UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549








**FORM
      10-Q**








x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarter ended**March
                31, 2006** ̈
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d)OF
                THE SECURITIES EXCHANGE ACT OF 1934For
                the transition period from _________
                to__________








Commission
      File No. **0-12374**








**EQUITEX,
      INC.**


(Exact
      Name of Registrant as Specified in its Charter)








**Delaware**
            **84-0905189**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer Identification No.)








**7315
      East Peakview Avenue**


**Englewood,
      Colorado 80111**


(Address
      of principal executive offices) (Zip code)








**(303)
      796-8940**


(Registrant’s
      telephone number including area code)





Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months, and (2) has been subject to such filing requirements for
      the past 90 days. x Yes   ̈ No





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





Number
      of
      shares of common stock outstanding at May 18 ,
      2006:
      11,503,402





EQUITEX,
      INC. AND SUBSIDIARIES





PART
                I
            FINANCIAL
                INFORMATION
            PageItem
                1.
            Financial
                statements:Report
                of Independent Registered Public Accounting Firm
            2Condensed
                consolidated balance sheets -
              March
                31, 2006 (unaudited) and December 31, 2005
            3
                -
                4Condensed
                consolidated statements of operations-
              three
                months ended March 31, 2006 and 2005 (unaudited)
            5Condensed
                consolidated statement of changes in stockholders' equity - three
                months
                endedMarch 31, 2006 (unaudited)
            6Condensed
                consolidated statements of cash flows -
              three
                months ended March 31, 2006 and 2005 (unaudited)
            7
                -
                8Notes
                to condensed consolidated financial statements (unaudited)
            9
                -20Item
                2.
            Management's
                discussion and analysis of financial condition and results of
                operations
            21
                - 26Item
                3.
            Quantitative
                and qualitative disclosures of market risk
            27Item
                4.
            Disclosure
                controls and procedures
            28PART
                II
            OTHER
                INFORMATIONItem
                1.
            Legal
                proceedings
            28Item
                2.
            Changes
                in securities and use of proceeds
            28Item
                3.
            Defaults
                upon senior securities
            28Item
                4.
            Submission
                of matters to a vote of security holders
            29Item
                5.
            Other
                information
            29Item
                6.
            Exhibits
            29Signatures
            
            30











REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











Board
      of
      Directors


Equitex,
      Inc.





We
      have
      reviewed the accompanying condensed consolidated balance sheet of Equitex,
      Inc.
      and subsidiaries as of March 31, 2006, the related condensed consolidated
      statements of operations and cash flows for the three-month periods ended March
      31, 2006 and 2005 and the related condensed consolidated statement of changes
      in
      stockholders’ equity for the three-month period ended March 31, 2006. These
      interim financial statements are the responsibility of the Company’s
      management.





We
      conducted our reviews in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures to financial
      data and making inquiries of persons responsible for financial and accounting
      matters. It is substantially less in scope than an audit conducted in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States), the objective of which is the expression of an opinion regarding the
      financial statements taken as a whole. Accordingly, we do not express such
      an
      opinion.





Based
      on
      our reviews, we are not aware of any material modifications that should be
      made
      to the accompanying condensed consolidated financial statements referred to
      above for them to be in conformity with accounting principles generally accepted
      in the United States of America.





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      of
      Equitex, Inc. and subsidiaries as of December 31, 2005, and the related
      consolidated statements of operations, changes in stockholders’ equity, and cash
      flows for the year then ended (not presented herein); and in our report dated
      April 10, 2006 (which includes an explanatory paragraph stating that on January
      31, 2006 FastFunds Financial Corporation, a majority-owned subsidiary of the
      Company, sold substantially all the assets of its wholly-owned 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.) we expressed an unqualified opinion on those
      consolidated financial statements. In our opinion, the information set forth
      in
      the accompanying condensed consolidated balance sheet as of December 31, 2005,
      is fairly stated, in all material respects, in relation to the consolidated
      balance sheet from which it has been derived.











/s/
      GHP
      HORWATH, P.C.





Denver,
      Colorado


May
      18,
      2006








2


**EQUITEX,
                  INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED BALANCE
                  SHEETS**March
                  31,
              
              December
                  31,2006
              
              2005(unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              6,318,198
              
              $
              133,541Assets
                  of discontinued operations (including cash of $6,169,261) (Note
                  2)
              
              
              6,611,787Receivables,
                  net
              
              
              278,742
              
              
              252,089Prepaid
                  expenses and other
              
              
              124,007
              
              
              33,202Investment
                  in Hydrogen Power, Inc. (Note 1)
              
              
              
              
              
              2,526,300Assets
                  held for sale (Note 2)
              
              
              
              
              
              21,997,466Total
                  current assets
              
              
              13,332,734
              
              
              24,942,598Notes
                  and interest receivable, net, including related parties of $306,137
                  (2006)and
                  $381,136 (2005) (Note 3)
              
              
              602,818
              
              
              3,899,526Property,
                  equipment and leaseholds, net
              
              
              68,162
              
              
              52,178Intangible
                  and other assets, net (Note 1)
              
              
              20,119,482
              
              
              638,84620,790,462
              
              
              4,590,550$
              34,123,196
              
              $
              29,533,148






(Continued)
 3


**EQUITEX,
                  INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED BALANCE SHEETS
                  (CONTINUED)**March
                  31,
              
              December
                  31,2006
              
              2005(unaudited)LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Checks
                  issued in excess of cash in bank
              
              
              
