**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15 (d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the fiscal year ended:**DECEMBER
                31, 2006** ̈
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                transition period fromto.





Commission
      File Number: **0-12374**





**HYDROGEN
      POWER, INC** **.**


(Name
      of
      Registrant in its charter)





**DELAWARE**
            **84-0905189**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                Number)





**201
                Elliott Avenue West, Suite 400, Seattle, Washington
                98119**(Address
                of principal executive offices)(Zip Code)Issuer’s
                telephone number:**(206)
                223-0506**Securities
                registered under Section 12 (b) of the Exchange Act:**NONE**Securities
                registered under Section 12 (g) of the Exchange Act:**COMMON
                STOCK, $.01 PAR VALUE**(Title
                of Class)





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


 ̈ Yes x No





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act:  ̈





Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Exchange during the past 12 months (or
      for
      such shorter period that the Registrant was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 Days: x Yes  ̈ No





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained in this form, and will not be contained, to
      the
      best of the Registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K: x





Indicate
      by checkmark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act).


Large
                Accelerated Filer ̈,
            
            Accelerated
                Filer ̈,
            
            Non-Accelerated
                Filerx




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


 ̈ Yes x No





The
      aggregate market value of the voting stock held by non-affiliates of the
      Registrant as of June 30, 2006, the last business day of the registrant's most
      recently completed second fiscal quarter, was $19,260,300, based on the last
      sale price of the Registrant's common stock ($2.05 per share) as reported
      by the Over the Counter Pink Sheets.





The
      Registrant had 28,111,356 shares of common stock outstanding as of April 3,
      2007.





Documents
      incorporated by reference: None





HYDROGEN
      POWER, INC.


FORM
      10-K





THIS
      REPORT MAY CONTAIN CERTAIN “FORWARD-LOOKING” STATEMENTS AS SUCH TERM IS DEFINED
      IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 OR BY THE SECURITIES
      AND
      EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH REPRESENT
      THE
      REGISTRANT’S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS
      CONCERNING THE REGISTRANT’S OPERATIONS, ECONOMIC PERFORMANCE, FINANCIAL
      CONDITION, GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS, AND FUTURE
      OPERATIONAL PLANS. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE
      NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING
      STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS SUCH AS
      “MAY”, “WILL”, “EXPECT”, “BELIEVE”, “ANTICIPATE”, “INTENT”, “COULD”, “ESTIMATE”,
“MIGHT”, OR “CONTINUE” OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE
      TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
      STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN
      OF WHICH ARE BEYOND THE REGISTRANT’S CONTROL, AND ACTUAL RESULTS MAY DIFFER
      MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY
      RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION, MANAGING AND MAINTAINING
      GROWTH, THE OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES, VOLATILITY OF STOCK
      PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS AND OTHER REGISTRANT FILINGS
      WITH
      THE SECURITIES AND EXCHANGE COMMISSION.





**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS.**





(a)
      General development of business.





Hydrogen
      Power, Inc. was organized under the laws of the State of Delaware in 1983 under
      the name “Equitex, Inc.,” and we elected to become a business development
      company and be subject to the applicable provisions of the Investment Company
      Act of 1940 in 1984. Until January 4, 1999, we were a business development
      company which is a form of closed-end, non-diversified investment company under
      the Investment Company Act of 1940. On April 3, 1998, our stockholders
      authorized us to change the nature of our business and withdraw our election
      as
      a business development company, which became effective on January 4, 1999.
      During 2006, we changed our name from Equitex, Inc. to Hydrogen Power
      International, Inc. and then to Hydrogen Power, Inc. to reflect the changes
      in
      our business as outlined below. Throughout this document, the term “we” refers
      to the Company together with its subsidiaries when describing our business
      as
“Equitex” both during and prior to 2006, as “Hydrogen Power International, Inc.”
for a short period during 2006, and as “Hydrogen Power, Inc.” from September
      2006 through today.





On
      May
      22, 2006, we filed a Certificate of Ownership with the Secretary of State of
      the
      State of Delaware pursuant to which Hydrogen Power International, Inc., at
      that
      time our wholly owned subsidiary, merged with and into Equitex, Inc. with the
      Company remaining as the surviving corporation to the merger. In connection
      with
      that merger, and as set forth in the Certificate of Ownership, we changed our
      corporate name from “Equitex, Inc.” to “Hydrogen Power International,
      Inc.”





On
      September 25, 2006, we filed another Certificate of Ownership with the Secretary
      of State of the State of Delaware pursuant to which Hydrogen Power, Inc., at
      that time our wholly owned subsidiary, merged with and into Hydrogen Power
      International, Inc. with the Company remaining as the surviving corporation
      to
      the merger. In connection with that merger, and as set forth in the Certificate
      of Ownership, we changed our corporate name from Hydrogen Power International,
      Inc. to “Hydrogen Power, Inc.”


-1-


Effective
      December 1, 2001, we acquired all the outstanding common stock of Chex Services,
      Inc. in exchange for 332,000 shares of our common stock valued at $10,119,000
      ($30.48 per share), in a transaction accounted for as a purchase.





In
      August
      2002 we formed a new majority owned subsidiary, Denaris Corporation, to pursue
      opportunities in stored value card operations. In return for assigning our
      rights to certain notes receivable as well as the opportunity to acquire certain
      technological and other information from our subsidiary Key Financial Systems,
      Denaris agreed to pay us $250,000 in the form of a promissory note as well
      as
      5,000,000 shares of Denaris common stock. As of December 31, 2006, Denaris
      had
      6,500,000 shares of common stock outstanding; therefore, we owned 77% of the
      outstanding common stock.





On
      June
      7, 2004, a wholly owned subsidiary of Seven Ventures, Inc., a publicly traded
      company, merged with and into Chex Services. Subsequent to the merger, Seven
      Ventures changed its name to FastFunds Financial Corporation (“FastFunds” or
“FFFC”) and is presently trading on the Over-the Counter Bulletin Board under
      the symbol “FFFC”. In the merger, we exchanged our 100% ownership of Chex
      Services for 7,700,000 shares of FastFunds common stock representing
      approximately 93% of FastFunds’ outstanding common stock immediately following
      the merger. In addition, we received warrants to purchase 800,000 shares of
      FastFunds common stock at an exercise price of $0.10 per share, expiring five
      years from the date of closing. In connection with the merger, FastFunds
      received $400,000 through the issuance of convertible promissory notes bearing
      interest at five percent per annum, which were convertible into 4,000,000 shares
      of their common stock upon the occurrence of certain future events. Unless
      earlier converted, any outstanding balance of principal and interest was due
      on
      April 14, 2007. In June 2004, $100,000 of principal of the convertible
      promissory notes was converted into 1,000,000 shares of common stock; and an
      additional $100,000 of principal of the convertible promissory notes was
      converted into 1,000,000 shares of common stock in August 2004. In May 2006,
      we,
      FastFunds and the holder of the remaining $200,000 of convertible notes entered
      into a settlement agreement whereby we issued 180,000 shares of our common
      stock. As of December 31, 2006 and March 31, 2007, we owned approximately 80%
      and 49%, respectively, of FFFC’s outstanding common stock.





On
      December 22, 2005, FFFC and Chex entered into an Asset Purchase Agreement (the
      “APA”) with Game Financial Corporation (“Game”), pursuant to which FFFC and Chex
      agreed to sell substantially all the assets of Chex (the “Asset Sale”). On
      January 31, 2006, FFFC and Chex completed the Asset Sale for $14 million
      pursuant to the APA. Additionally, FFFC and Chex entered into a Transition
      Services Agreement (the “TSA”) with Game pursuant to which FFFC and Chex agreed
      to provide certain services to Game to ensure a smooth transition of the sale
      of
      the cash access financial services business. We agreed to serve as a guarantor
      of FFFC’s and Chex’s performance obligations under the TSA, which has since
      expired.





On
      January 2, 2007, pursuant to the terms of a Redemption, Stock Sale and Release
      Agreement (the “Redemption Agreement”) by and between us and FFFC, FFFC (i)
      redeemed 8,917,344 shares of FFFC common stock held by us, (ii) acquired from
      us
      an aggregate of 5,000,000 shares of common stock of Denaris Corporation, a
      Delaware corporation (“Denaris”), (iii) acquired from us an aggregate of 1,000
      shares of common stock of Key Financial Systems, Inc., a Delaware corporation
      (“Key Financial”), and (iv) acquired from us an aggregate of 1,000 shares of
      common stock of Nova Financial Systems, Inc., a Delaware corporation (“Nova
      Financial”). Denaris was our majority owned subsidiary, and Key Financial and
      Nova Financial were our wholly owned subsidiaries. Each of Denaris, Nova
      Financial and Key Financial are inactive entities with no operating or
      intellectual property assets. The shares of common stock of each entity
      transferred by us pursuant to the Redemption Agreement constituted all of our
      holdings in each entity. In consideration of the redemption and acquisition
      of
      the shares of Denaris, Key Financial and Nova Financial, FFFC released us from
      all outstanding payment obligations of ours to FFFC, including obligations
      under
      a Secured Promissory Note dated March 14, 2006 in favor of FFFC in the principal
      face amount of $5,000,000 (the “FastFunds Note”). The outstanding balance on the
      FastFunds Note, including principal and interest accrued, as of the date of
      the
      Redemption Agreement was $5,402,398. We received a fairness opinion from an
      unaffiliated third party with respect to this transaction.


-2-


Immediately
      after the closing of the transactions contemplated by the Redemption Agreement,
      we held 3,500,000 shares of FFFC, constituting approximately 52.5% of the
      outstanding capital stock of FFFC; our current ownership percentage is 49%.
      So
      long as we hold 10% or more of the outstanding equity or voting interest in
      FFFC, we have agreed to vote our shares of capital stock of FFFC in the same
      manner and proportion as other stockholders of FFFC vote their shares. As of
      January 2, 2007, FFFC also held 1,541,858 shares of our common stock. Pursuant
      to the Redemption Agreement, FFFC and the Company each provided the other
      certain registration rights relating to the common stock of such party held
      by
      the other party.





On
      February 28, 2006, we (then known as “Equitex, Inc.”) held a special meeting of
      shareholders at which two proposals were ratified authorizing the acquisition
      (the “Acquisition”) of Hydrogen Power, Inc. (“Old HPI”) by EI Acquisition Corp.,
      a newly formed subsidiary of the Company, as well as certain related common
      stock issuances. Effective March 14, 2006, pursuant to an Agreement and Plan
      of
      Merger and Reorganization as amended (the “Merger Agreement”), Old HPI merged
      with and into EI Acquisition Corp., with EI Acquisition Corp. (renamed Hydrogen
      Power, Inc.) surviving the merger as a wholly owned subsidiary of the
      Company.





Pursuant
      to the terms of the Merger Agreement, we issued to the former shareholders
      of
      Old HPI 2,338,990 shares of our common stock and reserved 132,122 shares of
      our
      common stock to be issued upon exercise of options to purchase 1,550,000 shares
      of Old HPI common stock outstanding


immediately
      prior to the time of the merger.




Pursuant
      to a Share Exchange Agreement dated December 5, 2005 with a stockholder of
      Old
      HPI, Aton Select Fund Limited (“Aton”), immediately prior to the effective time
      of the merger, we held 850,000 shares of Old HPI common stock that we obtained
      from Aton in exchange for our issuance to Aton of 700,000 shares of common
      stock. The Share Exchange Agreement was contemplated in the Merger Agreement.





As
      a
      result of these transactions, the total number of shares issued by us in the
      Acquisition equaled 37% of the outstanding shares of our common stock
      immediately prior to the effective time of the merger including (i) those issued
      to Aton in the Share Exchange Agreement described above, (ii) the 2,338,990
      shares issued in the Acquisition, as well as (iii) the 132,122 shares reserved
      for issuance in connection with outstanding Old HPI stock options.





As
      part
      of the Acquisition, we also issued to the former stockholders of Old HPI 300,000
      shares of our Series L Preferred Stock (the “Preferred Stock”). The Preferred
      Stock is convertible into common stock of the Company in three tranches of
      100,000 shares each (referred to as the L-1, L-2 and L-3 Preferred Stock,
      respectively), on the 180 th ,
      270 th and
      360 th day
      following closing of the merger, respectively; each tranche is convertible
      into
      40% of our common stock outstanding on the respective date of conversion. The
      conversion of the Preferred Stock is subject to the achievement by Old HPI
      of
      certain performance benchmarks as defined in the Certificate of Designation
      of
      Series L Preferred Stock, including Old HPI’s use of its hydrogen technology to
      develop prototype generators, with marketable value, for various micro and
      portable power applications and for various macro power applications such as
      fuel cells and internal combustion engines. The successful achievement of these
      benchmarks, and thus the conversion of the Preferred Stock, shall be determined
      by us in our sole discretion. In the event all three series of Series L
      Preferred Stock are converted into our common stock, the former stockholders
      of
      Old HPI would own approximately 70% of our common stock on a post-transaction
      basis (assuming that we do not, prior to the conversion of the L-3 Preferred
      Stock, issue any additional shares of common stock other than pursuant to
      conversion of the Series L Preferred Stock).





Our
      board
      of directors determined that satisfaction of the benchmarks for the L-1 and
      L-2
      had been met, therefore on
      January 3, 2007, we issued an aggregate of 12,594,622 shares
      of
      our common stock (with an additional 711,431 shares reserved for issuance upon
      the exercise of outstanding options) to holders of two tranches of the Preferred
      Stock (L-1 and L-2) upon conversion of 100,000 shares of L-1 and 100,000 shares
      of L-2 Preferred Stock.


-3-


As
      per
      the Series L certificate of designation, upon conversion of the L-1 shares
      we
      issued 4,988,646 shares of common stock (with an additional 281,793 shares
      reserved for issuance upon the exercise of outstanding options) which
      constituted an amount equal to 40% of the shares of our common stock outstanding
      (on a pre-conversion basis) on September 10, 2006, the 180 th day
      following closing. Upon conversion of the L-2 shares we issued 7,605,976 shares
      of common stock (with an additional 429,638 shares reserved for issuance upon
      the exercise of outstanding options) upon conversion of the L-2 shares that
      constituted an amount equal to 40% of the shares of our common stock outstanding
      (on a pre-conversion basis) on December 9, 2006, the 270 th day
      following closing. Of
      the
      shares of common stock authorized for issuance upon conversion of the L-1 and
      L-2 Preferred Stock, an aggregate of 22,949 shares of common stock were issued
      to persons who were appointed as officers and directors of the Company on
      January 2, 2007 (as discussed below), with an additional 367,191 shares held
      in
      reserve for issuance upon the exercise of outstanding options held by such
      individuals.





Immediately
      following the conversion of the Series L-1 and L-2 Preferred Stock into common
      stock on January 3, 2007, the former shareholders of Old HPI held an aggregate
      of 15,633,612 shares of our common stock, constituting approximately 54.1%
      of
      our outstanding common stock. The former majority shareholder of Old HPI, Global
      Hydro Fuel Technology, Inc., currently holds approximately 49.3% of our
      outstanding common stock. Additionally, former optionholders of Old HPI hold
      options to purchase an aggregate of 843,553 shares of our common stock. The
      former shareholders and optionholders of Old HPI also collectively hold 100,000
      shares of L-3 Convertible Preferred Stock, convertible pursuant to the terms
      of
      the Certificate of Designation.





As
      part
      of an intended change-in-direction of the Company to pursue a business plan
      relating to the use of hydrogen power as an alternative energy source, Russell
      Casement, Aaron Grunfeld and Joseph Hovorka, resigned from their positions
      as
      members of the Company’s board of directors effective December 30, 2006. On
      January 2, 2007, Mr. Henry Fong, the sole remaining director of the board,
      appointed James Diffendorfer, John Martin, Virendra Chaudhary and Gurinder
      Dilawari as new directors, each of whom accepted their appointments effective
      the same date. Additionally, on January 2, 2007, Mr. Fong appointed John Martin
      as our Chief Executive Officer and President, Michael W. Hines as our Chief
      Financial Officer, and James G. Matkin as Special Counsel to the board of
      directors, each appointment effective upon Mr. Fong’s resignation as our
      President and Treasurer. Subsequent to the appointment of the new officers
      and
      directors as referenced above, on January 2, 2007, Mr. Fong resigned as a
      director of the Company and from his positions as our President and Treasurer.





As
      part
      of the Acquisition, we also issued warrants to purchase up to 1,600,000 shares
      of $0.01 par value common stock at $3.00 per share in exchange for outstanding
      warrants to purchase an equivalent number of shares of Old HPI common stock.
      Our
      board of directors recently extended the expiration date of these warrants
      to
      August 10, 2007 and lowered the exercise price to $2.00 per share.





In
      July
      and September 2005, we loaned to Old HPI an aggregate of $3,000,000 to be used
      for the exploitation and commercialization of Old HPI’s technology. Pursuant to
      the Fifth Amendment to the Merger Agreement, dated March 10, 2006, we agreed
      to
      forgive payment of the $3,000,000 and accrued interest as a condition of
      closing.


Old
      HPI,
      a Seattle-based company, was organized under the laws of the State of Delaware
      in December 2003, it subsequently sub-licensed use of a patented technology
      for
      the Territory of the United States, South America, Mexico , Central America
      (exclusive) and Canada (non-exclusive) from Global Hydrofuels Technology, Inc.,
      a Canadian company (GHTI) , and the current major shareholder of HPI, which
      was
      developed at the University of British Columbia for producing hydrogen gas
      in a
      process called “Hydrogen NowTM” had been licensed to GHTI, which currently has
      all rights outside the territories licensed by HPI The term of the sub-license
      pursuant to which Old HPI has its rights to the Hydrogen Now technology, as
      well
      as the license pursuant to which Old HPI’s sub-licensor has its rights to the
      technology, expires on the date on which the last patent covered by the
      sub-license and license expires, which is currently no sooner than February
      2021.





As
      a
      condition to the Merger Agreement, we were required to make a $5 million
      contribution of capital to Old HPI, which proceeds were transferred to Old
      HPI
      at closing. On March 14, 2006, we, together with


-4-


FFFC,
      entered into a Secured Promissory Note (“Note”), Stock Pledge Agreement
      (“Pledge”) and Profit Participation Agreement through which FFFC loaned us $5
      million. As described above, upon execution of the Redemption Agreement on
      January 2, 2007, FFFC released us from all of our outstanding payment
      obligations to FFFC, including obligations under the FastFunds
      Note.





In
      contemplation of the Redemption Agreement described above, on December 29,
      2006,
      we obtained the consent of Whitebox Hedged High Yield Partners LP (“Whitebox”)
      and Pandora Select Partners LP (“Pandora”; together with Whitebox, the
“Lenders”) to complete the transactions contemplated by the Redemption
      Agreement. Contemporaneously with receipt of the consent, we entered into an
      Note and Security Amendment Agreement dated December 29, 2006 with the Lenders,
      pursuant to which we agreed to amend certain terms of a Convertible Secured
      Promissory dated March 8, 2004 in favor of Whitebox in the principal amount
      of
      $2,000,000 and a Secured Promissory Note dated March 8, 2004 in favor of Pandora
      in the principal amount of $3,000,000 (together, the “2004 Notes”) to increase
      the interest rate applicable to the 2004 Notes from 7% per annum to 10% per
      annum and the default interest rate from 10% to 13%. Also on December 29, 2006,
      we paid (i) Whitebox an aggregate of $301,918.67 in satisfaction in full of
      our
      payment obligations under a Secured Promissory Note dated September 15, 2005
      in
      favor of Whitebox and (ii) Pandora an aggregate of $452,674.20 in satisfaction
      in full of our payment obligations under a Secured Promissory Note dated
      September 15, 2005 in favor of Pandora. The principal balance of the two
      remaining notes was approximately $1,147,000 at April 8, 2007.





Effective
      on December 29, 2006, we entered into a Consulting Agreement (the “Consulting
      Agreement”) with HF Services LLC (“HF Services”). HF Services is owned by Henry
      Fong, who at the time the agreement was entered into was a director of the
      Company, and Thomas Olson, the Secretary of the Company. Pursuant to the
      Consulting Agreement, HF Services will assist us with corporate and securities
      matters, including without limitation assisting us with our compliance with
      applicable securities rules and regulations. The term of the Consulting
      Agreement is one year. In consideration of such consulting services, we agreed
      to pay HF Services a consulting fee of $20,000 per month.





Also
      effective on December 29, 2006, we entered into a Letter Agreement (the “Letter
      Agreement”) with Henry Fong, at the time a director of the Company, Gulfstream
      Financial Partners, LLC (“Gulfstream”) and Beacon Investments, Inc. (“Beacon”).
      Gulfstream and Beacon are each wholly owned by Mr. Fong. Pursuant to the Letter
      Agreement, we agreed to issue Mr. Fong 100,000 shares of our common stock and
      pay Mr. Fong $200,000 in full satisfaction of certain obligations we had to
      Mr.
      Fong, Gulfstream and Beacon which aggregated approximately $653,500 as of
      December 29, 2006. With respect to the payment of $200,000, the Company paid
      Mr.
      Fong $162,500 in cash and issued a promissory note in the principal amount
      of
      $37,500 (the “Fong Note”) to Mr. Fong for the remainder. The Fong Note was
      payable in full on March 31, 2007, accrues interest at a rate of 7% per annum
      and remains outstanding.





As
      a part
      of the foregoing transactions, the Company paid an aggregate of $175,000 to
      certain of its employees and consultants in the form of severance and
      termination payments in consideration of services rendered by such persons
      to
      the Company and a release of claims of such persons against the Company.
      Included in the $175,000 in cash paid by the Company, $71,000 was paid to Thomas
      Olson, who was Secretary of the Company until April 2007, pursuant to his
      termination as an employee of the Company, and $36,000 was paid to Barry
      Hollander, who as of January 1, 2007, serves as the acting President of
      FastFunds, pursuant to the termination of his consulting arrangement with the
      Company.





On
      January 31, 2007, FastFunds announced that it has executed a letter of intent
      to
      acquire Industrial Systems, Inc. (“ISI”). ISI, founded in 1991 and based in
      Delta, Colorado, provides turn-key engineering procurement and construction
      services to the mining, energy and natural resources industries throughout
      the
      United States. The letter of intent calls for FastFunds to acquire 100% of
      the
      outstanding securities of ISI in an all stock tax-free transaction. While
      specific details are being negotiated as part of a definitive agreement, terms
      of the letter of intent call for the stockholders of ISI to own approximately
      65% of the FastFund’s common stock at closing of the transaction; with the
      potential to earn an estimated additional 6% based on post-closing incentives.
      Completion of the transaction is subject to further due diligence by each party,
      negotiation and execution of a definitive agreement, and other customary
      pre-closing conditions.


-5-


On
      May
      10, 2006, we entered into a Settlement Agreement with MBC Global, LLC, an
      Illinois limited liability company, and certain of its affiliates, pursuant
      to
      which we settled all potential claims and obtained a corresponding general
      release from such other parties, all of whom were holders of certain promissory
      notes originally issued by FastFunds Financial Corporation in connection with
      its June 7, 2004 merger transaction with Chex Services, Inc. Under the
      Settlement Agreement, we agreed to issue the former note holders an aggregate
      of
      180,000 shares of our common stock, all of which are subject to the terms of
      a
      Stock Sale and Lock-Up Agreement dated as of May 10, 2006 restricting the resale
      of the common shares. In addition, we entered into a Registration Agreement
      with
      the persons who received shares of our common stock pursuant to the terms of
      the
      Settlement Agreement. Under the Registration Agreement, we were obligated to
      file a registration statement covering the resale of their common shares on
      or
      prior to May 15, 2006 and cause that registration statement to be declared
      effective by the SEC on or prior to June 26, 2006. The registration statement
      was declared effective on February 9, 2007. Given the registration statement
      was
      declared effective after the required date, FastFunds incurred monetary
      penalties as of December 31, 2006 of approximately $43,000.





On
      March
      17, 2006, we received a Nasdaq Staff Determination letter indicating that the
      Company failed to comply with certain requirements for continued listing set
      forth in Marketplace Rule 4340(a) and that our securities are subject to
      delisting from The Nasdaq Capital Market. Under Marketplace Rule 4340(a), “an
      issuer must apply for initial inclusion following a transaction whereby the
      issuer combines with a non-Nasdaq entity, resulting in a change of control
      of
      the issuer and potentially allowing the non-Nasdaq entity to obtain a Nasdaq
      Listing”. The Nasdaq Staff Determination concluded that the Company’s recent
      acquisition of HPI is a “reverse merger”, as defined for Nasdaq listing
      purposes, and, to avoid delisting, the Company was required to submit an initial
      listing application and meet the initial listing criteria on The Nasdaq Capital
      Market in accordance with the referenced Marketplace Rule. Under Marketplace
      Rule 4340(a), “an issuer must apply for initial inclusion following a
      transaction whereby the issuer combines with a non-Nasdaq entity, resulting
      in a
      change of control of the issuer and potentially allowing the non-Nasdaq entity
      to obtain a Nasdaq Listing.” As such, the Company was required to submit an
      initial listing application and meet the initial listing criteria on The Nasdaq
      Capital Market in accordance with the referenced Marketplace Rule.





We
      filed
      an initial listing application with The Nasdaq Stock Market on March 9, 2006.
      Additionally, on March 23, 2006, we exercised our right to appeal the delisting
      of the Company’s securities by The Nasdaq Stock Market to a Listing
      Qualifications Panel, which granted the Company’s request to remain listed,
      through May 31, 2006, while the Nasdaq Staff worked to complete its review
      of
      the Company’s listing application.





On
      May
      19, 2006, the Company notified Nasdaq that it was withdrawing its listing
      application with the Nasdaq Stock Market. On May 19, 2006, the Company received
      notification from Nasdaq that its securities would be delisted from the Nasdaq
      Stock Market effective May 23, 2006. Currently, the Company’s common stock is
      listed on the Over the Counter Bulletin Board under the trading symbol
“HYDPE.”





Effective
      January 25, 2005, we effected a one-for-six shares reverse split of our common
      stock. As a result, all common share figures and related stock prices presented
      throughout this annual report for periods prior to January 25, 2005 have been
      restated to reflect the reverse stock split.





(b)
      Financial information about segments.





For
      the
      fiscal years ended December 31, 2004 and 2005, we operated in only one
      reportable business segment, cash disbursement services. Financial information
      regarding that segment is contained in the financial statements listed under
      Item 15. Following the sale by FFFC and Chex of significantly all of their
      business operations in the first quarter of 2006, we no longer have any
      operations in that segment other than those required under the TSA which expired
      in May 2006. As a result of the acquisition of Old HPI, we now operate
      exclusively in the alternative energy industry segment.





-6-


(c)
      Narrative description of business.





During
      2006 with the acquisition of our hydrogen technology, we transitioned from
      a
      holding company and now operate primarily as a hydrogen technology company.
      In
      addition, as of December 31, 2006, we also had limited operations through our
      majority-owned subsidiary, FastFunds Financial Corporation (“FastFunds”), a
      Nevada Corporation, as well as our majority-owned subsidiary, Denaris
      Corporation (“Denaris”), a Delaware corporation. FastFunds through its
      subsidiary Chex, effective January 31, 2006, sold substantially all of its
      operating assets and have limited operations. We also have run-off operations
      from our wholly owned subsidiary Nova Financial Systems, Inc., a Florida
      corporation. Our wholly-owned subsidiary, Key Financial Systems, Inc., a Florida
      corporation, ceased run-off operations in the fourth quarter of 2003. As more
      fully described in Item 1 (a) above, ownership of Denaris, Key Financial Systems
      and Nova Financial Systems was transferred to FastFunds through a Redemption
      Agreement on January 2, 2007. The business operation of each company is outlined
      more fully below.





**HYDROGEN
      POWER, INC.**





**The
      Hydrogen Economy** .
      The
      U.S. Department of Energy’s (DOE) Office of Energy Efficiency and Renewable
      Energy has articulated the following vision for a secure energy future:





“Over
      the
      next 20 years, U.S. energy consumption is expected to grow by 30 percent, while
      domestic energy production is expected to grow by only 25%. As consumption
      outpaces production, our dependence on imported petroleum threatens to increase,
      endangering our economy and standard of living, and compromising our national
      energy security. Fortunately, another promising scenario for our energy future
      is emerging - one that relies on hydrogen-powered fuel cell systems to produce
      electricity for our vehicles, homes and even large buildings, using abundant
      domestic resource. Through its Hydrogen, Fuel Cells, and Infrastructure
      Technologies Program, the U.S. DOE furthers the technologies vital to a hydrogen
      energy future.





The
      mission of the Hydrogen, Fuel Cells & Infrastructure Technologies Program is
      to research, develop, and validate fuel cells and hydrogen production, delivery,
      and storage technologies for transportation and stationary applications. The
      objectives of the program are to:




·
            Dramatically
                reduce dependence on foreign oil




·
            Promote
                the use of diverse, domestic, and sustainable energy resources




·
            Reduce
                carbon emissions from energy production and consumption




·
            Increase
                the reliability and efficiency of electricity
                generation”




On
      the
      hydrogen production side, the Program is seeking ways to reduce the cost of
      generating hydrogen from a variety of conventional and new technologies and
      sources. Through application of its proprietary technology, Hydrogen Power,
      Inc.
      (HPI) has the potential to become a player in this challenging new alternative
      energy arena.





**HPI
      Technology.** We have
      sub-licensed a patented technology developed at the University of British
      Columbia (UBC) for producing hydrogen gas in a process called “Hydrogen NowTM.”
The sublicense is a license from GHTI, the majority shareholder of HPI, for
      use
      of technology it has licensed from the University of British Columbia, and
      enhancements made thereby (“GHTI Sublicense”); any sublicenses by GHTI require
      consent of UBC. The GHTI Sublicense grants to HPI exclusive rights to use the
      Technology and any UBC improvements and to market, manufacture and distribute
      the products in the United States, Mexico, Central and South America; and
      non-exclusive rights to market and distribute the products using the technology
      and any UBC improvements in Canada, and certain non-exclusive rights to
      trademarks and service marks; GHTI further granted to HPI the non-exclusive,
      non-transferable rights to develop, modify, enhance and improve the technology.
      GHTI reserved all other rights including its rights to develop, enhance, market,
      facilitate, sublicense, install, maintain and support the technology except
      as
      expressly granted to HPI for Canada (on a non-exclusive basis), the United
      States, Mexico, Central and South America (on an exclusive basis). The GHTI
      Sublicense also provides that HPI agrees that all developments, enhancements,
      modifications or improvements to the technology developed,
      modified,


-7-


enhanced
      or improved by HPI shall be owned by GHTI. HPI believes it has made several
      such
      material enhancements and improvements. The GHTI Sublicense provides for
      payments to GHTI by HPI, of which a payment of approximately $400,000 was due
      and payable in March 2007. Failure to cure a default in payment after 30 days
      notice can result in termination of the Sublicense. Although UBC improvements
      are provided as part of the Sublicense, there currently exists some issues
      with
      UBC as to the scope of that term, and not all improvements made by UBC have
      been
      assigned to GHTI. If not rectified, this could result in competitive
      technologies developed by UBC existing in the market. This is a summary only,
      and for a complete review of the terms and conditions, please consult the
      exhibits hereto.





The
      Hydrogen Now patented system creates pure hydrogen from the reaction of aluminum
      and water by a powerful water-split reaction. Hydrogen Now can be used to
      generate hydrogen on-site and on-demand without electricity, thus offering
      the
      potential to overcome significant transportation and storage problems. The
      Hydrogen Now process has the potential to supply hydrogen at customized rates
      and pressures. The term of the sub-license pursuant to which HPI has its rights
      to the Hydrogen Now technology, as well as the license pursuant to which HPI’s
      sub-licensor has its rights to the technology, expires on the date on which
      the
      last patent covered by the sub-license and license expires, which is currently
      no sooner than February 2021.





Aluminum
      is the third most abundant element (after oxygen and silicon) in the earth’s
      crust and water is widely available. In addition, waste or scrap aluminum may
      be
      used in the reaction process and the by-products can be recycled. We
      were
      established to commercialize patented technology for a new method of producing
      hydrogen through an aluminum-assisted water split reaction process called
      Hydrogen Just in Time TM and
      Hydrogen Now. Consumers do not have convenient access to hydrogen as they have
      with gasoline, electricity, or natural gas. Hydrogen in its gaseous form is
      a
      difficult element to transport or store. Hydrogen produced from the electrolysis
      of water is costly; the reforming of fossil fuels -- still in the development
      stage --is also expensive due to the requisite hardware costs, and has not
      progressed beyond small scale applications. Steam reformation of natural gas
      is
      very mature and produces large amounts of commercial hydrogen which currently
      comes from this reformer process.





In
      the
      present form of our
      technology noted in US patents 6,440,385 and 6,582,676, hydrogen is generated
      from a non-reversible water split reaction using aluminum mechanically alloyed
      with water soluble inorganic salts (WIS) catalysts. Under normal circumstances,
      scientists would use strong acids or alkalis to dissolve the film around
      aluminum. We use a mixture of ground aluminum, alumina, a non-metallic additive
      (catalyst) and water to prevent formation of a non-reactive layer and create
      a
      continuous reaction until the aluminum is depleted. The process operates at
      normal pressures and temperatures. The mechanism of the present technology
      involves pit corrosion of the passivation layer by aggressive anions. Prevention
      of the passivation layer makes possible a feasible hydrogen generation system.
      The nonreversible nature of the reaction allows us to produce pressurized gas
      without the need for compressors. We are presently investigating commercial
      applications that would involve the use of our proprietary technology to
      generate hydrogen for specific applications in a cheaper, lighter, and safer
      manner in comparison to conventional hydrogen production solutions.





Our
      technology does not require any supplemental energy, electrical or otherwise,
      to
      produce high purity hydrogen gas that can be used in fuel cell and hydrogen
      storage applications to generate electricity. The reaction produces an aluminum
      hydroxide byproduct which can be recycled and reused in the hydrogen generation
      process. The hydrogen generation process for which we have acquired technology
      rights under the sub-license has never been used for commercial purposes and
      there is no assurance that we will be able to apply the process for commercial
      purposes. Our technology is still in the development stage.





On-site
      production of compressed hydrogen negates the need for compressed liquefied
      hydrogen transportation. Further, the spent fuel from our technology is
      environmentally inert and easily recycled back into aluminum or can be used
      in a
      number of different commercial applications.


-8-


Our
      objective is to develop and market our licensed proprietary hydrogen production
      process for use in commercial applications that require hydrogen, but where
      hydrogen storage and/or distribution is too costly or not feasible. Our
      management believes, based on their product and market review, that our hydrogen
      production process may be a commercially viable process for: (1) small volume
      hydrogen production for various industrial applications; and (2) fuel cell
      applications where on-demand hydrogen is required or is an advantage such as
      for
      selected portable power, stationary and mobile back-up generator power, and
      small scale transportation applications .
      Our new
      COO and Principal Executive is currently assessing, with his advisors, the
      technology and possible applications thereof. Thus, possible application areas,
      and any others contained in this document should be considered tentative.


Our
      functional technology development laboratory is equipped to carry out
      hydrogen-related testing, research and engineering. We have working arrangements
      with two university laboratories - the Department of Metals and Materials
      Engineering at the University of British Columbia, Canada and the Department
      of
      Metals at the University of Washington, Seattle - to make use of the larger,
      more sophisticated pieces of equipment already available at those facilities.
      We
      are at the early stage of testing and evaluating the commercial application
      of
      the licensed technology and the design and engineering of prototypes.





**HPI’s
      Laboratory.** We
      recently consolidated our corporate headquarters office in downtown Seattle
      with
      our R & D laboratory at 201 Elliott Avenue, occupying 3,000 square feet of
      leased lab and office space. We currently have nine employees (seven technical),
      and over the next year this number is not expected to increase appreciably
      since
      it is our intent to augment internal development efforts through use of external
      sources, including partnerships and outsourcing arrangements with selected
      industry players. It is anticipated that internal R & D expenses over the
      next year will remain at a level of approximately $1 million.





Our
      laboratory does not have any issues regarding environmental concerns. The city
      of Seattle has verified that waste from our spent fuel is not considered a
      hazard, and has authorized its disposal as simple unregulated municipal waste.
      We recycle all paper and plastics, and take all waste metals to recycling yards.
      Our technology is completely non-toxic, and when lab technicians are working
      with loose powder, face masks are used to avoid dust inhalation.





**Competition** .
      Since
      hydrogen power generation technologies have the potential to replace existing
      power products, competition will come from improvements to current power
      technologies and from new alternative energy technologies. Each of our target
      markets is currently serviced by existing manufacturers with existing customers
      and suppliers.  These manufacturers use proven and widely accepted
      technologies such as internal combustion engines and turbines as well as coal,
      oil, electricity and nuclear powered generators.





There
      are
      a number of companies using reforming technologies for hydrogen generation,
      including H2Gen, Harvest Energy Technology, and HyGear. Reformers are also
      used
      for large and small scale fuel cells by such companies as IdaTech, Nuvera,
      Plug
      Power and Protonex. Alternative hydrogen generation and storage technologies
      are
      being used by Millenium Cell, Ultracell, Quinetics,and others. While many of
      these companies are further down the commercialization and productization road
      than HPI, our hydrogen generation technology is cheaper than a reformer-based
      approach for our target applications, and we believe that our technology is
      superior to other non-reforming hydrogen generation technologies in terms of
      cost, weight, safety and use of non-toxic materials.





Additionally,
      there are competitors working on developing technologies using other than
      hydrogen power generation systems (such as fuel cells, advanced Lithium-ion
      batteries, battery/fuel cell hybrids and hybrid battery/ICEs) in each of
      Hydrogen Power’s targeted markets.  Some of these technologies are as
      capable of fulfilling existing and proposed regulatory requirements as our
      technology.





There
      are
      many different individuals, institutions and companies across the United States,
      Canada, Europe and Japan, including corporations, national laboratories and
      universities that are actively engaged in the development and manufacture of
      alternative energy technologies including hydrogen generation
      technologies.  Each of these competitors has the potential to capture
      market share in any of our future


-9-


target
      markets.





Many
      of
      these competitors have substantial financial resources, customer bases,
      strategic alliances, manufacturing, marketing and sales capabilities, and
      businesses or other resources which give them significant competitive advantages
      over Hydrogen Power.





**Government
      Regulation** . **** We
      are
      not currently subject to any specific governmental regulations other than those
      common to any operating business. While we believe the hydrogen power generation
      products we are developing are environmentally benign, we may be subject to
      national or local environmental laws regarding the disposal or recycling of
      aluminum or water waste or other unforeseen by-products from our developing
      technologies.





It
      is
      possible that we will encounter industry-specific government regulations in
      the
      future in any jurisdictions in which we may operate. Regulatory approvals may
      be
      required for the design, installation and operation of stationary and mobile
      hydrogen fuel stations and other fuel cell systems should we successfully
      develop and implement those products. It is our intention to comply with all
      necessary governmental regulations that may be imposed on products or services
      we develop for commercial use. Any delay in gaining necessary regulatory
      approval for future products or services could cause a delay in our development
      and growth.





**FASTFUNDS
      FINANCIAL CORPORATION**





FastFunds
      Financial Corporation’s primary business prior to the Asset Sale on January 31,
      2006, was that of its wholly owned subsidiary, Chex. Chex was formed to provide
      comprehensive cash access services to casinos, and other gaming establishments,
      and to market its products a la carte to other establishments in the casino,
      entertainment, and hospitality industries. At each of these locations Chex
      provided any one or a combination of: check cashing; credit/debit card cash
      advance systems; and ATM terminals. Chex either staffed the locations with
      its
      personnel or provided its products and services to the locations based upon
      the
      contract with the location.





Chex’s
      services were provided pursuant to the terms of financial services agreements
      entered into with each respective establishment. These agreements specified
      which cash access services were to be provided by Chex, the transaction fees
      to
      be charged by Chex to patrons for each type of cash access transaction, and
      the
      amount of compensation to be paid by Chex to the location. Pursuant to all
      of
      these agreements, Chex maintained the exclusive rights (with rare exception)
      to
      provide its services for the term of the contract.





Subsequent
      to the Asset Sale, FastFunds has not conducted operations and is in the process
      of locating a business to acquire. FastFunds currently employs one full-time
      employee.





**DENARIS**





Effective
      January 2, 2007, with the execution of the Redemption Agreement as described
      under Item 1 (a) above, ownership of Denaris Corporation was transferred to
      FastFunds.





Denaris
      Corporation was formed on August 16, 2002 to develop and market a prepaid
      reloadable stored value card program. Stored value cards offer a convenient
      alternative to customers, particularly immigrants, who choose not to utilize
      traditional bank accounts due to language barriers and apprehension. Initially,
      Denaris intended to focus on the development of marketing programs targeting
      various immigrant populations that utilize international fund remittance
      services to transfer funds and other applicable markets targeting customers
      who
      have the need for a branded bank card, but do not qualify for a credit card.
      Additionally, we, in conjunction with Denaris and Paymaster Jamaica, Ltd,
      intended to market a proprietary stored value card program, with an initial
      focus on the international funds remittance business between the United States
      and Jamaica. Denaris’ plans never came to fruition and presently Denaris has no
      meaningful business operations.


-10-


**Paymaster
      Jamaica Agreement** .
      In
      August 2002, we signed a Memorandum of Understanding (“MOU”) with Paymaster
      Jamaica Ltd. headquartered in Kingston, Jamaica. Paymaster Jamaica commenced
      operations in October 1997, offering improved revenue collection and customer
      care facilities to businesses, institutions and consumers on the island of
      Jamaica. It offers its client companies a viable, cost effective alternative
      to
      retaining their own commercial offices. Paymaster Jamaica's clients include
      every local utility company, five remittance companies, select internet service
      providers and cable networks, among others. In addition to its bill payment
      services, Paymaster Jamaica offers cash remittance services affording its
      customers the convenience to send and receive all types of remittances
      nationally or internationally via cash or debit cards.





In
      2002,
      under the terms of the MOU we advanced $500,000 to Paymaster Jamaica in exchange
      for a 10% promissory note due in 2008. Under the terms of the Paymaster Jamaica
      note, we may convert the amounts due under the capital advance into equity
      of a
      newly formed subsidiary, Paymaster Worldwide, which would then be jointly owned
      by Denaris and Paymaster Jamaica. Paymaster Worldwide is to franchise the
      Paymaster Jamaica business model to other markets initially in other Caribbean
      countries with the possibility of eventually going worldwide. Presently we
      have
      no intention to convert the note to equity in Paymaster Worldwide.





During
      2003, Denaris began designing a funds payment and transfer computer system
      which
      was tested and operated for a short period of time in certain of Paymaster's
      locations. This system was designed to be capable of handling additional
      products and services that are similar in nature to Paymaster Jamaica's existing
      products as well as remittance and stored value products. Additional products
      intended to be supported by the proposed system were to include bill payment
      transactions, cash transfer program, direct deposit of payroll to stored value
      cardholder accounts, and prepaid long distance and prepaid cellular products.
      The system was never fully completed and was taken out of service in 2004.





Denaris
      is presently in discussions with Paymaster to determine the future of the
      companies’ relationship as well as the resolution of the Paymaster promissory
      note. Although no further agreements have been reached to date, the companies
      have agreed that no further work will be performed by Denaris on the Paymaster
      Jamaica computer systems.





**Competition** .
      Currently many large financial institutions and funds transfer services are
      offering stored value cards, which would compete directly with Denaris if it
      were presently offering stored value products. In addition, Denaris would
      compete with major funds transfer services which include Western Union and
      other
      similar companies operated by multi-national corporations with resources
      substantially more significant than those of Denaris.





**Government
      Regulation** .
      Denaris
      operations would be regulated by individual state money transmitter licensing
      requirements and we may be required to obtain and maintain licenses to do
      business in certain states. Denaris also may be subject to certain federal
      and
      international anti-money laundering laws.





Many
      states have licensing laws and other regulatory requirements relating to money
      transfers. Such licensing laws may require regulatory approval of agents,
      business forms, customer disclosures and require periodic reports by a licensee,
      in addition to possible net worth requirements. Many states also require
      compliance with federal and/or state anti-money laundering laws and regulations.





Funds
      transfer programs are subject to regulation by the United States including
      provisions of the USA Patriot Act of 2001 and other similar federal programs
      administered by the Treasury Department. These


regulations
      include anti-money laundering laws and regulations relating to foreign money
      transfers and may prohibit or restrict transactions to or from, or dealings
      with, specified countries, their governments, or certain of their nationals
      including individuals and entities designated as narcotics traffickers and
      terrorists or terrorist organizations. Money transfer companies may be required
      to develop and implement risk-based anti-money laundering programs, report
      large
      cash transactions and suspicious activity, and maintain transaction records.





In
      addition, money transfer businesses may be subject to some form of regulation
      in
      many foreign countries and territories in which such services are offered.


-11-




**KEY
      FINANCIAL SYSTEMS AND NOVA FINANCIAL SYSTEMS**





Effective
      January 2, 2007, with the execution of the Redemption Agreement as described
      under Item 1 (a) above, ownership of Key Financial Systems and Nova Financial
      Systems was transferred to FastFunds.





Key
      Financial Systems, Inc. and Nova Financial Systems, Inc. are Florida
      corporations formed in June 1997 and September 1998, respectively. Both
      companies were formed to design, market and service credit card products aimed
      at the sub-prime market consisting mainly of consumers who may not qualify
      for
      traditional credit card products. Nova processes payments on a single remaining
      portfolio which provides the company with “run-off” operations. Key Financial
      Systems ceased “run-off” operations in the fourth quarter of 2003 with the
      closing of its only portfolio. As a result, Key Financial Systems operations
      for
      the years ended December 31, 2006, 2005 and 2004 have been presented as
      discontinued operations in our consolidated financial statements as described
      more fully in Note 3 to the consolidated financial statements accompanying
      this
      report.





At
      the
      close of business on March 1, 2002, the Office of the Comptroller of the
      Currency closed Net First National Bank, the sole issuing bank for the Pay
      As
      You Go credit card program, and appointed the Federal Deposit Insurance
      Corporation (“FDIC”) as receiver. Subsequent to the closure, the FDIC informed
      the Pay As You Go credit card cardholders that their accounts were being closed
      and any monies due refunded. As a result, Key Financial Systems immediately
      suspended marketing the Pay As You Go credit card. In May 2002, Key Financial
      Systems filed a claim with the FDIC for all funds due from Net First National
      Bank to Key Financial Systems under the credit card program agreement through
      the date federal banking regulators closed Net First. As of December 31, 2002,
      Key Financial Systems and Nova had ceased business operations, however, Nova
      continues to receive residual payments on less than 1,000 cards still active
      in
      the Merrick Bank portfolio at December 31, 2006, down from approximately 2,000
      cards at December 31, 2004. The Merrick Bank portfolio should continue to see
      a
      decline in active accounts going forward as users discontinue use of the cards
      or move to traditional credit programs. Effective October 2003, Key Financial
      Systems ceased operating a second card portfolio previously operated through
      KBank as only three cards remained active. Key Financial Systems and KBank
      terminated the Credit Card Program Agreement on March 31, 2004.








