UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended December 31, 2001

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
_______________

BIRCH MOUNTAIN RESOURCES LTD.(Exact name or Registrant as specified in its charter)

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

Alberta, Canada
(Jurisdiction of incorporate or organization)

Suite 3100, 205 - 5th Avenue
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 registered or to be registered pursuant to Section 12(g) of the Act:



Common shares, without par value
(Title of Class)



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:



None



Indicate the number of
outstanding shares of each of the issuer's classes of capital stock as of the
close of the period covered by the annual report.



33,647,122 Common 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 report),
and (2) has been subject to such filing requirements for the past 90 days.



Not Applicable



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



Item 17 x               
Item 18 [  ]

TABLE OF CONTENTS



|GLOSSARY & ABBREVIATIONS                          |                                                                            
|------------------------------------------------- | ---------------------------------------------------------------------------
|SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS |                                                                            
|REPORTING CURRENCY AND FINANCIAL INFORMATION      |                                                                            
|ITEM 1                                            | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS                      
|                                                  |                                                                            
|ITEM 2                                            | OFFER STATISTICS AND EXPECTED TIMETABLE                                    
|ITEM 3                                            | KEY INFORMATION                                                            
|ITEM 4                                            | INFORMATION ON BIRCH                                                       
|ITEM 5                                            | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                               
|ITEM 6                                            | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                 
|ITEM 7                                            | MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS                          
|ITEM 8                                            | FINANCIAL INFORMATION                                                      
|ITEM 9                                            | THE OFFER AND LISTING                                                      
|ITEM 10                                           | ADDITIONAL INFORMATION                                                     
|ITEM 11                                           | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                 
|ITEM 12                                           | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                     
|ITEM 13                                           | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                            
|ITEM 14                                           | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE OF PROCEEDS
|ITEM 17                                           | FINANCIAL STATEMENTS                                                       
|ITEM 18                                           | FINANCIAL STATEMENTS                                                       
|ITEM 19                                           | EXHIBITS                                                                   

GLOSSARY & ABBREVIATIONS



Certain terms and their usage used throughout this annual
report are defined below.





|ABCA                                   | Means the Business Corporation Act (Alberta).                                                                                                                                                                                                                                                                                                                        
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 unusual 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 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 of 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.                                                                                                                                                                                                                                                                          
|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 or Tier 2 Company       | The TSX Venture Exchange currently classifies issuers
    into two different tiers based on standards including historical financial
    performance, stage of development and financial resources of the issuer.                                                                                                                                                    
|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.                                                                                                                                                                                                                                                                                                                              
|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
                            (1,000 kilograms)
|                    | 1 Tonne              | = | 2,204.6 Pounds                                                 
|                    | 1 Ton                | = | 2,000 Pounds                                                   
|                    | 1 Troy ounce per 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                                          

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

The information presented in or incorporated by reference in
this annual report includes both historical information and "forward-looking
statements" (within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended)
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 Birch. 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 Birch 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 Birch or persons acting on
its behalf are expressly qualified in their entirety by this notice. Birch
disclaims any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.

REPORTING CURRENCY AND FINANCIAL INFORMATION

Currency and Exchange Rates

Financial information in this annual report is expressed in Canadian dollars,
unless otherwise noted. References to "Cdn$" or "$" are to Canadian dollars. The
following tables sets forth, for the period indicated, the high and low exchange
rates, the average of the month-end exchange rates and the period-end exchange
rate of the Canadian dollar in exchange for United States dollars, based upon
the inverse of exchange rates reported by the Federal Reserve Bank of New York
at the noon buying rates in New York City for cable transfers payable in
Canadian dollars as certified for customs purposes. On June 4, 2002 the noon
buying rate was Cdn$1.00 = U.S.$0.6549.

|                            | Three Months Ended
    March 31, | Twelve Months Ended December 31,
|--------------------------- | -------------------------------- | --------------------------------
|                            | 2002                             | 2001                            
|Rate at End of Period       | $0.6271                          | $0.6672                         
|Average Rate During period. | 0.6274                           | 0.6461                          
|High Rate During            | 0.6355                           | 0.6714                          
|Low Rate During             | 0.6175                           | 0.6227                          

Note:

(1) Average Rate During Period means the average rate of exchange based
    upon the closing rate of exchange on the last day of each month during the
    year or period indicated.

The following table sets forth the high and low exchange rates for the
Canadian dollar in exchange for United States dollars, for each month during the
previous six months, based upon the inverse of exchange rates reported by the
Federal Reserve Bank of New York at the noon buying rates in New York city for
cable transfers payable in Canadian dollars as certified for customs purposes.

|                               | May     | April   | March   | February | January | December
|------------------------------ | ------- | ------- | ------- | -------- | ------- | --------
|Rate at End of Period          | $0.6468 | $0.6485 | $0.6342 | $0.6536  | $0.6649 | $0.6672 
|Average Rate
    During Period | 0.6488  | 0.6413  | 0.6419  | 0.6571   | 0.6651  | 0.6566  
|High Rate                      | 0.6428  | 0.6428  | 0.6333  | 0.6480   | 0.6592  | 0.6436  
|Low Rate                       | 0.6550  | 0.6550  | 0.6554  | 0.6714   | 0.6713  | 0.6693  

ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

A.    Directors and Senior Management

This item is not applicable.

B.    Advisors



This item is not applicable.

C.    Auditors

The auditors of Birch for the preceding three years are Barr Shelley Stuart,
Chartered Accountants and Meyers Norris Penny, Chartered Accountants, Suite 600,
808 - 4th Avenue S.W., Calgary, Alberta, T2P 3E8. On June 1, 2000, Barr Shelley
Stuart merged with and continued under the name of Meyers Norris Penny.

ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE

This item is not applicable.



A.    Selected Financial Information



The following selected consolidated financial data for the
years ended December 31, 2001, 2000, 1999, 1998, and 1997 are derived from the
audited consolidated financial statements for the periods indicated and should
be read in conjunction therewith. References to the three-month periods ended
March 31, 2001 and 2000 are derived from Birch unaudited quarterly reports to
shareholders and should be read in conjunction therewith. All monetary
references contained in this Item 3 are in Canadian dollars.



SELECTED FINANCIAL INFORMATION TABLE

|                                   | Three
    Months Ended March 31                                                                                 |        | Twelve Months Ended December 31,
|---------------------------------- | --------------------------------------------------------------------------------------------------------------- | ------ | --------------------------------
|                                   | 2001                                                                                                            | 2000   |                                 
|Canadian GAAP (1)                  | (in thousands of
    Canadian dollars, except loss per share in dollars and share outstanding in
    thousands)
|Revenues                           | 0                                                                                                               | 21     |                                 
|Expenses                           | 584                                                                                                             | 626    |                                 
|(Loss) before income taxes         | (584)                                                                                                           | (605)  |                                 
|Net (loss) for the year            | (568)                                                                                                           | (553)  |                                 
|(Loss) per share(2)                | (0.02)                                                                                                          | (0.02) |                                 
|Total Assets                       | 475                                                                                                             | 2,518  |                                 
|Liabilities                        | 682                                                                                                             | 355    |                                 
|Shareholders' Equity               | (207)                                                                                                           | 2,163  |                                 
|Total Common Shares outstanding(3) | 33,647                                                                                                          | 33,553 |                                 

|                                   | Three
    Months Ended March 31                                                                                 |        | Twelve Months Ended December 31,
|---------------------------------- | --------------------------------------------------------------------------------------------------------------- | ------ | --------------------------------
|                                   | 2001                                                                                                            | 2000   |                                 
|U.S. GAAP (4)                      | (in thousands of
    Canadian dollars, except loss per share in dollars and share outstanding in
    thousands)
|Revenues                           | 0                                                                                                               | 21     |                                 
|Expenses                           | 584                                                                                                             | 626    |                                 
|(Loss) before income taxes         | (584)                                                                                                           | (605)  |                                 
|Net (loss) for the year            | (584)                                                                                                           | (605)  |                                 
|(Loss) per share(2)                | (0.02)                                                                                                          | (0.02) |                                 
|Total Assets                       | 475                                                                                                             | 2,518  |                                 
|Liabilities                        | 682                                                                                                             | 355    |                                 
|Shareholders' Equity               | (207)                                                                                                           | 2,163  |                                 
|Total Common Shares outstanding(3) | 33,647                                                                                                          | 33,553 |                                 

Notes:

(1)    Refers to Canadian Generally Accepted Accounting Principles.

(2)    The net loss per common share was calculated using the weighted
    average number of common shares outstanding during the period indicated.

(3)    End of period. Excludes stock options and any other outstanding
convertible securities.

(4)    Refers to U.S. Generally Accepted Accounting Principles.

Neither Birch nor its predecessors have declared or paid dividends on its
common shares during the last five fiscal periods. Any future decision to
declare dividends on Birch common shares will be made by the Board of Directors
depending upon the financial requirements of Birch to finance growth, the
financial condition of Birch and other factors that the Board of Directors of
Birch may consider appropriate in the circumstances. Birch anticipates that
future earnings will be retained for the development of its business and does
not anticipate the payment of dividends to shareholders for the foreseeable
future.

B.    Capitalization and Indebtedness

This item is not applicable.

C.    Reasons for the Offer and Use of Proceeds

This item is not applicable.

D.    Risk Factors

Legal, Regulatory and Stock Exchange Listing Risks

In all areas where Birch conducts exploration 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 that
may adversely affect Birch's revenues and/or the economic viability of a
project.

Based on the past experience of the Company with respect to the TSX Venture
Exchange or the TSXV, formerly the Canadian Venture Exchange Inc., management of
the Company believes there is a risk that the Company's common shares may be
halted or suspended from trading on the TSXV. 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 TSXV on June 16, 2000. On June 28,
2000, the TSXV suspended trading in the Company's common shares. The news
release of June 15, 2000 contained statements that, in the view of the TSXV,"...indicate
or infer that the Company has developed a technology that can detect and/or
extract gold not quantifiable by conventional means." The TSXV 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 TSXV, ".... 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, [it] would require independent verification by a
qualified professional known to the Exchange."

Following a period of information review and consultation, the Company agreed
to (a) issue a clarifying news release, (b) allow the TSXV to conduct an
independent technical audit, and (c) provide an undertaking to the TSXV by
insiders of the Company not to trade in the Company's securities until the
independent audit was complete. On this basis, the TSXV agreed to allow trading
in Birch's shares to resume. The clarifying news release was issued on September
27, 2000, and the TSXV reinstated trading of 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.

Associated Mining Consultants Ltd. or AMCL of Calgary conducted the
independent technical audit. Its final report was issued to the TSXV and the
Company on February 8, 2001. The Company issued a news release on February 16,
2001, that contained AMCL's conclusions and the statement that Birch considered
the audit process to have been flawed and disagreed with most of the report's
conclusions. The TSXV again suspended trading of the Company's common shares on
March 5, 2001, based on information in the AMCL audit report. The Company
detailed its disagreements with the AMCL conclusions and filed these, together
with other third-party reports, as part of an appeal of the suspension of
trading with the Alberta Securities Commission or the ASC on March 9, 2001.

On April 3, 2001, the ASC issued a directive to hear the Company's appeal,
and ordered the TSXV to table the "record" of documents in its possession used
in making the determination to suspend trading of the Birch common shares.
Despite efforts throughout most of 2001, there was no response from the TSXV
until the Company and a group of shareholders filed applications with the ASC
for a hearing de Novo on October 30, 2001. In response to this action,
legal counsel for the TSXV proposed an appeal to the TSXV's Listed Company
Review Panel. On consideration of its options, and preserving the right of
appeal to the ASC, Birch filed an appeal with the Listed Company Review Panel.
On December 14, 2001, the members of the independent Panel were named, and the
first meeting to discuss process took place on December 18, 2001. Birch
requested a hearing de Novo, or a hearing in which new evidence could be
presented. The TSXV objected, and a preliminary hearing on this application was
held January 4, 2002. The Panel granted the Company's application for a hearing
de Novo, citing a "reasonable apprehension of bias" on the part of the
TSXV. The full text of the decision of the Panel is available, by request, from
the Company.

The full hearing was to begin January 28, 2002, but Birch accepted a proposal
from the TSXV for a negotiated settlement. After protracted discussions, an
extensive news release was issued March 7, 2002, and trading of the Company's
common shares resumed on the TSXV on March 11, 2002. The TSXV advised that "no
adverse inference should be drawn from the suspension." 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,
September 27, 2000, and March 7, 2002 for clarification.

