##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM
10 - Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended January 31, 2007
 Commission File No. 001-32695
 
 BPI Energy Holdings, Inc.
  British Columbia, Canada
    
    75-3183021(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)30775 Bainbridge Road, Suite 280, Solon, Ohio
    
    44139(Address of Principal Executive Offices)
    
    (Zip Code)
 (440) 248-4200
 þ o
  o o þ
 o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-31.1EX-31.2EX-32.1    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 BPI Energy Holdings, Inc.
Consolidated Balance Sheets
 January 31, 2007
    
    July 31, 2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,255,781
    
    
    $
    19,279,015Accounts receivable
    
    
    93,974
    
    
    
    105,711Other current assets
    
    
    665,782
    
    
    
    164,764Total current assets
    
    
    11,015,537
    
    
    
    19,549,490Property and equipment, at cost:Gas properties, full cost method of accounting:Proved, net of accumulated
depreciation, depletion and
amortization of $520,936 and $331,150
    
    
    20,847,472
    
    
    
    20,766,898Unproved
    
    
    6,096,085
    
    
    
    3,368,231Net gas properties
    
    
    26,943,557
    
    
    
    24,135,129Other property and equipment, net of
accumulated depreciation and amortization of
$817,224 and $631,015
    
    
    5,878,767
    
    
    
    5,106,236Net property and equipment
    
    
    32,822,324
    
    
    
    29,241,365Restricted cash
    
    
    100,000
    
    
    
    100,000Other non-current assets
    
    
    367,168
    
    
    
    161,125Total assets
    
    $
    44,305,029
    
    
    $
    49,051,980LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    665,719
    
    
    $
    1,492,239Current maturity of long-term notes payable
    
    
    33,397
    
    
    
    140,866Accrued liabilities and other
    
    
    284,097
    
    
    
    649,237Total current liabilities
    
    
    983,213
    
    
    
    2,282,342Long-term notes payable, less current portion
    
    
    62,346
    
    
    
    75,149Asset retirement obligation
    
    
    96,721
    
    
    
    70,754Total liabilities
    
    
    1,142,280
    
    
    
    2,428,245Shareholders equity:Common shares, no par value, authorized
200,000,000 shares, 72,524,493 and 70,812,540
outstanding
    
    
    67,946,143
    
    
    
    67,946,143Additional paid-in capital
    
    
    6,934,050
    
    
    
    5,871,120Accumulated deficit
    
    
    (31,717,444
    )
    
    
    (27,193,528
    )Total shareholders equity
    
    
    43,162,749
    
    
    
    46,623,735Total
liabilities and shareholders equity
    
    $
    44,305,029
    
    
    $
    49,051,980
  1




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##### Table of Contents



BPI Energy Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)
 Three Months Ended January 31
    
    Six Months Ended January 312007
    
    2006
    
    2007
    
    2006Revenues:Gas sales
    
    $
    246,906
    
    
    $
    327,811
    
    
    $
    540,909
    
    
    $
    537,505Expenses:Lease operating expense
    
    
    527,773
    
    
    
    300,806
    
    
    
    863,747
    
    
    
    461,610General and administrative expenses
    
    
    1,469,516
    
    
    
    1,165,483
    
    
    
    4,204,226
    
    
    
    2,437,239Depreciation, depletion and amortization
    
    
    191,998
    
    
    
    117,890
    
    
    
    375,995
    
    
    
    212,6922,189,287
    
    
    
    1,584,179
    
    
    
    5,443,968
    
    
    
    3,111,541Operating loss
    
    
    (1,942,381
    )
    
    
    (1,256,368
    )
    
    
    (4,903,059
    )
    
    
    (2,574,036
    )Other income (expenses):Interest income
    
    
    166,416
    
    
    
    270,186
    
    
    
    385,322
    
    
    
    402,804Interest expense
    
    
    (3,026
    )
    
    
    (6,234
    )
    
    
    (6,179
    )
    
    
    (13,778
    )Other income
    
    
    
    
    
    
    138,191
    
    
    
    
    
    
    
    137,523163,390
    
    
    
    402,143
    
    
    
    379,143
    
    
    
    526,549Net loss
    
    $
    (1,778,991
    )
    
    $
    (854,225
    )
    
    $
    (4,523,916
    )
    
    $
    (2,047,487
    )Basic and diluted loss per share
    
    
    ($0.03
    )
    
    
    ($0.01
    )
    
    
    ($0.07
    )
    
    
    ($0.04
    )Weighted average common shares outstanding
    
    
    70,059,225
    
    
    
    63,654,794
    
    
    