**ITEM
      1A. RISK FACTORS**





*Before
      deciding to invest in our common stock, you should carefully consider each
      of
      the following risk factors and all of the other information set forth in this
      Form 10-K. The following risks could materially harm our business, financial
      condition or future results. If that occurs, the trading price of our common
      stock could decline, and you could lose all or part of your
      investment.*





**RISKS
      ASSOCIATED WITH OUR COMPANY AND HISTORY:**





**We
      had a net loss in 2004, 2005 and 2006, and we do not anticipate we will be
      profitable in 2007 as we continue to develop our hydrogen technology.**





We
      incurred a net loss of approximately $27.2million (a net loss applicable to
      common stockholders of approximately $29.5 million) for the year ended December
      31, 2006, as compared to a net loss of $8.8 million (a net loss applicable
      to
      common stockholders of approximately $9.5 million) for the year ended December
      31, 2005, and a net loss of approximately $7.5 million (a net loss applicable
      to
      common stockholders of approximately $7.7 million) for the year ended December
      31, 2004. We anticipate further losses for the year ended December 31, 2007
      as
      we continue to develop our hydrogen generation technology. There is also no
      assurance we will be profitable in the year ending December 31, 2008 or
      beyond.


-12-


**We
      presently have no sources of operating income unless and until we develop
      commercially viable products or we provide for other capital sources the nature
      of which could be detrimental to our current shareholders.**





While
      we
      provided $8 million for our hydrogen operations in connection with the
      acquisition of that technology, such amount is not expected to provide working
      capital sufficient for us to develop and market any commercially viable products
      or services and we will be required to seek additional capital. In this regard,
      we may not be able to locate and successfully close on other sources of funds
      in
      the future, if necessary. Even if available, the cost and nature of any funds
      may not be on terms favorable to our current stockholders.





**Certain
      liquidity issues exist which could seriously limit our future existence and
      development**





We
      currently owe the Lenders, described in Item 1(a) above, approximately $1.1
      million on the 2004 Notes that is payable over the balance of the year, which
      would substantially deplete working capital currently available to HPI. These
      Notes require a cash balance in excess of amounts due or a default may be
      declared. In addition, as previously noted, in March 2007, we owed approximately
      $400,000 on the GHTI Sublicense that remains unpaid. If GHTI were to give us
      notice, we would have to pay the amount due within 30 days, or the GHTI
      Sublicense could be terminated, and we would lose our rights to the technology
      contained therein. Payment of both the amounts due on the 2004 Notes and the
      GHTI Sublicense would leave us with limited working capital for operations
      for
      the balance of 2007, or conversely, utilization of our current working capital
      for operations could place us in default on either or both these sets of
      obligations, with serious consequences to our business. GHTI is a major
      shareholder of HPI and may consider waiver of the payment terms, but there
      is no
      agreement as to that waiver at this time. In addition, the Notes have certain
      provisions for payment to be made in stock under certain conditions and the
      Lenders have in the past agreed to settle cash obligations for stock in certain
      cases when those conditions have not been met. There can be no assurance they
      will agree at this time, given the recent decline in price of the stock, or
      if
      they do, that severe dilution may not result. Our management is currently
      assessing ways to potentially settle these obligations and in addition to secure
      addition operational capital. Please also see the Management’s Discussion and
      Analysis of Financial Condition later in this document for more details on
      these
      and other financial issues.





**We
      have certain limitations arising under the GHTI sublicense and the GHTI License
      from UBC**





Although
      we have certain exclusive rights to use the licensed technology in the United
      States, Mexico, Central America, and South America, and certain non-exclusive
      rights as to Canada as discussed elsewhere in this report, our major shareholder
      GHTI has retained rights outside those countries, and also has the right to
      enhancements we may make. This creates the possibility that GHTI could license
      the technology in areas not reserved to HPI, creating possible competitive
      industries using the same technology. Any such sub-license by GHTI would require
      the agreement of UBC and this may not be forthcoming. **** In
      addition, although UBC improvements are supposed to be part of the technology
      licensed to GHTI and sublicensed to us, UBC has sought patent protection in
      certain areas which we believe may be competitive to our licensed technology,
      and the issue of whether these should be considered “improvements” subject to
      our license has not been resolved. Management of GHTI is currently assessing
      this issue. If not adequately resolved, competitive technologies developed
      by
      UBC could be in the market place.





**We
      are subject to Sarbanes-Oxley and the reporting requirements of federal
      securities laws, which are expensive.**





As
      a
      public reporting company, we are subject to the Sarbanes-Oxley Act of 2002,
      as
      well as the information and reporting requirements of the Securities Exchange
      Act of 1934, as amended, and other federal securities laws. The costs of
      compliance with the Sarbanes-Oxley Act will add significant cost to our
      preparing and filing annual and quarterly reports, proxy statements and other
      information with the SEC, and furnishing audited reports to
      stockholders.





-13-


**RISKS
      ASSOCIATED WITH OUR SECURITIES:**





**Our
      common stock is quoted for trading on the Over the Counter Bulletin Board,
      which
      could limit the ability of our stockholders to sell our common stock at prices
      and at times they believe appropriate.**





Our
      common stock is currently traded on the Over the Counter Bulletin Board (OTCBB),
      which is an electronic over-the-counter quotation service. Securities quoted
      on
      the over-the-counter bulletin board and pink sheets are only rarely covered
      by
      securities analysts. In addition, these quotation and trading systems generally
      involve a slower flow of bid, ask and sales information and fewer market making
      broker-dealers, which factors typically result in lower prices for quoted
      securities. As a result, our stockholders may have difficulty selling their
      shares of our common stock at times and at prices they believe appropriate.





**The
      conversion of outstanding preferred stock and the exercise of options and
      warrants, at prices below the market price of our common stock could cause
      a
      decrease in the market price of our common stock.**





On
      August
      25, 2005, we issued 3,055 shares of Series K preferred stock in exchange for
      all
      of our previously outstanding Series G preferred stock and Series I preferred
      stock (for which there were approximately $3,055,000 in redemption value plus
      unpaid dividends). As of January 30, 2007, all 3,055 shares of our Series K
      preferred stock had been converted into 2,577,153 shares of our common stock.
      In
      addition, we have 100,000 shares of our Series L-3 common stock outstanding
      as
      described below. The conversion of any preferred stock either presently
      outstanding (Series L-3 as outlined below) or that may be issued in the future
      into an indeterminable number of shares of our common stock, and the exercise
      of
      options and warrants into a maximum of 3,912,742 shares of our common stock
      at
      the currently applicable weighted-average exercise price of approximately $2.81
      per common share, may be below the market price of our common stock at the
      time
      such securities are exercised and converted.





Depending
      on the number of shares outstanding and the market price of our common stock
      at
      the time of the conversion or exercise of these convertible securities, any
      issuance of common stock upon conversion or exercise at then-below-market prices
      may cause a decrease in the market price of our common stock.





**Our
      stockholders may experience significant dilution upon the conversion of our
      outstanding preferred stock.**





Series
      L Preferred Stock





As
      part
      of our acquisition of Old HPI, we issued to the former stockholders of Old
      HPI
      300,000 shares of the Preferred Stock. The Preferred Stock is convertible into
      common stock of the Company in three tranches of 100,000 shares each (referred
      to as the L-1, L-2 and L-3 Preferred Stock, respectively), on the
      180 th ,
      270 th and
      360 th day
      following closing of the merger, respectively; each tranche shall be convertible
      into 40% of our common stock outstanding on the respective date of conversion.
      The conversion of the Preferred Stock is subject to the achievement by Old
      HPI
      of certain performance benchmarks as defined in the Certificate of Designation
      of Series L Preferred Stock, including Old HPI’s use of its hydrogen technology
      to develop prototype generators, with marketable value, for various micro and
      portable power applications and for various macro power applications such as
      fuel cells and internal combustion engines. The successful achievement of these
      benchmarks, and thus the conversion of the Preferred Stock, is determinable
      by
      our board of directors in their sole discretion.





On
      January 3, 2007, we issued an aggregate of 12,594,622 shares
      of
      the Company’s common stock (with an additional 711,431 shares reserved for
      issuance upon the exercise of outstanding options) to holders of two tranches
      of
      the Company’s Series L Convertible Preferred Stock (L-1 and L-2) upon conversion
      of 100,000 shares of L-1 and 100,000 shares of L-2 Convertible Preferred Stock.





-14-


Following
      the conversion of L-1 and L-2, we have issued an aggregate of 15,633,612 shares
      of our common stock to the Old HPI shareholders and there are 100,000 shares
      of
      L-3 that remain outstanding. In the event of the Series L-3 Preferred Stock
      is
      converted into our common stock, the former stockholders of Old HPI would own
      approximately 70% of our common stock on a post-transaction basis (assuming
      that
      we do not, prior to the conversion of the L-3 Preferred Stock, issue any
      additional shares of common stock other than pursuant to conversion of the
      Series L Preferred Stock). Based upon 28,111,356 shares of our common stock
      outstanding as of April 3, 2007, we would issue to the former stockholders
      of
      Old HPI approximately 11,244,538 additional shares of our common stock if the
      L-3 shares were converted, which includes approximately 600,000 shares reserved
      for issuance of outstanding Old HPI stock options. As a result, our current
      stockholders have experienced substantial dilution from the issuance of Series
      L-1 and L-2 and will experience additional dilution if the Series L-3 Preferred
      Stock is converted.





**The
      conversion of outstanding convertible notes at prices below the market price
      of
      our common stock could cause substantial dilution to our current stockholders
      and a decrease in the market price of our common stock.**





In
      March
      2004, we closed on $5,000,000 of convertible promissory notes (the "Notes")
      with
      two financial institutions (the "Lenders"). The Notes carry a stated interest
      rate of 10% per annum and have a 45-month term. Interest only payments were
      due
      April 2004 through June 2004. Beginning in July 2004, principal and interest
      payments amortize over the remaining 42-month period. The Notes are senior
      to
      all other debt of Hydrogen Power and are collateralized by all assets of Chex
      as
      defined in the agreements. In December 2006, the terms of the Notes were amended
      to change the stated interest rate from 7% to 10% and the default rate of
      interest from 10% to 13%.





The
      Notes
      are convertible into Hydrogen Power common stock at $6.885 per share up to
      an
      amount equal to 4.99% of our outstanding common stock. We have the right under
      certain conditions to make any monthly payment of principal and interest in
      shares of our common stock. If we exercise our right, the common stock was
      to be
      issued based on 85% of the average bid price for 20 trading days prior to the
      payment due date. During the third quarter of 2006, we agreed with the lender
      to
      alter the terms of the optional stock payment provision of the loans given
      the
      difficulty of obtaining closing bid prices on non-listed stocks. The payment
      can
      now be issued at 80% of the average closing price of our common stock for the
      three or twenty days immediately prior to the payment date, whichever is lower.
      The maximum number of shares that can be delivered as payment is to be equal
      to
      10% of the average monthly trading volume for the month prior to the payment
      due
      date. The Company may also issue common shares each month in an amount not
      to
      exceed 10% of the prior month's total share volume as payment, to be applied
      to
      the outstanding principal balance up to a value of $100,000. Certain of these
      provisions can be, and have been, waived by the lender allowing us to make
      larger portions of some monthly payments in common stock. During 2005, we issued
      a total of 207,230 shares of its common stock valued at $863,840 as partial
      payments to the Lenders, with the other portions paid in cash to the Lenders,
      resulting in full payment. During 2006, we issued an additional 265,524 shares
      of our common stock valued at $743,541 as partial payment with the balance
      of
      each payment made in cash, resulting in full payment. It will likely be
      necessary for us to convert these debts to equity, if possible, as discussed
      more fully in other risk factors above. The principal balance of the two
      remaining notes was approximately $1,147,000 at April 8, 2007.





As
      a
      result of our issuance of common stock in consideration for all or part of
      the
      monthly payments on these notes, our stockholders may experience substantial
      dilution unless we make all of our payments in cash, or the notes are paid
      in
      full. Depending on the market price of our common stock at the time of the
      conversion of these loans, any issuance of common stock at then-below-market
      prices may cause a decrease in the market price of our common stock.





**We
      have a history of converting certain portions of our outstanding notes payable
      and other debts to common stock causing dilution to our
      stockholders.**





In
      the
      past, we have converted certain notes payable, accounts payable and other
      liabilities to equity by issuing shares of our common stock. Our board of
      directors previously authorized us to allow the


-15-


conversion
      of certain notes and other debts outstanding to equity and be paid in our common
      stock at prices up to 15% below the current trailing 10 day average closing
      price. As a result of this policy, our stockholders may experience substantial
      dilution should we be successful in converting other debts to equity in the
      future. During the period from October to December 2006, we issued 234,909
      shares of our common stock from the conversion of $319,258 in outstanding debt
      to unaffiliated parties. This amount does not include an additional 100,000
      shares issued to our former president and director in December 2006 pursuant
      to
      the Letter Agreement as described under Item 1 (a) above.





**The
      former stockholders of Old HPI generally, and its former majority stockholder
      specifically, are able to exert significant control over our
      Company.**





Assuming
      the conversion of all of the Series L Preferred Stock, the former
      securityholders of Old HPI who presently own approximately 54% of our common
      stock would hold approximately 70% of our outstanding common stock on a
      post-transaction basis. Additionally, GHTI, Old HPI’s former majority
      stockholder, which presently owns approximately 49% of our common stock would
      beneficially own approximately 63% of our outstanding common stock on a
      post-transaction basis, and now has and would thus have significant influence
      and effective control over the management of our business, the election of
      directors and all matters requiring stockholder approval.





**A
      substantial number of shares will be eligible for future sale by the Old HPI
      shareholders and the sale of those shares could adversely affect our stock
      price.**





As
      part
      of the acquisition agreement with Old HPI, we agreed to register for sale all
      of
      the shares of common stock and warrants issued as a result of the Acquisition.
      As a result, we have registered approximately 2.1 million of the shares of
      common stock and warrants issued in the HPI transaction that became eligible
      for
      immediate public sale. This could adversely affect the public market for our
      common stock should a significant portion of these shares be offered for sale
      at
      any given time. This could cause a significant decline in the market price
      for
      our common stock and therefore affect the value of any of our
      securities.





**RISKS
      RELATED TO OUR HYDROGEN POWER TECHNOLOGY DEVELOPMENT
      BUSINESS**





**Our
      hydrogen power technology development business has a limited operating history
      on which to evaluate our business and currently possesses unproven hydrogen
      generation technology.**





Following
      our acquisition of Old HPI, we continue to conduct research and development
      on
      our unproven hydrogen power generation technology. Our business plan is subject
      to significant further product development and there is a lack of meaningful
      historical financial data that makes it difficult to evaluate its prospects.
      To
      the extent that we are able to implement our business plan, our business will
      be
      subject to all of the problems that typically affect a business with a limited
      operating history, such as unanticipated expenses, capital shortfalls, delays
      in
      technology development and possible cost overruns. In addition, our hydrogen
      generation system has marketable potential but is an innovative product that
      has
      not yet been proven on a commercial scale or introduced to the
      market.





**We
      may not be able to achieve commercialization of our potential products on the
      timetable we anticipate, or at all.**





We
      cannot
      guarantee that we will be able to develop commercially viable hydrogen power
      generation products on the timetable we anticipate, or at all. The
      commercialization of hydrogen power generation products require substantial
      technological advances to improve the efficiency, functionality, durability,
      reliability, cost and performance of these products and to develop commercial
      volume manufacturing processes for these products. We cannot guarantee that
      we
      will be able to internally develop the technology necessary for
      commercialization of our hydrogen power generation products, or that we will
      be
      able to acquire or license any required technology from third parties.
      Developing the technology for high-volume commercialization requires substantial
      capital, and we cannot assure you that we will be able to generate or secure
      sufficient funding on acceptable terms to pursue commercialization plans. In
      addition, before any product can be released to market, it must be subjected
      to
      numerous field tests. These field


-16-


tests
      may
      encounter problems and delays for a number of reasons, many of which are beyond
      our control.  If these field tests reveal technical defects or reveal that
      Hydrogen Power’s potential products do not meet performance goals, including
      useful life, reliability, and durability, our commercialization schedule could
      be delayed, and potential purchasers may decline to purchase future systems
      and
      products.





The
      commercialization of our hydrogen power generation systems also depend upon
      our
      ability to significantly reduce the costs of these systems and products. We
      cannot assure you that we will be able to sufficiently reduce the cost of these
      products without reducing its performance, reliability and durability, which
      would adversely affect consumers’ willingness to buy future products.





**We
      have no operating revenue to date as a hydrogen technology company and a history
      of losses. We may be unable to generate sufficient net revenue in the future
      to
      achieve or sustain profitability.**





As
      a
      development stage company, prior to our acquiring Old HPI, it experienced
      operating losses for each quarterly and annual period since its inception in
      December 2003. It experienced net losses of approximately $2.9 million for
      the
      year ended December 31, 2005 and $767,000 for the year ended December 31, 2004.
      As of December 31, 2005, Old HPI had an accumulated deficit of approximately
      $3.7 million. As a result of the Acquisition, Old HPI losses are now included
      in
      our consolidated financial statements for 2006 from the effective date of the
      acquisition, March 14, 2006. We expect our losses and cash expenditures to
      continue over the next several years as we work to develop commercially viable
      products based on our hydrogen generation technology.





**We
      cannot assure you that we will be able to successfully execute our business
      plan.**





The
      execution of our business plan poses many challenges and is based on a number
      of
      assumptions.  We cannot assure you that we will be able to successfully
      execute our business plan. Narrowing the scope of our development activities
      may
      not accelerate product commercialization.  If we experience significant
      cost overruns on any of our product development programs, or if our business
      plan is more costly than anticipated, certain research and development
      activities may be delayed or eliminated, resulting in changes or delays to
      our
      commercialization plans.





**Our
      failure to obtain necessary additional financing would have a material adverse
      effect on our business plan and hinder or delay product development.**





In
      order
      to develop a product or products utilizing our hydrogen power generation
      technology, we will require substantial additional financing. This financing
      would likely include equity or debt financing which would likely cause
      substantial dilution to our current stockholders. We may not be able to obtain
      such additional equity or debt financing when we need it or at all. Even if
      such
      financing is available, it may not be available on terms that are favorable
      to
      us or in sufficient amounts to satisfy our requirements. If we require, but
      are
      unable to obtain, sufficient additional financing in the future, we may be
      unable to develop any commercially viable hydrogen generation product, further
      protect our intellectual property sufficiently, meet customer demand for any
      products that may be developed or withstand adverse operating results should
      successful product development occur. More importantly, if we are unable to
      raise further financing when required, our continued operations may have to
      be
      scaled down or even ceased and any ability to generate future revenues would
      be
      negatively affected.





**Potential
      fluctuations in our financial and business results makes forecasting difficult
      and may restrict our access to funding for our commercialization plan.**





We
      expect
      our operating results to vary significantly from quarter to quarter.  As a
      result, quarter to quarter comparisons of these operating results are not
      expected to be meaningful.  Due to our hydrogen power technology business’
stage of development, it is difficult to predict potential future revenues
      or
      results of operations accurately.  It is likely that in one or more future
      quarters our operating results will fall below the expectations of investors
      or
      securities analysts.  In addition, investors or security analysts may
      misunderstand our business decisions or have expectations that are inconsistent
      with our business plan.  This may result in our business activities not
      meeting their expectations.  Not meeting investor or
      security


-17-


analyst
      expectations may materially and adversely impact the trading price of our common
      shares, and increase the cost and restrict our ability to secure required
      funding to pursue our commercialization plans.





**A
      mass market for our products may never develop or may take longer to develop
      than we anticipate.**





Even
      if
      successfully commercialized, our hydrogen power generation systems will result
      in products sold in markets that are still emerging, and about which little
      is
      known. As a result, we do not know whether end-users will want to use those
      products.  The development of a mass market for our hydrogen power
      generation technology may be affected by many factors, some of which are beyond
      our control, including the emergence of newer, more competitive technologies
      and
      products, the future cost of raw materials used by our systems, regulatory
      requirements, consumer perceptions of the safety of any developed products
      and
      related fuels, and consumer reluctance to buy a new product.





If
      a mass
      market fails to develop or develops more slowly than anticipated, we may be
      unable to recover the losses it will have incurred in the development of
      potential products and may never achieve profitability.  In addition, we
      cannot guarantee that Hydrogen Power will be able to develop, manufacture or
      market any products if sales levels do not support the continuation of those
      products.





**Regulatory
      changes could hurt the market for our products.**





Changes
      in existing government regulations and the emergence of new regulations with
      respect to hydrogen generation systems may hurt the market for any developed
      products.  Environmental laws and regulations in the U.S. (particularly in
      California) and other countries have driven interest in vehicular alternate
      energy systems. We cannot guarantee that these laws and policies will not
      change.  Changes in these laws and other laws and policies or the failure
      of these laws and policies to become more widespread could result in consumers
      abandoning their interest in hydrogen generation systems in favor of alternative
      technologies.  In addition, as alternative energy products are introduced
      into the market, the U.S. and other governments may impose burdensome
      requirements and restrictions on the use of these technologies that could reduce
      or eliminate demand for some or all of Hydrogen Power’s potential products.





**If
      we fail to protect our intellectual property rights, competitors may be able
      to
      use our technology, which could weaken our competitive position, eliminate
      the
      potential for future revenue and increase costs.**





We
      believe that our long-term success will depend to a large degree on our ability
      to protect the proprietary technology that we have licensed or acquired or
      may
      develop or acquire in the future. Although we intend to aggressively pursue
      anyone we reasonably believe is infringing upon our intellectual property
      rights, initiating and maintaining suits against third parties that may infringe
      upon those intellectual property rights will require substantial financial
      resources. We may not have the financial resources to bring such suits and
      if it
      does bring such suits, it may not prevail. Regardless of our success in any
      such
      actions, we could incur significant expenses in connection with such suits.





Failure
      to protect our existing intellectual property rights could seriously harm our
      business and prospects because we believe that developing new systems and
      products that are unique to us is critical to our success.  We rely on
      patent, trade secret, trademark and copyright law to protect our intellectual
      property.  However, some of our intellectual property may not be covered by
      any patent or patent application, and the patents that we have licensed will
      eventually expire.  We cannot assure that our present or future issued
      patents will protect its technology.  Moreover, our patent position is
      subject to complex factual and legal issues that may give rise to uncertainty
      as
      to the validity, scope and enforceability of a particular patent. 
Accordingly, there is no assurance that:





·
            any
                of the patents licensed by us will not be invalidated, circumvented,
                challenged, rendered unenforceable, or licensed to others; or


·
            any
                potential future patent applications will be issued with the breadth
                of
                claim coverage sought by us, if issued at all.


-18-





In
      addition, effective patent, trademark, copyright and trade secret protection
      may
      be unavailable, limited or not applied for in certain countries.





We
      may
      also seek to protect our proprietary intellectual property, including
      intellectual property that may not be patented or patentable, in part by
      confidentiality agreements and, if applicable, inventors’ rights agreements with
      strategic partners and employees.  We can provide no assurance that these
      agreements will not be breached, that we will have adequate remedies for any
      breach or that such persons or institutions will not assert rights to
      intellectual property arising out of these relationships.





Our
      intellectual property has been licensed on an exclusive basis, within certain
      geographical limitations, from GHTI, and UBC, who may also license such
      intellectual property to others, including competitors in other geographic
      areas. If necessary or desirable, we may seek further licenses under the patents
      or other intellectual property rights of others. However, we can give no
      assurances that we will obtain such licenses or that the terms of any offered
      licenses will be acceptable to us.  The failure to obtain a license from a
      third party for intellectual property we use could cause us to incur substantial
      liabilities and to suspend the development, manufacture or shipment of products
      or our use of processes requiring the use of such intellectual property.





**We
      may be involved in intellectual property litigation that causes us to incur
      significant expenses or prevents us from selling any developed products.**





We
      may
      become subject to lawsuits in which it is alleged that we have infringed the
      intellectual property rights of others or commence lawsuits against others
      who
      we believe are infringing upon our rights.  Involvement in intellectual
      property litigation could result in significant expense, adversely affecting
      the
      development of the challenged product or intellectual property and diverting
      the
      efforts of our technical and management personnel, whether or not such
      litigation is resolved in its favor.  In the event of an adverse outcome as
      a defendant in any such litigation, we may, among other things, be required
      to:





·
            pay
                substantial damages;





·
            cease
                the development, manufacture, use, sale or importation of any developed
                products that infringe upon other patented intellectual property;





·
            expend
                significant resources to develop or acquire non-infringing intellectual
                property;





·
            discontinue
                processes incorporating infringing technology; or





·
            obtain
                licenses to the infringing intellectual property.





We
      can
      provide no assurance that we would be successful in such development or
      acquisition or that such licenses would be available upon reasonable
      terms.  Any such development, acquisition or license could require the
      expenditure of substantial time and other resources and could have a material
      adverse effect on our business and financial results.





**We
      currently face and will continue to face significant competition.**





As
      alternative energy technologies including hydrogen power generation technologies
      have the potential to replace existing power products, competition for those
      products will come from current power technologies, from improvements to current
      power technologies and from new alternative power technologies, including other
      types of alternative energy technologies. Each of our target markets is
      currently serviced by existing manufacturers with existing customers and
      suppliers. These manufacturers use proven and widely accepted technologies
      such
      as internal combustions engines and turbines as well as coal, oil and nuclear
      powered generators.





Additionally,
      there are competitors working on developing technologies other than hydrogen
      power


-19-


generation
      systems (such as fuel cells, advanced Lithium-ion batteries and battery/fuel
      cell hybrids) in each of our targeted markets.  Some of these technologies
      are as capable of fulfilling existing and proposed regulatory requirements
      as
      our technology.





There
      are
      many different individuals, institutions and companies across the United States,
      Canada, Europe and Japan, including corporations, national laboratories and
      universities that are actively engaged in the development and manufacture of
      alternative energy technologies including hydrogen generation
      technologies.  Each of these competitors has the potential to capture
      market share in any of our future target markets.





Many
      of
      these competitors have substantial financial resources, customer bases,
      strategic alliances, manufacturing, marketing and sales capabilities, and
      businesses or other resources which give them significant competitive advantages
      over Hydrogen Power.





**The
      loss of the services of certain key employees, or the failure to attract
      additional key individuals, would materially adversely affect our business.**





Our
      success could depend on the continued services of certain research and marketing
      personnel at our Seattle facility. In addition, our success depends in large
      part on our ability in the future to attract and retain key management,
      engineering, scientific, manufacturing and operating personnel.  Recruiting
      personnel for the alternative energy industries is highly competitive.  We
      cannot guarantee that we will be able to attract and retain qualified executive,
      managerial and technical personnel needed for the development of potential
      products business. Our failure to attract or retain qualified personnel could
      have a material adverse effect on our business. Liquidity issues, discussed
      earlier, could severely impact our ability to attract qualified key personnel
      or
      retain existing personnel.





**Hydrogen
      products use inherently dangerous, flammable fuels, which could subject our
      business to product liability claims.**





Our
      technology exposes us to potential product liability claims that are inherent
      in
      hydrogen and products that use hydrogen.  Hydrogen is a flammable gas and
      therefore a potentially dangerous product.  Any accidents involving our
      technology or future products or other hydrogen-based products could materially
      impede widespread market acceptance and demand for hydrogen energy
      products.  In addition, we may be held responsible for damages beyond the
      scope any insurance coverage.  We also cannot predict whether we will be
      able to maintain any necessary insurance coverage on acceptable terms.








**RISKS
      RELATED TO THE BUSINESS OF OUR MAJORITY-OWNED SUBSIDIARY FASTFUNDS FINANCIAL
      CORPORATION:**





**FastFunds
      has no significant operating business** **.**





In
      January 2006, FastFunds sold substantially all of its operating business, owned
      by Chex, to Game Financial Corporation. The company currently has no significant
      operating business. As a result, any investment in FastFunds must be considered
      purely speculative.





**FastFunds’
      balance sheet contains certain notes payable, which were due February 28,
      2007.**





Chex
      previously relied on promissory notes (the “Chex Notes”) issued to private
      investors to provide operating capital for its business. As of December 31,
      2006, the balance of the Chex Notes was $2,108,000. FastFunds renewed $283,000
      of the Chex Notes on the same terms and conditions as previously existed. In
      April 2007 FastFunds, through a financial advisor, restructured $1,825,000
      of
      the Chex Notes (the “Restructured Notes”). The Restructured Notes carry a stated
      interest rate of 15% and mature on February 28, 2008. Of the Restructured Notes,
      $150,000 and $175,000, respectively, have 90 day and 120 day provisions, whereby
      the noteholder can request repayment. However, FastFunds does not currently
      have
      enough capital to repay the Restructured Notes when they mature. Accordingly,
      the noteholders may take action against the Company, including forcing the
      Company into bankruptcy.


-20-





**Chex
      is a guarantor of certain debt of HPI, and the Company’s entire investment in
      Chex (i.e., its ownership of all outstanding Chex stock) is subject to a
      security interest securing such obligation. Furthermore, all of the assets
      of
      Chex are subject to a security interest for the same debt.**





In
      March
      2004, HPI closed on $5 million of debt financing and issued convertible
      promissory notes in that principal amount to two financial institutions (the
      “Lenders”). The proceeds from the promissory notes were immediately thereafter
      loaned to Chex. The promissory notes are collateralized, among other things,
      by
      all of the assets of Chex, and by the Company common stock owned by HPI. In
      conjunction with the Asset Sale, the holders of the promissory notes consented
      to the sale of assets that secured their notes. In contemplation of the
      Redemption Agreement described above, on December 29, 2006, HPI and FastFunds
      obtained the consent of the two financial institutions to complete the
      transactions contemplated by the Redemption Agreement. Contemporaneously with
      receipt of the consent, HPI and FastFunds entered into an Note and Security
      Amendment Agreement dated December 29, 2006 with the Lenders, pursuant to which
      it was agreed to amend certain terms of the Convertible Promissory Note dated
      March 8, 2004 in favor of Lenders in the principal amount of $5,000,000 to
      increase the interest rate applicable to the Convertible Promissory Notes from
      7% per annum to 10% per annum and the default interest rate from 10% to 13%.
      Accordingly, if we default on the obligations specified under the promissory
      notes, and if Chex cannot cure such defaults, FastFunds’ remaining assets could
      be lost. Chex is not expected to have the reserves to pay any of such claims.





**There
      are currently outstanding securities convertible into or exchangeable for an
      aggregate of 4,329,280 shares of FastFunds’ common stock which, if converted or
      exchanged, will substantially dilute its existing
      stockholders.**





FastFunds
      currently has outstanding notes and securities convertible into or exchangeable
      for an aggregate of 4,329,280 shares of common stock under certain conditions.
      In addition, the effective conversion and exercise prices of 189,000 of such
      securities significantly lower than the current market value of FastFunds’
common stock. If these securities are converted into or exchanged for common
      stock, their issuance would have a dilutive effect on the percentage ownership
      of FastFunds’ current stockholders, including the Company. These securities
      consist of: (i) outstanding warrants to purchase an aggregate of 189,000
      shares of FastFunds’ common stock at a purchase price of $0.10 per share, which
      were originally issued to HPI in connection with the Merger; (ii) options to
      purchase 455,000 shares of its common stock at an average purchase price of
      $1.05 per share; and (iii) warrants to purchase an aggregate of 3,685,280 shares
      of FastFunds common stock at a weighted average purchase price of $0.98 per
      share.





**FastFunds’
      common stock trades only in an illiquid trading market, which generally results
      in lower prices for its common stock.**





Trading
      of FastFunds’ common stock is conducted on the Over-The-Counter Bulletin Board.
      This has an adverse effect on the liquidity of FastFunds’ common stock, not only
      in terms of the number of shares that can be bought and sold at a given price,
      but also through delays in the timing of transactions and the lack of security
      analysts’ and the media’s coverage of the company and its common stock. This may
      result in lower prices for FastFunds’ common stock than might otherwise be
      obtained and could also result in a larger spread between the bid and asked
      prices for FastFunds’ common stock.





**FastFunds
      has not paid dividends to date, and has no intention of paying dividends to
      its
      stockholders, including the Company.**





To
      date,
      FastFunds has not paid any cash dividends and does not anticipate the payment
      of
      cash dividends in the foreseeable future. Accordingly, the only return on an
      investment in FastFunds’ common stock, if any, may occur upon a subsequent sale
      of the shares of common stock.





-21-


**EMPLOYEES**





HPI
      currently employs nine full-time employees of whom seven work in technical
      capacities. FastFunds employs 2 full-time employees at its corporate office.
      Denaris, Key Financial Systems and Nova Financial Systems currently have no
      employees.








**ITEM
      2. PROPERTIES.**





Effective
      January 2, 2007, our principal executive office located in Seattle, Washington
      was consolidated with our development laboratory. We lease approximately 3000
      square feet of office and laboratory space under a written lease executed in
      February, 2006 and expiring January 31, 2008. Our payments under this lease
      are
      currently$6,676 per month plus $660 monthly for parking.





During
      the year ended December 31, 2006, our principal executive office was located
      in
      Englewood, Colorado. We leased this space, consisting of approximately 1,800
      square feet, on a month-to-month basis for $2,500 per month, from a corporation
      in which our former president is the sole stockholder. We believe these terms
      were no less favorable than those that could be obtained from a non-affiliated
      party for similar facilities in the same area.





Effective
      May 1, 2005, we also sub-leased approximately 800 square feet of office space
      on
      a month-to-month basis from an unaffiliated third party in West Palm Beach,
      Florida for $1,700 per month, which ended in as of December 2006.





FastFunds,
      through Chex, leased approximately 3,300 square feet for its executive office
      in
      Minnetonka, Minnesota. The lease payment was $6,000 per month through March
      31,
      2006, when it expired and became a month-to-month arrangement. This lease ended
      in May 2006. Under the terms of the lease, Chex was responsible for its pro-rata
      share of taxes, operating expenses and improvement costs. Upon the expiration
      of
      this lease, FastFunds moved its principal executive office to the Company’s
      office space in West Palm Beach, Florida. In January 2007, FastFunds leased
      approximately 1,300 square feet for its executive office in West Palm Beach,
      Florida, which is adequate for its current needs. The current minimum lease
      payment is approximately $2,900 per month through January 31, 2010, when it
      expires. Pursuant to the terms of the lease, FastFunds is also responsible
      for
      its pro-rata share of taxes, operating expenses and improvement costs.








**ITEM
      3. LEGAL PROCEEDINGS.**





We
      are
      involved in various claims and legal actions arising in the ordinary course
      of
      business. In the opinion of management, the ultimate disposition of these
      matters will not have a material adverse impact either individually or in the
      aggregate on our consolidated results of operations, financial position or
      cash
      flows.








**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





None.


-22-





**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





(a)
      Market Information.





Since
      October 25, 2006, our common stock has been traded, and continues to trade,
      on
      the Over the Counter Bulletin Board under the symbol HYDP. For the period from
      May 23, 2006 to October 24, 2006, our stock traded on the Over the Counter
      Pink
      Sheets and for the period up to and including May 22, 2006, our stock traded
      on
      the Nasdaq Capital Market. The table below states the quarterly high and low
      sale prices for the common stock as reported by The Nasdaq Stock Market, and
      represents actual high and low sale prices, for the periods from January 1,
      2005
      through May 22, 2006. For the period from may 23, 2006 to December 31, 2006,
      the
      table states the quarterly high and low bid prices for each quarterly period
      as
      indicated. On January 25, 2005, we completed a one-for-six share reverse split
      of our common stock for stockholders of record on January 24, 2005. Accordingly,
      the prices listed below that may have occured prior to January 25, 2005, has
      been restated to account for the reverse stock split.





**Quarter
                ended**
            High
            
            Low2005March
                31, 2005
            $4.50
            
            $2.88June
                30, 2005
            5.60
            
            3.71September
                30, 2005
            6.68
            
            4.01December
                31, 2005
            6.43
            
            4.922006March
                31, 2006
            $6.17
            
            $4.34June
                30, 2006
            4.74
            
            1.25September
                30, 2006
            2.25
            
            1.23December
                31, 2006
            1.85
            
            1.20





(b)
      Holders.





The
      number of record holders of our common stock as of April 2, 2007 was
      approximately 2,130 according to our transfer agent. This figure excludes an
      indeterminate number of shareholders whose shares are held in “street” or
“nominee” name.





(c)
      Dividends.





On
      February 8, 2005, we, pursuant to a Warrant Agreement by and between us and
      Corporate Stock Transfer, as warrant agent, dated February 7, 2005 (the “Warrant
      Agreement”), distributed as a dividend to our stockholders of record as of
      February 7, 2005 (the “Record Date”) two classes of warrants to purchase Equitex
      common stock: Common Stock Class A Redeemable Warrants (the “Class A Warrants”)
      and Common Stock Class B Redeemable Warrants (the “Class B
      Warrants”).


Stockholders
      as of the Record date received one Class A Warrant and one Class B Warrant
      for
      every two shares of common stock held of record on the Record Date, and were
      sent materials necessary for them to receive certificates representing the
      Dividend Warrants. In the aggregate, we distributed 3,046,038 Class A Warrants
      and 3,046,038 Class B Warrants. These warrants were only exercisable under
      certain terms and conditions as set forth in the Warrant Agreement that included
      the effectiveness of a registration statement under the 1933 Act filed with
      the
      Securities and Exchange Commission covering the common stock issuable upon
      exercise of such warrants.





Following
      issuance of the Class A and Class B Warrants, it was determined that the
      Company’s dividend of the Class A and Class B Warrants constituted a
      simultaneous unregistered and non-exempt offer of the common stock purchasable
      under such warrants, which simultaneous offer was a violation of Section 5
      of


-23-


the
      Securities Act of 1933. Accordingly, on June 16, 2006, we executed a Termination
      of Warrant Agreement (the “Termination Agreement”) with Corporate Stock Transfer
      with respect to the Warrant Agreement. Through the Termination Agreement the
      Class A Warrants and Class B Warrants were extinguished and terminated.





HPI
      has
      not declared nor paid cash dividends on our common stock during the previous
      two
      fiscal years, nor do we anticipate paying any cash dividends in the foreseeable
      future. We currently intend to retain any future earnings to fund operations
      and
      for the continued development of our business. While a business development
      company, we made an in-kind distribution of one of our larger investment
      positions to stockholders. Any further in-kind distribution will be made only
      when, in the judgment of our Board of Directors, it is in the best interest
      of
      our stockholders to do so. It is possible that we may make an in-kind
      distribution of securities, which have appreciated or depreciated from the
      time
      of purchase depending upon the particular distribution. We have not established
      a policy as to the frequency or size of distributions and indeed there can
      be no
      assurance that any future distributions will be made. To date, only one such
      distribution has been approved by the Board of Directors and was distributed
      in
      April 1988.





(d)
      Securities Authorized for Issuance Under Equity Compensation Plans.





We
      have
      the following securities authorized for issuance under our equity compensation
      plans as of December 31, 2006, including options outstanding or available for
      future issuance under our 2003 Stock Option Plan, which was not approved by
      our
      security holders, and our 2005 Stock Option Plan, which was approved by our
      security holders on December 26, 2005.





**Equity
      Compensation Plan Information**


Plan
                category
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            447,500
            
            $1.64
            
            685,159Equity
                compensation plans not approved by security holders
            484,966
            
            $5.23
            
            0Total
            932,466
            
            $3.51
            
            685,159





Our
      2003
      Stock Option Plan was not approved by our securityholders. There were 583,334
      shares eligible for issuance under the 2003 Plan, none of which are available
      for future issuance. The 2003 Plan provided for the grant of both incentive
      and
      non-statutory stock options. The board of directors adopted the 2003 Plan to
      provide a means by which our employees, directors, officers and consultants
      would be given an opportunity to purchase our stock, to assist in retaining
      the
      services of such persons, to secure and retain the services of persons capable
      of filling such positions and to provide incentives for such persons to exert
      maximum efforts for our success. Employees, directors, officers and consultants
      of our subsidiaries and affiliates were also eligible to participate in the
      2003
      Plan. The board of directors administered the 2003 Plan. Subject to the
      provisions of the 2003 Plan, the board of directors had the power to construe
      and interpret the 2003 Plan and to determine the persons to whom and the dates
      on which options were granted, the number of shares of common stock to be
      subject to each option, the time or times during the term of each option within
      which all or a portion of such option may be exercised, the exercise price,
      the
      type of consideration and other terms of the option.


-24-





(e)
      Performance Graph.





As
      a
      result of the sale by FastFunds of its cash access services business and our
      acquisition of Hydrogen Power, Inc., we have changed the indexes used to
      illustrate the cumulative return of our Common Stock to reflect the change
      in
      our business. The following graph compares the annual change in the cumulative
      total shareholder return on our Common Stock for the five fiscal years
      ended December 31, 2006 with the cumulative total return on the Russell 2000
      and
      a peer group consisting of Standard Industry Classification (“SIC”) Group Code
      369 companies listed on The American Stock Exchange, Nasdaq Global Market and
      New York Stock Exchange for that period. It assumes $100 invested on December
      31, 2001 with dividends reinvested.











**2001**
            **2002**
            **2003**
            **2004**
            **2005**
            **2006**HYDROGEN
                POWER, INC.
            100.00
            11.33
            44.20
            17.54
            23.53
            7.23SIC
                CODE INDEX 369
            100.00
            86.85
            140.46
            151.05
            151.98
            171.91RUSSELL
                2000 INDEX
            100.00
            78.42
            114.00
            133.94
            138.40
            162.02





The
      following graph compares the annual change in the cumulative total shareholder
      return utilizing indexes used in our Annual Report on Form 10-K for the year
      ended December 31, 2005. It compares our Common Stock for the five fiscal
      years ended December 31, 2006 with the cumulative total return on the Nasdaq
      Stock Market US Stock Index and a peer group consisting of the Nasdaq Stock
      Market Financial index for that period. It assumes $100 invested on December
      31,
      2001 with dividends reinvested.


-25-








**2001**
            **2002**
            **2003**
            **2004**
            **2005**
            **2006**HYDROGEN
                POWER, INC.
            100.00
            11.33
            44.20
            17.54
            23.53
            7.23NASDAQ
                FINANCIAL
            100.00
            101.38
            136.12
            154.60
            161.37
            184.50NASDAQ
                MARKET INDEX (U.S.)
            100.00
            69.97
            106.36
            115.98
            120.15
            134.80





Recent
      sales of unregistered securities.





During
      the period from November 2006 through January 2007, we issued 37,907 shares
      of
      common stock to two unaffiliated institutional investors in payment of
      convertible notes and accrued interest totaling $47,493, which equals $1.25
      per
      share.





In
      December 2006, we issued 75,000 shares of common stock pursuant to a consulting
      contract. The shares were valued at $138,750, which represents the number of
      shares issued multiplied by the value of the common stock ($1.85) on the date
      the consulting contract was executed (July 31, 2006).





In
      December 2006, we issued 3,993 shares of common stock to an accredited investor
      upon the conversion of debt totaling $5,000, or a conversion price of $1.25
      per
      share. We also issued 13,337 shares to Mr. Henry Fong, our former president
      who
      resigned in January 2007, upon the conversion of $16,756 in debt or a conversion
      price of $1.26 per share.





In
      December 2006, we issued 300,000 shares of common stock to our subsidiary,
      FastFunds Financial Corporation, in payment of certain price guarantees made
      by
      us pursuant to a settlement agreement with former holders of certain FastFunds
      promissory notes. These shares were valued at $1.50 per share, the market price
      on the date of issuance and were issued in exchange for a
      receivable.





In
      December 2006 through January 2007, 1,144 shares of Series K Preferred Stock
      with a face value of $1,144,000, plus cumulative unpaid dividends of $89,804,
      were converted into 1,197,238 shares of common stock at conversion prices of
      $1.00 per share for the preferred stock and $1.55 per share for the
      dividends.





The
      Company offered and sold the common stock indicated above in reliance on an
      exemption from registration for offers and sales of securities that do not
      involve a public offering (i.e., Section 4(2) of the Securities Act of 1933,
      as
      amended). The shares of common stock issued as described above were not
      registered under the Securities Act of 1933, as amended, and may not be offered
      or sold in the United States absent registration or an applicable exemption
      from
      registration requirements.





-26-


**ITEM
      6. SELECTED FINANCIAL DATA.**





The
      following table contains selected financial data of the Company for the previous
      five years. The selected financial data presented herein for the year ended
      December 31, 2006 includes the consolidated financial statements of the Company
      and its wholly-owned subsidiaries, Key and Nova, the operations of Old HPI
      beginning March 14, 2006, as well as our majority-owned subsidiaries, FFFC
      and
      Denaris. For the years ended December 31, 2002 through 2005 it includes Key
      and
      Nova and our majority-owned subsidiaries, FFFC and Denaris. In the fourth
      quarter of 2003, Key ceased “run-off” operations. In January 2006, FFFC sold
      substantially all of its operating assets. Accordingly, Key and FFFC operations
      for all periods are presented into a one-line presentation and are included
      in
“Loss from discontinued operations”. All significant intercompany accounts and
      transactions have been eliminated in consolidation.





In
      light
      of the foregoing, and as a result of the sale of substantially all of Chex’s
      assets in January 2006, the historical data presented below is not indicative
      of
      future results. You should read this information in conjunction with the audited
      consolidated financial statements of the Company, including the notes to those
      statements (Item 8), and “Management’s Discussion and Analysis of Financial
      Conditions and Results of Operations (Item 7) that follows.





