forward-looking statements, including without limitation the risk of
developing new technology, protection of intellectual property, exploration and
development of mineral properties and related activities, the ability to finance
future exploration and development, market prices for precious metals, the
ability to produce and market precious metals, the actions of government
authorities including increases in taxes, changes in environmental and other
regulations, and changes in government, and the dependence upon the abilities
and continued participation of certain key employees of the Company.

Reference should be made to "Risk Factors". As a result of the foregoing and
other factors, no assurance can be given as to future results, levels of
activity and achievements.

Investors are cautioned not to put undue reliance on forward-looking statements,
and should not infer that there has been no change in the affairs of the Company
since the date of this report that would warrant any modification of any
forward-looking statement made in this document or other documents filed
periodically with securities regulators. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this notice. The Company
disclaims any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.

CURRENCY AND EXCHANGE RATES

All dollar amounts set forth in this Registration Statement are in Canadian
dollars, except where otherwise indicated. The following table sets forth (i)
the exchange rates for the Canadian dollar, expressed in U.S. dollars, in effect
at the end of each of the financial periods indicated; (ii) the average exchange
rates based on the last day of each month during such periods; and (iii) the
high and low exchange rates during such periods, in each case based on the noon
buying rate in New York City for cable transfers in Canadian dollars, as
certified for customs purposes by the Federal Reserve Bank of New York.

<TABLE>
<CAPTION>
                      NINE MONTHS        FISCAL YEAR        FISCAL YEAR        FISCAL YEAR        FISCAL YEAR        FISCAL YEAR
                      ENDING SEPTEMBER   ENDING DECEMBER    ENDING DECEMBER    ENDING DECEMBER    ENDING DECEMBER    ENDING DECEMBER
                      30, 2000           31, 1999           31, 1998           31, 1997           31, 1996           31, 1995
                      --------           --------           --------           --------           --------           --------
<S>                   <C>                <C>                <C>                <C>                <C>                <C>
END OF PERIOD         1.5009             1.4720             1.5333             1.4305             1.3702             1.3641

HIGH FOR PERIOD       1.5140             1.4720             1.5685             1.4305             1.3865             1.4267

LOW FOR PERIOD        1.4310             1.4512             1.4198             1.3470             1.3287             1.3278

AVERAGE FOR PERIOD    1.4716             1.4920             1.4835             1.3846             1.3636             1.3726
</TABLE>
<PAGE>   6
                          GLOSSARY OF SIGNIFICANT TERMS

Certain terms and their usage used throughout this Registration Statement are
defined below.


ALTERATION                          A change in the mineralogical make-up in the
                                    rock brought about by physical or chemical
                                    means; for example, by reactions with
                                    brines.

ANOMALOUS                           A value that is unusually elevated compared
                                    to other values in the same data set.

ASSAY OR FIRE ASSAY                 A high-temperature process involving the
                                    melting of a rock to determine its metal
                                    content.

BASEMENT                            The part of the Earth's crust that occurs
                                    beneath a cover of sedimentary rocks.

BASIN OR SEDIMENTARY BASIN          A large depressed area in the Earth's crust
                                    in which sedimentary rocks have accumulated.

BENCH SCALE                         A term used to describe a small-scale
                                    experiment, procedure, or test that can be
                                    conducted in a laboratory setting, generally
                                    with standard laboratory equipment.

BIOCLASTIC                          A sedimentary rock composed of fragments of
                                    biological components such as shells.

BRINE                               Water with a high content of dissolved
                                    salts.

CAMBRIAN                            The geological time period between about 570
                                    and 500 million years ago.

CANADIAN SHIELD                     Area of surface exposure of Precambrian
                                    rocks in Quebec, Ontario, Manitoba,
                                    Saskatchewan, northeastern Alberta,
                                    Northwest and Nunavut Territories.

CARBONATE                           A sedimentary rock composed of minerals
                                    containing carbon and oxygen in the form of
                                    carbonate (CO3); for example, limestone.

CLASTIC                             A sedimentary rock composed of fragments of
                                    pre-existing rocks; includes sandstones,
                                    siltstones and shales.

CRETACEOUS                          The geological time period between about 135
                                    and 65 million years ago

DEVONIAN                            The geological time period between about 410
                                    and 360 million years ago.

ELECTRIC LOG OR E-LOG               A graphic or digital record of the measured
                                    electrical properties of rocks in a drill
                                    hole, recorded as a function of depth.

EVAPORITE                           A sedimentary rock containing minerals
                                    formed from the evaporation of marine and
                                    non-marine waters.

EXTRACTION                          A chemical or physical process by which a
                                    metal or mineral is separated and removed
                                    from a host rock.

FAULT                               A discrete surface separating two rock
                                    masses which have moved past one another.

FORMATION OR GEOLOGICAL FORMATION   A body of rock having easily recognizable
                                    boundaries and properties that allow it to
                                    be identified in the field without resorting
                                    to microscopic or chemical analyses.

GRADE                               The relative quantity of ore-mineral content
                                    in a mineralized body, e.g. grams of gold
                                    per tonne or rock or percent of copper.

HECTARE                             A metric measurement of area equivalent to
                                    10,000 square meters or 2.4711 acres.

IGNEOUS                             A rock that has cooled and solidified from a
                                    melt.

KILOMETRE                           A metric measure of length: one kilometre is
                                    equivalent to 1000 metres or 0.6214 miles.
<PAGE>   7
LIMESTONE                           A rock predominantly composed of the mineral
                                    calcite (calcium carbonate (CaCO3))

LINEAMENT                           A linear topographic or geophysical feature.

MAGMATIC                            A process involving molten rock.

MESOSOIC ERA                        The major geological time period between
                                    about 65 and 240 million years ago.

MICROPARTICULATE                    Composed of or comprising particles on the
                                    order of 0.1 to 100 micrometres in size.

MINERAL DEPOSIT                     A body of rock enriched in naturally
                                    occurring minerals of potential commercial
                                    value.

MINERAL                             A naturally occurring homogeneous substance
                                    having fixed physical properties and
                                    chemical composition and a defined crystal
                                    form.

MINERALIZATION                      The process of formation of minerals in a
                                    specific area or geological formation.

MINERAL PROPERTIES OR MINERAL
PROPERTY                            The right to explore and/or mine granted by
                                    a government pursuant to one or more of a
                                    claim, contract of work, special exploration
                                    permit, mineral lease or mineral permit.

NANOPARTICULATE                     Composed of or comprising particles on the
                                    order of 0.1 to 100 nanometres in size.

OIL SAND DEPOSIT                    A porous body of sandstone containing liquid
                                    hydrocarbons or bitumen.

ORDOVICIAN                          The geological time period between about 500
                                    and 435 million years ago.

PALEOZOIC ERA                       The major geological time period between
                                    about 240 and 570 million years ago.

PRAIRIE GOLD MODEL                  An exploration model postulating the origin
                                    of microparticulate precious and
                                    non-precious metals observed in rocks from
                                    the Athabasca region of Alberta and the
                                    Dawson Bay area of Manitoba. In this model,
                                    metals are carried in brines of sedimentary
                                    origin and are deposited where
                                    oxidation-reduction reactions cause the
                                    metals to precipitate.

PRECAMBRIAN ERA                     The major period of geologic time before 570
                                    million years ago.

PRECIOUS METALS                     A group of unoxidizable metals of relatively
                                    high economic value; includes silver, gold,
                                    platinum and palladium.

RECOVERY                            The percentage of valuable metal in the ore
                                    that is recovered by metallurgical
                                    treatment.

SEDIMENTARY ROCK                    A rock originating from the weathering of
                                    pre-existing rocks which is deposited in
                                    layers on the Earth's surface by air, water
                                    or ice.

STRUCTURE                           The physical arrangement of rock related to
                                    its deformation by, for example, faulting.

TAILINGS                            The material removed from the milling
                                    circuit after separation of the valuable
                                    metals.


TERTIARY                            The major geological time period between
                                    about 65 and 2 million years ago.

TIER 1 COMPANY                      The Canadian Venture Exchange Inc. currently
                                    classifies issuers into two different tiers
                                    based on standards including historical
                                    financial performance, stage of development
                                    and financial resources of the issuer. Tier
                                    1 is the Exchange's premier tier and is
                                    reserved for the Exchange's most advanced
                                    issuers with the most significant financial
                                    resources.

TROY OUNCE                          Unit of weight measurement used for all
                                    precious metals. The familiar 16 ounce
                                    avoirdupois pound equals 14.583 troy ounces.
                                    One troy ounce is equivalent to 31.1034
                                    grams.

UNMETAMORPHOSED                     Refers to rocks that have not undergone
                                    metamorphism, where metamorphism is the
                                    process by which the mineralogy and textures
                                    of a rock changes during deep burial or by
                                    contact with igneous rocks at high
                                    temperature and/or pressure.

U.S.                                Refers to the United States of America.
<PAGE>   8
WESTERN CANADIAN SEDIMENTARY
BASIN                               A large area of sedimentary rock in western
                                    Canada covering much of Manitoba,
                                    Saskatchewan, Alberta and the western
                                    Northwest Territories where sediments of
                                    late Precambrian through Tertiary age were
                                    deposited on rocks of the Precambrian
                                    Shield.



CONVERSION FACTORS:     1 Troy ounce        =         31.1034 Grams
                        1 Tonne             =         1.1023 Short tons
                        1 Tonne             =         2204.6 Pounds
                        1 oz/ton            =         34.3 grams per tonne
                        1 Hectare           =         2.4711 Acres
                        1 Kilometre         =         0.6214 Miles
                        1 Metre             =         3.28084 Feet
                        1 micrometre        =         0.000001 metre
                        1 nanometre         =         0.000000001 metre
                        1 inch              =         25,400 micrometers
                        1 inch              =         25,400,000 nanometers

SYMBOLS:                Au                  =         Gold
                        g/t                 =         Gram per tonne
                        oz/ton              =         Troy ounce per ton
                        PGM                 =         Platinum group metals


<PAGE>   9



                                     PART 1

ITEM 1:    DESCRIPTION OF THE BUSINESS

A.       INTRODUCTION

Birch Mountain Resources Ltd. (the "Company" or "Birch") is an exploration stage
company engaged in the search for commercially viable deposits of precious and
non-precious metals. The Company has no assurance that a commercially viable ore
deposit exists in any of its mineral properties.

In the past year the Company has expanded its activities to include the
development of methods to recover naturally occurring nanoparticulate metals
from sedimentary rock on the Company's mineral properties. There is no assurance
that there are commercial concentrations of nanoparticulate metals, or that a
commercially viable process will be developed to extract these metals from rock
on the Company's mineral properties.

On July 4, 1995, one of the Company's predecessors, also named Birch Mountain
Resources Ltd., completed the purchase of all of the issued and outstanding
securities of Birch Mountain Minerals Ltd., a private Alberta company which held
certain mining exploration interests in Alberta and British Columbia. According
to a Certificate of Amalgamation issued on December 31, 1995 under the
provisions of the Business Corporations Act (Alberta), the Company was formed by
the merger of Birch Mountain Resources Ltd. and its wholly owned subsidiary,
Birch Mountain Minerals Ltd.

The Company has one active, wholly owned subsidiary, Dawson Bay Minerals Inc.
("Dawson Bay"), a company incorporated pursuant to the Corporations Act
(Manitoba) on October 24, 1996 with a registered office located at 2200, 201
Portage Avenue, Winnipeg, Manitoba, R3B 3L3. Unless the context requires
otherwise, whenever the words "Company" or "Birch" are used, they will include
Dawson Bay and the Company's predecessors.

The Common Shares of the Company were listed on The Alberta Stock Exchange (now
the Canadian Venture Exchange Inc.) ("CDNX") on January 31, 1995. The Company's
Common Shares trade in Canadian dollars on the CDNX under the trading symbol
BMD. As of the date of this Registration Statement, the CDNX has suspended
trading in the Company's Common Shares. See "Legal, Regulatory and Stock
Exchange Listing Risks". The Company trades no other class of shares other than
Common Shares without par value. The Company is investigating additional or
alternate trading market opportunities for its Common Shares.

The Company's head office is at 3100, 205 Fifth Avenue S.W., Calgary, Alberta
T2P 2V7. The principal contact persons are Mr. Douglas J. Rowe, President & CEO,
(403) 262-1838, Fax (403) 263-9888 e-mail: rowed@birchmountain.com or Mr. Donald
L. Dabbs, Vice President & CFO, (403) 262-1838, Fax (403) 263-9888 e-mail:
dabbsd@birchmountain.com.

Birch holds Metallic and Industrial Mineral Permits ("Mineral Permits") and
Metallic and Industrial Mineral Leases ("Mineral Leases") in the Province of
Alberta totaling approximately 2.5 million acres. Dawson Bay holds Special
Exploration Permits in the Province of Manitoba totaling approximately 200,000
acres.

As part of its ongoing exploration activity, Birch employs both standard and
proprietary extraction and recovery processes on drill core and surface samples
collected as part of exploration of the Company's Mineral Permits and Mineral
Leases. All costs associated with analyzing exploration samples have been
capitalized as part of the mineral exploration costs. The Company has had no
research and development expenditures over the last three fiscal years ended
December 31, 1997, 1998 and 1999.

                                       -1-

<PAGE>   10
However, through its ongoing geological and metallurgical activities, Birch has
identified a previously unreported form of natural, nanoparticulate metal in
rocks from its Athabasca mineral property. Commencing in 2000, Birch has
dedicated resources to develop a proprietary process to extract this
nanoparticulate metal from rock samples and has recently filed a U.S. patent
application to protect this process. There is no assurance that Birch's process
will be economically viable until appropriate tests using large tonnage samples
demonstrate technical and economic feasibility.

The information in this Registration Statement is current as of September 30,
2000, except where otherwise indicated. In this Registration Statement, any
references to dollars or "$'s" refers to Canadian dollars unless specifically
stated otherwise.

GENERAL DEVELOPMENT DURING PAST FIVE YEARS

Mineral Exploration

Initially, the business of the Company was primarily the acquisition and
exploration of mineral properties. The Company started business with mineral
properties in northeastern Alberta and British Columbia, and acquired additional
mineral rights in the Yukon Territories, the Republic of Indonesia, Saskatchewan
and Manitoba. From 1995 to 1998 the Company undertook exploration work on all of
these mineral properties, but relinquished the land in British Columbia, the
Yukon Territories, Saskatchewan and Indonesia as these mineral properties were
determined by Birch not to meet its criteria for further exploration. The
Company continues exploration work on its 2.7 million acres (1.12 million
hectares) of Mineral Leases and Mineral Permits in Alberta and Special
Exploration Permits in Manitoba.

Originally, Birch's activities were directed towards developing the Prairie Gold
Model, a new mineral exploration model explaining a possible process leading to
the deposition of unusual occurrences of microparticulate gold and other
precious and non-precious metals in rocks from Birch's Athabasca and Dawson Bay
mineral properties. An early version of this geological model was developed at
the Geological Survey of Canada in partnership with Birch and other mineral
exploration companies. The Prairie Gold Model guides Birch's exploration for
metals on its Athabasca and Dawson Bay mineral properties.

Metallurgical Investigations

As an outgrowth of its work related to improving the Prairie Gold Model, Birch
developed new technology for the analysis and extraction of microparticulate and
nanoparticulate metals. Microparticulate gold and other precious and
non-precious metals were first reported in rocks from the Athabasca region by
the Geological Survey of Canada in 1994, based on the detection of these metals
by electron imaging and x-ray analysis. Since this time, Birch and other
companies and researchers have used the same techniques to examine surface rock
and drill core samples from this area. The results of these studies have
identified multiple locations on Birch's Athabasca Mineral Permits and Mineral
Leases where micropaticulate precious and non-precious metals occur in the rock.
Birch believes that the diverse elemental assemblage documented within these
rocks is indicative of a previously unknown type of mineral deposition process.
Birch also has evidence that suggests that conventional methods for determining
metal concentrations may be ineffective in detecting the metals shown by
electron imaging to be present in these rocks.


                                       -2-

<PAGE>   11
In 1999, Birch established its own laboratory to evaluate rock samples from its
Athabasca and Dawson Bay mineral properties. In 2000, the Company expanded its
laboratory research capability with the acquisition of analytical
instrumentation. Material properties research is also conducted using advanced
analytical equipment available in university and government research
laboratories. The goals of this work are to identify and characterize the
specific forms of metals present so that effective analytical, extraction and
recovery processes can be tested.

Birch believes that the extremely small size of the metals in rocks from
Athabasca has a profound impact on both their physical and chemical behavior.
Furthermore, Birch's material properties research has identified, from its
Athabasca mineral property, what it believes to be the first documented
occurrence of natural nanoparticulate metal in rocks. By handling and treating
the rock in accordance with the properties of the contained metals, Birch has
been able to extract nanoparticulate metal from the rock into solution. Birch
has filed a U.S. patent application to protect its intellectual property related
to the extraction of this newly identified nanoparticulate metal. This
technology is still under development; it has not been independently verified;
and its commercial significance has not been determined. Birch's success in
finding a commercially viable mineral deposit, a reserve within Birch's mineral
permits and leases, depends not only on locating sufficient microparticulate
gold, platinum etc., but also upon the economic recoverability of these metals.

Test work related to nanoparticulate metals is on-going, and it has been
independently verified that Birch can successfully produce nanoparticulate metal
concentrates at the bench scale. The results of Birch's analytical method
development program, however, show that additional work is required before Birch
is able to generate reproducible measurements of the metal concentrations in
solutions containing nanoparticulate metals. Bulk and/or pilot testing, which
are essential in evaluating the economic feasibility of the research, cannot be
done until a method for quantitative determination of nanoparticulate metal
concentrations is developed and verified.

Birch believes that its investigations may provide new ways to focus exploration
on its existing mineral properties and may be applicable to similar rocks in
other sedimentary basins. Therefore, Birch's continuing testing program may lead
to additional discoveries elsewhere in the world and the development of new
intellectual property.

Birch believes that its technology may have applications beyond metals
exploration and will direct some of its research activities to identifying
additional opportunities.

PLAN OF OPERATION FOR THE NEXT YEAR

Birch will continue work related to developing and improving its mineral
extraction and measurement technology in the Company's lab, with verification of
results in independent research laboratories.

To assist with the advancement of the technology, the Company has established a
Scientific Advisory Board comprising, at the present time, of two senior
chemists - Dr. Richard Puddephatt and Dr. Robert Fitch.

Dr. Puddephatt is a Fellow of the Royal Society (UK), Fellow of the Royal
Society of Canada and Professor of Chemistry at the University of Western
Ontario. He has published several books on the chemistry of gold and more than
450 peer reviewed scientific publications in the field of chemistry. Dr.
Puddephatt holds patents and is Senior Editor of the Canadian Journal of
Chemistry.

Dr. Fitch, President of Fitch and Associates, is primarily involved in assessing
new technologies and research in chemistry and physics. Dr. Fitch retired as
Senior Vice President of Research and Development for SC Johnson Wax in 1990.
Prior to that, he was professor of Chemistry and Materials Science at the
University of Connecticut. Dr. Fitch holds patents and has published over 100
papers and three books in the fields of polymer colloids and

                                       -3-
<PAGE>   12
polymers at interfaces.

The primary functions of the Scientific Advisory Board will be:

         -        to provide independent advice to the Board of Directors on
                  scientific matters,

         -        to advise management on the Company's scientific program, and

         -        to provide a liaison role with scientific institutions and
                  researchers on specific technical activities.

Birch will continue studies using the electric logs and geochemical analyses of
core from over five hundred wells drilled by Birch and oil sands companies that
hold overlapping mineral interests. The core and e-logs have been provided to
Birch under the terms of the cooperation agreements with oil sands companies
that hold overlapping mineral rights, more fully described in Item 2:
Description of Properties. These analyses will be used, in conjunction with
other analytical results, to focus future exploration drilling to areas of
alteration and elevated metal content in the Devonian limestone.