    69,427,874
    
    
    
    57,889,094
  2




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BPI Energy Holdings, Inc.
Consolidated Statements of Shareholders Equity
(Unaudited)
 Additional
    
    
    
    
    
    TotalCommon Shares
    
    Paid-in
    
    Accumulated
    
    ShareholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    EquityBalance, July 31, 2006
    
    
    70,812,540
    
    
    $
    67,946,143
    
    
    $
    5,871,120
    
    
    $
    (27,193,528
    )
    
    $
    46,623,735Share-based payments 
common shares, including
vesting of restricted
shares
    
    
    1,795,883
    
    
    
    
    
    
    
    1,105,734
    
    
    
    
    
    
    
    1,105,734Surrender of shares
    
    
    (83,930
    )
    
    
    
    
    
    
    (42,804
    )
    
    
    
    
    
    
    (42,804
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,523,916
    )
    
    
    (4,523,916
    )Balance, January 31, 2007
    
    
    72,524,493
    
    
    $
    67,946,143
    
    
    $
    6,934,050
    
    
    $
    (31,717,444
    )
    
    $
    43,162,749
  3




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BPI Energy Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 Six Months Ended January 312007
    
    
    2006Operating activities:Net loss
    
    $
    (4,523,916
    )
    
    $
    (2,047,487
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation, depletion and amortization
    
    
    375,995
    
    
    
    212,692Share-based payments
    
    
    834,498
    
    
    
    397,586Gain on sale of investment
    
    
    
    
    
    
    (127,416
    )Accretion of asset retirement obligation
    
    
    2,797
    
    
    
    1,334Changes in assets and liabilities:Accounts receivable
    
    
    11,737
    
    
    
    (124,963
    )Other current assets
    
    
    (278,629
    )
    
    
    (246,911
    )Accounts payable
    
    
    (14,029
    )
    
    
    203,778Accrued liabilities and other
    
    
    (565,140
    )
    
    
    71,922Other assets and liabilities
    
    
    
    
    
    
    44,615Net cash used in operating activities
    
    
    (4,156,687
    )
    
    
    (1,614,850
    )Investing activities:Proceeds from sale of investment
    
    
    
    
    
    
    551,000Additions to gas properties
    
    
    (3,719,803
    )
    
    
    (6,819,644
    )Additions to other property and equipment
    
    
    (1,026,472
    )
    
    
    (2,560,216
    )Increase in restricted cash
    
    
    
    
    
    
    (34,000
    )Net cash used in investment activities
    
    
    (4,746,275
    )
    
    
    (8,862,860
    )Financing activities:Payments on long-term notes payable
    
    
    (120,272
    )
    
    
    (57,458
    )Net proceeds from issuance of common shares
    
    
    
    
    
    
    29,907,372Net cash (used in) provided by financing activities
    
    
    (120,272
    )
    
    
    29,849,914Net (decrease) increase in cash and cash equivalents
    
    
    (9,023,234
    )
    
    
    19,372,204Cash and cash equivalents at the beginning of the period
    
    
    19,279,015
    
    
    
    7,251,503Cash and cash equivalents at the end of the period
    
    $
    10,255,781
    
    
    $
    26,623,707Supplementary disclosure of cash flow information:Cash payments:Interest paid
    
    $
    6,179
    
    
    $
    9,856Non-cash investing activities  acquisition of
equipment by issuance of notes payable
    
    
    
    
    
    
    233,475
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BPI Energy Holdings, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
     Use of Estimates
  5




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Gas Properties
      i)
    
    there are no firm plans for further drilling on the unproved property;ii)
    
    negative results were obtained from studies of the unproved property;iii)
    
    negative results were obtained from studies conducted in the vicinity of the
unproved property; oriv)
    
    the remaining term of the unproved property does not allow sufficient time
for further studies or drilling.
  Other Property and Equipment
  6




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January 31,
    
    
    July 31,2007
    
    
    2006Other
property and equipment:Gas collection equipment
    
    $
    4,342,400
    
    
    $
    4,342,400Support equipment
    
    
    1,832,444
    
    
    
    1,046,989Other
    
    
    521,147
    
    
    
    347,862Less: Accumulated depreciation and
amortization
    
    
    (817,224
    )
    
    
    (631,015
    )$
    5,878,767
    
    
    $
    5,106,236
 Loss Per Share
  January
31,
    
    
    January
31,2007
    
    
    2006Outstanding warrants
    
    
    5,311,600
    
    
    
    10,763,603Outstanding
stock options
    
    
    1,529,931
    
    
    
    4,080,612Nonvested portion of restricted shares issued
    
    
    2,537,338
    
    
    