Contractual and Financing Risks

The Company holds large land blocks under metallic and industrial mineral
permits and mineral leases issued by the Government of Alberta. The terms and
conditions of 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.

Exploration assessment reports are filed with the government to document the
work, results and money spent on exploration conducted by the Company for each
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. The Company continues its exploration and
anticipates that the extent of its mineral properties will be reduced in the
future to areas Birch believes to be the most prospective. Annual rental
payments on mineral leases in the Athabasca valley will cost $171,000 in the
year 2002, 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. 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 mineral technology for which it filed a U.S.
patent application in mid-2000. 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 Company will
continue to develop new mineral technology, but there is no assurance that it
will be economically viable or that there will be a market for the new
technology.

Intellectual Property Protection

The Company relies on a combination of patent, confidentiality procedures and
contractual provisions to protect its proprietary rights to 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 or intellectual property. 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

Birch is an exploration stage company. Mineral exploration involves a high
degree of risk that 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
potentially 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 internal and independent 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.

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
is completing a review of the Canadian Environmental Assessment Act, with
the objective of reforming this statute. The Company expects that more stringent
regulations, but also including more clearly defined approval procedures, 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 Birch may not be able to
continue as a going concern as a result of a lack of profits. The Company has
used substantial amounts of working capital in its operations and has sustained
significant operating losses. During the fiscal year ended December 31, 2001,
the Company raised $72,500 from a private placement. Birch announced a private
placement financing April 22, 2002, to raise $525,000 as a first step in a
multi-staged financing later increased to $750,750. The Company announced on
June 10, 2002 an initial closing of this private placement by issuing 881,652
units for gross proceeds of $308,580. Birch announced that it plans to issue up
to 2,145,000 units in the current financing priced at $0.35 per unit, each unit
consisting of one common share and one common share purchase warrant, with each
warrant entitling the holder to purchase an additional common share at $1.00 for
a period of fourteen months from closing. 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 December 31, 2002, 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. See Item 10 - "Additional
Information - Memorandum and Articles of Association - Rights and Privileges of
Shareholders".

Gold and Precious Metal Pricing Risks

If the Company were able to identify an economic mineral deposit on its
mineral permits or 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.

Recently the price of gold has begun to move off its 20 year lows. As of June
20, 2002, the closing spot gold price was US$323.20 per troy ounce. The
following table sets forth the average of the daily closing prices for gold for
the periods indicated, as reported by the London Metal Exchange:



|Year
    Ended December 31,
|---------------------------
|                           
|Gold (US$/troy ounce)      





ITEM 4 INFORMATION ON BIRCH

A.    History and Development of Birch

According to a Certificate of Amalgamation issued on December 31, 1995, under
the provisions of the ABCA, Birch was formed by the merger of one of Birch's
predecessors, also named Birch Mountain Resources Ltd., and its wholly owned
subsidiary, Birch Mountain Minerals Ltd.

Birch's head office and registered office are located at 3100, 205 Fifth
Avenue S.W., Calgary, Alberta T2P 2V7, phone: (403) 262-1838, and Suite 2300,
530 - 8th Ave. S.W., Calgary, Alberta T2P 3S8, phone (403) 237-9050,
respectively.

Over the past three years the Company has expanded its activities from
exploration to include advanced research methodologies to understand the nature
and properties of the precious and non-precious metals in the sedimentary rock
from its exploration properties in northeastern Alberta. In March 2002, Birch
announced that it had organized its operations under a Mineral Exploration
Division and a Mineral Technology Division. The Company's work lead to the
development of methods to extract and image, using high-resolution electron
microscopes, naturally occurring nanoparticulate metals in these rocks. The
commercial significance of these findings has not been determined, but the
results are being used to assist in the development of methods to measure the
concentration of metals in these sedimentary rocks. A reliable method for
measuring metal concentration has not yet been developed or independently
verified.

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 polymers at
interfaces.

The primary functions of the Scientific Advisory Board are:

- 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.

B.    Business Overview

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. The Company is also involved in 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.

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.

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.

Birch Mountain has entered into a contract with AuRIC Precious Metals, Inc.
or AuRIC to purchase a customized fire assay method that AuRIC has developed to
analyze precious metals in rock from the Company's Athabasca property in
northeastern Alberta. Independent testing of AuRIC's method is underway. If
certain conditions are met, including achieving a verified fire assay grade in
excess of 1 g/t precious metal in a chain-of-custody, channel sample from the
Athabasca property, Birch Mountain will pay AuRIC a combination of common shares
and cash in return for exclusive rights to the technology in the regions of
Athabasca, Alberta and Dawson Bay, Manitoba, and non-exclusive rights elsewhere.
At the date hereof, the verification of the AuRIC method was still in progress.

Birch will continue exploration work using the electric logs and geochemical
analyses of core from over one thousand 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 below under
"Property, Plants and Equipment". 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 a major field-drilling program in the
first six months of 2002. Although there are currently no plans for additional
drilling, this may change depending on the results of on-going geological and
laboratory analyses and verification testing of the AuRIC assay method.

C.    Organizational Structure

Birch has one active, wholly owned subsidiary, Dawson Bay Minerals Inc. or
Dawson Bay, a company incorporated pursuant to the CorporationsAct
(Manitoba) on October 24, 1996 with a registered office located at 2200, 201
Portage Avenue, Winnipeg, Manitoba, R3B 3L3. The work activities of the Company
are organized under three divisions: Technology, Exploration and Industrial
Minerals.

D.    Property, Plants and Equipment

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 Birch offsets
approximately one-half of the cost by subletting office space to third parties.

Technology Division

Metallurgical Laboratory

Birch's research activities are principally carried out at the Company's
Calgary laboratory. The laboratory is housed in a 1,800 square foot facility,
which is leased at a cost of $18,600 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, and an inductive coupled plasma-atomic emission
spectrometer is leased at an annual cost of $56,000.

Exploration Division

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 $14,800. Long-term storage facilities are leased at an annual cost of
$22,700.

Exploration Properties

Birch's Alberta mineral properties are located in areas where, over the past
eight 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 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. Through time this has been reduced to
approximately one million acres distributed across Birch's two Alberta mineral
properties: Athabasca and Birch Mountains. Birch continues its exploration and
anticipates that the extent of its mineral properties will be reduced, as work
continues, to areas Birch believes to be the most prospective.

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 royalty right to the original mineral
permit holder or its designees, with no right to purchase the royalty.

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). Birch's mineral lease rental payments are $171,000 in
the year 2002.

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 all of
Birch's mineral leases and 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 sedimentary
rocks, nor in the underlying Devonian limestone, which rights are owned by the
mineral permit and lease holders.

Athabasca: At December 31, 2001 the Athabasca mineral property included
93 Mineral Permits covering approximately 626,531 hectares (1,548,186 acres).
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.





|Year | No. of Permits | Area (hectares) | Area
    (acres)
|---- | -------------- | --------------- | ----------------
|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           



Athabasca Mineral Leases by Issue Date.



At December 31, 2001, the Athabasca property included 27
mineral leases covering approximately 48,785 hectares (120,550 acres).





|Year | No. of Permits | Area (hectares) | Area (acres)
|---- | -------------- | --------------- | ------------
|1991 | 1              | 112             | 277         
|1994 | 2              | 1,991           | 4,920       
|1999 | 1              | 1,024           | 2,530       
|2000 | 23             | 45,658          | 112,823     



Birch Mountains: At December 31, 2001 the Birch Mountains mineral
property comprises 9 mineral permits issued in 1994, covering approximately
82,944 hectares (204,959 acres) and one mineral permit issued December 21, 2001,
covering an additional 9,216 hectares (22,773 acres), for a total of 10 permits
covering 92,160 hectares (227,731 acres). Diamonds are the principal exploration
target; Birch has also conducted some preliminary precious metal exploration on
the Birch Mountains properties. In the Birch Mountains,
Shear Minerals Inc. and Marum Resources Ltd. conducted a drilling program in
early 2002 for diamonds under a option agreement with Birch Mountain; no
potentially diamondiferous rocks were encountered.

2002 Assessment Filings

Alberta Properties

On April 22, 2002, Birch Mountain announced it had filed a
2002 exploration assessment report with the Alberta Department of Energy in the
amount of $5.15 million for work conducted from April 2000 to March 31, 2002, on
its exploration properties in the Athabasca and Birch Mountains. The assessment
expenditures have been applied to 55 metallic and industrial minerals permits
covering 360,675 hectares (891,243 acres). The expenditures included in the 2002
assessment report are sufficient to retain Birch Mountain's priority permits for
the next two years, or until the expiry of their 10-year term, whichever is
earlier. Additional assessment-eligible work has been completed and will be
available for future assessment reports. All exploration permits in the Birch
Mountains have been retained, in accordance with the option agreement with Shear
Minerals Inc. and Marum Resources Ltd. The Athabasca exploration property has
been reduced by 348,800 hectares (861,900 acres) to retain lands considered by
Birch to be most prospective for precious metals. Birch Mountain has maintained
its core exploration land in Athabasca, comprising 48,785 hectares (120,550
acres) held under metallic and industrial mineral leases that require an annual
lease payment of $170,735, and 360,675 hectares (891,243 acres) held under
metallic and industrial mineral permits.



Manitoba Properties



Birch's wholly owned subsidiary, Dawson Bay Minerals Inc.,
announced April 22, 2002, that it allowed the Special Exploration Permit 99-1
covering 9,784 hectares (24,177 acres) near Dawson Bay, Manitoba, to lapse.
Birch Mountain no longer holds any mineral interests in Manitoba.

Industrial Minerals Division

The Company's mineral leases convey the rights to metallic and industrial
minerals, including limestone. Birch has been advised that there is a shortage
of aggregate in northeastern Alberta and a new division to develop this business
opportunity was announced May 28, 2002. The initial focus of the Industrial
Mineral division will be the sale of limestone for the production of aggregate
(gravel) in the Fort McMurray area. Due to the shortage of aggregate for road
construction and other uses, a market may exist for the Company to supply
limestone from its leased areas to local contractors.

ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

General

This discussion should be read in conjunction with Birch's Consolidated
Financial Statements. Birch's Consolidated Financial Statements have been
prepared in accordance with Canadian GAAP, which differ from U.S. GAAP. For a
discussion of these differences, see Note 17 to Birch's Consolidation Financial
Statements.

A.    Operating Results

Years Ended December 31,
1999, 2000 and 2001

Costs and Expenses

Total costs and expenses were $1,685,713 (excluding $941,530 of Mineral
Exploration Expenses) in 2001, down from $2,171,366 in 2000, but up from
$835,687 in 1999. Salaries, management fees and benefits of $428,171 decreased
in 2001 compare to the $475,912 in 2000, but were higher than the $247,870 in
1999. The higher expenses in 2001 and 2000 reflected the significant increase in
laboratory work and the filing of a U.S. and international patent application,
and the preparation of assessment filing to hold our Athabasca and Birch
Mountain mineral permits for two more years. Legal, consulting and staff costs
associated with the suspension of trading imposed by the TSXV and the
independent technical audit ordered by the TSXV represented a major increase in
operating expenses in 2001 and 2000. The total cost of defending the Company
from the actions of the TSXV over these two years was approximately $1,000,000
in staff, consultant and legal expenses. The writing and filing of the Form 20-F
Registration with the U.S. Securities and Exchange Commission also added
considerable professional costs in both 2001 and 2000.

Corporate Income and Expense

Birch Mountain is engaged in mineral exploration and technology development
related to mineral characterization and extraction from rock on its mineral
properties. The Company's main source of income from year to year is interest
earned on its term deposits. The interest income over the 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. Interest and other income in 2001 was $72,560,
a decrease from $194,504 in 2000, and up slightly from $71,096 in 1999.

The Company and its subsidiaries have no income from production because its
properties are still at an exploration stage and the technology is still under
development. The Company spends about $150,000 per month for management and
shareholder services, laboratory analysis, evaluation of geological samples,
travel and other expenses. Outside consulting and legal expenses add to this,
and have run as high as $100,000 per month.

Three Months Ended March
31, 2001 and 2002

Total cost and expenses were $584,005 including $237,135 of exploration costs
in the first quarter of 2002, down from $626,359 in the first quarter of 2001.
Office expenses were down in the first quarter from $81,266 in 2001 to $54,066
in 2002.

