##### 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 April 30, 2007
 Commission File No. 001-32695
 
 BPI Energy Holdings, Inc.
  British Columbia, Canada
    
    75-3183021(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)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-10.1EX-10.2EX-31.1EX-31.2EX-32.1    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 BPI Energy Holdings, Inc.
Consolidated Balance Sheets
 April 30, 2007
    
    
    July 31, 2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,070,656
    
    
    $
    19,279,015Accounts receivable
    
    
    130,426
    
    
    
    105,711Other current assets
    
    
    618,937
    
    
    
    164,764Total current assets
    
    
    7,820,019
    
    
    
    19,549,490Property and equipment, at cost:Gas properties, full cost method of accounting:Proved, net of accumulated depreciation,
depletion and amortization of $734,814 and $375,000
    
    
    26,326,432
    
    
    
    25,065,448Unproved
    
    
    7,115,629
    
    
    
    3,368,231Net gas properties
    
    
    33,442,061
    
    
    
    28,433,679Other property and equipment, net of accumulated
depreciation and amortization of $818,626 and $587,165
    
    
    1,683,231
    
    
    
    807,686Net property and equipment
    
    
    35,125,292
    
    
    
    29,241,365Restricted cash
    
    
    100,000
    
    
    
    100,000Other non-current assets
    
    
    294,447
    
    
    
    161,125Total assets
    
    $
    43,339,758
    
    
    $
    49,051,980LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    984,802
    
    
    $
    1,492,239Current maturity of long-term notes payable
    
    
    29,135
    
    
    
    140,866Accrued liabilities and other
    
    
    856,696
    
    
    
    649,237Total current liabilities
    
    
    1,870,633
    
    
    
    2,282,342Long-term notes payable, less current portion
    
    
    54,325
    
    
    
    75,149Asset retirement obligation
    
    
    111,020
    
    
    
    70,754Total liabilities
    
    
    2,035,978
    
    
    
    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
    
    
    7,145,431
    
    
    
    5,871,120Accumulated deficit
    
    
    (33,787,794
    )
    
    
    (27,193,528
    )Total shareholders equity
    
    
    41,303,780
    
    
    
    46,623,735Total liabilities and shareholders equity
    
    $
    43,339,758
    
    
    $
    49,051,980
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BPI Energy Holdings, Inc.
Consolidated Statements of Operations
(Unaudited)
 Three Months Ended April 30,
    
    
    Nine Months Ended April 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Gas sales
    
    $
    334,706
    
    
    $
    262,860
    
    
    $
    875,615
    
    
    $
    800,365Expenses:Lease operating expense
    
    
    411,938
    
    
    
    290,844
    
    
    
    1,275,685
    
    
    
    752,454General and administrative expenses
    
    
    1,885,061
    
    
    
    2,054,434
    
    
    
    6,089,287
    
    
    
    4,491,676Depreciation, depletion and amortization
    
    
    215,280
    
    
    
    189,988
    
    
    
    591,275
    
    
    
    402,680Total operating expenses
    
    
    2,512,279
    
    
    
    2,535,266
    
    
    
    7,956,247
    
    
    
    5,646,810Operating loss
    
    
    (2,177,573
    )
    
    
    (2,272,406
    )
    
    
    (7,080,632
    )
    
    
    (4,846,445
    )Other income (expenses):Interest income
    
    
    108,660
    
    
    
    229,888
    
    
    
    493,982
    
    
    
    632,693Interest expense
    
    
    (1,437
    )
    
    
    (4,276
    )
    
    
    (7,616
    )
    
    
    (18,054
    )Other income (expense)
    
    
    
    
    
    
    (2,894,794
    )
    
    
    
    
    
    
    (2,757,271
    )107,223
    
    
    
    (2,669,182
    )
    
    
    486,366
    
    
    
    (2,142,632
    )Net loss
    
    $
    (2,070,350
    )
    
    $
    (4,941,588
    )
    
    $
    (6,594,266
    )
    
    $
    (6,989,077
    )Basic and diluted loss per share
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.09
    )
    
    $
    (0.12
    )Weighted average common shares outstanding
    
    
    70,036,326
    
    
    
    66,395,782
    
    
    
    69,642,804
    
    
    
    60,686,413
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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 at 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
    
    
    
    
    
    
    
    1,317,115
    
    
    
    
    
    
    
    1,317,115Surrender of shares
    
    
    (83,930
    )
    
    
    
    
    
    
    (42,804
    )
    
    
    
    
    
    
    (42,804
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,594,266
    )
    