*2006*
            
            *2005*
            
            *2004*
            
            *2003*
            
            *2002*Revenues
            
            $
            126,332
            
            $
            196,899
            
            $
            260,256
            
            $
            415,253
            
            $
            881,577Loss
                from continuing operations
            
            
            (27,119,908
            )
            
            (2,590,433
            )
            
            (2,846,360
            )
            
            (4,303,600
            )
            
            (3,053,820
            )Loss
                from discontinued operations, net of income taxes
            
            
            (118,895
            )
            
            (6,251,804
            )
            
            (4,611,623
            )
            
            (273,625
            )
            
            (1,265,180
            )Net
                loss
            
            
            (27,238,803
            )
            
            (8,842,237
            )
            
            (7,457,983
            )
            
            (4,577,225
            )
            
            (4,319,000
            )Net
                loss applicable to common stockholders
            
            
            (29,480,503
            )
            
            (9,474,325
            )
            
            (7,684,023
            )
            
            (5,156,075
            )
            
            (4,439,580
            )Basic
                & diluted loss per common share:Loss
                from continuing operations per common share
            
            
            (2.49
            )
            
            (0.47
            )
            
            (0.54
            )
            
            (1.00
            )
            
            (0.84
            )Loss
                from discontinued operations per common share
            
            
            (0.01
            )
            
            (0.92
            )
            
            (0.82
            )
            
            (0.06
            )
            
            (0.33
            )Total
                assets
            
            
            4,930,569
            
            
            29,553,148
            
            
            24,217,706
            
            
            26,257,750
            
            
            27,431,748Total
                long-term liabilities
            
            
            642,261
            
            
            4,975,423
            
            
            3,044,016
            
            
            37,243
            
            
            240,629Convertible
                preferred stock
            
            
            169,300
            
            
            131,300
            
            
            2,378,000
            
            
            2,378,000
            
            
            4,015,000Cash
                dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.**





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the consolidated financial
      statements and notes thereto for the years ended December 31, 2006, 2005 and
      2004. The financial statements presented for the three years ended December
      31,
      2006, 2005 and 2004 are those of the Company along with its subsidiaries
      FastFunds Financial Corporation, Key Financial Systems, Nova Financial Systems
      and Denaris Corporation and since March 14, 2006, with those of Old HPI. In
      January 2006, FastFunds sold substantially all of its operating assets and
      accordingly, the results for all periods are presented in a one-line
      presentation and are included in “Loss from discontinued operations”. In the
      fourth quarter of 2003, Key Financial Systems ceased “run-off” operations and
      Key Financial Systems operations for all periods are also included in “Loss from
      discontinued operations”.





In
      light
      of the foregoing, the historical data presented below is not indicative of
      future results. You should read this information in conjunction with the audited
      consolidated financial statements of the Company, including the notes to those
      statements (Item 8), and the following “Management’s Discussion and Analysis of
      Financial Conditions and Results of Operations”.


-27-


The
      Company’s consolidated financial statements for the year ended December 31, 2006
      have been prepared on a going concern basis, which contemplates the realization
      of its remaining assets and the settlement of liabilities and commitments in
      the
      normal course of business. The Company has incurred significant losses for
      the
      years ended December 31, 2006, 2005 and 2004, and has a working capital deficit
      of approximately $2,038,000, and an accumulated deficit of approximately $55
      million as of December 31, 2006. Moreover, the Company presently has no sources
      of revenue and can make no assurances that we will have significant revenues
      for
      the year ending December 31, 2007.





These
      factors raise substantial doubt about the Company’s ability to continue as a
      going concern. There can be no assurance that the Company will have adequate
      resources to fund future research and development costs, general operating
      costs, debt obligations and sub-license agreement payments as they become due.
      If funds are available, they may not be available to the Company when needed
      or
      on favorable terms or in amounts required by the Company. The consolidated
      financial statements do not include any adjustments relating to the
      recoverability and classification of assets or the amounts and classification
      of
      liabilities that might be necessary should the Company be unable to continue
      as
      a going concern.





BUSINESS
      ACQUISITION :





On
      February 28, 2006, the Company held a special meeting of its shareholders.
      At
      that meeting the shareholders approved and authorized the acquisition of Old
      HPI, as well as certain related common stock issuances. The acquisition, which
      management has accounted for as a purchase, closed on March 14,
      2006.





Per
      the
      terms of the Merger Agreement, as amended, the Company issued to the former
      shareholders of Old HPI 2,338,990 shares of its common stock. The shares were
      valued at $9,379,350 which is based upon the quoted market price of the
      Company’s common stock on July 6, 2005 ($4.01 per share), the date the terms of
      the Merger Agreement were agreed to by the Company and Old HPI’s shareholders.
      The Company has also reserved 132,122 shares of its common stock to be issued
      upon exercise of options to purchase 1,550,000 shares of Old HPI common stock
      outstanding immediately prior to the time of the merger. These shares were
      valued at $350,652 based upon the Black-Scholes option pricing
      model.





Pursuant
      to a Share Exchange Agreement dated December 5, 2005 with a shareholder of
      Old
      HPI, Aton Select Fund Limited (“Aton”), prior to the effective time of the
      merger, the Company issued 700,000 shares of its common stock in exchange for
      850,000 shares of Old HPI common stock held by Aton. These shares were valued
      at
      $2,526,300 ($3.609 per share), a 10% discount to the July 6, 2005 market price.
      The Share Exchange Agreement was contemplated in the Merger Agreement, and
      accordingly, the total shares issued or reserved to Old HPI shareholders were
      3,171,112, or approximately 29% of the Company’s common stock outstanding at the
      time of the merger.





In
      addition, the Company issued warrants to purchase up to 1,600,000 shares of
      its
      common stock at an exercise price of $3.00 per share in exchange for all
      outstanding warrants of Old HPI at the date of merger. The warrants had an
      original expiration date of February 7, 2007. The warrants were valued at
      $4,246,400 based on the Black-Scholes option pricing model. In February 2007
      the
      Company extended the exercise date of the warrants to August 2007 and lowered
      the exercise price to $2.00. The Company recorded acquisition costs of $227,162
      in connection with the transaction. The total purchase price on the date of
      acquisition for acquiring 100% of Old HPI was $16,729,864.





The
      Company also issued to the stockholders of Old HPI 300,000 shares of its Series
      L Preferred Stock. The Preferred Stock is convertible into Company common stock
      in three equal installments of 100,000 shares each (referred to as the L-1,
      L-2
      and L-3 Preferred Stock, respectively), on the 180 th ,
      270 th and
      360 th day
      following closing of the merger, respectively, with each installment convertible
      into 40% of the Company’s common stock outstanding immediately prior to any such
      conversion. The conversion of the Preferred Stock is subject to the achievement
      by Old HPI of certain performance benchmarks as defined in the Certificate
      of
      Designation of Series L Preferred Stock, the satisfaction of which is to be
      determined by the Company in its sole discretion. On January 2, 2007, the board
      of directors determined that the


-28-


benchmarks
      for the L-1 and L-2 Preferred Stock had been met. Accordingly, on January 3,
      2007, the Company issued 4,988,646 shares of its common stock (and reserved
      an
      additional 281,793 shares of its common stock for issuance upon the exercise
      of
      outstanding options) upon the conversion of the L-1 shares and issued 7,605,976
      shares of its common stock (and reserved an additional 429,638 shares of its
      common stock for the issuance upon the exercise of outstanding options) upon
      the
      conversion of the L-2 shares. Each of the issuances of common stock upon the
      conversion of L-1 and L-2 Preferred Stock were equal to 40% of the Company’s
      outstanding common stock prior to each conversion. In the event L-3 Preferred
      Stock is converted into the Company’s common stock, the former stockholders of
      Old HPI would own approximately 73% of the Company’s common stock on a
      post-transaction basis (assuming that the Company does not, prior to the
      conversion of the L-3 Preferred Stock, issue any additional shares of common
      stock). As of the date of this report, the L-3 shares have not been converted
      to
      common stock.





In
      July
      and September 2005, the Company loaned to Old HPI an aggregate of $3,000,000
      to
      be used for the exploitation and commercialization of its technology. The
      Company agreed to forgive payment of the $3,000,000 plus accrued interest as
      a
      condition of closing. The Company accounted for the forgiveness as a
      contribution of capital.





As
      a
      condition to close, the Company was required to make a $5 million contribution
      to capital of Old HPI, which proceeds were transferred to Old HPI at closing.
      On
      March 14, 2006, the Company and FFFC entered into a Secured Promissory Note
      (the
“Note”), a Stock Pledge Agreement (the “Pledge”) and a Profit Participation
      Agreement through which FFFC loaned the Company $5 million. The Note was due
      March 14, 2007, and accrued interest at 10% per annum. Pursuant to the Pledge,
      the Company has pledged all of its shares of Old HPI to FFFC to guarantee
      payment of the Note. Additionally, the parties executed the Profit Participation
      Agreement, whereby the Company granted to FFFC a net profit interest, as defined
      in the loan documents, in the amount of 10% of the net profit derived from
      the
      operations of Old HPI during the period the Note is outstanding.





On
      January 2, 2007, pursuant to a Redemption, Stock Sale and Release Agreement
      (see
      footnote one to the consolidated financial statements included herein), FFFC
      released the Company, on its obligations regarding the Note and the unpaid
      interest aggregating was $5,402,398.





The
      Company, currently based in Seattle, Washington, performs hydrogen-related
      testing, research and engineering, and has developed a patented system (Hydrogen
      Now TM )
      that
      creates pure hydrogen from the reaction of aluminum and water. The
      patented technology allows hydrogen gas to be generated on-site and on-demand,
      without electricity, thus offering the potential to overcome transportation
      and
      storage problems. This process has the potential to supply hydrogen at
      customized rates and pressures.





Our
      objective is to develop and market our licensed proprietary hydrogen production
      process for use in commercial applications that require hydrogen, but where
      hydrogen storage and/or distribution is too costly or not feasible. Our
      management believes, based on their product and market review, that our hydrogen
      production process may be a commercially viable process for: (1) small volume
      hydrogen production for various industrial applications; and (2) fuel cell
      applications where on-demand hydrogen is required or is an advantage such as
      for
      selected portable power, stationary and mobile back-up generator power, and
      small scale transportation applications. Our new COO and Principal Executive
      is
      currently assessing, with his advisors, the technology and possible applications
      thereof. Thus, possible application areas, and any others contained in this
      document should be considered tentative.





Our
      functional technology development laboratory is equipped to carry out
      hydrogen-related testing, research and engineering. We have working arrangements
      with two university laboratories - the Department of Metals and Materials
      Engineering at the University of British Columbia, Canada and the Department
      of
      Metals at the University of Washington, Seattle - to make use of the larger,
      more sophisticated pieces of equipment already available at those facilities.
      We
      are at the early stage of testing and evaluating the commercial application
      of
      the licensed technology and the design and engineering of prototypes.





-29-


SALE
      OF
      FFFC ASSETS




On
      December 22, 2005, FFFC and Chex entered into an Asset Purchase Agreement (the
      “APA”) with Game Financial Corporation (“Game”), pursuant to which Chex agreed
      to sell substantially all of its cash access contracts and certain related
      assets, which represented substantially all the assets of Chex and
      FFFC.





On
      January 31, 2006, FFFC and Chex completed the Asset Sale for $14 million
      pursuant to the APA and received net cash proceeds of $12,642,784 and realized
      a
      pre-tax book gain of approximately $4 million.





(a)
      Liquidity and Capital Resources.





The
      Company’s liquidity and capital resources during the year ended December 31,
      2006, have been primarily provided through the January 31, 2006, Asset Sale
      which provided the Company with net cash proceeds of $12,642,784 and the cash
      acquired of $2,203,121 in the business acquisition of Old HPI described
      above.





In
      connection with the Asset Sale, FFFC and Chex entered into a Transition Services
      Agreement (the “TSA”) with Game pursuant to which FFFC and Chex agreed to
      provide certain transitional services to Game for the cash-access financial
      services business. Pursuant to the TSA, FFFC and Chex provided the necessary
      services for approximately three months and Game paid FFFC $150,000 per month.
      The TSA terminated May 19, 2006 and FFFC received $477,500 pursuant to the
      terms
      of the TSA.





For
      the
      year ended December 31, 2006, net cash used in operating activities was
      $5,798,870 compared to $1,988,255 and $3,324,961 for the years ended December
      31, 2005 and 2004, respectively. The net loss in 2006 was $27.2 million compared
      to $8.8 million and $7.5 million in 2005 and 2004, respectively. The most
      significant portion of the increase in the current year net loss was the
      non-cash cost of approximately $19 million incurred related to acquiring the
      technology, trade name and sub-license agreement of Old HPI. New management
      has
      determined that the most viable potential market applications for the technology
      are a different subset than those being pursued by Old HPI, and hence the costs
      related to acquisition of the technology have been expensed in the the
      fourth quarter of 2006. The current year net loss was also attributable to
      losses being incurred by FFFC of approximately $1,410,000, net of the gain
      of
      $4,145,335 of the Asset Sale. Included in the FFFC loss was $1,237,000 related
      to debt extinguishment costs.





Additional
      2006 adjustments to reconcile net loss to net cash used in operations included
      non-cash expenses of $1,953,557 related to stock and warrants issued or
      modified, $1,333,000 decrease of deferred income taxes, $1,035,988 of non-cash
      and stock based compensation, $310,069 for depreciation and amortization, and
      $363,184 for increases to allowances on notes receivable and bad debt expense.





The
      2005
      adjustments to net loss were approximately $4.9 million compared to $4.0 million
      in 2004. The 2005 significant adjustments include $1,596,111 for an impairment
      on a receivable, $1,767,306 for depreciation and amortization, non-cash interest
      expense of $2,067,452 related to amortization of discounts related to warrants
      and beneficial conversions features on convertible debt, $652,908 for provisions
      for loan losses and $178,073 related to the issuance of warrants and stock-based
      compensation.





The
      2004
      adjustments are mostly comprised of depreciation and amortization of $1,415,853,
      non-cash interest expense of $477,702 related to amortization of discounts
      related to warrants and beneficial conversion features on convertible promissory
      notes, an increase in the deferred tax asset valuation allowance of $1,380,000,
      stock-based compensation of $659,302 and provision for loan losses of
      $528,205.





Cash
      provided by (used in) investing activities for the years ended December 31,
      2006, 2005 and 2004 were $15,045,845, ($3,038,909) and ($2,482,800),
      respectively. Net cash provided by investing activities for the year ended
      December 31, 2006 was primarily attributable to net proceeds of $12,642,784
      from
      the Asset Sale and $2,203,121 cash acquired in the Old HPI acquisition. Cash
      used in 2005 investing


-30-


activities
      was primarily attributable to $3,086,073 of advances on notes receivable and
      purchases of property, equipment and leaseholds of $765,900 offset by $813,064
      of repayments received on notes receivable, including related parties. Cash
      used
      in 2004 investing activities was primarily attributable to $2,041,773 of
      advances on notes receivable (of which $2,000,000 was advanced to iGames) and
      purchases of property, equipment and leaseholds of $555,082, offset by
      repayments received on notes receivables, including related parties of
      $114,055.





Cash
      used
      in financing activities for the year ended December 31, 2006 was $14,074,769
      compared to cash provided by financing activities for the year ended December
      31, 2005 of $5,044,272 and $4,973,427 for the year ended December 31, 2004.
      Net
      cash used in financing activities for the year ended December 31, 2006 included
      the receipt of $766,756 from the issuances of notes payable and $345,000 from
      private placements and the exercise of warrants. In addition, utilizing the
      proceeds from the Asset Sale, the Company repaid $13,100,234 of notes payable,
      $1,105,379 of checks issued in excess of bank cash and $788,613 paid on the
      sub-license agreement. The cash provided by financing activities for the year
      ended December 31, 2005, was primarily the result of the Company receiving
      proceeds of $4,598,000 upon the issuance of notes payable, proceeds of
      $1,995,996 received from the private placement, proceeds of $906,644 received
      upon the exercise of options and warrants and $220,329 received upon the sale
      of
      $82,308 shares of treasury stock by Chex. The proceeds were used for the
      repayment of notes payable of $3,713,076. The cash provided by financing
      activities for the year ended December 31, 2004, was primarily a result of
      the
      Company receiving net proceeds of $3,731,711 from the issuances and payments
      of
      various debt instruments, as well as receiving $919,514 upon the sale of 228,050
      shares of treasury stock by Chex. In addition, the Company received $235,827
      upon the exercise of options and warrants, and $200,000 received on a stock
      subscription receivable. Chex also purchased shares for treasury for $113,625.
      The net proceeds provided by these financing activities of $4,973,427 were
      primarily utilized to fund the Company’s operations, including operations of
      FastFunds International.





For
      the
      year ended December 31, 2006, cash decreased by $4,827,794 compared to an
      increase of $17,108 for the year ended December 31, 2005. Cash decreased
      $834,334 for the year ended December 31, 2004. Ending cash at December 31,
      2006
      was $3,579,000 compared to $8,406,794 at December 31, 2005.





Cash
      on
      hand at December 31, 2006 may not be sufficient for the Company to meet both
      its
      contractual obligations, as well as continuing to support its research and
      development costs and general operating expenses. Additionally, the Company
      may
      not be able to maintain certain covenants in its debt obligations, including
      having a cash balance of 140% of the remaining principal balance. Although
      certain of the Company’s obligations are convertible and may be paid with the
      Company’s common stock at the Company’s discretion, there are certain provisions
      that limit the amount of shares of common stock the Company may issue to satisfy
      amounts due, therefore, the Company may be required to have sufficient cash
      to
      pay obligations. The lenders may have waived these stock issuance limitation
      provisions from time to time in the past, but the Company can make no assurances
      that we will receive such waivers in the future.





Other
      sources of cash that may be available to us include the sale of equity
      securities through private placements of common and/or preferred stock as well
      as the exercise of stock options and/or warrants, all of which may cause
      dilution to our stockholders. We may also be able to borrow funds from related
      and/or third parties.





Contractual
      obligations for future payments under existing debt and lease commitments at
      December 31, 2006, were as follows:


-31-





**Contractual
                Obligation**
            **Total**
            **Less
                than**
              **one
                year**
            **1-3
                Years**
            **3-5
                Years**
            **More
                than**
              **5
                years**Notes
                payable(1)
            $
                2,145,500
            $
                362,500
            $
                1,783,000Long-term
                debt(2)
            1,743,634
            1,693,634
            50,000Operating
                lease obligations
            224,000
            139,000
            85,000Total
            $
                4,113,134
            $
                2,195,134
            $
                1,918,000





(1)  Notes
      are
      unsecured, matured February 28, 2007 and are included in liabilities of
      discontinued operations at December 31, 2006. The Company renewed $283,000
      of
      the Notes on the same terms and conditions as previously existed. In April
      2007,
      FFFC restructured $1,825,000 of the Notes (the “Restructured Notes”). The
      Restructured Notes carry a stated interest rate of 15% and mature February
      28,
      2008. Of the Restructured Notes, $150,000 and $175,000 have 90 and 120
      provisions, respectively, whereby the noteholder can and has requested
      repayment.





(2)  Long-term
      debt excludes $136,340 of discounts to the carrying value of the notes that
      are
      included in the Company’s balance sheet as of December 31, 2006.





***Critical
      Accounting Policies and Estimates***





Preparation
      of the consolidated financial statements in accordance with accounting
      principles generally accepted in the United States 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 balance sheets and the reported amounts of revenues and expenses during
      the
      reporting periods. Actual results could differ from those estimates. Moreover,
      except as described below, we do not employ any critical accounting policies
      that are selected from among available alternatives or require the exercise
      of
      significant management judgment to apply.





We
      believe that the following are some of the more critical accounting policies
      that currently affect our financial condition and results of
      operations:





1)
            stock
                based compensation;


2)
            income
                taxes, deferred taxes; and,


3)
            revenue
                and receivable recognition





*Stock-Based
      Compensation*





Share-based
      compensation expense is based on the estimated fair value at the grant date
      of
      the portion of share-based payment awards that are ultimately expected to vest
      during the period. The grant date fair value of stock-based awards to
      non-employees, employees and directors is calculated using the Black-Scholes
      option pricing model. The assumptions used in the Black-Scholes option pricing
      model, particularly the Company’s estimates of expected term and volatility, are
      based in some respects on management’s judgments and historical trends.
      Compensation expense for the share-based payment awards granted subsequent
      to
      December 31, 2005, are based on the grant date fair value estimated in
      accordance with the provisions of the Financial Accounting Standards Board’s
      (“FASB”) Statement of Financial Accounting Standards No. 123, revised 2004 (SFAS
      No. 123R).





*Income
      Taxes, Deferred Taxes*





The
      Company accounts for income taxes under an asset and liability approach that
      requires the recognition of deferred tax assets and liabilities for expected
      future tax consequences of events that have been recognized in the Company’s
      consolidated financial statements or tax returns. In estimating future tax
      consequences, the Company generally considers all expected future events other
      than enactments of changes in the tax laws or rates.


-32-


During
      the quarter ended June 30, 2004 management assessed the realization of its
      deferred tax assets. Based on this assessment it was determined to be more
      likely than not that the Company's deferred tax assets will not be realizable,
      and the Company determined that a valuation allowance was required. Accordingly,
      the Company's valuation allowance was increased by $1,380,000 (of which $473,000
      is included in loss from discontinued operations), which resulted in an increase
      to the provision for income taxes of the same amount. At December 31, 2004,
      it
      was determined by management to be more likely than not that the Company’s
      deferred tax assets were not realizable and therefore, net deferred tax assets
      remained fully allowed for.





At
      December 31, 2005, management reassessed the realization of its deferred tax
      assets. Based on this assessment and considering the Asset Sale, it was
      determined that the Company would be able to utilize a substantial portion
      of
      its deferred tax assets, which increased by $1,750,000 to $9,182,000.
      Additionally, the valuation allowance was reduced by $2,446,000 during the
      fourth quarter of 2005. These changes were offset by the recognition of a
      deferred tax liability of $2,867,000 related to the carrying value of intangible
      assets and goodwill, which is not deductible for income tax
      purposes.





*Revenue
      recognition and receivables*





Credit
      card receivables are stated at cost plus refundable and earned fees (the balance
      reported to customers), reduced by allowances for refundable fees and
      losses.





Fees
      (revenues) are accrued monthly on active credit card accounts and included
      in
      credit card receivables, net of estimated uncollectible amounts. Accrual of
      income is discontinued on credit card accounts that have been closed or charged
      off. Accrued fees on credit card loans are charged off with the card balance,
      generally when the account becomes 90 days past due.





The
      allowance for losses is established through a provision for losses charged
      to
      expenses. Credit card receivables are charged against the allowance for losses
      when management believes that collectibility of the principal is unlikely.
      The
      allowance is an amount that management believes will be adequate to absorb
      estimated losses on existing receivables, based on evaluation of the
      collectibility of the accounts and prior loss experience. This evaluation also
      takes into consideration such factors as changes in the volume of the loan
      portfolio, overall portfolio quality and current economic conditions that may
      affect the borrowers’ ability to pay. While management uses the best information
      available to make its evaluations, this estimate is susceptible to significant change in the near
      term.





*Recently
      Issued Accounting Pronouncements*





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainties in Income Taxes* ,
      (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes and
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company has not yet determined the impact of applying
      FIN
      48.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, *Fair
      Value Measurements* (“FAS
      157”). FAS 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosures about fair value measurements but does not require
      any new fair value measurements. FAS 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. The Company has not yet determined the impact of
      applying FAS 157.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* ,
      (“FAS
      158”). FAS 158 requires an employer to recognize the overfunded or underfunded
      status of a defined benefit postretirement plan (other than a multiemployer
      plan) as an asset or liability in its statement of financial position and to
      recognize changes in that funded status in the year in which the changes occur
      through comprehensive


-33-


income.
      FAS 158 is effective for employers with publicly traded equity securities for
      fiscal years ending after December 15, 2006. Employers without publicly traded
      equity securities are required to include certain disclosures until fully
      adopting FAS 158 for fiscal years ending after December 15, 2006 but before
      June
      16, 2007. The Company does not expect any material impact from applying FAS
      158.





In
      September 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among
      registrants, SAB 108 expresses SEC staff views regarding the process by which
      misstatements in financial statements are evaluated for purposes of determining
      whether financial statement restatement is necessary. SAB 108 is effective
      for
      fiscal years ending after November 15, 2006, and early application is
      encouraged. The Company does not expect any material impact from applying SAB
      108.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, The Fair Value Option for Financial Assets and Financial Liabilities,
      (“FAS
      159”). FAS 159 permits entities to choose to measure many financial instruments
      and certain other items at fair value. The objective is to improve financial
      reporting by providing entities with the opportunity to mitigate volatility
      in
      reported earnings caused by measuring related assets and liabilities differently
      without having to apply complex hedge accounting provisions. FAS 159 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. The Company has not yet determined the impact of adopting
      FAS
      159 on the Company’s financial position.





**Results
      of operations**





Financial
      statements for the years ended December 31, 2006, 2005 and 2004 report FFFC
      and
      subsidiaries and Key as discontinued operations (see Note 3 to the Company’s
      consolidated financial statements).





**Results
      of operations for the year ended December 31, 2006 vs. December 31,
      2005**





**REVENUES**





Consolidated
      revenues from continuing operations, which consist of credit card income on
      Nova’s remaining portfolio for the year ended December 31, 2006 was $126,332
      compared to $196,899 for the year ended December 31, 2005.





**OPERATING
      EXPENSES**





Operating
      expenses include those of the Company, Denaris, Nova, and as of March 14, 2006,
      Old HPI. In conjunction with the issuance of common stock and change in control
      described earlier, the new management of the Company in completing an updated
      analysis of the underlying assumptions and calculations used in the preliminary
      purchase price allocation determined that costs aggregating $19,316,074 and
      related to the acquired technology, trade name and sub-license agreement should
      be expensed. Management’s analysis included the determination that the most
      viable potential market applications for the licensed technology are a different
      subset than those originally being pursued by Old HPI and accordingly the costs
      related to the acquired technology and potential applications thereon have
      been
      expensed in the fourth quarter of 2006. Additionally, the Company has
      incurred $782,599 of research and development costs related to their developing
      a commercial application of its licensed technology and in designing and
      engineering of commercially viable prototypes. Since Old HPI results are only
      included since March 14, 2006, there were no comparable costs in the operating
      expenses for 2005.





Selling,
      general and administrative expenses were $5,950,471 for the year ended December
      31, 2006 compared to $4,678,472 for the year ended December 31, 2005, and were
      comprised of the following:


-34-





2006
            
            2005Salaries
                and benefits
            
            $
            2,055,182
            
            $
            1,016,429Accounting,
                legal and other professional services
            
            
            1,136,510
            
            
            771,727Other
            
            
            1,043,082
            
            
            565,793Stock
                based compensation
            
            
            693,588
            
            
            9,500Expenses
                related to the issuance of stock and warrants
            
            
            764,153
            
            
            168,572Provision
                for losses and bad debt expense
            
            
            184,237
            
            
            540,435Depreciation
                and amortization
            
            
            73,719
            
            
            9,905Impairment
                of notes receivable
            
            
            -
            
            
            1,596,111$
            5,950,471
            
            $
            4,678,472








Selling,
      general and administrative expenses by location or subsidiary allocated as
      follows for the years ended December 31, 2006 and 2005 were:





2006
            
            2005Colorado
            
            $
            3,293,705
            
            $
            4,617,501Seattle
            
            
            1,858,367
            
            
            -FFFC
            
            
            695,000
            
            
            -Nova
            
            
            92,819
            
            
            30,990Denaris
            
            
            10,580
            
            
            29,981$
            5,950,471
            
            $
            4,678,472





*Colorado*





Through
      December 31, 2006, the Company had its corporate headquarters in Englewood,
      Colorado. Effective with the shares of common stock issued January 3, 2007,
      upon
      the conversion of the L-1 and L-2 Preferred Stock, and the resulting change
      in
      control of the Company, Seattle became the corporate headquarters. Excluding
      any
      future equity transactions that may result in expenses being recorded,
      substantially all other costs associated with Colorado will not occur going
      forward. The 2006 and 2005 Colorado expenses were comprised of the
      following:





2006
            
            2005Expenses
                related to issuance of stock, options and warrants
            
            $
            1,457,741
            
            $
            168,573Salaries
                and benefits, including director fees
            
            
            555,194
            
            
            1,051,429Accounting,
                legal and other professional services
            
            
            653,149
            
            
            771,727Provisions
                for losses and bad debt expense
            
            
            184,237
            
            
            540,435General
                office expenses
            
            
            377,517
            
            
            481,396Depreciation
                and amortization
            
            
            65,867
            
            
            7,830Impairment
                of notes receivable
            
            
            -
            
            
            1,596,111$
            3,293,705
            
            $
            4,617,501





*Seattle*





The
      Seattle expenses represent the selling, general and administrative costs
      associated with and in support of the research and development of a commercial
      application related to the Company’s sub-licensed technology and in the design
      and engineering of such prototypes. Since the results of Old
      HPI


-35-


are
      included only since its acquisition on March 14, 2006, there are no comparable
      expenses included for 2005 for these activities. The 2006 expenses were
      comprised of the following:





2006Salaries
                and benefits
            
            $
            394,988Severance
            
            
            925,000Accounting,
                legal and other professional services
            
            
            389,361Depreciation
            
            
            7,852General
                office expenses
            
            
            141,166$
            1,858,367








Salaries
      and benefits included in selling, general and administrative expenses represents
      wages paid substantially to a former executive in 2006. The former executive
      additionally received $750,000 in severance. Also included in severance is
      an
      aggregate of $175,000 paid to certain employees and consultants in consideration
      of past services rendered to the Company.





Accounting,
      legal and other professional services include costs incurred of approximately
      $102,000 during 2006 related to the Merger Agreement, as well as legal costs
      related to the patents of approximately $32,000. Also included are fees of
      $130,000 paid to the Company Secretary as special counsel to the Company and
      fees of $75,000 to a consulting firm, owned by a director, to purchase technical
      and management advisement.





*FFFC*





The
      FFFC
      expense of $695,000 for the year ended December 31, 2006 are primarily
      associated with its public company status and includes approximate costs of
      salaries and consulting fees of $180,000, legal, accounting and other
      professional services of $240,000, directors and officers fees and insurance
      of
      $183,000 and general office expenses of $92,000.





**OTHER
      INCOME AND EXPENSES**





For
      the
      year ended December 31, 2006, net other expenses were $715,096 compared to
      $554,860 for the year ended December 31, 2005. Interest income increased from
      $19,799 to $187,635, primarily as a result of interest income received by Old
      HPI on term deposits and money market accounts for their cash balances on hand
      during 2006. Interest expense for the year ended December 31, 2006 was $902,731
      compared to $574,659 for the year ended December 31, 2005.





**DISCONTINUED
      OPERATIONS**





The
      net
      loss from discontinued operations was $118,895 for the year ended December
      31,
      2006 compared to $6,251,804 for the year ended December 31, 2005. The losses
      from discontinued operations are comprised of the results of FFFC and Key and
      were as follows:





2006
            
            2005FFFC
            
            $
            (117,765
            )
            $
            (6,243,311
            )Key
            
            
            (1,130
            )
            
            (8,493
            )$
            (118,895
            )
            $
            (6,251,804
            )





-36-


The
      decrease in the loss is as a result of FFFC as follows:





2006
            
            2005Revenues
            
            $
            2,192,382
            
            $
            18,531,141Location
                expense
            
            
            (1,200,185
            )
            
            (13,776,007
            )Location
                support expenses
            
            
            (2,506,000
            )
            
            (6,496,681
            )Gain
                on Asset Sale
            
            
            4,145,835
            
            
            -Other
                expenses, net
            
            
            (1,892,884
            )
            
            (3,360,258
            )Income
                tax expense
            
            
            (856,913
            )
            
            (1,141,506
            )Loss
                from discontinued operations
            
            $
            (117,765
            )
            $
            (6,243,311
            )





**Results
      of operations for the year ended December 31, 2005 vs. December 31,
      2004**





**REVENUES**





Consolidated
      revenues for the year ended December 31, 2005 were $196,899 compared to revenues
      of $260,256 for the year ended December 31, 2004.





**CORPORATE
      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES**





Corporate
      selling, general and administrative expenses include those of the Company,
      Denaris and Nova. Total corporate activity expenses for 2005 were $4,678,472
      compared to $2,166,367 for 2004, and were comprised as follows:





2005
            
            2004Employee
                costs, including director fees
            
            $
            1,051,429
            
            $
            441,476Accounting
                and legal
            
            
            771,727
            
            
            422,316Other
            
            
            540,697
            
            
            920,855Expenses
                related to the issuance of stock, options and warrants
            
            
            178,073
            
            
            381,720Provision
                for losses
            
            
            540,435
            
            
            -Impairment
                of notes receivable
            
            
            1,596,111
            
            
            -$
            4,678,472
            
            $
            2,166,367





Employee
      costs for the year ended December 31, 2005 includes approximately $537,000 of
      expense under a bonus agreement with our president. In 2004, no expense was
      incurred by the Company under the bonus agreement.





Other
      expenses for the years ended December 31, 2005 and 2004 include the general
      operating costs of the Company, Denaris and Nova. For the year ended December
      31, 2005, general operating expenses decreased by $176,407 compared to December
      31, 2004.





During
      the year ended December 31, 2005, the Company recorded an impairment of the
      iGames note receivable of $1,596,111 and increased the valuation allowance
      related to notes receivable from Equitex, 2000, Inc. by $540,000.





Stock
      based compensation represents non-cash expenses related to issuances of common
      stock and warrants to third party consultants for services.





**OTHER
      INCOME AND EXPENSES**





For
      the
      year ended December 31, 2005, net other expenses were $554,860 compared to
      $33,249 for the year ended December 31, 2004. Interest expense for the year
      ended December 31, 2005 increased to $574,659 from $118,501 for the year ended
      December 31, 2004. The primary reason for the increase was additional loans
      generated in 2005. Interest income decreased by approximately $65,000 primarily
      due to interest income recorded in 2004 on the $2.0 million iGames
      Note.


-37-





**DISCONTINUED
      OPERATIONS**





The
      net
      loss from discontinued operations was $6,251,804 for the year ended December
      31,
      2005 compared to $4,611,623 for the year ended December 31, 2004. The losses
      from discontinued operations are comprised of the results of FastFunds and
      Key,
      and were as follows:





2005
            
            2004FastFunds
            
            $
            (6,243,311
            )
            $
            (4,601,639
            )Key
            
            
            (8,493
            )
            
            (9,984
            )$
            (6,251,804
            )
            $
            (4,611,623
            )





The
      increase in 2005 is a result of an increase in the loss of FastFunds as
      follows:





2005
            
            2004Revenues
            
            $
            18,531,141
            
            $
            15,233,735Location
                expenses
            
            
            (13,776,007
            )
            
            (11,291,510
            )Location
                support expenses
            
            
            (6,496,681
            )
            
            (6,752,740
            )Other
                expenses, net
            
            
            (3,360,258
            )
            
            (1,688,955
            )Minority
                interest
            
            
            -
            
            
            419,720Income
                tax expense
            
            
            (1,141,506
            )
            
            (521,889
            )Loss
                from discontinued operations
            
            $
            (6,243,311
            )
            $
            (4,601,639
            )





**FASTFUNDS
      FINANCIAL REVENUES**





Revenues
      for the year ended December 31, 2005 were $18,531,141 compared to revenues
      of
      $15,233,735 for the year ended December 31, 2004.





Chex
      Services recognizes revenue at the time certain financial services are
      performed. Revenues are derived from check cashing fees, credit and debit card
      advance fees, and automated teller machine (“ATM”) surcharge and transaction
      fees. Chex revenues were comprised of:





2005
            
            
            
            2004Number
                of Transactions
            Dollars
              Handled
            Earned
              Revenues
            
            Number
                of
              Transactions
            Dollars
              Handled
            Earned
              RevenuesPersonal
                checks
            661,579
            $128,036,112
            $
                6,227,598
            
            674,195
            $125,011,732
            $
                6,361,227“Other”
                checks
            289,272
            98,009,404
            943,102
            
            261,662
            88,555,373
            822,140Credit
                cards
            253,368
            91,944,873
            5,610,570
            
            219,354
            76,272,507
            3,544,278Debit
                cards
            47,176
            14,759,419
            399,916
            
            36.442
            11,201,804
            174,592ATM
            2,628,895
            241,569,619
            4,887,250
            
            2,008,275
            176,176,451
            3,807,382NSF
                Collection Fees
            -
            -
            368,247
            
            -
            -
            413,142Other
            -
            -
            94,458
            
            -
            -
            110,9743,880,290
            $574,319,427
            $18,531,141
            
            3,199,928
            $477,217,867
            $15,233,735





Prior
      to
      the Asset Sale, Chex cashed personal checks at its cash access locations for
      fees based upon a percentage of the face amount of the check cashed per each
      casino contract. Chex also cashed "other" checks, comprised of tax and insurance
      refunds, casino employee payroll checks and casino jackpot
      winnings.





Chex
      credit/debit card cash advance services allowed patrons to use their VISA,
      MasterCard, Discover and American Express cards to obtain cash. In July 2004,
      Chex began using its own proprietary credit and debit cash advance platform
      to
      process cash advance transactions. Accordingly, for the year
      ended


-38-


December
      31, 2005, Chex recorded additional revenues of approximately $1,473,000 compared
      to the year ended December 31, 2004 due to the new software and approximately
      $818,000 due to increased transactions and volume. During the year ended
      December 31, 2004, third party vendors, at their expense, supplied, installed
      and maintained the equipment to operate the cash advance system. Under vendor
      agreements, the vendor charges each customer a services fee based upon the
      cash
      advance amount and paid a portion of such service fee to Chex.





ATM
      surcharge and transaction fees reflected in the table above are comprised of
      upfront patron transaction fees or surcharges assessed at the time the
      transaction is initiated and a percentage of interchange fees paid by the
      patron’s issuing bank. These issuing banks share the interchange revenue with
      the Company. Upfront patron transaction fees are recognized when a transaction
      is initiated, and interchange revenue is recognized on a monthly basis based
      on
      the total transactions occurring during the month.





Chex
      utilized its own in-house collections department to pursue collection of
      returned checks, and generally charges an insufficient funds fee when it
      ultimately collects the check.




**LOCATION
      EXPENSES**





FastFunds’
      location expenses were $13,776,007 for the year ended December 31, 2005 compared
      to $11,291,510 for the year ended December 31, 2004. Expenses were comprised
      as
      follows:





2005
            
            2004Fees
                to casinos
            
            $
            6,458,907
            
            $
            5,312,522Salaries
                and related costs
            
            
            3,120,414
            
            
            3,098,663Returned
                checks, net of collections
            
            
            525,064
            
            
            623,871Processing
                fees
            
            
            2,154,421
            
            
            838,292Selling,
                general and administrative
            
            
            1,517,201
            
            
            1,418,162$
            13,776,007
            
            $
            11,291,510





Fees
      to
      casinos were comprised of compensation paid to the casino pursuant to the terms
      of each financial services agreement that the Company has entered into with
      the
      respective establishment. At locations where Chex provided check-cashing
      services, Chex paid the location operator a commission based upon the monthly
      amount of checks cashed or a fixed percentage of the net income from operations
      at that location. Chex passed on an agreed upon percentage of the surcharge
      commissions to the locations where ATM’s are utilized. At the locations at which
      Chex used third party vendors to provide credit/debit card advance services,
      it
      paid the operator a commission for each completed transaction. For the locations
      where Chex’s proprietary product was used, Chex paid a fee to the casino based
      on the fees it received from processing the transaction. For these transactions,
      Chex also incurred a cost of processing the transaction. Chex began installing
      its proprietary product in July 2004, and therefore, processing fees were
      significantly higher in the 2005 period compared to the 2004
      period.





For
      the
      periods reflected above, Chex generally recorded a returned check expense for
      potential losses in the period such checks were returned.





Selling,
      general and administrative expenses for locations included bank charges,
      depreciation, communications, insurance, licensing, collections and travel
      and
      entertainment.




**LOCATION
      SUPPORT EXPENSES**





Location
      support expenses were $6,496,681 for the year ended December 31, 2005 compared
      to $6,752,919 for the year ended December 31, 2004.


-39-





2005
            
            2004Salaries
                and related costs
            
            $
            1,897,250
            
            $
            2,168,770Accounting,
                legal and consulting
            
            
            1,114,851
            
            
            934,571Travel
                and entertainment
            
            
            336,479
            
            
            422,595Advertising
            
            
            155,114
            
            
            220,059Allocated
                expenses from Equitex
            
            
            
            
            
            91,000Depreciation
                and amortization
            
            
            1,284,661
            
            
            1,233,968Provision
                for losses
            
            
            66,632
            
            
            462,500Other
            
            
            1,632,194
            
            
            967,277Stock-based
                compensation
            
            
            9,500
            
            
            252,000$
            6,496,681
            
            $
            6,752,740





Corporate
      operating expenses include Chex’s Minneapolis administrative office, which
      supported the operating locations and also includes for part of the year ended
      December 31, 2005, those expenses associated with FFI’s London and Chicago
      offices. As of June 2005, the London and Chicago offices have been closed and
      the Company will incur no further expenses related to these
      locations.





Salaries
      and related costs decreased for year ended December 31, 2005 compared to the
      year ended December 31, 2004 period primarily as a result of the elimination
      of
      the corporate staffing of FFI’s London office.





Accounting,
      legal and consulting expenses increased for the year ended December 31, 2005
      compared to the year ended December 31, 2004. The increase for the year ended
      December 31, 2005 was primarily


as
      a
      result of an increase in consulting fees of approximately $107,000. In 2004
      FFI
      hired marketing and sales consultants to assist the Company in entering the
      stored-value card international market in the gaming and retail industries.
      As a
      result of no revenues being generated to offset these operating costs in June
      2005, the Company terminated certain sales and marketing consulting and advisory
      agreements that previously required the Company to pay approximately $36,000
      per
      month. In addition, FFFC has entered into various consulting agreements with
      a
      financial advisor and individuals who provide various consulting services to
      the
      Company. These continuing agreements require the Company to pay approximately
      $15,000 per month.





The
      stock
      based compensation expense of $9,500 for the year ended December 31, 2005 was
      a
      result of the Company’s issuing 20,000 options to purchase FFFC common stock at
      $1.10 per share to an officer of the Company for services. The stock-based
      compensation expense of $252,000 for the year ended December 31, 2004 was a
      result of the Company distributing to Chex employees 280,000 of the 800,000
      warrants to purchase FFFC common stock at $0.10 per share it received in the
      Merger. The warrants were determined to have a fair value of $1.00 on the
      distribution date.





Travel
      and entertainment expense decreased for the year ended December 31, 2005
      compared to December 31, 2004 primarily as a result of the elimination of travel
      associated with consultants and the closure of FFI’s London and Chicago
      offices.





Prior
      to
      July 1, 2004 the Company was incurring certain general and administrative
      expenses on behalf of Chex that were allocated by the Company to Chex. Beginning
      July 1, 2004, Chex and FastFunds began incurring these expenses on their own
      behalf, and accordingly, there is no longer an allocation from the
      Company.





Depreciation
      and amortization increased for the year ended December 31, 2005 compared to
      the
      year ended December 31, 2004 primarily as a result of increased depreciation
      as
      a result of additional fixed assets, as well as the amortization of deferred
      loan costs.





The
      provision for losses decreased to $66,632 for the year ended December 31, 2005
      from $462,500 for the year ended December 31, 2004. The 2005 loss was comprised
      of allowances of $100,000 and $65,532 on notes and accounts receivable, offset
      by a $90,000 reduction on the note receivable of a


-40-


deceased
      officer. The 2004 provision for losses was comprised of a $236,500 allowance
      on
      a note receivable, as well as $226,000 on a note receivable from a deceased
      officer.





Other
      costs included in corporate operating expenses increased for the year ended
      December 31, 2005 compared to the year ended December 31, 2004. The increase
      for
      the year ended December 31, 2005 was caused by the loss on disposal of
      approximately $296,000 of hardware and software assets. Additional expenses
      were
      incurred related to a contract buyout of approximately $220,000 and director’s
      compensation of $150,000. Additional increases for the year ended December
      31,
      2005 were related costs of $108,000 incurred in connection with the closure
      of
      FFI’s London and Chicago offices and directors and officers insurance of
      approximately $106,000.





**OTHER
      INCOME AND EXPENSES**





Other
      income and expenses from discontinued operations increased by $1,671,303. The
      primary reason for the increase was the additional amortization related to
      the
      beneficial conversion features on convertible promissory notes of $1,588,000
      in
      2005 compared to 2004.








**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Market
      risk is the potential loss arising from adverse changes in market rates and
      prices, such as interest rates and a decline in the stock market. The Company
      does not enter into derivatives or other financial instruments for trading
      or
      speculative purposes. The Company has limited exposure to market risks related
      to changes in interest rates. The Company does not currently invest in equity
      instruments of public or private companies for business or strategic
      purposes.





The
      principal risks of loss arising from adverse changes in market rates and prices
      to which the Company and its subsidiaries are exposed relate to interest rates
      on debt. The Company has both fixed and variable rate debt. FastFunds and Chex
      has $2,158,000 (before certain discounts on notes) of debt outstanding as of
      December 31, 2006, of which $2,108,000 has been borrowed at fixed rates ranging
      from 9% to 12%. This fixed rate debt is subject to renewal quarterly or annually

      and was due February 28, 2007 The notes have been restructured and the new
      fixed
      rate debt range effective March 1, 2007 is from 10% To 15%. This change in
      the
      range of the fixed debt rate is expected to increase the interest expense on
      such debt by approximately $100,000 for the year ended December 31,
      2007.








**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**





The
      financial statements are listed under Item 15.








**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





Effective
      February 26, 2007, we dismissed GHP Horwath, P.C. (“GHP Horwath”) as our
      independent registered public accounting firm and engaged Peterson Sullivan
      PLLC
      (“Peterson Sullivan”) as our independent registered public accounting firm. The
      board of directors authorized the change in independent registered public
      accounting firms.




The
      report of GHP Horwath on our financial statements for the year ended December
      31, 2004 contained an explanatory paragraph stating that we adopted the
      provisions of Statement of Financial Accounting Standards No. 142, Goodwill
      and
      Other Intangible Assets, effective January 1, 2002.  With the exception of
      the foregoing, GHP Horwath’s audit reports on our financial statements for the
      two most recent years ended December 31, 2005 and 2004 did not include an
      adverse opinion or a disclaimer of opinion and were not qualified or modified
      as
      to uncertainty, audit scope or accounting principles.




-41-


During
      the fiscal years ended December 31, 2005 and 2004, and the subsequent interim
      period prior to the date their dismissal, there were no disagreements with
      GHP
      Horwath on any matter of accounting principles or practices, financial statement
      disclosure or auditing scope or procedure, which disagreements, if not resolved
      to the satisfaction of GHP Horwath, would have caused it to make reference
      to
      the matter thereof in connection with its report.




During
      the Company’s most recent fiscal year and the subsequent interim period prior to
      the date of this report, neither the Company nor anyone acting on its behalf
      consulted with Peterson Sullivan regarding either (a) the application of
      accounting principles to a specific completed or contemplated transaction,
      or
      the type of audit opinion that might be rendered on the Company’s financial
      statements, and neither a written report or oral advice was provided to the
      Company that Peterson Sullivan concluded was an important factor considered
      by
      the Company in reaching a decision as to the accounting, auditing or financial
      reporting issue; or (b) any matter that was the subject of a disagreement or
      reportable event as defined by Item 304(a)(1)(iv) and (v), respectively, of
      Regulation S-K and the related instructions to Item 304 of Regulation S-K.