The Company does not currently plan to initiate its own field-drilling program
in the first six months of 2001. This, however, may change depending on the
results of on-going geological and laboratory analyses.

PRINCIPAL PRODUCTS AND MARKETS

The Company has no mineral production.

SALES AND REVENUE DURING PAST THREE YEARS

The Company has had no sales from production, and has only received $390,000
from the sale of exploration data plus incidental interest and other minor
revenue.

B.       SPECIAL CHARACTERISTICS OF OPERATIONS OR INDUSTRY

LEGAL, REGULATORY AND STOCK EXCHANGE LISTING RISKS

In all areas where Birch conducts activities, there are statutory provisions
regulating exploration and development of mineral resources. Birch may be
constrained or forbidden to develop a mine in areas of economic mineral deposits
as a result of conflicting regulations governing other natural resource
extraction activities. Regulatory agencies may impose operating limitations
which may adversely affect Birch's revenues and/or the economic viability of a
project.

On the basis of statements contained in the Company's news release of June 15,
2000, trading of the Company's common shares was halted by the CDNX on June 16,
2000. On June 28, 2000, the CDNX suspended trading in the Company's shares. The
news release of June 15, 2000 contained statements that, in the view of the
CDNX, "...indicate or infer that the Company has developed a technology that can
detect and/or extract gold not quantifiable by conventional means." The CDNX
also expressed that it, "...was skeptical of representations that undetectable
gold in economically significant quantities exists on the Company's property or
that it had or was developing a process to detect and/or extract this gold."
Therefore, the CDNX, "....further advised the Company that, prior to the public
disclosure of results from the property or with respect to the successful
testing or advancement in this technology, [they] would require independent
verification by a qualified professional known to the Exchange."


                                       -4-
<PAGE>   13
Following a period of information review and consultation, the Company agreed to
(a) issue a clarifying news release, (b) allow the CDNX to conduct an
independent technical audit, and (c) provide an undertaking to the CDNX by
insiders of the Company not to trade in the Company's securities until the
independent audit is complete. On this basis, the CDNX agreed to allow trading
in Birch's shares to resume. The clarifying news release was issued on September
27, 2000, and the CDNX reinstated trading the Company's common shares on
September 29, 2000. The clarifying news release reviewed the history of Birch's
exploration in Athabasca, emphasizing that its mineral properties were at the
exploration stage and that they contained no identified commercially viable
mineral deposit or mineral reserve. Readers should not, therefore, consider the
information contained in the news release of June 15, 2000, in isolation and are
referred to the news releases of July 19, 2000 and September 27, 2000, for
clarification.

The independent audit of Birch was to determine whether or not there is
reasonable evidence of potentially economic concentrations of minerals and
reasonable evidence of potential commercial applications for the technology
under development. The specific scope of work included:

                  - Summary review of past work on the Athabasca mineral
property and other Mineral Leases held by the Company and how such work has been
disclosed to the public;

-        Review work relative to the identification of a "new form of precious
         metal" within the context of a new ore deposit model and how such work
         was disclosed to the public;

-        Review the Company's approach to reviewing various assay methodologies
         and the basis of the determination that they were unsatisfactory for
         this "new form of previous metal" and new ore deposit model;

-        Review the dissemination of the various assay results in press-releases
         in terms of timing and completeness of disclosure;

-        Review the sample preparation methodology and process development in
         respect of the reported extraction methodology. This will require a
         reasonable level of disclosure by the Company and the auditor has
         reserved the right to have the process reviewed by individuals with the
         appropriate academic qualifications if deemed necessary;

-        Supervise test work at an independent laboratory, along with such other
         conventional assay techniques as may be deemed appropriate by the
         independent auditor. The location and protocol for the test will be
         decided by the independent auditor after discussions with the Company;
         and

-        Produce a draft report to the CDNX outlining the results of the audit
         and making recommendations for adequate disclosure to the public.

Associated Mining Consultants Ltd. ("AMCL") of Calgary, Alberta conducted the
independent technical audit. The audit began on October 6, 2000, and a final
report was issued to the CDNX and the Company on February 8, 2001. The Company
issued a news release on February 16, 2001, which contained AMCL's conclusions
and the statement that Birch Mountain considered the audit process to have been
flawed and disagreed with a number of AMCL's conclusions.

The conclusions of the AMCL technical audit, together with the Company's
response to each of the conclusions are as follows:


                                       -5-


<PAGE>   14
Audit Conclusion #1

All the assay results quoted in the BMD news releases are supported by assay
certificates or reports from laboratories. There is no evidence to suggest that
any of the samples were tampered with in any manner.

Company response to #1

This statement is factual.

Audit Conclusion #2

In our opinion, there is limited disclosure of negative results, repeated
disclosure of the same positive results in different contexts and promotional
and misleading statements in the BMD news releases.

Company response to #2

The Company disagrees with this characterization of the news releases. Most of
the disclosure reviewed by AMCL was several years old and had been vetted and
commented on by senior staff of the Surveillance Department of The Alberta Stock
Exchange prior to release. The Company agrees that there has been repeated
disclosure of certain positive results. A significant proportion of the negative
assay results examined by AMCL were not material, being data obtained from oil
sands companies from lands for which the Company does not hold mineral rights,
or were analyses of samples from oil sands delineation drill holes which were
not part of a Company planned drilling program.

Audit Conclusion #3

The Company believes that it has identified nano particulate material
(nano-clusters) in slides prepared for scanning electron microscope (SEM)
through use of energy dispersive X-ray analysis. The Company believes that
normal mining assay methodologies have not established the presence of gold,
reliably or reproducibly, as the gold occurs in a new form which is not amenable
to aqua regia leach or fire-assay pre-concentration. It is our opinion that even
if gold or other precious metals are present in the samples, the concentrations
are so low as to be near to or below the detection limit of the analytical
methods.

Company response to #3

The first sentence is factually incorrect; scanning electron microscopes do not
have adequate resolution to identify nanoparticulate metals in Birch's rocks.
The method described by AMCL is not used by the Company to identify natural
nanoparticles. It is inaccurate to conclude that the Company believes that the
form of metals is not amenable to aqua regia leach or fire assay. It is the
Company's belief that the form of metals complicates, but does not preclude,
normal assay methodologies. The conclusion in the last sentence is contrary to
two reports prepared independently of the Company that stated that there are
unusual levels of gold, silver, platinum and palladium present in a number of
locations on the Company's Athabasca mineral properties.

Audit Conclusion #4

It is our opinion that the majority of competent assayers examining the BMD data
would come to the conclusion that there is little precious metal in the BMD
samples of Athabasca rocks and that the sporadic positive results reported are
due to interferences, contamination or other known reasons. The only convincing
evidence that

                                       -6-



<PAGE>   15
would be accepted that there is significant metal values in the Athabasca rocks
is for BMD to consistently produce gold or other precious metal, in metallic
form, from their samples, which, so far, they have failed to do.

Company response to #4

AMCL was presented with third party reports which contained assay results
demonstrating unusual gold and platinum concentrations from two competent assay
labs in Canada and two assay laboratories in South Africa. The samples assayed
were prepared and submitted for assay independent of the Company. The Company
assumes that AMCL disagreed with these results and believes that AMCL drew
unsubstantiated conclusions that the results must be due to "interferences,
contamination or other known reasons".

Audit Conclusion #5

BMD claim to have identified a new form of naturally occurring precious metal.
The nano-particles identified by BMD are analysed as non-precious metal (the
specific element is not identified at the request of BMD). The CANMET report
specifically states that the non-precious metal is crystalline and gives its'
crystal structure as the face-centred cubic structure. No precious metal
nano-particles have been observed by BMD. It is therefore misleading to suggest
that BMD have confirmed a new form of naturally occurring precious or other
metal.

Company response to #5

The first sentence is factually incorrect. The Company has stated that it has
documented a "previously unreported" form of metal, not a "new" form of metal.
The Company retracted its identification of precious metals in this form, that
was reported in error, in a news release three months before AMCL started the
audit. Birch asserts that it is the size of the particles, not their
crystallinity that distinguishes them from other natural forms of metal. This
distinction was recognized by Natural Resources Canada, CANMET, Materials
Technology Laboratory in Ottawa.

Audit Conclusion #6

It would be presumptuous to totally dismiss the theories of BMD regarding the
potential for precious metals as nano-particles or micro-particles in the
Athabasca rocks. However, such work is the domain of research institutions
rather than a junior mining company. If the company is to pursue this high-risk
research as its' main activity, then this should be made clear to the investing
public. AMCL is of the opinion that the current research focus represents a
"material change of business" for the Company.

Company response to #6

The last three sentences are outside the scope of the audit, and represent an
irrelevant, gratuitous opinion.

Audit Conclusion #7

AMCL is of the opinion that BMD's research is based on a hypothesis that does
not permit verification by conventional and internationally accepted assay or
chemical methodologies. At this time we cannot recommended any testing program.

                                       -7-

<PAGE>   16
Company response to #7

The Company employs chemical methodologies and instrumentation used by
geoscientists in well-equipped laboratories in Canada, the United States and
many other countries. The detection of nanoparticulate materials was conducted
by competent scientists at Natural Resources Canada, CANMET, Materials
Technology Laboratory in Ottawa and the University of Calgary.

Audit Conclusion #8

BMD has insisted that any references within the text of this report, that refer
to, or may possibly compromise, a U.S. patent application be deleted. AMCL has
suggested to Birch that this represents an area of concern for the Exchange; as
to whether BMD actually has any specific item or technology which may in fact be
patentable. AMCL has raised this issue with Officers of the Company but at the
date of this report has not received any answer or suggestion as to how to
resolve this issue.

Company response to #8

The audit began with a meeting on October 6, 2000, attended by AMCL, Company
staff and Company legal counsel. The senior staff member of AMCL stated at the
meeting that AMCL would not examine the Company's U.S. patent application. AMCL
agreed that any confidential or proprietary data provided to them would not be
included in a final report that might be publicly released. On this undertaking,
and in consideration of AMCL having signed a Confidentiality Agreement,
technical information related to the patent application was provided to AMCL
during the course of the audit.

The CDNX was provided with a letter from the Company's U.S. patent attorney
confirming that they had prepared and filed a patent application and that the
claims in the application are entirely proper subject matter for patenting. The
CDNX has advised the Company, subsequent to the completion of the audit, that it
does not require further information on the patent application or its relevance
to the Company's on-going business focus.

Audit Conclusion #9

AMCL has obtained and had analysed, commercially available gold colloid sols in
the 5 nm particle size range using conventional (mining) assay methodologies.

Company response to #9

AMCL was advised prior to undertaking this test that it was, in the Company's
opinion, not a meaningful exercise in that artificially manufactured
nanoparticulate gold colloid sols can be expected to behave differently from
naturally occurring nanoparticles. The tests performed by AMCL were done in a
highly controlled fashion and showed that up to 30% of the man-made gold
nanoparticles were not recovered by standard analyses, supporting the Company's
contention that precious metals as nanoparticles may explain problems in
determining precious metal concentration in rock from Athabasca by conventional
methods.

On March 5, 2001 the CDNX suspended the trading of the Company's shares and
issued the following bulletin: "The shares of the Company will be suspended at
the close of trading March 5, 2001 pursuant to Rule C.1.07. The Exchange is
reviewing issues that arise from the findings of the technical audit conducted
by Associated Mining Consultants Ltd. and from its own review of the Company
affairs."


                                       -8-

<PAGE>   17
On March 8, 2001, Birch Mountain filed an appeal with the Alberta Securities
Commission pursuant to section 53.6 of the Securities Act (Alberta) requesting a
review of the decision of the CDNX to suspend trading. The Company issued a news
release on March 14, 2001 that advised shareholders of this action and outlined
the basis for the appeal.
The Company has been unable to resolve its disagreements with the CDNX with
respect to the content and conclusions of the audit report, and may make
application to voluntarily de-list from the CDNX in the near term. The Company
is in the process of exploring alternative secondary trading opportunities for
the Company's securities. There is no assurance that the Company will be
successful in obtaining an alternative listing for its securities or that if
such alternative listing is obtained than an active trading market for the
securities will develop.

CONTRACTUAL AND FINANCING RISKS

The Company holds large land blocks under Special Exploration Permits, issued by
the Government of Manitoba, and Mineral Permits and Mineral Leases issued by the
Government of Alberta. The terms and conditions of Special Exploration Permits
and Mineral Permits require a prescribed level of exploration expenditures for
each two year period in order to continue to hold the rights to explore the
land. Mineral Leases require an annual rental payment in order to hold the
leases in good standing. The Company currently has the financial resources to
hold its exploration land held under Mineral Permits in good standing for two
years from the date of the previous assessment filing, that occurred on February
11, 2000. Land held under Mineral Permits in Alberta will require exploration
assessment filings with the Alberta Government in the year 2002 valued at $10.56
million if the Company elects to continue to hold all of the land. An
Exploration Assessment Report is filed with the government that documents the
work, results and money spent on exploration conducted by the Company. During a
two-year period on lands held under Mineral Permits. Assessment costs are an
escalating work requirement ranging from $5.00 to $15.00 per hectare
(approximately $2.00 to $6.00 per acre) in two year increments over the ten year
term of the Mineral Permits. Based on the amount of land held by Birch under
Mineral Permit, it will require $10.56 million in exploration expenditures in
2002 to hold all of the land until 2004. The Company continues its exploration
and anticipates that the extent of its mineral properties will be reduced to
areas Birch believes to be the most prospective. Annual rental payments on
Mineral Leases in the Athabasca valley will cost an estimated $175,000 in the
year 2001 and in each year thereafter, unless the Company elects to convert
additional lands to Mineral Lease or drop existing Mineral Leases. The ability
to hold Mineral Leases in good standing is not related to the requirement to
make exploration expenditures. Exploration expenditures or payment in cash to
the government of $82,000 in the year 2001 and $176,000 in the year 2002 are
required to hold the Special Exploration Permits in Manitoba. There is no
assurance that the Company will be able to raise additional funds or have
sufficient exploration expenditures to be able to hold all the land in good
standing beyond the current term.

TECHNOLOGY DEVELOPMENT RISK

The Company has developed new technology that some, but not all of the elements,
have been independently verified, for which it has filed a U.S. patent
application in mid-2000, to protect its intellectual property. The Company will
continue to file additional applications as the technology is further developed,
but there is no assurance that Birch will receive patent protection for its new
technology or that patents granted to the Company will not be successfully
challenged. The audit report prepared by a CDNX appointed technical auditor does
not fully support the Company's findings. See "Legal, Regulatory and Stock
Exchange Listing Risks". The Company will continue to work on new mineral
extraction technology, for rocks from its mineral properties, but there is no
assurance that it will be economically viable or that there will be a market for
the new technology. If the new technology does not prove to be commercially
viable, the Company will explore for conventional mineral deposits.


                                       -9-
<PAGE>   18
INTELLECTUAL PROPERTY PROTECTION

The Company relies on a combination of patent, confidentiality procedures and
contractual provisions to protect its proprietary rights in its technology. The
Company generally enters into confidentiality agreements with its employees,
consultants and advisors and limits access to, and distribution of, its
proprietary information. Despite the Company's efforts to safeguard and maintain
its proprietary rights both in the U.S. and abroad, there can be no assurance
that the Company will be successful in doing so or that the steps taken by the
Company in this regard will be adequate to deter misappropriation or independent
third-party development of the Company's technology or to prevent an
unauthorized third party from copying or otherwise obtaining and using the
Company's technology. In addition, policing unauthorized use of the Company's
technology is difficult and expensive.

There can be no assurance that third parties will not assert infringement or
misappropriation claims against the Company in the future with respect to
current or future products. Any claims or litigation, with our without merit,
could be time consuming, result in costly litigation and diversion of
management's attention. Adverse determinations in such claims or litigation also
could have a material adverse effect on the Company's business, operating
results and financial condition.

Litigation to defend and enforce the Company's intellectual property rights
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition, regardless of the final outcome of such litigation.

EXPLORATION RISK

Mineral exploration involves a high degree of risk which even a combination of
experience, knowledge and careful evaluation may not be able to overcome. There
is no assurance that Birch's mineral properties will prove to be economically
viable. Even if Birch discovers economically viable mineral deposits, there is
no assurance that profitable marketing and sales arrangements can be implemented
or that Birch will be operated as a profitable business. Birch competes with
larger companies that have greater assets and financial and human resources than
Birch, and which may be able to sustain larger losses than Birch to develop
business. Any investment in Birch at this time is highly speculative.

Mineral exploration activities are subject to numerous risks, many of which are
beyond Birch's control. These factors include the cost of labour, materials and
services, cost of financing, technological change, demand for and price of
commodities, and government regulation, including regulations related to taxes,
royalties and environmental protection, the exact effects of which cannot be
accurately predicted. There is a risk that no commercial deposits of precious or
non-precious metals will be discovered.

There is no conclusive evidence supportive of the occurrence of precious metals
in potentially economic concentrations or quantities on Birch's mineral
properties. There is no assurance that the Company has a commercially viable
mineral deposit on its mineral properties. Much more drilling and testing will
be required together with technical evaluations of the data before the company
can conclude that there is an economically feasible mineral reserve suitable for
development. The Company faces certain risks over and above those of
conventional mineral exploration companies. Conventional fire assay has not, in
general, produced repeatable precious metals concentrations above trace levels
for rocks from the Company's mineral properties. There is a risk that an
effective fire assay method may not be developed. The failure to obtain
repeatable precious metal concentrations by standard methods may mean that there
are no significant concentrations of precious metals. If Birch is not successful
in identifying a method to quantitatively determine precious metals
concentrations, it may or may not be possible to define a precious metal
deposit, if such a deposit exists. If a precious metal deposit can be defined, a
method for commercial production of precious metals may or may not be available.

                                      -10-

<PAGE>   19
ENVIRONMENTAL

The mining industry is subject to environmental regulation pursuant to extensive
legislation enacted by federal and provincial governments in Canada. Birch is
able to conduct its exploration within the provisions of the applicable
environmental legislation without undo constraint on its ability to carry on
efficient operations. Public expectation of the mining industry's environmental
performance remains high and this continues to translate into new and generally
more rigorous environmental policies, legislation and regulations. The approval
of new mines in Canada has, for the past two decades, been the subject of
detailed review through a clearly established public hearing process. Vigorous
interventions by well-organized environmental groups in the public hearing
process have demonstrated their interest in resource development projects,
particularly if the development includes a mine. The Canadian Federal Government
has nearly completed a review, with a large number stakeholder groups, of the
Canadian Environmental Assessment Act, with the objective of reforming this
statute. The Company expects that more stringent regulations may be the outcome
of this process. Birch has established environmental policies and procedures
that it believes should allow it to operate effectively under increasingly
stringent environmental laws, but there is no assurance that the Company will be
granted all of the necessary permits in the future.

GOING CONCERN QUALIFICATION TO FINANCIAL STATEMENTS

The Company's auditors have raised the issue that we may not be able to continue
as a going concern as a result of a lack of profits. We have used substantial
amounts of working capital in our operations and have sustained significant
operating losses. During the nine-month period ended September 30, 2000, the
Company raised approximately $2,697,546 from private placements and an
additional $1,666,880 pursuant to the exercise of warrants and options. While
this capital may allow the Company to operate in the short term, the Company may
not be able to continue as a going concern thereafter if it does not generate
profits or secure additional financing.