    9,378,869
    
    
    
    14,844,215
 2. STOCK-BASED COMPENSATION
 SFAS No. 123 (R)
   7




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Incentive Stock Option Plan
  ExercisePrice
    
    Number
    
    
    Remaining
    
    
    ExpiryCAD$
    
    Outstanding
    
    
    Life (Years)
    
    
    Date$0.65
    
    
    345,000
    
    
    
    1.8
    
    

November
3, 20080.90
    
    
    10,000
    
    
    
    2.6
    
    

September
22, 20091.49
    
    
    695,666
    
    
    
    2.8
    
    

November
29, 20092.05
    
    
    10,000
    
    
    
    3.6
    
    

September
22, 20102.19
    
    
    136,000
    
    
    
    3.2
    
    

March
27, 20102.40
    
    
    333,265
    
    
    
    3.0
    
    

January
20, 2010$1.56
    
    
    1,529,931
    
    
    
    2.7
 Omnibus Stock Plan
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Share-Based Transactions
  Weighted Avg.Grant DateShares
    
    
    Fair ValueNonvested at July 31, 2006
    
    
    2,325,000
    
    
    $
    0.61Granted
    
    
    1,207,338
    
    
    
    0.78Vested
    
    
    (475,000
    )
    
    
    0.49Nonvested at October 31, 2006
    
    
    3,057,338
    
    
    
    0.70Vested
    
    
    (520,000
    )
    
    
    1.42Nonvested at January 31, 2007
    
    
    2,537,338
    
    
    $
    0.74
    3. OTHER ASSETS
 Other Current Assets
  January 31,
    
    
    July 31,2007
    
    
    2006Separation agreement
    
    $
    352,353
    
    
    $
    Prepaid expenses
    
    
    313,429
    
    
    
    164,764$
    665,782
    
    
    $
    164,764
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Other Non-current Assets
  January 31,
    
    
    July 31,2007
    
    
    2006Separation agreement
    
    $
    206,043
    
    
    $
    Advance royalties
    
    
    161,125
    
    
    
    161,125$
    367,168
    
    
    $
    161,125
  4. ACCRUED LIABILITIES AND OTHER
  January 31,
    
    
    July 31,2007
    
    
    2006Employee compensation
    
    $
    
    
    
    $
    467,869Separation agreement
    
    
    200,000
    
    
    
    Professional and regulatory
    
    
    52,952
    
    
    
    111,805Directors fees
    
    
    27,000
    
    
    
    31,000Other
    
    
    4,145
    
    
    
    38,563$
    284,097
    
    
    $
    649,237
  5. LONG-TERM NOTES PAYABLE
  January 31,
    
    
    July 31,2007
    
    
    2006Case Credit term note due in fiscal year 2006, 6.50%
    
    $
    7,236
    
    
    $
    15,410GMAC term note due in fiscal year 2009, 6.50%
    
    
    17,446
    
    
    
    20,608GMAC term notes due in fiscal year 2010, 6.1% to 6.50%
    
    
    71,061
    
    
    
    80,849Caterpillar Financial Services term note due in
fiscal year 2007, 7.0%
    
    
    
    
    
    
    99,14895,743
    
    
    
    216,015Less current maturities
    
    
    (33,397
    )
    
    
    (140,866
    )Long-term notes payable
    
    $
    62,346
    
    
    $
    75,149
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6. ASSET RETIREMENT OBLIGATIONS
   Six Months EndedJanuary 31,2007
    
    2006Beginning asset retirement obligation
    
    $
    70,754
    
    
    $
    34,708Additional liability incurred
    
    
    6,994
    
    
    
    9,907Accretion expense
    
    
    2,797
    
    
    
    1,334Change in estimate
    
    
    35,377Asset retirement costs incurred
    
    
    (36,239
    )
    
    
    Loss on settlement of liability
    
    
    17,039
    
    
    
    Ending asset retirement obligation
    
    $
    96,721
    
    
    $
    45,949
  7. CONCENTRATIONS
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8. INCOME TAXES
  9. SHAREHOLDERS EQUITY
 Common shares 
 Additional paid-in capital 
  Number
    
    
    ExerciseOutstanding
    
    
    Price
    

Expiry
Date4,724,400
    
    
    $1.50
    
    December 13, 2007643,200
    
    
    1.25
    
    December 31, 2009394,000
    
    
    1.25
    
    January 12, 20105,311,600
 10. SEPARATION AGREEMENT
  
    
    Severance cash payment of $250,000 and medical and dental insurance coverage for
two years from the date of the agreement. The cash payment of $250,000 was expensed
during the first quarter of fiscal year 2007 and the cost of medical and dental
coverage is being expensed as incurred.
    