**ITEM
      9A. CONTROLS AND PROCEDURES.**





Under
      the
      supervision and with the participation of management, including our acting
      principal executive officer, we conducted an evaluation of the effectiveness
      of
      the design and operation of disclosure controls and procedures as of December
      31, 2006 (the “Evaluation Date”). Based on this evaluation, the Company’s
      principal executive officer concluded that as of the Evaluation Date, our
      disclosure controls and procedures were effective at ensuring that the material
      information required to be disclosed in our Exchange Act reports is recorded,
      processed, summarized and reported as required in applicable SEC rules and
      forms, except as noted below.





In
      connection with the 2006 audit, our independent registered public accounting
      firm has advised us and our Board of Directors that there were material
      weaknesses in our internal controls and procedures. The identified material
      weaknesses primarily relate to the limited number of Company employees engaged
      in the authorization, recording, processing and reporting of transactions,
      as
      well as the overall financial reporting process. These material weaknesses
      have
      caused significant delays in our financial reporting process. In addition,
      during the audit, we were not able to timely produce adequate documentation
      supporting all transactions underlying the financial statements. We are
      currently considering taking certain steps to correct the material weaknesses
      by
      enhancing our reporting process in the future. Enhancing our internal controls
      to correct the material weaknesses will result in increased costs to
      us.








**ITEM
      9B. OTHER INFORMATION.**





During
      the period from November 2006 through January 2007, we issued 37,907 shares
      of
      common stock to two unaffiliated institutional investors in payment of
      convertible notes and accrued interest totaling $47,493, which equals $1.25
      per
      share.





In
      December 2006, we issued 75,000 shares of common stock pursuant to a consulting
      contract. The shares were valued at $138,750, which represents the number of
      shares issued multiplied by the value of the common stock ($1.85) on the date
      the consulting contract was executed (July 31, 2006).





In
      December 2006, we issued 3,993 shares of common stock to an accredited investor
      upon the conversion of debt totaling $5,000, or a conversion price of $1.25
      per
      share. We also issued 13,337 shares to Mr. Henry Fong, our former president
      who
      resigned in January 2007, upon the conversion of $16,756 in debt or a conversion
      price of $1.26 per share.





In
      December 2006, we issued 300,000 shares of common stock to our subsidiary,
      FastFunds Financial Corporation, in payment of certain price guarantees made
      by
      us pursuant to a settlement agreement with former holders of certain FastFunds
      promissory notes. These shares were valued at $1.50 per share, the market price
      on the date of issuance and were issued in exchange for a
      receivable.


-42-





In
      December 2006 through January 2007, 1,144 shares of Series K Preferred Stock
      with a face value of $1,144,000, plus cumulative unpaid dividends of $89,804,
      were converted into 1,197,238 shares of common stock at conversion prices of
      $1.00 per share for the preferred stock and $1.55 per share for the
      dividends.





The
      Company offered and sold the common stock indicated above in reliance on an
      exemption from registration for offers and sales of securities that do not
      involve a public offering (i.e., Section 4(2) of the Securities Act of 1933,
      as
      amended). The shares of common stock issued as described above were not
      registered under the Securities Act of 1933, as amended, and may not be offered
      or sold in the United States absent registration or an applicable exemption
      from
      registration requirements.











**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE.**





(a)(b)(c)
      Identification of directors, executive officers and certain significant
      persons





Length
                ofName
            Age
            Offices
                held
            ServiceDavid
                J. Cade
            69
            Chief
                Operating Officer, Principal Executive Officer
            Since
                March 2007John
                J. Martin*
            58
            Director
                (Former Acting Chief Executive Officer)
            Since
                January 2007*James
                H. Diffendorfer
            67
            Director
            Since
                January 2007Virendra
                Chaudhary
            59
            Director
            Since
                January 2007Gurinder
                Dilawari
            50
            Director
            Since
                January 2007James
                G. Matkin**
            64
            Corporate
                Secretary and Special Counsel
            Since
                January 2007**Ricky
                Gujral***
            40
            Principal
                Executive Officer, Director of major subsidiary
              Management
                Consultant to HPI
            March
                2006-Sept
                2006
              September
                2006 -March
                2007Michael
                Hines
            50
            Chief
                Financial Officer, Principal Accounting Officer
            From
                January 2007 to April 2007Henry
                Fong
            71
            Former
                President, Treasurer,
              Principal
                Executive,
              Financial
                and Accounting
              Officer
                and Director
            From
                Inception
              January
                1983
              to
                January 2007Thomas
                B. Olson
            41
            Secretary
            From
                January 1988 to April 2007






-43-




Russell
                L. Casement
            62
            Former
                Director
            From
                February 1969 to December 2006Aaron
                A. Grunfeld
            59
            Former
                Director
            From
                November 1991 to December 2006Michael
                S. Casazza
            56
            Former
                Director
            From
                February 2004 to June 2006Joseph
                W. Hovorka
            77
            Former
                Director
            From
                December 2005 to December 2006





*
      Mr.
      Martin was appointed acting Chief Executive Officer on January 2, 2007 and
      resigned on March 15, 2007 upon the appointment of Mr. Cade as Chief Operating
      Officer.





**
      Mr.
      Matkin was appointed as Special Counsel on January 2, 2007 and as Corporate
      Secretary on April 5, 2007. Mr, Matkin is a Director of GHTI, a major
      shareholder of HPI.





***
      Ms,
      Gujral was founding Chief Executive Officer and Director of “old” HPI acting
      under an Employment Agreement dated July 1, 2004, and amended October, 2005.
      After its acquisition by HPI (then Equitex) in March, 2006, she continued as
      CEO
      and director thereof, along with current HPI directors Martin, Diffendorfer,
      Chaudhary and Dilawari. Ms. Gujral’s term as officer and director, along with
      the other “old” HPI directors ended when “old” HPI was merged into its parent,
      HPI. Ms. Gujral however, continued as a management consultant to HPI under
      her
      same pay and benefits until late March 2007, after the current Chief Executive
      Officer, Mr Cade was appointed. Ms Gujral was appointed by the Board of GHTI,
      a
      major shareholder of HPI to be its Principal Executive Officer and President
      in
      March 2007, where she continues in international business development of our
      technology.





Our
      directors hold office until the next annual meeting of the stockholders or
      until
      their respective successors have been elected and qualified. Officers are
      appointed by our Board of Directors and hold office until their successors
      are
      duly appointed and qualified.





No
      arrangement exists between any of the above officers and directors pursuant
      to
      which any one of those persons was elected or appointed to such office or
      position.





(d)
      Family relationships.





Not
      applicable.





(e)
      Business experience.





**DAVID
      J. CADE**


Mr.
      Cade
      was appointed our Chief Operating Officer effective March 1, 2007. From August
      2006 to March 2007, Mr. Cade was the Chief Executive Officer of LITHTRONICS,
      LLC
      a senior executive consulting firm in the alternative energy field, with a
      special focus on battery-fuel cell hybrids. From August 2005 to August 2006,
      Mr.
      Cade was President of ABSL, Inc., the U.S. arm of a large UK-based Lithium-ion
      battery company, where he was involved in battery-fuel cell hybrids for soldier
      power. Mr. Cade served as Chairman of Lithium Technology Corporation (LTC),
      a
      publicly-traded early-production-stage Lithium-ion battery manufacturer, from
      November 1, 1999 to January 27, 2005, and as Chief Executive Officer from
      November 1, 1999 to February 6, 2004. During the period from 1996 to 1999,
      Mr.
      Cade served as President and Chief Operating Officer of LTC, and prior to that,
      as Vice President of Sales and Marketing.


-44-


Mr.
      Cade
      also served as a Director of LTC from August 1997 to March 2007. Mr. Cade has
      over 30 years of experience in senior business development, marketing, sales,
      and international strategic alliances in global telecommunications systems,
      electronics, and alternative energy technologies. From February 1988 to October
      1992, Mr. Cade was Senior Vice President of Marketing and Business Development
      for COMSAT Systems Division in Washington, D.C., and from October 1992 to April
      1994, Mr. Cade was Vice President of Sales and Marketing at InterDigital
      Communications Corporation, a Philadelphia company that licenses wireless
      telephone technologies and systems for customers worldwide. Previously, Mr.
      Cade
      held managerial positions in Washington, D.C. with Martin Marietta (now Lockheed
      Martin), AT&T, and the Department of Defense. Mr. Cade holds an MBA from
      Syracuse University, an undergraduate degree from the University of Illinois,
      and is a graduate of the National War College and Columbia University’s Senior
      Executive Program.





**JOHN
      H. MARTIN**


Mr.
      John
      J. Martin, who was appointed to our board of directors on January 2, 2007,
      is a
      graduate of Yale University. Mr. Martin was also appointed as acting Chief
      Executive Officer on January 2, 2007 but resigned on March 15, 2007 upon the
      appointment of Mr. Cade as Chief Operating Officer. Mr.
      Martin served as a director of Old HPI from its inception in September 2004
      until its merger with the Company in March 2006. Mr.
      Martin has been employed as an Engineering Manager with URS Corporation, a
      world
      renowned engineering firm with 25,000 employees, since 1998. URS Corporation
      services several long-term contracts with the Federal Government and the U.S.
      Defense Department. Mr. Martin is a registered engineer located in the State
      of
      Washington and is the director of engineering of HPI.





**JAMES
      H. DIFFENDORFER**


Mr.
      James
      H. Diffendorfer, was appointed to our board of directors on January 2, 2007, has
      served as an engineer and operations manual editor at the
      Boeing Company in Seattle, Washington from
      1990 to present. Mr. Diffendorfer served as a director of Old HPI from its
      inception in September 2004 until its merger with the Company in March 2006. Mr.
      Diffendorfer graduated from the USAF Academy with a Bachelors of Science degree
      in Engineering, and a degree in Astronautical Engineering from the US Air Force
      Institute of Technology. He earned a Masters Degree in Business Administration
      from the New Mexico Highlands University.





**VIRENDRA
      CHAUDHARY**


Dr.
      Virendra Chaudhary, was appointed to our board of directors on January 2, 2007,
      has served as an Associate Technical Fellow Mathematics and Engineering with
      the
      Boeing Company from January 1997 to the present, and prior to that served in
      various capacities with Boeing since July 1985. Mr. Chaudhary received a B.
      Tech
      degree in Civil Engineering at the Indian Institute of Technology in Kanpur,
      India, and M.S.C.E. and Ph.D degrees in Structural Engineering from West
      Virginia University in Morgantown, West Virginia.





**GURINDER
      DILAWARI**


Mr.
      Gurinder Dilawari, was appointed to our board of directors on January 2, 2007,
      has since September 2004 served as a consultant for Vibgyor Investments Inc.,
      a
      Vancouver, British Columbia based corporation which acts as a consultant to
      small businesses in the area of retail sales and mechanical engineering. From
      1995 to August 2004, Mr. Dilawari worked with Imperial Oil in North Vancouver,
      British Columbia. Mr. Dilawari received a degree in Mechanical Engineering
      from
      IndoSwiss in India.





**JAMES
      G. MATKIN**


Mr.
      James
      Matkin, who was appointed as special counsel to the board on January 2, 2007,
      served as the Executive Chairman of Old HPI from September 2004 until its merger
      with the Company in March 2006, and has continued to serve as counsel to the
      Company since that time. Mr. Matkin was
      the
      chief executive officer of the Law Society of British Columbia from 1998 to
      2005. He served as a member of the board of directors of GT Group Telecom Inc.,
      a leading telecommunications service provider, from 1997 to 2002. Mr. Matkin
      previously founded Juricert Inc., a provider of PKI and authentication services
      for internet commerce, while chief executive officer of the Law Society.
      Juricert is a private company wholly owned by the Law Society of British
      Columbia. Mr. Matkin is a director of Global Hydrofuel Technologies Inc., a
      significant shareholder of the Company. Mr. Matkin obtained a Master of Laws
      from Harvard University and a Bachelor of Laws from the University of Alberta.
      Mr. Matkin also holds a


-45-


Bachelor
      of Arts Degree from the University of Alberta. Mr. Matkin was a director of
      the
      Bank of Canada from 1992 to 1995, a director of ITT Canada in 1990 and a
      director of the British
      Columbia Workers Compensation Board from 1990 to 1993.





**RICKY
      GUJRAL**


Ricky
      Gujral was the founder, Chief Executive Officer and Director of “old” HPI from
      its inception until it was merged into its parent, HPI, in September, 2006.
      Thereafter she provided management consulting services until late March, 2007.
      She is currently PEO, President and Director of GHTI, the major shareholder
      of
      HPI, and Licensor of its technology. In that role she is engaged in
      international business development as to the *Hydrogen
      Now* technology and related technologies. Ms. Gujral has a B.Sc. and an MBA. Prior
      to
      founding “old” HPI, Ms. Gujral was responsible for managing an international
      mining Company whose operations were located in Africa, with assets over
      $1,000,000,000 where she handled all aspects of its global operations, finance
      and administration, including dealing with government Agencies and the U.S.
      Defense Logistics Agency.





**MICHAEL
      HINES**


Mr.
      Hines
      was appointed as the Company’s Chief Financial Officer on January 2, 2007 and
      resigned this position on April 3, 2007. Since 2001, Mr. Hines has been a
      partner with EHS Capital Partners, a consulting firm located in Vancouver,
      British Columbia, that advises companies on a variety of operational and
      financial issues. During this time, he has also served as an active consultant
      with EHS Capital. From 1999 to 2001, Mr. Hines was Chief Financial Officer
      with
      WJS Group of Companies, a
      multi-faceted human service agency, located in British Columbia, which
      specializes in unique service options to promote individual and community
      wellness. Mr.
      Hines
      is a graduate of Mount Allison University in Sackville, New Brunswick and is
      a
      Chartered Accountant.





**HENRY
      FONG** Mr.
      Fong
      was the president, treasurer and a director since from our inception in 1983
      until January 2, 2007. Mr. Fong has been a director of FastFunds Financial
      Corporation since June 2004. Mr. Fong has been president and a director of
      Equitex 2000, Inc. since its inception in 2001. Mr. Fong has been President
      and
      a Director of Interactive Games, Inc. (f/k/a Torpedo Sports USA, Inc.) since
      March 2002. Interactive Games is a publicly traded distributor of gaming
      equipment. Mr. Fong has been the president and a director of Inhibiton
      Therapeutics, Inc. since its inception in May 2004. Inhibiton Therapeutics
      is a
      publicly held company performing research and development on new cancer
      therapies. From 1959 to 1982, Mr. Fong served in various accounting, finance
      and
      budgeting positions with the Department of the Air Force. During the period
      from
      1972 to 1981 he was assigned to senior supervisory positions at the Department
      of the Air Force headquarters in the Pentagon. In 1978, he was selected to
      participate in the Federal Executive Development Program and in 1981, he was
      appointed to the Senior Executive Service. In 1970 and 1971, he attended the
      Woodrow Wilson School, Princeton University and was a Princeton Fellow in Public
      Affairs. Mr. Fong received the Air Force Meritorious Civilian Service Award
      in
      1982. Mr. Fong has passed the uniform certified public accountant exam. In
      March
      1994, Mr. Fong was one of twelve CEOs selected as Silver Award winners in
      FINANCIAL WORLD magazine's corporate American "Dream Team."





**THOMAS
      B. OLSON**


Mr.
      Olson
      was secretary of HPI from January 1988 to April 5, 2007. Mr. Olson is presently
      an assistant secretary to the Company. Mr. Olson has served as a director of
      Chex Services since May 2002. Since March 2002, Mr. Olson has been the secretary
      of Interactive Games, Inc. (f/k/a Torpedo Sports USA, Inc.), a publicly traded
      manufacturer and distributor of gaming equipment. Mr. Olson has been Secretary
      of Equitex 2000, Inc. since its inception in 2001. Mr. Olson has been the
      secretary of Inhibiton Therapeutics, Inc. since its inception in May 2004.
      Inhibiton Therapeutics is a publicly held company performing research and
      development on new cancer therapies. From August 2002 to July 2004, Mr. Olson
      was secretary of El Capitan Precious Metals, Inc., a publicly traded company
      with ownership interest in mining properties. Mr. Olson has attended Arizona
      State University and the University of Colorado at Denver.





-46-


**RUSSELL
      L. CASEMENT**


Dr.
      Casement was a director from February 1989 until his resignation on December
      30,
      2006. Dr. Casement has been a director of Equitex 2000, Inc. since its inception
      in 2001. Since 1969, Dr. Casement has been the president of his own private
      dental practice, Russell Casement, D.D.S., P.C., in Denver, Colorado. Dr.
      Casement earned a Doctor of Dental Science degree from Northwestern University
      in 1967. Dr. Casement is a member of the American Dental Association, the
      Colorado Dental Association and the Metro Denver Dental
      Association.





**AARON
      A. GRUNFELD**


Mr.
      Grunfeld was a director from November 1991 until his resignation on December
      30,
      2006. Mr. Grunfeld has been a director of Equitex 2000, Inc. since its inception
      in 2001. Mr. Grunfeld has been engaged in the practice of law since 1971 and
      has
      been of counsel to the firm of Resch Polster Alpert & Berger, LLP, Los
      Angeles, California since November 1995. From April 1990 to November 1995,
      Mr.
      Grunfeld was a member of the firm of Spensley Horn Jubas & Lubitz, Los
      Angeles, California. In December 2005, Mr. Grunfeld was appointed by Los
      Angeles, California Mayor Antonio R. Villaraigosa to the Metropolitan Water
      District Board of Directors. The Metropolitan Water District serves
      approximately 18 million residents in Southern California. Mr. Grunfeld received
      an A.B. in Political Science from UCLA in 1968 and a J.D. from Columbia
      University in 1971. He is a member of the California Bar
      Association.





**JOSEPH
      W. HOVORKA**


Mr.
      Hovorka was a director from December 2005 until his resignation on December
      30,
      2006, and was also a director of Equitex from June 2001 to March 2003. From
      September 1987 to February 2000, Mr. Hovorka was a director, and from February
      1990 to February 2000 was president, chief executive officer, chief financial
      officer, and treasurer of Immune Response, Inc., a publicly held company which
      merged with Opticon Medical, Inc. in February 2000. From 1989 to 1993, Mr.
      Hovorka served as president, chief operating officer, and treasurer and was
      a
      director of Williams Controls, Inc., a publicly held manufacturer of pneumatic,
      electronic and hydraulic controls for trucks, buses, mining, construction and
      refuse collection vehicles. Mr. Hovorka also served as president and was a
      director of Enercorp, Inc., a publicly held investment company from July 1986
      until June 1993. Mr. Hovorka had been engaged in commercial and business banking
      for over thirty years.





**MICHAEL
      S. CASAZZA**


Mr.
      Casazza became in February 2004 and resigned on June 16, 2006. From 1998 to
      the
      present, Mr. Casazza has been chairman of the board and president of A&M
      Trucking, Inc., a privately-held trucking company based in Denver, Colorado.
      In
      July 2005, Mr. Casazza was named acting chief executive officer of FastFunds
      Financial Corporation. From 1993 to 1997, and from 1990 to 1996, Mr. Casazza
      was
      president and chief executive officer of California Pro Sports, Inc. and
      MacGregor Sports and Fitness, respectively, both publicly held manufacturers
      of
      sporting goods equipment. Prior to 1990, Mr. Casazza also held senior executive
      level positions with Dunlop Sports Corporation and Wilson Sporting Goods. Mr.
      Casazza received his Bachelors Degree in Business Administration from St.
      Bonaventure University in 1972.





(f)
      Involvement in certain legal proceedings.





Not
      applicable.





(g)
      Promoters and control persons.





Not
      applicable.





SECTION
      16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
      16(a) of the Securities Exchange Act of 1934 (“Section 16”) requires our
      officers, directors and persons who own more than ten percent of our voting
      securities to file reports of their ownership and changes in such ownership
      with
      the Securities and Exchange Commission (the “Commission”). Commission
      regulations also require that such persons provide us with copies of all Section
      16 reports


-47-


they
      file. Based solely upon its review of such reports received by us, or written
      representations from certain persons that they were not required to file any
      reports under Section 16, we believe that, during 2005, our officers and
      directors have complied with all Section 16 filing requirements.





CODE
      OF ETHICS





We
      have
      adopted a Code of Ethics for our senior executive and financial management,
      which includes our president and secretary who may be our principal executive
      or
      accounting officers, which has been filed as an exhibit to this report.





CORPORATE
      GOVERNANCE





**Ricky
      Gujral**


Ricky
      Gujral was the founder Chief Executive Officer and Director of “old” HPI from
      its inception until it was merged into its parent, HPI, in September, 2006.
      Thereafter she provided management consulting services until late March, 2007.
      She is currently PEO, President and Director of GHTI, the major shareholder
      of
      HPI, and Licensor of its technology. In that role she is engaged in
      international business development as to the *Hydrogen
      Now* technology and related technologies. Ms. Gujral has a B.S (Chemistry major)
      and
      an MBA, both from the University of British Columbia. Prior to founding “old”
HPI, Ms. Gujral was responsible for managing an international mining Company
      in
      Africa, with assets over $1,000,000,000 where she handled all aspects of its
      global operations, finance and administration, including dealing with government
      Agencies and the U.S. Defense Logistics Agency. Mr.
      James
      H. Diffendorfer, Dr. Virendra Chaudhary, and Mr. Gurinder Dilawari are each
      independent directors following their appointment on January 2, 2007. During
      2006, Messrs. Russell Casement, Aaron Grunfeld and Joseph W. Hovorka were
      independent directors until their resignations on December 30, 2007. Mr. John
      Martin, current Director of HPI was determined as not independent due to his
      service as acting Chief Executive Officer from January 2, 2007 until Mr.Cade
      was
      appointed, see also “Certain Relationships”.





There
      have been no material changes to our Nominating Committee Charter.





During
      2006, we had an Audit Committee consisting of Messrs. Joseph W. Hovorka, Russell
      Casement and Aaron Grunfeld, all of whom resigned on December 30, 2006. Our
      board
      of directors had determined that Mr. Hovorka, an independent member of our
      board
      of directors and member of our audit committee, met the requirements as our
      audit committee financial expert. Mr. Hovorka was an “independent” director, as
      such term is defined in Section 4200(a)(15) of the National Association of
      Securities Dealers’ listing standards and meets similar criteria for
      independence set forth in Rule 10A-3(b)(1) under the Securities Act of 1934.
      With the appointment of Messrs. Diffendorfer, Chaudhary and Dilawari on January
      2, 2007, we have not yet appointed a new audit committee and presently the
      entire board of directors serves as the audit committee. The new Directors
      have
      met with the public accountants in the absence of management to discuss audit
      issues, but does not plan an audit charter. Presently we do not have an audit
      committee financial expert serving on our board of directors, as we believe
      the
      size of the Company and scale of operations is such that resources are better
      allocated to other purposes.





Compensation
      issues, audit issues and nominations are all planned to be handled by the entire
      Board of Directors.








**ITEM
      11. EXECUTIVE COMPENSATION.**





**Compensation
      Discussion and Analysis**





1.
            Discussion
                as to policies followed during the fiscal
                year





This
      section discusses the principles underlying our executive compensation decisions
      and the most important factors relevant to an analysis of these decisions.
      It
      provides information regarding the manner and context in which compensation
      is
      awarded to and earned by our executive officers, and places in perspective
      the
      data presented in the tables and other quantitative information that follows
      this section.


-48-




Our
      compensation of executives is designed to attract, as needed, individuals with
      the skills necessary for us to achieve our business goals, to reward those
      individuals fairly over time, and to retain those individuals who continue
      to
      perform at or above our expectations. Our executives’ compensation generally has
      three primary components—salary, a yearly cash incentive bonus, and stock option
      awards. In addition, we provide our executives with benefits that are generally
      available to our salaried employees. We fix the base salary of each of our
      executives at a level we believe enables us to hire and retain individuals
      in a
      competitive environment and rewards satisfactory individual performance and
      a
      satisfactory level of contribution to our overall business goals. We also take
      into account the base salaries paid by similarly situated companies and the
      base
      salaries of other private and public companies with which we believe we
      generally compete for talent. In the past, we have certain executive
      compensation consultants as part of making a crucial executive hiring or
      compensation decision. We do not retain experts or consultants with every
      decision we make regarding executive compensation. We have and may continue
      to
      design cash incentive bonuses for certain of our executives to focus them on
      achieving key operational and/or financial objectives within a defined time
      horizon. We use stock options to reward long-term performance; these options
      are
      intended to produce significant value for each executive if the Company’s
      performance is outstanding and if the executive has an extended
      tenure.




We
      view
      the three components of our executive compensation as related but distinct.
      Although our compensation committee or full board of directors does review
      total
      compensation, we do not believe that significant compensation derived from
      one
      component of compensation should negate or reduce compensation from other
      components. We determine the appropriate level for each compensation component
      based in part, but not exclusively, on our view of internal equity and
      consistency, individual performance and other information we deem relevant.
      We
      believe that, as is common in the alternative energy industry sector, stock
      option awards are the primary motivator in attracting and retaining executives,
      and that salary and cash incentive bonuses are secondary considerations. Except
      as described below, our compensation committee has not adopted any formal or
      informal policies or guidelines for allocating compensation between long-term
      and currently paid-out compensation, between cash and non-cash compensation,
      or
      among different forms of compensation. This is due to the small size of our
      executive team and the need to tailor each executive’s award to attract and
      retain that executive.




Our
      current intent is to perform annually a strategic review of our executive
      officers’ cash compensation and share and option holdings to determine whether
      they provide adequate incentives and motivation to our executive officers and
      whether they adequately compensate our executive officers relative to comparable
      officers in other companies. Compensation committee meetings typically have
      included, for all or a portion of each meeting, not only the committee members
      but also our principal executive officer. For compensation decisions, including
      decisions regarding the grant of equity compensation relating to executive
      officers (other than our principal executive officer), the compensation
      committee typically considers the recommendations of our principal executive
      officer.





We
      account for the equity compensation expense for our employees under the rules
      of
      SFAS 123R, which requires us to estimate and record an expense for each award
      of
      equity compensation over the service period of the award. Accounting rules
      also
      require us to record cash compensation as an expense at the time the obligation
      is accrued. Until we achieve sustained profitability, the availability to us
      of
      a tax deduction for compensation expense is not material to our financial
      position. We structure cash incentive bonus compensation so that it is taxable
      to our employees at the time it becomes available to them. It is not anticipated
      that any executive officer’s annual cash compensation will exceed $1 million,
      and the Company has accordingly not made any plans to qualify for any
      compensation deductions under Section 162(m) of the Internal Revenue
      Code.





2.
            Current
                Board Policies





We
      had an
      entire new Board of directors appointed as of January 2, 2007. All of those
      appointed had served as Directors of the “old” HPI. The Board intends to act as
      a whole, without a Compensation, Audit or Nominating committee, which we believe
      is more efficient for us, given our size and stage of development. Our work
      force has remained stable, and is primarily technical and support, and we have
      not been required as yet to develop specific compensation policies. We have
      made
      one major


-49-


compensation
      decision, the appointment of Mr. David Cade, our Chief Operating Officer,
      effective March 2007. In the search for Mr. Cade, we were assisted by an
      Executive Search firm, Hobbs & Towne, Inc, of Valley forge, Pennsylvania,
      which advised us on Mr. Cade’s compensation package, and also the assistance of
      our Special Counsel, Mr Matkin, who is experienced in human resources and
      compensation issues. Our basic policy for Mr. Cade has been **** comparative
      value within our ability to pay and is expected to be the basic principal
      ongoing. We executed a settlement agreement with Ms Gujral in March 2007 under
      her Employment Agreement claims arising from her termination in the change
      of
      control in September, 2006, but did not consider that a compensation decision.
      We also ratified Ms, Gujral’s management consulting services she had been
      performing since September, 2006, which arose under the previous Board of
      Directors, and again which we do not consider a compensation decision, as she
      had already been acting for several months prior to our appointment. We expect
      in the near future to need to consider significant technical appointments,
      at
      which time we will likely rely significantly on the advice of our Chief
      Operating Officer, Mr. Cade, as well as our own business judgment in light
      of
      the perceived value of the proposed employee and our financial resources. We
      have not as yet considered any non-cash compensation policies, such as options
      or restricted stock awards, aside from that of Mr.Cade.





***3.
      Equity Compensation***




All
      option grants made during fiscal year 2006 were made at what our board of
      directors determined to be the fair market value of our common stock on the
      respective grant dates. The value of the shares subject to our 2006 option
      grants to executive officers is reflected in the “Summary Compensation Table”
and “Grants of Plan-Based Awards” tables below.




In
      connection with an employment agreement we executed effective March 15, 2007,
      we
      are obligated to issue equity compensation to our current Chief Operating
      Officer, who is also our principal executive officer. The employment agreement
      calls for us to grant Mr. Cade performance-based stock options to purchase
      up to
      900,000 shares of our common stock at an exercise price equal to $1.60 per
      share, which options shall be granted in quarterly installments and shall vest
      beginning on the first anniversary of the date of the Agreement subject to
      certain terms and conditions, including the satisfaction (as determined by
      our
      board in its discretion) of certain milestones agreed to by us and Mr. Cade.
      Each such option shall expire five years from the date of the option
      grant.





We
      do not
      have any other program, plan or obligation that requires us to grant equity
      compensation to any other executive on specified dates. The authority to make
      equity grants to executive officers rests with our full board of directors
      .





***Cash
      Incentive Bonuses***




In
      June
      2003, the compensation committee adopted a bonus plan effective June 1, 2003,
      pursuant to which Mr. Henry Fong, then our President, Chief Executive Officer,
      Treasurer and Chief Financial Officer, was eligible to receive a bonus to be
      calculated quarterly based on five percent of the increase in the market value
      of our common stock as described above. If there was a negative computation
      in
      any given quarter, no bonus was accrued and that negative amount was carried
      forward to offset the subsequent quarter's bonus during the fiscal year.
      Negative amounts were not accumulated nor carried into subsequent fiscal years.
      This bonus totaled $0 in 2006, $537,558 in 2005, and $0 in 2004.





Our
      recently appointed Chief Operating Officer, Mr. David J. Cade, is eligible
      to
      receive a quarterly bonus of up to $10,000, which shall be granted at the sole
      discretion of our board of directors based on certain performance milestones
      outlined in the Agreement. Mr. Cade, who is a resident of Pennsylvania, is
      also
      eligible for reimbursement of his travel expenses including lodging and other
      ancillary expenses during his visits to our corporate offices in
      Seattle.




***Severance
      and Change-in-Control Benefits***




During
      2006, none of our HPI executives had employment agreements and therefore we
      had
      no HPI provision for mandatory severance benefits in the event of a termination
      or change of control of the Company. However, Ms. Gujral had an Employment
      Agreement with “old” HPI as Chief Executive Officer


-50-


thereof,
      which had a termination clause in case of a change of control which was
      activated by the merger of “old” HPI into HPI in September 2006. Her claims
      under that Agreement were settled in March 2007by the board approving a
      severance payment of $750,000 disbursed in November 2006.





***Other
      Benefits***




Our
      executives are eligible to participate in all of our employee benefit plans,
      such as medical, dental, vision, group life and disability insurance, in each
      case on the same basis as our other employees. There were no special benefits
      or
      perquisites provided to any executive officer in 2006. During the period from
      January to September 2006, Mr. Thomas B. Olson, our Corporate Secretary, was
      provided use of a Company owned vehicle. In September 2006, we awarded the
      vehicle valued at $34,880 to Mr. Olson as a one-time bonus payment and
      transferred ownership to him at that time.





**Summary
      Compensation Table**





**Name
                and Principal Position**
            **Year**
            **Salary****($)**
            **Bonus****($)**
            **Stock
                Awards****($)**
            **Option
                Awards****($)**
            **Non-Equity
                Incentive Plan Compensation****($)**
            **Change
                in Pension Value and Nonqualified Deferred**
              **Compensation
                Earnings****($)**
            **All
                Other**
              **Compensation****($)**
            **Total
                ($)****(a)**
            **(b)**
            **(c)**
            **(d)**
            **(e)**
            **(f)**
            **(g)**
            **(h)**
            **(i)**
            **(j)****Henry
                Fong**
              President,
                Treasurer and Chief Financial Officer (4)
            2006
              
              2005
              
              2004
            192,500
              
              210,000
              
              210,000
            0
              
              537,558
              
              0
            0
              
              0
              
              0
            146,900(2)
              
              0
              
              366,750(3)
            0
              
              0
              
              0
            0
              
              0
              
              0
            0
              
              0
              
              0
            339,400
              
              747,558
              
              576,750**Thomas
                B. Olson**
              Secretary
                (4)
            2006
              
              2005
              
              2004
            54,625
              
              57,000
              
              64,000
            34,880(1)
              
              0
              
              0
            0
              
              0
              
              0
            73,450(2)
              
              0
              
              93,725(3)
            0
              
              0
              
              0
            0
              
              0
              
              0
            0
              
              0
              
              0
            162,955
              
              57,000
              
              157,725**Ricky
                Gujral**
              Chief
                Executive Officer
              Old
                HPI (5)
            2006
              
              2005
              
              2004
            352,953
              
              200,000
              
              75,000
            60,000
              
              0
              
              0
            0
              
              0
              
              0
            0
              
              0
              
              0
            0
              
              0
              
              0
            0
              
              0
              
              0
            750,000(6)
              
              0
              
              0
            1,162,953
              
              200,000
              
              75,000


__________





(1)
            One-time
                payment in the form of an automobile with a fair value of
                $34,880.


(2)
            Includes
                100,000 five-year options granted to Mr. Fong and 50,000 five year
                options
                granted to Mr. Olson each with an exercise price of $1.60 per share
                (the
                market value of the common stock on the date of the grant). These
                options
                were valued using the Black-Scholes option value model with a five
                year
                assumed life resulting in a calculated option value of $1.469 per
                share.


(3)
            Includes
                75,000 five-year options granted to Mr. Fong and 19,167 five year
                options
                granted to Mr. Olson each with an exercise price of $5.10 per share
                (the
                market value of the common stock on the date of the grant as adjusted
                for
                splits). These options were valued using the Black-Scholes option
                value
                model with a five year assumed life resulting in a calculated option
                value
                of $4.89 per share.


(4)
            Mr.
                Fong resigned as an officer and director of the Company on January
                2,
                2007. Mr. Olson was replaced as Secretary of the Corporation effective
                April 5, 2007.


(5)
            Ms,
                Gujral was founding Chief Executive Officer and Director of “old” HPI
                acting under an Employment Agreement dated July 1, 2004, and amended
                October, 2005. After its acquisition by HPI (then Equitex) in March,
                2006,
                she continued as CEO and director thereof. Ms. Gujral’s term as officer
                and director ended when “old” HPI was merged into its parent, HPI. Ms.
                Gujral


-51-




however, continued
                as a management consultant to HPI under her same pay and benefits
                until
                late March 2007, after the current Chief Operating Officer, Mr. Cade,
                was
                appointed.


(6)
            Represents
                payment made under as part of a severance agreement approved in March
                2007, but paid and accrued in 2006.





**Employment
      Agreements**





During
      2006, none of our HPI executives had employment agreements, however Ms Gujral,
      Chief Executive Officer and Director of our major subsidiary had such an
      agreement, discussed below, and contained as an exhibit.





Mr.
      Henry
      Fong served as our President and received an annual salary of $192,500 in the
      year ended December 31, 2006. Mr. Fong received an annual salary of $210,000
      in
      each of the years ended December 31, 2005 and 2004. Mr. Thomas B. Olson served
      as our Corporate Secretary and received and annual salary of $54,625 in the
      year
      ended December 31, 2006. Mr. Olson received an annual salary of $57,000 in
      each
      of the years ended December 31, 2005 and 2004.





In
      January 1998, the Compensation Committee of our Board of Directors retained
      an
      independent consultant to review the Mr. Fong’s compensation. As a result of
      that review, a compensation arrangement was instituted based on recommendations
      made by the independent consultant. In addition to Mr. Fong’s annual salary,
      beginning January 1, 1998 and ended June 30, 2001, Mr. Fong received an annual
      bonus equaling one percent of our total assets combined with five percent of
      the
      increase in the market value of our common stock, excluding shares owned by
      him,
      calculated quarterly from January 1 to December 31 of any fiscal year. If there
      was a negative computation in any given quarter, no bonus was accrued and that
      negative amount was carried forward to offset the subsequent quarter's bonus
      during the fiscal year. Negative amounts were not accumulated nor carried into
      subsequent fiscal years. Following our acquisition of Nova Financial Systems
      and
      Key Financial Systems in August 2001, Mr. Fong, in consultation with the
      Compensation Committee, agreed to end the bonus plan beginning July 1, 2001
      through December 31, 2002. In June 2003, the Compensation Committee reviewed
      Mr.
      Fong’s compensation arrangement and reinstituted the bonus plan effective June
      1, 2003, for a bonus to be calculated quarterly based on five percent of the
      increase in the market value of our common stock as described above. This bonus
      totaled $0 in 2006, $537,558 in 2005, and $0 in 2004.





In
      addition to his cash compensation for the year ended December 31, 2006, Mr.
      Fong
      received 100,000 stock options under our 2005 Stock Option Plan approved by
      our
      stockholders. In addition, Mr. Fong received 92,157 shares of common stock
      under
      our 2005 Stock Option Plan in payment for outstanding fees from our subsidiary
      Denaris Corporation, accrued rent to an affiliate wholly-owned by Mr. Fong,
      and
      payroll payable totaling $117,500. Pursuant to the provisions of the 2005 Stock
      Option Plan, these shares were issued at $1.275 per share, which was 85% of
      the
      market value of $1.50 on the date of issuance. Mr. Fong also received in
      December 2006 13,337 restricted shares of our common stock in payment for loans
      made to the Company in the amount of $16,756. These shares were issued at $1.26
      per share which was an 85% discount to the average closing price of our common
      stock of $1.48 for the ten trading days preceding the conversion. In December
      2005, and under the 2005 Stock Option plan, Mr. Fong received 50,000 shares
      of
      common stock in lieu of cash payment for $255,500 of accrued bonuses payable.
      In
      the year ended December 31, 2004, Mr. Fong received a grant of 75,000 stock
      options.





In
      addition to his cash compensation for the year ended December 31, 2006, Mr.
      Olson received 50,000 stock options under our 2005 Stock Option Plan approved
      by
      our stockholders. In December 2006, Mr. Olson received 11,765 shares of common
      stock under our 2005 Stock Option Plan in payment for outstanding fees from
      our
      subsidiary Denaris Corporation. Pursuant to the provisions of the 2005 Stock
      Option Plan, these shares were issued at $1.275 per share, which was 85% of
      the
      market value of $1.50 on the date of issuance.





During
      Mr. Fong and Mr. Olson’s tenure as our President and Chief Executive Officer,
      and Corporate Secretary, respectively, we had no retirement or pension plan
      for
      them.


-52-


On
      January 2, 2007, Mr. Fong resigned his positions as the Company’s President,
      Chief Executive Officer, Treasurer and Chief Financial Officer. Although the
      Company did not make any severance payments to Mr. Fong in connection with
      his
      departure, the Company did settle outstanding liabilities including accrued
      payroll, accrued rent, and loans owed to Mr. Fong and certain affiliates, in
      the
      aggregate amount of $653,500, by (i) paying Mr. Fong a cash payment of $162,500,
      (ii) delivering Mr. Fong a promissory note in the amount of $37,500, (iii)
      issuing Mr. Fong 100,000 shares of common stock with resale registration rights.
      In addition, the Company entered into a Consulting Agreement with HF Services
      LLC, an affiliate of Henry Fong and Thomas Olson. Under the Consulting
      Agreement, HF Services will provide certain services related to corporate
      matters and public-reporting company matters for a term of one year in
      consideration of payments of $20,000 per month.





Ms.
      Gujral was the founding Chief Executive Officer and a Director of “old” HPI,
      (please see Item I, Business Section (a) which developed the current “Hydrogen
      NowTM” business of the Company and continued in that position from early 2004
      until “old” HPI was acquired by HPI (then known as Equitex) in March 2006, and
      thereafter until her position and that of the other Directors and Officers
      of
“old” HPI expired when “old” HPI merged into HPI in September 2006. In that
      position she supervised all “old” HPI activities and engaged in international
      business development for “old” HPI subject to the Licensing Agreement with
      Global Hydrofuel Technologies, Inc. a Canadian company, “GHTI”. (See Business,
      HPI Technology) She had an Employment Agreement with “old” HPI at an annual
      compensation rate of $350,000 per year, commencing October 20, 2005 (which
      amended a prior Agreement dated 1 July 2004, which provided lower compensation)
      with an automatic annual renewal for a five year period wherein compensation
      could be increased but not decreased to less than $350,000 per year during
      that
      period; she had regular employee benefits. The Employment Agreement was
      terminated by the September merger which provided for non-cause termination
      if
      there was a change of control. She subsequently acted as a management consultant
      with the same salary and benefits with respect to HPI Seattle activities until
      March 2007, when Mr, Cade joined the Company. In March 2007, she was appointed
      by the Board of GHTI a Director, President and Principal Executive Officer
      of
      GHTI, a major shareholder of HPI, where she continues to engage in International
      Business Development related to our Hydrogen Now and related technology. In
      March 2007, the Board of HPI confirmed a settlement payment to Ms. Gujral to
      settle claims arising under her “old” HPI Employment Agreement in the amount of
      $750,000.





On
      March
      15, 2007, we executed a three-year Employment Agreement (the “Agreement”) with
      Mr. David J. Cade to serve as our Chief Operating Officer pursuant to which
      he
      is to receive a base annual salary of $200,000 during the period from March
      1,
      2007 to August 31, 2007, which shall be increased to an annual salary of
      $225,000 for the period from September 1, 2007 to February 28, 2008. For each
      of
      the second and third years of the Agreement, Mr. Cade’s annual salary will be at
      a rate agreed upon by Mr. Cade and our board of directors. **** Mr.
      Cade
      is also eligible to receive a quarterly bonus of up to $10,000, which shall
      be
      granted at the sole discretion of our board of directors based on certain
      performance milestones outlined in the Agreement. Mr. Cade is entitled to
      participate in certain retirement and employee benefit plans of the Company
      under the same terms and conditions offered to all full-time employees. The
      Agreement contains standard confidentiality and non-competition
      provisions.





The
      Agreement also calls for us to grant Mr. Cade performance-based stock options
      to
      purchase up to 900,000 shares of our common stock at an exercise price equal
      to
      $1.60 per share, which options shall be granted in quarterly installments and
      shall vest beginning on the first anniversary of the date of the Agreement
      subject to certain terms and conditions, including the satisfaction (as
      determined by our board in its discretion) of certain milestones agreed to
      by us
      and Mr. Cade. Each such option shall expire five years from the date of the
      option grant. We have agreed to use commercially reasonable efforts to register
      the resale of the common stock underlying the options granted.





Mr.
      Cade
      may receive compensation equal to up to one year’s salary and benefits if he is
      terminated for any reason other than cause prior to the expiration of the
      Agreement, subject to certain terms and conditions more fully outlined in the
      Agreement.





-53-


**Grant
      of Plan-Based Awards**





The
      following table sets forth each equity award granted to the Company’s named
      executive officers during the year ended December 31, 2006.





**Name**
            **Grant
                Date**
            **Estimated
                Future Payouts under Non-Equity Incentive Plan Awards
                (Target)**
            **Estimated
                Future Payouts under Equity Incentive Plan Awards
                (Target)**
            **All
                Other Option Awards: Number of Securities Underlying
                Options**
            **Exercise
                or Base Price of Option Awards ($/Sh)**
            **Grant
                Date Fair Value of Stock Option Awards ($)****(1)****(a)**
            **(b)**
            **(c)**
            **(d)**
            **(e)**
            **(f)**
            **(g)**Henry
                Fong
            9/25/06
            0
            0
            100,000
            $1.60
            $146,900Thomas
                B. Olson
            9/25/06
            0
            0
            50,000
            1.60
            $73,450


_____________


(1)  Represents
      the fair value of each stock option as of the date it was granted, in accordance
      with SFAS 123(R) and using a Black-Scholes valuation model.





**Outstanding
      Equity Awards at Fiscal Year-End Table**





The
      following table sets forth information regarding each unexercised option held
      by
      each of our named executive officers as of December 31, 2006.





**Option
                Awards**
            **Stock
                Awards****Name**
            **Number
                of Securities Under-lying Unexer-cised Options**
              **(#)**
              **Exercisable**
            **Number
                of Securities Under-lying Unexer-cised Options**
              **(#)**
              **Unexer-cisable**
            **Equity
                Incentive Plan Awards: Number of Securities Under-lying Unexer-cised
                Unearned Options**
              **(#)**
            **Option
                Exercise Price**
              **($)**
            **Option
                Expiration**
              **Date**
            **Number
                of Securities That Have Not Vested**
              **(#)**
            **Market
                Value of Securities That Have Not Vested**
              **($)**
            **Equity
                Incentive Plan Awards: Number of Unearned Securities or Other Rights
                That
                Have Not Vested**
              **(#)**
            **Equity
                Incentive Plan Awards: Market or Payout Value of Unearned Securities
                or
                Other Rights That Have Not Vested**
              **($)****(a)**
            **(b)**
            **(c)**
            **(d)**
            **(e)**
            **(f)**
            **(g)**
            **(h)**
            **(i)**
            **(j)**Henry
                Fong
            54,667
              75,000
              100,000
            0
            0
            $6.18
              $5.10
              $1.60
            6/20/2008
              7/14/2009
              9/25/2011
            0
            $0
            0
            $0Thomas
                B. Olson
            16,667
              19,167
              50,000
            0
            0
            $6.18
              $5.10
              $1.60
            6/20/2008
              7/14/2009
              9/25/2011
            0
            $0
            0
            $0








-54-


**Option
      Exercises and Stock Vested Table**





The
      following table shows the number of shares acquired upon exercise of options
      by
      each named executive officer during the year ended December 31, 2006 and the
      number of shares of restricted stock held by each named executive officer that
      vested during the year ended December 31, 2006.





**Option
                Awards**
            **Stock
                Awards****Name**
            **Number
                of Shares Acquired on Exercise**
              **(#)**
            **Value
                Realized on Exercise ($)**
            **Number
                of Shares Acquired on Vesting (#)**
            **Value
                Realized on Vesting ($)****(a)**
            **(b)**
            **(c)**
            **(d)**
            **(e)**Henry
                Fong
            0
            0
            0
            0Thomas
                B. Olson
            0
            0
            0
            0





**Severance
      and Change-in-Control Arrangements**





On
      January 2, 2007, Mr. Fong resigned his positions as the Company’s President,
      Chief Executive Officer, Treasurer and Chief Financial Officer. Although the
      Company did not make any severance payments to Mr. Fong in connection with
      his
      departure, the Company did settle outstanding liabilities owed to Mr. Fong
      and
      certain affiliates, in the aggregate amount of $653,500, by (i) paying Mr.
      Fong
      a cash payment of $162,500, (ii) delivering Mr. Fong a promissory note in the
      amount of $37,500, (iii) issuing Mr. Fong 100,000 shares of common stock with
      resale registration rights. In addition, the Company entered into a Consulting
      Agreement with HF Services LLC, an affiliate of Henry Fong. Under the Consulting
      Agreement, HF Services will provide certain services related to corporate
      matters and public-reporting company matters for a term of one year in
      consideration of payments of $20,000 per month.