MANAGEMENT

At September 30, 2000, Birch had nine employees working full time for the
Company, including Douglas J. Rowe, President and Chief Executive Officer,
Donald L. Dabbs, Vice President and Chief Financial Officer, and Hugh J.
Abercrombie, Vice President, Exploration.

Birch also relies on the services of a number of consultants for technical and
operational guidance. Birch believes that its relations with its employees,
management and consultants are satisfactory. There can be no assurance that such
individuals will remain with Birch for the immediate or foreseeable future. From
time to time, Birch also utilizes the services of independent consultants and
contractors to perform various specific professional services, particularly in
the areas of drilling, analytical services, research and environmental
assessment.

Birch is relying upon the good faith, expertise and judgment of the officers and
directors of the Company to make appropriate decisions with respect to
investments and operations. Birch will be dependent on maintaining its key staff
to advance its technology and explore for and delineate mineral deposits on the
Company's mineral properties. Birch may rely on joint ventures or other business
relations with companies to advance the development of its technology and
mineral properties.

SHAREHOLDERS RIGHTS PLAN

Although the Company's shareholders rights plan ("Rights Plan") is not intended
to prevent a take over of the Company, to secure continuance of current
management or the directors in office or to deter fair offers for the Common
Shares of the Company, it may have the result of discouraging certain
transactions by making such transactions impractical.

GOLD AND PRECIOUS METAL PRICING RISKS

If the Company were able to identify an economic mineral deposit on its Mineral
Permits or Mineral Leases, the price of precious and non-precious metals may
have a significant influence on the market price of the Company's shares and the
Company's business activities. The price of gold is affected by numerous factors
beyond the Company's control, such as the level of inflation, fluctuation of the
U.S. dollar and foreign currencies, global and regional demand, sale of gold by
central banks, forward selling by producing companies and the political and
economic conditions of major gold producing countries throughout the world.

                                      -11-
<PAGE>   20
Recently the price of gold has been at or near 20 year lows. As of September 29,
2000, the closing price for gold was US$273.65 per troy ounce. The following
table sets forth the average of the daily closing price for gold for the periods
indicated as reported by the London Metal Exchange:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                                  -----------------------
                  5 YR. AVG         1999              1998              1997             1996              1995
---------------------------------------------------------------------------------------------------------------
<S>               <C>               <C>               <C>               <C>              <C>               <C>
GOLD               337.00          279.00            294.00            340.00           388.00            384.00
(US$/TROY
OUNCE)
</TABLE>

ITEM 2:           DESCRIPTION OF PROPERTIES

Birch maintains a head office in Calgary. Executive, administrative and support
staff work in the 11,000 square foot office space which also contains a
boardroom. The rental commitment is $212,238 per year and the Company offsets
approximately half of the cost by subletting to third parties.

METALLURGICAL LABORATORY

Birch's research activities are principally carried out at Birch's Calgary
laboratory. The laboratory is housed in a 1,800 square foot facility which is
leased at a cost of $16,700 per year. The laboratory is equipped for sample
preparation, fire assay, wet chemical and instrumentation analyses. Most capital
items are owned by Birch; an atomic absorption spectrometer is leased at an
annual cost of $19,200.

CORE LABORATORY

Birch maintains core analysis and storage facilities in Calgary. Core drilled by
Birch and core obtained from oil sands mining companies is shipped to Calgary
for cutting, logging and sampling. Drill core and samples are archived in a
secure storage facility. The core analysis facility is leased at an annual cost
of $13,300. Long-term storage facilities are leased at an annual cost of $9,600.

EXPLORATION PROPERTIES

Birch's Alberta mineral properties are located in areas where, over the past six
years, major mining companies and junior mineral exploration companies have
explored for both precious metals and diamonds. In the period from 1994 to 1995,
Lac Minerals Ltd. and Tintina Mines Limited explored for precious metals in
areas which are now part of Birch's Athabasca mineral property. In the period
from 1997 to 1998, in a joint venture with Tahera Corporation, Birch explored
for diamonds on its Alberta mineral properties. Much of the information
resulting from these exploration programs is available to Birch through
assessment reports filed with the Alberta Government and through information
acquired as part of mineral property acquisitions.

At one time Birch held the mineral exploration rights to about 10 million acres
in northeastern Alberta, but through time this has been reduced to some 2.5
million acres distributed across Birch's three Alberta mineral properties:
Athabasca, Birch Mountains and Caribou Mountains. In Manitoba, Birch's mineral
properties are held by Dawson Bay. The Company continues its exploration and
anticipates that the extent of its mineral properties will be reduced to areas
Birch believes to be the most prospective.

                                      -12-
<PAGE>   21
Alberta Properties

The majority of Birch's Alberta mineral properties are held under Mineral
Permits issued by the Provincial Government of Alberta. Mineral Permits may be
held for up to ten years and convey the right to explore for metallic and
industrial minerals. Assessment costs must be filed every two years against an
escalating work requirement ranging from $5.00 to $15.00 per hectare
(approximately $2.00 to $6.00 per acre) for each 2 year assessment period. Birch
owns a 100% working interest in virtually all Mineral Permits held in Alberta.
Some Mineral Permits are subject to a royalty payable to the original Mineral
Permit holder; Birch has the option to purchase most of these royalties for a
fixed price. A small minority convey a 1% royalty right to the original Mineral
Permit holder or its designees.

Birch also holds a number of Mineral Leases. Mineral Leases are granted by the
Alberta Government and convey the right to explore and produce minerals, subject
to meeting development approvals. Mineral Leases are issued for 15 year
renewable terms and are held on the basis of an annual rental fee of $3.50 per
hectare ($1.42 per acre). Currently, the Company's Mineral Lease rental payments
are $12,887.75 per year, but they are expected to increase to approximately
$175,000 in the year 2001 as more Mineral Permits are converted to Mineral
Leases.

Overlapping Mineral Rights: Ownership of metallic and industrial minerals within
the area of the Athabasca Oil Sands Mining Area as defined by the Alberta
Government, is split between oil sands lease holders and Mineral Lease and
Mineral Permit holders. The Athabasca oil sands mining area covers most of
Birch's Athabasca Mineral Permits. Within this area, the oil sands lease holders
own the rights to all minerals that occur within the geological formations mined
for oil. Oil sands lease holders do not own metallic or industrial mineral
rights in either the overlying sediments, nor in the underlying Devonian
limestone, which rights are owned by the Mineral Permit and Mineral Lease
holder.

Athabasca: At September 30, 2000 the Athabasca mineral property comprises 100
Mineral Permits and 5 Mineral Leases covering approximately 1,891,110 acres
(765,305 hectares). The dates of issue of the Mineral Permits are tabulated
below. Precious metals are the principal exploration target on the Athabasca
mineral property. Birch has also conducted diamond exploration on its Athabasca
mineral property.

ATHABASCA MINERAL PERMITS BY ISSUE DATE.
<TABLE>
<CAPTION>


       YEAR            NO. OF PERMITS       AREA (HECTARES)         AREA (ACRES)
--------------------------------------------------------------------------------
<S>                    <C>                  <C>                     <C>
       1990                  2                  4,558                 11,263

       1993                  24               217,135                536,550

       1994                  35               265,684                656,517

       1996                  18               154,368                381,450

       1998                  18               119,744                295,893

       1999                  1                    420                  1,038
</TABLE>


Birch Mountains: At September 30, 2000 the Birch Mountains mineral property
comprises 9 Mineral Permits issued in 1994, covering approximately 204,959 acres
(82,944 hectares). Diamonds are the principal exploration target and Birch has
also conducted some preliminary precious metal exploration on the Birch
Mountains Mineral Permits. Birch has identified a series of potential targets
for diamond exploration on its Birch Mountains Mineral Permits.

                                      -13-
<PAGE>   22
Caribou Mountains: The Caribou Mountains mineral property comprises 19 Mineral
Permits issued in 1994, covering approximately 432,691 acres (175,104 hectares).
Birch has conducted preliminary precious metals exploration on the Caribou
Mountains mineral property. These Mineral Permits will be allowed to lapse at
the end of November, 2000, as they are no longer considered prospective by the
Company.

Manitoba Properties

Birch's Manitoba mineral properties are held by Dawson Bay. Mineral tenure is
held through Special Exploration Permits issued by the Province of Manitoba. The
Special Exploration Permits convey the right to explore for minerals and to
convert to mineral claims. The right to produce metals is awarded by conversion
to lease from a mineral claim. The Special Exploration Permits are renewable for
negotiable periods of up to five years with an escalating work commitment
ranging from $0.50 per hectare ($0.20 per acre) in year 1 to $4.00 per hectare
($1.62 per acre) in year 5 and an additional $1.00/hectare for every year
thereafter.

Dawson Bay: Birch's Dawson Bay mineral property comprises three Special
Exploration Permits, SEP 96-1, 99-1 and 99-2, covering 228,004 acres (92,270
hectares) in west-central Manitoba. Precious metals are the principal
exploration target on Birch's Dawson Bay mineral property.

PRAIRIE GOLD EXPLORATION

The commercial viability of Birch's Prairie Gold Model is unproven. There is no
conclusive evidence supporting the existence of metals in potentially economic
concentrations or quantities on Birch's Athabasca and Dawson Bay mineral
properties. Birch's exploration is based upon the unproven assumption that
microparticulate and nanoparticulate metals can not be detected by conventional
means. Conventional fire assays have not, in general, produced repeatable
precious metals concentrations above trace levels for rocks from Athabasca and
Dawson Bay. Therefore, the economic significance of the Company's Athabasca and
Dawson Bay mineral properties has not been determined.

Considering the results of previous research and exploration, Birch believes
that it can support the conclusion that conventional fire assay, defined as
routine lead collector fire assay by a recognized fire assay laboratory, may not
necessarily accurately determine the precious metal content of rocks from
Athabasca and Dawson Bay, although this has not been conclusively demonstrated
or independently verified. Birch believes that, in consideration of the body of
relevant scientific information, the identification of unusual microparticulate
precious and non- precious metals, and the documentation of natural
nanoparticulate metals, there are sufficient grounds to justify further
investigation.

Prairie Gold Model

The Prairie Gold Model is the exploration model developed by Birch that
postulates the origin of dispersed, microparticulate gold, silver and platinum
group metals in rocks from Athabasca and Dawson Bay. The model describes the
origin of these particles as a product of basin-scale fluid flow systems.
According to this model, precious metals originally contained in basement rocks
are dissolved and transported by highly saline, oxidized brines through a
network of faults to focused discharge locations where reduction reactions,
possibly involving bacteria and hydrocarbons, cause precipitation of precious
metals and formation of precious metal deposits. Such a process is not unusual
in exploration geology, except that in Athabasca relevant data suggests that
this happened at temperatures well under 100(degrees)C and without any
connection to high temperature magmatic systems. The low temperature of mineral
deposition and the unusual character of the microparticulate precious metals
appear to be the key distinguishing characteristics of the Prairie Gold Model
when compared to other models for the formation

                                      -14-

<PAGE>   23
of sediment-hosted precious metal deposits.

Prairie Gold in Athabasca

Microparticulate precious metals have been identified in all major geological
units, including Precambrian basement rocks, on Birch's Athabasca mineral
property. Birch believes that the origin of microparticulate metals in Athabasca
may be related to systems active in the formation of the Athabasca oil sands
deposit. The Athabasca oil sands are contained within Cretaceous age sandstones
which directly overlie Devonian age metal-bearing limestone. The Athabasca oil
sands are believed to have formed through a process of focused secondary
migration of hydrocarbons and associated waters to the Athabasca region. In
mining terms, Alberta Government figures show that the Athabasca oil sands
represents a resource of approximately 3 trillion tons. Birch believes that the
formation of a deposit of this size signifies that Athabasca was subjected to
focused flow of unusually large fluid volume, an unusually long duration of
fluid throughput and, possibly, multiple flow events. Birch believes that the
same hydrological processes which led to the formation of the Athabasca oil
sands deposits focused the flow of brines carrying precious metals resulting in
the formation of microparticulate metals on Birch's Athabasca mineral property.

Geological Setting: The Athabasca area is underlain by Precambrian basement of
the Canadian Shield and younger sedimentary rocks of the Western Canada
Sedimentary Basin ("WCSB"). Precambrian rocks occur at surface in the
northeastern part of the region and are overlain by a southwesterly thickening
wedge of sedimentary rocks.

Previous Exploration: No production of metallic elements is known from the
Athabasca mineral property. In 1920, Alberta government geologists reported that
a sample of basement granite from drill hole Athabasca Oils Ltd. No. 1 drilled
in 1911-12 in the central part of the Mineral Permit area contained gold
mineralization. A careful re-examination of the circumstances of this drilling
suggests that the quartz veins which hosted the gold mineralization may not have
been in basement rocks, but instead may have cut Devonian limestone.

Since this time, exploration for gold and other precious metals has continued
and a number of holes have been drilled to test other locations and structures.
In 1962-63, four holes were drilled in the vicinity of Athabasca Oils Ltd. No.
1, but only trace amounts of gold were detected. In 1986, two holes were drilled
approximately 35 kilometres south of this location; one sample containing
detectable gold was obtained from Devonian carbonate rocks. Drill hole Ells Gold
No. 1 was drilled in 1988 across the Athabasca River from the site of the
original Athabasca Oils No. 1.

In the 1992-94 period, there was a significant increase in exploration for
precious metals in Athabasca. In part this was due to publication of analytical
results from surface and core samples that showed exceptionally high levels of
gold, silver, platinum and rhodium by non-standard fire assay and other
analytical techniques. Analytical results produced at this time were plagued by
lack of repeatability and many of the methods used were not suited to the
carbonate-rich rocks analyzed without extensive background corrections and
advanced standardization techniques. Furthermore, the elevated gold and platinum
group metal results reported could not be reproduced by other conventional
analytical techniques.

In early 1994, the Geological Survey of Canada identified a novel form of
microparticulate, precious and non- precious metals in sedimentary and basement
rocks from the Athabasca region. These results have since been corroborated in
other laboratories in Canada, the U.S. and South Africa and have formed the
basis of the Prairie Gold Model advanced by Birch and others. Since 1994, Birch
has conducted the majority of Prairie Gold exploration in Athabasca.


                                      -15-
<PAGE>   24
Birch's Exploration: Over the past five years, Birch's knowledge and
understanding of the geology of its Athabasca mineral property has undergone a
significant evolution. Birch's initial approach to exploring Athabasca was
conventional in terms of exploration and metallurgical testing. In 1995 and
1996, Birch conducted a series of regional mapping studies including
bio-geochemical mapping, structural mapping, airphoto lineament analysis and
gamma ray spectrometry surveying to define exploration targets. In 1996, Birch
drilled 12 holes in locations selected based on structure and lineament
analysis. Nine of these holes were drilled by Birch alone; three were
cost-shared with Syncrude Canada Ltd., owners of the mineral rights within the
oil-bearing McMurray Formation in the area drilled.

No elevated precious metal values were returned by conventional fire assay of
core samples from the 1996 drilling. However, scanning electron microscope
analysis of this drill core detected the characteristic microparticulate gold
and silver, and detailed analysis of the geochemical data revealed that some of
the 1996 drill cores contained subtle geochemical evidence of alteration.
Alteration is a geochemical process whereby reactions between the rock and
fluids introduced into the rock change, or alter, the original composition of
the rock; ore bodies typically are found within a volume of altered rock.
Mineral exploration geologists explore for signs of alteration because they
normally are more widely distributed than the ore body and thus easier to map.

Extensive conventional metallurgical testing was carried out by Birch in 1995
and 1996, without success. Metallurgical testing was abandoned in early 1997
when it was decided that Birch's exploration efforts would be directed towards
the goal of refining the then current understanding of mineralization and
alteration so that it could be used to differentiate altered, potentially
mineralized bodies from surrounding unaltered rock.

Work conducted in 1997 and 1998 focused primarily on defining geochemical and
physical signs of alteration through examination of drill core. A field
exploration program was conducted in 1997 and included a high resolution
airborne magnetic survey and regional rock and soil sampling. The results from
the airborne magnetic survey were particularly beneficial, showing the location
of major faults, their relative ages and their spatial relations to structures
and alteration detected in core and outcrop. The most important work conducted
in 1997 was the examination of some 150 drill cores and 275 electric logs
obtained from oil sands operator Syncrude Canada Ltd. in the area of their
Aurora Oil Sands Mine where Birch holds overlapping mineral rights. Detailed
examination of these drill cores allowed Birch to map alteration in this area.

Another important outcome of Birch's agreements with oil sands mining companies
was the release to Birch by Syncrude Canada Ltd. of information pertaining to
fire assays of limestone from the Aurora Oil Sands Mine area. On April 3, 1997,
Birch announced significant gold and platinum grades in altered shaly limestone
on its Athabasca mineral property. Three different fire assays of an interval in
Syncrude Canada Ltd. drill hole 11-7-AE- 96-10W4 detected platinum and gold. The
original results were independently obtained by consultants working for Syncrude
Canada Ltd. and were confirmed by reanalysis. However, when additional holes
were drilled at the same location during winter 1998/99, including a twin of the
original drill hole, fire assays of the corresponding interval in the twinned
hole detected no anomalous concentrations of precious metals. No other sample
from Athabasca has consistently returned fire essay values greater than 0.5 g/t
(0.015 oz/ton) total precious metals.

Since 1998, Birch's exploration results have further refined the Prairie Gold
Model, but more importantly they have led Birch to a new interpretation and
understanding of the nature and potential significance of the model. Based on
alteration patterns observed through core analysis, in 1998 Birch collected a
series of bulk samples from trenches excavated into rocks showing evidence of
such alteration. Examination of these samples and of samples from the
platinum-bearing interval in 11-7-AE-96-10W4 described above, led to the
identification of what Birch believes to be the first reported occurrence of
natural nanoparticulate metal. This led directly to the development of
proprietary methods for detecting and extracting this form of metal from these
rocks, as detailed in the section on general development during the past five
years.

                                      -16-
<PAGE>   25
Prairie Gold in Dawson Bay

In 1996, the Manitoba Department of Energy and Mines and the Geological Survey
of Canada published the results of joint studies reporting the occurrence of
microparticulate metals in the Dawson Bay area of west-central Manitoba.
Following this announcement, Birch acquired the mineral exploration rights to a
large area centered on a limestone quarry at Mafeking, Manitoba. Birch has
released most of this ground, but retains mineral exploration rights to areas
judged to be most highly prospective for precious metals.

Geological Setting: The geological setting of Birch's Dawson Bay mineral
property is similar in many respects to Birch's Athabasca mineral property.
Crystalline rocks of the Precambrian Shield underlie the Dawson Bay mineral
property and are overlain by clastic, carbonate and evaporite rocks of the WCSB.
Unlike Athabasca, Devonian rocks do not sit directly on basement, but are
underlain by older sedimentary rocks of the WCSB.

Previous Exploration: There are no records of prior precious metal exploration
on the Dawson Bay mineral property. The primary metallic mineral commodities
sought in prior mineral exploration were base metals and uranium. Exploration
for zinc-lead-silver deposits was conducted in the early to mid 1980's. Five
holes were drilled in 1985. None of the drill holes reported significant zinc or
lead mineralization.

Exploration for uranium was conducted in the region in the 1960's and 70's. No
significant concentrations of uranium were reported.

Birch's Exploration: Studies by Birch, the Geological Survey of Canada and
others on rocks from the Dawson Bay region have documented microparticulate
gold, silver and platinum group metals similar to those observed in Athabasca
and thought to be characteristic of Prairie Gold mineralization. Since 1996,
Birch primarily has conducted surface exploration including geological and
geochemical surveys, and airphoto lineament analysis. Additional work has
included examination of archived drill core and subsurface structural mapping.
In summer, 1999, two holes were drilled on a cost-shared basis with the Manitoba
Department of Energy and Mines. The cores show evidence of structural
disturbances and contain alteration patterns similar to those observed on
Birch's Athabasca mineral property; no anomalous precious metals were detected
by conventional analysis of these cores.