    
    (6,594,266
    )Balance at April 30, 2007
    
    
    72,524,493
    
    
    $
    67,946,143
    
    
    $
    7,145,431
    
    
    $
    (33,787,794
    )
    
    $
    41,303,780
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BPI Energy Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended April 30,2007
    
    
    2006Operating activities:Net loss
    
    $
    (6,594,266
    )
    
    $
    (6,989,077
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation, depletion and amortization
    
    
    591,275
    
    
    
    402,680Share-based payments
    
    
    1,045,879
    
    
    
    1,044,847Gain on sale of investment
    
    
    
    
    
    
    (127,416
    )Accretion of asset retirement obligation
    
    
    5,197
    
    
    
    2,464Changes in assets and liabilities:Accounts receivable
    
    
    (24,715
    )
    
    
    (91,431
    )Other current assets
    
    
    (159,063
    )
    
    
    (201,490
    )Accounts payable
    
    
    (152,231
    )
    
    
    (374,117
    )Accrued liabilities and other
    
    
    7,459
    
    
    
    3,038,378Other assets and liabilities
    
    
    
    
    
    
    49,214Net cash used in operating activities
    
    
    (5,280,465
    )
    
    
    (3,245,948
    )Investing activities:Proceeds from sale of investment
    
    
    
    
    
    
    551,000Additions to property and equipment
    
    
    (6,795,339
    )
    
    
    (12,902,470
    )Increase in restricted cash
    
    
    
    
    
    
    (34,173
    )Net cash used in investment activities
    
    
    (6,795,339
    )
    
    
    (12,385,643
    )Financing activities:Payments on long-term notes payable
    
    
    (132,555
    )
    
    
    (106,306
    )Net proceeds from issuance of common shares
    
    
    
    
    
    
    33,280,121Net cash (used in) provided by financing activities
    
    
    (132,555
    )
    
    
    33,173,815Net (decrease) increase in cash and cash equivalents
    
    
    (12,208,359
    )
    
    
    17,542,224Cash and cash equivalents at the beginning of the period
    
    
    19,279,015
    
    
    
    7,251,503Cash and cash equivalents at the end of the period
    
    $
    7,070,656
    
    
    $
    24,793,727Supplementary disclosure of cash flow information:Cash payments:Interest paid
    
    $
    6,616
    
    
    $
    14,132Non-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
  Gas Properties
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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
  April 30,
    
    
    July 31,2007
    
    
    2006Other property and equipment:Support equipment
    
    $
    1,832,445
    
    
    $
    1,046,989Other
    
    
    669,412
    
    
    
    347,862Less: Accumulated depreciation and amortization
    
    
    (818,626
    )
    
    
    (587,165
    )$
    1,683,231
    
    
    $
    807,686
 Loss Per Share
  April 30,
    
    
    April 30,2007
    
    
    2006Outstanding warrants
    
    
    5,311,600
    
    
    
    5,311,600Outstanding stock options
    
    
    1,529,931
    
    
    
    1,872,812Nonvested portion of restricted shares issued
    
    
    2,437,338
    
    
    
    2,184,4989,278,869
    
    
    
    9,368,910
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2. STOCK-BASED COMPENSATION
 SFAS No. 123 (R)
   Incentive Stock Option Plan
  ExercisePrice
    
    
    Number
    
    
    Remaining
    
    
    Expiry(CAD$)
    
    
    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
    
    

    2.4
 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
    
    
    
    0.74Vested
    
    
    (100,000
    )
    
    
    1.42Nonvested at April 30, 2007
    
    
    2,437,338
    
    
    $
    0.71
    3. OTHER ASSETS
 Other Current Assets
  April 30,
    
    
    July 31,2007
    
    
    2006Separation agreement
    
    $
    337,949
    
    
    $
    Prepaid expenses and other
    
    
    280,988
    
    
    
    164,764$
    618,937
    
    
    $
    164,764
 Other Non-current Assets
  April 30,
    
    
    July 31,2007
    
    
    2006Separation agreement
    
    $
    133,322
    
    
    $
    Advance royalties
    
    
    161,125
    
    
    
    161,125$
    294,447
    
    
    $
    161,125
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4. ACCRUED LIABILITIES AND OTHER
  April 30,
    
    
    July 31,2007
    
    
    2006Employee compensation
    
    $
    565,000
    
    
    $
    467,869Separation agreement
    
    
    200,000
    
    
    
    Professional and regulatory
    
    
    40,696
    
    
    
    111,805Directors fees
    
    
    40,000
    
    
    