On
      January 3, 2007, a $71,000 severance payment was made to Mr. Olson, who was
      Corporate Secretary of the Company until April 2007, pursuant to his termination
      as an employee of the Company as of January 31, 2007.





Effective
      March 12, 2007, our board of directors entered into a Retirement Bonus Agreement
      and Release (the “Retirement Agreement”) dated March 7, 2007, with Ricky Gujral.
      As a result of the merger in September 2006, Ms. Gujral’s position was
      eliminated and she ceased to be an officer of our subsidiary. Pursuant to
      provisions of an executive severance agreement between Ms. Gujral and our
      subsidiary entered into prior to the merger, upon her termination Ms. Gujral
      was
      entitled to a severance payment equal to her annual salary and bonus for a
      period of two years. In lieu of the severance payment under the executive
      severance agreement, we and Ms. Gujral agreed to, pursuant to the terms of
      the
      Retirement Agreement, a one-time payment to Ms. Gujral of $750,000 for the
      elimination of her position. This amount was advanced to Ms. Gujral in the
      form
      of a loan in November 2006. Pursuant to the terms of the Retirement Agreement,
      Ms. Gujral released us from certain claims against us arising from her
      employment while preserving Ms. Gujral’s rights to indemnification by us as may
      be provided by our Articles of Incorporation, Bylaws or Delaware General
      Corporation Law.




**Non-Qualified
      Deferred Compensation Plans**





We
      have
      no non-qualified deferred compensation plans currently in effect.





-55-


**Director
      Compensation**





The
      following table shows the compensation earned by each of our non-officer
      directors for the year ended December 31, 2006.





**Name**
            **Fees
                Earned or Paid in Cash ($)**
            **Stock
                Awards ($)**
            **Option
                Awards ($)**
              **(3)**
            **Non-Equity
                Incentive Plan Compensation ($)**
            **Change
                in Pension Value and Non-Qualified Deferred Compensation
                Earnings**
            **All
                Other Compensation**
            **Total
                ($)****(a)**
            **(b)**
            **(c)**
            **(d)**
            **(e)**
            **(f)**
            **(g)**
            **(h)**Michael
                Casazza (1)
            $6,500
            0
            $50,520
            0
            0
            0
            $57,020Russell
                Casement (2)
            $28,731
            0
            $146,900
            0
            0
            0
            $175,631Aaron
                Grunfeld (2)
            $28,731
            0
            $146,900
            0
            0
            0
            $175,631Joseph
                Hovorka (2)
            $22,985
            0
            $36,725
            0
            0
            0
            $59,710


**_________**


(1)
            Mr.
                Casazza resigned from our board of directors on June 16,
                2006.


(2)
            Messrs.
                Casement, Grunfeld and Hovorka resigned from our board of directors
                on
                December 30, 2006.


(3)
            Represents
                the fair value of each stock option as of the date it was granted
                (September 25, 2006), in accordance with SFAS 123(R) and using a
                Black-Scholes valuation model. Includes 100,000 five-year options
                granted
                to Dr. Casement and Mr. Grunfeld, and 25,000 five year options granted
                to
                Mr. Hovorka; each with an exercise price of $1.60 per share (the
                market
                value of the common stock on the date of the grant). The fair value
                was
                calculated using the Black-Scholes valuation model with a five year
                assumed life resulting in a calculated option value of $1.469 per
                share.





Prior
      to
      2006, each member of our Board of Directors received $10,000 per year payable
      monthly and $500 for each Board of Director’s meeting attended either in person
      or by telephone. Members of the Board of Directors also receive reimbursement
      for expenses incurred in attending board meetings.





In
      August
      2006, our board of directors evaluated the compensation structure for
      non-officer directors which had not been adjusted for over ten years.
      Accordingly, the board voted to amend such compensation to an amount equal
      to
      80% of the annual Consumer Price Index adjustment from the period from 1996
      through 2005. This resulted in an adjustment of the annual fee paid to each
      non-officer director from $10,000 to $12,240 for the year ended December 31,
      2006. The board also authorized a one-time fee equal to the amount the annual
      fee would have been adjusted based on 80% of the annual Consumer Price Index
      adjustment for the years 1996 through 2006. As both Dr. Casement and Mr.
      Grunfeld had been continuous members of our board of directors over that ten
      year period, this amounted to a one-time payment of $11,491. The board
      authorized an amount equal to one-half that amount, or $5,745, for Mr. Hovorka
      in recognition of his service to the Company.





In
      accordance with the terms of our 2005 Stock Option Plan, each member of our
      board of directors converted a portion of their fees earned in 2006 to
      restricted shares of our common stock in lieu of cash payment. As allowed for
      in
      the Plan, these shares were issued at a per share value of $1.275, which was
      85%
      of the market value of $1.50 on the date of issuance. Mr. Casazza converted
      $3,000 in fees and received 2,353 shares, Dr. Casement $18,231 in fees and
      received 14,299 shares, Mr. Grunfeld $18,231 in fees and received 14,299 shares,
      and Mr. Hovorka converted $12,485 in fees and received 9,792 shares.





-56-


Members
      of our current Board of Directors have options which were acquired upon the
      merger of Old HPI into HPI in March 2006, (into the HPI merger Subsidiary),
      and
      which arose pursuant to arrangements with Old HPI prior to its acquisition
      by
      HPI. The Board has discussed generally an options policy for services on the
      HPI
      Board, but no decision have been made as yet.





**Limitation
      of Liability and Indemnification of Officers and Directors**




Our
      certificate of incorporation and bylaws provide that we will indemnify our
      directors and officers to the fullest extent permitted by Delaware law, as
      it
      now exists or may in the future be amended, against all expenses and liabilities
      reasonably incurred in connection with their service for or on behalf of us.
      In
      addition, our certificate of incorporation provides that our directors will
      not
      be personally liable for monetary damages to us for breaches of their fiduciary
      duty as directors, unless they violated their duty of loyalty to us or our
      stockholders, acted in bad faith, knowingly or intentionally violated the law,
      authorized illegal dividends or redemptions or derived an improper personal
      benefit from their actions as directors.




In
      addition, on December 29, 2006, we adopted an Indemnity Policy applicable to
      our
      directors and officers. Under the policy, we are required to indemnify each
      director and officer to the fullest extent permitted by Delaware law, including
      indemnification of expenses such as attorneys’ fees, judgments, fines and
      settlement amounts incurred by the director or officer in any action or
      proceeding, including any action or proceeding by or in right of us, arising
      out
      of the person’s services as a director or officer. We will not, however, be
      obligated to provide indemnification under the Indemnity Policy:





A.
            to
                the extent that payment is actually made to a director under any
                insurance
                policy, or is made to a director by either the Company or its affiliates
                otherwise than pursuant to the Indemnity Policy (notwithstanding
                the
                availability of insurance, a director also may claim indemnification
                from
                the Company under the Indemnity Policy by assigning to the Company
                any
                claims under such insurance to the extent such director is paid by
                the
                Company)




B.
            for
                liabilities in connection with proceedings settled without the Company’s
                consent, which consent, however, shall not be unreasonably withheld,
                or




C.
            to
                the extent it would be otherwise prohibited by law, if so established
                by a
                judgment or other final adjudication adverse to a
                director.




At
      present, we are not aware of any pending or threatened litigation or proceeding
      involving any of our directors, officers, employees or agents in which any
      indemnification would be required or permitted.





**Compensation
      Committee Interlocks**





Our
      Compensation Committee for the year ended December 31, 2006 consisted of Mr.
      Grunfeld as chairman and Dr. Casement both of whom resigned on December 30,
      2006. No member of the Compensation Committee was an officer or employee of
      us
      or any of our subsidiaries during the year. Mr. Grunfeld served on the board
      of
      directors of our subsidiary FastFunds Financial Corporation with our former
      President Mr. Henry Fong during the fiscal year ended December 31, 2006. No
      other executive officer during 2006 has served on the board of directors of
      any
      other entity with either member of the Compensation Committee.





As
      of
      January 2, 2007, our entire Board has been appointed and acts as a whole on
      compensation matters. One member, Mr. John Martin, acted as our acting Chief
      Executive Officer from January 2, 2007, until Mr. Cade, our current Chief
      Operating Officer was appointed.





-57-


**Compensation
      Committee Report**





Our
      compensation committee is presently comprised of all the members of our board
      of
      directors. The board of directors has reviewed and discussed the compensation
      discussion and analysis contained in the Report with management and has
      recommended that it be included in this Report.





Members
      of our board of directors:


Mr.
      John
      J. Martin


Mr.
      James
      H. Diffendorfer


Dr.
      Virendra Chaudhary


Mr.
      Gurinder Dilawari







**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**





We
      have
      the following securities authorized for issuance under our equity compensation
      plans as of December 31, 2006, including options outstanding or available for
      future issuance under our 2003 Stock Option Plan, which was not approved by
      our
      security holders, and our 2005 Stock Option Plan, which was approved by our
      security holders on December 26, 2005.





**Equity
      Compensation Plan Information**


Plan
                category
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            447,500
            
            $1.64
            
            685,159Equity
                compensation plans not approved by security holders
            484,966
            
            $5.23
            
            0Total
            932,466
            
            $3.51
            
            685,159





Our
      2003
      Stock Option Plan was not approved by our securityholders. There were 583,334
      shares eligible for issuance under the 2003 Plan, none of which are available
      for future issuance. The 2003 Plan provided for the grant of both incentive
      and
      non-statutory stock options. The board of directors adopted the 2003 Plan to
      provide a means by which our employees, directors, officers and consultants
      would be given an opportunity to purchase our stock, to assist in retaining
      the
      services of such persons, to secure and retain the services of persons capable
      of filling such positions and to provide incentives for such persons to exert
      maximum efforts for our success. Employees, directors, officers and consultants
      of our subsidiaries and affiliates were also eligible to participate in the
      2003
      Plan. The board of directors administered the 2003 Plan. Subject to the
      provisions of the 2003 Plan, the board of directors had the power to construe
      and interpret the 2003 Plan and to determine the persons to whom and the dates
      on which options were granted, the number of shares of common stock to be
      subject to each option, the time or times during the term of each option within
      which all or a portion of such option may be exercised, the exercise price,
      the
      type of consideration and other terms of the option.





-58-


(a)(b)
      Security Ownership of Certain Beneficial Owners and Security Ownership of
      Management.





Set
      forth
      below is certain information as of April 3, 2007, with respect to ownership
      of
      our common stock held of record or beneficially by (i) our “named executive
      officers” as such term is defined under Item 4.02(a) of Regulation S-K, (ii)
      each director of HPI, (iii) each person who owns beneficially more than five
      percent of our outstanding common stock; and (iv) all directors and executive
      officers as a group. Unless otherwise noted, each beneficial owner’s address is
      201 Elliot Avenue W, Suite 400, Seattle, WA 98119. The number of shares of
      common stock outstanding at April 3, 2007 was 28,111,356:





Name
                and Address of Beneficial Owner
            Shares
                of Common Stock Owned (1)
            Shares
                of Common Stock Underlying Options (1)(2)
            Shares
                of
              Common
              Stock
              Underlying
                Preferred Stock (1)(3)
            Total
            Percentage
                of Common Stock OwnedDavid
                J. Cade
            0
            0
            0
            0
            0.0%John
                J. Martin
            0
            217,691
            155,174
            372,865
            1.3%James
                H. Diffendorfer
            27,211
            108,846
            96,984
            233,041
            0.8%Dr.
                Virendra Chaudhary
            0
            0
            0
            0.0
            0.0%Gurinder
                Dilawari
            0
            0
            0
            0.0
            0.0%James
                G. Matkin
            0
            108,846
            77,857
            186,703
            0.7%Global
                Hydro Fuel Technologies, Inc. (4)
            13,605,698
            0
            9,698,356
            23,304,054
            61.6%All
                officers and directors as a group (six persons)
            27,211
            435,383
            330,015
            792,609
            2.7%


_______________





(1)
            Beneficial
                ownership is determined in accordance with the rules of the SEC,
                and
                includes general voting power and/or investment power with respect
                to
                securities. Shares of common stock subject to options or warrants
                currently exercisable or exercisable within 60 days of the record
                rate are
                deemed outstanding for computing the beneficial ownership percentage
                of
                the person holding such options or warrants but are not deemed outstanding
                for computing the beneficial ownership percentage of any other person.
                Except as indicated by footnote, the persons named in the table above
                have
                the sole voting and investment power with respect to all shares of
                common
                stock shown as beneficially owned by
                them.


(2)
            Includes
                shares issuable upon exercise of options to purchase 1,550,000 shares
                of
                Old HPI common stock outstanding immediately prior to the time of
                the
                Acquisition for which 843,553 shares of our common stock have been
                reserved for issuance as part of the Acquisition consideration (not
                including any shares that may be reserved in the event our Series
                L-3
                Convertible Preferred is issued).


(3)
            Includes
                shares potentially issuable upon conversion of our Series L-3 Convertible
                Preferred Stock including stock reserved for future warrant
                exercises.


(4)
            GHTI
                is controlled by a married couple who may be considered indirect
                beneficial holders due to their control of GHTI. In addition, Ricky
                Gujral, who is President and a Director of GHTI, and a daughter of
                the
                control persons of GHTI, may also be an indirect beneficial holder.





(c)
      Changes in control.





Not
      applicable.








-59-


**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.**





(a)
      Transactions with Related Persons.





On
      January 2, 2007, Mr. Henry Fong resigned his positions as the Company’s
      President, Chief Executive Officer, Treasurer and Chief Financial Officer.
      Although the Company did not make any severance payments to Mr. Fong in
      connection with his departure, the Company did settle outstanding liabilities
      including accrued payroll, accrued rent, and loans owed to Mr. Fong and Beacon
      Investments, Inc. and Gulfstream Financial Partners, LLC (both of which are
      affiliates of Mr. Fong), in the aggregate amount of $653,500, by (i) paying
      Mr.
      Fong a cash payment of $162,500, (ii) delivering Mr. Fong a promissory note
      in
      the amount of $37,500, (iii) issuing Mr. Fong 100,000 shares of common stock
      with resale registration rights. In addition, the Company entered into a
      Consulting Agreement with HF Services LLC, an affiliate of Henry Fong. Under
      the
      Consulting Agreement, HF Services will provide certain services related to
      corporate matters and public-reporting company matters for a term of one year
      in
      consideration of payments of $20,000 per month. HF Services is also an affiliate
      of Thomas B. Olson, the Company’s Secretary.





During
      2006, we leased approximately 1,800 square feet of office space in Greenwood
      Executive Park, 6400 South Quebec, Englewood, Colorado from Beacon Investments,
      a partnership in which our President is the sole partner, on terms comparable
      to
      the existing market for similar facilities.





During
      2005, Mr. Fong and Gulfstream Financial Partners loaned us a total of $346,000,
      of which $111,000 was repaid during 2005 leaving a principal balance due of
      $235,000 at December 31, 2005. During 2006, Mr. Fong and Gulfstream loaned
      us an
      additional $66,756. These loans were due on demand and carried an interest
      rate
      of 8%. Of the $301,756 in total notes payable, $282,291 was repaid in cash,
      $16,756 was repaid with 13,337 shares of our restricted common stock, and $2,709
      was repaid in connection with the settlement paid to Mr. Fong in cash and stock
      on January 2, 2007.





In
      March,
      2007, we authorized a severance payment in settlement of her Employment
      Agreement claim with Ms. Gujral, Principal Executive Officer and President
      and
      Director of GHTI, our major shareholder which we believe was a fair settlement
      based on the terms of the Agreement upon termination.





We
      have
      made payments in the amount of $130,000 since the acquisition of Old HPI in
      March 2006, to James G. Matkin as Special counsel and Secretary for his service
      to us. He is a Director and Executive Chairman of GHTI, our majority
      shareholder, but the services performed were for us, not GHTI.





**Transactions
      with Directors**





In
      September 2005, we initiated an assignment of $360,000 in promissory notes
      to a
      corporation that is owned by a former director, Michael S. Casazza, in exchange
      for a promissory note to the corporation that was due December 9, 2005, and
      which carried annual interest at 10%. The assigned notes were originally 90-day
      notes bearing interest rates ranging from 22% to 24% per annum and also required
      an origination fee of between 5 1/2% to 6% to be paid along with principal
      and
      accrued interest on the due date. All of the aforementioned notes were repaid
      in
      February 2006.





In
      February 2006, Hydrogen Power Inc. entered into an agreement with KN Consulting,
      a company owned by a director, John Martin, to purchase technical and management
      advisement on engineering programs and prototype development for a fixed cost
      of
      $7,500 per month. This agreement continued to be exercised through 2006.





-60-


**Indemnity
      Policy**





On
      December 29, 2006, the Company adopted an Indemnity Policy applicable to our
      directors and officers. Under the policy, we are required to indemnify each
      director and officer to the fullest extent permitted by Delaware law, including
      indemnification of expenses such as attorneys’ fees, judgments, fines and
      settlement amounts incurred by the director or officer in any action or
      proceeding, including any action or proceeding by or in right of us, arising
      out
      of the person’s services as a director or officer. For more information, please
      refer to “Executive Compensation - Limitation of Liability and Indemnification
      of Officers and Directors.”





(b)
      Review, Approval or Ratification of Transactions with Related
      Persons.





We
      presently have no written policy as to review, approval or ratification of
      transactions with related persons.





DIRECTOR
      INDEPENDENCE





Mr.
      James
      H. Diffendorfer, Dr. Virendra Chaudhary, and Mr. Gurinder Dilawari are each
      independent directors following their appointment on January 2, 2007. During
      2006, Messrs. Russell Casement, Aaron Grunfeld and Joseph W. Hovorka were
      independent directors until their resignations on December 30, 2006.








**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





*Peterson
      Sullivan PLLC served as our auditors for the year ended December 31,
      2006.*





**Audit
      Fees**





Fees
      billed and expected to be billed by Peterson Sullivan PLLC for audit and review
      services rendered the year ended December 31, 2006 were $90,000, which includes
      out-of-pocket costs incurred in connection with these services.





**Audit-Related
      Fees**





There
      were no fees billed by Peterson Sullivan PLLC for audit-related fees for the
      year ended December 31, 2006.





**Tax
      Fees**





There
      were no fees billed and expected to be billed by Peterson Sullivan PLLC for
      tax
      fees rendered in the year ended December 31, 2006.





**All
      Other Fees**





There
      were no other fees billed by Peterson Sullivan PLLC for the year ended December
      31, 2006.








*GHP
      Horwath, P.C. served as our auditors for the year ended December 31, 2005 and
      performed the audit of our subsidiary, FastFunds for the year ended December
      31,
      2006.*





**Audit
      Fees**





Fees
      billed and expected to be billed by GHP Horwath, P.C. for audit and review
      services rendered as well as for procedures performed in connection with
      providing consents for various registration statements for each of the years
      ended December 31, 2006 and 2005 (including fees billed and expected to be
      billed to


-61-


HPI’s
      majority owned subsidiary, FastFunds) were $162,500 and $217,000, respectively,
      which includes out-of-pocket costs incurred in connection with these services.





**Audit-Related
      Fees**





Fees
      billed by GHP Horwath, P.C. for audit-related fees in each of the years ended
      December 31, 2006 and 2005 (including fees billed and expected to be billed
      to
      HPI’s majority owned subsidiary, FastFunds) were $9,000 and $13,000,
      respectively. In 2006, GHP Horwath P.C. performed services related to
      coordinating cash counts of casino locations in conjunction with the Company’s
      sale of the assets of Chex Services and in 2005 GHP Horwath, P.C. performed
      due diligence services which comprised these fees.





**Tax
      Fees**





The
      fees
      billed and expected to be billed by GHP Horwath, P.C. for tax fees rendered
      in
      each of the years ended December 31, 2006 and 2005 (including fees billed and
      expected to be billed to HPI’s majority owned subsidiary, FastFunds) are $21,000
      and $35,000, respectively. These fees were for tax return preparation and
      assistance.





**All
      Other Fees**





There
      were no other fees billed by GHP Horwath, P.C. for the years ended December
      31,
      2006 and 2005.





**Preapproval
      Policy**





During
      2006 the policy of the audit committee was to review and pre-approve both audit
      and non-audit services to be provided by the independent registered public
      accounting firm (other than with certain *de
      minimis* exceptions permitted by the Sarbanes-Oxley Act of 2002). This duty may be
      delegated to one or more designated members of the audit committee with any
      such
      approval reported to the committee at its next regularly scheduled meeting.
      Approval of non-audit services shall be disclosed to investors in periodic
      reports required by Section 13(a) of the Securities Exchange Act of 1934, as
      amended. All of the fees paid to GHP Horwath, P.C. and Peterson Sullivan PLLC
      during fiscal year 2006 were pre-approved by the audit committee or in the
      absence of an audit committee our entire board of directors.


-62-


**PART
      IV**





**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
      8-K.**





(a)
      The
      following documents are filed as a part of this report immediately following
      the
      signature page.





Page1.
                Financial Statements and Supplementary DataReports
                of Independent Registered Public Accounting Firms
            
            F-1
                - F-2Consolidated
                financial statements:Consolidated
                balance sheets
            F-3
                - F-4Consolidated
                statements of operations
            F-5Consolidated
                statements of changes in stockholders' equity (deficiency)
            F-6
                - F-11Consolidated
                statements of cash flows
            F-12
                - F-14Notes
                to consolidated financial statements
            F-15
                - F-452.
                Financial Statements Schedules.Financial
                statements and exhibits - Schedule II, Valuation and Qualifying Accounts,
                is omitted because the information is included in the consolidated
                financial statements and notes.





3.
                Exhibits.3.1
            Articles
                of Incorporation.*(Incorporated
                by reference from the like numbered exhibits filed with the Registrant’s
                Registration Statement on Form S-18, No. 2-82104-D effective April
                11,
                1983.)*3.2
            Bylaws*(Incorporated
                by reference from the like numbered exhibits filed with the Registrant’s
                Registration Statement on Form S-18, No. 2-82104-D effective April
                11,
                1983.)*3.3
            Certificate
                of Designations of Registrant’s Series D Convertible Preferred Stock.*(Incorporated
                by reference from Exhibit 4 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on September
                8,
                1999.)*3.4
            Certificate
                of Designations of Registrant’s Series G Convertible Preferred Stock.*(Incorporated
                by reference from the like numbered exhibits filed with the Registrant’s
                Annual Report on Form 10-K for the year ended December 31,
                2000.)*3.5
            Certificate
                of Designations of Registrant’s Series I Convertible Preferred Stock.*(Incorporated
                by reference from Exhibit 2.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on August
                21,
                2001.)*3.6
            Certificate
                of Designations of Registrant’s Series K Convertible Preferred Stock.*(Incorporated
                by reference from Exhibit 3.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on July
                28,
                2005.)*3.7
            Certificate
                of Designations of Registrant’s Series L Convertible Preferred Stock.*(Incorporated
                by reference from Exhibit 4.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                20,
                2006.)*4.1
            Termination
                of Warrant Agreement effective as of June 16, 2006, by and between
                Equitex, Inc., a Delaware corporation, and Corporate Stock Transfer,
                with
                respect to that certain Warrant Agreement dated as of February 7,
                2005.*(Incorporated
                by reference from Exhibit 4.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on June
                22,
                2006.)*4.2
            Promissory
                Note dated December 29, 2006 in favor of Henry Fong.*(Incorporated
                by reference from Exhibit 4.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                8,
                2007.)*10.1
            1993
                Stock Option Plan for Non-Employee Directors.*(Incorporated
                by reference from the like numbered exhibits filed with the Registrant’s
                Annual Report on Form 10-K for the year ended December 31,
                1993.)*10.2
            1999
                Stock Option Plan.*(Incorporated
                by reference from the like numbered exhibits filed with the Registrant’s
                Annual Report on Form 10-KSB for the year ended December 31,
                1998.)*








-63-




10.3
            2003
                Stock Option Plan.*(Incorporated
                by reference from the like numbered exhibit filed with the Registrant’s
                Annual Report on Form 10-K for the year ended December 31,
                2003.)*10.4
            2005
                Stock Option Plan*(Incorporated
                by reference form Exhibit 4.1 of the Registrant’s Registration on Form
                S-8, No. 333-131847 effective February 14, 2006.)*10.5
            Distribution
                Agreement, between Equitex, Inc. and Equitex 2000, Inc. dated August
                6,
                2001*(Incorporated
                by reference from Exhibit 4.5 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on August
                21,
                2001.)*10.6
            Agreement
                and Plan of Reorganization among Equitex, Inc., Key Financial Systems,
                Inc. and Key Merger Corporation dated June 27, 2000.*(Incorporated
                by reference from Exhibit 2.2 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on August
                21,
                2001.)*10.7
            Agreement
                and Plan of Reorganization among Equitex, Inc., Nova Financial Systems,
                Inc. and Nova Acquisition Corporation dated June 27, 2000.*(Incorporated
                by reference from Exhibit 2.3 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on August
                21,
                2001.)*10.8
            Stock
                Purchase Agreement by and between Equitex, Inc. and the Selling
                Stockholders of Chex Services, Inc.*(Incorporated
                by reference from Exhibit 2.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                7,
                2002.)*10.9
            Amendment
                No. 1 to the Stock Purchase Agreement by and between Equitex, Inc.
                and the
                Selling Stockholders of Chex Services, Inc.*(Incorporated
                by reference from Exhibit 2.2 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                7,
                2002.)*10.10
            Agreement
                and Plan of Merger and Reorganization by and among Equitex, Inc.,
                EI
                Acquisition Corp. and Hydrogen Power, Inc. dated September 13, 2005.*(Incorporated
                by reference to Exhibit 10.1 of the Registrant’s Current Report on Form
                8-K, No. 0-12374 filed with the Securities and Exchange Commission
                on
                September 19, 2005.)*10.11
            First
                Amendment to Agreement and Plan of Merger and Reorganization by and
                among
                Equitex, Inc., EI Acquisition Corp. and Hydrogen Power, Inc. dated
                October
                31, 2005.*(Incorporated
                by reference to Exhibit 10.1 of the Registrant’s Current Report on Form
                8-K, No. 0-12374 filed with the Securities and Exchange Commission
                on
                November 4, 2005.)*10.12
            Second
                Amendment to Agreement and Plan of Merger and Reorganization by and
                among
                Equitex, Inc., EI Acquisition Corp. and Hydrogen Power, Inc. dated
                November 11, 2005.*(Incorporated
                by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form
                10-Q filed with the Securities and Exchange Commission on November
                21,
                2005)*10.13
            Third
                Amendment to Agreement and Plan of Merger and Reorganization by and
                among
                Equitex, Inc., EI Acquisition Corp. and Hydrogen Power, Inc. dated
                December 15, 2005.*(Incorporated
                by reference from Exhibit 10.7 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                20,
                2006.)*10.14
            Fourth
                Amendment to Agreement and Plan of Merger and Reorganization by and
                among
                Equitex, Inc., EI Acquisition Corp. and Hydrogen Power, Inc. dated
                January
                30, 2006.*(Incorporated
                by reference from Exhibit 10.8 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                20,
                2006.)*10.15
            Fifth
                Amendment to Agreement and Plan of Merger and Reorganization by and
                among
                Equitex, Inc., EI Acquisition Corp. and Hydrogen Power, Inc. dated
                March
                10, 2006.*(Incorporated
                by reference from Exhibit 10.9 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                20,
                2006.)*10.16
            Share
                Agreement between Equitex, Inc. and Aton Select Fund Limited dated
                December 5, 2005.*(Incorporated
                by reference to Exhibit 10.1 of the Registrant’s Current Report on Form
                8-K, No. 0-12374 filed with the Securities and Exchange Commission
                on
                December 9, 2005.)*10.17
            Certificate
                of Merger of Hydrogen Power, Inc. into EI Acquisition Corp dated
                March 14,
                2006.*(Incorporated
                by reference from Exhibit 10.11 of the Registrant’s Report on Form 8-K,
                No. 0-12374 filed with the Securities and Exchange Commission on
                March 20,
                2006.)*10.18
            Secured
                Promissory Note between Equitex, Inc. and FastFunds Financial Corporation
                dated March 14, 2006.*(Incorporated
                by reference from Exhibit 10.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                20,
                2006.)*




-64-




10.19
            Stock
                Pledge Agreement between Equitex, Inc. and FastFunds Financial Corporation
                dated March 14, 2006.*(Incorporated
                by reference from Exhibit 10.2 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                20,
                2006.)*10.20
            Net
                Profit Interest Agreement between Equitex, Inc. and FastFunds Financial
                Corporation dated March 14, 2006.*(Incorporated
                by reference from Exhibit 10.3 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                20,
                2006.)*10.21
            Purchase
                Agreement by and among Equitex, Inc., Pandora Select Partners, L.P.
                and
                Whitebox Hedged High Partners, L.P.*(Incorporated
                by reference from Exhibit No. 10.9 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.22
            Convertible
                Secured Promissory Note payable by Equitex, Inc. to Pandora Select
                Partners, L.P.
              *(Incorporated
                by reference from Exhibit No. 10.10 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.23
            Convertible
                Secured Promissory Note payable by Equitex, Inc. to Whitebox Hedged
                High
                Partners, L.P.*(Incorporated
                by reference from Exhibit No. 10.11 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.24
            Secured
                Promissory Note payable by Chex Services, Inc. to Equitex, Inc.*(Incorporated
                by reference from Exhibit No. 10.12 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.25
            Security
                Agreement by and between Equitex, Inc., Pandora Select Partners,
                L.P. and
                Whitebox Hedged High Partners, L.P.*(Incorporated
                by reference from Exhibit No. 10.13 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.26
            Guaranty
                Agreement by and between Equitex, Inc., Pandora Select Partners,
                L.P. and
                Whitebox Hedged High Partners, L.P.*(Incorporated
                by reference from Exhibit No. 10.14 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.27
            Security
                Agreement by and between Chex Services, Inc., Pandora Select Partners,
                L.P. and Whitebox Hedged High Partners, L.P.*(Incorporated
                by reference from Exhibit No. 10.15 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.28
            Security
                Agreement by and between Equitex, Inc., Pandora Select Partners,
                L.P. and
                Whitebox Hedged High Partners, L.P.*(Incorporated
                by reference from Exhibit No. 10.16 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.29
            Registration
                Rights Agreement by and among Equitex, Inc., Pandora Select Partners,
                L.P.
                and Whitebox Hedged High Partners, L.P.*(Incorporated
                by reference from Exhibit No. 10.17 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2003.)*10.30
            Purchase
                Agreement dated September 15, 2005 with Pandora Select Partners,
                L.P. and
                Whitebox Hedged High Yield Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.1 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.31
            Secured
                Convertible Promissory Note dated September 15, 2005 issued to Pandora
                Select Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.2 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.32
            Secured
                Convertible Promissory Note dated September 15, 2005 issued to Whitebox
                Hedged High Yield Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.3 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.33
            Warrant
                dated September 15, 2005 issued to Pandora Select Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.4 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.34
            Warrant
                dated September 15, 2005 issued to Whitebox Hedged High Yield Partners,
                L.P.*(Incorporated
                herein by reference from Exhibit 10.5 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.35
            Amendment
                to Secured Convertible Promissory Notes dated September 15, 2005
                with
                Pandora Select Partners, L.P. and Whitebox Hedged High Yield Partners,
                L.P.*(Incorporated
                herein by reference from Exhibit 10.6 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*




-65-




10.36
            Amended
                Security Agreement dated September 15, 2005 with Pandora Select Partners,
                L.P. and Whitebox Hedged High Yield Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.7 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.37
            Registration
                Rights Agreement dated September 15, 2005 with Pandora Select Partners,
                L.P. and Whitebox Hedged High Yield Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.8 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.38
            Stock
                Pledge Agreement dated September 15, 2005 with Pandora Select Partners,
                L.P. and Whitebox Hedged High Yield Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.9 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.39
            Guaranty
                of Henry Fong dated September 15, 2005 in favor of Pandora Select
                Partners, L.P. and Whitebox Hedged High Yield Partners, L.P.*(Incorporated
                herein by reference from Exhibit 10.10 to the Registrant’s Registration on
                S-3/A, No. 333-130316 filed with the Securities and Exchange Commission
                on
                February 10, 2006.)*10.40
            Note
                Assignment agreement between Equitex, Inc. and Transporta LLC dated
                September 22, 2005.*(Incorporated
                by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form
                10-Q filed with the Securities and Exchange Commission on November
                21,
                2005.)*10.41
            Transition
                Services Agreement dated as of January 31, 2006, by and among FastFunds
                Financial Corporation, Chex Services, Inc. and Game Financial Corporation.*(Incorporated
                by reference from Exhibit 10.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on February
                6,
                2006.)*10.42
            Settlement
                Agreement by and among Equitex, Inc., FastFunds Financial Corporation
                and
                the following holders of certain notes: MBC Global, LLC, an Illinois
                limited liability company, Corporate Capital, Inc. a Minnesota
                corporation, Carolyn Companies, a Colorado corporation, Moore Investments,
                Inc., an Illinois corporation, Paul A. Moore, Kathy Moore, Kevin
                F. Flynn,
                as Trustee of the Kevin F. Flynn June 1992 Non-Exempt Trust, European
                American Perinvest Group Bermuda., a British Virgin Island corporation,
                Fritz Voelker, John Eric Landry, Colin P. Markey, Sherie Swiontek,
                Mark
                Savage and Daniel Ryweck dated May 10, 2006.*(Incorporated
                by reference from Exhibit 10.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on May
                16,
                2006.)*10.43
            Registration
                Agreement between Equitex, Inc. and MBC Global, LLC, an Illinois
                limited
                liability company, Corporate Capital, Inc. a Minnesota corporation,
                Carolyn Companies, a Colorado corporation, Moore Investments, Inc.,
                an
                Illinois corporation, Paul A. Moore, Kathy Moore, Kevin F. Flynn,
                as
                Trustee of the Kevin F. Flynn June 1992 Non-Exempt Trust, European
                American Perinvest Group Bermuda., a British Virgin Island corporation,
                Fritz Voelker John Eric Landry, Colin P. Markey, Sherie Swiontek,
                Mark
                Savage and Daniel Ryweck dated May 10, 2006.*(Incorporated
                by reference from Exhibit 10.2 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on May
                16,
                2006.)*10.44
            Stock
                Sale and Lock-up Agreement between Equitex, Inc. and MBC Global,
                LLC, an
                Illinois limited liability company (“MBC”), Corporate Capital, Inc. a
                Minnesota corporation, Carolyn Companies, a Colorado corporation,
                Moore
                Investments, Inc., an Illinois corporation, Paul A. Moore, Kathy
                Moore,
                Kevin F. Flynn, as Trustee of the Kevin F. Flynn June 1992 Non-Exempt
                Trust, European American Perinvest Group Bermuda., a British Virgin
                Island
                corporation, Fritz Voelker John Eric Landry, Colin P. Markey, Sherie
                Swiontek, Mark Savage and Daniel Ryweck dated May 10, 2006.*(Incorporated
                by reference from Exhibit 10.3 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on May
                16,
                2006.)*





-66-





10.45
            Escrow
                Agreement by and among Equitex, Inc., FastFunds Financial and MBC
                Global,
                LLC, an Illinois limited liability company (“MBC”), Corporate Capital,
                Inc. a Minnesota corporation, Carolyn Companies, a Colorado corporation,
                Moore Investments, Inc., an Illinois corporation, Paul A. Moore,
                Kathy
                Moore, Kevin F. Flynn, as Trustee of the Kevin F. Flynn June 1992
                Non-Exempt Trust, European American Perinvest Group Bermuda., a British
                Virgin Island corporation, Fritz Voelker John Eric Landry, Colin
                P.
                Markey, Sherie Swiontek, Mark Savage and Daniel Ryweck and Baum and
                Gustafson, P.C. dated May 10, 2006.*(Incorporated
                by reference from Exhibit 10.4 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on May
                16,
                2006.)*10.46
            Redemption,
                Stock Sale and Release Agreement dated January 2, 2007 by and between
                the
                Company and FastFunds Financial Corporation.*(Incorporated
                by reference from Exhibit 10.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                8,
                2007.)*10.47
            Note
                and Security Amendment Agreement dated December 27, 2006 by and among
                the
                Company, FastFunds Financial Corporation, Whitebox Hedged High Yield
                Partners LP and Pandora Select Partners LP.*(Incorporated
                by reference from Exhibit 10.2 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                8,
                2007.)*10.48
            Consulting
                Agreement dated December 29, 2006 by and between the Company and
                HF
                Services.*(Incorporated
                by reference from Exhibit 10.3 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                8,
                2007.)*10.49
            Letter
                Agreement dated December 29, 2006 by and among the Company, Henry
                Fong,
                Gulfstream Financial Partners LLC and Beacon Investments, Inc.*(Incorporated
                by reference from Exhibit 10.4 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                8,
                2007.)*10.50
            Indemnity
                Policy.*(Incorporated
                by reference from Exhibit 10.5 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on January
                8,
                2007.)*10.51
            License
                Agreement between the University of British Columbia and Global Hydrofuel
                Technologies Inc. dated July 9, 2003.*Filed
                Herewith.*10.52
            Sublicense
                Agreement and Consent by and among Global Hydrofuel Technologies,
                Inc.,
                Hydrogen Power Inc, and The University of British Columbia , dated
                March
                15, 2004.*Filed
                Herewith.*10.53
            First
                Amendment to the Sublicense Agreement and Consent by and among Global
                Hydrofuel Technologies, Inc., Hydrogen Power Inc, and The University
                of
                British Columbia, dated March 7, 2006.*Filed
                Herewith.*10.54
            Employment
                Agreement by and between Hydrogen Power, Inc. and Ricky Gujral dated
                July
                1, 2004.*Filed
                Herewith.*10.55
            Executive
                Severance Agreement by and between Hydrogen Power, Inc. and Ricky
                Gujral
                dated October 20, 2005.*Filed
                Herewith.*10.56
            Retirement
                Bonus Agreement and Release by and between Hydrogen Power, Inc. and
                Ricky
                Gujral dated March 7, 2007.*(Incorporated
                by reference from Exhibit 10.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                16,
                2007.)*14.1
            Code
                of Ethics for Senior Financial Management.*(Incorporated
                by reference from Exhibit No. 14.1 filed with the Registrant’s Annual
                Report on Form 10-K for the year ended December 31,
                2005.)*16.1
            Letter
                of GHP Horwath, P.C.*(Incorporated
                by reference from Exhibit 16.1 of the Registrant’s Report on Form 8-K, No.
                0-12374 filed with the Securities and Exchange Commission on March
                2,
                2007.)*21.1
            List
                of Subsidiaries.*Filed
                Herewith*.23.1
            Consent
                of Independent Registered Public Accounting Firm.*Filed
                Herewith*.23.2
            Consent
              of Independent Registered Public Accounting Firm. *Filed
              Herewith.*31.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*Filed
                Herewith*.32.1
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*Filed
                Herewith*.








-67-


(b)
      Exhibits required by Item 601 of Regulation S-K





See
      Item
      17(a)(3) above.





(d)
      Financial statement schedules required by Regulation S-X





Not
      applicable.


-68-





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.











Date:
                May 18, 2007
            **HYDROGEN
                POWER, INC.**(Registrant)By/S/
                DAVID J. CADEDavid
                J. Cade, Principal Executive Officer and Principal Accounting
                Officer








Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.








Date:
                May 18, 2007
            /S/
                JOHN J. MARTINJohn
                J. Martin, DirectorDate:
                May 18, 2007
            /S/
                JAMES H. DIFFENDORFERJames
                H. Diffendorfer, DirectorDate:
                May 18, 2007
            /S/
                VIRENDRA CHAUDHARYVirendra
                Chaudhary, DirectorDate:
                May 18, 2007
            /S/
                GURINDER DILAWARIGurinder
                Dilawari, Director











-69-


**HYDROGEN
        POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
        EQUITEX, INC.)**
 
 **INDEX TO
        CONSOLIDATED FINANCIAL STATEMENTS**
 
 **YEARS
        ENDED DECEMBER 31, 2006, 2005 AND 2004**








PageReports of Independent Registered
                Public Accounting Firms
              F-1
                  - F-2Consolidated financial
                statements:Consolidated balance sheets
              F-3
                  - F-4Consolidated statements of operations
              F-5Consolidated statements of changes
                in
                stockholders' equity (deficiency)
              F-6
                  - F-11Consolidated statements of cash
                flows
              F-12
                  - F-14Notes to consolidated financial
                statements
              F-15
                  - F-46


















**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 To
        the
        Board of Directors
 Hydrogen
        Power, Inc.
 Seattle,
        Washington
 
 
 We
        have
        audited the accompanying consolidated balance sheet of Hydrogen Power, Inc.
        (formerly Equitex, Inc.) and Subsidiaries ("the Company") as of
        December 31, 2006, and the related consolidated statements of operations,
        changes in stockholders' equity (deficiency), and cash flows for the year
        then
        ended. These consolidated financial statements are the responsibility of
        the
        Company's management. Our responsibility is to express an opinion on these
        consolidated financial statements based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company has determined
        that it
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audit included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Company's internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall financial statement presentation. We believe that
        our
        audit provides a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Hydrogen Power, Inc.
        (formerly Equitex, Inc.) and Subsidiaries as of December 31, 2006, and the
        results of their operations and their cash flows for the year then ended,
        in
        conformity with accounting principles generally accepted in the United
        States.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. As discussed in Note 1 to the
        consolidated financial statements, the Company has incurred significant losses
        and has an accumulated deficit of approximately $55 million, and a working
        capital deficit of $2,038,000 at December 31, 2006. These conditions raise
        substantial doubt about the Company's ability to continue as a going concern.
        Management's plans regarding those matters are also described in Note 1.
        The consolidated financial statements do not include any adjustments that
        might
        result from the outcome of this uncertainty.
 
 As
        discussed in Note 2 to the consolidated financial statements, Hydrogen
        Power, Inc. and Subsidiaries adopted Statement of Financial Accounting Standards
        No. 123(R), "Share-Based Payment," effective January 1, 2006.
  
 
 /S/
        PETERSON SULLIVAN PLLC
 
 
 Seattle,
        Washington
 May 16,
        2007


F-1








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**














Board
      of
      Directors


Hydrogen
      Power, Inc.








We
      have
      audited the accompanying consolidated balance sheet of Equitex, Inc. and
      subsidiaries (the "Company") as of December 31, 2005 and the related
      consolidated statements of operations, changes in stockholders' equity and
      cash
      flows for each of the years in the two-year period ended December 31, 2005.
      These financial statements are the responsibility of the Company's management.
      Our responsibility is to express an opinion on these financial statements based
      on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Equitex, Inc. and
      subsidiaries as of December 31, 2005 and the results of their operations and
      their cash flows for each of the years in the two-year period ended December
      31,
      2005, in conformity with accounting principles generally accepted in the United
      States of America.





As
      discussed in Note 1 to the consolidated financial statements, on January 31,
      2006, FastFunds Financial Corporation, a majority-owned subsidiary of the
      Company, sold substantially all of the assets of its wholly-owed subsidiary
      Chex
      Services, Inc. This subsidiary conducted most of the Company’s business
      operations and is presented as discontinued operations in the accompanying
      consolidated financial statements. In addition, on March 14, 2006, the Company
      acquired Hydrogen Power, Inc.











/s/
      GHP
      HORWATH, P.C.





Denver,
      Colorado


April
      10,
      2006





F-2


**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES**
                
                **(FORMERLY
                  EQUITEX, INC.)**
                
                **CONSOLIDATED
                  BALANCE SHEETS**
                
                **YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004**ASSETS2006
              
              2005Current
                  assets:Cash
                  and cash equivalents
              
              $
              3,121,436
              
              $
              133,541Cash
                  held in trust
              
              
              457,564Receivables,
                  net (Note 4)
              
              
              230,944
              
              
              252,089Prepaid
                  expenses and other
              
              
              568,093
              
              
              33,062Investment
                  in Hydrogen Power, Inc. (Note 1)
              
              
              
              
              
              2,526,300Assets
                  of discontinued operations (Note 3)
              
              
              140,213
              
              
              140Assets
                  held for sale (Note 3)
              
              
              
              
              
              21,997,466Total
                  current assets
              
              
              4,518,250
              
              
              24,942,598Notes
                  and interest receivable, net, including related parties of $594,951
                  (2005)
                  (Note 5)
              
              
              304,575
              
              
              3,899,526Property,
                  equipment and leaseholds, net (Note 6)
              
              
              78,059
              
              
              52,178Other
                  assets
              
              
              29,685
              
              
              638,846Total
                  long-term assets
              
              
              412,319
              
              
              4,590,550$
              4,930,569
              
              $
              29,533,148




(Continued)


F-3




**HYDROGEN
                  POWER, INC, AND
                  SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  BALANCE SHEETS
                  (CONTINUED)****DECEMBER
                  31, 2006 AND 2005**2006
              
              2005LIABILITIES
                  AND STOCKHOLDERS' EQUITY
                  (DEFICIENCY)Current
                  liabilities:Checks
                  issued in excess of cash in bank (Note 7)
              
              $
              -
              
              $
              1,105,379Accounts
                  payable
              
              
              246,411
              
              
              768,189Current
                  portion of sub-license fee payable to related party (Note
                  10)
              
              
              329,774Accrued
                  expenses and other liabilities, including related party accruals
                  of
                  $56,422 (2006)and
                  $410,000 (2005)
              
              
              1,232,833
              
              
              3,043,543Notes
                  and loans payable, including related parties of $37,500 (2006)
                  and
                  $614,695 (2005)(Note
                  7)
              
              
              37,500
              
              
              13,443,986Current
                  portion of long-term debt (Note 7)
              
              
              1,577,713
              
              
              1,831,400Liabilities
                  of discontinued operations (Note 3)
              
              
              2,670,081
              
              
              513,395Derivative
                  liabilities
              
              
              461,521Liabilities
                  associated with assets held for sale (Note 3)
              
              
              
              
              
              154,047Total
                  current liabilities
              
              
              6,555,833
              
              
              20,859,939Sub-license
                  fee payable to related party, net of current portion (Note
                  10)
              
              
              612,680Long-term
                  debt, net of current portion (Note 7)
              
              
              29,581
              
              
              2,108,423Liabilities
                  associated with assets held for sale (Note 3)
              
              
              
              
              
              2,867,000Total
                  long-term liabilities
              
              
              642,261
              
              
              4,975,4237,198,094
              
              
              25,835,362Commitments
                  and contingencies (Notes 7, 10 and 11)Redeemable
                  preferred stock (Note 11):Series
                  K convertible, 6% stated value $1,000 per share; $0.01 par value;
                  3,100
                  sharesauthorized;
                  445 shares (2006) and 2,544 shares (2005) issued and outstanding;
                  net
                  ofdiscount
                  of $278,700 (2006) and $2,412,700 (2005); liquidation preference
                  $480,832at
                  December 31, 2006
              
              
              166,300
              
              
              131,300Stockholders'
                  equity (deficiency) (Note 12):Preferred
                  stock, Series L convertible; $0.01 par value; 300,000 shares authorized,
                  issuedand
                  outstanding (2006); liquidation preference $3,000
              
              
              3,000Common
                  stock, $0.01 par value; 50,000,000 shares authorized; 16,262,571
                  shares
                  (2006) and8,495,849
                  shares (2005) issued; 14,710,976 shares (2006) and 8,486,112 shares
                  (2005)outstanding
              
              
              162,626
              
              
              84,958Additional
                  paid-in capital
              
              
              59,738,043
              
              
              32,020,956Common
                  treasury stock at cost; 1,551,595 shares (2006) and 9,737 shares
                  (2005)
              
              
              (6,915,241
              )
              
              (128,942
              )Notes,
                  interest and stock subscription receivable (Note 12)
              
              
              (454,966
              )
              
              (682,002
              )Accumulated
                  deficit
              
              
              (54,967,287
              )
              
              (27,728,484
              )Total
                  stockholders' equity (deficiency)
              
              
              (2,433,825
              )
              
              3,566,486$
              4,930,569
              
              $
              29,533,148




See
      notes
      to consolidated financial statements.