In Spring 2000, a high resolution airborne magnetometer survey was flown over
the Dawson Bay mineral property. Preliminary results suggest the presence of at
least four major basement faults in the Special Exploration Permit area.

ITEM 3:           LEGAL PROCEEDINGS

The Company knows of no active or pending legal proceedings against the Company.

ITEM 4:           CONTROL OF THE REGISTRANT/COMPANY

To the best of the knowledge of the directors and senior officers of the
Company, no person beneficially owns, directly or indirectly, or exercises
control or direction over equity or voting securities carrying more than 10% of
the voting rights attached to any class of equity or voting securities of the
Company.

                                      -17-

<PAGE>   26
Officers and directors of the Company directly and indirectly own or control
Common Shares of the Company, representing the Company's issued and outstanding
Common Shares as follows:

<TABLE>
<CAPTION>

IDENTITY OF PERSON OR                                      TYPE OF                                   PERCENT OF COMMON
GROUP                        DESCRIPTION OF CLASS         OWNERSHIP          NUMBER OF SHARES             SHARES
-----------------------------------------------------------------------------------------------------------------------
<S>                          <C>                          <C>                <C>                    <C>
Officers and Directors              Common                  Direct             3,116,642                    8.4%
</TABLE>

The Company is not owned or controlled by another corporation.

ITEM 5:           NATURE OF THE TRADING MARKET

The Company's Common Shares trade on the CDNX, having the trading symbol BMD.
The Common Shares were quoted on The Alberta Stock Exchange commencing January
31, 1995. On November 29, 1999 the Alberta and Vancouver Stock Exchanges merged
to form a new and larger exchange known as the CDNX. The Company was listed on
the new exchange as a Tier 1 Company and retained the symbol BMD. As of the date
of this Registration Statement, the CDNX has suspended trading in the Company's
Common Shares. See "Legal, Regulatory and Stock Exchange Listing Risks". The
Company trades no other class of shares other than Common Shares without par
value. The Company is investigating additional or alternate secondary trading
market opportunities for its Common Shares.

The following table sets forth the high and low closing bid prices on the CDNX
(and predecessor The Alberta Stock Exchange) and the volume of Common Shares
traded for each Fiscal quarter for the period indicated. All financial figures
are expressed in Canadian dollars.

<TABLE>
<CAPTION>
    FISCAL PERIOD         HIGH (CAD$)         LOW (CAD$)            VOLUME
--------------------- ------------------- ------------------- ------------------
<S>                       <C>                 <C>                   <C>
2000
Third Quarter                $1.70               $1.00                   195,675
Second Quarter               $2.54               $1.25                 1,273,956
First Quarter                $3.05               $1.95                 3,237,879

1999
Fourth Quarter               $2.10               $1.15                 3,166,411
Third Quarter                $1.50               $0.89                 1,248,875
Second Quarter               $1.72               $0.73                 2,210,062
First Quarter                $1.79               $0.29                 3,623,774

1998
Fourth Quarter               $0.47               $0.21                 1,864,876
Third Quarter                $0.58               $0.12                 3,359,504
Second Quarter               $0.70               $0.16                 1,430,920
First Quarter                $1.00               $0.47                   781,337

1997
Fourth Quarter               $1.35               $0.31                   377,633
Third Quarter                $1.50               $0.80                   168,100
Second Quarter               $2.00               $1.25                   368,100
First Quarter                $2.70               $1.45                   744,480
</TABLE>

Trading of the Company's Common Shares on the CDNX was halted on June 16, 2000
and reinstated on

                                      -18-
<PAGE>   27
September 29, 2000.

To the best of the Company's knowledge, as of October 31, 2000, 7,853,200 Common
Shares (23.6% of the issued and outstanding Common Shares of the Company) were
held by 49 registered holders in the U.S.. The Common Shares currently are not
listed for trading on any securities exchange in the U.S.. The Common Shares are
not registered to trade in the U.S. in the form of American Depository Receipts
or similar certificates.

ITEM 6:           EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
                  HOLDERS

CANADIAN EXCHANGE CONTROLS

There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments to non-residents. Dividends paid to U.S.
residents, however, are subject to a 15% withholding tax or a 5% withholding tax
for dividends paid in 1997 and thereafter, if the shareholder is a corporation
owning at least 10% of the outstanding voting shares of the corporation pursuant
to Article X of the reciprocal tax treaty between Canada and the U.S.. (See
"Item 7 -- Taxation").

Except as provided in the Investment Canada Act (the "Act"), which has
provisions that restrict the holding of voting shares by non-Canadians, there
are no limitations specific to the rights of non-Canadians to hold or vote the
Common Shares under the laws of Canada or the Province of Alberta, or in the
charter documents of Birch or its subsidiaries.

Management of the Corporation believes that the following summary fairly
describes those provisions of the Act pertinent to an investment in the
Corporation by a person who is not a Canadian resident (a "non-Canadian").

The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold identified, to either notify, or file an
application for review with Investment Canada, the federal agency created by the
Act. The notification procedure involves a brief statement of information about
the investment on a prescribed form which is required to be filed with
Investment Canada by the investor at any time up to 30 days following
implementation of the investment. It is intended that investments requiring only
notification will proceed without government intervention unless the investment
is in a specific type of business activity related to Canada's cultural heritage
and national identity.

If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.

The following investments by non-Canadians are subject to notification under the
Act:

1.       An investment to establish a new Canadian business; and

2.       An investment to acquire control of a Canadian business that is not
         reviewable pursuant to the Act.

                                      -19-
<PAGE>   28
The following investments by a non-Canadian are subject to review under the Act:


1.       Direct acquisitions of control of Canadian businesses with assets of $5
         million or more, unless the acquisition is being made by a World Trade
         Organization ("WTO") member country investor (the U.S. being a member
         of the WTO);

2.       Direct acquisitions of control of Canadian businesses with assets of
         $160 million or more by a WTO investor;

3.       Indirect acquisitions of control of Canadian businesses with assets of
         $5 million or more if such assets represent more than 50% of the total
         value of the assets of the entities the control of which is being
         acquired, unless the acquisition is being made by a WTO investor, in
         which case there is no review;

4.       Indirect acquisitions of control of Canadian businesses with assets of
         $50 million or more even if such assets represent less than 50% of the
         total value of the assets of the entities the control of which is being
         acquired, unless the acquisition is being made by a WTO investor, in
         which case there is no review; and

5.       An investment subject to notification that would not otherwise be
         reviewable if the Canadian business engages in the activity of
         publication, distribution or sale of books, magazines, periodicals,
         newspapers, film or video recordings, audio or video music recordings,
         or music in print or machine-readable form.

Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its direct or indirect Canadian parent
and an acquisition is indirect if it involves the acquisition of control of a
non-Canadian direct or indirect parent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of substantially all
of the assets of the Canadian business. No change of voting control will be
deemed to have occurred if less than one-third of the voting control of a
Canadian corporation is acquired by an investor.

A WTO investor, as defined in the Act, includes an individual who is a national
or a member country of the WTO or who has the right of permanent residence in
relation to that WTO member, a government or government agency of a WTO
investor-controlled corporation, limited partnership, trust or joint venture
that is neither WTO-investor controlled or Canadian controlled of which
two-thirds of its board of directors, general partners or trustees, as the case
may be, are any combination of Canadians and WTO investors. The higher
thresholds for WTO investors do not apply if the Canadian business engages in
activities in certain sectors such as uranium, financial services (except
insurance), transportation services or media activities.

The Act specifically exempts certain transactions from either notification or
review. Included among this category of transactions is the acquisition of
voting shares or other voting interests by any person in the ordinary course of
that person's business as a trader or dealer in securities.

ITEM 7:           TAXATION

The following summary of the material Canadian federal income tax considerations
generally applicable in respect of the Common Shares reflects the Company's
opinion. The tax consequences to any particular holder of Common Shares will
vary according to: the status of that holder as an individual, trust,
corporation or member of a partnership, the jurisdiction in which that holder is
subject to taxation, the place where that holder is resident and, generally,
according to that holder's particular circumstances.

This following general discussion in respect of taxation is based upon the
Company's understanding of the rules.

                                      -20-
<PAGE>   29
No opinion was requested by the Company or provided by its auditors or lawyers.

This summary is applicable only to holders who are resident in the U.S., have
never been resident in Canada, deal at arm's length with the Company, hold their
Common Shares as capital property, do not carry on an insurance business in
Canada, and will not use or hold the Common Shares in carrying on business in
Canada. Special rules, which are not discussed in this summary, may apply to a
U.S. holder that is a corporation that carries on business in Canada and
elsewhere.

This summary is based upon the provisions of the Income Tax Act of Canada and
the regulations thereunder (collectively, the "Tax Act", or "ITA") and the
Canada-United States Tax Convention (the "Tax Convention") as at the date of the
Registration Statement, and upon the current administrative practices of the
Canada Customs and Revenue Agency (formerly Revenue Canada).

Each holder should consult his own tax advisor with respect to the income tax
consequences applicable to him in his own particular circumstances.

Disposition of Common Shares

Under the Tax Act, a gain from the sale of Common Shares by a non-resident will
not be subject to Canadian tax, provided the shareholder (together with persons
who do not deal at arm's length with the shareholder) have not owned 25% or more
of the shares of any class of the Company's stock at any time in the five years
preceding the disposition. In addition, the Tax Convention will exempt from
Canadian taxation any capital gain realized on a disposition of Common Shares by
a resident of the U.S., provided that the value of the Common Shares is not
derived principally from real property situated in Canada.

However, special rules apply if a non-resident were to dispose of Common Shares
of the Company to another Canadian corporation which deals or is deemed to deal
on a non-arm's length basis with the non-resident and, immediately after the
disposition, the Company is connected with the purchaser corporation (i.e., the
purchaser corporation holds shares representing more than 10% of the voting
power and more than 10% of the market value of all issued and outstanding shares
of the Company). In this case, the amount by which the fair market value of any
consideration paid by the purchaser corporation (other than any shares of the
purchaser corporation) exceeds the paid-up capital of the Common Shares sold
will be deemed to be taxable as a dividend paid by the purchasing corporation,
and subject to withholding taxes as described below.

Dividends

In the case of any dividends paid or deemed to be paid to non-residents, the
non-resident is subject to tax on the gross amount of such dividends. The
Canadian tax is withheld by the Company, which remits only the net amount to the
shareholder. By virtue of Article X of the Tax Convention, the rate of tax on
dividends paid to residents of the U.S. is generally limited to 15% of the gross
dividend (or 5% in the case of certain corporate shareholders owning at least
10% of the Company's voting shares). In the absence of the treaty provisions,
the rate of Canadian withholding tax imposed on non-residents is 25% of the
gross dividend. Stock dividends received by non-residents from the Company are
taxable by Canada as ordinary dividends.

Where a holder disposes of Common Shares to the Company (unless the Company
acquired the Common Shares in the open market in the manner in which shares
would normally be purchased by any member of the public), this will result in a
deemed dividend to the holder equal to the amount by which the consideration
paid by the Company exceeds the paid-up capital of such shares. The amount of
such deemed dividend will be subject to withholding tax as described above.

                                      -21-
<PAGE>   30
Capital Gains

A non-resident of Canada is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a share of a class that is listed
on a prescribed stock exchange unless the share represents "taxable Canadian
property" to the holder thereof. A Common Share of the Company will be taxable
Canadian property to a non-resident holder if, at any time during the period of
five years immediately preceding the disposition, the non-resident holder,
persons with whom the non-resident holder did not deal at arm's length, or the
non-resident holder and persons with whom he/she did not deal at arms' length,
owned 25% of more of the issued shares of any class or series of the Company.

In the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the U.S., no Canadian tax will
be payable on a capital gain realized on such shares by reason of the
Canada-United States Income Tax Convention (1980) (the "Treaty") unless the
value of such shares is derived principally from real property situated in
Canada or the non-resident holder previously held the shares while resident in
Canada.

Even where the value of the shares would be derived from real property holdings
in Canada certain transitional relief might be available under the Treaty. At
this time, this Registrant's asset value is not based on real property holdings
located in Canada.

United States Federal Income Tax Consequences

The following is a discussion of possible U.S. Federal income tax consequences,
under the law, generally applicable to a U.S. Holder (as defined below) of
Common Shares of the Company. This discussion does not address consequences
peculiar to persons subject to special provisions of Federal income tax law,
such as those described below as excluded from the definition of a U.S. Holder.
In addition, this discussion does not cover any state, local or foreign tax
consequences.

The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, the discussion does not consider the potential effects, both
adverse and beneficial, of recently proposed legislation which, if enacted,
could be applied, possibly on a retroactive basis, at any time.

Holders and prospective holders of Common Shares of the Company should consult
their own tax advisors about the federal, state, local, and foreign tax
consequences of purchasing, owning and disposing of Common Shares of the
Company.

U.S. Holders

As used herein, a U.S. Holder includes a holder of Common Shares of the Company
who is a citizen or resident of the U.S., a corporation created or organized in
or under the laws of the U.S. or of any political subdivision thereof and any
other person or entity whose ownership of Common Shares of the Company is
effectively connected with the conduct of a trade or business in the U.S..

                                      -22-
<PAGE>   31
A U.S. Holder does not include persons subject to special provisions of Federal
income tax law, such as tax- exempt organizations, qualified retirement plans,
financial institutions, insurance companies, broker-dealers, non- resident alien
individuals or foreign corporation whose ownership of Common Shares of the
Company is not effectively connected with the conduct of a trade or business in
the U.S. and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.

Distributions on Common Shares of the Company

U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to Common Shares of the Company are required to include in gross
income (for U.S. Federal income tax purposes) the gross amount of such
distributions, to the extent that the Company has current or accumulated
earnings and profits. This inclusion is done without reduction for any Canadian
income tax withheld from such distributions.

Any Canadian tax withheld may be credited (subject to certain limitations)
against the U.S. Holder's U.S. Federal taxable income. (See more detailed
discussion at "Foreign Tax Credits" below). To the extent that distributions
exceed current or accumulated earnings and profits of the Company, they will be
treated first as a return of capital up to the U.S. Holder's adjusted basis in
the Common Shares and thereafter as a gain from the sale or exchange of the
Common Shares. Preferential tax rates for long-term capital gains are applicable
to an U. S. Holder, which is an individual, estate or trust. There are currently
no preferential tax rates for long-term capital gains for an U.S. Holder, which
is a corporation.

Dividends paid on the Common Shares of the Company will not generally be
eligible for the dividends-received deduction provided to corporations receiving
dividends from certain U.S. corporations. A U.S. Holder, that is a corporation
may, under certain circumstances, be entitled to a 70% deduction of the U.S.
source-portion of dividends received from the Company (unless the Company
qualifies as a "foreign personal holding company" or a "passive foreign
investment company", as defined below). That occurs if such U.S. Holder owns
shares representing at least 10% of the voting power and value of the Company.
The availability of this deduction is subject to several complex limitations
beyond the scope of this discussion.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of Common Shares of the Company may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces U.S. Federal income taxes on a dollar-for-dollar
basis, while a deduction merely reduces the taxpayer's income subject to tax.

This election is made on a year-by-year basis, and applies to all foreign income
taxes (or taxes in lieu of income tax) paid by (or withheld from) the U.S.
Holder during the year. There are significant and complex limitations which
apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's U.S. income tax
liability that the U.S. Holder's foreign source income bears to his/her or its
worldwide taxable income.

In the determination of the application of this limitation, the various items of
income and deduction must be classified into foreign and domestic sources.
Complex rules govern this classification process. There are further limitations
on the foreign tax credit for certain types of income such as "passive income",
"high withholding tax interest", "financial services income", "shipping income",
and certain other classifications of income. The availability of the foreign tax
credit and the application of the limitations on the credit are fact-specific
and

                                      -23-
<PAGE>   32
holders and prospective holders of Common Shares of the Company should consult
their own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Company

A U.S. Holder will recognize gain or loss upon the sale of Common Shares of the
Company equal to the difference, if any, between -

-        the amount of cash plus the fair market value of any property received,
         and


-        the shareholders tax basis in the Common Shares of the Company.

This gain or loss will be capital gain or loss if the Common Shares are a
capital asset in the hands of the U.S. Holder, which will be a short-term or
long-term capital gain or loss depending upon the holding period of the U.S.
Holder. Gains and losses are netted and combined according to special rules in
arriving at the overall capital gain or loss for a particular tax year.
Deductions for net capital losses are subject to significant limitations.

For U.S. Holders, as individuals, any unused portion of such net capital loss
may be carried over to be used in later tax years until such net capital loss is
thereby exhausted. For U.S. Holders, as corporations (other than corporations
subject to subchapter S of the Code), an unused net capital loss may be carried
back three years from the loss year and carried forward five years from the loss
year to be offset against capital gains until such net capital loss is thereby
exhausted.

ITEM 8:           SELECTED FINANCIAL DATA

The selected consolidated financial data for the periods ended December 31,
1995, 1996, 1997, 1998 and 1999 are derived from the audited financial
statements of the Company which have been audited by Barr Shelley Stuart,
independent Chartered Accountants, as indicated by their reports which are
included elsewhere in this Registration Statement. On June 1, 2000 Barr Shelley
Stuart merged with and continued under the name of Meyers Norris Penny. The
Company's audited consolidated financial statements are prepared in accordance
with Canadian Generally Accepted Accounting Principles. In addition to the
material contained herein, see Note 17 to the Audited Financial Statements for
1999 for a discussion of the significant differences between Canadian and U.S.
generally accepted accounting principles as they apply to the Company for the
periods presented therein.

The consolidated financial information has been updated for the 9 month period
ended September 30, 2000, and the comparative period ended September 30, 1999,
which have not been audited.

The following table sets forth certain financial data for Birch as at the dates
and for the years indicated. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the financial statements and related notes
included elsewhere in this Registration Statement.