    31,000Other
    
    
    11,000
    
    
    
    38,563$
    856,696
    
    
    $
    649,237
  5. LONG-TERM NOTES PAYABLE
  April 30,
    
    
    July 31,2007
    
    
    2006Case Credit term note due in fiscal year 2006, 6.50%
    
    $
    1,579
    
    
    $
    15,410GMAC term note due in fiscal year 2009, 6.50%
    
    
    15,827
    
    
    
    20,608GMAC term notes due in fiscal year 2010, 6.1% to 6.50%
    
    
    66,054
    
    
    
    80,849Caterpillar Financial Services term note due in fiscal year 2007, 7.0%
    
    
    
    
    
    
    99,14883,460
    
    
    
    216,015Less current maturities
    
    
    (29,135
    )
    
    
    (140,866
    )Long-term notes payable
    
    $
    54,325
    
    
    $
    75,149
  6. ASSET RETIREMENT OBLIGATIONS
   Nine Months EndedApril 30,2007
    
    
    2006Beginning asset retirement obligation
    
    $
    70,753
    
    
    $
    19,778Additional liability incurred
    
    
    18,893
    
    
    
    29,436Accretion expense
    
    
    5,197
    
    
    
    2,464Change in estimate
    
    
    35,377
    
    
    
    Asset retirement costs incurred
    
    
    (36,239
    )
    
    
    Loss on settlement of liability
    
    
    17,039
    
    
    
    Ending asset retirement obligation
    
    $
    111,020
    
    
    $
    51,678
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7. CONCENTRATIONS
   8. INCOME TAXES
  9. SHAREHOLDERS EQUITY
 Common shares 
 Additional paid-in capital 
  Number
    

    ExerciseOutstanding
    


Price
    
    Expiry Date4,274,400
    
    
    $
    1.50
    
    December 13, 2007643,200
    
    
    
    1.25
    
    December 31, 2009394,000
    
    
    
    1.25
    
    January 12, 20105,311,600
 10. SEPARATION AGREEMENT
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
    
    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 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. LEGAL PROCEEDINGS
 Drummond Coal Co. Litigation
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ICG Litigation
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview and Outlook
  12




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
    
    raise the capital needed to fund our fiscal 2008 drilling program;
    
    obtain test data and initiate pilot projects that demonstrate the commercial
potential of CBM at our various acreage blocks and projects in the Basin;
    
    continue to reduce well drilling and completion costs;
    
    increase total company reserves; and
    
    grow total production.
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
    
    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.
 Results of Operations
 Three Months Ended April 30, 2007 Compared to Three Months Ended April 30, 2006
  Three Months Ended April 30,Dollar
    
    
    %2007
    
    
    2006
    
    
    Variance
    
    
    ChangeRevenues:Gas sales
    
    $
    334,706
    
    
    $
    262,860
    
    
    $
    71,846
    
    
    
    27
    %Expenses:Lease operating expense
    
    
    411,938
    
    
    
    290,844
    
    
    
    121,094
    
    
    
    42
    %General and administrative expense
    
    
    1,885,061
    
    
    
    2,054,434
    
    
    
    (169,373
    )
    
    
    (8
    %)Depreciation, depletion and amortization
    
    
    215,280
    
    
    
    189,988
    
    
    
    25,292
    
    
    
    13
    %Total operating expenses
    
    
    2,512,279
    
    
    
    2,535,266
    
    
    
    (22,987
    )
    
    
    (1
    %)Operating loss
    
    
    (2,177,573
    )
    
    
    (2,272,406
    )
    
    
    94,833
    
    
    
    4
    %Other income (expenses):Interest income
    
    
    108,660
    
    
    
    229,888
    
    
    
    (121,228
    )
    
    
    (53
    %)Interest expense
    
    
    (1,437
    )
    
    
    (4,276
    )
    
    
    2,839
    
    
    
    66
    %Other income (expense)
    
    
    
    
    
    
    (2,894,794
    )
    
    
    2,894,794
    
    
    
    100
    %107,223
    
    
    
    (2,669,182
    )
    
    
    2,776,405
    
    
    
    104
    %Net loss
    
    $
    (2,070,350
    )
    
    $
    (4,941,588
    )
    
    $
    2,871,238
    
    
    
    58
    %
 Revenue
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Lease operating expense 
 General and administrative expense 
 Three Months Ended April 30,Dollar
    
    
    %2007
    
    
    2006
    
    
    Variance
    
    
    ChangeSalaries and benefits
    
    $
    1,056,604
    
    
    $
    422,436
    
    
    $
    634,168
    
    
    