F-4




**HYDROGEN
                  POWER, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  EQUITEX,
                  INC.)****CONSOLIDATED
                  STATEMENTS OF
                  OPERATIONS****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND
                  2004**2006
              
              2005
              
              2004(Note
                  1)Credit
                  card income, net of provision for losses
              
              $
              126,332
              
              $
              196,899
              
              $
              260,256Cost
                  incurred related to acquired technology, trade name and sub-license
                  agreement (Note 1)
              
              
              19,316,074Corporate
                  selling, general and administrative
              
              
              5,950,471
              
              
              4,678,472
              
              
              2,166,367Research
                  and development costs
              
              
              782,59926,049,144
              
              
              4,678,472
              
              
              2,166,367Loss
                  from continuing operations before other income (expense) and income
                  taxes
              
              
              (25,922,812
              )
              
              (4,481,573
              )
              
              (1,906,111
              )Other
                  income (expense):Interest
                  income, including related party interest of $19,799 (2005) and
                  $85,252
                  (2004)
              
              
              187,635
              
              
              19,799
              
              
              85,252Interest
                  expense, including related party interest of $54,529 (2006),$20,305
                  (2005) and $1,718 (2004)
              
              
              (902,731
              )
              
              (574,659
              )
              
              (118,501
              )(715,096
              )
              
              (554,860
              )
              
              (33,249
              )Loss
                  from continuing operations before income taxes
              
              
              (26,637,908
              )
              
              (5,036,433
              )
              
              (1,939,360
              )Income
                  tax (expense) benefit (Note 8)
              
              
              (482,000
              )
              
              2,446,000
              
              
              (907,000
              )Loss
                  from continuing operations
              
              
              (27,119,908
              )
              
              (2,590,433
              )
              
              (2,846,360
              )Loss
                  from discontinued operations, net of income taxes (Note 3)
              
              
              (118,895
              )
              
              (6,251,804
              )
              
              (4,611,623
              )Net
                  loss
              
              
              (27,238,803
              )
              
              (8,842,237
              )
              
              (7,457,983
              )Accretion
                  of preferred stock (Note 11)
              
              
              (2,134,000
              )
              
              (219,300
              )
              
              (4,640
              )Deemed
                  preferred stock dividends (Note 11)
              
              
              (107,700
              )
              
              (200,788
              )
              
              (221,400
              )Exchange
                  of Series G and I convertible preferred stock in excess of carrying
                  value
              
              
              
              
              
              (212,000
              )Net
                  loss applicable to common stockholders
              
              $
              (29,480,503
              )
              $
              (9,474,325
              )
              $
              (7,684,023
              )Basic
                  and diluted loss per common share:Loss
                  from continuing operations
              
              $
              (2.49
              )
              $
              (0.47
              )
              $
              (0.54
              )Loss
                  from discontinued operations
              
              
              (0.01
              )
              
              (0.92
              )
              
              (0.82
              )Basic
                  and diluted net loss per share
              
              $
              (2.50
              )
              $
              (1.39
              )
              $
              (1.36
              )Weighted
                  average number of common shares outstanding,Basic
                  and diluted
              
              
              11,787,051
              
              
              6,809,711
              
              
              5,650,808




See
      notes to consolidated financial
      statements.


F-5




**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  (DEFICIENCY)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004******Convertible
                  preferred stock
              
              Common
                  stock
              
              Additionalpaid-inShares
              
              Amount
              
              Shares
              
              Amount
              
              capitalBalances,
                  January 1, 2004
              
              
              2,378
              
              $
              2,378,000
              
              
              5,755,013
              
              $
              57,550
              
              $
              17,748,389Exercises
                  of options and warrants for common stock
              
              
              
              
              
              
              
              
              131,796
              
              
              1,318
              
              
              378,471Warrants
                  issued for services performed in connection withconvertible
                  promissory notes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              164,700Options
                  issued to consultants for services
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,970Warrants
                  attached to convertible promissory notes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              461,200Purchase
                  by subsidiary of 17,250 shares of common stockConversion
                  of accounts payable for common stock previouslyissued
                  as contingent consideration
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              25,647Proceeds
                  received on stock subscription receivableSale
                  of 228,050 shares of treasury stock for cash
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              174,267Distribution
                  of 7,500 shares of treasury stock for services
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              29,180Issuance
                  of common stock for services
              
              
              
              
              
              
              
              
              4,325
              
              
              43
              
              
              25,539Acquisition
                  of SVI in exchange for subsidiary common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (419,720
              )Conversion
                  of note payable in exchange for issuance ofsubsidiary
                  common stock (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              200,000Beneficial
                  conversion feature on subsidiary common stockissued
                  in connection with convertible promissory notes(Note
                  7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              200,000Conversion
                  of accounts payable to common stock
              
              
              
              
              
              
              
              
              2,500
              
              
              25
              
              
              6,425Beneficial
                  conversion features on subsidiary common stockissued
                  in connection with convertible promissory notes(Note
                  7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,660,967Cancellation
                  of portion of stock subscription receivable andreturn
                  of stock (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (250,000
              )Warrants
                  to purchase subsidiary common stock issued forservices
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              576,000Reclassification
                  of notes and interest receivable from anofficer
                  of Chex (Notes 2 and 10)Warrants
                  to purchase subsidiary common stock issued inconnection
                  with convertible promissory notes (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              113,097Issuance
                  of subsidiary common stock in exchange for notereceivable
                  (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              216,000Exercise
                  of warrants for subsidiary common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,000Net
                  lossBalances,
                  December 31, 2004
              
              
              2,378
              
              $
              2,378,000
              
              
              5,893,634
              
              $
              58,936
              
              $
              21,322,132




(Continued)


F-6




**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                  (CONTINUED)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004**Common
treasurystock
              
              Notes,
                  interest and stocksubscriptionreceivable
              
              Accumulateddeficit
              
              Total stockholdlers'
                  equity (deficiency)Balances,
                  January 1, 2004
              
              $
              (725,717
              )
              $
              (800,000
              )
              $
              (11,428,264
              )
              $
              7,229,958Exercises
                  of options and warrants for common stock
              
              
              
              
              
              
              
              
              
              
              
              379,789Warrants
                  issued for services performed in connection withconvertible
                  promissory notes
              
              
              
              
              
              
              
              
              
              
              
              164,700Options
                  issued to consultants for services
              
              
              
              
              
              
              
              
              
              
              
              6,970Warrants
                  attached to convertible promissory notes
              
              
              
              
              
              
              
              
              
              
              
              461,200Purchase
                  by subsidiary of 17,250 shares of common stock
              
              
              (113,625
              )
              
              
              
              
              
              
              
              (113,625
              )Conversion
                  of accounts payable for common stock previouslyissued
                  as contingent consideration
              
              
              
              
              
              
              
              
              
              
              
              25,647Proceeds
                  received on stock subscription receivable
              
              
              
              
              
              200,000
              
              
              
              
              
              200,000Sale
                  of 228,050 shares of treasury stock for cash
              
              
              745,247
              
              
              
              
              
              
              
              
              919,514Distribution
                  of 7,500 shares of treasury stock for services
              
              
              21,570
              
              
              
              
              
              
              
              
              50,750Issuance
                  of common stock for services
              
              
              
              
              
              
              
              
              
              
              
              25,582Acquisition
                  of SVI in exchange for subsidiary common stock
              
              
              
              
              
              
              
              
              
              
              
              (419,720
              )Conversion
                  of note payable in exchange for issuance of subsidiarycommon
                  stock (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              200,000Beneficial
                  conversion feature on subsidiary common stock issuedin
                  connection with convertible promissory notes (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              200,000Conversion
                  of accounts payable to common stock
              
              
              
              
              
              
              
              
              
              
              
              6,450Beneficial
                  conversion features on subsidiary common stock issuedin
                  connection with convertible promissory notes (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              1,660,967Cancellation
                  of portion of stock subscription receivable and returnof
                  stock (Note 12)
              
              
              (350,000
              )
              
              600,000
              
              
              
              
              
              -Warrants
                  to purchase subsidiary common stock issued for services
              
              
              
              
              
              
              
              
              
              
              
              576,000Reclassification
                  of notes and interest receivable from an officer
              
              
              
              
              
              (547,002
              )
              
              
              
              
              (547,002
              )of
                  Chex (Notes 2 and 10)Warrants
                  to purchase subsidiary common stock issued inconnection
                  with convertible promissory notes (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              113,097Issuance
                  of subsidiary common stock in exchange for notereceivable
                  (Note 12)
              
              
              
              
              
              (216,000
              )Exercise
                  of warrants for subsidiary common stock
              
              
              
              
              
              
              
              
              
              
              
              5,000Net
                  loss
              
              
              
              
              
              
              
              
              (7,457,983
              )
              
              (7,457,983
              )Balances,
                  December 31, 2004
              
              $
              (422,525
              )
              $
              (763,002
              )
              $
              (18,886,247
              )
              $
              3,687,294




(Continued)


F-7




**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                  (CONTINUED)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004******Convertible
                  preferred stock
              
              Common
                  stock
              
              Additional
                  paid-inShares
              
              Amount
              
              Shares
              
              Amount
              
              capitalBalances,
                  January 1, 2005
              
              
              2,378
              
              $
              2,378,000
              
              
              5,893,634
              
              $
              58,936
              
              $
              21,322,132Exercises
                  of options and warrants for common stock (Note 12)
              
              
              
              
              
              
              
              
              326,608
              
              
              3,266
              
              
              903,378Issuance
                  of common stock to shareholder of HPI in exchangefor
                  850,000 shares of HPI (Note 1)
              
              
              
              
              
              
              
              
              700,000
              
              
              7,000
              
              
              2,519,300Beneficial
                  conversion feature and warrants issued inconnection
                  with notes payable (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              742,659Return
                  of common stock previously issued for conversionof
                  accounts payable
              
              
              
              
              
              
              
              
              (2,500
              )
              
              (25
              )
              
              (6,425
              )Return
                  and retirement of subsidiary common stock in exchangefor
                  reduction of stock subscription receivable (note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (81,000
              )Issuance
                  of subsidiary options (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,500Conversion
                  of Series D preferred stock to common stock(Note
                  11)(408)
              
              
              
              
              
              (408,000
              )
              
              203,529
              
              
              2,035
              
              
              405,965Conversion
                  of notes payable, accrued interest and accountspayable
                  to common stock (Note 12)
              
              
              
              
              
              
              
              
              190,092
              
              
              1,901
              
              
              792,014Exchange
                  of Series G & I preferred stock for Series Kredeemable
                  preferred stock (Note 11)(1,970)
              
              
              
              
              
              (1,970,000
              )
              
              
              
              
              
              
              
              (957,000
              )Conversion
                  of Series K preferred stock to common stock(Note
                  11)
              
              
              
              
              
              
              
              
              186,772
              
              
              1,868
              
              
              509,132Beneficial
                  conversion feature and warrants attached to Series Kpreferred
                  stock, net of accretion of $219,300 (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,412,700Sale
                  of 82,308 shares of treasury stock for cash (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (73,254
              )Issuance
                  of common stock in satisfaction of long-term debtand
                  accrued interest (Notes 7 and 12)
              
              
              
              
              
              
              
              
              207,230
              
              
              2,072
              
              
              1,014,538Issuance
                  of common stock under private placement, net ofoffering
                  costs of $180,000 (Note 12)
              
              
              
              
              
              
              
              
              725,332
              
              
              7,253
              
              
              1,988,743Issuance
                  of warrants to noteholders (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              30,000Issuance
                  of common stock in satisfaction of subsidiary liability(Note
                  12)
              
              
              
              
              
              
              
              
              15,152
              
              
              152
              
              
              95,001Issuance
                  of common stock in satisfaction of accruedcompensation
                  owed to an officer and director(Notes
                  9 and 10)
              
              
              
              
              
              
              
              
              50,000
              
              
              500
              
              
              255,000Extension
                  of warrants (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              138,573Net
                  lossBalances,
                  December 31, 2005
              
              
              -
              
              $
              -
              
              
              8,495,849
              
              $
              84,958
              
              $
              32,020,956




(Continued)


F-8




**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                  (CONTINUED)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004**Common treasury
stock
              
              Notes,
                  interest and stocksubscriptionreceivable
              
              Accumulateddeficit
              
              Total stockholders'equity (deficiency)Balances,
                  January 1, 2005
              
              $
              (422,525
              )
              $
              (763,002
              )
              $
              (18,886,247
              )
              $
              3,687,294Exercises
                  of options and warrants for common stock (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              906,644Issuance
                  of common stock to shareholder of HPI in exchange for850,000
                  shares of HPI (Note 1)
              
              
              
              
              
              
              
              
              
              
              
              2,526,300Beneficial
                  conversion feature and warrants issued in connection withnotes
                  payable (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              742,659Return
                  of common stock previously issued for conversion ofaccounts
                  payable
              
              
              
              
              
              
              
              
              
              
              
              (6,450
              )Return
                  and retirement of subsidiary common stock in exchangefor
                  reduction of stock subscription receivable (Note 12)
              
              
              
              
              
              81,000Issuance
                  of subsidiary options (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              9,500Conversion
                  of Series D preferred stock to common stock (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              -Conversion
                  of notes payable, accrued interest and accounts payableto
                  common stock (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              793,915Exchange
                  of Series G & I preferred stock for Series K
                  redeemablepreferred
                  stock (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              (2,927,000
              )Conversion
                  of Series K preferred stock to common stock (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              511,000Beneficial
                  conversion feature and warrants attached to Series Kpreferred
                  stock, net of accretion of $219,300 (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              2,412,700Sale
                  of 82,308 shares of treasury stock for cash (Note 12)
              
              
              293,583
              
              
              
              
              
              
              
              
              220,329Issuance
                  of common stock in satisfaction of long-term debt andaccrued
                  interest (Notes 7 and 12)
              
              
              
              
              
              
              
              
              
              
              
              1,016,610Issuance
                  of common stock under private placement, net of offeringcosts
                  of $180,000 (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              1,995,996Issuance
                  of warrants to noteholders (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              30,000Issuance
                  of common stock in satisfaction of subsidiary liability(Note
                  12)
              
              
              
              
              
              
              
              
              
              
              
              95,153Issuance
                  of common stock in satisfaction of accured compensationowed
                  to an officer and director (Notes 9 and 10)
              
              
              
              
              
              
              
              
              
              
              
              255,500Extension
                  of warrants (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              138,573Net
                  loss
              
              
              
              
              
              
              
              
              (8,842,237
              )
              
              (8,842,237
              )Balances,
                  December 31, 2005
              
              $
              (128,942
              )
              $
              (682,002
              )
              $
              (27,728,484
              )
              $
              3,566,486




(Continued)


F-9




**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                  (CONTINUED)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004**Preferred
                  stock, Series L
              
              Common
                  stock
              
              Additional paid-inShares
              
              Amount
              
              Shares
              
              Amount
              
              capitalBalances,
                  January 1, 2006
              
              
              
              
              
              
              
              $
              8,495,849
              
              $
              84,958
              
              $
              32,020,956Exercises
                  of warrants for common stock (Note 12)
              
              
              
              
              
              
              
              
              70,000
              
              
              700
              
              
              104,300Issuance
                  of common stock and warrants to consultantsfor
                  services (Note 10)
              
              
              
              
              
              
              
              
              340,000
              
              
              3,400
              
              
              827,200Issuance
                  of preferred stock, common stock, warrants andoptions
                  to shareholders of HPI (Note 1)
              
              
              300,000
              
              
              3,000
              
              
              2,338,990
              
              
              23,390
              
              
              13,950,012Non-cash
                  compensation expenseIncrease
                  in advances receivableIssuance
                  of common stock in consideration of extensionson
                  notes payable (Note 12)
              
              
              
              
              
              
              
              
              28,179
              
              
              282
              
              
              66,324Issuance
                  and repricing of subsidiary warrants (Notes 7 and 10)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              381,400Write-off
                  of stock subscription receivable (Note 12)Issuance
                  of common stock in satisfaction of notes payable,long-term
                  debt and accrued interest (Notes 7 and 12)
              
              
              
              
              
              
              
              
              672,995
              
              
              6,730
              
              
              1,778,576Issuance
                  of warrants and options (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              693,588Conversion
                  of Series K preferred stock and unpaiddividends
                  to common stock (Note 11)
              
              
              
              
              
              
              
              
              1,907,128
              
              
              19,071
              
              
              2,079,929Accretion
                  of Series K preferred stock (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,134,000
              )Purchase
                  by subsidiary of 41,858 shares of commonstock
                  (Note 12)Issuance
                  of common stock in satisfaction of accounts andnotes
                  payable (Note 12)
              
              
              
              
              
              
              
              
              221,572
              
              
              2,216
              
              
              368,112Issuance
                  of common stock to subsidiary in satisfaction ofamounts
                  owed (Note 12)
              
              
              
              
              
              
              
              
              1,200,000
              
              
              12,000
              
              
              6,132,000Issuance
                  of common stock and warrants under privateplacement
                  (Note 12)
              
              
              
              
              
              
              
              
              60,000
              
              
              600
              
              
              239,400Issuance
                  (including $73,882 for subsidiary noteholders)of
                  warrants to noteholders (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              298,853Issuance
                  of common stock in satisfaction of subsidiary liabilities(Note
                  12)
              
              
              
              
              
              
              
              
              357,307
              
              
              3,573
              
              
              1,596,914Issuance
                  of common stock in satisfaction of amountsowed
                  to directors, officers and consultants (Notes 10 and 12)
              
              
              
              
              
              
              
              
              270,551
              
              
              2,706
              
              
              705,297Extension
                  of warrant expiration and repricing (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              182,182Issuance
                  of common stock to subsidiary in exchange foran
                  account receivable (Note 12)
              
              
              
              
              
              
              
              
              300,000
              
              
              3,000
              
              
              447,000Net
                  lossBalances,
                  December 31, 2006
              
              
              300,000
              
              $
              3,000
              
              
              16,262,571
              
              $
              162,626
              
              $
              59,738,043


(Continued)


F-10




**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  (DEFICIENCY)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND 2004**Notes,
                interest
              
              
              
              TotalCommon
              
              and
                  stock
              
              
              
              stockholders'treasury
              
              subscription
              
              Accumulated
              
              equitystock
              
              receivable
              
              deficit
              
              (deficiency)Balances,
                  January 1, 2006
              
              $
              (128,942
              )
              $
              (682,002
              )
              $
              (27,728,484
              )
              $
              3,566,486Exercises
                  of warrants for common stock (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              105,000Issuance
                  of common stock and warrants to consultantsfor
                  services (Note 10)
              
              
              
              
              
              
              
              
              
              
              
              830,600Issuance
                  of preferred stock, common stock, warrants andoptions
                  issued to shareholders of HPI (Note 1)
              
              
              
              
              
              
              
              
              
              
              
              13,976,402Non-cash
                  compensation expense
              
              
              
              
              
              92,400
              
              
              
              
              
              92,400Increase
                  in advances receivable
              
              
              
              
              
              (364
              )
              
              
              
              
              (364
              )Issuance
                  of common stock in consideration of extensionson
                  notes payable (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              66,606Issuance
                  and repricing of subsidiary warrants (Notes 7 and 10)
              
              
              
              
              
              
              
              
              
              
              
              381,400Write-off
                  of stock subscription receivable (Note12)
              
              
              
              
              
              135,000
              
              
              
              
              
              135,000Issuance
                  of common stock in satisfaction of notes payable,long-term
                  debt and accrued interest (Notes 7 and 12)
              
              
              
              
              
              
              
              
              
              
              
              1,785,306Issuance
                  of warrants and options (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              693,588Conversion
                  of Series K preferred stockand unpaiddividends
                  to common stock (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              2,099,000Accretion
                  of Series K preferred stock (Note 11)
              
              
              
              
              
              
              
              
              
              
              
              (2,134,000
              )Purchase
                  by subsidiary of 41,858 shares of commonstock
                  (Note 12)
              
              
              (192,299
              )
              
              
              
              
              
              
              
              (192,299
              )Issuance
                  of common stock in satisfaction of accounts andnotes
                  payable (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              370,328Issuance
                  of common stock to subsidiary in satisfaction ofamounts
                  owed (Note 12)
              
              
              (6,144,000
              )
              
              
              
              
              
              
              
              -Issuance
                  of common stock and warrants under privateplacement
                  (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              240,000Issuance
                  (including $73,882 for subsidiary noteholders)of
                  warrants to noteholders (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              298,853Issuance
                  of common stock in satisfaction of subsidiary liabilities(Note
                  12)
              
              
              
              
              
              
              
              
              
              
              
              1,600,487Issuance
                  of common stock in satisfaction of amountsowed
                  to directors, officers and consultants (Notes 10 and 12)
              
              
              
              
              
              
              
              
              
              
              
              708,003Extension
                  of warrant expiration and repricing (Note 12)
              
              
              
              
              
              
              
              
              
              
              
              182,182Issuance
                  of common stock to subsidiary in exchange for anaccount
                  receivable (Note 12)
              
              
              (450,000
              )
              
              
              
              
              
              
              
              -Net
                  loss
              
              
              
              
              
              
              
              
              (27,238,803
              )
              
              (27,238,803
              )Balances,
                  December 31, 2006
              
              $
              (6,915,241
              )
              $
              (454,966
              )
              $
              (54,967,287
              )
              $
              (2,433,825
              )




See
      notes
      to consolidated financial statements.


F-11




**HYDROGEN
                  POWER, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  EQUITEX,
                  INC.)****CONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND
                  2004**2006
              
              2005
              
              2004Cash
                  flows from operating activities:Net
                  loss
              
              $
              (27,238,803
              )
              $
              (8,842,237
              )
              $
              (7,457,983
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Expense
                  incurred related to acquired technology, trade name and
                  sub-license
                  agreement (Note 1)
              
              
              19,316,074Impairment
                  of receivable
              
              
              
              
              
              1,596,111Provision
                  for losses on notes, stock subscription and interest
                  receivables,including
                  bad debt expense
              
              
              363,184
              
              
              652,908
              
              
              528,205Gain
                  on sale of assets (Note 1)
              
              
              (4,145,835
              )Loss
                  on disposal of property and equipment
              
              
              190,728Depreciation
                  and amortization
              
              
              310,069
              
              
              1,767,306
              
              
              1,415,853Amortization
                  of discounts on convertible promissory notes payablerelated
                  to beneficial conversion features
              
              
              281,875
              
              
              1,588,729
              
              
              373,200Amortization
                  of discounts related to warrants attached to notes payable
              
              
              387,743
              
              
              478,723
              
              
              104,502Stock-based
                  compensation expense
              
              
              693,588
              
              
              9,500
              
              
              659,302Expense
                  incurred upon issuance or modification of stock and
                  warrants
              
              
              1,953,557
              
              
              168,573Deferred
                  income taxes
              
              
              1,333,000
              
              
              (1,333,000
              )
              
              1,380,000Non-cash
                  compensation expense
              
              
              342,400Discount
                  on debentures
              
              
              (20,620
              )Minority
                  interest
              
              
              
              
              
              
              
              
              (419,720
              )Changes
                  in operating assets and liabilities, net of the effects of
                  acquisitionDecrease
                  in accounts receivable
              
              
              163,044
              
              
              796,074
              
              
              851,429Decrease
                  (increase) in other receivables
              
              
              25,587
              
              
              62,623
              
              
              (62,640
              )Decrease
                  (increase) in interest receivable and other assets
              
              
              148,104
              
              
              62,701
              
              
              (188,577
              )(Decrease)
                  increase in accounts payable and accrued liabilities
              
              
              (364,086
              )
              
              1,003,734
              
              
              (508,532
              )Increase
                  in derivative liabilities
              
              
              461,521Total
                  adjustments
              
              
              21,439,933
              
              
              6,853,982
              
              
              4,133,022Net
                  cash used in operating activities
              
              
              (5,798,870
              )
              
              (1,988,255
              )
              
              (3,324,961
              )Cash
                  flows from investing activities:Proceeds
                  received from asset sale, net of costs (Note 1)
              
              
              12,642,784Cash
                  and cash equivalents acquired in business acquisition (Note
                  1)
              
              
              2,203,121Purchases
                  of property, equipment and leaseholds
              
              
              (61,958
              )
              
              (765,900
              )
              
              (555,082
              )Issuances
                  of notes receivable
              
              
              
              
              
              (3,086,073
              )
              
              (2,004,673
              )Issuances
                  of related party notes receivable
              
              
              
              
              
              
              
              
              (37,100
              )Repayments
                  of related party notes receivable
              
              
              101,437
              
              
              
              
              
              95,082Repayments
                  of notes receivable, other
              
              
              160,461
              
              
              813,064
              
              
              18,973Net
                  cash provided by (used in) investing activities
              
              
              15,045,845
              
              
              (3,038,909
              )
              
              (2,482,800
              )Cash
                  flows from financing activities:(Decrease)
                  increase in checks issued in excess of cash in bank
              
              
              (1,105,379
              )
              
              1,105,379Decrease
                  in bank overdraft
              
              
              
              
              
              
              
              
              (2,497,766
              )Sale
                  of treasury stock
              
              
              
              
              
              220,329
              
              
              919,514Proceeds
                  received from stock subscription receivable
              
              
              
              
              
              
              
              
              200,000Proceeds
                  from the exercise of warrants and options
              
              
              105,000
              
              
              906,644
              
              
              235,827Proceeds
                  from common stock private placements (net of offering
                  costs)
              
              
              240,000
              
              
              1,995,996Purchase
                  of treasury stock
              
              
              (192,299
              )
              
              
              
              
              (113,625
              )Increase
                  in deferred loan costs
              
              
              
              
              
              (69,000
              )
              
              (472,925
              )Borrowings
                  of notes payable, related parties and other
              
              
              766,756
              
              
              4,598,000
              
              
              10,360,794Payments
                  on sub-license agreement fee payable
              
              
              (788,613
              )Repayments
                  on notes payable, related parties and other
              
              
              (13,100,234
              )
              
              (3,713,076
              )
              
              (3,658,392
              )Net
                  cash (used in) provided by financing activities
              
              
              (14,074,769
              )
              
              5,044,272
              
              
              4,973,427




(Continued)


F-12




**HYDROGEN
                  POWER, INC. AND SUBSIDIARIES****(FORMERLY
                  EQUITEX, INC.)****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS (CONTINUED)****YEARS
                  ENDED DECEMBER 31, 2006, 2005 AND
                  2004** 2006
                  
                  
                  2005
                  
                  
                  2004(Decrease)
                      increase in cash and cash equivalents
                  
                  
                  (4,827,794
                  )
                  
                  17,108
                  
                  
                  (834,334
                  )Cash
                      and cash equivalents, beginning of year, including cash and
                      cash
                      equivalents includedin
                      assets held for sale (2005)
                  
                  
                  8,406,794
                  
                  
                  8,389,686
                  
                  
                  9,224,020Cash
                      and cash equivalents, end of year, including cash and cash
                      equivalents
                      included inassets
                      held for sale (2005)
                  
                  $
                  3,579,000
                  
                  $
                  8,406,794
                  
                  $
                  8,389,686Supplemental
                      disclosure of cash flow information:Cash
                      paid for interest
                  
                  $
                  1,586,222
                  
                  $
                  1,827,665
                  
                  $
                  1,858,395Cash
                      paid for income taxes
                  
                  $
                  5,913
                  
                  $
                  28,506
                  
                  $
                  12,242Non-cash
                      investing and financing activities:Issuance
                      of common stock in satisfaction of notes payable, long-term
                      debt,
                      accountspayable
                      and accrued interest
                  
                  $
                  2,863,635
                  
                  $
                  863,840Issuance
                      of common stock in satisfaction of subsidiary
                      liabilities
                  
                  $
                  1,600,487
                  
                  $
                  95,153Conversion
                      of Series K preferred stock to common stock
                  
                  $
                  2,099,000
                  
                  $
                  511,000Issuance
                      of common stock to subsidiary in satisfaction of amounts
                      owed
                  
                  $
                  6,144,000Exchange
                      of Series G & I preferred stock for issuance of Series K preferred
                      stock:Series
                      G preferred stock (face value)
                  
                  
                  
                  
                  $
                  370,000Series
                      I preferred stock (face value)
                  
                  
                  
                  
                  
                  1,600,000Liquidation
                      preference on exchange
                  
                  
                  
                  
                  
                  529,500Accrued
                      penalties on Series I preferred stock
                  
                  
                  
                  
                  
                  128,000Deemed
                      dividends on Series G & I preferred stock
                  
                  
                  
                  
                  
                  427,500$
                  3,055,000Conversion
                      of promissory note, accrued interest and accounts payable to
                      common
                      stock
                  
                  
                  
                  
                  $
                  793,915
                  
                  $
                  6,450Beneficial
                      conversion feature and warrants issued in connection with Series
                      K
                      preferredstock
                  
                  
                  
                  
                  $
                  2,632,000Issuance
                      of common stock in satisfaction of accrued compensation owed
                      to an
                      officerand
                      director
                  
                  
                  
                  
                  $
                  255,500Property
                      and equipment sold to third party in exchange for extinguishment
                      of
                      accountspayable
                  
                  
                  
                  
                  $
                  152,000Conversion
                      of Series D preferred stock to common stock
                  
                  
                  
                  
                  $
                  408,000Return
                      of common stock previously issued for conversion of accounts
                      payable
                  
                  
                  
                  
                  $
                  6,450Reduction
                      of related party note receivable in consideration of Series
                      K preferred
                      stock
                  
                  
                  
                  
                  $
                  17,900(Return
                      and retirement of) issuance of subsidiary common stock in exchange
                      for
                      notereceivable
                  
                  
                  
                  
                  $
                  (81,000
                  )
                  $
                  216,000Issuance
                      of common stock for investment in Hydrogen Power,
                      Inc.
                  
                  
                  
                  
                  $
                  2,526,300Capital
                      lease obligations
                  
                  
                  
                  
                  
                  
                  
                  $
                  145,138Conversion
                      of accounts payable for common stock issued as contingent
                      consideration
                  
                  
                  
                  
                  
                  
                  
                  $
                  25,647Cancellation
                      of portion of stock subscription receivable
                  
                  
                  
                  
                  
                  
                  
                  $
                  250,000Return
                      of common stock to subsidiary in exchange for stock subscription
                      receivable
                  
                  
                  
                  
                  
                  
                  
                  
                  350,000$
                  600,000Beneficial
                      conversion features and warrants issued in connection with
                      notes
                      payable
                  
                  
                  
                  
                  
                  
                  
                  $
                  625,900Conversion
                      of notes payable and accrued interest in exchange for exercise
                      of
                      warrants
                  
                  
                  
                  
                  
                  
                  
                  $
                  148,962Conversion
                      of note payable in exchange for issuance of subsidiary common
                      stock
                  
                  
                  
                  
                  
                  
                  
                  $
                  200,000




(Continued)


F-13




**HYDROGEN
                POWER, INC. AND SUBSIDIARIES****(FORMERLY
                EQUITEX, INC.)****CONSOLIDATED
                STATEMENTS OF CASH FLOWS (CONTINUED)****YEARS
                ENDED DECEMBER 31, 2006, 2005 AND
                2004**


2006
                
                2005
                
                2004Warrants
                    to purchase subsidiary common stock issued in connection with
                    convertiblepromissory
                    notes
                
                
                
                
                
                
                
                $
                113,097Beneficial
                    conversion features on subsidiary common stock issued in connection
                    withconvertible
                    promissory notes
                
                
                
                
                
                
                
                
                1,660,967$
                1,774,064Acquisition
                    of SVI in exchange for subsidiary common stock
                
                
                
                
                
                
                
                $
                419,720




See
      notes to consolidated financial
      statements.


F-14
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**1.**  **Organization
      and basis of presentation, recent events and management’s
      plans:**





**Organization
      and basis of presentation:**





Hydrogen
      Power, Inc. (formerly Equitex, Inc.), (the “Company”), a Delaware corporation,
      was formed in 1983 as a business development company (“BDC”). In April 1998, the
      Company’s stockholders authorized a change in the nature of its business and
      withdrew its election as a BDC, which became effective in January 1999. On
      February 28, 2006, the Company (then known as “Equitex, Inc.”) held a special
      meeting of shareholders at which two proposals were ratified authorizing the
      acquisition (the “Acquisition”) of Hydrogen Power, Inc. (“Old HPI”) by El
      Acquisition Corp., a newly formed subsidiary of the Company, as well as certain
      related common stock issuances. The Board of Directors of the Company believed
      it was in the best interest of their shareholders to acquire Old HPI. The
      Company believed the commercial viability of Old HPI’s hydrogen power technology
      was sufficient to authorize the Acquisition. Effective March 14, 2006, pursuant
      to an Agreement and Plan of Merger and Reorganization as amended (the “Merger
      Agreement”), Old HPI merged with and into El Acquisition Corp., with El
      Acquisition Corp. (renamed Hydrogen Power, Inc.) surviving the merger as a
      wholly-owned subsidiary of the Company. On September 25, 2006, the Company
      filed
      a Certificate of Ownership with the Secretary of State of the State of Delaware
      pursuant to which Hydrogen Power, Inc. (“HPI”) merged with and into the Company
      with the Company remaining as the surviving corporation to the merger. In
      connection with that merger, and as set forth in the Certificate of Ownership,
      the Company changed its corporate name to Hydrogen Power, Inc. Old HPI, a
      Seattle based company, performs hydrogen-related testing, research and
      engineering, and has developed a patented system ( **Hydrogen
      Now**  TM )
      that
      creates pure hydrogen from aluminum and water. The
      patented technology allows hydrogen gas to be generated on-site and on-demand,
      and is designed to directly power any fuel cell or internal combustion engine
      application. The Hydrogen Now process can supply hydrogen at customized rates
      and pressures, and may provide hydrogen transportation and supply solutions
      from
      small portable applications to large stationary systems.





Old
      HPI
      in 2004 entered into a sub-license agreement with Global Hydrofuel Technologies,
      Inc. (“GHTI”), its former parent company and a shareholder of the Company, which
      gave Old HPI exclusive rights to use the Hydrogen Now technology developed
      by
      the University of British Columbia (“UBC”) and any improvements and to market,
      manufacture and distribute products using the technology in the United States,
      Mexico and Central and South America. The agreement also gave Old HPI
      non-exclusive rights to market and distribute products using the technology
      and
      any improvements in Canada and to use any trademarks, service marks, or logos
      associated with the technology in the United States, Canada, Mexico and Central
      and South America. The sub-license agreement is effective, with certain
      provisions for early termination, for as long as the underlying license
      agreement between its parent and UBC is in effect. The underlying license
      agreement is effective through the latest expiration date of the patents that
      are the subject of the licensed technology. At present, the latest patent
      expiration date is February 2021.





Old
      HPI
      has not generated any significant revenues since its formation in December
      2003.




Prior
      to
      the acquisition of Old HPI, the Company was a holding company, and through
      January 31, 2006, operated primarily through its majority-owned subsidiary
      FastFunds Financial Corporation (“FFFC”). As of December 31, 2006, the Company
      owns and controls approximately 80% of FFFC’s outstanding common stock. FFFC’s
      wholly-owned subsidiary Chex Services, Inc. (“Chex”), a Minnesota corporation,
      provided financial services prior to the sale of substantially all of Chex’s
      assets, which primarily consisted of check cashing, automated tell machine
      (ATM)
      access, and credit card advances to customers primarily at Native American
      owned
      casinos and gaming establishments (the “Asset Sale”). As a result of the Asset
      Sale, the financial services operations of FFFC are presented retroactively
      as
      discontinued operations and all of the operating assets and liabilities related
      to those operations are presented as assets and liabilities of discontinued
      operations (2006) and as assets held for sale and liabilities associated with
      assets held for sale (2005) (Note 3).





FFFC’s
      other wholly-owned subsidiaries include the following:





*Collection
      Solutions, Inc.* (“Collection Solutions”), a Minnesota corporation, formed for the purpose of
      providing collection services for the Company, customers of the Company, and
      other entities both within and outside the gaming industry. Collection Solutions
      is licensed as a collection agency in Minnesota.





*FastFunds
      International, Inc.* (“FFI”),
      a Delaware corporation based in London. FFI was formed to build a presence
      in
      Europe for the Company’s stored value card program.





F-15
 **HYDROGEN
              POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
              EQUITEX, INC.)**
 
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
              ENDED DECEMBER 31, 2006, 2005 AND
              2004**




**1.**  **Organization
      and basis of presentation, recent events and management’s plans
      (continued):**





**Organization
      and basis of presentation (continued):**





*FFC
      FastFunds (Cyprus) Limited* (“FFC”),
      formed in September 2004, under the Laws of Cyprus. FFC was formed to have
      a
      presence in Cyprus to work with a financial institution regarding the issuance
      of stored value cards throughout Europe.





*FastFunds
      International Limited* (“FFIL”), formed in October 2004 with the Registrar of Companies for England and
      Wales. FFIL was formed in order to have a local presence in the European
      community.





Collection
      Solutions, FFI, FFC and FFIL generated no revenues and had no significant
      operations for the years ended December 31, 2006, 2005 and 2004.





The
      Company’s other subsidiaries include the following:





*Key
      Financial Services, Inc.* (“Key”) *and
      Nova Financial Services, Inc.* (“Nova”),
      were formed to design, market and service credit card products aimed at the
      sub-prime market; both companies are wholly-owned by the Company. Nova processes
      payments on a remaining portfolio, which provides the Company with "run-off"
      operations. Key ceased "run-off" operations in the fourth quarter of 2003,
      and
      Key operations for the years ended December 31, 2006, 2005 and 2004 have been
      presented as discontinued operations (Note 3).





*Denaris
      Corporation* ("Denaris"), was formed to develop and market a prepaid re-loadable stored
      value
      card program, which is designed to offer customers, particularly immigrants,
      a
      convenient alternative to traditional bank accounts; 77%-owned by the Company;
      Denaris generated no revenues through December 31, 2006.





The
      accompanying consolidated financial statements as of December 31, 2006 and
      2005,
      and for each of the years in the three-year period then ended include the
      accounts of the Company and its wholly-owned subsidiaries, Key and Nova, and
      its
      majority-owned subsidiaries FFFC (and FFFC’s wholly-owned subsidiaries) and
      Denaris, and since March 15, 2006, Old HPI. All significant intercompany
      accounts and transactions have been eliminated in consolidation.





***Acquisition
      of Old HPI:***





Pursuant
      to the Merger Agreement the Company acquired 100% of Old HPI. The purchase
      price
      partially consisted of the issuance of 2,338,990 shares of Equitex’s common
      stock. These shares were valued at $9,379,350 based on the market price of
      the
      Company’s common stock of $4.01 on July 6, 2005 (the date the terms of the
      Merger Agreement were agreed to by the Company and the Old HPI shareholders).
      Pursuant to a Share Exchange Agreement dated December 5, 2005 with a shareholder
      of Old HPI, prior to the effective date of the merger, the Company issued
      700,000 shares of its common stock in exchange for 850,000 shares of Old HPI
      common stock. These shares of the Company were valued at $2,526,300, which
      represented a 10% discount to the July 6, 2005, market price. The discount
      was
      applied to recognize restrictions on the marketability of the common stock
      issued. The Company has also reserved 132,122 shares to be issued upon exercise
      of options to purchase 1,550,000 shares of Old HPI common stock outstanding
      immediately prior to the time of the merger. The reserved shares were valued
      at
      $350,652 based upon the Black-Scholes option pricing model. Additionally, the
      Company recorded acquisition costs of $227,162 in connection with the
      transaction (Note 10).





The
      Company also issued warrants to purchase up to 1,600,000 shares of its common
      stock at an exercise price of $3.00 per share in exchange for all outstanding
      warrants of Old HPI at the date of merger. The warrants had an exercise price
      of
      $3.00 per share and were originally exercisable for the remainder of the
      unexpired term of the original Old HPI warrants, February 2007. The warrants
      were valued at $4,246,400 based on the Black-Scholes option pricing model.
      In
      February 2007, the Company extended the expiration date to August 2007 and
      lowered the exercise price to $2.00 per share. Accordingly, the preliminary
      total purchase price of acquiring 100% of Old HPI was $16,729,864.





F-16
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**1.**  **Organization
      and basis of presentation, recent events and management’s plans
      (continued):**





**Organization
      and basis of presentation (continued):**





***Acquisition
      of Old HPI (continued):***





The
      following represents the preliminary purchase price allocation at the date
      of
      the Acquisition:





Cash
                and cash equivalents
            
            $
            2,203,121Interest
                receivable
            
            
            38,339Prepaid
                expenses
            
            
            85,681Vehicle
            
            
            14,906Technology
                and sub-license agreement
            
            
            16,115,000Trade
                name
            
            
            3,201,074Accounts
                payable and accrued expenses
            
            
            (197,190
            )Note
                payable
            
            
            (3,000,000
            )License
                fee payable
            
            
            (1,731,067
            )$
            16,729,864





In
      conjunction with the issuance of common stock and change in control described
      below, the new management of the Company, in completing an updated analysis
      of
      the underlying assumptions and calculations used in the above allocation,
      determined that costs aggregating $19,316,074 and related to the acquired
      technology, trade name and sub-license agreement should be expensed.
      Management’s analysis included the determination that the most viable potential
      market applications for the licensed technology are a different subset than
      those originally being pursued by Old HPI, and accordingly, the costs related
      to
      the acquired technology and potential applications thereon have been expensed
      in
      the fourth quarter of 2006.





The
      Company also issued to the stockholders of Old HPI 300,000 shares of its Series
      L Preferred Stock (the “Preferred Stock”). The Preferred Stock is convertible
      into the Company’s common stock in three equal installments of 100,000 shares
      each (referred to as the L-1, L-2 and L-3 Preferred Stock, respectively), on
      the
      180 th ,
      270 th and
      360 th day
      following closing of the merger, respectively, with each installment convertible
      into 40% of the Company’s common stock outstanding immediately prior to such
      conversion. The conversion of the Preferred Stock is subject to the achievement
      by Old HPI of certain performance benchmarks as defined in the Certificate
      of
      Designation of Series L Preferred Stock, the satisfaction of which is to be
      determined by the Board of Directors of the Company in its sole discretion.
      The
      benchmarks include HPI’s use of its hydrogen technology to develop prototype
      generators for various micro and portable power applications and for various
      macro power applications such as fuel cells and internal combustion engines.
      Based on the achievement of certain of the benchmarks, on January 3, 2007,
      the
      Company issued, upon the conversion of the L-1 and L-2 preferred stock, an
      aggregate of 12,594,622 shares of the Company’s common stock, and an additional
      711,431 shares of common stock have been reserved for issuance upon the exercise
      of Old HPI outstanding options. The Company has valued the 12,594,622 shares
      of
      common stock issued at approximately $19,000,00 (based on the market price
      of
      the common stock on the date the Company issued the shares). The value of the
      711,431 shares of common stock reserved for issuance upon the exercise of Old
      HPI options was approximately $790,000  based
      on
      the Black Scholes option pricing model. These amounts will be added to the
      purchase allocation during the three months ending March 31, 2007. In the event
      the Series L-3 Preferred Stock is converted into common stock of the Company,
      the former stockholders of Old HPI would own approximately 73% of the Company’s
      common stock on a post-transaction basis (assuming that the Company does not,
      prior to the conversion of the L-3 Preferred Stock, issue any additional shares
      of common stock other than pursuant to conversion of the Series L Preferred
      Stock). As of the date of this report, the L-3 Preferred Stock has not been
      converted.





As
      a
      condition to the Merger Agreement, the Company was required to make a $5 million
      contribution of capital to Old HPI, which proceeds were transferred to Old
      HPI
      at closing. On March 14, 2006, the Company and FFFC entered into a Secured
      Promissory Note (the “Note”) with a stated interest rate of 10% per annum, a
      Stock Pledge Agreement (the “Pledge”) and a Profit Participation Agreement
      through which FFFC loaned the Company $5 million. Pursuant to the Pledge, the
      Company had pledged all of its shares of Old HPI to FFFC to guarantee payment
      of
      the Note. Additionally, the parties executed the Profit Participation Agreement,
      whereby the Company granted to FFFC a net profit interest, as defined in the
      loan documents, in the amount of 10% of the net profit derived from the
      operations of


F-17
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**1.**  **Organization
      and basis of presentation, recent events and management’s plans
      (continued):**





**Organization
      and basis of presentation (continued):**





***Acquisition
      of Old HPI (continued):***





Old
      HPI
      during the period the Note is outstanding. The Note and accrued and unpaid
      interest of $402,398 was settled as part of the Redemption Agreement as defined
      and described below.





***Asset
      Sale:***





On
      January 31, 2006, FFFC and Chex completed the Asset Sale for $14 million
      pursuant to an Asset Purchase Agreement with Game Financial Corporation (“Game”)
      and received net cash proceeds of $12,642,784 after certain transaction related
      costs and realized a pre-tax book gain of $4,145,835.





Additionally,
      FFFC and Chex entered into a Transition Services Agreement (the “TSA”) with Game
      pursuant to which FFFC and Chex agreed to provide certain services to Game
      to
      ensure a smooth transition of the sale of the cash-access financial services
      business. Pursuant to the TSA, FFFC and Chex provided the necessary services
      for
      approximately three months, and Game paid FFFC $150,000 per month. The TSA
      expired May 19, 2006, and FFFC recorded $477,500 of other income (included
      in
      loss from discontinued operations in the consolidated statement of operations)
      pursuant to the agreement for the year ended December 31, 2006.