                                      -24-
<PAGE>   33

<TABLE>
<CAPTION>
                                                          NINE MONTHS                           YEAR ENDING
                                                      ENDING SEPTEMBER 30,                      DECEMBER 31,

                                                        2000       1999       1999       1998       1997       1996       1995
                                                       ------     ------     ------     ------     ------     ------     ------
<S>                                                   <C>         <C>        <C>        <C>        <C>        <C>        <C>
                                                                  (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:

Amounts in accordance with Canadian GAAP:

(Loss) before income tax                               (1,435)      (514)      (802)    (3,217)    (4,539)    (1,941)      (615)
Net (Loss) for the year                                (1,435)      (514)      (576)    (2,890)    (4,539)    (1,291)      (429)
(Loss) per Common Share                                 (0.04)     (0.02)     (0.02)     (0.13)     (0.21)     (0.07)     (0.03)

Amounts in accordance with U.S. GAAP:

(Loss) before income tax                               (3,709)      (949)    (1,208)    (1,531)    (5,476)    (6,766)    (2,613)
Net (Loss) for the year                                (3,709)      (949)    (1,415)    (1,654)    (5,476)    (6,231)    (2,613)
(Loss) per Common Share                                 (0.11)     (0.04)     (0.05)     (0.08)     (0.35)     (0.77)     (0.73)



CASH FLOW DATA:

Amounts in accordance with Canadian GAAP:

Net cash provided by (used in)                           (976)      (430)      (528)      (592)      (840)    (1,085)      (488)
operating activities

Net cash provided by financing                          4,177      1,158      1,621        561        778      9,268      2,392
activities

Net cash used in investing activities                    (940)      (465)      (625)      (213)    (4,052)    (4,878)      (748)

Amounts in accordance with U.S. GAAP:

Net cash provided by (used in)                         (1,851)      (866)    (1,124)      (828)    (4,774)    (5,177)    (1,202)
operating activities

Net cash provided by financing                          4,177      1,158      1,621        561        778      9,267      2,392
activities

Net cash used in investing activities                     (66)       (29)       (29)        23       (118)      (786)       (34)
</TABLE>


<TABLE>
<CAPTION>
                                   NINE MONTHS ENDING                                       YEAR ENDING
                                      SEPTEMBER 30,                                         DECEMBER 31,
                                 2000             1999              1999           1998          1997          1996       1995
                                ------           ------            ------         ------        ------        ------     ------
<S>                             <C>              <C>               <C>            <C>           <C>           <C>        <C>
                                                     (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:

Amounts in accordance
with Canadian GAAP:

Total assets                    13,561            8,592             8,982          8,188        10,155        13,687      4,512

Current liabilities               272              295               325            536           516           286         58
Long term debt                    __               __                 __            __            __            __          __
Total Liabilities                 272              295               325            536           516           286         58
Shareholders' equity            13,289            8,296             8,657          7,652         9,639        13,401      4,454
</TABLE>


                                      -25-
<PAGE>   34
<TABLE>
<CAPTION>
                                   NINE MONTHS ENDING                                       YEAR ENDING
                                      SEPTEMBER 30,                                         DECEMBER 31,
                                 2000             1999              1999           1998          1997          1996       1995
                                ------           ------            ------         ------        ------        ------     ------
<S>                             <C>              <C>               <C>            <C>           <C>           <C>        <C>
Amounts in accordance
with U.S. GAAP:

Total assets                     3,459             960              1,153           992          1,599         6,068      1,718
Current liabilities               272              296               325            536           516           286         58
Long term debt                    --               --                --             --            --            --         --
Total Liabilities                 272              296               325            536           516           286         58
Shareholders' equity             3,187             664               828            456          1,083         5,782      1,660
</TABLE>


<TABLE>
<CAPTION>
                                 SIX MONTHS ENDING                                  YEAR ENDING
                                   SEPTEMBER 30,                                    DECEMBER 31,

U.S. GAAP                       2000            1999            1999          1998         1997         1996      1995
                          ----------------------------------------------------------------------------------------------
<S>                           <C>             <C>             <C>           <C>          <C>          <C>       <C>
                          (IN THOUSANDS OF DOLLARS, EXCEPT LOSS PER SHARE IN DOLLARS AND SHARES OUTSTANDING IN THOUSANDS)
Net Loss In Accordance         1,435            514              576          2,890        4,539       1,291      429
With Canadian GAAP

Exploration costs              2,274            435              632         (1,359)        937        4,826     1,997
Future tax provision            --              --               207           123          --          114       187
                          ==============================================================================================
Net Loss For The Year          3,709            949             1,415         1,654        5,476       6,231     2,613
Under U.S. GAAP
                          ==============================================================================================


Weighted Average Number

of Common Shares               31,951          25,788          26,681        20,853       15,693       8,089     3,598
Outstanding Under U.S.
GAAP

                          ----------------------------------------------------------------------------------------------
Loss Per Share Under U.S.       0.11            0.04            0.05          0.08         0.35         0.77      0.73
GAAP
                          ----------------------------------------------------------------------------------------------


Shareholders' Equity           13,288          8,296            8,657         7,652        9,639       13,401    4,454
Canadian GAAP
Exploration costs              10,101          7,632            7,829         7,196        8,556       7,619     2,794
                          ----------------------------------------------------------------------------------------------

Shareholders' Equity U.S.      3,187            664              828           456         1,083       5,782     1,660
GAAP
                          ----------------------------------------------------------------------------------------------

Mineral Exploration Costs

Canadian GAAP                  10,101          7,632            7,829         7,196        8,556       7,619     2,794

Exploration costs              10,101          7,632            7,829         7,196        8,556       7,619     2,794
                          ----------------------------------------------------------------------------------------------

Mineral Exploration Costs       --              --               --            --           --          --        --
U.S. GAAP
                          ----------------------------------------------------------------------------------------------
</TABLE>


                                      -26-
<PAGE>   35
STOCK BASED COMPENSATION

U.S. GAAP requires stock based compensation to employees and directors to be
recorded using the intrinsic value based method whereby compensation cost is
recorded for the excess of the quoted market price over the price granted, if
any, at the date granted. Under Canadian GAAP, no compensation cost is recorded.

INCOME TAXES

In December, 1997, the Canadian Institute of Chartered Accountants ("CICA")
issued section 3465 of the CICA Handbook, "Income Taxes", which establishes
standards for recognition, measurement, presentation and disclosure of income
and refundable taxes. This statement mandates the use of the liability method of
accounting for income taxes and is effective for fiscal years beginning on or
after January 1, 2000. The Company has opted for early adoption with restatement
of prior years reported figures. The Company's future tax assets have been
eliminated by a valuation allowance for all years reported. Income taxes paid
for those years were $nil.

STOCK OPTIONS

Birch accounts for stock options granted according to the accounting prescribed
in Accounting Principles Board Opinion No. 25 ("APB 25"). Under APB 25, because
the exercise price of Birch's stock options are equal to the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized. Under Canadian GAAP, the proceeds from the sale of the stock options
is credited to share capital and no compensation expense is recorded.

SHARES HELD IN ESCROW

Shares held in escrow which are contingent upon performance are omitted from the
earnings per share calculation for US GAAP purposes.

RECENT ACCOUNTING DEVELOPMENTS

In March 1999, the CICA issued section 3461 of the CICA Handbook, "Employee
Future Benefits", which deals with the recognition, measurement, presentation
and disclosure of benefits to employees when they have withdrawn for active
service. The statement is effective for fiscal years beginning on or after
January 1, 2000. The Company considers that the implementation of this standard
will not have a material effect on its reported results.

In June, 1998, the CICA issued section 1540 of the CICA Handbook, "Cash Flow
Statements", which deals with the exclusion of certain items in the statement of
cash flow. Non-cash items are now excluded from this statement. The financial
data presented has been restated to give effect to this pronouncement.

DIVIDENDS

Birch has not paid dividends in order to retain funds for reinvestment in
Birch's operations. Birch's dividend policy is reviewed annually by its Board of
Directors.


                                      -27-
<PAGE>   36
CAPITALIZED EXPLORATION COSTS

Under Canadian GAAP costs of acquisition of Mineral Permits and Mineral Leases
as well as the costs of exploration, analysis and testing of samples are
capitalized as mineral exploration costs. To comply with US GAAP, all costs
incurred associated with exploration, analysis and testing are expensed as they
are incurred.

ITEM 9:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

Birch raised $2,162,352 over the three-year period ending December 31, 1999
through the sale of the Company's Common Shares in a series of private
placements. Additionally, the Company raised $909,484 when shareholders
exercised warrants, plus $156,426 on the exercise of stock options by staff,
officers, directors and consultants. The Company has a commitment of
approximately $175,000 annually to maintain all its Mineral Leases in Alberta as
discussed under Item 1, B. The Company has the financial resources to make the
rental payment in 2001 that will maintain the Mineral Leases in good standing
until August of 2002. Additional financing will be required to maintain the
Mineral Leases beyond August of 2002.

The Company's Mineral Permits are in good standing until February 2002.
Additional exploration assessments valued at $10.56 million will be required if
the Company elects to continue to hold all of the Mineral Permits. Birch
anticipates that, following the evaluation of drill cores currently in the lab,
the amount of land held under Mineral Permit could be reduced. Additional
financing may be required to undertake further exploration, but the amount of
exploration work and financing required has not been determined.

During the nine month period ended September 30, 2000, Birch raised $2,697,546
through the sale of the Company's Common Shares in a private placement.
Additionally, the Company raised $1,330,976 pursuant to the exercise of common
share purchase warrants and $335,904 pursuant to the exercise of stock options.

The funds raised during the prior three-years, plus the nine months ended
September 30, 2000 are summarized in the following table.

<TABLE>
<CAPTION>
                                                                                                            EQUIVALENT $U.S.
DATE OF ISSUE           NO. OF SHARES (UNITS)   UNIT PRICE ($CAN)          TOTAL FUNDS RAISED ($CAN)         FUNDS RAISED(1)
------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                     <C>                        <C>                              <C>
COMMON SHARES

1997                                     --                  --                            --                          --

1998                              1,376,934      $0.35 to $0.70                      $553,353                    $373,005

1999                              3,391,305      $0.36 to $1.15                    $1,609,000                  $1,078,418

2000 - 9 months                   2,365,256               $1.15                    $2,697,546                  $1,833,070


WARRANTS EXERCISED

1997                              2,691,336      $0.30 to $0.75                      $883,095                    $637,798
</TABLE>


                                      -28-
<PAGE>   37
<TABLE>
<CAPTION>
                                                                                                            EQUIVALENT $U.S.
DATE OF ISSUE           NO. OF SHARES (UNITS)   UNIT PRICE ($CAN)          TOTAL FUNDS RAISED ($CAN)         FUNDS RAISED(1)
------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                     <C>                        <C>                              <C>

1998                                      0                   0                             0                           0

1999                                 26,389               $1.00                       $26,389                     $17,687

2000 - 9 months                   1,322,226      $1.00 to $1.50                    $1,330,976                    $904,441

OPTIONS EXERCISED

1997                                 62,000      $0.10 to $0.59                       $21,880                     $15,802

1998                                 47,000      $0.10 to $0.22                        $5,540                      $3,734

1999                                257,400      $0.22 to $0.70                      $129,006                     $86,465

2000 - 9 months                     625,600      $0.22 to $1.36                      $335,904                    $228,258
</TABLE>

NOTE:

(1)     U.S. dollars based on the exchange rates for the Canadian dollar as at
        the date of issue. See "Currency and Exchange Rates" above.

The Company is in the process of exploring its mineral leases and permits and
has not yet determined whether they contain economically recoverable reserves.
It has incurred a net loss of $575,697 during the year ended December 31, 1999
(1998 - $2,890,369; 1997 - $4,539,479) and as at December 31, 1999 has a deficit
of $9,997,545. The Company's ability to continue as a going concern is largely
dependent on it success in obtaining sufficient funds to carry out exploration
activities on its mineral claims, preserving its interest in the underlying
claims, establishing the existence of economically recoverable mineral reserves,
and obtaining the financing to complete the development and achieve future
profitable production or, alternatively, upon the Company's ability to dispose
of its interests on an advantageous basis. Management plans to continue to
access the equity market from time to time for financing of its operations and
to be prudent with general and administrative expenditures and selective in its
exploration expenditures in order to preserve the Company's working capital. The
Company has been successful in the past in raising funds for operating and
exploration activities but there is no assurance that it will be able to do so
in the future. Should future financing efforts not meet with success, there is
substantial doubt about the ability of the Company to continue as a going
concern as it would likely have to dispose of its assets on a less than
advantageous basis.

Management believes that mineral technology and junior exploration companies
will continue to have difficulty financing new issues in the current market. As
a result, the Company will continue to be prudent in its technology development
and exploration expenditures and general and administrative costs to preserve
its working capital. Management believes that Birch has adequate financial
resources to fund the next two years of currently planned activities.

The Company has been able to raise the required financing to continue to meet
its obligations, to retain qualified staff, conduct exploration and the research
and development necessary to support the exploration.

At December 31, 1997, Birch had working capital of $738,000 compared to
$4,964,494 at December 31, 1996. There was a significant expenditure on field
exploration and drilling on several of the Company's properties in 1997. The
general & administrative expenses in 1997 were $1,144,000, compared with
$1,102,000 in 1996.


                                      -29-
<PAGE>   38
As at December 31, 1998, Birch had net working capital of $272,432, compared to
net working capital of $738,000 as at December 31, 1997. The primary sources of
capital were issuance of Common Shares from treasury in the 1997 and 1998
financial years.

As at December 31, 1999, Birch had net working capital of $667,906, compared to
net working capital of $272,432 as at December 31, 1998. The primary sources of
capital were issuance of Common Shares from treasury in both financial years. In
1999 Birch raised a total of $1,609,000 through private placements, compared to
$553,353 raised in 1998. The Company received a refund of the Seriousness Bond,
plus interest, in the amount of $212,629 from the Federal Republic of Indonesia
in 1999.

During 1999 Birch changed its method of accounting for income taxes from the
deferral method to the liability method. This policy has been adopted
retroactively, resulting in the restatement of the December 31, 1998 financial
statements. Details are contained in Note 3 to the Audited Financial Statements
for 1999.

As at September 30, 2000, Birch had net working capital of $2,972,151. The
primary source of capital was the issuance of Common Shares.

RESULTS OF OPERATIONS

In 1999, general and administrative expenses were $835,687, other income was
$33,190 and future tax recovery was $226,800, resulting in a net loss of
$575,697 or $0.02 per share. General and administrative expenses increased over
1998 due to increased activity. Other income consisted of interest income of
$71,096 (an increase from 1998 due to larger cash reserves), gain on disposal of
investment of $2,090 (compared to a 1998 loss of $105,000 due to recovery of
share price), writedown of investments of $14,160 (compared to a 1998 writedown
of $143,220 due to less movement in share price) and writedown of mineral
exploration costs of $25,836 incurred in Alberta, Yukon and Indonesia. The
Company is no longer active in the Yukon or Indonesia.

In 1998, general and administrative expenses were $737,371, other costs were
$2,479,725 and future tax recovery was $326,727, resulting in a net loss of
$2,890,369 or $0.13 per share. General and administrative expenses decreased
from 1997 due to management actions in order to minimize strain on cash
reserves. Other costs consisted of interest income of $38,316 (a decrease from
1997 due to lower cash reserves), loss on disposal of investment of $105,000
(compared to a 1996 loss of $Nil due to decreasing share price), writedown of
investments of $143,220 (compared to 1997 writedown of $529,267 due to
decreasing share price) and writedown of mineral exploration costs of $2,269,821
incurred on leases and permits in Alberta, Saskatchewan, Yukon and Indonesia.
Birch conducted exploration and found that the results of the exploration did
not justify further work and expenditures. Therefore, the Company dropped the
permits, claims and Contract of Work in Saskatchewan, Yukon and Indonesia and
all costs associated were written off.

The future tax recovery for both 1998 and 1999 results from the recovery of
future tax liabilities recorded in relation to renouncement of qualified
expenditures. The Company has future tax assets in excess of future tax
liabilities at the end of each of 1997, 1998 and 1999.

In 1997, general and administrative expenses were $1,144,144 and other costs of
$3,395,335 resulted in a net loss of $4,539,479 or $0.21 per share. General and
administrative expenses increased from 1996 due to the level of activity. Other
income consisted of interest income of $130,835 (a decrease from 1996 due to
lower cash reserves), writedown of investments of $529,267 (compared to 1996
writedown of $Nil due to decreasing share price) and writedown of mineral
exploration costs of $2,996,903 incurred on leases and permits. Exploration


                                      -30-
<PAGE>   39
costs in Alberta, Manitoba and Indonesia were expensed based on estimated
impairment to those permits and leases. The Company dropped mineral claims in
British Columbia and therefore expensed all associated costs.

During 1999, Birch increased its exploration and development expenses from the
previous year as a result of increased activities in the laboratory, plus
analysis of drill core received from oil sands mining companies. Work on the
Assessment Filing was initiated in 1999, culminating with a submission to
Alberta Department of Resource Development on April 28, 2000. This filing will
hold 1,600,752 acres (647,802 hectares) of Mineral Permits in the Athabasca
valley and 204,959 acres (82,994 hectares) of Mineral Permits in the Birch
Mountains in good standing for two more years.

The net loss for the nine months ended September 30, 2000 was $1,435,193 or
$0.04 per share, compared to $513,939 or $0.02 per share for the same period in
1999. A large portion of the significant increase in expense in 2000 is
attributable to a consulting fee of $490,000 paid in shares to American Precious
Metals Inc. ("APM"), and increases in expenses associated with higher levels of
activity than were incurred in 1999.

In consideration of APM introducing the Company to parties that have been or are
instrumental in providing direction in developing analytical protocols, the
Company agreed to pay APM a fee equal to 500,000 Common Shares of the Company.
This fee is payable as to 350,000 Common Shares in consideration of
introductions to parties who have materially advanced the Company in its efforts
to develop an assay procedure and as to 150,000 Common Shares upon providing to
the Company a proprietary assay procedure which reliably confirms concentrations
of precious metals in the Company's Athabasca project rock equal to or greater
than 1 gram per tonne.

Pursuant to the terms of a Finder's Fee Agreement dated June 25, 1999, the
Company has issued 350,000 Common Shares at a price of $1.40 per share, being
the market price on the date of issuance. No proprietary assay procedure has yet
been provided to the Company by APM that has proven to be successful in reliably
confirming concentrations of precious metals in the Company's Athabasca project
rock.

The recent accounting guide line; AcG-11 - Enterprises in the Development Stage,
released in March 2000 by the Canadian Institute of Chartered Accountants will
be effective for fiscal periods beginning on or after April 1, 2000. The
guideline states that enterprises in the development stage can defer
pre-operating costs only when it is probable that these costs will be
recoverable from future operations. Upon application of this guideline all
outstanding balances of deferred development and pre-operating costs are to be
reviewed, on a project by project basis, to assess their recoverability from
future operations. Any write down or write off resulting from this review is to
be treated as a change in accounting policy and applied retroactively without
restatement of the financial statements of the prior periods.

In the absence of reasonable assurance of recovery from future related revenues,
the $8,338,431 of mineral exploration costs on the balance sheet of the Company
at December 31, 2000 would be written off with a corresponding increase in the
January 1, 2001 opening deficit. The resulting policy for accounting for future
mineral exploration costs would be to expense these cost as incurred, unless
there is reasonable assurance the costs can be recovered from future operations
of the related project.

The adoption of AcG-11 and the resulting change in accounting policy will result
in essentially the same treatment of exploration related costs for the Company
under both Canadian and U.S. GAAP.


                                      -31-
<PAGE>   40
CORPORATE INCOME AND EXPENSES

Birch is engaged in technology development and mineral exploration and does not
have any production or revenue from sale of its technology or mineral
production. Though Birch has received some one-time payments from a Joint
Venture partner, the Company's main source of income from year to year is
interest earned on its term deposits. The interest income over the past three
years has varied with the amount of money in term deposits and has not been a
significant component of the Company's ability to operate, therefore, a
comparative analysis would not be meaningful.

The Company and its subsidiaries have no income from production since they are
presently at the research and exploration stage. The Company spends about
$170,000 monthly for management and shareholder services, outside consulting,
laboratory analysis, travel and other expenses. These monthly expenses are
expected to increase with increasing research and exploration activities, and
will increase significantly if and when the Company undertakes field-drilling
activities.

FLOW-THROUGH ARRANGEMENTS

In consideration for cash proceeds, an investor receives a specified number of
flow-through shares, warrants and the right to receive flow-through deductions
in the form of Canadian exploration expense ("CEE") from the Corporation equal
to the subscription amount within a 24 month period. The flow-through deductions
can be applied against the income of the investor for Canadian tax purposes.
Furthermore, subject to statutory restrictions on resale, the investor can also
sell the shares on a public stock exchange.

At present, Birch is committed to several outstanding flow-through share
issuances. At September 1, 2000, Birch has yet to incur and renounce $946,033 in
CEE. Of that total, $31,615 has to be incurred by May 31, 2001, $898,6578 has to
be incurred by January 31, 2002 and the remaining $15,761 has to be incurred by
February 28, 2002.