Professional fees decreased significantly in the first quarter of 2002 to
$98,122 from $172,155 in 2001. During the year 2001, most of the fees related to
the Company's defense of the suspension imposed by the TSXV. Legal fees in the
first quarter of 2002 totaled $130,334, which were almost entirely associated
with the Company's appeal to the Listed Company Review Panel and the negotiated
settlement with the TSXV. On settlement with the TSXV, the Company was refunded
the fees paid for the technical audit ordered by the TSXV.

Salaries and Management fees and benefits were $124,680 compared to $119,430
for the same period in the prior year.

B.    Liquidity and Capital Resources



Years Ended December 31,
1999, 2000 and 2001



Birch's primary sources of cash have been private placements. At December 31,
2001, its working capital was approximately $75,000 compared with $2.6 million
in 2000. Only one private placement took place during 2001 for the amount of
$72,500. The Company completed private placement financing of $2.7 million in
January 2000, and the exercise of warrants in April 2000 provided an additional
$1.3 million. While Birch Mountain has been successful in raising funds, we
believe junior resource companies will continue to have difficulty financing new
issues in 2002. As a result, the Company will remain prudent and cautious,
preserving working capital by conducting selective field programs and
value-adding laboratory work as well as minimizing general and administrative
costs.

Comparatively, at December 31, 1999, working capital was approximately
$700,000 following private placements in April and November of 1999, which
generated $1.7 million of cash.

Mineral Exploration Costs

Mineral Exploration Costs were $941,530 in 2001 compared with $2.3million in
2000. The Company focused its exploration programs on the Company's two Prairie
Gold prospects, directing 100% of our 2001 exploration expenditures to our
Athabasca project and the rest to our Dawson Bay play. In comparison, capital
expenditures in 1999 were $634,000, with 90% directed to Athabasca.

Mineral Technology Costs

The Company spent $128,068 in 2001 and $160,539 in 2000 on scientific
research, primarily on the development of proprietary extraction and analytical
techniques. Expenditures on mineral technology were reduced in 2001 because of
the commitment of senior technical staff to deal with the actions of the TSXV.
There were no similar expenditures on research in previous years. The results of
the Company's research led to the filing of a U.S. and international patent
application in the spring of 2000. The Company is continuing its work in the
Company's lab, at university and government labs in Canada and at selected
competent independent laboratories in Canada and the U.S.

Financing Activities

Financing activities provided cash of $4,364,500 in 2000, primarily from
proceeds received from private placements. On January 28, 2000, Birch announced
the completion of a non-brokered private placement consisting of 2,365,256 units
under which 1,160,000 common shares were issued with attached flow-through
benefits. Each unit was priced at $1.15 and consisted of one common share and
one-half common share purchase warrant. Each whole common share purchase warrant
entitled the holder to purchase one common share at an exercise price of $1.50
per common share for one year from the date of issuance.

In 1999, Birch completed two non-brokered private placements. The first
consisted of 2.9 million units under which 1.45 million common shares were
issued with flow-through benefits and 1.45 million without. Each unit was priced
at $0.36 and consisted of one common share and one-half common share purchase
warrant. Each whole common share purchase warrant entitled the holder to
purchase one common share at an exercise price of $1.00 per common share on or
before April 12, 2000. Birch announced on April 28, 2000, that 1,322,226 of the
warrants that were issued pursuant to a private placement announced on April 13,
1999 were exercised at $1.00 per common share. The second private placement in
1999 consisted of 491,305 units priced at $1.15 and comprised of one common
share (of which 40,000 had flow-through benefits) and one-half common share
purchase warrant entitling the holder to purchase one common share at an
exercise price of $1.50 on or before November 10, 2000.

On October 24, 2001, Birch announced that the expiry dates of all outstanding
warrants were extended as follows: 228,152 warrants which were to have expired
on November 10, 2001, expire on June 21, 2002; 764,231 warrants which were to
have expired on October 22, 2001, expire on June 21, 2002; 408,614 warrants
which were to have expired on October 25, 2001, expire on June 25, 2002, and
9,782 warrants which were to have expired on October 31, 2001, expire on June
30, 2002. On June 20, 2002, Birch announced that the expiry date of all
outstanding warrants was extended to December 6, 2002. The exercise price of all
warrants remains at $1.50 per share.

In 1999, Birch received a refund of the Seriousness Bond plus interest, in
the amount of $212,629 from the Federal Republic of Indonesia and sold 217,000
shares of Tahera Corporation for proceeds of $8,890. Birch sold the remaining
177,000 shares of Tahera Corporation in 2001 for proceeds of $15,462.50.

There were no options exercised in 2001. In 2000, employees, consultants and
directors of Birch exercised an aggregate of 625,600 stock options pursuant to
Birch's stock option plan. This compares with 257,400 stock options exercised in
1999.

Birch's existing capital resources are inadequate to maintain operations at
our current rate of investment in exploration and research to the end of 2002.
The Company announced a private placement on April 22, 2002 as the first step in
what is planned to be a multi-staged financing to advance the natural
nanoparticle research and precious metal assay verification programs, together
with ongoing corporate activities. There is no assurance that events will not
result in changes affecting the Company's ability to continue operations.
Additional financing may not be available when needed, or if available, it may
not be on terms that are acceptable. To the extent that Birch raises additional
capital by issuing equity or convertible debt securities, ownership dilution to
shareholders will result.

Birch does not use derivative instruments. Other than the Tahera Corporation
shares, which were accepted as a settlement of debt, Birch only invests in bank
guaranteed certificates of deposit, and consequently, does not expect any
material loss from marketable security instruments and believes interest rate
exposure is limited.



Three Months Ended March
31, 2000 and 2001

Comparatively, at March 31, 2001, working capital was approximately
$2,015,000 compare with negative working capital of $420,000 at the end of March
31, 2002. Birch announced a private placement in April, 2002, an initial closing
for $308,580 was announced June 10, 2002 and the Company expects one or more
closings in the current financing before the end of June, 2002. The Company
announced a private placement in February 2001 and the advance deposit share
subscription of $73,357 is shown on the Statement of Cash Flow. The private
placement was completed April 2, 2001 for 94,156 common shares at $0.77.

Mineral Exploration Costs

Mineral Exploration Costs were $237,135 in the first quarter of 2002 compared
with $130,551 in the 2001, the increase of 82% in those costs was due to the
resumption of normal corporate activities.

Mineral Technology Costs

The Company spent only $23,455 on scientific research in the first quarter of
2002 down from $50,235 in the first quarter of 2001. Expenditures on mineral
technology were reduced in 2002 because of the commitment of senior technical
staff to assist with the appeal and settlement negotiations with the TSXV.



C.    Research and Development, Patent and Licenses

During the fiscal year ended December 31, 2000, the Company commenced
research in new mineral technology applications. The research lead to the filing
of a U.S. and international patent applications. It is the Company's policy that
costs associated with such projects are expensed in the period in which they are
incurred. During the fiscal year ended December 31, 2001, the company spent
$128, 068 on scientific research compared to $160,539 in research costs in 2000.
The Company had no research and development expenses during the fiscal year
ended December 31, 1999.

D.    Trend Information



There has been a recent upward trend in the spot price of gold and many
analysts predict that the price will continue to be strong for several years.
However, the Company has no expertise in predicting future market trends in the
price of gold or other precious metals. If the price of gold remains strong, the
Company's share price may respond, but Birch has no production and, therefore,
there will be no impact on revenue even if the price of gold remains at current
or higher levels. If the upward trend in the spot price of gold continues, it
may make future financings more attractive to investors.

ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    Directors and Senior Management

The following table sets forth the name, business experience, functions and
areas of experience in Birch and principal business activities performed outside
of Birch (including, in the case of directors of Birch, other principal
directorships) of each director, member of senior management and employees upon
whose work Birch is dependent:



|Name                     | Business Experience and Function                                              |  | Principal Business Activities and principal Directorships                                                                                                                                                                                                                                                                                                                                                                                                   | Number of Common Share and Percentage of Class Held
|------------------------ | ----------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------
|Douglas J. Rowe          | Director, President and Chief
    Executive Officer of Birch
    since 1994   |  | Mr. Rowe is President and CEO of the Company, and 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.                                                                                                                                                                                   | 2,132,983
    (6.17%)                              
|Kerry E. Sully           | Chairman of the Board 
    and Director since 1995                            |  | Mr. Sully has been President and CEO of CGX Energy Inc.
    since March, 1999, and was President, Chief Executive Officer and a director
    of Ranchmen's Resources Ltd. from 1989 to 1995.                                                                                                                                                                                                                                                                | 50,000
    (0.14%)                                 
|Donald L. Dabbs          | Vice-President, 
    Chief Financial Officer 
    and Director
    since 1994 |  | Mr. Dabbs was the President and Chief Executive Officer
    of Niaski Environmental Inc. from February 1998 to August 1999. He was
    Regional Manager, Bovar Environmental, and had served as a Vice-President of
    Concord Environmental Corporation from 1988 to 1994. There, Mr. Dabbs was
    responsible for resource development planning and regulatory approvals for
    clients, particularly in the Athabasca oil sands.                      | 353,972
    (1.03%)                                
|Lanny K. McDonald        | Director since 1995                                                           |  | In 1990, after more than 16 years of National Hockey
    League play, Mr. McDonald joined the Calgary Flames as Vice President for
    ten years. He is now Marketing Director with Baker Hughes Canada.                                                                                                                                                                                                                                                    | 145,000
    (0.42%)                                
|Dr. Hugh
    Abercrombie | Vice-President, Exploration
    since November 1998                           |  | 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. | 70,699
    (0.2%)                                  
|Dr. Jack Clark           | Director since April, 2001                                                    |  | Dr. Clark has over 40 years of engineering experience.
    For 15 years he was President & CEO of C-CORE, an applied research company
    in St. John's, Newfoundland & Labrador. Dr. Clark has been an Honorary
    Professor of Engineering at Memorial University of Newfoundland and
    continues to consult to a wide range of government and industry clients.                                                                                       | Nil                                                
|Charles Hopper           | Director since April, 2001                                                    |  | Mr. Hopper is a Managing Director of Lehman Brothers,
    Inc. of New York and has twenty-five years experience in the financial
    industry. During the past four years at Lehman Brothers, Mr. Hopper has been
    responsible for Private Client Services Asset Management.                                                                                                                                                                             | Nil                                                
|John R. Houghton         | Corporate Secretary since
    December, 1998                                  |  | 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.                                                                                                                                       | Nil                                                
|Suzanne L. Loov          | Assistant Corporate
    Secretary since February,
    2001                    |  | Partner of Armstrong Perkins Hudson
    LLP since January 1, 2001, practicing in the areas of corporate and
    securities law and prior to that associate lawyer with Armstrong Perkins
    Hudson LLP since May 30, 1994.                                                                                                                                                                                                                                 | 50,363
    (0.15%)                                 



To the knowledge of Birch, there are no arrangements or understandings with
major shareholders, customers, suppliers or others, pursuant to which any person
referred to above was selected as a director or member of senior management of
Birch and there is no family relationship between any of the persons named above.
Pursuant to an Option Agreement dated May 9, 1996, among
Birch, Calvyn M. Loree, James A. Brown, Saskatoon Natural Resources Ltd. and
Robert M. Friedland, Mr. Friedland currently has the right to nominate one
individual to the Board of Directors of Birch; however, no such nomination has
been made by Mr. Friedland for the forthcoming year.

B.    Compensation

The following table sets forth the amount of compensation that was paid and
benefits that were granted in the financial year ended December 31, 2001 to each
of the individuals listed in Item 6(A) above.

|Name                 | Compensation | Benefits
|-------------------- | ------------ | --------
|Douglas J. Rowe      | $140,000     |         
|Kerry E. Sully       | 0            |         
|Donald L. Dabbs      | $105,000     |         
|Lanny K. McDonald    | 0            |         
|Dr. Hugh Abercrombie | $105,000     |         
|Dr. Jack Clark       | 0            |         
|Charles Hopper       | 0            |         
|John R. Houghton     | 0            |         
|Suzanne L. Loov      | 0            |         

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 TSX Venture Exchange) and was approved by the
shareholders on November 2, 1994.

The Board of Directors of the Company approved a new stock option plan (the
"2002 Plan") for the Company on March 27, 2002. The purpose of the 2002 Plan is
to afford the persons who provide services to the Company, whether directors,
officers, consultants or employees of the Company or its subsidiaries, an
opportunity to obtain a proprietary interest in the Company by permitting them
to purchase common shares of the Company and to aid in attracting, retaining and
encouraging the continued involvement of such persons with the Company. The 2002
Plan subject to shareholder approval at the Annual General and Special Meeting
of shareholders to be held on June 20, 2002. The 2002 Plan is summarized as
follows.