**Pro
      forma information:**





The
      following unaudited pro forma information has been prepared assuming the
      Acquisition of Old HPI had taken place at the beginning of each of the
      respective periods. The pro forma information includes the full year results
      of
      the Company for each of the years presented and assumes that the costs
      (approximately $19.3 million) related to acquiring the technology, trade name
      and sub-license agreement are expensed in each of the years
      presented.





The
      unaudited pro forma information is not necessarily indicative of the results
      of
      operations as they would have been had the transactions been consummated on
      the
      assumed date.





2006
            
            2005
            
            2004(unaudited)
            
            (unaudited)
            
            (unaudited)Revenues
            
            $
            126,000
            
            $
            197,000
            
            $
            260,000Net
                loss from continuing operations before other income (expense) and
                income
                taxes
            
            
            (26,236,000
            )
            
            (26,379,000
            )
            
            (21,732,000
            )Net
                loss
            
            
            (27,559,000
            )
            
            (30,832,000
            )
            
            (27,408,000
            )Net
                loss applicable to common stockholders
            
            
            (29,801,000
            )
            
            (31,465,000
            )
            
            (27,635,000
            )Basic
                and diluted loss per common share
            
            
            (2.43
            )
            
            (3.19
            )
            
            (3.18
            )Weighted
                average number of shares used in per share calculation
            
            
            12,254,849
            
            
            9,848,701
            
            
            8,689,798





**Reverse
      stock split:**





On
      January 25, 2005, the Company effected a one-for-six reverse stock split. As
      a
      result of the reverse split, the number of shares outstanding and per share
      information for all prior periods presented have been retroactively restated
      to
      reflect the new capital structure.





F-18
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**1.**  **Organization
      and basis of presentation, recent events and management’s plans
      (continued):**





**Recent
      events:**





**Return
      of subsidiary common stock:**





On
      January 2, 2007, pursuant to the terms of a Redemption, Stock Sale and Release
      Agreement (the “Redemption Agreement””) by and between the Company and FFFC,
      FFFC (i) redeemed 8,917,344 shares of its common stock held by the Company,
      (ii)
      acquired from the Company 5,000,000 shares of common stock of Denaris, (iii)
      acquired from the Company 1,000 shares of common stock of Key, and (iv) acquired
      from the Company 1,000 shares of common stock of Nova. Denaris was a majority
      owned subsidiary of the Company, and Key and Nova were wholly owned subsidiaries
      of the Company. Each of Denaris, Nova and Key are inactive entities with no
      operating or intellectual property assets. The shares of common stock of each
      entity transferred by the Company pursuant to the Redemption Agreement
      constituted all of the Company’s holdings in each entity. In consideration of
      the redemption and acquisition of the shares of Denaris, Key and Nova, FFFC
      released the Company from all outstanding payment obligations of the Company
      to
      FFFC, including obligations for the $5 Million Note dated March 14, 2006 in
      favor of FFFC. The outstanding balance on the Note, including principal and
      interest accrued, as of the date of the Redemption Agreement was $5,402,398.





Immediately
      after the closing of the Redemption Agreement, the Company owned 3,500,000
      shares of common stock of FFFC, constituting approximately 52.5% of the
      outstanding capital stock of FFFC. So long as the Company holds 10% or more
      of
      the outstanding equity or voting interest in FFFC, it has agreed to vote its
      shares of capital stock of FFFC in the same manner and proportion as other
      stockholders of FFFC vote their shares. As of January 2, 2007, FFFC also held
      1,541,858 shares of common stock of the Company. Pursuant to the Redemption
      Agreement, FFFC and the Company each provided the other certain registration
      rights relating to the common stock of such party held by the other party.
      As of
      March 31, 2007, the Company owned approximately 49% of FFFC common stock, a
      result of FFFC issuing 181,686 shares of its common stock upon the cashless
      exercise of 226,000 warrants to purchase its common stock, the issuance of
      250,000 shares of its common stock in satisfaction of $125,000 of liabilities
      and the issuance of 150,000 shares of its common stock to a consultant for
      financial advisory services.





**Issuance
      of common stock and change in control:**





As
      previously mentioned, on January 3, 2007, the Company issued an aggregate of
      12,594,622 shares of the Company’s common stock (with an additional 711,431
      shares reserved for issuance upon the exercise of outstanding options) to
      holders of two tranches of the Company’s Series L Convertible Preferred Stock
      (L-1 and L-2). Upon the satisfaction of the benchmarks being met 100,000 shares
      of L-1 were converted to 4,988,646 shares of common stock (with an additional
      281,793 shares reserved for issuance upon the exercise of outstanding options)
      and 7,605,976 shares of common stock (with an additional 429,638 shares reserved
      for issuance upon the exercise of outstanding options) upon conversion of the
      L-2 shares. The conversion of each of these two tranches of Series L Preferred
      Stock was equal to 40% of the number of shares of common stock of the Company
      outstanding prior to each conversion. Of the shares of common stock issued
      upon
      conversion of the L-1 and L-2 Preferred Stock, an aggregate of 22,949 shares
      of
      common stock were issued to persons who were appointed as officers and directors
      of the Company on January 2, 2007 with an additional 367,191 shares held in
      reserve for issuance upon the exercise of outstanding options held by such
      individuals.





Immediately
      following the conversion of the Series L-1 and L-2 Preferred Stock into common
      stock on January 3, 2007 the former shareholders of Old HPI held an aggregate
      of
      15,633,612 shares of the Company’s common stock, constituting approximately
      54.1% of the Company’s outstanding common stock. The former majority shareholder
      of Old HPI, GHTI, holds approximately 49.3% of the Company’s outstanding common
      stock. Additionally, former optionholders of Old HPI hold options to purchase
      an
      aggregate of 843,553 shares of the Company’s common stock. The former
      shareholders and optionholders of Old HPI also collectively hold 100,000 shares
      of L-3 Convertible Preferred Stock, convertible pursuant to the terms of the
      Certificate of Designation.





Coinciding
      with the issuance of the Series L-1 and L-2 Preferred Stock, on January 2,
      2007
      the Company appointed four new directors to the Company, James Diffendorfer,
      John Martin, Virendra Chaudhary and Gurinder Dilawari. The prior directors
      of
      the Company contemporaneously resigned their positions.








F-19
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**1.**  **Organization
      and basis of presentation, recent events and management’s plans
      (continued):**





**Recent
      events (continued):**





**Potential
      business acquisiton:**





On
      January 31, 2007, FFFC announced that it executed a letter of intent to acquire
      Industrial Systems, Inc. ("ISI"). ISI, founded in 1991 and based in Delta,
      Colorado, provides turn-key engineering procurement and construction services
      to
      the mining, energy and natural resources industries throughout the United
      States. The letter of intent calls for FFFC to acquire 100% of the outstanding
      securities of ISI in an all stock tax-free exchange. While specific details
      are
      being negotiated as part of a definitive agreement, terms of the letter of
      intent call for the existing stockholders of ISI to own approximately 65% of
      FFFC’s common stock at closing of the transaction, with the potential to earn an
      estimated additional 6% based on post-closing incentives. Completion of the
      transaction is subject to further due diligence by each party, negotiation
      and
      execution of a definitive agreement, and other customary pre-closing conditions,
      and is anticipated to occur during the quarter ending June 30, 2007. If
      consummated, this transaction


would
      likely be accounted for as public shell merger or a reverse acquisition with
      FFFC being treated for accounting purposes as the accounting acquiree and also
      would significantly reduce the Company’s ownership of FFFC.





**Hiring
      of Chief Operating Officer:**





On
      March
      1, 2007, the Company executed a three-year Employment Agreement with Mr. David
      J. Cade to serve as the Company’s chief operating officer. Pursuant to the terms
      of the Employment Agreement, Mr. Cade is to receive a base salary at a per
      annum
      rate of $200,000 for the period March 1, 2007 through August 31, 2007, which
      shall be increased to a per annum rate of $225,000 for the period September
      1,
      2007 through February 28, 2008. For each of the second and third years of the
      Employment Agreement, Mr. Cade’s annual salary will be at a rate agreed upon by
      Mr. Cade and the Company’s Board of Directors. Mr. Cade is also eligible to
      receive a quarterly bonus of up to $10,000 which shall be granted at the sole
      discretion of the Company’s Board of Directors based on certain milestones in
      the Employment Agreement. Additionally, Mr. Cade, subject to the stated terms
      and conditions, including satisfaction of our board of directors of certain
      milestones agreed to, shall be granted performance-based stock options to
      purchase up to 900,000 shares of the Company’s common stock at an exercise price
      of $1.60 per share. The options shall be granted in quarterly installments
      and
      vest beginning on the first anniversary of the Employment
      Agreement.





**Management’s
      plans:**





The
      Company’s consolidated financial statements for the year ended December 31, 2006
      have been prepared on a going concern basis which contemplates the realization
      of assets and the settlement of liabilities and commitments in the normal course
      of business. The Company has incurred significant net losses of approximately
      $27,200,000 and $8,842,000 for the years ended December 31, 2006 and 2005,
      respectively, and has used cash in operations of $5,799,000 and $1,988,000
      for
      the years ending December 31, 2006 and 2005, respectively. Although the net
      losses included certain non-cash net expenses of approximately $21,000,000
      (2006) and $4,937,000 (2005), the Company incurred significant research and
      development costs related to expenses incurred in developing a commercial
      application of its licensed technology and in the design and engineering of
      prototypes in addition to corporate, selling, general and administrative
      expenses. Additionally, at December 31, 2006, the Company has a working capital
      deficit of approximately $2,038,000 and an accumulated deficit of approximately
      $55 million. Based on the losses that were being incurred at FFFC, it was
      becoming increasingly difficult to continue to fund its operations.
      Additionally, due to intense competition in the market and the lack of assurance
      that FFFC would be able to obtain renewals of its existing casino contracts
      or
      to obtain contracts with new customers and difficulty in attracting and
      retaining experienced employees, the Company decided to complete the Asset
      Sale.
      Presently, the Company has no revenues and limited resources.





These
      factors raise substantial doubt about the Company’s ability to continue as a
      going concern. There can be no assurance that the Company will have adequate
      resources to fund future operations, if any, or that funds will be available
      to
      the Company when needed, or if available, will be available on favorable terms
      or in amounts required by the Company. The consolidated financial statements
      do
      not include any adjustments relating to the recoverability and classification
      of
      assets or the amounts and classification of liabilities that might be necessary
      should the Company be unable to continue as a going concern.





F-20
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**1.**  **Organization
      and basis of presentation, recent events and management’s plans
      (continued):**





**Management’s
      plans (continued):**





The
      Company’s objective is to continue to develop and eventually market its licensed
      proprietary hydrogen production process for use in commercial applications
      the
      require hydrogen, but where hydrogen storage and/or distribution is too costly
      or not feasible. Our management believes based on their product and market
      review that our hydrogen production process may be a commercially viable
      process. The Company plans on continuing its testing and evaluation of the
      commercial application of the licensed technology and the design and engineering
      of prototypes.





The
      Company will need additional funds to continue the aforementioned work as well
      as to meet its existing obligations as they become due. Sources of cash that
      may
      be available to the Company include the sale of equity securities through
      private placements of our common stock and/or preferred stock, as well as the
      exercise of stock options and/or warrants, all of which may cause dilution
      to
      our shareholders. We may also be able to borrow funds from related and/or third
      parties.





**2.**  **Summary
      of significant accounting policies:**





**Stock-based
      compensation (Note 12):**





Effective
      January 1, 2006, the Company adopted the provisions of, and accounts for
      stock-based compensation in accordance with the Financial Accounting Standards
      Board’s (“FASB”) Statement of Financial Accounting Standards No. 123 - revised
      2004 (“SFAS 123R”) “Share-Based Payment” which replaced Statement of Financial
      Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based
      Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for
      Stock Issued to Employees”.





Under
      the
      fair value recognition provisions of this statement, stock-based compensation
      cost is measured at the grant date based on the fair value of the award and
      is
      recognized as expense on a straight-line basis over the requisite service
      period, which is the vesting period. The Company adopted SFAS 123R using the
      modified-prospective transition method. Under that transition method,
      compensation cost recognized for the year ended December 31, 2006 includes:
      (a)
      compensation cost for all share-based payments granted prior to, but not yet
      vested as of January 1, 2006, based on the grant-date fair value estimated
      in
      accordance with the original provisions of SFAS 123, and (b) compensation costs
      for all share-based payments granted subsequent to January 1, 2006, based on
      the
      grant-date fair value estimated in accordance with the provisions of SFAS 123R.
      The financial results for the prior periods have not been restated.





For
      2006,
      the Company recognized $562,146 of additional non-cash share-based compensation
      expense due to the adoption of SFAS 123R, which increased the net loss from
      continuing operations and net loss by such amount. This expense increased the
      Company’s loss from continuing operations per share and net loss per share for
      the year ended December 31, 2006 by $0.05.





The
      Company has various stock option plans which allow the Company to grant options
      to purchase shares of its common stock to attract, retain and motivate
      employees, consultants and directors. Options are generally granted with an
      exercise price equal to the Company’s market price of its common stock on the
      date of the grant and typically vest immediately upon issuance and thus the
      requisite service period is immediate. All options outstanding during the
      periods ended December 31, 2006, 2005 and 2004 were fully-vested and
      exercisable. During the year ended December 31, 2006, the Company granted 40,000
      options to a consultant to purchase shares of common stock at $2.00 per share
      and 407,500 options to purchase common stock to directors, officers, employees
      and consultants at $1.60 per share (the exercise prices were equal to the market
      value of the common stock on the date of the grant). These options were valued
      at $649,138, using the Black-Scholes option pricing model, and are included
      in
      corporate selling, general and administrative expense in the consolidated
      statement of operations for the year ended December 31, 2006.





Had
      compensation cost for stock-based awards issued to employees for the years
      ending December 31, 2005 and 2004 been determined based on the fair values
      at
      the grant dates for awards under the plans consistent with the fair-value based
      method of accounting prescribed by SFAS No. 123, the Company's results would
      have been changed to the pro forma amounts indicated below:





F-21
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**2.**  **Summary
      of significant accounting policies (continued):**





**Stock-based
      compensation (Note 12) (continued):**





2005
            
            2004Net
                loss
            
            $
            (8,842,237
            )
            $
            (7,457,983
            )ADD:
                Stock based employee compensation expense included in reported net
                income
            
            
            9,500
            
            
            553,000DEDUCT:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (181,500
            )
            
            (587,000
            )Pro-forma
                net loss
            
            $
            (9,014,237
            )
            $
            (7,491,983
            )Net
                loss per share:Basic
                and diluted, as reported
            
            $
            (1.39
            )
            $
            (1.36
            )Basic
                and diluted pro forma
            
            $
            (1.42
            )
            $
            (1.37
            )





The
      fair
      value of options granted was estimated on the date of grant using the
      Black-Scholes option pricing model. The following weighted average assumptions
      were utilized:





2006
            
            2005
            
            2004Expected
                dividend yield
            0
            
            0
            
            0Expected
                stock price volatility
            151%
            
            111%
            
            99%Risk
                fee interest rate
            4.75%
            
            2.0%
            
            2.0%Expected
                life of options
            5
                years
            
            1
                year
            
            2
                yearsWeighted
                average grant-date fair value of options granted
            $1.45
            
            $0.47
            
            $1.76





**Cash
      and cash equivalents:**





For
      the
      purpose of the consolidated financial statements, the Company considers all
      highly-liquid investments with an original maturity of three-months or less
      to
      be cash equivalents. The Company regularly has cash and cash equivalents in
      excess of federally insured limits.





Prior
      to
      the asset sale, cash and cash equivalents also included cash in the process
      of
      collection (“CIPC”). CIPC includes ATM advances, as well as credit card advances
      made to customers. ATM advances made to customers included in CIPC totaled
      approximately $1,659,000 as of December 31, 2005. Credit card advances made
      to
      customers included in CIPC totaled approximately $1,588,000 as of December
      31,
      2005.





**Credit
      card receivables and revenue recognition:**





Credit
      card receivables are stated at cost plus refundable and earned fees (the balance
      reported to customers), reduced by allowances for refundable fees and
      losses.





Fees
      (revenues) are accrued monthly on active credit card accounts and included
      in
      credit card receivables, net of estimated uncollectible amounts. Accrual of
      income is discontinued on credit card accounts that have been closed or charged
      off. Accrued fees on credit card loans are charged off with the card balance,
      generally when the account becomes 90 days past due.





The
      allowance for losses is established through a provision for losses charged
      to
      expenses. Credit card receivables are charged against the allowance for losses
      when management believes that collectibility of the principal is unlikely.
      The
      allowance is an amount that management believes will be adequate to absorb
      estimated losses on existing receivables, based on evaluation of the
      collectibility of the accounts and prior loss experience. This evaluation also
      takes into consideration such factors as changes in the volume of the loan
      portfolio, overall portfolio quality and


F-22
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**2.**  **Summary
      of significant accounting policies (continued):**





**Credit
      card receivables and revenue recognition (continued):**





current
      economic conditions that may affect the borrowers’ ability to pay. While
      management uses the best information available to make its evaluations, this
      estimate is susceptible to significant change in the near term.




**Notes
      receivable:**





The
      Company has made advances to officers, affiliates and employees under various
      loan agreements (Notes 4 and 12). The advances made to officers were made prior
      to January 2002. The Company’s allowance for doubtful notes receivable is
      adjusted based on the Company’s assessment of the collectibility of each
      individual note and advance receivable, as well as the aging of the notes and
      advances receivable. After all attempts to collect a note receivable have
      failed, the note receivable is written-off against the allowance. Based on
      management’s evaluation of repayment intentions and in consideration of Staff
      Accounting Bulletin (“SAB”) Topic 4-E regarding receivables due from
      underwriters, promoters, directors and employees, $454,966 and $485,936 of
      the
      total face value amount has been presented as a reduction in stockholders’
equity (deficiency) at December 31, 2006 and 2005, respectively.




The
      Company establishes an allowance for losses on other notes receivable through
      a
      provision for losses charged to expense. The allowance is an amount management
      believes will be adequate to cover estimated losses based on an evaluation
      of
      the collectibility of the notes receivable. The allowance for doubtful notes
      receivable on loans made to other than officers was approximately $566,500
      and
      $1,286,500 at December 31, 2006 and 2005, respectively.





**Fair
      value of financial instruments:**





The
      estimated fair values of financial instruments has been determined by the
      Company using available market information and appropriate methodologies;
      however, considerable judgment is required in interpreting information necessary
      to develop these estimates. Accordingly, the Company's estimates of fair values
      are not necessarily indicative of the amounts that the Company could realize
      in
      a current market exchange.





The
      fair
      values of cash and cash equivalents, cash held in trust, current non-related
      party receivables, and accounts payable approximate their carrying amounts
      because of the short maturities of these instruments.





The
      fair
      values of notes and advances receivable from non-related parties approximate
      their carrying values because of the nature and the respective duration of
      these
      instruments. The fair values of notes and advances receivable from related
      parties are not practicable to estimate, based upon the related party nature
      of
      the underlying transactions.





The
      fair
      value of notes and loans payable to non-related parties approximates their
      carrying values because of the short maturities of these instruments. The fair
      values of long-term debt payable to financial institutions approximates carrying
      values, net of discounts applied based on market rates currently available
      to
      the Company. The fair values of notes payable to related parties are not
      practicable to estimate, based upon the related party nature of the underlying
      transactions.





The
      sub-license fee payable is to a significant shareholder of the Company. The
      obligation was originally stated at its net present value of $2,612,500 using
      an
      effective interest rate of 6% and thus the fair value approximates the carrying
      value.





**Accounting
      for obligations and instruments potentially settled in the Company’s common
      stock:**





The
      Company accounts for obligations and instruments potentially to be settled
      in
      the Company's stock in accordance with Emerging Issues Task Force (“EITF”) Issue
      No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in
      a
      Company’s Own Stock.* This
      issue addresses the initial balance sheet classification and measurement of
      contracts that are indexed to, and potentially settled in, the Company's stock.




F-23
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**2.**  **Summary
      of significant accounting policies (continued):**





**Accounting
      for obligations and instruments potentially settled in the Company’s common
      stock (continued):**





Under
      EITF 00-19, contracts are initially classified as equity or as either assets
      or
      liabilities, depending on the situation. All contracts are initially measured
      at
      fair value and subsequently accounted for based on the then current
      classification. Contracts initially classified as equity do not recognize
      subsequent changes in fair value as long as the contracts continue to be
      classified as equity. For contracts classified as assets or liabilities, the
      Company reports changes in fair value in earnings and discloses these changes
      in
      the financial statements as long as the contracts remain classified as assets
      or
      liabilities. If contracts classified as assets or liabilities are ultimately
      settled in shares, any previously reported gains or losses on those contracts
      continue to be included in earnings. The classification of a contract is
      reassessed at each balance sheet date.





**Property,
      equipment and leaseholds:**





Property,
      equipment and leaseholds are stated at cost, and depreciation is provided by
      use
      of accelerated and straight-line methods over the estimated useful lives of
      the
      assets. The cost of leasehold improvements is depreciated over the estimated
      useful life of the assets or the length of the respective leases, whichever
      period is shorter. The estimated useful lives of property, equipment and
      leaseholds are as follows:





Office
              equipment, furniture and vehicles
            3
                to 7 years


Computer
              hardware and software
            3
                to 5 years


Leasehold
              improvements
            7
                years





**Legal
      defense costs:**





The
      Company does not accrue for estimated future legal and related defense costs,
      if
      any, to be incurred in connection with outstanding or threatened litigation
      and
      other disputed matters but rather, records such as period costs when the
      services are rendered.





**Advertising:**





Advertising
      costs are expensed as incurred and for 2006 were primarily incurred by HPI
      (since March 14, 2006) and amounted to approximately $105,000 and are included
      in corporate selling, general and administrative expenses in the consolidated
      statement of operations. Advertising costs incurred by Chex (through January
      31,
      2006) are included in discontinued operations in the consolidated statements
      of
      operations, and were approximately $168,000 and $243,000 in 2005 and 2004,
      respectively.





**Research
      and development costs:**





Research
      and development costs are expensed as incurred.





**Income
      taxes:**





The
      Company accounts for income taxes under an asset and liability approach that
      requires the recognition of deferred tax assets and liabilities for expected
      future tax consequences of events that have been recognized in the Company’s
      consolidated financial statements or tax returns. In estimating future tax
      consequences, the Company generally considers all expected future events other
      than enactments of changes in the tax laws or rates.





**Use
      of estimates:**





Preparation
      of the consolidated financial statements in accordance with accounting
      principles generally accepted in the United States of America 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 balance sheets and the reported amounts of revenues and expenses
      during the reporting periods. Actual results could differ from those
      estimates.





F-24
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**2.**  **Summary
      of significant accounting policies (continued):**





**Loss
      per share:**





Loss
      per
      share of common stock is computed based on the weighted average number of common
      shares outstanding during the period. Stock options, warrants and common stock
      underlying convertible debt and preferred stock are not considered in the
      calculations for the years ended December 31, 2006, 2005 and 2004, as they
      are
      anti-dilutive and the impact of the potential common shares that can be
      determined, which total 3,915,242, 7,783,034 and 4,005,480, respectively, would
      be to decrease loss per share. Therefore, diluted loss per share is equal to
      basic loss per share in 2006, 2005 or 2004.





**Reclassifications:**





In
      addition to the retroactive restatement of discontinued operations, certain
      minor reclassifications of amounts reported in the 2005 and 2004 consolidated
      financial statements have been made to conform to the 2006
      presentation.





**Recently
      issued accounting pronouncements:**





In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainties in Income Taxes* ,
      (“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes and
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company has not yet determined the impact of applying
      FIN
      48.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, *Fair
      Value Measurements* (“FAS
      157”). FAS 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosures about fair value measurements but does not require
      any new fair value measurements. FAS 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. The Company has not yet determined the impact of
      applying FAS 157.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* ,
      (“FAS
      158”). FAS 158 requires an employer to recognize the overfunded or underfunded
      status of a defined benefit postretirement plan (other than a multiemployer
      plan) as an asset or liability in its statement of financial position and to
      recognize changes in that funded status in the year in which the changes occur
      through comprehensive income. FAS158 is effective for employers with publicly
      traded equity securities for fiscal years ending after December 15, 2006.
      Employers without publicly traded equity securities are required to include
      certain disclosures until fully adopting FAS 158 for fiscal years ending after
      December 15, 2006 but before June 16, 2007. The Company does not expect any
      material impact from applying FAS 158.





In
      September 2006, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among
      registrants, SAB 108 expresses SEC staff views regarding the process by which
      misstatements in financial statements are evaluated for purposes of determining
      whether financial statement restatement is necessary. SAB 108 is effective
      for
      fiscal years ending after November 15, 2006, and early application is
      encouraged. The Company does not expect any material impact from applying SAB
      108.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, The Fair Value Option for Financial Assets and Financial Liabilities,
      (“FAS
      159”). FAS 159 permits entities to choose to measure many financial instruments
      and certain other items at fair value. The objective is to improve financial
      reporting by providing entities with the opportunity to mitigate volatility
      in
      reported earnings caused by measuring related assets and liabilities differently
      without having to apply complex hedge accounting provisions. FAS159 is effective
      for financial statements issued for fiscal years beginning after November 15,
      2007. The Company has not yet determined the impact of adopting FAS 159 on
      the
      Company’s financial position.





**3.**  **Discontinued
      operations and assets held for sale:**





The
      carrying amount at December 31, 2006 and 2005, of assets and liabilities of
      FFFC
      and Key are presented as assets and liabilities of discontinued operations
      (2006) and for FFFC as assets held for sale and liabilities associated with
      assets held for sale (2005) at December 31 as follows:





F-25
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**3.**  **Discontinued
      operations and assets held for sale (continued):**





ASSETS
            
            2006
            
            2005Cash
                and cash equivalents
            
            $
            -
            
            $
            8,273,253Accounts
                receivable
            
            
            
            
            
            163,044Notes
                and interest receivable, net
            
            
            140,000
            
            
            75,461Property
                and equipment, net
            
            
            
            
            
            1,077,802Goodwill
            
            
            
            
            
            5,636,000Intangible
                and other assets
            
            
            
            
            
            2,183,902Deferred
                tax asset
            
            
            
            
            
            4,200,000Other
                assets
            
            
            213
            
            
            388,004$
            140,213
            
            $
            21,997,466





Key’s
      assets of $213 at December 31, 2006 are included above. Key’s assets at December
      31, 2005 consists of cash of $140.





LIABILITIES
            
            2006
            
            2005Accounts
                payable and accrued expenses
            
            $
            562,081
            
            $
            69,800Notes
                payable to individuals
            
            
            2,108,000Capital
                lease obligations
            
            
            
            
            
            84,247Deferred
                tax liability
            
            
            
            
            
            2,867,000$
            2,670,081
            
            $
            3,021,047





Key’s
      liabilities of $513,395 at December 31, 2005 are presented as liabilities of
      discontinued operations on the consolidated balance sheet. Key had no
      liabilities at December 31, 2006.





***Discontinued
      operations:***





Loss
      from
      discontinued operations for the years ended December 31, 2006, 2005 and 2004
      of
      FFFC and Key were as follows:





2006
            
            2005
            
            2004Revenues
            
            $
            2,192,382
            
            $
            18,531,141
            
            $
            15,233,735Operating
                expenses
            
            
            (3,707,315
            )
            
            (20,281,180
            )
            
            (18,054,234
            )Loss
                from operations
            
            
            (1,514,933
            )
            
            (1,750,039
            )
            
            (2,820,499
            )Gain
                on sale of assets
            
            
            4,145,835Other
                expenses
            
            
            (1,892,884
            )
            
            (3,360,259
            )
            
            (1,688,955
            )Minority
                interest
            
            
            
            
            
            
            
            
            419,720Net
                income (loss) before income taxes
            
            
            738,018
            
            
            (5,110,298
            )
            
            (4,089,734
            )Income
                tax expense
            
            
            (856,913
            )
            
            (1,141,506
            )
            
            (521,889
            )Net
                loss
            
            $
            (118,895
            )
            $
            (6,251,804
            )
            $
            (4,611,623
            )





Key
      had
      no revenues during the years ended December 31, 2006, 2005 and 2004.





**4.**  **Receivables:**





Receivables
      at December 31, 2006 and 2005, consist of the following:





F-26
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**4.**  **Receivables
      (continued):**





2006
            
            
            2005Amount
                held in trust
            $
            93,974
            
            $
            119,561Credit
                card receivables, net of allowance of $150(2006) and $435 (2005)
            
            136,458
            
            
            132,016Credit
                card and ATM processors, net of allowance of $121,632
                (2005)
            
            
            
            
            111,129Other
                receivables
            
            512
            
            
            52,427230,944
            
            
            415,133Less
                receivables reclassified as assets held for sale
            
            -
            
            
            (163,044)$
            230,944
            
            $
            252,089





Prior
      to
      the Asset Sale, amounts due from credit card and ATM processors were primarily
      from fees from credit card and ATM advances by Chex to casino patrons. The
      amount held in trust is under an agreement and is to secure payment of
      reservation fees due customers. The amount is held by a third party financial
      institution.





**5.**  **Notes
      and interest receivable:**





Notes
      receivable at December 31, 2006 and 2005, consist of the following:





2006
            
            2005Notes
                receivable from Equitex 2000, Inc., an affiliate of the Company through
                common control; interest at 10%; unsecured; due on demand; a valuation
                allowance of $205,000 and $700,000 was recorded against this receivable
                at
                December 31, 2006 and 2005. In 2006 $101,437 was collected, $700,000
                was
                written-off against the reserve and $184,237 was expensed
            
            $
            205,000
            
            $
            1,190,674Note
                receivable from Paymaster Jamaica; interest at 10%, collateralized
                by a
                pledge of Paymaster Jamaica common shares by Paymaster Jamaica's
                president; note matures in August 15, 2008; payments of interest
                only due
                semi-annually beginning August 15, 2003 through maturity (none received
                through December 31, 2006); a valuation allowance of $250,000 has
                been
                recorded against this receivable at December 31, 2006 and
                2005
            
            
            500,000
            
            
            500,000Note
                receivable; non-interest bearing; net of $256,316 discount, based
                on
                imputed interest rate of 12% through December 2010; collateralized
                by
                mortgages on three parcels of real property in Florida, a valuation
                allowance of $61,500 and $336,500 has been recorded against this
                receivable at December 31, 2006 and 2005, respectively, in default
                and
                non-performing at December 31, 2006. Chex received $140,000 in January
                2007 as full settlement
            
            
            201,500
            
            
            336,500Notes
                receivable, HPI**[A]**
            
            
            
            
            
            3,000,000Notes
                receivable from various Chex employees; non-interest bearing, unsecured
                and due on demand, or in weekly deductions from payroll; repaid in
                January
                2006
            
            
            
            
            
            25,461





F-27
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND
            2004**








**5.**  **Notes
      and interest receivable (continued):**





2006
            
            2005Notes
                receivable from Coast ATM, LLC.; interest at 10%; maturity November
                2005;
                currently in default and non-performing; a valuation allowance of
                $50,000
                has been recorded against this receivable at December 31,
                2006
            
            
            50,000
            
            
            50,000956,500
            
            
            5,102,635Interest
                receivable, includes related party interest of $104,277(2005)
            
            
            54,575
            
            
            158,852Notes
                receivable, before valuation allowance
            
            
            1,011,075
            
            
            5,261,487Less
                valuation allowance**[B]**
            
            
            (566,500)
            
            
            (1,286,500)444,575
            
            
            3,974,987Less
                net amount included in assets of discontinued operations (2006) and
                assets
                held for sale (2005)
            
            
            (140,000)
            
            
            (75,461)Notes
                and interest receivable, net, long-term
            
            $
            304,575
            
            $
            3,899,526





**[A]**   In
      September 2005, in connection with the Merger Agreement, the Company loaned
      Old
      HPI $3,000,000 under a Secured Convertible Promissory Note (the “SCPN”). The
      Company agreed to forgive payment of the $3 million plus accrued interest as
      a
      condition of closing. In March 2006, the Company accounted for the forgiveness
      as a contribution of capital to the Merger Sub and the proceeds were transferred
      to Old HPI at closing.





**[B]**  Changes
      in the allowance for losses on notes receivable for the years ended December
      31,
      2006, 2005 and 2004 are as follows:





2006
            
            2005
            
            2004Balances,
                beginning of year
            
            $
            1,286,500
            
            $
            1,925,800
            
            $
            1,463,300Additions
                charged to expenses (deducted from notes receivable)
            
            
            255,000
            
            
            640,000
            
            
            462,500Deductions
                credited to expenses (added to notes receivable)
            
            
            (275,000
            )
            
            (90,000
            )Amounts
                written-off against allowance
            
            
            (700,000
            )
            
            (1,189,300
            )566,500
            
            
            1,286,500
            
            
            1,925,800Less
                amount included in assets of discontinued operations (2006) and assets
                held for sale (2005)
            
            
            (316,500
            )
            
            (336,500
            )Balances
                for continuing operations, end of year
            
            $
            250,000
            
            $
            950,000
            
            $
            1,925,800





**6.**  **Property,
      equipment and leaseholds:**





Property,
      equipment and leaseholds, and total accumulated depreciation at December 31,
      2006 and 2005, are as follows:





2006
            
            2005Office
                equipment and furniture
            
            $
            82,543
            
            $
            3,100,759Vehicles
            
            
            15,000Lab
                equipment
            
            
            56,958Computer
                software
            
            
            
            
            
            617,173Leasehold
                improvements
            
            
            
            
            
            52,765154,501
            
            
            3,770,697





F-28
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**6.**  **Property,
      equipment and leaseholds (continued):**





2006
            
            2005Less
                accumulated depreciation
            
            
            (76,442
            )
            
            (2,640,717
            )78,059
            
            
            1,129,980Less
                amount included in assets held for sale (2005)
            
            
            
            
            
            (1,077,802
            )$
            78,059
            
            $
            52,178





The
      amounts above include equipment under capital leases included in assets held
      for
      sale with a gross cost of approximately $302,000 at December 31, 2005, and
      accumulated depreciation of approximately $157,000 at December 31,
      2005.





**7.**  **Notes
      and loans payable and long-term debt:**





Notes
      and
      loans payable and long-term debt at December 31, 2006 and 2005 consist of the
      following:





2006
            
            2005Notes
                payable to individuals; interest rates ranging from 9% to 15%; interest
                payable quarterly; the notes are unsecured and matured on February
                28,
                2007**[A]**
            $
            2,108,000
            
            $
            11,301,497Note
                payable to a director (resigned January 2007); interest at 7%; unsecured
                and due March 31, 2007; currently in default (Note 10)
            
            37,500Convertible
                promissory notes; interest at 9.5%, net of discounts**[B]**
            
            
            
            
            1,162,500Notes
                payable to affiliates through common ownership of directors of the
                Company; interest at 10%; paid in February 2006
            
            
            
            
            380,351Convertible
                promissory notes; originally due November 2002; converted to common
                stock
                in 2006
            
            
            
            
            185,000Note
                payable to an officer of Chex; interest at 8%; unsecured; converted
                to
                common stock in 2006
            
            
            
            
            14,344Notes
                payable to officers of the Company; interest at 8%; unsecured; paid
                in
                2006
            
            
            
            
            220,000Notes
                payable to third parties; interest at 6%, net of discount; paid in
                2006
            
            
            
            
            180,2942,145,500
            
            
            13,443,986Less
                amounts included in liabilities of discontinued operations
            
            (2,108,000)
            
            
            -Current
                portion of long-term debt
            $
            37,500
            
            $
            13,443,986





F-29
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**7.**  **Notes
      and loans payable and long-term debt (continued):**





The
      weighted-average interest rates on short-term borrowings were 9.93%, 9.82%
      and
      9.95% in 2006 2005 and 2004, respectively





**Long-term
      debt:**





2006
            
            2005Convertible
                promissory notes; interest at 7% per annum; collateralized by all
                assets
                of Chex and the Company’s stock ownership in FFFC; due December 2007; net
                of discount of $115,921 and $765,833 at December 31, 2006 and 2005,
                respectively**[C]**
            $
            1,577,713
            
            $
            3,739,823Convertible
                debentures; due in full December 2009; unsecured; net of discount
                of
                $20,419**[D]**
            
            29,581Convertible
                promissory notes; interest at 5%**[E]**
            
            
            
            
            200,000Obligations
                under capital leases; imputed interest rates ranging from 6.5% to
                7%;
                repaid in January 2006
            
            
            
            
            84,2471,607,294
            
            
            4,024,070Less
                current maturities includes $84,427 in liabilities associated with
                assets
                held for sale (2005)
            
            (1,577,713)
            
            
            (1,915,647)Long-term
                debt
            $
            29,581
            
            $
            2,108,423





**[A]**  These
      notes payable (the “Promissory Notes”) became due on February 28, 2007. FFFC
      renewed $283,000 of the Promissory Notes on the same terms and conditions as
      previously existed. In April 2007 FFFC, through a financial advisor,
      restructured $1,825,000 of the Promissory Notes (the “Restructured Notes”). The
      Restructured Notes carry a stated interest rate of 15% and mature on February
      28, 2008. Of the Restructured Notes, $150,000 and $175,000, respectively, have
      90 day and 120 day provisions, whereby the noteholder can request repayment.
      FFFC has received notice regarding these notes requesting repayment on July
      2,
      2007 and August 3, 2007, respectively.





The
      Chairman of the Board of FFFC has personally guaranteed up to $1 million of
      the
      Restructured Notes and two other non-related individuals each guaranteed
      $500,000 of the Restructured Notes. In consideration of their guarantees FFFC
      granted warrants to purchase a total of 1,600,000 shares of its common stock
      at
      an exercise price of $0.50 per share, expiring in March 2010. Additionally,
      in
      2007 FFFC will compensate the financial advisor 2% of the Restructured Notes
      and
      issue 150,000 shares of FFFC common stock to the financial advisor.





**[B]**  In
      December 2004, FFFC closed on $1,774,064 of unsecured convertible promissory
      notes (the “Convertible Notes”) with various note holders (the “Holders”). The
      Convertible Notes carried a stated interest rate of 9.5% per annum, had a
      9-month original term and were convertible at the Holders’ option, including any
      unpaid interest, into shares of FFFC common stock at $1.00 per share for a
      three-year period commencing on the due date. The Holders also received warrants
      to purchase 1,774,064 shares of FFFC common stock at an exercise price of $2.00
      per share.





The
      proceeds from the Convertible Notes were allocated between the estimated fair
      value of the warrants and the beneficial conversion features based on their
      respective fair values. These warrants were valued at approximately $113,100
      based upon the Company’s assumption that the market interest rate for a similar
      convertible note without the warrants and the beneficial conversion features
      would be approximately 18%. Therefore $113,100 of the total proceeds was
      allocated to the warrants. The beneficial conversion features were valued at
      $1,660,967, as the intrinsic value of the beneficial conversion features is
      limited to the total amount of the proceeds received, net of the amount
      allocated to the warrants. During 2006, FFFC repaid $1,012,500 of


F-30
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**7.**  **Notes
      and loans payable and long-term debt (continued):**





these
      Convertible Notes. In consideration of not meeting the original payment term
      on
      certain amounts, FFFC agreed to issue 200,000 shares of its common stock to
      the
      Holders.





In
      May
      2006, FFFC and the Company negotiated a settlement regarding the remaining
      $150,000 of these Convertible Notes, whereby the Company issued 42,182 shares
      of
      its common stock to the Holders in exchange for payment of the Convertible
      Notes. The fair market value of the 42,182 shares of common stock issued by
      the
      Company was $212,155, and accordingly, $62,155 was recorded as a loss on debt
      extinguishment and is included in loss from discontinued operations in the
      consolidated statement of operations for 2006. The Company also issued warrants
      to purchase 21,091 shares of its common stock at $5.00 per share, expiring
      three
      years after the date of issuance. The warrants were valued at $73,882 based
      on
      the Black-Scholes option-pricing model, which was recorded as a loss on debt
      extinguishment and is included in loss from discontinued operations for 2006.
      Additionally, FFFC agreed to lower the exercise price of the warrants to
      purchase 300,000 shares of its common stock from $2.00 to $1.75 per share.
      As a
      result of this reduction in the exercise price, FFFC recognized an additional
      $26,400 of interest expense which is included in loss from discontinued
      operations in the consolidated statement of operations for 2006.





**[C]**  In
      March
      2004, the Company closed on $5,000,000 of convertible promissory notes (the
      "Notes") with two financial institutions (the "Lenders"). The Notes carry a
      stated interest rate of 7% per annum and have a 45-month term. Interest only
      payments were due April 2004 through June 2004. Beginning in July 2004,
      principal and interest payments amortize over the remaining 42-month period.
      The
      Notes are senior to all other debt of the Company and are collateralized by
      all
      assets of Chex as defined in the security agreement. The Notes require the
      Company to maintain cash balances of 140% of the outstanding principal
      balance.





The Notes are convertible into common stock of the Company at $6.885 per share
      up to an amount equal to 4.99% of the Company's outstanding common stock. The
      Company has the right to make any monthly payment of principal and interest
      in
      shares of its common stock. If the Company exercises its rights, the common
      stock is to be issued based on 85% (reduced to 80% in August 2006) of the
      average bid price for 20 trading days (reduced to the lower of the three or
      twenty days in August 2006) prior to the payment due date. The maximum number
      of
      shares that can be delivered as payment is to be equal to 10% of the average
      monthly trading volume for the month prior to the payment due date. The Company
      may also issue common shares each month in an amount not to exceed 10% of the
      prior month's total share volume as payment, to be applied to the outstanding
      principal balance up to a value of $100,000. For the years ending December
      31,
      2006 and 2005, the Company issued 265,524 and 207,230 shares of its common
      stock
      valued at $743,541 and $863,840, respectively, as partial payments for principal
      and interest to the Lenders, with the other portions paid in cash to the
      Lenders, resulting in full payment.





The
      Notes
      contain certain standard anti-dilution provisions requiring the Company to
      pay
      the Lenders as collateral, the pro-rata number of shares the Lenders would
      receive in any spin-off or dividend from the Company as if the remaining
      principal balance under the Note was fully converted at $6.885 per
      share.





The
      Lenders also received warrants to acquire up to 133,334 shares of the Company's
      common stock at an exercise price of $9.00 per share. The warrants are
      exercisable for a period of five years, and include a cashless exercise
      provision. These warrants were valued at $358,400 based upon the Black-Scholes
      option-pricing model, and therefore $358,400 of the total costs was allocated
      to
      the warrants, resulting in an imputed interest rate of 7.5%. In June 2004,
      the
      Company reduced the exercise price of these warrants to $7.65 per share. In
      August 2004, the Company reduced the exercise price of these warrants to $4.26
      per share. As a result of the additional allocation resulting from these
      reductions in exercise price, the Company allocated an additional $102,800
      to
      these warrants. The Company reduced the carrying value of the Notes by this
      amount and is amortizing the discount to interest expense over the 45-month
      term
      of the Notes. Accordingly, $126,456, $126,456 and $92,367 have been recorded
      as
      interest expense in the consolidated statement of operations during the years
      ended December 31, 2006, 2005 and 2004, respectively. In addition, warrants
      to
      acquire up to 50,000 shares of common stock of the Company, exercisable at
      $6.00
      per share for a period of two years, were issued to an advisory firm in
      connection with the transaction. These warrants were valued at $164,700 based
      upon the Black-Scholes option-pricing model. The Company also paid cash of
      $320,000 for legal services and finders' fees in connection with the
      transaction. The Company recorded the value of these warrants and the cash
      paid
      as deferred loan costs and is amortizing these costs over the 45-month term
      of
      the Notes. Accordingly,


F-31
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND
            2004**








**7.**  **Notes
      and loans payable and long-term debt (continued):**





$129,252,
      $129,252 and $107,710 are included in general and administrative expense in
      the
      consolidated statements of operations during the years ended December 31, 2006,
      2005 and 2004, respectively. At December 31, 2006 and 2005, deferred loan costs
      were $129,252 and $258,504, respectively.





In
      contemplation of the Redemption Agreement (Note 1), on December 29, 2006, the
      Company obtained the consent of the Lenders to complete the transactions
      contemplated by the Redemption Agreement. Contemporaneously with receipt of
      the
      consent, the Company entered into a Note and Security Amendment Agreement (the
      “Amended Note”) dated December 29, 2006 with the Lenders, pursuant to which the
      Company agreed to amend certain terms of the Notes, including increasing the
      interest rate applicable to the Notes from 7% per annum to 10% per annum,
      resulting in an increase to the monthly payment amount of approximately $14,300.
      Additionally, the default interest rate increased from 10% to 13%.





In
      September 2005, the Company issued an aggregate of $1,500,000 of additional
      convertible promissory notes (the “Additional Notes”) to the Lenders. The notes
      had a stated interest rate of 10% and had a 24-month term. Interest only
      payments were due October 2005 through December 2005 and beginning in January
      2006 monthly principal and interest payments of $78,157 were due over the
      remaining 21-month term. In addition to the collateral described in the Notes
      above, the Company pledged its shares of FFFC common stock. The principal
      balance of the notes, with accrued interest, was convertible at the option
      of
      the lender, at a conversion price of $5.50 (the market value of the Company’s
      common stock at the date the notes were issued was $5.66). This resulted in
      a
      beneficial conversion feature valued at $330,000 using the effective conversion
      price. The Company reduced the carrying value of the notes for this amount,
      with
      an offset to additional paid-in capital. The Company had the right, subject
      to
      certain limitations, to make any monthly payment of principal and interest
      in
      shares of its common stock. The common stock was to be issued based on 85%
      of
      the average bid price for 20 trading days prior to the payment due date. For
      the
      year ended December 31, 2006, the Company issued 204,183 shares of its common
      stock valued at $524,945 as partial payment of principal and interest to the
      Lenders, with the other portions being paid in cash, resulting in full payment.
      The Lenders also received warrants to purchase up to 125,000 shares of common
      stock at $6.00 per share for a five-year period. The proceeds from the notes
      were allocated between the estimated fair value of the warrants ($286,000),
      which was based upon the Black-Scholes option-pricing model, and the notes
      based
      on their relative fair values. As a result, the Company recorded the fair value
      of the warrants as a discount to the notes.





On
      December 29, 2006, in conjunction with the Consent, the Redemption Agreement
      and
      the Amended Note, the Company repaid the Lenders $754,953 in full satisfaction
      of the Additional Notes. The warrants and beneficial conversion feature were
      being amortized over the 24-month term of the Notes and accordingly, $523,456
      and $92,624 has been recorded as additional interest expense for the years
      ended
      December 31, 2006 and 2005, respectively. In connection with these Additional
      Notes, the Company paid a 3% origination fee and $20,000 in closing costs.
      These
      costs were recorded by the Company as deferred loan costs and were being
      amortized over the 24-month term of the notes. Accordingly, $55,521 and $9,476
      was expensed for the years ended December 31, 2006 and 2005, respectively.
      Due
      to the Additional Notes being paid-off prior to their original maturity date,
      the Company amortized the remaining value of the warrants, beneficial conversion
      feature and deferred loan costs in the 2006 costs above.