By contractual agreement, Birch is required to spend the subscription proceeds
received from the issuance of flow-through shares on CEE. Generally, CEE from a
mineral exploration perspective is defined under the Tax Act to include any
expense incurred for the purpose of determining the existence, location, extent
or quality of a mineral resource in Canada or any expense incurred for the
purpose of bringing a new mine in a mineral resource in Canada into production
in reasonable commercial quantities. However, the definition of CEE excludes
Canadian development expense ("CDE") or any expense that may reasonably be
considered to be related to a mine that has come into production in reasonable
commercial quantities or to be related to a potential or actual extension
thereof.

Generally, CDE from a mining perspective, is defined under the Tax Act to
include any expense incurred by the taxpayer in sinking or excavating a mine
shaft, main haulage way or similar underground work designed for continuing use,
for a mine in a mineral resource in Canada built or excavated after the mine
came into production, or in extending any such shaft, haulage way or work.
Furthermore, CDE includes certain costs to acquire rights, licences or
privileges to prospect, explore, drill or mine for minerals in a mineral
resource in Canada, certain rentals or royalties paid and computed by reference
to the amount or value of production from a mineral resource in Canada, and
costs to acquire any real property in Canada the principal value of which
depends upon its mineral resource content.


                                      -32-
<PAGE>   41
Neither CEE nor CDE includes an expense that is the cost, any part of the cost,
to the taxpayer of any depreciable property.

Under the Tax Act, a corporation has 24 months from the end of the month of the
day an agreement is made with a flow-through shareholder to incur CEE. A
corporation has to renounce the flow-through deductions to shareholders before
March of the first calendar year that begins after that period.

In situations where a corporation renounces more flow-through deductions to
shareholders than it was actually allowed under the Tax Act, it has to file a
statement to the Canada Customs and Revenue Agency specifying appropriate
reductions in excess flow-through deductions to shareholders. The shareholders
would be reassessed for income tax purposes based on this statement.

When a corporation renounces more flow-through deductions to shareholders than
is allowed, the corporation itself may be subject to a deductible tax under Part
XII.6 of the Tax Act in regards to the excess flow-through deductions.
Furthermore, the corporation may be subject to civil and in some instances,
criminal penalties depending upon the severity of the deficiencies that led to
the over-renunciation of flow-through deductions.

ITEM 9A:  RISKS AND UNCERTAINTIES

The Company's operating results are reported in Canadian dollars. It is expected
that a portion of the Company's revenues will be generated in foreign
currencies, including U.S. dollars, while the Company's expenses will be
generated in Canadian dollars. The exchange rate between the Canadian dollar and
foreign currencies has varied significantly over the past five years. To the
extent that foreign currency revenues are greater than expenses in a
strengthening foreign currency environment, there will be a positive impact on
the Company's income from operations. Conversely, if foreign currency revenues
are greater than foreign currency expenses in a weakening foreign currency
expenses in a weakening foreign currency environment, there will be a negative
impact on the Company's income from operations. This exchange rate risk, on an
annual basis, primarily reflects the impact of fluctuating exchange rates on the
net difference between total foreign currency revenues and foreign currency
expenses.

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS

The following table list the names of the Directors and Executive Officers of
the Company as at December 31, 2000.

<TABLE>
<CAPTION>
                                                                               DATE ELECTED OR
DIRECTOR/EXECUTIVE OFFICER                POSITION(S) HELD                     APPOINTED           COUNTRY OF RESIDENCE
<S>                                       <C>                                  <C>                 <C>
Kerry E. Sully                            Chairman of the Board and Director   1995                Canada

Douglas J. Rowe                           President, CEO & Director            1994                Canada

Donald L. Dabbs                           Vice President., CFO & Director      1994                Canada

Lanny K. McDonald                         Director                             1995                Canada

Edward Rochette                           Director                             2000                Singapore

John R. Houghton                          Corporate Secretary                  1998                Canada
</TABLE>


                                      -33-
<PAGE>   42
<TABLE>
<CAPTION>
                                                                               DATE ELECTED OR
DIRECTOR/EXECUTIVE OFFICER                POSITION(S) HELD                     APPOINTED           COUNTRY OF RESIDENCE
<S>                                       <C>                                  <C>                 <C>
Hugh Abercrombie                          Vice President, Exploration          1998                Canada

</TABLE>

The Directors have served in their respective capacities since their election
and/or appointment and their term extends to the next Annual General Meeting of
Shareholders or until the office is vacated in accordance with the
Article/By-Laws of the Company. If a Director resigns or is removed, a successor
may be appointed by the remaining members of the Board of Directors. The
Executive Officers serve at the pleasure of the Board of Directors. No family
relationship exists between any Director or Executive Officer and any other
Director or Executive Officer.

No Director and/or Executive Officer has been the subject of any order,
judgment, or decree of any governmental agency or administrative body or of any
court of competent jurisdiction, revoking or suspending for cause any license,
permit or other authority of such person or of any corporation of which he is a
Director and/or Executive Officer, to engage in the securities business or in
the sale of a particular security or temporarily or permanently restraining or
enjoining any such activity.

PROFILES OF DIRECTORS AND EXECUTIVE OFFICERS

The following are profiles of the directors and executive officers, including
their principal occupations during the five years prior to the date hereof.

KERRY E. SULLY - CHAIRMAN OF THE BOARD AND DIRECTOR

Mr. Sully was elected by the shareholders as a director of the company in 1995
and has served as a director each year since 1995. Mr. Sully was appointed
Chairman of the Board of Directors of the company in June of 1998.

Mr. Sully has been President and CEO of CGX Energy Inc. since March, 1999, a
company first listed on the Canadian Dealing Network in March, 1999 and now
listed on the Canadian Venture Exchange Inc. He was President, Chief Executive
Officer and a director of Ranchmen's Resources Ltd., a company listed on the
Toronto Stock Exchange, from 1989 to 1995.

DOUGLAS J. ROWE - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR

Mr. Rowe was a founder of the Company and has served in the position of
President, CEO and director from the formation of the company in 1994. Prior
thereto, Mr. Rowe was President and Chairman of the Board of Brougham Geoquest
Ltd., a company engaged in mineral exploration and Brougham Energy Corporation,
a company engaged in oil and gas exploration and development.

DONALD L. DABBS - VICE-PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR

Mr. Dabbs was a founder of the Company and has served as the CFO and a director
since 1994. Mr. Dabbs was President, CEO and director of Niaski Environmental
Inc., a company listed on The Alberta Stock Exchange, from February 1998 to
August 1999 when he returned to Birch. He served as Vice President of the
Company from December 1995 to January 1998. He was Regional Manager, Bovar
Environmental, and Vice President of Concord Environmental Corporation from 1988
to 1994.


                                      -34-
<PAGE>   43
LANNY K. MCDONALD - DIRECTOR

Mr. McDonald is an independent business man and was Vice-President of Corporate
Development, The Calgary Flames of the National Hockey League from 1992 to
August 2000. From 1989 to 1992, he was Vice-President, Corporate and Community
Relations with the Calgary Flames. Mr. McDonald has been a director of the
company since 1995.

EDWARD ROCHETTE - DIRECTOR

Mr. Rochette is the Senior Vice-President of Ivanhoe Mines. From 1992 to 1995,
he was the Vice-President of Ivanhoe Capital. From 1980 to 1992, he was the
Manager-Lands of Nerco Minerals.

JOHN R. HOUGHTON - CORPORATE SECRETARY

Mr. Houghton served as a director of the company in 1998, and has been corporate
secretary since December of 1998.

Mr. Houghton has been a partner in the law firm Donahue and Partners since
February of 1999. Previously, he was a partner in the law firm of Mackimmie
Matthews from 1984 to 1999.

HUGH J. ABERCROMBIE - VICE PRESIDENT, EXPLORATION

Dr. Abercrombie joined the Company as Manager, Exploration in February, 1997 and
was appointed Vice- President, Exploration in November, 1998.

After completing post-graduate studies in 1989, Dr. Abercrombie worked for eight
years as a research scientist with the Geological Survey of Canada. His research
focused on low temperature metal transport in sedimentary basins and formed the
basis for Birch's Prairie Gold model.

ITEM 11:  COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

The Company has six directors, two of whom are executive officers. The Company
also has a corporate secretary and one additional executive officer who is not a
director. The total cash remuneration paid or accrued during Fiscal 1999 to all
members of management (all executive officers and any other key personnel who
were employed by the Company or its subsidiaries or retained on a consulting
basis) was $237,830. No directors of the Company received any fees for providing
services as directors during the Company's 1999 Fiscal year.

The Company has in place a stock option plan dated November 2, 1994 (the
"Plan"), under which non- transferable options to purchase Common Shares (the
"Option") may be granted to directors, officers, employees and consultants of
the Company or an affiliate of the Company. The Plan contains early termination
provisions for certain situations. In addition, the Plan contains provisions
stating that the option period may not extend past five years and the number of
Common Shares issuable on exercise of outstanding stock options may not exceed
10% of the issued and outstanding Common Shares. The Plan is administered by the
Compensation Committee of the Board of Directors of the Company, who make
allocations to eligible persons after considering their present and potential
contributions and other relevant factors. The Plan was filed with The Alberta
Stock Exchange (now the Canadian Venture Exchange Inc.) and was approved by the
shareholders on November 2, 1994.


                                      -35-
<PAGE>   44
ITEM 12:  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

STOCK OPTION GRANTS

The following table sets forth details with respect to the outstanding options
and warrants as of September 30, 2000.

TYPE OF SECURITY: STOCK OPTIONS

<TABLE>
<CAPTION>
                                    NUMBER OF SHARES BY
OPTIONEE                            OUTSTANDING OPTIONS       DATE OF EXPIRY                PURCHASE PRICE OF SHARES
--------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                      <C>                            <C>
All Optionees other than                       5,000         November 21, 2001                         $0.70
                                              10,000         June 5, 2002                              $0.70
                                              75,000         July 13, 2003                             $0.22
                                              50,000         November 16, 2003                         $0.35
                                              30,000         July 26, 2004                             $1.25
                                             365,000         November 18, 2004                         $1.36
Directors and Officers                        50,000         January 16, 2001                          $0.70
                                             100,000         November 21, 2001                         $0.70
                                              75,000         January 2, 2002                           $0.70
                                             100,000         March 24, 2002                            $0.70
                                             150,000         March 9, 2003                             $0.90
                                             440,000         November 16, 2003                         $0.35
                                             470,000         November 18, 2004                         $1.36
</TABLE>

TYPE OF SECURITY: COMMON SHARE PURCHASE WARRANTS

<TABLE>
<CAPTION>
                               NUMBER OF SHARES BY
OPTIONEE                       OUTSTANDING WARRANTS          DATE OF EXPIRY                PURCHASE PRICE OF SHARES
-------------------------------------------------------------------------------------------------------------------
<S>                            <C>                           <C>                           <C>
All Optionees other than               228,153               FEBRUARY 10, 2001                       $1.50
Directors and Officers

                                       758,362               APRIL 21, 2001                          $1.50
                                       351,114               APRIL 25, 2001                          $1.50
                                         9,783               APRIL 30, 2001                          $1.50
DIRECTORS AND OFFICERS                   5,870               APRIL 21, 2001                          $1.50
                                        57,500               APRIL 25, 2001                          $1.50
</TABLE>


                                      -36-
<PAGE>   45
ITEM 13:          INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

There are no transactions that have materially affected or will materially
affect the Company in which any director, executive officer or beneficial holder
of more than 10% of the outstanding Common Shares, or any of their respective
relatives, spouses, associates of affiliates has had or will have any direct or
material indirect interest.

                                     PART II

ITEM 14:          DESCRIPTION OF SECURITIES TO BE REGISTERED

The Company has an authorized capital consisting of an unlimited number of
Common Shares, of which 33,552,966 are issued and outstanding as of the date of
this Registration Statement.

The holders of Common Shares are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors. Holders of Common Shares are entitled to receive
dividends when, as and if declared by the Board of Directors in its discretion,
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Shares are
entitled to share ratably in the assets of the Company, if any, legally
available for distribution to them after payment of debts and liabilities of the
Company after provision has been made for each class of stock, if any, having
liquidation preference over the Common Shares. Holders of Common Shares have no
conversion, preemptive or other subscription rights, and there are no redemption
or sinking fund provisions applicable to the Common Shares. All of the
outstanding Common Shares are fully paid and non-assessable.

The Company is authorized to issue an unlimited number of non-voting shares. The
holders of the non-voting shares are entitled to dividends, if, as and when
declared by the Board of Directors and, upon liquidation, to receive such assets
of the Company as are distributable to the holders of the non-voting and Common
Shares.

The Company is authorized to issue an unlimited number of preferred shares. The
preferred shares may be issued from time to time in one or more series, each
consisting of a number of preferred shares as determined by the Board of
Directors of the company who also may fix the designations, rights, privileges,
restrictions and conditions attaching to the shares of each series of preferred
shares. There are no preferred shares issued and outstanding. The preferred
shares of each series shall, with respect to payment of dividends and
distribution of assets in the event of voluntary or involuntary liquidation,
dissolution or winding-up of the Company or any other distribution of the assets
of the Company among its shareholders for the purpose of winding-up its affairs,
rank on a parity with the preferred shares of every other series and shall be
entitled to preference over the Common Shares and the shares of any other class
ranking junior to the preferred shares.

RIGHTS PLAN

On May 17, 2000 the Board of Directors (the "Board") of the Company adopted the
rights plan of the Company ("Rights Plan"), which was implemented pursuant to a
shareholders rights plan agreement (the "Rights Plan Agreement") of the same
date between the Company and Montreal Trust Company of Canada, as rights agent.
The shareholders of the Company approved the Rights Plan on June 22, 2000. The
purpose of the Rights Plan is, firstly, to protect shareholders of the Company
from unfair, abusive or coercive takeover strategies, including the acquisition
of control of the Company by a bidder in a transaction or series of transactions
that does not treat


                                      -37-
<PAGE>   46
all shareholders equally or fairly or that does not afford all shareholders an
equal opportunity to share in any premium paid upon an acquisition of control.
Secondly, the purpose of the Rights Plan is to afford both the shareholders of
the Company and the Board adequate time to assess an offer made for the
Company's and to pursue, explore and develop alternative courses of action in
any attempt to maximize shareholder value.

The Rights Plan is not intended to deter a person from seeking to acquire
control of the Company if such person is prepared to make a takeover bid
pursuant to a Permitted Bid or Competing Permitted Bid in accordance with the
provisions of the Rights Plan. The Rights Plan is intended to make it
impracticable to acquire 20% percent or more of the outstanding voting shares of
the Company other than by way of a Permitted Bid or a Competing Permitted Bid.
This impracticability arises as a result of the fact that the Rights will
substantially dilute the holdings of a person that seeks to acquire control of
the Company other than by means of a Permitted Bid or a Competing Permitted Bid.

ITEM 15:          DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 16:          CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
                  SECURITIES

Not applicable.

ITEM 17:          FINANCIAL STATEMENTS

See pages F-1 through F-18, incorporated by reference.

ITEM 19:          FINANCIAL STATEMENTS AND EXHIBITS

(1)      Index to Financial Statements of Birch Mountain Resources Ltd.

         Report of Independent Auditors

         Consolidated Balance Sheets for the years ended December 31, 1999, 1998
         and 1997 and for the nine months ended September 30, 2000

         Consolidated Statements of Loss and Deficit for the years ended
         December 31, 1999, 1998 and 1997 and for the nine months ended
         September 30, 2000

         Consolidated Statements of Cash Flow for the years ended December 31,
         1999, 1998 and 1997 and for the nine months ended September 30, 2000

         Notes to and forming part of the Consolidated Financial Statements

(2)      Exhibits

Exhibits incorporated by reference to the Form 20-F filed on September 29, 2000:

1.       Articles of Amalgamation


                                      -38-
<PAGE>   47
2.       By-Law No. 1

3.       Shareholders Rights Plan Agreement

4.       Stock Option Plan

5.       Employment Agreement between the Company and Douglas J. Rowe dated
         December 1, 1995

Exhibits incorporated by reference to the Form 20-F/A2 filed on December 4,
2000:

6.       News Release of the Company dated September 27, 2000

7.       Finders Fee Agreement between the Company and American Precious Metals
         Inc. dated June 25, 1999



                                      -39-
<PAGE>   48
                                    SIGNATURE

         In accordance with Section 12 of the Securities Exchange Act of 1934,
as amended, the Registrant certified that it meets all of the requirements for
filing on Form 20-F and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized.

                                      BIRCH MOUNTAIN RESOURCES LTD.

Date: April 25, 2001                  Per: /s/Douglas J. Rowe
                                           -------------------------------------
                                           Douglas J. Rowe, P. Eng.
                                           President and Chief Executive Officer



                                      -40-
<PAGE>   49

                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                               CONSOLIDATED FINANCIAL STATEMENTS
                                                December 31, 1999, 1998 and 1997

                                      F-1
<PAGE>   50
                                                            TO THE SHAREHOLDERS:
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                                                AUDITORS' REPORT


We have audited the consolidated balance sheets of BIRCH MOUNTAIN RESOURCES LTD.
as at December 31, 1999, 1998 and 1997, and the consolidated statements of loss
and deficit and cash flow for 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 generally accepted auditing
standards. 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 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1999, 1998 and 1997, and the results of its operations and the changes in its
cash flow for the years then ended in accordance with Canadian generally
accepted accounting principles.


                                             /s/ Meyers Norris Penny


Calgary, Alberta                                           Chartered Accountants
March 13, 2000 (except as
to Notes 1 and 17, which are
as at November 24, 2000)




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

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 Corporation's ability to continue as a going concern, such as those
described in Note 1 to the financial statements. Our report to the shareholders
dated March 13, 2000 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.