    Consulting issuance of 40,000 unrestricted common shares and cash payments
totaling $50,000 in periodic installments from October 15, 2006 through December 31,
2006 in
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return for consulting services to be provided by the former officer and director as
may be reasonably requested by the Company from time to time through January 2, 2008.
    
    Non-Compete/Non-Solicitation cash payments of $100,000 on each of three dates
from January 2, 2007 through January 2, 2008 and immediate vesting of 475,000
restricted shares held by the former officer and director in return for his agreeing
not to compete with the Company or to solicit any of its employees for a period of
two years.
  11. RELATED PARTY TRANSACTIONS
    12. SUBSEQUENT EVENT  LEGAL PROCEEDINGS
       13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview and Outlook
      14




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
    
    obtain test data and initiate pilot projects that demonstrate the commercial
potential of CBM at our various acreage blocks and projects in the Basin;
 15




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##### Table of Contents




    
    continue to reduce well drilling and completion costs;
    
    increase total company reserves; and
    
    grow total production.
     
    
    negotiating to obtain leases that grant us the broadest possible rights to
CBM for any given tract of land;
    
    conducting ongoing title reviews of existing mineral interests;
    
    where possible, negotiating with and utilizing multiple service companies in
order to increase competition and minimize the risk of disruptions caused by the loss
of any one service provider; and
    
    attempting to create a low cost structure in order to reduce our
vulnerability to many of these factors.
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Results of Operations
 Three Months Ended January 31, 2007 Compared to Three Months Ended January 31, 2006
  Three Months Ended January 31,Dollar
    
    %2007
    
    2006
    
    Variance
    
    ChangeRevenues:Gas sales
    
    $
    246,906
    
    
    $
    327,811
    
    
    $
    (80,905
    )
    
    
    (25
    %)Expenses:Lease operating expense
    
    
    527,773
    
    
    
    300,806
    
    
    
    226,967
    
    
    
    75
    %General and
administrative expense
    
    
    1,496,516
    
    
    
    1,165,483
    
    
    
    304,033
    
    
    
    26
    %Depreciation,
depletion and
amortization
    
    
    191,998
    
    
    
    117,890
    
    
    
    74,108
    
    
    
    63
    %2,189,287
    
    
    
    1,584,179
    
    
    
    605,108
    
    
    
    38
    %Operating loss
    
    
    (1,942,381
    )
    
    
    (1,256,368
    )
    
    
    (686,013
    )
    
    
    (55
    %)Other income (expense):Interest income
    
    
    166,416
    
    
    
    270,186
    
    
    
    (103,770
    )
    
    
    (38
    %)Interest expense
    
    
    (3,026
    )
    
    
    (6,234
    )
    
    
    3,208
    
    
    
    51
    %Other income
    
    
    
    
    
    
    138,191
    
    
    
    (138,191
    )
    
    
    (100
    %)163,390
    
    
    
    402,143
    
    
    
    (238,753
    )
    
    
    (59
    %)Net loss
    
    $
    (1,778,991
    )
    
    $
    (854,225
    )
    
    $
    (924,766
    )
    
    
    (108
    %)
 Revenue
 Lease operating expense 
 17




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General and administrative expense 
 Three Months ended January 31,Dollar
    
    %2007
    
    2006
    
    Variance
    
    ChangeSalaries and benefits
    
    $
    568,305
    
    
    $
    503,368
    
    
    $
    64,937
    
    
    
    13
    %Share-based payments
    
    
    232,451
    
    
    
    
    
    
    
    232,451
    
    
    
    100
    %Professional and regulatory
    
    
    497,730
    
    
    
    511,904
    
    
    
    (14,174
    )
    
    
    (3
    %)Other
    
    
    171,030
    
    
    
    150,211
    
    
    
    20,819
    
    
    
    14
    %Total general and
administrative expense
    
    $
    1,469,516
    
    
    $
    1,165,483
    
    
    $
    304,033
    
    
    
    26
    %
   Depreciation, depletion and amortization expense
 Interest income
 Other
income
 18




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Six Months Ended January 31, 2007 Compared to Six Months Ended January 31, 2006
  Six Months Ended January 31,Dollar
    
    
    %2007
    
    
    2006
    
    
    Variance
    
    
    ChangeRevenues:Gas sales
    
    $
    540,909
    
    
    $
    537,505
    
    
    $
    3,404
    
    
    
    1
    %Expenses:Lease operating expense
    
    
    863,747
    
    
    