Pursuant to the 2002 Plan, the Board of Directors of the Company or a special
committee of directors appointed from time to time by the Board of Directors of
the Company (the Board of Directors or such committee is hereinafter referred to
as the "Board") may allocate non-transferable options to purchase common shares
of the Company to directors, officers, employees and consultants of the Company
and its subsidiaries and employees of a person or company which provides
management services (excluding investor relations services) to the Company or
its subsidiaries ("Management Company Employees") (such persons hereinafter
collectively referred to as "Participants").

Under the 2002 Plan, the number of common shares subject to an option granted
to any one Participant shall be determined by the Board; however, the aggregate
number of common shares which may be reserved for issuance pursuant to the
exercise of all options under the 2002 Plan may not exceed 3,392,674 and the
aggregate number of common shares which may be reserved for issuance pursuant to
the exercise of options granted to any one individual, either under the 2002
Plan or previously granted, may not exceed the maximum number permitted by any
stock exchange or exchanges on which the common shares of the Company are then
listed and any other regulatory body having jurisdiction (hereinafter
collectively referred to as the "Exchange").

Together with currently issued and outstanding stock options to purchase
3,313,750 common shares, the 3,392,674 common shares reserved pursuant to the
2002 Plan constitute an aggregate of 6,706,424 which is 19.85% of the issued and
outstanding 33,647,122 common shares of the Company. Of the 3,392,674 common
shares reserved pursuant to the 2002 Plan, 1,415,000 stock options have been
granted to officers, directors, employees and consultants subject to obtaining
shareholder approval of the 2002 Plan.

The 2002 Plan provides that the exercise price of the common shares subject
to each option shall be determined by the Board, subject to applicable Exchange
approval.

The 2002 Plan provides that the option period shall be a period of time fixed
by the Board not to exceed the maximum period of time permitted by the Exchange.
Where the Company has less than or equal to 10% of its issued and outstanding
common shares reserved for issuance under options, options shall vest and may be
exercised during the option period in such manner as the Board determines. Where
the Company has greater than 10% of its issued and outstanding common shares
reserved for issuance under options, options shall vest and may be exercised
during the option period as to one-third on each of the dates that are six,
twelve and eighteen months from the date of grant, or in accordance with such
other vesting schedule which shall be acceptable to the Exchange.

If a Participant shall cease to be a director, officer, employee or
consultant of the Company or its subsidiaries or a Management Company Employee
for any reason (other than death) he may exercise his option, to the extent it
was vested, only within 90 days after ceasing to be a director, officer,
employee, consultant or Management Company Employee, unless such Participant was
engaged in investor relations activities, in which case only within 30 days
after the cessation of services to the Company. In the event of the death of a
Participant, the option may be exercised only within one year of death.

If the outstanding common shares of the Company are increased, decreased or
changed into or exchange for a different number or kind of shares of the
Company, the Board shall, in its discretion, make an appropriate and
proportionate adjustment in the number of kind of shares subject to the option
and exercise price.

Upon the liquidation or dissolution of the Company, or upon a
re-organization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all of the property or more than 80% of the
shares of the Company to another corporation, the 2002 Plan shall terminate and
any options granted under the 2002 Plan shall terminate, unless otherwise
provided in such transaction. If the 2002 Plan and options shall terminate, all
options shall immediately vest and the Participants shall be entitled to
exercise options then outstanding prior to consummation of such transaction.

The following table sets forth the number of options to purchase common
shares of Birch granted under both option plans, the purchase price and the
expiration date of options granted to each of the individuals listed in Item
6(A) above.

|Name                    | Number of options to purchase
    Common Shares       | Purchase Price                                | Expiry Date                                                                          
|----------------------- | ----------------------------------------------------- | --------------------------------------------- | -------------------------------------------------------------------------------------
|Douglas J. Rowe         | 200,000
    120,000
    390,000
    90,000            | $0.35
    $1.36
    $0.26
    $0.34           | Nov. 16, 2003
    Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007                 
|Kerry E. Sully          | 75,000
    50,000
    150,000
    125,000             | $0.35
    $1.36
    $0.26
    $0.34           | Nov. 16, 2003
    Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007                 
|Donald L. Dabbs         | 50,000
    80,000
    200,000
    100,000             | $0.35
    $1.36
    $0.26
    $0.34           | Nov. 16, 2003
    Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007                 
|Lanny K. McDonald       | 50,000
    50,000
    100,000
    150,000             | $0.35
    $1.36
    $0.26
    $0.34           | Nov. 16, 2003
    Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007                 
|Dr. Hugh J. Abercrombie | 150,000
    65,000
    120,000
    100,000
    65,000 | $0.90
    $0.35
    $1.36
    $0.26
    $0.34 | Mar. 9, 2003
    Nov. 16, 2003
    Nov. 18, 2004
    Mar. 18, 2007
    April 03, 2007
|Dr. Jack Clark          | 125,000
    100,000
    125,000                       | $0.65
    $0.26
    $0.34                     | April 24, 2006
    Mar. 18, 2007
    April 03, 2007                                  
|Charles Hopper          | 100,000
    25,000
    100,000
    125,000            | $0.60
    $0.65
    $0.26
    $0.34           | Jan. 27, 2006
    April 24, 2006
    Mar. 18, 2007
    April 03, 2007                
|John R. Houghton        | 50,000
    50,000
    50,000
    50,000               | $0.22
    $0.35
    $1.36
    $0.34           | July 13, 2003
    Nov. 16, 2003
    Nov. 18, 2004
    April 03, 2007                 
|Suzanne L. Loov         | 100,000
    40,000                                    | $0.65
    $0.34                               | April 24, 2006
    April 03, 2007                                                    

C.    Board Practices

Directors are elected annually at Birch's annual meeting of shareholders and
hold office until the earlier of their resignation or removal from office at a
subsequent annual meeting of shareholders. The Board of Directors may fill
vacancies created by departing directors between annual shareholders meetings.
Directors representing in number up to one-third the size of the board elected
at the most recent shareholders meeting may be appointed by the Board of
Directors between shareholders meetings.

Audit Committee

The Audit Committee of Birch currently consists of Charles Hopper, Kerry E.
Sully and Donald L. Dabbs. There have been no changes to the membership of this
committee since the most recently completed year-end. The general function of
the audit committee is to review the overall audit plan and Birch system of
internal controls, to review the results of the external audit, and to resolve
any potential disputes with Birch's auditors.

Compensation Committee

The Board of Directors established a Compensation Committee on July 10, 1996,
comprised of Lanny K. McDonald (Chairman of the Compensation Committee and a
director of the Company), Douglas J. Rowe (the President, Chief Executive
Officer and a director of the Company), Kerry E. Sully (Chairman of the Board of
Directors of the Company).

Compensation Policy

The Company's compensation policy has three components: (i) base
salary/consulting fee and benefits, (ii) the award of stock options and (iii)
bonus. The salary/consulting fee for each executive officer is determined having
regard to such executive officer's responsibilities and performance. The
Compensation Committee has provided greater emphasis on the issuance of stock
options to its executive officers as a major form of compensation. In the view
of the Compensation Committee, the issuance of stock options has had the
advantages of encouraging growth in the Company and its share value, while
reducing the cash expenditures required to pay executive salaries. Previously,
the Compensation Committee undertook a review of the compensation paid by
similar junior natural resources issues in setting guidelines for the
compensation of the Company's executive officers. The Company is currently a
party to an employment contract with Douglas J. Rowe dated December 1, 1995, and
approved by the shareholders of the Company on May 31, 1996. Pursuant to the
employment contract Mr. Rowe receives a salary of $108,000 annually and is
entitled to receive stock options as determined from time to time by the
Committee. On December 5, 2000, the Board of Directors of the Company approved
an increase in Mr. Rowe's annual salary to $140,000 per annum, effective June
15, 2000.

D.    Employees

The following table sets out the number of employees of Birch at the end of
each of the past three financial years, including their main category of
activity and geographic location. All of Birch's employees are employed in
Alberta, Canada.

|               | Twelve Months Ended December 31
|-------------- | -------------------------------
|               | 2001                           
|Operations(1)  | 6                              
|Accounting     | 1                              
|Administration | 4                              
|Total          | 11                             

Note:

(1)    Includes personnel involved in technology, exploration and industrial
minerals.

E.    Share Ownership

See Item 6 - "Directors, Senior Management and Employees - Directors and
Senior Management", above, for disclosure regarding share ownership of Birch
directors and executive officers.

ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.    Major Shareholders

To the knowledge of Birch there are no persons or entities who beneficially
hold, directly or indirectly or exercise control or direction over, more than 5%
of the voting rights attached to the issued and outstanding common shares of
Birch except as set forth below:



|Name               | Number of Securities Owned | Percentage of Class
|------------------ | -------------------------- | -------------------
|Douglas J. Rowe(1) | 2,132,983(2)               | 6.17%(3)           



Notes:

|(1) | Mr. Rowe also holds options to purchase common shares of Birch as set
    forth in Item 6(B), above.                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Number of shares is based upon insider trading reports filed by the named
    shareholder with applicable Canadian securities regulatory authorities.
|(3) | Based on 33,647,122 issued and outstanding common shares.                                                                                            

The major shareholders of Birch do not have different voting rights than
other shareholders.

As of May 31, 2002, 67 holders having an address of record within the United
States of America owned 8,032,056 common shares, representing 23.9% of Birch's
33,647,122 (as of May 31, 2002) outstanding common shares.

B.    Related Party Transactions

During the Company's last fiscal year and up to the date of this annual
report, Birch has had no transactions and there are no presently proposed
transactions which are material to Birch or a related party, or any transactions
that are unusual in their nature or conditions, involving goods, services, or
tangible or intangible assets with (a) enterprises that, directly or indirectly,
through one or more intermediaries, control or are controlled by, or are under
common control with, the Company; (b) associates, being an unconsolidated
enterprise in which the Company has a significant influence or which has
significant influence over the Company, where significant influence over an
enterprise is the power to participate in the financial and operating policy
decisions of the enterprise but is less than control over those polices and
where Shareholders beneficially owning a 10% interest in the voting power of the
Company are presumed to have a significant influence on the Company; (c)
individuals owning, directly or indirectly, an interest in the voting power of
the Company that gives them significant influence over the Company, and close
members of any such individual's family; (d) key management personnel, being
those persons having authority and responsibility for planning, directing and
controlling the activities of the Company, including directors and senior
management of the Company and close members of such individuals' families; and
(e) enterprises in which a substantial interest in the voting power is owned,
directly or indirectly, by any person described in (c) or (d) over which such
person is able to exercise significant influence. This includes enterprises owed
by directors or major shareholders of the Company and enterprises that have a
member of key management in common with the Company. Close members of
individual's family are those that may be expected to influence, or be
influenced by, that person in their dealings with the Company.

C.    Interests of Experts and Counsel

This item is not applicable.

ITEM 8 FINANCIAL INFORMATION

A.    Consolidated Statements and Other Financial Information

Incorporated hereto are the consolidated financial statements for the years
ended December 31, 2001, 2000 and 1999 and the unaudited interim financial
statements for the periods ended March 31, 2002 and 2001.

Other than as described herein, Birch is not involved in any legal or
arbitration proceedings that may have, or have had in the recent past,
significant effects on Birch's financial position or profitability.

Birch is not aware of any material proceeding in which any director, any
member of senior management or any of Birch's affiliates is a party adverse to
Birch or has a material interest adverse to Birch.

No dividends have been paid on any common shares of Birch. Birch intends to
retain its earnings for use in the business and does not expect to pay dividends
on its common shares in the foreseeable future.

B.    Significant Changes

No significant changes have occurred since March 31, 2002.

ITEM 9 THE OFFER AND LISTING

A.    Offer and Listing Details

This item is not applicable.

B.    Plan of Distribution

This item is not applicable.

C.    Markets

The Company's common shares trade on the TSXV, 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 Canadian Venture Exchange Inc.
(now the TSX Venture Exchange). The Company was listed on the new exchange as a
Tier 1 Company and retained the symbol BMD. Concurrent with the resumption of
trading of Birch's common share on March 7, 2002, the Company became a Tier 2
Company. The Company trades no other class of shares other than common shares
without par value. The Company is continuing to investigate additional or
alternate secondary trading market opportunities for its common shares.