    150
    %Share-based payments
    
    
    211,381
    
    
    
    647,261
    
    
    
    (435,880
    )
    
    
    (67
    %)Professional and regulatory
    
    
    466,373
    
    
    
    890,591
    
    
    
    (424,218
    )
    
    
    (48
    %)Other
    
    
    150,703
    
    
    
    94,146
    
    
    
    56,557
    
    
    
    60
    %Total general and administrative expense
    
    $
    1,885,061
    
    
    $
    2,054,434
    
    
    $
    (169,373
    )
    
    
    (8
    %)
     Depreciation, depletion and amortization expense
 Interest income
 Other income (expense)
 16




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Nine Months Ended April 30, 2007 Compared to Nine Months Ended April 30, 2006
  Nine Months Ended April 30,Dollar
    
    
    %2007
    
    
    2006
    
    
    Variance
    
    
    ChangeRevenues:Gas sales
    
    $
    875,615
    
    
    $
    800,365
    
    
    $
    75,250
    
    
    
    9
    %Expenses:Lease operating expense
    
    
    1,275,685
    
    
    
    752,454
    
    
    
    523,231
    
    
    
    70
    %General and administrative expense
    
    
    6,089,287
    
    
    
    4,491,676
    
    
    
    1,597,611
    
    
    
    36
    %Depreciation, depletion and amortization
    
    
    591,275
    
    
    
    402,680
    
    
    
    188,595
    
    
    
    47
    %Total operating expenses
    
    
    7,956,247
    
    
    
    5,646,810
    
    
    
    2,309,437
    
    
    
    41
    %Operating loss
    
    
    (7,080,632
    )
    
    
    (4,846,445
    )
    
    
    (2,234,187
    )
    
    
    (46
    %)Other income (expenses):Interest income
    
    
    493,982
    
    
    
    632,693
    
    
    
    (138,711
    )
    
    
    (22
    %)Interest expense
    
    
    (7,616
    )
    
    
    (18,054
    )
    
    
    10,438
    
    
    
    58
    %Other income (expense)
    
    
    
    
    
    
    (2,757,271
    )
    
    
    2,757,271
    
    
    
    100
    %486,366
    
    
    
    (2,142,632
    )
    
    
    2,628,998
    
    
    
    123
    %Net loss
    
    $
    (6,594,266
    )
    
    $
    (6,989,077
    )
    
    $
    394,811
    
    
    
    6
    %
 Revenue
 Lease operating expense 
 General and administrative expense 
 Nine Months Ended April 30,Dollar
    
    
    %2007
    
    
    2006
    
    
    Variance
    
    
    ChangeSalaries and benefits
    
    $
    2,835,656
    
    
    $
    1,149,675
    
    
    $
    1,685,981
    
    
    
    147
    %Share-based payments
    
    
    1,088,684
    
    
    
    1,044,847
    
    
    
    43,837
    
    
    
    4
    %Professional and regulatory
    
    
    1,684,909
    
    
    
    1,962,733
    
    
    
    (277,824
    )
    
    
    (14
    %)Other
    
    
    480,038
    
    
    
    334,421
    
    
    
    145,617
    
    
    
    44
    %Total general and administrative expense
    
    $
    6,089,287
    
    
    $
    4,491,676
    
    
    $
    1,597,611
    
    
    
    36
    %
  17




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##### Table of Contents



Depreciation, depletion and amortization expense
 Interest income
 Other income (expense)
 Critical Accounting Policies and Estimates
   18




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##### Table of Contents



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.
   19




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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
  Financial Instruments
  Inflation and Changes in Prices
  
 Item 4. Controls and Procedures
   20




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Drummond Coal Co. Litigation
       ICG Litigation
  21




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##### Table of Contents



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
  
 Item 5. Other Information
  Senior
Executive Severance Plan
      22




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##### Table of Contents



Key
Employee Severance Plan
      
 Item 6. Exhibits
 10.1
    
    BPI Energy Holdings, Inc. Senior
Executive Severance Plan dated June 7, 2007.10.2
    
    BPI Energy Holdings, Inc. Key
Employee Severance Plan dated June 7, 2007.31.1
    
    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.
 23




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##### Table of Contents



SIGNATURES
  BPI ENERGY HOLDINGS, INC.DATE: June 13, 2007
    /s/ James G. AzleinJames G. Azlein,President and Chief Executive Officer/s/ Randy L. ElkinsRandy L. Elkins,Controller and Acting Chief Financial Officer 24