                                             /s/ Meyers Norris Penny



Calgary, Alberta                                           Chartered Accountants
November 24, 2000

                                      F-2
<PAGE>   51
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                                      CONSOLIDATED BALANCE SHEET
                                          As at December 31, 1999, 1998 and 1997


<TABLE>
<CAPTION>
                                             NINE MONTHS
                                               ENDED             YEAR ENDED         YEAR ENDED         YEAR ENDED
                                            SEPTEMBER 30          DEC. 31             DEC. 31            DEC. 31
                                            ------------          -------             -------            -------
                                                2000               1999                 1998              1997
                                            (unaudited)
<S>                                         <C>                  <C>                <C>                <C>
ASSETS
CURRENT
  Cash  (Note 5)                            3,204,1783             943,558             475,188             719,316
  Accounts receivable                           26,849              36,384             142,057             185,435
  Prepaids and deposits                         13,484              12,691             191,410             349,218
                                            ----------           ---------           ---------          ----------
                                             3,244,506             992,633             808,655           1,253,969

INVESTMENT  (Note 6)                            15,930              15,930              36,890             130,000

CAPITAL  (Note 7)                              198,596             144,674             146,714             215,423

MINERAL EXPLORATION COSTS  (Note 8)         10,102,037           7,828,506           7,195,948           8,555,331
                                            ----------           ---------           ---------          ----------
                                            13,561,069           8,981,743           8,188,207          10,154,723
                                            ==========           =========           =========          ==========
LIABILITIES
CURRENT
  Accounts payable                             272,356             324,727             536,223             515,950
                                            ----------           ---------           ---------          ----------
SHAREHOLDERS' EQUITY

SHARE CAPITAL  (Note 9)                     24,721,451          18,654,561          17,073,832          16,170,252

DEFICIT                                    (11,432,738)         (9,997,545)         (9,421,848)         (6,531,479)
                                            ----------           ---------           ---------          ----------
                                            13,288,713           8,657,016           7,651,984           9,638,773
                                            ==========           =========           =========          ==========
                                            13,561,069           8,981,743           8,188,207          10,154,723
                                            ==========           =========           =========          ==========
</TABLE>


Approved on behalf of the Board:

/s/ Donald L. Dabbs                Director
----------------------------------
Donald L. Dabbs

/s/ Douglas J. Rowe                Director
----------------------------------
Douglas J. Rowe


                                      F-3
<PAGE>   52
                          BIRCH MOUNTAIN RESOURCES LTD.
                   CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
                     As at December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                           NINE MONTHS ENDED           YEAR ENDED       YEAR ENDED       YEAR ENDED
                                                             SEPTEMBER 30                DEC. 31          DEC. 31          DEC. 31
                                                             ------------                -------          -------          -------
                                                        2000             1999             1999             1998             1997
                                                           (unaudited)
<S>                                                 <C>               <C>              <C>              <C>              <C>
EXPENSES
     Salaries, management fees and benefits            410,888          204,275          289,432          227,080          461,160
     Shareholder services and promotion                208,114          120,962          222,769          132,844          266,619
     Office                                            181,742          118,622          162,197          176,104          233,619
     Professional fees                                 723,445           85,083          120,811          131,085          121,957
     Amortization                                       37,903           29,130           40,478           70,258           60,789
                                                    ----------        ---------        ---------        ---------        ---------
LOSS BEFORE THE FOLLOWING                            1,562,092          558,082          835,687          737,371        1,144,144
                                                    ----------        ---------        ---------        ---------        ---------
     Interest and other income                        (132,417)         (44,962)         (71,096)         (38,316)        (130,835)
     (Gain) loss on disposal of investment                  --               --           (2,090)         105,000
     Write down of investments                              --               --           14,160          143,220          529,267
     Write down of mineral exploration
            costs  (Note 8)                              5,518              819           25,836        2,269,821        2,996,903
                                                    ----------        ---------        ---------        ---------        ---------
                                                      (126,899)         (44,143)         (33,190)       2,479,725        3,395,335
                                                    ----------        ---------        ---------        ---------        ---------
LOSS BEFORE INCOME TAXES                             1,435,193          513,939          802,497        3,217,096        4,539,479

     Future income tax recovery                             --               --         (226,800)        (326,727)              --
                                                    ----------        ---------        ---------        ---------        ---------
NET LOSS FOR THE YEAR                                1,435,193          513,939          575,697        2,890,369        4,539,479

DEFICIT AT BEGINNING OF YEAR                         9,997,545        9,421,848        9,421,848        6,531,479        1,992,000
                                                    ----------        ---------        ---------        ---------        ---------
DEFICIT AT END OF YEAR                              11,432,738        9,935,787        9,997,545        9,421,848        6,531,479
                                                    ==========        =========        =========        =========        =========





LOSS PER SHARE  (Note 10)                                (0.04)           (0.02)           (0.02)           (0.13)           (0.21)
                                                    ==========        =========        =========        =========        =========
</TABLE>

                                      F-4
<PAGE>   53
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                             CONSOLIDATED STATEMENT OF CASH FLOW
                                          As at December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                      NINE MONTHS ENDED           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                        SEPTEMBER 30               DEC. 31          DEC. 31         DEC. 31
                                                    2000            1999            1999             1998            1997
                                                         (unaudited)
<S>                                              <C>              <C>             <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Cash received from interest                    101,590          54,729          71,096          38,316         130,835
     Cash received from Government
        of Indonesia                                     --              --         175,555         165,708              --
     Cash paid to employees and suppliers        (1,078,039)       (485,205)       (774,537)       (796,087)       (971,300)
                                                 ----------       ---------       ---------       ---------      ----------
                                                   (976,449)       (430,476)       (527,886)       (592,063)       (840,465)
                                                 ----------       ---------       ---------       ---------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Issuance of common shares for cash           4,293,426       1,175,461       1,656,061         573,893         778,818
     Share issuance costs                          (116,536)        (17,158)        (34,594)        (13,061)         (1,274)
                                                 ----------       ---------       ---------       ---------      ----------
                                                  4,176,890       1,158,303       1,621,467         560,832         777,544
                                                 ----------       ---------       ---------       ---------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds on disposal (acquisition)
        of investment                                    --              --           8,890          25,000         (10,753)
     Purchase of capital assets                     (66,295)        (29,172)        (38,438)         (1,549)       (107,457)
     Mineral exploration costs                     (873,531)       (435,429)       (595,663)       (236,348)     (3,933,289)
                                                 ----------       ---------       ---------       ---------      ----------
                                                   (939,826)       (464,601)       (625,211)       (212,897)     (4,051,499)
                                                 ----------       ---------       ---------       ---------      ----------
INCREASE (DECREASE) IN CASH                       2,260,615         263,226         468,370        (244,128)     (4,114,420)

CASH AT BEGINNING OF YEAR                           943,558         475,188         475,188         719,316       4,833,736
                                                 ----------       ---------       ---------       ---------      ----------
CASH AT END OF YEAR                               3,204,173         738,414         943,558         475,188         719,316
                                                 ==========       =========       =========       =========      ==========
</TABLE>

                                      F-5
<PAGE>   54
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997



1.   NATURE OF OPERATIONS AND GOING CONCERN CONSIDERATIONS

     Birch Mountain Resources Ltd. is in the process of exploring its mineral
     leases and permits and has not yet determined whether they contain
     economically recoverable reserves.

     These financial statements have been prepared by management in accordance
     with generally accepted accounting principles on a going concern basis.
     This presumes funds will be available to finance ongoing exploration,
     operations and capital expenditures and permit the realization of assets
     and the payment of liabilities in the normal course of operations for the
     foreseeable future. The Company has incurred a net loss of $575,697 during
     the year ended December 31, 1999 (1998 - $2,890,369; 1997 - $4,539,479) and
     as at December 31, 1999 has a deficit of $9,997,545. The Company's ability
     to continue as a going concern is largely dependent on its success in
     obtaining sufficient funds to carry out exploration activities on its
     mineral claims, preserving its interest in the underlying claims,
     establishing the existence of economically recoverable mineral reserves,
     and obtaining the financing to complete the development and achieve future
     profitable production or, alternatively, upon the Company's ability to
     dispose of its interests on an advantageous basis. Management plans to
     continue to access the equity market from time to time for financing of its
     operations and to be prudent with general and administrative expenditures
     and selective in its exploration expenditures in order to preserve the
     Company's working capital. The Company has been successful in the past in
     raising funds for operating and exploration activities but there is no
     assurance that it will be able to do so in the future. Should future
     financing efforts not meet with success, there is substantial doubt about
     the ability of the Company to continue as a going concern as it would
     likely have to dispose of its assets on a less then advantageous basis.

     These financial statements do not give effect to any adjustments which
     might be necessary should the Company be unable to continue its operations
     as a going concern.

     The Company has generally financed its exploration and operating costs
     through public offerings and private placements. The Company is obligated
     to incur certain levels of expenditures in order to maintain its rights to
     continue exploration of certain of its mineral leases and permits.


2.   SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements are expressed in Canadian dollars and
     are prepared in accordance with accounting principles generally accepted in
     Canada. These financial statements include the accounts of the Company and
     its wholly owned subsidiaries, Dawson Bay Minerals Inc., Swift River
     Minerals Ltd., 777195 Alberta Inc., 846785 Alberta Ltd., and Rockyview
     Development Limited and its subsidiaries.

     (a)  MINERAL EXPLORATION COSTS

          The mineral leases and permits are recorded at cost. Cost includes
          cash consideration and the market value of shares issued, if any. All
          direct and indirect acquisition and exploration expenditures are
          capitalized and deferred until the leases and permits to which they
          relate are placed on production, sold, allowed to lapse, or abandoned.
          These costs will be amortized over the estimated useful lives of the
          leases and permits following the commencement of production, or
          written off if the leases and permits are sold, allowed to lapse, or
          abandoned. The Company assesses the carrying value of these mineral
          exploration costs annually and based on estimates, adjusts the
          carrying amount for any impairments in value.

          Leases and permits acquired under option or joint venture agreements,
          whereby payments are made at the sole discretion of the Company, are
          recorded in the accounts at the time of payment.

                                      F-6
<PAGE>   55
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


2.   SIGNIFICANT ACCOUNT POLICIES (CONTINUED)

     (b)  CAPITAL ASSETS

          Capital assets are recorded at cost. Amortization is recorded at the
          following annual rates:

                    Equipment                      20% to 30% declining balance
                    Computer software             100% declining balance
                    Computer hardware              30% declining balance
                    Automotive                     30% declining balance
                    Leasehold improvements         20% straight line

          Amortization is charged at one-half of the annual rate in the year of
          acquisition of an asset.

     (c)  FUTURE INCOME TAXES

          The Company has adopted the liability method of accounting for income
          taxes (Note 3). Under this method, future income tax liabilities and
          future income tax assets are recorded based on temporary differences -
          the difference between the carrying amount of an asset or liability in
          the consolidated balance sheet and its tax basis - at the rate enacted
          at the date of the balance sheet. At the end of each year, future tax
          assets and future tax liabilities are reassessed, and any changes in
          the settlement value is reflected in income.

     (d)  STOCK OPTIONS

          No compensation expense is recognized when stock options are issued to
          employees, service providers or directors. Any consideration paid by
          the optionee on the exercise of stock options is credited to share
          capital.

     (e)  CASH

          Cash includes cash on account and demand deposits.

     (f)  FLOW-THROUGH SHARES

          Under Canadian income tax legislation, corporations are permitted to
          issue shares whereby the Company agrees to incur qualifying
          expenditures, as defined under the Canadian Income Tax Act, and
          renounce the related income tax deductions to the investors. Share
          capital is reduced by the estimated future income tax cost of the
          renounced deductions as the expenditures are incurred.

     (g)  USE OF ESTIMATES

          The preparation of financial statements in conformity with generally
          acceptable accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements and the reported amounts of revenues
          and expenses during the reporting period. Significant areas requiring
          the use of management estimates relate to the determination of
          impairment of mineral exploration costs and reclamation obligations.
          Financial results as determined by actual events could differ from
          those estimates.


                                      F-7
<PAGE>   56
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


3.   CHANGE IN ACCOUNTING POLICY

     (a)  During the year, the Company changed its method of accounting for
          income taxes from the deferral method to the liability method
          described in Note 2. This policy has been adopted retroactively
          resulting in the restatement of the December 31, 1998 financial
          statements as follows:

<TABLE>
<CAPTION>
          As at December 31, 1998                AS REPORTED            ADJUSTMENT               RESTATED
          -----------------------                -----------            ----------               --------
<S>                                             <C>                      <C>                  <C>
          Mineral exploration costs                5,522,268             1,673,680              7,195,948
          Share capital                           16,562,977               510,855             17,073,832
          Deficit                               (10,584,673)             1,162,825            (9,421,848)
          Future income tax recovery                      --               326,727                326,727
          Net loss for the year                  (3,217,096)               326,727            (2,890,369)

          Net earnings per common share
             Basic                                    (0.14)                  0.01                 (0.13)
             Fully diluted                            (0.14)                  0.01                 (0.13)
</TABLE>

     (b)  The Company has adopted retroactively, the new CICA Handbook
          recommendations "Cash Flow Statements". Under this section,
          transactions that do not require the use of cash and cash equivalents
          are excluded from the statement of cash flow. Non-cash transactions
          excluded from the statement of cash flow for the years ended December
          31, 1999, and 1998, are as follows:

          - Payment of employee salary with shares $15,000 (1998 - $15,000;
          1997 - nil); and

          - Purchase of mineral rights with shares $43,500 (1998 - $465,920;
          1997 - nil).

          During 1999, the Company acquired all of the outstanding shares of
          846785 Alberta Ltd. which held a royalty interest and mineral leases.
          The cost of the acquisition, which was accounted for using the
          purchase method, consisted of 25,000 common shares of the Company. The
          purchase price of $28,500 has been allocated to mineral exploration
          costs.


4.   ACQUISITIONS

     During 1999, the Company acquired all of the outstanding shares of 846785
     Alberta Ltd., which held a royalty interest and mineral leases. The cost of
     the acquisition, which was accounted for using the purchase method,
     consisted of 25,000 common shares of the Company. The purchase price of
     $28,500 has been allocated to mineral exploration costs.

     During 1998, the Company acquired all of the outstanding shares of 777195
     Alberta Inc., which held certain mineral rights in the Athabasca region.
     The cost of the acquisition, which was accounted for using the purchase
     method, consisted of $25,000 cash and 770,000 common shares of the Company.
     The purchase price of $456,200 has been allocated to mineral exploration
     costs.

     Both 846785 Alberta Ltd. and 777195 Alberta Inc. were dissolved during the
     year ended December 31, 1999.


5.   CASH

<TABLE>
<CAPTION>
                                          1999           1998           1997
                                          ----           ----           ----
<S>                                      <C>            <C>            <C>
     Cash, available for use             890,558        456,188        260,213
     Cash, subject to restriction         53,000         19,000        459,103
                                         -------        -------        -------
                                         943,558        475,188        719,316
                                         =======        =======        =======
</TABLE>

     Cash subject to restriction represents amounts on deposit as security for
     letters of credit to the governments of Alberta and Manitoba. The 1997
     amount includes a deposit with the Government of Indonesia.

                                      F-8

<PAGE>   57
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


6.   INVESTMENT

<TABLE>
<CAPTION>
                                    1999           1998          1997
                                    ----           ----          ----
<S>                                <C>            <C>           <C>
     Tintina Mines Limited             --             --        130,000

     Tahera Corporation            15,930         36,890             --
</TABLE>

     The cost of the Company's investment in 177,000 shares (1998 - 217,000
     shares) of Tahera Corporation, formerly, Lytton Minerals Limited, has been
     written down to reflect its market value at December 31, 1999. During 1999
     and 1998, the Company disposed of 40,000 shares for net proceeds of $8,890.


7.   CAPITAL ASSETS

<TABLE>
<CAPTION>
                                            1999                          1998                         1997
                                            ----                          ----                         ----
                                                NET BOOK                      NET BOOK                      NET BOOK
                                    COST          VALUE           COST          VALUE           COST          VALUE
                                    ----          -----           ----          -----           ----          -----
<S>                                <C>          <C>              <C>          <C>              <C>          <C>
     Equipment                     182,672         91,292        154,518         82,074        154,518        101,413
     Computer                      179,914         44,549        169,629         52,136        168,080         96,293
     Automotive                     34,090          8,185         34,090         11,693         34,090         16,704
     Leasehold improvements          1,583            648          1,583            811          1,583          1,013
                                   -------        -------        -------        -------        -------        -------
                                   398,259        144,674        359,820        146,714        358,271        215,423
                                   =======        =======        =======        =======        =======        =======
</TABLE>

8.   MINERAL EXPLORATION COSTS

<TABLE>
<CAPTION>
                          BALANCE          ADDITIONS       WRITE DOWN        BALANCE
                          DEC. 31,          DURING           DURING          DEC. 31,
                            1998           THE YEAR         THE YEAR          1999
                            ----           --------         --------          ----
<S>                      <C>               <C>             <C>              <C>
     Alberta             7,104,740          613,983            3,619        7,715,104
     Yukon                       1            2,028            2,028                1
     Manitoba               91,207           22,194               --          113,401
     Indonesia                  --           20,189           20,189               --
                         ---------          -------        ---------        ---------
                         7,195,948          658,394           25,836        7,828,506
                         =========          =======        =========        =========
</TABLE>

<TABLE>
<CAPTION>
                          BALANCE          ADDITIONS       WRITE DOWN        BALANCE
                          DEC. 31,          DURING           DURING          DEC. 31,
                            1997           THE YEAR         THE YEAR          1998
                            ----           --------         --------          ----
<S>                      <C>               <C>             <C>              <C>
     Alberta             6,654,914          467,115           17,289        7,104,740
     Saskatchewan               --           34,057           34,057               --
     Yukon               1,328,191          173,854        1,502,044                1
     Manitoba               72,226           18,981               --           91,207
     Indonesia             500,000          216,431          716,431               --
                         ---------          -------        ---------        ---------
                         8,555,331          910,438        2,269,821        7,195,948
                         =========          =======        =========        =========
</TABLE>

                                      F-9
<PAGE>   58
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


8.   MINERAL EXPLORATION COSTS (CONTINUED)

<TABLE>
<CAPTION>
                         BALANCE         ADDITIONS        WRITE DOWN        BALANCE
                         DEC. 31,          DURING           DURING          DEC. 31,
                          1996            THE YEAR         THE YEAR          1997
                          ----            --------         --------          ----
<S>                     <C>              <C>              <C>              <C>
Alberta                 5,506,746        1,335,061          186,893        6,654,914
British Columbia          374,585           34,328          408,913               --
Yukon                     250,242        1,077,849               --        1,328,191
Manitoba                       --          288,905          216,679           72,226
Indonesia               1,487,372        1,197,046        2,184,418          500,000
                        ---------        ---------        ---------          -------
                        7,618,945        3,933,289        2,996,903        8,555,331
                        =========        =========        =========        =========
</TABLE>

     Included in mineral exploration costs are costs having a book value of
     approximately $2,449,500 (1998 - $2,406,000) which have no cost base for
     tax purposes.

     (a)  ALBERTA

          The Company holds significant mineral rights interests in the
          Athabasca region of northern Alberta.

          During 1997, the Company entered into an option agreement to earn a
          51% interest in additional lands in the region with a payment of
          $1,200,000 on or before September 18, 1999. The option was not
          exercised.

          The Company is party to Co-Development Agreements with Syncrude Canada
          Ltd., Suncor Energy Inc. and Shell Canada Limited. The agreements
          provide for a co-operative development of the lands by bringing
          together the holder of the oil sands rights and the holder of the
          metallic and industrial mineral rights.

          During 1998, the Company entered into various agreements with Tahera
          Corporation (formerly Lytton Minerals Limited) involving certain
          exploration data and diamond rights in the area. Under the agreements
          the Company received $390,000 for the sale of the exploration data and
          217,000 shares of Tahera Corporation for the option granted for the
          diamond rights. The interest that could be earned by Tahera ranged
          from 30% to 75% dependent on the level of exploration expenditures.
          Tahera did not meet spending requirements and, as such, the Company
          retains its interests in these lands.

          During 1998 and 1999, the Company acquired additional mineral rights
          in the area through the issue of shares.

          Certain lands in the Caribou Mountains and Marguerite River area are
          subject to nomination for preservation under the Special Places 2000
          initiative of the Alberta Government. The Government has made
          commitments to honour current holdings; however, there is some risk
          certain lands will not be available for development. At the current
          time, none of the Company's core holdings are subject to Special
          Places 2000 nomination.

          The Company has filed an assessment report with the authorities which
          management believes will satisfy the Company's exploration commitment
          to date. The Company has been granted an extension on the next filing
          of assessment to April 2000. Management believes spending requirements
          have been sufficient to hold all Alberta lands until April 2002.

          Subsequent to the year-end, the Company:

          -    Purchased certain mineral rights from Tintina Mines Limited and
               NSR Resources Inc. Consideration consisted of 600,000 shares; and

          -    Began converting certain mineral permits in its core holdings to
               mineral leases. The conversion results in the strengthening of
               the Company's land tenure.

     (b)  SASKATCHEWAN

          Certain leases in Saskatchewan were acquired during 1998. The related
          costs have been written off as the Company has no plans to continue
          activity in this area.

                                      F-10
<PAGE>   59
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


8.   MINERAL EXPLORATION COSTS (CONTINUED)

     (c)  THE YUKON

          The Company did not exercise its option to purchase a 100% interest in
          the Swift River permits in the Yukon and accordingly has written off
          the costs related to this project. Birch Mountain maintains certain
          mineral rights in the area as expenditure requirements have been met.

     (d)  MANITOBA

          The Company's exploration activity in Manitoba is in the Dawson Bay
          area. Subsequent to the year-end, the Company entered into an
          agreement with the Government of Manitoba whereby 25% of expenditures
          on Birch Mountain's leases, to a maximum of $28,000, will be
          reimbursed.