The following table sets forth the high and low market prices of the common
shares on the TSXV (and its predecessor, The Alberta Stock Exchange) for the
periods indicated. All financial figures are expressed in Canadian dollars.





|Fiscal Period     | High (CAD$) | Low (CAD$)
|----------------- | ----------- | ----------
|Years Ended:      |             |           
|December 31, 1996 | 8.00        | 1.75      
|December 31, 1997 | 2.70        | 0.31      
|December 31, 1998 | 1.00        | 0.12      
|December 31, 1999 | 2.10        | 0.29      
|December 31, 2000 | 3.05        | 0.40      
|December 31, 2001 | 1.10        | 0.50      
|                  |             |           
|2002              |             |           
|First Quarter     | 0.73        | 0.23      
|                  |             |           
|2001              |             |           
|Fourth Quarter    | 1.10        | 0.50      
|Third Quarter     | 1.10        | 0.50      
|Second Quarter    | 1.10        | 0.50      
|First Quarter     | 1.10        | 0.50      
|                  |             |           
|2000              |             |           
|Fourth Quarter    | 1.35        | 0.40      
|Third Quarter     | 1.70        | 1.00      
|Second Quarter    | 3.54        | 1.25      
|First Quarter     | 3.05        | 1.95      
|                  |             |           
|Month Ended       |             |           
|May 31, 2002      | 0.25        | 0.25      
|April 30, 2002    | 0.29        | 0.29      
|March 31, 2002    | 0.73        | 0.23      
|February 28, 2002 | 1.10        | 0.50      
|January 31, 2002  | 1.10        | 0.50      
|December 31, 2001 | 1.10        | 0.50      





Note:

|(1) | On June 16, 2000, the TSXV halted trading of the common shares of the
    Company and on June 28, 2000, trading of the Company's common shares was
    suspended. Trading of the
    Company's common shares on the TSXV was reinstated on September 29, 2000.
    Trading in the common shares of the Company was again suspended on March 5,
    2001 and reinstated on March 9, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Trading in the U.S.A.

A market maker, Kenny Securities Corp. of St. Louis, filed a Form 211 with
the National Association of Securities Dealers (NASD) in August 2001 for
approval to make a market in the shares of Birch on the Over-the-Counter
Bulletin Board or the OTC-BB. The application was reviewed, but trading was not
approved until the Company announced its settlement with the TSXV on March 7,
2002. The Company's common shares commenced trading on the OTC-BB in the United
States on April 2, 2002 under the symbol BHMNF.

D.    Selling Shareholders

This item is not applicable.

E.    Dilution

This item is not applicable.

F.    Expenses of the Issue

This item is not applicable.

ITEM 10 ADDITIONAL INFORMATION

A.    Share Capital

This item is not applicable.

B.    Memorandum and Articles of Association

Incorporation Details and Objects of Birch

Birch was established pursuant to the issuance on December 31, 1995 of a
Certificate of Amalgamation by the Registrar of Corporations of the Province of
Alberta pursuant to the provisions of the ABCA. The amalgamating companies were
Birch Mountain Resources Ltd. and Birch Mountain Minerals Ltd. Birch's Alberta
Corporate Registry Access Number is 20679269. The Articles of Amalgamation of
Birch provide that there are no restrictions on the nature of the business to be
carried on by Birch.

Summary of Directors Powers and Authorities

The rights, duties, powers and authorities of the Board of Directors of Birch
are set out in the Articles and By-Laws of Birch and the statutory provisions of
the ABCA. The following is a selected summary of the Articles, By-Laws and
applicable provisions of the ABCA as they relate to selected rights, duties,
powers and authorities of the Board of Directors of Birch.

The Articles of Birch provide for a minimum of one and a maximum of fifteen
directors. The ABCA prescribes that a distributing corporation must have a
minimum of three directors, a majority of whom are Canadian residents and at
least two of who are not officers or employees of Birch. The Board of Directors
may, between annual shareholders meetings, appoint one or more additional
directors to serve until the next annual shareholders meeting provided that the
number of directors so added may not exceed by one-third (1/3) the number of
directors who held office at the expiration of the last shareholders meeting.

The Chairman of the Board of Directors or any one director may call a meeting
upon the provisions of forty-eight hours notice to each director in the manner
prescribed in the By-Laws. Any such notice shall include the items of business
to be considered at the meeting. A majority of the directors constitute a quorum
provided that half of those directors present are Canadian residents. Business
cannot be transacted without a quorum. A quorum of directors may vote on any
matter of business properly brought before the meeting provided that where a
director is a party to a material contract or proposed material contract or has
a material interest in the matter to be considered, such director must disclose
his or her interest at the earliest possible date, request the conflict be noted
in the minutes of the meeting, and with a few limited exceptions enumerated in
the By-Laws, refrain from voting on the matter in which the director has a
material interest. There is no limitation on the Board of Directors to vote on
matters of their remuneration provided such remuneration is disclosed in the
financial statements and annual shareholder proxy materials.

The Board of Directors has broad borrowing powers and may, without
authorization from the shareholders, (a) borrow money on the credit of Birch;
(b) issue, re-issue, sell or pledge debt obligations of Birch; (c) subject to
restrictions respecting financial assistance prescribed in the ABCA, give a
guarantee on behalf of Birch to secure the performance of an obligation of any
person; and (d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of Birch, owned or subsequently acquired, to
secure any obligation of Birch.

A person is qualified to be or stand for election as a director provided such
person is at least 18 years of age, is not a bankrupt and is not mentally
incapacitated pursuant to applicable Alberta mental health legislation or
pursuant to an order of the Alberta courts. There is no requirement for a
director to hold shares of Birch.

Securities of Birch

The Company has an authorized capital consisting of an unlimited number of
common shares, of which 34,528,774 are issued and outstanding as of the date of
this annual report.

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 and Privileges of Shareholders

The directors of Birch are required to call an annual meeting of shareholders
not later than 15 months after holding the last preceding annual meeting,
subject to obtaining a court order for an extension, and may at any time call a
special meeting of shareholders. Only the registered holders of common shares on
the record date are entitled to receive notice of and vote at annual and special
meetings of shareholders. Where the items of business affect the rights of
shareholders other than common shareholders, a special majority of two-thirds of
the votes cast by the effected shareholders at the meeting called for such
purpose is required to approve the item of business. Beneficial holders of
common shares are also entitled to receive proxy materials in respect of
meetings of shareholders in accordance with Canadian Securities Administrators
National Policy No. 41, provided that such proxies are limited in scope to
instructing the registered shareholder (usually a brokerage house) on how to
vote on behalf of the beneficial shareholder. There are no restrictions on the
number of shares that may be held by non-residents other than restrictions set
out in the Investment Canada Act (Canada). See "Additional Information -
Exchange Controls".

There is no specific provisions in the Articles or By-Laws of Birch that have
the effect of delaying, deferring or preventing a change of control of Birch.
Notwithstanding this, the Board of Directors, under the general powers conferred
to it under the By-Laws, have the authority to approve and invoke a shareholders
rights plan that will protect shareholders from unfair, abusive or coercive
take-over strategies, including the acquisition or control of Birch by a bidder
in a transaction or series of transactions that does not treat 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.

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 (now
Computershare 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 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.

There are no provisions in the By-laws regarding public disclosure of
individual shareholdings. Notwithstanding this, applicable Canadian securities
legislation required certain public disclosure of persons owning or acquiring
common shares in excess of 10% of a corporation's issued and outstanding share
capital.

C.    Material Contracts

Birch has not entered into any material contracts (not made in the ordinary
course of business) in the two years prior the date of filing of this annual
report.

D.    Exchange Controls

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 Company pursuant to
Article X of the reciprocal tax treaty between Canada and the U.S. (See
"Additional Information - 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 Company believes that the following summary fairly
describes those provisions of the Act pertinent to an investment in the Company
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 that 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.

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 a World Trade Organization ("WTO") member country
    investor (the U.S. being a member of the WTO) is making the acquisition;

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 an investor acquires less than one-third of the
voting control of a Canadian corporation.

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.

E.    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. 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 this annual report, 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.

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.

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 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.

F.    Dividends and Paying Agents

This item is not applicable.

G.    Statement by Experts

This item is not applicable.

H.    Documents on Display

Documents concerning Birch which are referred to in this annual report may be
inspected upon written request to the Corporate Administrator of Birch as
follows:

Jane Quinn
    Corporate Administrator
    Birch Mountain Resources Ltd. 
    Suite 800
    3100, 205 - 5th Avenue S.W. 
    Calgary, AB, Canada
    T2P 2V7

I.    Subsidiary Information

This item is not applicable.

|ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
|------- | ----------------------------------------------------------

This item is not applicable.

|ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
|------- | ------------------------------------------------------

This item is not applicable.

PART II

|ITEM 13 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|------- | -----------------------------------------------

There have been no defaults in the payment of principal, interest or a
sinking or purchase fund installment. There are no dividend arrearages or any
other delinquencies.

|ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITYHOLDERS AND USE OF PROCEEDS
|------- | ---------------------------------------------------------------------------

There has been no modification or qualification of the instruments defining
the rights of holders of any class of registered securities. There are no assets
securing any class of registered securities. There has been no change in the
last financial year to the trustee of the registered securities.

PART III

ITEM 17 FINANCIAL STATEMENTS

See pages F-1 through F-25 incorporated by reference herein.

ITEM 18 FINANCIAL STATEMENTS

Not Applicable

ITEM 19 EXHIBITS

(a) Financial Statements filed as part of this annual report.



SIGNATURE

The registrant hereby certifies that it meets all of the requirements for
    filing on Form 20-F and that it has duly caused and authorized the
    undersigned to sign this annual report on its behalf.

|                    | BIRCH MOUNTAIN RESOURCES LTD.        
|------------------- | -------------------------------------
|Date: June 20, 2002
|                    | By: /s/ Douglas J. Rowe              
|                    | Douglas J. Rowe                      
|                    | President and Chief Executive Officer

Birch Mountain Resources Ltd.
  Consolidated Financial StatementsDecember 31, 2001 and 2000



---

Birch Mountain Resources Ltd.

---

To the Shareholders of

Birch Mountain Resources Ltd.

We have audited the consolidated balance sheets of Birch
Mountain Resources Ltd. as at December 31, 2001 and 2000 and the
consolidated statements of loss and deficit and cash flows for each of the years
in the three-year period ended December 31, 2001. 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.

With respect to the consolidated financial statements for the
years ended December 31, 2001 and 2000, we conducted our audit in accordance
with Canadian generally accepted auditing standards and United States generally
accepted auditing standards. With respect to the consolidated financial
statements for the year ended December 31, 1999, we conducted our audit in
accordance with Canadian 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, 2001 and 2000 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2001, in
accordance with Canadian generally accepted accounting principles.

| | /s/ Meyers Norris Penny LLP
| | ---------------------------
| | Chartered Accountants      

Calgary, Alberta 
March 11, 2002

F1

Comments for U.S. Readers

In the United States, reporting standards for auditors
require the addition of an explanatory paragraph following the opinion paragraph
when there are substantial uncertainties about the Company's ability to continue
as a going concern, as referred to in Note 1 to these consolidated financial
statements. Our report to the shareholders dated March 11, 2002, is expressed in
accordance with Canadian reporting standards, which do not permit a reference to
such matters in the auditors' report when the facts are adequately disclosed in
the financial statements.

| | /s/ Meyers Norris Penny LLP
| | ---------------------------
| | Chartered Accountants      



Calgary, Alberta
March 11, 2002



Birch Mountain Resources Ltd.

|                                          | 2001         | 2000        
|----------------------------------------- | ------------ | ------------
|Assets                                    |              |             
|Current                                   |              |             
|Cash (Note 4)                             | 290,714      | 2,861,715   
|Accounts receivable                       | 32,968       | 64,422      
|Prepaids and deposits                     | 60,097       | 10,034      
|                                          | 383,779      | 2,936,171   
|Investment (Note 5)                       | -            | 15,930      
|Capital assets(Note 6)                    | 225,828      | 200,587     
|Mineral exploration costs (Notes 3 and 7) | -            | 8,338,431   
|                                          | 609,607      | 11,491,119  
|Liabilities                               |              |             
|Current                                   |              |             
|Accounts payable                          | 309,101      | 385,462     
|Shareholders' equity                      |              |             
|Share capital (Note 9)                    | 24,346,505   | 24,633,830  
|Deficit                                   | (24,045,999) | (13,528,173)
|                                          | 300,506      | 11,105,657  
|                                          | 609,607      | 11,491,119  