**[D]**  In
      December 2006, FFFC entered into a purchase agreement with two accredited
      investors for the issuance and sale of $50,000 of 10% unsecured convertible
      debentures in private transactions (the “Debentures”). FFFC received $45,000
      from these transactions net of $5,000 of debt issuance costs, which will be
      amortized over the three-year term of the Debentures.





The
      Debentures are convertible at 75% of the average closing bid price per share
      of
      FFFC’s common stock for the twenty days immediately preceding the date of
      conversion. The Debentures cannot be converted until six months after the
      issuance date of each Debenture.





FFFC
      has
      determined that the conversion feature represents an embedded derivative. Since
      the Debentures are convertible into a variable number of shares upon conversion,
      the conversion feature is not considered to be conventional and therefore must
      be bifurcated from the debt host and accounted for as a derivative liability.
      Accordingly, the fair value of these derivative instruments have been recorded
      as a liability in the consolidated balance sheet with the corresponding amount
      recorded as a discount to the Debentures (included in liabilities of


F-32
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND
            2004**








**7.**  **Notes
      and loans payable and long-term debt (continued):**





discontinued
      operations) .
      The
      change in the fair value of the derivative liability will be remeasured at
      each
      balance sheet reporting date with any difference recorded as other income
      (expense) in the consolidated statements of operations.





At
      December 31, 2006, FFFC revalued this derivative liability and reduced the
      previously recorded liability by $9,099 resulting in a recorded derivative
      liability of $11,521 at December 31, 2006. The $9,099 was included in loss
      from
      discontinued operations in the consolidated statement of operations





**[E]**  As
      of
      December 31, 2005, FFFC also had $200,000 of outstanding convertible promissory
      notes issued in June 2004. These notes carried interest at 5% per annum, and
      unless converted, were due in April 2007. The notes were convertible into shares
      of FFFC common stock at $0.10 per share based on certain criteria (which was
      deemed beneficial). The intrinsic value of the beneficial conversion feature
      was
      limited to the amount of proceeds received and therefore the conversion feature
      was determined to be $200,000. In May 2006, the Company negotiated a settlement
      regarding these convertible notes, whereby the Company issued 180,000 shares
      of
      its common stock. The fair market value of the 180,000 shares of common stock
      issued by the Company as of the date of the settlement was $870,000 and
      accordingly, an additional $670,000 was recognized as a loss on extinguishment
      of debt (included in loss from discontinued operations) for 2006. The settlement
      terms stipulate a price protection clause whereby FFFC, under certain
      circumstances, must reimburse the former debt holders if the market price of
      the
      Company common stock issued to them in the settlement is below $4.00 per share
      at the time they sell the stock.  As a result, FFFC has recorded a
      derivative liability due to the debt holders at December 31, 2006 of $450,000
      and an expense of $450,000 for 2006, representing the difference between the
      market value of the common stock as of December 31, 2006 and the $4.00 stated
      in
      the settlement agreement. The $450,000 was recognized as a loss on
      extinguishment of debt for 2006 (included in loss from discontinued operations).
      Pursuant to the terms of the settlement agreement, the Company was required
      to
      file a registration statement covering the resale of these shares of common
      stock and to use its best efforts to cause the same to be effective on or before
      June 26, 2006. A Registration Statement was filed and declared effective by
      the
      SEC, but not until February 9, 2007. Accordingly, the Company recorded an
      expense and a liability of $43,067. The expense is included in loss on
      extinguishment of debt (included in loss from discontinued operations) for
      2006,
      the liability is included in liabilities of discontinued operations at December
      31, 2006.




**Checks
      issued in excess of cash balance:**





Prior
      to
      the Asset Sale, FFFC’s credit card cash advance and check cashing business
      resulted in differences between funds availability and funding commitments.
      These differences resulted in book deficits in select bank accounts, which
      did
      not have a right of offset, and which were classified as a liability at December
      31, 2005, totaling $1,105,379.





**8.**  **Income
      taxes:**





Income
      tax expense (benefit) for the years ended December 31, 2006, 2005 and 2004
      is as
      follows:





2006
            
            2005
            
            2004Continuing
                operations:Deferred:Federal
            $
            
            
            $
            (1,712,000)
            
            $
            (659,000)State
            
            
            
            
            (201,000)
            
            
            (78,000)Valuation
                allowance
            
            482,000
            
            
            (533,000)
            
            
            1,644,000$
            482,000
            
            $
            (2,446,000)
            
            $
            907,000Discontinued
                operations:Current:FederalState
            $
            5,913
            
            $
            28,506
            
            $
            48,889$
            5,913
            
            $
            28,506
            
            $
            48,889





F-33
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**8.**  **Income
      taxes (continued):**





2006
            
            2005
            
            2004Deferred:Federal
            
            365,000
            
            
            2,672,000
            
            
            (1,729,000)State
            
            44,000
            
            
            315,000
            
            
            (
                201,000)Valuation
                allowance
            
            442,000
            
            
            (1,874,000)
            
            
            2,403,000851,000
            
            
            1,113,000
            
            
            473,000$
            856,913
            
            $
            1,141,506
            
            $
            521,889




At
      December 31, 2005, management reassessed the realization of its deferred tax
      assets. Based on this assessment and considering the Asset Sale, it was
      determined that the Company would be able to utilize a substantial portion
      of
      its deferred tax assets, therefore, the valuation allowance was reduced by
      $2,446,000 during the fourth quarter of 2005, offset by the recognition of
      a
      deferred tax liability of $2,917,000, of which $2,867,000 was related to the
      carrying value of intangible assets and goodwill, which is not deductible for
      tax purposes.





The
      reconciliation between the expected tax expesne (benefit) computed at the
      federal statutory income tax rate of 34% and the effective tax rate applied
      to
      the pre-tax loss from continuing operations for the years ended December 31,
      2006, 2005 and 2004, is as follows:





2006
            
            2005
            
            2004Statutory
                federal income tax rate
            
            (34%)
            
            (34%)
            
            (34%)State
                taxes, net of federal income tax benefit
            
            (4%)
            
            (4%)
            
            (4%)Cost
              incurred related to acquired technology, tradename and sub-license
              agreement
            
            25%Effect
                of change in valuation allowance
            
            10%
            
            (11%)
            
            85%Other
            
            5%2%
            
            (49%)
            
            47%





The
      following is a summary of the Company's deferred tax assets and
      liabilities:





2006
            
            2005Deferred
                tax assets (liabilities):Allowance
                for loan losses
            $
            95,000
            
            $
            361,000Compensation
                and other accruals
            
            
            
            
            156,000Deferred
                tax liabilities, credit card receivables
            
            (50,000)
            
            
            (50,000)Net
                operating loss carryforwards
            
            7,919,000
            
            
            6,126,000Total
                deferred tax assets, net
            
            7,964,000
            
            
            6,593,000Valuation
                allowance
            
            (7,964,000)
            
            
            (6,593,000)$
            -
            
            $
            -Net
                deferred tax assets, included in assets of discontinued operations
                (2006) andassets held for sale and liabilities associated with assets
                held for sale (2005)
            $
            -
            
            $
            1,333,000




The
      Company's valuation allowance increased approximately $1,813,000 during the
      year
      ended December 31, 2006.




Net
      operating loss carryforwards of approximately $24,309,000 are available to
      offset future taxable income, if any, and expire between 2016 and 2026. The
      net
      operating loss carryforwards may be subject to certain limitations due to
      business acquisitions and other transactions.





**9.**  **Related
      party transactions:**





Related
      party transactions not disclosed elsewhere in these consolidated financial
      statements are as follows:





F-34
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**9.** **Related
          party transactions (continued):**





**Retirement
      Bonus Agreement and Release:**





As
      a
      result of the merger in September 2006, whereby Old HPI merged with and into
      the
      Company and the Company remaining as the surviving corporation, the position
      of
      president and chief executive officer (the “Officer”) of Old HPI was eliminated.
      Pursuant to provisions of an executive severance agreement between the Officer
      and Old HPI entered into prior to the merger, upon termination the Officer
      was entitled to a severance payment equal to her annual salary and bonus for
      a
      period of two years. In lieu of the severance payment under the executive
      severance agreement, the Company agreed to, pursuant to the terms of a
      Retirement Bonus Agreement and Release (the “Agreement”) dated March 7, 2007, a
      one-time payment of $750,000 for the elimination of the position. This amount
      was originally advanced in the form of a loan in November 2006 and is included
      in corporate selling, general and administrative expenses in the consolidated
      statement of operations for the year ended December 31, 2006. Pursuant to the
      terms of the Agreement, the Officer released the Company from certain claims
      against the Company arising from their employment while preserving the Officer’s
      rights to indemnification by the Company as may be provided by the Company’s
      Articles of Incorporation, Bylaws or Delaware General Corporation
      Law.





**Bonus
      to officer of the Company:**





In
      2003,
      the Company’s Board of Directors approved a bonus arrangement with the Company’s
      president. The bonus arrangement, effective June 2, 2003, provided for an annual
      bonus calculated quarterly based on 5% of the increase in the market value
      of
      the Company's common stock, accrued quarterly, beginning with the closing price
      as reported by Nasdaq on December 31 of each year, and ending with the closing
      price on December 31 of the following year. Payments under the bonus arrangement
      were to be made at the discretion of the Company's management from time to
      time,
      as cash flow permitted. The officer resigned January 2, 2007. The following
      table summarizes the activity for the years ended December 31, 2006, 2005 and
      2004:





2006
            
            2005
            
            2004Beginning
                balance
            
            $
            409,970
            
            $
            525,914
            
            $
            1,281,014Bonus
                earned
            
            
            
            
            
            537,556Cash
                amounts paid
            
            
            
            
            
            (398,000
            )
            
            (755,100
            )Issuance
                of common stock (Note 12)
            
            
            (409,970
            )
            
            (255,500
            )Ending
                balance
            
            $
            -
            
            $
            409,970
            
            $
            525,914





**Other
      transactions with officers and directors:**





In
      February 2006, the Company entered into an agreement with KN Consulting, a
      company owned by John Martin, a director (effective January 2007 director of
      the
      Company, director of Old HPI for 2006 through September), to purchase technical
      and management advisement on engineering programs and prototype development
      for
      a fixed cost of $7,500 per month. The agreement is on a month-to-month basis
      and
      $75,000 is included in research and development costs in the consolidated
      statement of operations for the year ending December 31, 2006.





On
      December 29, 2006, the Company entered into a consulting agreement (the
“Consulting Agreement”) with HF Services, LLC (“HF Services”). HF Services is
      owned by Henry Fong, who at the time of the Consulting Agreement was entered
      into, was a director of the Company. Pursuant to the Consulting Agreement,
      HF
      Services will assist the Company in securities matter and compliance with
      applicable securities rules and regulations. The Consulting Agreement has a
      one-year term and provides for a $20,000 per month fee.





In
      September 2005, we initiated an assignment of $360,000 in promissory notes
      to a
      corporation that is owned by a former director, Michael S. Casazza, in exchange
      for a promissory note to the corporation that was due December 9, 2005, and
      which carried annual interest at 10%. These assigned notes were originally
      90-day notes bearing interest rates ranging from 22% to 24% per annum and also
      required an origination fee of between 5 1⁄2% to 6% to be paid along with
      principal and accrued interest on the due date. All of the aforementioned notes
      were repaid in February 2006.





F-35
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**10.**  **Commitments
      and contingencies:**





**Board
      of Director’s compensation:**





In
      September 2006, the Board of Directors of the Company approved a compensation
      plan for its directors, which included a one-time payment of approximately
      $30,000 in the aggregate, to the three independent directors of the Company.
      The
      plan also authorized an annual fee to be paid to each of the three independent
      directors of $12,240 effective January 1, 2006. The Board of Directors also
      approved the issuance of 225,000 stock options to the independent directors
      in
      the aggregate, for services performed (Note 12).





**Litigation:**





The
      Company is involved in various claims and legal actions arising in the ordinary
      course of business. In the opinion of management, the ultimate disposition
      of
      these matters will not have a material adverse impact either individually or
      in
      the aggregate on consolidated results of operations, financial position or
      cash
      flows of the Company. Accordingly, no provision has been made for any estimated
      losses with regard to such matters.





**Sub-license
      agreement:**





As
      discussed in Note 1, Old HPI entered into a sub-license agreement (the “SL
      Agreement”) with GHTI (a related party) in 2004. The SL Agreement included
      substantially all the rights of the original underlying license agreement
      between GHTI and UBC. The SL Agreement gives the Company exclusive rights to
      use
      the Hydrogen Now technology developed by UBC and any improvements and to market,
      manufacture and distribute products using the technology in the United States,
      Mexico, and Central and South America. The SL Agreement also gives the Company
      non-exclusive rights to market and distribute products using the technology
      and
      any improvements in Canada and to use any trademarks, service marks, or logos
      associated with the technology in the United States, Canada, Mexico and Central
      and South America.





The
      SL
      Agreement is effective, with certain provisions for early termination, for
      as
      long as the underlying license agreement is in effect. The underlying license
      agreement is effective through the latest expiration date of the patents that
      are the subject of the licensed technology. At present, the latest patent
      expiration date is February 2021. GHTI acquired the license with UBC under
      a
      royalty arrangement and is not currently in default under its license agreement
      with UBC.





Amounts
      owed under the SL Agreement with GHTI are non-interest bearing. The obligation
      was originally stated at its net present value of $2,615,200 using an effective
      interest rate of 6%. Remaining minimum payments required under the SL Agreement
      are as follows for the years ending December 31:





Total
            
            Amount
                representing interest
            
            Principal
                amount due2007
            
            $
                387,903
            
            $
                58,129
            
            $
                329,7742008
            
            666,667
            
            53,987
            
            612,680$
                1,054,570
            
            $
                112,116
            
            $
                942,454




Included
      in interest expense in the 2006 consolidated statement of operation from March
      14, 2006 (the date of the acquisition of HPI) is $40,241 related to this
      obligation.





**Operating
      leases:**





The
      Company subleases its Seattle lab and office facilities under a non-cancelable
      operating lease for approximately $7,200 per month through January 2007,
      increasing to approximately $7,300 per month through January 2008, at which
      time
      the lease expires. Pursuant to this lease, the Company is also required to
      pay
      its pro-rata share of taxes, operating expenses and improvement costs. In
      December 2006 the Company signed a one year lease for approximately $1,800
      per
      month for an apartment that was also being utilized as corporate
      offices.





F-36
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**10.**  **Commitments
      and contingencies (continued):**





**Operating
      leases (continued):**





Beginning
      February 2007, FFFC began leasing office space in West Palm Beach, Florida,
      its
      corporate headquarters for approximately $2,900 per month. This lease expires
      January 2010 and increases by approximately 5% February 1, 2008 and 2009.
      Pursuant to this lease, FFFC is also required to pay its pro-rata share of
      taxes, operating expenses and improvement costs.





Future
      minimum lease payments due under non-cancelable operating leases as of December
      31, 2006, including the FFFC lease above are as follows:





Year
                ending December 31,
            
            Amount2007
            
            $
                139,0002008
            
            44,0002009
            
            38,0002010
            
            3,000$
                224,000





Rent
      expense for the years ending December 31, 2006, 2005 and 2004 was approximately
      $223,000, $195,000 and $283,000, respectively.





**Consulting
      agreements:**





In
      February 2006, FFFC entered into a consulting agreement with a financial advisor
      (a former officer of FFFC) to provide assistance to FFFC in the placement of
      debt or equity financing with prospective investors. The term of the agreement
      is for three years, but can be terminated at any time by either party with
      60
      days notice. The advisor is compensated during the term of the consulting
      agreement as the advisor is deemed successful in completing debt or equity
      financings for or on behalf of FFFC. During 2006, the financial advisor assisted
      FFFC in restructuring and or obtaining approximately $4,500,000 of investor
      notes. Pursuant to the agreement, the advisor was paid $134,972 and received
      75,000 shares of the Company’s common stock. The shares were valued at $224,215
      and are included in loss from discontinued operations in the consolidated
      statement of operations for the year ended December 31, 2006.





In
      addition, the advisor received warrants to purchase up to 436,206 shares of
      FFFC’s common stock at an exercise price of $1.00 per share. The warrants were
      valued at $355,000 based upon the Black-Scholes option-pricing model which
      is
      included in loss from discontinued operations in the consolidated statement
      of
      operations for the year ended December 31, 2006.





In
      conjunction with the Asset Sale, a FFFC director and officer (the “Director”)
      (resigned January 2007) signed a five-year non-compete agreement with the buyer
      and also signed a release, waiving his right to any future commissions that
      he
      was previously entitled to. FFFC agreed to compensate the Director $100,800
      annually, over the five-year term of the non-compete agreement. Such
      compensation is to be applied to reduce the loan and interest receivable from
      the Director (see Note 12). If the Director breaches his non-compete agreement,
      the Director is no longer entitled to compensation and will be liable for any
      amount remaining on the loan. Accordingly, FFFC expensed $92,400 for the year
      ended December 31, 2006 (included in loss from discontinued operations in the
      consolidated statement of operations) and the interest and note receivable
      was
      reduced by $92,400.





On
      July
      31, 2006, the Company entered into a consulting agreement with a third party
      to
      provide financial services. Under the consulting agreement, which has a term
      of
      one year, the financial advisor received 300,000 shares of the Company’s common
      stock. The 300,000 shares were valued at $555,000 or $1.85 per share (the market
      price of the common stock on the date of the agreement). The cost of the
      services is being amortized on a straight-line basis as earned over the one
      year
      term of the agreement. Accordingly, approximately $135,000 for the year ended
      December 31, 2006 is included in corporate selling, general and administrative
      expense in the consolidated statement of operations. Pursuant to the consulting
      agreement, the advisor is required to provide strategic corporate advice
      relating to potential mergers, acquisitions and dispositions and other corporate
      transactions, including such services provided to the Company with respect
      to
      its acquisition of Old HPI, reasonably requested by the Company from time to
      time


F-37
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**10.**  **Commitments
      and contingencies (continued):**





**Consulting
      agreements (continued):**





during
      the term of the consulting agreement. The Company allocated $227,162 of the
      value assigned to the services to the acquisition of Old HPI.





On
      July
      31, 2006 the Company entered into a consulting agreement with a third party
      to
      provide financial services to the Company. Pursuant to the agreement, which
      has
      a term of one year, the Company issued 40,000 shares of common stock and a
      warrant to purchase 150,000 shares of common stock at an exercise price of
      $1.98
      per share, expiring three years from the date of issuance. The 40,000 shares
      of
      common stock were valued at $74,000 or $1.85 per share (the market price of
      the
      common stock on the date of the agreement). The warrant to purchase 150,000
      shares of common stock was valued at $201,600 based upon the Black-Scholes
      option-pricing model. The cost of the services is being amortized on a
      straight-line basis as earned over the one year term of the agreement.
      Accordingly, approximately $115,000 for the year ended December 31, 2006 is
      included in corporate selling, general and administrative expense in the
      consolidated statement of operations.





**11.**  **Redeemable
      preferred stock:**





**Series
      K convertible preferred stock:**





In
      August
      2005, the Company issued 3,055 shares of 6% Series K convertible preferred
      stock
      (the “Series K Preferred Stock”) along with warrants to purchase 175,000 shares
      of common stock in exchange for all outstanding shares of Series G and I
      preferred stock (Note 12). The Company reduced the carrying value of the Series
      K preferred stock by the relative fair value of the warrants ($355,000), which
      was based on the Black-Scholes option-pricing model, with an offset to
      additional paid-in capital. The Series K Preferred Stock is convertible at
      the
      holder’s option at any time through June 2009 into shares of the Company’s
      common stock at a conversion price equal to the lesser of (i) $2.75 per share
      and (ii) 65% of the 5 day average closing bid price of the Company’s common
      stock as specified in the agreement, provided that the percentage of the 5
      day
      average closing bid price shall increase to 75% upon the occurrence of certain
      events. The holder of each share of the Series K preferred stock is entitled
      to
      cumulative dividends at 6% per annum, payable quarterly, with an 18% dividend
      default rate. Dividends are payable in cash or shares (at market value) of
      the
      Company’s common stock. The beneficial conversion feature was valued at
      $2,277,000 using the effective conversion price. As a result, the Company
      reduced the carrying value of the Series K Preferred Stock for this amount
      with
      an offset to additional paid-in capital. The warrants and beneficial conversion
      feature are being accreted over the four-year term of the Series K Preferred
      Stock, and as a result, loss applicable to common stockholders was increased
      by
      $428,000 and $219,300 for the years ended December 31, 2006 and 2005,
      respectively. During the year ended December 31, 2006, based on the conversion
      of an aggregate shares of 2,099 Series K, the Company accreted $1,706,000,
      with
      an offset to additional paid-in capital. In January 2007 the remaining 445
      shares of Series K Preferred Stock, plus the unpaid dividends, were converted
      to
      an aggregate of 483,253 shares of common stock of the Company, at a conversion
      price of $0.97 for the 445 shares of Series K Preferred Stock and cumulative
      unpaid dividends of $36,490 (accrued at December 31, 2006) were converted at
      $1.49 per share.





Due
      to
      the terms and conditions of the Series K Preferred Stock, which may require
      redemption which is outside the control of the Company, the Series K Preferred
      Stock is not included in stockholders’ equity (deficiency) at December 31, 2006
      and 2005. During 2006, 2,099 shares of the Series K Preferred Stock, plus
      cumulative unpaid dividends of $124,064, were converted into 1,907,128 shares
      of
      common stock of the Company, at conversion prices ranging from $0.99 to $2.75
      for the 2,099 shares of Series K Preferred Stock and $1.59 to $5.13 for the
      unpaid dividends. During 2005, 511 shares of Series K Preferred Stock, plus
      cumulative unpaid dividends of $4,329 were converted into 186,777 shares of
      common stock at a conversion price of $2.75 for the 511 shares of Series K
      Preferred Stock and an average of $5.59 for the unpaid dividends.





F-38
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**12.**  **Stockholders’
      equity (deficiency):**





**Notes,
      interest and stock subscription receivables:**





At
      December 31, 2006 and 2005, notes and interest receivable from a director and
      officer (resigned January 2007) of FFFC of $454,966 and $547,002 is presented
      as
      a reduction in stockholders’ equity (deficiency) based on management’s
      evaluation of repayment intentions. The notes are due on demand and FFFC is
      no
      longer accruing interest on these notes due to uncertainty as to collection.
      Pursuant to a consulting agreement between FFFC and the officer, all
      compensation earned under the consulting agreement will be applied to this
      receivable (see Note 10).





In
      August
      2004, FFFC issued 40,000 shares of FFFC common stock to a convertible note
      holder in exchange for a stock subscription receivable. In February 2005, 15,000
      of the shares were returned to FFFC, reducing the stock receivable to $135,000.
      The $135,000 was written-off during the second quarter of 2006 in conjunction
      with the Settlement Agreement with the convertible noteholders discussed in
      Note
      7.





**Issuances
      of common stock:**





**2006
      issuances:**





During
      the year ended December 31, 2006, the Company issued 469,707 shares of its
      common stock to third parties valued at $1,526,142 as payment on long-term
      convertible debt and accrued interest of $1,268,486 as discussed in Note 7.
      The
      stock was issued at 80% to 85% of market value of the common stock and
      accordingly, the Company recorded the additional amount paid of $257,656, as
      a
      reduction to equity for the year ended December 31, 2006.





During
      the year ended December 31, 2006, the Company issued 203,288 shares of its
      common stock to third parties to satisfy convertible promissory notes,
      promissory notes and accrued interest aggregating $467,642. The stock issued
      was
      valued at $580,869, (representing approximately a 20% discount to the ten day
      average market price of the common stock prior to the conversion).





During
      the year ended December 31, 2006, the Company issued 357,307 shares of its
      common stock valued at $1,600,487 to satisfy $730,861 of convertible notes
      and
      other liabilities of FFFC. The stock was issued at approximately 85% of market
      value, and accordingly, the Company recorded an additional expense of $869,626
      (included in loss from discontinued operations in the consolidated statement
      of
      operations) for the year ended December 31, 2006.





During
      the year ended December 31, 2006, the Company issued 60,000 shares of its common
      stock and warrants to purchase 60,000 shares of the Company’s common stock to
      third parties in conjunction with a private placement. The warrants have a
      term
      of three years and an exercise price of $5.00. The Company received proceeds
      of
      $240,000 in the private placement.





During
      the year ended December 31, 2006, the Company issued 28,179 shares of its common
      stock valued at $66,606 in consideration of not meeting the due date on a
      promissory note. Accordingly, $66,606 is included in interest expense in the
      consolidated statement of operations for the year ended December 31,
      2006.





During
      the year ended December 31, 2006, the Company issued 70,000 shares of its common
      stock upon the exercise of warrants to purchase 70,000 shares of common stock.
      The Company received proceeds of $105,000 upon the exercise.





During
      the year ended December 31, 2006, the Company issued 492,123 shares of its
      common stock valued at $782,421 (based on the market value of the common stock
      on the date of settlement) to satisfy $676,705 of accounts, notes, interest
      and
      accrued wages payable. Certain shares of the stock were issued at up to a
      discount of 15% of the market value of the common stock, resulting in an excess
      of $105,716, which is included in corporate, selling, general and administrative
      expenses in the consolidated statement of operations for the year ended December
      31, 2006.





Other
      issuances of common stock of the Company in 2006 are disclosed in Notes 1,
      7, 9,
      10 and 11.





F-39
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**12.**  **Stockholders’
      equity (deficiency) (continued):**





**Issuances
      of common stock:**





**2005
      issuances:**





During
      the year ended December 31, 2005, the Company sold 725,332 shares of common
      stock in a private placement for $3.00 per share and received proceeds of
      $2,175,996, from which the Company paid customary fees and expenses, including
      fees to brokers and consultants of $180,000. In conjunction with the private
      placement, the investors received warrants to purchase up to 362,666 shares
      of
      common stock at an exercise price of $5.50 per share, which expire in June
      2008.





During
      the year ended December 31, 2005, the Company issued 326,608 shares of common
      stock upon the conversion of warrants for $906,644, at an average conversion
      price of approximately $2.78 per share.





During
      the year ended December 31, 2005, the Company issued 130,142 shares of common
      stock to a third party in exchange for their assumption of the Company and
      Key
      accounts payable of $553,840 at an average price of $4.26 per share, the market
      price of the common stock at the date of conversion. In addition, the Company
      and Key converted notes and interest payable of $161,209 due to the original
      third party creditors into 43,935 shares of common stock at a conversion price
      of $3.67 per share, the market price of the common stock at the date of
      conversion. Lastly, the Company issued 16,015 shares of common stock for legal
      services valued at $78,866 at an average conversion price of $4.92 per share,
      the market price of the common stock at the date of conversion.





During
      the year ended December 31, 2005, the Company issued 207,230 shares of common
      stock valued at $945,138 as payment on long-term debt and accrued interest.
      The
      stock was issued at 85% of market value and accordingly, the Company recorded
      additional expense of $152,769 during the year ended December 31,
      2005.





During
      the year ended December 31, 2005, the Company issued 15,152 shares of common
      stock valued at $95,013 in satisfaction of a FFFC liability.





In
      December 2005, the Company issued 50,000 shares of common stock from the 2005
      Plan to the Company’s President. The shares were issued in lieu of a cash
      payment of $255,500 for accrued bonuses payable.





**2004
      issuances:**





During
      the year ended December 31, 2004, the Company issued 131,796 shares of common
      stock upon the exercise of stock options and warrants for $230,827 cash and
      for
      retirement of interest and note payable of $148,962 at an average exercise
      price
      of $1.75 per share.





During
      the year ended December 31, 2004, the Company converted $25,647 of accounts
      payable for common stock previously issued as contingent
      consideration.





In
      October 2004, the Company issued 4,325 shares of common stock, in exchange
      for
      legal services. The shares were valued at $25,582 (the market-price of the
      common stock at the date of issuance).





In
      November 2004, the Company issued 2,500 shares of common stock to a director
      of
      the Company in exchange for $6,450 of accrued amounts owed at a conversion
      price
      of $2.58 per share, the market price at the date of issuance.





**Treasury
      stock transactions:**





**2006
      transactions:**





In
      March
      2006, the Company issued 1,200,000 shares of its common stock to FFFC in full
      satisfaction of notes, advances and interest payable that the Company and
      Denaris owed FFFC and Chex. The value assigned to the shares of $6,144,000
      was
      based on the market price of the Company’s common stock on the date of
      settlement.





F-40
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**12.**  **Stockholders’
      equity (deficiency) (continued):**





**Treasury
      stock transactions (continued):**





**2006
      transactions (continued):**





In
      December 2006, the Company issued 300,000 shares of its common stock to FFFC
      in
      exchange for an account receivable from FFFC. The shares were valued at $450,000
      (the approximate market price of the Company’s common stock on the date of
      issuance). FFFC plans on distributing these shares in satisfaction of accrued
      liabilities.





During
      the year ended December 31, 2006, FFFC purchased 41,858 shares of the Company’s
      common stock from a third party for $192,299 or $4.59 per share (the market
      price of the Company’s common stock on the purchase dates). The cost of the
      shares has been added to treasury stock.





**2005
      transactions:**





During
      the year ended December 31, 2005, Chex sold 82,308 shares of common stock of
      the
      Company for $220,329 or $2.68 per share (the market price of the common stock
      at
      the date of sale). The stock was acquired at an average cost of approximately
      $3.57 per share and the cost of the shares sold ($293,583) has been removed
      from
      treasury stock. The difference between the sales price and cost of the shares
      sold ($73,254) has been classified as a reduction of additional paid-in
      capital.





**2004
      transactions:**





During
      the year ended December 31, 2004, Chex sold 228,050 shares of common stock
      of
      the Company for approximately $919,514 or $4.03 per share (the market price
      of
      the common stock at the date of sale). The stock was acquired at an average
      cost
      of approximately $3.27 per share and the cost of the shares sold ($745,247)
      has
      been removed from treasury stock. The difference between the sales price and
      cost of the shares sold ($174,267) has been classified as additional paid in
      capital.





During
      the year ended December 31, 2004, Chex purchased 17,250 shares of the Company’s
      common stock for $113,625 or $6.59 per share (the market price of the Company's
      common stock on the purchase date). The cost of the shares has been added to
      treasury stock.





During
      the year ended December 31, 2004, Chex distributed 7,500 shares of the Company’s
      common stock to third parties for services rendered to the Company. Accordingly,
      the Company has recorded an expense of $50,750 or approximately $6.77 per share
      (the market price of the common stock on the distribution date).





**Stock
      options and warrants:**





**Stock
      options:**





A
      summary
      of the status of stock options outstanding and exercisable and weighted average
      exercise prices is as follows:





2003
                Plan
            2005
                Plan
            TotalWeighted
            
            Weighted
            
            Weightedaverage
            
            average
            
            averageexercise
            
            exercise
            
            exerciseShares
            price
            Shares
            price
            Shares(1)
            price(1)January
                1, 2004
            228,916
            $
                5.04
            
            
            526,650
            $
                22.50Granted
            333,334
            5.10
            -
            
            333,334
            5.10Forfeited
            -
            
            -
            
            (168,500)Exercised
            (68,700)
            4.08
            -
            
            (68,700)
            4.08





F-41
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**12.**  **Stockholders’
      equity (deficiency) (continued):**





**Stock
      options and warrants (continued):**





**Stock
      options (continued):**





2003
                Plan
            2005
                Plan
            TotalWeighted
            
            Weighted
            
            Weightedaverage
            
            average
            
            averageexercise
            
            exercise
            
            exerciseShares
            price
            Shares
            price
            Shares(1)
            price(1)December
                31, 2004
            493,550
            5.22
            
            
            622,784
            10.56Granted
            -
            
            -Forfeited
            -
            
            -
            
            (127,567)Exercised
            (8,584)
            4.08
            -
            
            (8,584)
            4.08December
                31, 2005
            484,966
            5.23
            
            
            486,633
            5.34Granted
            -
            
            447,500
            $
                1.64
            447,500
            1.64Forfeited
            -
            
            -
            
            (1,667)
            (36.00)Exercised
            -
            
            -
            
            -December
                31, 2006
            484,966
            $
                5.23
            447,500
            $
                1.64
            932,466
            $
                3.51





All
      options outstanding at December 31, 2006 are exercisable and expire from May
      2008 through September 2011.





The
      exercise prices of all options outstanding at December 31, 2006 were in excess
      of the market price of the Company’s common stock at that date and thus there is
      no intrinsic value.





(1)
            Total
                shares and the calculation for the weighted average exercise price
                for the
                year ended December 31, 2004 include 14,400 options outstanding from
                the
                1993 Option Plans with an exercise price of $18.00. There had been
                no
                changes in the number of options issued under the 1993 Option Plans
                during
                the year ended December 31, 2004. The 14,400 options expired in 2005.
                Also
                included in the total shares and the calculation for the weighted
                average
                exercise price for the years ended December 31, 2004 and 2005 are
                114,834
                and 1,667 options outstanding, respectively, from the 1999 Option
                Plan,
                with a weighted average exercise price of $32.58 (2004) and $36.00
                (2005).
                In 2005 and 2006, 113,167 and 1,667 options issued under the 1999
                Option
                Plan expired, respectively.





The
      following table sets forth the exercise price range, number of shares, weighted
      average exercise price and remaining contractual lives by groups of options
      as
      of December 31, 2006.





Number
            
            Weighted
            
            WeightedExercise
            Of
                options
            
            average
            
            Averageprice
                range
            Outstanding
            
            exercise
                price
            
            remaining
                life$1.60
                - $2.00
            447,500
            
            $1.64
            
            4.73$4.08
                - $6.18
            484,966
            
            $5.23
            
            2.20932,466
            
            $3.51
            
            3.41





In
      1993,
      the Company adopted two stock option plans: the 1993 Stock Option Plan and
      the
      1993 Stock Option Plan for Non-Employee Directors (the "1993 Option Plans").
      In
      January 1999, the Company's Board of Directors adopted an incentive stock option
      plan (the "1999 Option Plan") covering up to 166,667 shares of the Company's
      common stock. In April 2000, the Company's Board of Directors amended the 1999
      Option Plan to cover up to 283,334 shares of the Company's common stock, which
      have all been granted.





In
      January 2003, the Company adopted the 2003 Stock Option Plan (the "2003 Plan").
      Common stock reserved for options under the 2003 Plan total
      583,334.





F-42
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**12.**  **Stockholders’
      equity (deficiency) (continued):**





**Stock
      options and warrants (continued):**





**Stock
      options (continued):**





In
      December 2005, the Company adopted the 2005 Stock Option Plan (the “2005 Plan”).
      The 2005 Plan was approved by the Company’s stockholders at the 2005 Annual
      Meeting of Stockholders. The purpose of the plan is designed to attract, retain
      and motivate employees, directors and consultants. Incentives may consist of
      opportunities to purchase or receive shares of the Company’s common stock. The
      number of shares of common stock which may be issued under the 2005 Plan is
      not
      to exceed 1,400,000 shares of common stock. During 2006 and 2005 the Company
      issued an aggregate of 267,341 shares of common stock from the 2005 Plan and
      granted five-year options to purchase 447,500 shares of common stock to
      directors, officers, employees and consultants. The options have exercise prices
      between $1.60 and $2.00 (the market price of the common stock on their
      respective grant dates). The options were valued at an aggregate value of
      $649,138 based on the Black-Scholes option pricing model and are included in
      corporate, selling, general and administrative in the consolidated statement
      of
      operations for the year ended December 31, 2006, as they vested immediately
      upon
      issuance. As of December 31, 2006, there are 685,159 shares reserved for future
      issuance.





In
      July
      2004, the Company granted five-year options to purchase 333,334 shares of common
      stock to directors, officers, employees and consultants of the Company, which
      includes 97,500 options to Chex employees. The options were granted under the
      2003 Plan. The options have an exercise price of $5.10 per share (the market
      price of the common stock on the date of grant). The 75,000 options that were
      granted to the consultants were valued at $6,970 based upon the Black-Scholes
      option pricing model.




There
      were no grants of stock options in 2005.





**Warrants:**





A
      summary
      of the status of common stock warrant transactions for the years ending December
      31, 2006, 2005 and 2004 are as follows:





WeightedaverageShares
            
            exercise
                priceOutstanding
                at January 1, 2004
            1,354,207
            
            $
                23.32Granted
            183,333
            
            4.74Exercised
            (63,096)
            
            1.62Forfeited
            (824,141)
            
            31.14Outstanding
                at December 31, 2004
            650,303
            
            10.02Granted
            6,988,075
            
            4.68Exercised
            (318,024)
            
            2.74Forfeited
            (23,954)
            
            13.03Outstanding
                at December 31, 2005
            7,296,400
            
            5.11Granted
            1,932,841
            
            2.87Exercised
            (70,000)
            
            1.50Forfeited
            (6,176,466)
            
            5.07Outstanding
                at December 31, 2006
            2,982,775
            
            $
                3.14





The
      following table sets forth the exercise price range, number of shares, weighted
      average exercise price and remaining contractual lives by groups of warrants
      as
      of December 31, 2006.





F-43
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**12.** **Stockholders’
          equity (deficiency) (continued):**





**Stock
      options and warrants (continued):**





**Warrants
      (continued):**





Exercise
                price range
            Number
                of warrantsoutstanding
            
            Weighted
                averageexercise
                price
            
            Weighted
                averageremaining
                life$1.50
                - $3.00
            2,407,938
            
            $2.65
            
            1.10$3.01
                - $4.50
            136,666
            
            $4.13
            
            1.13$5.00
                - $6.00
            435,671
            
            $5.41
            
            1.26$27.30
            2,500
            
            $27.30
            
            .062,982,775
            
            $3.14
            
            1.17





**2006
      transactions:**





During
      the year ended December 31, 2006, the Company issued warrants to purchase 66,750
      shares of the Company’s common stock to noteholders as part of a settlement for
      a period of three years at exercise prices of $2.00 and $4.71 per share. The
      market prices as of the date of the issuances ranged from $3.22 to $5.15. These
      warrants were valued at $224,972 based on the Black-Scholes option pricing
      model
      and are included in corporate general, selling and administrative expense in
      the
      consolidated statement of operations for the year ended December 31,
      2006.





During
      the year ended December 31, 2006, the Company issued warrants (to FFFC
      convertible noteholders as part of a settlement) to purchase 21,091 shares
      of
      the Company’s common stock for a period of three years at an exercise price of
      $5.00 per share (the market price of the common stock on the date the terms
      of
      the settlement were reached). These warrants were valued at $73,882 based on
      the
      Black-Scholes option pricing model and are included in loss from discontinued
      operations in the consolidated statement of operations for the year ended
      December 31, 2006.





During
      the year ended December 31, 2006, the Company reduced the exercise price of
      warrants to purchase 513,333 shares of common stock from a range of $4.50 to
      $6.00 to a range of $1.50 to $2.00 and extended the terms for five years. The
      repriced and extended warrants were valued at $182,182 in excess of the
      remaining value of the original warrants at the date of the modifications based
      on the Black-Scholes option-pricing model. Accordingly, $182,182 is included
      in
      interest expense in the consolidated statement of operations for the year ended
      December 31, 2006.





In
      March
      2006, in conjunction with the Old HPI acquisition, the Company issued warrants
      to purchase 1,600,000 shares of the Company’s common stock for a one year
      period, at an exercise price of $3.00 per share. The warrants were valued at
      $4,246,400 based on the Black-Scholes option pricing model and are included
      as
      part of the purchase price of Old HPI.





In
      September 2006, the Company lowered the exercise price of the warrants to
      purchase 362,666 shares of common stock that were issued in 2005 in conjunction
      with a private placement from $5.50 to $1.50 per share for those warrant holders
      who cared to exercise their warrants prior to September 29, 2006. As an
      additional incentive for the warrant holders to exercise their warrants, the
      Company authorized the issuance of one new warrant to purchase one share of
      the
      Company’s common stock for each two shares issued upon exercise of the original
      warrant. Warrants to purchase 70,000 shares of common stock were exercised
      and
      accordingly, the Company issued warrants to purchase 35,000 shares of common
      stock with an exercise price of $2.25 per share, expiring five years from the
      date of issuance. The warrants were valued at $44,450 based on the Black-Scholes
      option-pricing model and are included in corporate general, selling and
      administrative expense in the consolidated statement of operations for the
      year
      ended December 31, 2006.





**2005
      transactions:**





During
      the year ended December 31, 2005, the Company extended the term of certain
      warrants. As a result of the modification, the Company recognized an additional
      $138,573 of expense for the year ended December 31, 2005.




F-44
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**12.**  **Stockholders’
      equity (deficiency) (continued):**





**Stock
      options and warrants (continued):**





**Warrants
      (continued):**





**2004
      transactions:**





In
      March
      2004, the Company issued warrants to acquire up to 133,333 shares of common
      stock at an exercise price of $9.00 to the Lenders of the $5 million convertible
      promissory notes (Note 7). These warrants were valued at $358,400 based upon
      the
      Black-Scholes option-pricing model. In June 2004 the Company reduced the
      exercise price of these warrants to $7.65 per share. In August 2004, the Company
      reduced the exercise price of these warrants to $4.26 per share. As a result
      of
      the additional allocation resulting from these reductions in exercise price,
      the
      Company allocated an additional $102,800 to these warrants. In addition,
      warrants to acquire up to 50,000 shares of common stock exercisable at $6.00
      per
      share for a period of two years were issued to an advisory firm in connection
      with the convertible notes. These warrants were valued at $184,200 based upon
      the Black-Scholes option-pricing model.





During
      the year ended December 31, 2004, in conjunction with various private
      placements, the Company issued warrants to purchase 198,529 shares of common
      stock at prices ranging from $3.00 to $6.00 per share.





The
      fair
      value of each warrant granted during 2006, 2005 and 2004 was estimated on the
      date of grant using the Black-Scholes option-pricing model. The following
      weighted average assumptions were utilized:





2006
            2005
            2004Expected
                dividend yield
            0
            0
            0Expected
                stock price volatility
            111%
            111%
            99%Risk-free
                interest rate
            2.0%
            2.0%
            2%Expected
                life of warrants
            1
                year
            1
                year
            2
                yearsWeighted
                average fair value on grant date
            $2.51
            $0.28
            $1.85





**13.**  **Selected
      quarterly financial data (unaudited):**





Selected
      unaudited quarterly financial data for the years ended December 31, 2006 and
      2005 after retroactive restatement (in 2005 only) for discontinued operations
      is
      summarized below.





2006First
            
            Second
            
            Third
            
            Fourthquarter
            
            quarter
            
            Quarter
            
            QuarterRevenues
                from continuing operations
            
            $
            36,289
            
            $
            31,079
            
            $
            30,363
            
            $
            28,601Loss
                from continuing operations
            
            
            (1,551,399
            )
            
            (2,151,050
            )
            
            (2,637,831
            )
            
            (20,779,628(c)
            )Gain
                (loss) from discontinued operations(a)
            
            
            1,230,206(b
            )
            
            (1,231,121
            )
            
            (313,009
            )
            
            195,029Net
                loss (a)
            
            
            (321,193
            )
            
            (3,382,171
            )
            
            (2,950,840
            )
            
            (20,584,599(c)
            )Accretion
                of preferred stock and deemed dividends
            
            
            (725,300
            )
            
            (199,700
            )
            
            (863,000
            )
            
            (453,700
            )Net
                loss applicable to common shareholders (a)
            
            
            (1,046,493
            )
            
            (3,581,871
            )
            
            (3,813,840
            )
            
            (21,038,299(c)
            )Basic
                and diluted loss per common share (a)
            
            
            (0.11
            )
            
            (0.31
            )
            
            (0.30
            )
            
            (1.78
            )Loss
                from continuing operations per common share (a)
            
            
            (0.25
            )
            
            (0.20
            )
            
            (0.27
            )
            
            (1.76
            )Income
                (loss) from discontinued operations per common share
            
            
            .14
            
            
            (0.11
            )
            
            (0.03
            )
            
            0.02





F-45
 **HYDROGEN
            POWER, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            EQUITEX, INC.)**
 
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **YEARS
            ENDED DECEMBER 31, 2006, 2005 AND 2004**




**13.**  **Selected
      quarterly financial data (unaudited) (continued):**





2005(d)First
            
            Second
            
            Third
            
            Fourthquarter
            
            Quarter
            
            quarter
            
            QuarterRevenues
                from continuing operations
            
            $
            72,804
            
            $
            45,774
            
            $
            40,995
            
            $
            37,326(Loss)
                income from continuing operations
            
            
            (637,358
            )
            
            (2,443,645
            )
            
            (1,151,177
            )
            
            1,641,747Loss
                from discontinued operations
            
            
            (1,219,635
            )
            
            (1,383,298
            )
            
            (1,251,287
            )
            
            (2,397,584
            )Net
                loss
            
            
            (1,856,993
            )
            
            (3,826,943
            )
            
            (2,402,464
            )
            
            (755,837
            )Preferred
                stock beneficial conversion feature, deemed dividends and other
                transactions
            
            
            (55,370
            )
            
            (57,830
            )
            
            (425,366
            )
            
            (93,522
            )Net
                loss applicable to common shareholders
            
            
            (1,912,363
            )
            
            (3,884,773(e
            ))
            
            (2,827,830
            )
            
            (849,359(f
            ))Basic
                and diluted loss per common share
            
            
            (0.32
            )
            
            (0.61
            )
            
            (0.39
            )
            
            (0.07
            )(Loss)
                income from continuing operations per common share
            
            
            (0.12
            )
            
            (0.39
            )
            
            (0.22
            )
            
            0.26Loss
                from discontinued operations per common share
            
            
            (0.20
            )
            
            (0.22
            )
            
            (0.17
            )
            
            (0.33
            )





(a)
            Includes
                adjustments of approximately $279,000, $133,000 and $31,000, respectively,
                to increase income tax expense during the first, second and third
                quarters
                of 2006. These adjustments were not reflected in the Company’s quarterly
                reports and therefore the correction was made in the fourth quarter
                of
                2006.





(b)
            Includes
                $4,145,835 recorded as gain from Asset
                Sale.





(c)
            Includes
                $19,316,074 expense of acquired technology, trade name and sub-license
                agreement.





(d)
            Certain
                amounts have been reclassified to confirm with the 2006 presentation
                and
                may differ from previously reported 2005
                classifications.





(e)
            Includes
                $1,596,111 recorded as an impairment of a note receivable related
                to
                iGames litigation and settlements.





(f)
            Includes
                $1,333,000 recorded as a deferred tax
                benefit.








F-46