     (e)  INDONESIA

          Through its subsidiaries, the Company was paying 100% of the costs to
          earn a 90% interest in an exploration program in the province of West
          Kalimantan, Republic of Indonesia.

          During 1998, the Company advised the Government of Indonesia and its
          joint venture partner that it intended to relinquish its Contract of
          Work on these leases and, accordingly, the remaining mineral
          exploration costs related to this project were written off.

          These financial statements include $194,000 (1998 - $246,500; 1997 -
          $194,000) of accounts payable relating to the estimated cost of
          discontinuing the Indonesian operations and $NIL (1998 - $175,000;
          1997 - $175,000) of deposits with the Indonesian government.


9.   SHARE CAPITAL

     The Company is incorporated under the jurisdiction of the Business
     Corporations Act of Alberta.

     (a)  AUTHORIZED CAPITAL

          Unlimited number of common voting shares
          Unlimited number of preferred shares issuable in series
          Unlimited number of non-voting shares

                                      F-11
<PAGE>   60
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


9.   SHARE CAPITAL (CONTINUED)

     (B)  ISSUED

<TABLE>
<CAPTION>
     COMMON SHARES                                                NUMBER             AMOUNT
     -------------                                                ------             ------
<S>                                                             <C>                <C>
     Balance December 31, 1996                                  19,583,295         15,392,708
     Issued for cash
          Series A warrants exercised                            2,523,127            756,938
          Stock options exercised                                   62,000             21,880
                                                                ----------         ----------
                                                                22,168,422         16,171,526
     Share issuance                                                     --             (1,274)
                                                                ----------         ----------
     Balance December 31, 1997                                  22,168,422         16,170,252
     Issued for cash
          Common shares                                            204,074            142,852
          Flow through common shares net of tax
            benefits renounced of $128,999                       1,172,860            281,502
          Stock options exercised                                   47,000              5,540
     Issued in lieu of salary                                       65,217             15,000
     Issued for mineral rights                                     829,500            465,920
                                                                ----------         ----------
                                                                24,487,073         17,081,066
     Share issuance costs net of tax benefit of $5,828                  --             (7,234)
                                                                ----------         ----------
     Balance December 31, 1998                                  24,487,073         17,073,832
     Issued for cash
          Common shares                                          1,901,305          1,041,001
          Flow through common shares net of tax
            benefits renounced of $223,009                       1,490,000            344,990
          Stock options exercised                                  257,400            129,006
          Warrants exercised                                        26,389             26,389
     Issued in lieu of salary                                       65,217             15,000
     Issued for mineral rights                                      62,500             43,500
                                                                ----------         ----------
                                                                28,289,884         18,673,718
     Share issuance costs net of tax benefit of $15,436                 --            (19,157)
                                                                ----------         ----------
     Balance December 31, 1999                                  28,289,884         18,654,561
                                                                ==========         ==========
</TABLE>

          During 1999, the Company completed private placements of:

               -    2,900,000 units at $0.36 of which 1,450,000 were
                    flow-through units. Each unit consisted of one common share
                    and one-half common share warrant; and

               -    491,305 units at $1.15 of which 40,000 were flow-through
                    units. Each unit consisted of one common share and one-half
                    common share warrant.

          At December 31, 1999, the Company had incurred and renounced
          approximately $378,000 of its commitment of $568,000. The Company
          further renounced an additional $254,000 at February 28, 2000.

                                      F-12
<PAGE>   61
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


9.   SHARE CAPITAL (CONTINUED)

          During 1998, the Company completed private placements of:

               -    204,074 at $0.70 per unit. Each unit consisted of one common
                    share and one common share purchase warrant; and

               -    1,172,860 flow-through units at $0.35 per units. Each unit
                    consisted of one common share and one-half common share
                    warrant.

          At December 31, 1998, the Company had incurred and renounced
          approximately $289,000 of its obligation. The remainder was incurred
          and renounced during 1999.

          The Company entered into an agreement with a management employee
          whereby a portion of salary would be paid through the issuance of
          common shares. The agreement resulted in the issuance of 130,434
          common shares at $0.23 per share for a six-month period expiring March
          31, 1999.

          Subsequent to the year-end, the Company completed a private placement
          of 2,345,691 units at $1.15 of which 1,160,000 were flow-through units
          for gross proceeds of $2,697,546. Each unit consists of one common
          share and one-half common share warrant. In addition, a commission of
          25,000 units amounting to $28,750 was paid in relation to this private
          placement.

     (c)  PREFERRED SHARES

          An unlimited number of preferred shares may be issued in one or more
          series, and the directors are authorized to fix the number of shares
          in each series and to determine the designation, rights, privileges
          and conditions attached to the shares of each series.

     (d)  RESERVED FOR ISSUE

          Options

          The Company has a stock option plan under which the board of directors
          can grant options to purchase common shares to senior employees,
          consultants and directors.

          The Company has granted options on common shares as follows:

<TABLE>
<CAPTION>
                                                                           WEIGHTED
                                    NUMBER OF            PRICE             AVERAGE          EXPIRY
                                     OPTIONS             RANGE              PRICE            DATE
                                     -------             -----              -----            ----
<S>                                 <C>                <C>                 <C>             <C>
          December 31, 1996         1,845,000           .10-2.75              1.20         1999-2001
               Granted                230,000          1.55-2.40              2.18           2002
               Exercised              (62,000)               .35               .35         1999-2000
                                    ---------          ---------              ----         ---------
          December 31, 1997         2,013,000           .10-1.06               .73         1999-2003
               Granted                960,000            .22-.35               .30           2003
               Exercised              (47,000)           .10-.22               .12         1999-2003
               Cancelled             (728,000)          .38-1.06               .77         2000-2001
                                    ---------          ---------              ----         ---------
          December 31, 1998         2,198,000           .22-1.06               .54         2000-2004
</TABLE>

                                      F-13
<PAGE>   62
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


9.   SHARE CAPITAL (CONTINUED)

<TABLE>
<CAPTION>
                                                                                    WEIGHTED
                                                 NUMBER OF            PRICE          AVERAGE             EXPIRY
                                                  OPTIONS             RANGE           PRICE               DATE
                                                  -------             -----           -----               ----
     <S>                                         <C>                <C>            <C>                  <C>
     December 31, 1996 (balance forward)         1,845,000           .10-2.75         1.20              1999-2001
          Granted                                  230,000          1.55-2.40         2.18                   2002
          Exercised                                (62,000)               .35          .35              1999-2000
                                                 ---------          ---------         ----              ---------
     December 31, 1997                           2,013,000           .10-1.06          .73              1999-2003
          Granted                                  960,000            .22-.35          .30                   2003
          Exercised                                (47,000)           .10-.22          .12              1999-2003
          Cancelled                               (728,000)          .38-1.06          .77              2000-2001
                                                 ---------          ---------         ----              ---------
     December 31, 1998                           2,198,000           .22-1.06          .54              2000-2004
          Granted                                  880,000           .22-1.06         1.36              2000-2004
          Exercised                               (257,400)           .22-.70          .50              2000-2003
          Cancelled                                (25,000)               .70          .70                   2002
                                                 ---------          ---------         ----              ---------
     December 31, 1999                           2,795,600           .22-1.06          .80              2000-2004
                                                 =========          =========         ====              =========
</TABLE>

     During 1998, certain options originally granted at prices ranging from
     $1.55 to $2.75, were repriced at $0.70.

     Warrants

     In relation to private placements, the Company has the following warrants
     outstanding:

<TABLE>
<CAPTION>
                                                                     WEIGHTED
                               NUMBER OF           PRICE             AVERAGE           EXPIRY
                                OPTIONS            RANGE              PRICE             DATE
                                -------            -----              -----             ----
<S>                           <C>                 <C>               <C>               <C>
     December 31, 1997         1,676,000               6.60              6.60              1998
         Issued                  790,504               1.00              1.00         1998-1999
         Expired              (1,880,074)         1.00-6.60              5.99
                               ---------          ---------         ---------          --------
     December 31, 1998           586,430               1.00              1.00              1999
         Issued                1,695,653          1.00-1.50              1.07              2000
         Exercised               (26,389)              1.00              1.00              2000
         Expired                (586,430)              1.00              1.00
                               ---------          ---------         ---------          --------
     December 31, 1999         1,669,264          1.00-1.50              1.07              2000
                               =========          =========         =========          ========
</TABLE>

     At December 31, 1996, the Company had the following outstanding warrants:

<TABLE>
<CAPTION>
                                                               NUMBER OF
     SERIES        DATE               PRICE PER SHARE          WARRANTS      EXPIRATION DATE
     ------        ----               ---------------          --------      ---------------
<S>                <C>                <C>                      <C>           <C>
     Series A      July 4, 1995       2 warrants + $0.30       5,046,255     January 31, 1997
     Special       July 12, 1996      1 warrant   + $6.60      1,676,000
</TABLE>

     During 1997, all of the outstanding Series A warrants were exercised. The
     special warrants expired unexercised.

                                      F-14
<PAGE>   63
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


9.   SHARE CAPITAL (CONTINUED)

     (e)  ESCROWED SHARES

          Under the requirements of the Alberta Securities Commission and the
          Alberta Stock Exchange, 12,483,040 common shares issued in connection
          with the Company's initial listing as a Junior Capital Pool
          Corporation, its major transaction and its initial public offering,
          were held in escrow. As at December 31, 1998, all of these shares have
          been released from escrow.

          Under the terms of a voluntary pooling agreement, an additional
          8,528,366 common shares were also placed in escrow and are to be
          released equally over five years. The 3,411,348 common shares
          remaining in escrow will be released over the next two years.


10.  LOSS PER COMMON SHARE

     The net loss per common share was calculated using the weighted average
     number of common shares outstanding of 26,681,000 shares (1998 - 22,934,000
     shares; 1997 - 21,935,000 shares). The effect of the stock options and
     warrants on the loss per share is anti-dilutive.


11.  CONTINUING OBLIGATIONS

     The Company rents premises and equipment under operating leases requiring
     annual payments over the next five years as follows:

<TABLE>
<S>                                         <C>
    2000                                    212,238
    2001                                    212,238
    2002                                    212,238
    2003                                    212,238
    2004                                     11,704
</TABLE>

12.  RELATED PARTY TRANSACTIONS

     During the year, the Company had the following transactions with related
     parties:

          -    Included in mineral exploration costs are amounts paid for
               aircraft usage and airborne surveying services of $78,000 (1998 -
               $33,000; 1997 - $27,606) to a company controlled by a director;
               and

          -    Included in salaries, management fees, and benefits are
               management fees aggregating $2,400 (1998 - $8,817; 1997 -
               $102,022) which were paid to companies employing the services of
               a director.


13.  INCOME TAXES

     Future income tax assets consist of the following temporary differences:

<TABLE>
<CAPTION>
                                                               1999               1998               1997
                                                               ----               ----               ----
<S>                                                         <C>                <C>                <C>
    Mineral exploration costs                                  744,855            717,165            124,197
    Capital assets                                             117,689             99,628             68,279
    Scientific Research and Experimental Development            94,471             94,471             94,471
    Expenditures
    Loss carry forwards                                        662,389            579,661            520,778
    Share issuance costs                                        79,473            141,134            214,766
    Valuation allowance                                     (1,698,877)        (1,632,059)        (1,022,491)
                                                            ----------         ----------         ----------
                                                                    --                 --                 --
                                                            ----------         ----------         ----------
</TABLE>

                                      F-15
<PAGE>   64
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


13.  INCOME TAXES (CONTINUED)

     At December 31, 1999, the Company has the following deductions available
     which have been reflected in the financial statements:

          -    Canadian mining exploration costs and undepreciated capital cost
               allowance of $9.3 million (1998 - $9.0 million; 1997 - $8.0
               million) which may be carried forward indefinitely; and

          -    Scientific Research and Experimental Development costs of
               $211,000 (1998 - $211,000; 1997 - $211,000) which also may be
               carried forward indefinitely.

     In addition to the above, the Company has the following deductions
     available which have not been reflected in the financial statements:

          -    Capital losses of $680,000 which may be carried forward
               indefinitely; and

          -    Investment tax credits of $38,000 available for carry forward to
               2005.

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

<TABLE>
<CAPTION>
                                                                  1999              1998               1997
                                                                  ----              ----               ----
<S>                                                             <C>              <C>                <C>
Loss before taxes                                                802,497          3,217,096          4,539,479
                                                                 =======          =========          =========

Expected tax recovery at 44.62%                                  358,074          1,435,468          2,025,516
Tax effect of expenses not deductible for tax purposes
     Meals and other                                              (7,241)            (3,361)           (10,903)
     Non-deductible portion of capital gain                         (233)           (11,713)                --
     Non-deductible portion of investment write down              (1,580)           (15,976)           (59,040)
Resource allowance                                               (62,045)           (58,181)                --
Share issuance costs                                              77,096             74,896                 --
Losses of foreign subsidiaries                                    (9,008)          (321,965)        (1,078,300)
Valuation allowance                                             (128,263)          (772,441)          (877,273)
                                                                 -------          ---------          ---------
Future Income Tax Recovery                                       226,800            326,727                 --
                                                                 =======          =========          =========
</TABLE>

14.  SEGMENTED INFORMATION

     The Company's principal business segment is the acquisition, exploration of
     mineral leases and permits. All of the Company's leases and permits are in
     the exploration stage. The Company's activities are focused in Western
     Canada, as detailed in Note 8.


15.  FINANCIAL INSTRUMENTS

     The Company's financial instruments include cash, accounts receivable,
     investment and accounts payable. There are no material differences between
     their fair values and carrying values at the balance sheet date.


16.  UNCERTAINTY DUE TO YEAR 2000 ISSUE

     The Year 2000 Issue arises because many computerized systems use two digits
     rather than four to identify a year. Date-sensitive systems may recognize
     the year 2000 as 1900 or some other date, resulting in errors when
     information using year 2000 dates is processed. In addition, similar
     problems may arise in some systems which use certain dates in 1999 to
     represent something other than a date. Although the change in date has
     occurred, it is not possible to conclude that all aspects of the Year 2000
     Issue that may affect the Company, including those related to customers,
     suppliers, or other third parties, have been fully resolved.

                                      F-16
<PAGE>   65
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


17.  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 (GAAP) in Canada.
     Significant differences between GAAP in Canada and the United States that
     would have an effect on these consolidated financial statements are as
     follows:

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

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

     For U.S. GAAP purposes, any write down of capitalized exploration costs
     would be considered an operating expense and included in the determination
     of operating loss for the period in which the write down occurred.

     For U.S. GAAP purposes, shares held in escrow which are performance based,
     have been excluded from the earnings per share calculation.

     Under U.S. GAAP, the balance of any unspent funds raised under a
     flow-through arrangement is considered restricted cash and would require
     separate disclosure on the face of the balance sheet. In addition, such
     restricted amounts would not be considered cash and cash equivalents for
     cash flow reporting purposes. The amount of such restricted cash applicable
     to future flow-through expenditures included in the balance sheet was
     $346,096 at December 31, 1999 (1998 - $157,369; 1997 - $nil).

     Future income taxes related to flow-through shares for renunciation of
     qualified resource expenditures, are treated as a cost of issuing those
     securities for Canadian GAAP. For U.S. GAAP, these costs are included in
     the future tax provision.



     If these consolidated financial statements were prepared in accordance with
     US GAAP, the impact on the balance sheets would be as follows:

<TABLE>
<CAPTION>
                                                                    SEPT. 30,
                                                                      2000             1999            1998             1997
                                                                      ----             ----            ----             ----
<S>                                                                <C>               <C>             <C>              <C>
     Mineral exploration costs under Canadian GAAP                 10,102,037        7,828,506       7,195,948        8,555,331
     Exploration expenditures                                      10,102,037        7,828,506       7,195,948        8,555,331
                                                                   ----------       ----------      ----------       ----------
     Mineral exploration costs under U.S. GAAP                             --               --              --               --
                                                                   ==========       ==========      ==========       ==========
     Deficit under Canadian GAAP                                   11,432,738        9,997,545       9,421,848        6,531,479
     Exploration expenditures                                      10,102,037        7,828,506       7,195,948        8,555,331

     Future income taxes                                              631,442          631,442         423,869          300,698
                                                                   ----------       ----------      ----------       ----------
     Deficit under U.S. GAAP                                       22,166,217       18,457,493      17,041,665       15,387,508
                                                                   ==========       ==========      ==========       ==========
</TABLE>

     In addition, the impact on the consolidated statements of loss would be as
     follows:

<TABLE>
<CAPTION>
                                                   SEPT. 30,       SEPT. 30,
                                                     2000            1999           1999           1998           1997
                                                     ----            ----           ----           ----           ----
<S>                                                <C>             <C>            <C>           <C>             <C>
     Net loss for the year under Canadian
        GAAP                                       1,435,193        513,939         575,697      2,890,369      4,539,479
     Exploration expenditures                      2,273,531        435,429         632,558     (1,359,382)       936,386

     Future income taxes                                  --             --         207,573        123,171             --
                                                   ---------        -------       ---------      ---------      ---------
     Net loss for the year under U.S. GAAP         3,708,724        949,368       1,415,828      1,654,158      5,475,865
                                                   =========        =======       =========      =========      =========
     Loss per share under U.S. GAAP                     0.11           0.04            0.05           0.08           0.35
                                                   =========        =======       =========      =========      =========
</TABLE>

                                      F-17
<PAGE>   66
                                                   BIRCH MOUNTAIN RESOURCES LTD.
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                          As at December 31, 1999, 1998 and 1997


17.  MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES (CONTINUED)

     The balances and transactions relating to September 30, 2000 or 1999 are
     unaudited.


     For U.S. GAAP purposes, the Company has adopted APB Opinion No.25,
     Accounting for Stock Issued and Employees ("APB 25"), to account for stock
     based compensation to employees and directors using the intrinsic value
     based method whereby compensation cost is recorded for the excess, if any,
     of the quoted market price, at the date granted. As at December 31, 1999 no
     compensation cost has been required to be recorded for any period under
     this method as the option price has been equal to the market price on the
     date of the grant.

     The Statement of Financial Accounting Standards No. 123, Accounting for
     Stock-Based Compensation ("SFAS 123"), issued in October 1995, requires the
     use of the fair value based method of accounting for stock options. Under
     this method, compensation cost is measured at the date of grant based on
     the fair value of options granted and is recognized over the vesting
     period. These costs were calculated in accordance with the Black-Scholes
     option pricing model, assuming no dividends are to be paid, vesting
     occurring on the expiration of the grant, volatility of 37%, 20%, 60%,
     158%, and 136% for years 1999 to 1995 respectively, and an annual risk free
     rate of 5%.

     Had the Company adopted SFAS 123 for its US GAAP disclosure, the following
     net losses would have been reported

<TABLE>
<CAPTION>
                                               SEPT. 30,         SEPT. 30,
                                                 2000              1999            1999             1998             1997
                                                 ----              ----            ----             ----             ----
<S>                                            <C>              <C>              <C>              <C>              <C>
Net loss under US GAAP                         2,308,724          949,368        1,415,828        1,654,158        5,475,865
Proforma stock compensation, after net
tax affect                                                         64,000          496,591           84,506           90,705
                                               ---------        ---------        ---------        ---------        ---------
Proforma net loss under U.S. GAAP              2,308,724        1,013,368        1,912,419        1,738,664        5,566,570
                                               =========        =========        =========        =========        =========
Proforma loss per share under U.S. GAAP             0.07             0.03             0.07             0.08             0.35
                                               =========        =========        =========        =========        =========
</TABLE>

                                      F-18