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



/s/ Kerry E. Sully Director
Kerry E. Sully

F2



Birch Mountain Resources Ltd.Consolidated Statements of Loss and DeficitFor the years ended December 31

|                                                     | 2001         | 2000         | 1999       
|---------------------------------------------------- | ------------ | ------------ | -----------
|Expenses                                             |              |              |            
|Amortization                                         | 59,046       | 55,385       | 40,478     
|Consulting                                           | 67,271       | 650,172      | 41,562     
|Mineral exploration costs                            | 941,530      | -            | -          
|Office                                               | 284,698      | 228,276      | 162,197    
|Professional fees                                    | 450,538      | 322,499      | 120,811    
|Research costs                                       | 128,068      | 160,539      | -          
|Salaries, management fees and benefits               | 428,171      | 475,912      | 247,870    
|Shareholder services and promotion                   | 267,921      | 278,583      | 222,769    
|Loss before the following                            | 2,627,243    | 2,171,366    | 835,687    
|Interest and other income                            | (72,560)     | (194,504)    | (71,096)   
|Gain on disposal of investment                       | (15,463)     | -            | (2,090)    
|Writedown of investments                             | -            | -            | 14,160     
|Writedown of mineral exploration costs               | -            | 1,792,388    | 25,836     
|                                                     | (88,023)     | 1,597,884    | (33,190)   
|Loss before income taxes                             | 2,539,220    | 3,769,250    | 802,497    
|Future income tax recovery                           | (359,825)    | (238,622)    | (226,800)  
|Net loss for year                                    | 2,179,395    | 3,530,628    | 575,697    
|Deficit, beginning of year, as previously
    stated | (13,528,173) | (9,997,545)  | (9,421,848)
|Adjustment for change in accounting policy(Note 3)   | (8,338,431)  | -            | -          
|Deficit, beginning of year, as restated              | (21,866,604) | (9, 997,545) | 9,421,848) 
|Deficit, end of year                                 | (24,045,999) | (13,528,173) | (9,997,545)
|Loss per share                                       |              |              |            
|Basic                                                | (0.06)       | (0.11)       | (0.02)     

F3



Birch Mountain Resources Ltd.

|                                         | 2001        | 2000        | 1999     
|---------------------------------------- | ----------- | ----------- | ---------
|Cash flows from operating
    activities |             |             |          
|Interest income received                 | 90,265      | 168,530     | 71,096   
|Refund of deposits                       | -           | -           | 175,555  
|Cash paid to employees                   | (805,464)   | (475,912)   | (247,870)
|Cash paid to suppliers                   | (1,875,408) | (1,103,616) | (526,667)
|                                         | (2,590,607) | (1,410,998) | (527,886)
|Cash flows from financing
    activities |             |             |          
|Issuance of common shares for cash       | 72,500      | 4,386,926   | 1,656,061
|Share issuance costs                     | -           | (36,536)    | (34,594) 
|                                         | 72,500      | 4,350,390   | 1,621,467
|Cash flows from investing
    activities |             |             |          
|Proceeds on disposal of investment       | 31,392      | -           | 8,890    
|Purchase of capital assets               | (84,286)    | (118,922)   | (38,438) 
|Mineral exploration costs                | -           | (902,313)   | (595,663)
|                                         | (52,894)    | (1,021,235) | (625,211)
|Increase (decrease) in cash              | (2,571,001) | 1,918,157   | 468,370  
|Cash at beginning of year                | 2,861,715   | 943,558     | 475,188  
|Cash at end of year                      | 290,714     | 2,861,715   | 943,558  



F4



Birch Mountain Resources Ltd.Notes to the Consolidated Financial StatementsFor the years ended December 31, 2001, 2000 and 1999

---



1.      Nature of operations and
going concern considerations

Birch Mountain Resources Ltd. (the "Company") 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 Canadian 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 $2,179,395
  during the year ended December 31, 2001 (2000 - $3,530,628; 1999 - $575,697)
  and as at December 31, 2001, has a deficit of $24,045,999.

The Company is obligated to incur certain levels of
  expenditures to maintain its rights to continue exploration of certain mineral
  leases and permits. 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, achieving successful results from its research efforts 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.

In the past, the Company has been successful in raising
  funds in the equity market for exploration, research and operating activities,
  but there is no assurance that it will be able to do so in the future. If
  future financing efforts do 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.

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.

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., and Rockyview Development Limited and its
  subsidiaries. Swift River Minerals Ltd. was voluntarily dissolved on June 30,
  2000. Rockyview Development Limited and its subsidiaries have been inactive
  for the past three years.

(a)Mineral Exploration
  Costs

During the quarter ended March 31, 2001, the Company
    adopted the requirements of Accounting Guideline 11, "Enterprises in the
    Development Stage" (see Note 3). Pursuant to the adoption of this Guideline,
    commencing January 1, 2001, the Company expenses mineral exploration costs
    unless the deferral criteria are met and it is probable that they will be
    recoverable from the future operations of the related project.

Prior to 2001, mineral leases and permits were recorded
    at cost. Cost included cash consideration and the market value of shares
    issued, if any. All direct and indirect acquisition and exploration
    expenditures were capitalized and deferred until the leases and permits to
    which they related were placed into production, sold, allowed to lapse, or
    abandoned. These costs were to 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 were sold, allowed to lapse, or
    abandoned. The Company assessed the carrying value of these mineral
    exploration costs annually and then, based on estimates, adjusted the
    carrying amount for any impairments in value or surrender of permits or
    leases. The net costs related to abandonment or impairment were charged to
    earnings.

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.

F5

(b)Capital Assets

Capital assets are recorded at cost. Amortization is
    provided using methods and rates intended to amortize the cost of assets
    over their estimated useful lives.

|                       | Method            | Rate      
|---------------------- | ----------------- | ----------
|Equipment              | Declining balance | 20% - 30% 
|Computer               | Declining balance | 30% - 100%
|Automotive             | Declining balance | 30%       
|Leasehold improvements | Straight line     | 20%       

(c)Future Income Taxes

The Company has adopted the asset and liability method of accounting for
    income taxes. 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 are 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 and Cash Equivalents

Cash and cash equivalents include balances with banks and
    short-term investments with maturities of three months or less. Cash subject
    to restrictions that prevent its use for current purposes is included in
    restricted cash.

(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 benefit of the renounced deductions as the
    expenditures are incurred.

(g)Research Costs

The Company is actively engaged in researching new
    mineral technology applications. Costs associated with such projects,
    including patent application costs, are expensed in the period they are
    incurred.

(h)Per Share Amounts

Earnings per share amounts are computed using the
    weighted average number of common shares outstanding of 33,631,500 (2000 -
    32,278,000; 1999 - 26,681,000). On January 1, 2001, the Company adopted the
    treasury stock method, as described in Note 3.

(i)Use of
  Estimates

The preparation of financial statements in conformity
    with Canadian 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 include estimates related to the determination of
    impairment of mineral exploration costs, reclamation obligations and
    determination of qualifying renouncements. These estimates are reviewed
    periodically and, as adjustments become necessary, they are reported in
    earnings in the periods in which they become known.

F6

3.    Adoption of accounting policies

(a) Mineral Exploration Costs

In March 2000, the Accounting Standards Board of the
    Canadian Institute of Chartered Accountants (CICA) issued Accounting
    Guideline 11 "Enterprises in the Development Stage" (AcG-11). The Guideline
    was effective for fiscal periods beginning on or after April 1, 2000, which
    affects the Company's December 31, 2001 year-end. Under AcG-11, all deferred
    resource property expenditures are reviewed, on a property-by-property
    basis, to assess their recoverability. When the carrying value of a property
    exceeds its net recoverable amount (net recoverable amounts are estimated by
    quantifiable evidence of an economic geological resource or reserve, joint
    venture expenditure commitment or the Company's assessment of a property's
    realizable value), a provision is made for the impairment in value.
    Previously, the Company capitalized all of the exploration costs incurred on
    its mineral properties if exploration was continuing on the property, on the
    basis that sufficient exploration had not occurred to assess whether the
    deferred costs would be recovered from a geological resource or reserve.

The Company was aware that there were differing views of
    how AcG-11 could affect mining companies with respect to deferred mineral
    exploration costs. Although the Company had, and still continues to hold,
    sizeable land areas under mineral exploration leases and permits, it adopted
    AcG-11 and, in the absence of quantifiable evidence of a geological resource
    or reserve, wrote off its deferred mineral exploration costs. The Company
    has accounted for this change in accounting policy on a retroactive basis as
    a cumulative adjustment to increase the opening deficit and reduce the
    carrying value of mineral exploration costs at January 1, 2001, by
    $8,338,431. Prior periods have not been restated.

In March 2002, subsequent to the adoption of the
    accounting policy, the CICA issued Emerging Issues Committee "Accounting by
    Mining Enterprises for Exploration Costs" (EIC-126) as additional guidance
    on this matter. Among other things, EIC-126 concluded that a mining
    enterprise that has not established mineral reserves objectively and,
    therefore, has no basis for preparing a projection of the estimated future
    net cash flow from the property is not precluded from capitalizing
    exploration costs, nor is it obliged to conclude that the capitalized costs
    have been impaired.

While the Company understands that EIC-126 provides
    additional clarification and guidance to support its previous policy for
    accounting for mineral exploration costs, the Company believes the change in
    accounting policy is appropriate for its circumstances and is consistent
    with reporting practices followed in the United States. The Company
    considers its exploration properties to be prospective, and will continue
    its exploration activities in search of an economic ore body.

(b)Per Share Amounts

The Canadian Institute of Chartered Accountants has
    approved a new standard for the computation, presentation and disclosure of
    earnings per share amounts. The Company has adopted the new standard
    effective January 1, 2001, and has applied it to calculate earnings per
    share as at December 31, 2001. The Company has also retroactively applied
    the method to the earnings per share calculations for the years ended
    December 31, 2000, and 1999. Under the new standard, the treasury stock
    method is used, instead of the imputed earnings method, to determine the
    dilutive effect of stock options and other instruments. Under the treasury
    stock method, only "in the money" dilutive instruments have an impact on the
    diluted calculations. In computing the diluted loss per share, 546,500
    shares were added to the weighted average number of common shares
    outstanding during the year ended December 31, 2001 (2000 - 1,432,000; 1999
    - 1,417,000). The effect of stock options and warrants on the per share
    amounts are anti-dilutive as their inclusion would reduce the loss per
    share; therefore, diluted amounts are not presented.

4.    Cash



2001
      2000Cash, available for use
      271,714
      2,823,715Cash, subject to restriction
      19,000
      38,000290,714
      2,861,715Cash subject to restriction represents an amount on
      deposit as security for a letter of credit to the government of Manitoba.


F7





5.    Investment









2001
      2000Tahera Corporation
      -
      15,930


During the year ended December 31, 1999, the cost of the
  Company's investment in 177,000 shares of Tahera Corporation, formerly Lytton
  Minerals Limited, had been written down to reflect its market value as at
  December 31, 1999. Also during 1999, the Company disposed of 40,000 shares for
  net proceeds of $8,890.

The market value of the investment at December 31, 2000,
  was $21,240.

During 2001, all of the 177,000 shares of Tahera
  Corporation were sold for proceeds of $31,392.

6.    Capital assets





Cost
      2001
      Net Book
      Value
      Cost
      2000
      Net Book
      ValueEquipment
      271,470
      128,852
      229,605
      115,055Computer
      227,482
      50,711
      212,567
      55,073Automotive
      38,417
      20,522
      38,417
      29,317Leasehold improvements
      30,009
      25,743
      2,501
      1,142567,378
      225,828
      483,090
      200,587


7.    Mineral exploration costs



Balance
      December 31,
      2000
      Change in 
      Accounting Policy
      (Note 3)
      Balance
      December 31,
      2001Alberta
      8,217,013
      (8,217,013)
      -Manitoba
      121,418
      (121,418)
      -8,338,431
      (8,338,431)
      -




Balance 
      December 31,
      1999
      Additions
      During
      the year
      Writedown
      During
      the year
      Balance
      December 31,
      2000Alberta
      7,715,104
      2,233,588
      1,731,679
      8,217,013Yukon
      1
      -
      1
      -Manitoba
      113,401
      68,725
      60,708
      121,4187,828,506
      2,302,313
      1,792,388
      8,338,431


F8

2001
      2000
      1999Administration
      6,414
      71,136
      3,000Assay and geological
      56,091
      210,313
      191,978Land lease and permit *
      171,250
      1,579,366
      50,414Materials, services and drilling
      177,744
      140,103
      109,209Rental
      81,228
      58,486
      8,150Salaries
      342,915
      185,303
      244,503Travel and accommodations
      105,888
      57,606
      51,140941,530
      2,302,313
      658,394




* The 2000
land lease and permit cost includes $1,400,000 relating to shares issued for
mineral permits.