    461,610
    
    
    
    402,137
    
    
    
    87
    %General and
administrative expense
    
    
    4,204,226
    
    
    
    2,437,239
    
    
    
    1,766,987
    
    
    
    72
    %Depreciation, depletion
and amortization
    
    
    375,995
    
    
    
    212,692
    
    
    
    163,303
    
    
    
    77
    %5,443,968
    
    
    
    3,111,541
    
    
    
    2,332,427
    
    
    
    75
    %Operating loss
    
    
    (4,903,059
    )
    
    
    (2,574,036
    )
    
    
    (2,329,023
    )
    
    
    (90
    %)Other income (expense):Interest income
    
    
    385,322
    
    
    
    402,804
    
    
    
    (17,482
    )
    
    
    (4
    %)Interest expense
    
    
    (6,179
    )
    
    
    (13,778
    )
    
    
    7,599
    
    
    
    55
    %Other income
    
    
    
    
    
    
    137,523
    
    
    
    (137,523
    )
    
    
    (100
    %)379,143
    
    
    
    526,549
    
    
    
    (147,406
    )
    
    
    (28
    %)Net loss
    
    $
    (4,523,916
    )
    
    $
    (2,047,487
    )
    
    $
    (2,476,429
    )
    
    
    (121
    %)
 Revenue
 Lease operating expense 
 19




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General and administrative expense 
 Six Months ended January 31,Dollar
    
    
    %2007
    
    
    2006
    
    
    Variance
    
    
    ChangeSalaries and benefits
    
    $
    1,779,051
    
    
    $
    727,240
    
    
    $
    1,051,811
    
    
    
    145
    %Share-based payments
    
    
    877,302
    
    
    
    397,586
    
    
    
    479,716
    
    
    
    121
    %Professional and regulatory
    
    
    1,204,122
    
    
    
    1,072,142
    
    
    
    131,980
    
    
    
    12
    %Other
    
    
    343,751
    
    
    
    240,271
    
    
    
    103,480
    
    
    
    43
    %Total general and
administrative expense
    
    $
    4,204,226
    
    
    $
    2,437,239
    
    
    $
    1,766,987
    
    
    
    72
    %
     Depreciation, depletion and amortization expense
 20




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##### Table of Contents



Other income
 Critical Accounting Policies and Estimates
   Financial Condition
    
    
    the price of, and demand for, natural gas;
    
    availability of drilling equipment;
    
    lease terms;
    
    availability of sufficient capital resources; and
    
    the accuracy of production estimates for current and future wells.
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##### Table of Contents



Cautionary Statement Concerning Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Commodity Risk
  Interest Rate Risk
  22




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##### Table of Contents



Financial Instruments
  Inflation and Changes in Prices
  
 Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
       
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Name of Director
    
    Number of Shares Voted For
    
    Number of Shares WithheldJames G. Azlein
    
    
    37,043,661
    
    
    
    1,697,688Dennis Carlton
    
    
    36,303,414
    
    
    
    2,437,935William J. Centa
    
    
    36,285,691
    
    
    
    2,455,658David E. Preng
    
    
    37,112,913
    
    
    
    1,628,436Costa Vrisakis
    
    
    37,087,140
    
    
    
    1,654,209
 (b)
    
    Appointment of Independent Registered Public Accounting Firm. The shareholders ratified the
appointment of Meaden & Moore, Ltd. as our independent registered public accounting firm for
2007.
 Votes For
    
    
    38,020,559Votes Against
    
    
    0Abstentions
    
    
    720,789Broker Non-Votes
    
    
    1
 (c)
    
    Approval of Amendment to the Omnibus Stock Plan. The shareholders approved an amendment to
the Omnibus Stock Plan to increase the cap on the aggregate
number of common shares that we can issue under the Plan from 5,000,000 to 7,000,000:
 Votes For
    
    
    10,099,906Votes Against
    
    
    6,234,600Abstentions
    
    
    0Broker Non-Votes
    
    
    22,406,843
 
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Section 302 Certification of the Chief Executive Officer (Principal Executive Officer).31.2
    
    Section 302 Certification of the Acting Chief Financial Officer (Principal Financial Officer).32.1
    
    Section 906 Certification of the Principal Executive Officer and Principal Financial Officer.
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##### Table of Contents



SIGNATURES
  BPI ENERGY HOLDINGS, INC.DATE:
March 19, 2007
    
    /s/ James G. Azlein

James G. Azlein,President and Chief Executive Officer/s/ Randy L. ElkinsRandy L. Elkins,Controller and Acting Chief Financial Officer