(a)Alberta

Although the Company has adopted the policy of expensing
    mineral exploration costs, it still holds a significant number of mineral
    rights in the Athabasca and Birch Mountain regions of northern Alberta.

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

During 2000, the Company acquired certain mineral rights
    from Tintina Mines Limited and NSR Resources Inc. for consideration
    consisting of 600,000 common shares. The Company converted 45,388 hectares
    (112,156 acres) of mineral permits to mineral leases bringing the total land
    held under lease in the Athabasca Valley to 48,745 hectares (120,550 acres).

The Company allowed 19 mineral permits covering 175,104
    hectares (432,690 acres) in the Caribou Mountains to lapse at the end of
    November 2000.

During 2001, certain lands in the Marguerite River area
    were designated wildlife preserves under the Special Places 2000 initiative
    of the Alberta Government. This designation effects only a small portion of
    the land interests held by the Company, and it is management's opinion that
    this designation will have a minimal effect on the Company. Additionally,
    the pre-existing mineral rights attached to these properties still remain in
    effect under the Special places 2000 initiative.

On December 7, 2001, the Company relinquished 10 metallic
    and industrial minerals permits covering 91,114 hectares (225,147 acres).

At December 31, 2001, the Company's mineral property in
    the Athabasca region was comprised of 83 permits and 27 leases covering
    675,316 hectares (1,668,375 acres). Precious metals are the principal
    exploration target on this property.

Based on the amount of land held under permits in the
    Athabasca region at December 31, 2001, the Company would be required to file
    an assessment report with the authorities indicating expenditures of
    approximately $8,200,000. This assessment filing is due April 30, 2002.
    Management estimates that as at February 28, 2002, approximately $6,000,000
    in assessment work had been completed, an amount that is comprised of direct
    spending by the Company as well as significant costs incurred by other
    parties involved with the Company as a result of Co-Development Agreements.
    The Company expects to relinquish some of its lower priority mineral permits
    in 2002.

Based on the amount of land held under lease at December
    31, 2001, annual lease payments of approximately $170,000 will be required.

F9

At December 31, 2001, the Company's mineral property in
    the Birch Mountains region was comprised of 10 permits covering 92,160
    hectares (227,731 acres). Diamond-bearing kimberlite intrusive rocks are the
    principal exploration target on this property, but the Company has also
    conducted some preliminary precious metal exploration in this region as
    well.

Based on the amount of land held under permits in the
    Birch Mountains region at December 31, 2001, the Company would be required
    to file an assessment report with the authorities indicating expenditures of
    approximately $1,240,000. This assessment filing is due April 30, 2002, and
    will be filed jointly with the Athabasca assessment.

During 2001, the Company entered into discussions with
    Shear Minerals Ltd. (Shear) and Marum Resources Inc. (Marum). Under the
    terms of the agreement, Marum agreed to pay 100,000 of their shares, and
    Shear has agreed to pay 50,000 of their shares, to the Company. These shares
    were issued to the Company subsequent to December 31, 2001. Per the
    agreement, Marum and Shear can earn a total of 30% interest in the diamond
    rights held by the Company by spending $150,000 on exploration and by
    completing three drill holes, within the first year of the agreement. Marum
    and Shear can earn an additional 30% interest in the diamond rights in year
    two by spending $150,000 on exploration, and another 30% interest in the
    diamond rights, for a total of 90% interest in the diamond rights, by
    spending $250,000 on exploration in year three of the agreement. The Company
    will retain a 10% interest in the project and will hold a 2% gross
    overriding royalty on diamond production from the property. Marum and Shear
    may purchase 1% of the gross overriding royalty at any time for a payment of
    $2,000,000.

(b)Yukon



The Company did not exercise its option in 1998 to
    purchase a 100% interest in the Swift River permits in the Yukon. As a
    result, in 2000, the Company wrote off all costs related to this project.



(c)Manitoba

The Company's exploration activity in Manitoba is in the
    Dawson Bay area. The Dawson Bay mineral property is held by Dawson Bay
    Minerals Inc., a wholly owned subsidiary of Birch Mountain Resources Ltd.



On May 8, 2001 the Company announced that it had
    relinquished 82,030 hectares (202,614 acres) of special exploration permits
    in the Dawson Bay area, retaining only one exploration permit covering 9,784
    hectares (21,177 acres). An assessment filing of $14,676 is due on April 20,
    2002, to maintain this permit. At present, it is the Company's intention not
    to file this assessment, thereby forfeiting the last remaining permit in the
    Dawson Bay area.

8.       Credit arrangement



At December 31, 2001, the Company had an authorized line of
  credit totalling $500,000, none of which was drawn. The rate of bank prime
  plus one will be applied to amounts drawn. Security provided includes cash,
  credit balances and deposit instruments held by the Company.

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

F10

(b)    Common shares

|                                                   | Number     | Amount    
|-------------------------------------------------- | ---------- | ----------
|                                                   |            |           
|Balance December 31, 1999                          | 28,289,884 | 18,654,561
|Issued for cash                                    |            |           
|Private placement                                  | 1,205,256  | 1,386,047 
|Private placement of
      flow-through shares     | 1,160,000  | 1,334,000 
|Stock options
      exercised                      | 625,600    | 335,904   
|Warrants exercised                                 | 1,322,226  | 1,330,976 
|Issued in lieu of salary                           | 350,000    | 490,000   
|Issued for mineral rights                          | 600,000    | 1,400,000 
|Tax benefits renounced on flow-through shares      | -          | (264,964) 
|                                                   | 33,552,966 | 24,666,524
|Share issuance costs net of tax benefit of $15,436 | -          | (32,694)  
|Balance December 31, 2000                          | 33,552,966 | 24,633,830
|Issued for cash                                    |            |           
|Private placement                                  | 94,156     | 72,500    
|Tax benefits renounced on flow-through shares      | -          | (359,825) 
|Balance December 31, 2001                          | 33,647,122 | 24,346,505



During 2001, the Company completed a private placement of
  94,156 units at $0.77 per unit, none of which were flow-through units. Each
  unit consisted of one common share. No commissions were paid in relation to
  this issue.



At December 31, 2001, the Company had incurred and
  renounced approximately $1,259,000 of its flow-through commitment of
  $1,334,000. An additional amount of $75,000 incurred during the first 60 days
  of 2002 has been renounced effective December 31, 2001.

During 2001, the Company entered into an agreement with
  AuRIC Precious Metals Inc. (AuRIC) to purchase rights to a customized fire
  assay protocol developed by AuRIC. The contract includes provisions for
  independent, third-party verification tests using a double-blind,
  chain-of-custody test protocol, the costs of which are to be born by the
  Company. When the Company is satisfied that AuRIC has met all of the
  conditions of the agreement, the Company has agreed to purchase the assay
  protocol from AuRIC for consideration of US$400,000 plus 640,000 common shares
  of the Company, 400,000 that will be free trading, and the issuance of which
  must comply with the applicable laws in Canada and the United States.

During 2000, the Company entered into an agreement with
  American Precious Metals (APM) whereby APM will provide introductions to
  parties who could aid in advancing the determination of precious metals. The
  Company issued 350,000 shares at $1.40 during 2000 and was to issue an
  additional 150,000 shares upon the determination that APM had delivered to the
  Company a successful assay method, as confirmed by independent tests done in a
  third-party laboratory. The costs related to this service were included in
  consulting costs in 2000. To date, APM has not presented an assay method and,
  as a result, the Company has not issued any additional shares to APM.

During 2000, the Company completed private placements of
  2,365,256 units at $1.15 of which 1,160,000 were flow-through units. Each unit
  consisted of one common share and one-half common share warrant. A commission
  of 19,565 units was paid in relation to this issue.

At December 31, 2000, the Company had incurred and
  renounced approximately $450,000 of its commitment of $1,334,000. An
  additional amount of $78,000 incurred during the first 60 days of 2001 was
  renounced effective December 31, 2000.

F11

(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, limited to a maximum of 10% of the issued and outstanding shares
  and a term not exceeding five years. All options vest at the time of issue.

The Company has granted options on common shares as follows:



Number of
      Options
      Price
      Range ($)
      Weighted 
      Average
      Price ($)
      Expiry
      DateDecember 31, 1999 outstanding
      2,795,600
      0.22 - 1.36
      0.80
      2000 - 2004Exercised
      (625,600)
      0.22 - 1.36
      0.54
      2000 - 2004Cancelled
      (250,000)
      1.06
      1.06
      2000December 31, 2000 outstanding
      1,920,000
      0.22 - 1.36
      0.85
      2001 - 2004Granted
      683,750
      0.60 - 0.65
      0.62
      2006Cancelled
      (305,000)
      0.70 - 1.36
      0.92
      2002 - 2004December 31, 2001 outstanding
      2,298,750
      0.22 - 1.36
      0.77
      2002 - 2006






The following summarizes information about stock options outstanding as at
  December 31, 2001:



Number
      of Shares
      Expiry
      date
      Weighted
      Average
      Price ($)75,000
      January 2002
      0.7050,000
      March 2002
      0.7010,000
      June 2002
      0.70150,000
      March 2003
      0.2275,000
      July 2003
      0.22490,000
      November 2003
      0.3530,000
      July 2004
      1.25735,000
      November 2004
      1.36408,750
      January 2006
      0.60275,000
      April 2006
      0.652,298,750
      
      0.77






F12





Warrants

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



Number of
      Warrants
      Price
      Range ($)
      Weighted 
      Average
      Price ($)
      Expiry
      DateDecember 31, 1999 outstanding
      1,669,264
      1.00 - 1.50
      1.07
      2000Issued
      1,182,628
      1.50
      1.50
      2001Exercised
      (1,322,226)
      1.00 - 1.50
      1.01
      2000Expired
      (118,885)
      1.00
      1.00
      2000December 31, 2000 outstanding
      1,410,781
      1.50
      1.50
      2001*Issued
      -
      -
      -
      -Exercised
      -
      -
      -
      -Expired
      -
      -
      -
      -December 31, 2001 outstanding
      1,410,781
      1.50
      1.50
      2002






|* | The Company has received approval from the Canadian
    Venture Exchange Inc. to extend the expiry date of the following warrants:
    228,152 warrants which were to have expired on November 10, 2001, have been
    extended to June 21, 2002; 764,231 warrants which were to have expired on
    October 22, 2001, have been extended to June 21, 2002; 408,614 warrants
    which were to have expired on October 25, 2001, will now expire on June 25,
    2002; and 9,784 warrants which were to have expired on October 31, 2001,
    have been extended to June 31, 2002. The exercise price of all warrants will
    remain $1.50 per share.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(e)    Escrowed Shares

Under the requirements of the Alberta Securities
    Commission and the Canadian Venture Exchange Inc., 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 were to be
    released equally over five years.

As at December 31, 2001, nil common shares remained in
    escrow (2000 - 1,705,678).

10.    Continuing obligations

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



|2002 | 379,000
|---- | -------
|2003 | 373,000
|2004 | 373,000
|2005 | 353,000
|2006 | 324,000



F13

11.    Related-party transactions

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 $Nil (2000 - $Nil;
    1999 - $78,000) to a company controlled by a director;
- Included in salaries, management fees, and benefits are
    management fees aggregating $Nil (2000  - $Nil; 1999 - $2,400) which were
    paid to companies employing the services of a director; and
- Included in shareholder services and promotion are
    amounts of $8,288 (2000 - $5,750; 1999 - $625) paid to a company controlled
    by the spouse of a director.

These transactions were in the normal course of operations
  and were measured at the exchange amount, which is the amount of consideration
  establishing and agreed to by the related parties.

12. Income taxes



Future income tax assets consist of the following temporary differences:



|                                                       | 2001        | 2000        | 1999       
|------------------------------------------------------ | ----------- | ----------- | -----------
|Mineral exploration costs                              | 5,355,105   | 2,004,052   | 744,855    
|Capital assets                                         | 172,156     | 141,985     | 117,689    
|Scientific Research and Experimental
      Development |             |             |            
|Expenditures Unclaimed                                 | 89,157      | 94,471      | 94,471     
|Loss carryforwards                                     | 869,553     | 662,160     | 662,389    
|Share issuance costs                                   | 21,843      | 32,780      | 79,473     
|Valuation allowance                                    | (6,507,814) | (2,935,448) | (1,698,877)
|Future tax assets (net of valuation allowance)         | -           | -           | -          



At December 31, 2001, 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 $13,352,000 (2000 - $12,000,000, 1999 -
    $9,300,000) which may be carried forward indefinitely;
- Scientific Research and Experimental Development costs of
    $211,000, which may be carried forward indefinitely; and
- Non-capital loss carryforwards of approximately $2,065,000 which will
    expire as follows:



|2002 | 387,000
|---- | -------
|2003 | 307,000
|2004 | 297,000
|2005 | 132,000
|2006 | 185,000
|2007 | -      
|2008 | 757,000



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

Capital losses of $765,000 which may be carried forward
    indefinitely; and

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

F14



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



|                                                               | 2001      | 2000      | 1999     
|-------------------------------------------------------------- | --------- | --------- | ---------
|Loss before taxes                                              | 2,539,220 | 3,769,250 | 802,497  
|Expected tax recovery of 42.11% (2000 and
      1999 - 44.62%) | 1,069,266 | 1,681,839 | 358,074  
|Mineral exploration expenses capitalized for
      tax         | (295,773) | (500,547) | (25,081) 
|Other                                                          | (25,007)  | (9,464)   | (17,728) 
|Resource allowance                                             | (64,780)  | (184,491) | (62,045) 
|Share issue costs                                              | 9,093     | 73,035    | 77,096   
|Valuation allowance                                            | (332,974) | (821,750) | (103,516)
|Future income tax recovery                                     | 359,825   | 238,622   | 226,800  





13.     Segmented information



The Company's principal business segment is the acquisition
  and exploration of mineral leases and permits, and the development of mineral
  technologies. All of the Company's leases and permits are in the exploration
  stage. The Company's activities are focused on Western Canada, as detailed in
  Note 7.

14.    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 dates.

15.    Subsequent events



Subsequent to the balance sheet date, the Company received
  50,000 shares of Shear Minerals Ltd, and 100,000 shares of Marum Resources
  Inc., as per the terms of the agreement outlined in Note 7.

On March 7, 2002, the Company and the Canadian Venture
  Exchange Inc. reached an agreement whereby the Canadian Venture Exchange Inc.
  agreed to lift the suspension imposed by it on March 5, 2001, and reinstate
  the shares of the Company to trading. Part of the agreement includes a
  reimbursement of expenses associated with the technical audit costs paid by
  the Company as a result of the trading suspension. The Company's shares
  resumed trading on March 11, 2002.

16.    Comparative figures



Certain comparative figures have been reclassified to
  conform with current year presentation.

F15







|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:

(a)    The balance of any unspent funds
  raised under a flow-through arrangement is considered restricted cash under
  U.S. GAAP 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 $75,000 at December 31, 2001 (2000 - $806,000).

(b)    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. 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 cash flow statement purposes,
  mineral exploration costs would be shown under operating activities rather
  than under investing activities. For 2001, the Company's treatment of mineral
  exploration costs is similar to the treatment under U.S. GAAP, resulting in no
  material differences.

(c)    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:



|                                              | 2001       | 2000      
|--------------------------------------------- | ---------- | ----------
|Mineral exploration costs under Canadian GAAP | -          | 8,338,431 
|Exploration expenditures                      | -          | 8,338,431 
|Mineral exploration costs under U.S. GAAP     | -          | -         
|Deficit under Canadian GAAP                   | 24,045,999 | 13,528,173
|Exploration expenditures                      | -          | 8,338,431 
|Future income taxes                           | 1,229,889  | 870,064   
|Deficit under U.S. GAAP                       | 25,275,888 | 22,736,668





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



|                                          | 2001      | 2000     
|----------------------------------------- | --------- | ---------
|Net loss for the year under Canadian GAAP | 2,179,395 | 3,530,628
|Exploration expenditures                  | -         | 509,885  
|Future income taxes                       | 359,825   | 238,662  
|Net loss for the year under U.S. GAAP     | 2,539,220 | 4,279,175
|Loss per share under U.S. GAAP            |           |          
|Basic                                     | 0.08      | 0.13     



F16

For U.S. GAAP purposes, the Company has adopted APB Opinion
  No.25, Accounting for Stock Issued to 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, 2001,
  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, and an annual risk-free rate of 5%. There were
  683,750 options issued during 2001 (2000 - Nil).

Had the Company adopted SFAS 123 for its U.S. GAAP disclosure, the
  following net losses would have been reported:



2001
      2000Net loss for the year under U.S. GAAP
      2,539,220
      4,279,175Pro-forma stock compensation
      95,061
      193,087Pro-forma loss for the year under U.S. GAAP
      2,634,281
      4,472,262Loss per share under U.S. GAAPBasic
      0.08
      0.14




F17



|BIRCH MOUNTAIN RESOURCES LTD.                 
|----------------------------------------------
|CONSOLIDATED BALANCE SHEET                    
|AS AT MARCH 31, 2002                          
|( UNAUDITED )                                 
|                                              
|                                              
|                                              
|ASSETS                                        
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|Total Assets                                  
|                                              
|                                              
|LIABILITIES &
    SHAREHOLDER'S EQUITY        
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|Total Liabilities
    and Shareholder's Equity





F18



|BIRCH MOUNTAIN RESOURCES LTD.             
|------------------------------------------
|CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
|FOR THE THREE MONTHS ENDED MARCH 31, 2002 
|( UNAUDITED )                             
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          
|                                          



F19

|BIRCH MOUNTAIN RESOURCES LTD.            
|-----------------------------------------
|CONSOLIDATED STATEMENT OF CASH FLOW      
|FOR THE THREE MONTHS ENDED MARCH 31, 2002
|( UNAUDITED )                            
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
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|                                         
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|                                         
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|                                         
|                                         
|                                         



F20



Birch Mountain Resources Ltd.
  Notes to the Unaudited Financial StatementsFor the period ended March 31, 2002

---

1.       Nature of operations
  and going concern considerations



Birch Mountain Resources Ltd. (the "Company") 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 Canadian 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 is obligated to incur certain levels of
    expenditures to maintain its rights to continue exploration of certain
    mineral leases and permits. 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, achieving successful results from
    its research efforts 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.



In the past, the Company has been successful in raising
    funds in the equity market for exploration, research and operating
    activities, but there is no assurance that it will be able to do so in the
    future. If future financing efforts do 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.



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.



2.       Significant
  accounting policies

These consolidated financial statements have been
    prepared in accordance with Canadian generally accepted accounting
    principles. The accounting policies followed in preparing these financial
    statements are those used by the Company as set out in the audited financial
    statements for the year ended December 31, 2001, with the exception of the
    adoption of the accounting policy as described in Note 3. Certain
    information and note disclosure normally included in consolidated financial
    statements prepared in accordance with generally accepted accounting
    principles are not included. These interim financial statements should be
    read together with the Company's audited consolidated financial statements
    for the year ended December 31, 2001.



In the opinion of management, all adjustments considered
    necessary for fair presentation have been included in these consolidated
    financial statements.

3.       Adoption of
  accounting policy



Stock-based compensation and other stock-based payments



Effective January 1, 2002, the Company adopted the new
    CICA Handbook Section 3870, which requires that a fair value based method of
    accounting be applied to all stock-based payments to non-employees and to
    direct awards of stock to employees. However, the new standard permits the
    Company to continue its existing policy of recording no compensation cost on
    the grant of stock options to employees with the addition of pro forma
    information. The Company has applied the pro forma disclosure provisions of
    the new standard to awards granted on or after January 1, 2002. The pro
    forma effect of awards granted prior to January 1, 2002 has not been
    included.

F21



The standard requires the disclosure of pro forma net
    earnings and earnings per share information as if the Company had accounted
    for employee stock options under the fair value method. The fair value of
    the options issued in the quarter was determined using the Black-Scholes
    option pricing model with the following assumptions: risk-free rate of
    5.00%; dividend yield of 0%, a volatility factor of 10%, and option life of
    five years. For purposes of pro forma disclosures, the estimated fair value
    of the options is amortized to income over the expected option life.



4.       Stock-based compensation

The following are the pro forma net loss and basic loss per share amounts
    had the Company charged the fair share of stock-based compensation to net
    loss:



|                              | Three Months
    Ended
    March 31, 2002
|----------------------------- | -----------------------------------------
|Net loss for the period       | 567,963                                  
|Pro forma stock compensation  | 3,133                                    
|Pro forma loss for the period | 571,096                                  
|                              |                                          
|Loss per share - basic        | 0.02                                     





5.       Share capital



(a)Common shares

At March 31, 2002, 33,647,122 shares were outstanding.
      There were no shares issued during the three months ended March 31, 2002.



(b)    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, limited to maximum of 10% of the issued and
      outstanding shares and a term not exceeding five years.

The Company has granted options on common shares as
      follows:



Number
      of 
      Options
      Price
      Range
      ($)
      Weighted
      Average
      Price ($)
      Expiry
      DateDecember 31, 2001 outstanding
      2,298,750
      0.22 - 1.36
      0.77
      2002 - 2006Granted
      1,140,000
      0.26
      0.26
      2007Cancelled
      (125,000)
      0.70
      0.70
      2002March 31, 2002 outstanding
      3,313,750
      0.22 - 1.36
      0.60
      2002 - 2007




F22

As a subsequent event, the Board of Directors approved a
    new stock option plan. The plan received conditional approval from the
    Exchange April 12, 2002. The aggregate number of shares issuable upon the
    exercise of all options granted under the new plan shall not exceed
    3,392,674 common shares. This is in addition to the 3,313,750 stock options
    currently issued and outstanding under the existing stock option plan. The
    full plan is contained in the Information Circular mailed to shareholders
    for approval at the Annual General and Special Meeting to be held June 20,
    2002.

Warrants



At March 31, 2002, 1,410,781 warrants were outstanding.
      No warrants were issued or cancelled during the first three months ended
      March 31, 2002.



6.       Future Income Tax Recovery

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.

Based on the expenditures during the three months ended
    March 31, 2002, future income tax recoveries of $15,893 have been recorded
    along with a corresponding reduction to share capital.



7.       Shareholder Loans

The Company received loans from shareholders in the amount of $111,300 in
    the quarter ended March 31, 2002, and subsequently has received additional
    shareholder loans in the amount of $71,550. These notes come due August 30,
    2002.

8.      Related Party Transactions during the
  Period





Included in shareholder services and promotion are
    amounts paid to a company controlled by the spouse of a director totalling
    $1,375 for the first three months ended March 31, 2002.

9.       Subsequent events

Subsequent to March 31, 2002, the Company entered into
    discussion with Suncor Energy Inc. for the sale of limestone for aggregate
    purposes, the rights of which are held by the Company.

To date, the value of this agreement is not determinable and as a result
    has not been accrued in the financial statements.

F23

10.     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:

|a. | The balance of any unspent funds raised under a
        flow-through arrangement is considered restricted cash under U.S. GAAP
        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 nil at March 31, 2002 (December 31, 2001 -
        $75,000).
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b. | 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:



March 31, 2002
          December 31 2001Deficit under Canadian GAAP
          24,613,962
          24,045,999Future income taxes
          1,245,782
          1,229,889Deficit under U.S. GAAP
          25,859,744




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





|                                                    | 3 months
        March 31, 2002 | 3 months
        March 31 2001
|--------------------------------------------------- | ------------------------------- | ------------------------------
|Net loss for the period under
        Canadian GAAP | 567,963                         | 552,643                       
|Future income taxes                                 | 15,893                          | 52,000                        
|Net loss for the period under U.S. GAAP             | 583,856                         | 604,643                       
|Loss per share under U.S. GAAP                      | 0.02                            | 0.02                          

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 March 31, 2002, 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 an annual risk free rate of 5%, a dividend
  yield of 0%, a volatility factor of 10%, and an option life of five years.

F24

Had the Company adopted SFAS 123 for its U.S. GAAP disclosure, the
  following net losses would have been reported:





|                                         | 3 months
      March 31, 2002 | 3 months
      March 31, 2001
|---------------------------------------- | ----------------------------- | -----------------------------
|Net loss under U.S. GAAP                 | 583,856                       | 604,643                      
|Pro forma stock compensation             | 24,953                        | 132,128                      
|Pro forma net loss under U.S. GAAP       | 608,809                       | 736,771                      
|Pro forma loss per share under U.S. GAAP | 0.02                          | 0.02                         



F25