              
              $
              1,105,379Accounts
                  payable
              
              $
              1,269,438
              
              
              768,189Accrued
                  expenses and other liabilities, including related party accruals
                  of$525,316
                  (2006) and $410,000 (2005) (Note 5)
              
              
              1,291,344
              
              
              3,043,543Convertible
                  and other promissory notes and current portion of long-term
                  debt,including
                  related party notes of $144,036 (2006) and $614,695 (2005) (Note
                  4)
              
              
              2,286,763
              
              
              15,275,386Liabilities
                  of discontinued operations (Note 2)
              
              
              7,887,703
              
              
              513,395Liabilities
                  associated with assets held for sale (Note 2)
              
              
              
              
              
              154,047Total
                  current liabilities
              
              
              12,735,248
              
              
              20,859,939Long-term
                  debt, net of current portion (Note 4)
              
              
              1,421,318
              
              
              2,108,423Liabilities
                  associated with assets held for sale
              
              
              
              
              
              2,867,0001,421,318
              
              
              4,975,42314,156,566
              
              
              25,835,362Commitments
                  and contingencies (Notes 4, 5 and 6)Redeemable
                  preferred stock (Note 6):Series
                  K, 6% stated value $1,000 per share; 3,100 shares
                  authorized;2,344
                  (2006) and 2,544 (2005) shares issued and outstanding, net
                  ofdiscount
                  of $1,725,200 (2006) and $2,412,700 (2005)
              
              
              618,800
              
              
              131,300Stockholders'
                  equity (Note 7):Common
                  stock, $0.01 par value; 50,000,000 shares authorized;
                  12,395,558(2006)
                  and 8,495,849 (2005) issued; 11,185,821 shares (2006)
                  and8,486,112
                  shares (2005) outstanding
              
              
              123,956
              
              
              84,958Common
                  stock to be issued
              
              
              1,321Notes,
                  interest and stock subscription receivable
              
              
              (665,202
              )
              
              (682,002
              )Additional
                  paid-in capital
              
              
              53,931,374
              
              
              32,020,956Accumulated
                  deficit
              
              
              (27,770,677
              )
              
              (27,728,484
              )Less
                  treasury stock at cost; 1,209,737 shares (2006) and 9,737 shares
                  (2005)
              
              
              (6,272,942
              )
              
              (128,942
              )Total
                  stockholders' equity
              
              
              19,347,830
              
              
              3,566,486$
              34,123,196
              
              $
              29,533,148






See
            notes to condensed consolidated financial statements.
 4


**EQUITEX,
                  INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF
                  OPERATIONS****THREE
                  MONTHS ENDED MARCH 31, 2006 AND 2005
                  (UNAUDITED)**2006
              
              2005Credit
                  card income, net of provision for losses
              
              $
              36,289
              
              $
              72,804Corporate
                  selling, general and administrative
              
              
              868,226
              
              
              616,350Loss
                  from operations
              
              
              (831,937
              )
              
              (543,546
              )Other
                  income (expense):Interest
                  income, including related party interest of $19,797 (2005)
              
              
              8,353
              
              
              19,797Interest
                  expense, including related party interest of $7,390 (2006) and
                  $2,351
                  (2005)
              
              
              (414,815
              )
              
              (113,609
              )(406,462
              )
              
              (93,812
              )Loss
                  from continuing operations before income taxes
              
              
              (1,238,399
              )
              
              (637,358
              )Income
                  tax expense (Note 8)
              
              
              (313,000
              )Loss
                  from continuing operations
              
              
              (1,551,399
              )
              
              (637,358
              )Gain
                  (loss) from discontinued operations, net of income taxes (Note
                  2)
              
              
              1,509,206
              
              
              (1,219,635
              )Net
                  loss
              
              
              (42,193
              )
              
              (1,856,993
              )Accretion
                  of preferred stock (Note 6)
              
              
              (687,500
              )Deemed
                  preferred stock dividends (Note 6)
              
              
              (37,800
              )
              
              (55,370
              )Net
                  loss applicable to common stockholders
              
              $
              (767,493
              )
              $
              (1,912,363
              )Basic
                  and diluted net loss per common share:Loss
                  from continuing operations
              
              $
              (0.25
              )
              $
              (0.12
              )Income
                  (loss) from discontinued operations
              
              
              0.17
              
              
              (0.20
              )Basic
                  and diluted net loss per share
              
              $
              (0.08
              )
              $
              (0.32
              )Weighted
                  average number of common shares outstanding:Basic
                  and diluted
              
              
              9,017,417
              
              
              5,989,970






See
            notes to condensed consolidated financial statements.
 5


**EQUITEX,
                      INC. AND SUBSIDIARIES****CONDENSED
                      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
                      EQUITY****THREE
                      MONTHS ENDED MARCH 31, 2006 (UNAUDITED)**Notes,
                      interestCommon
                  
                  Additional
                  
                  Common
                  
                  and
                      stock
                  
                  
                  
                  TotalCommon
                      stock
                  
                  stock
                      to be
                  
                  paid-in
                  
                  treasury
                  
                  subscription
                  
                  Accumulated
                  
                  stockholders'Shares
                  
                  Amount
                  
                  issued
                  
                  capital
                  
                  stock
                  
                  receivable
                  
                  deficit
                  
                  equityBalances,
                      January 1, 2006
                  
                  
                  8,495,849
                  
                  $
                  84,958
                  
                  
                  
                  
                  $
                  32,020,956
                  
                  $
                  (128,942
                  )
                  $
                  (682,002
                  )
                  $
                  (27,728,484
                  )
                  $
                  3,566,486Issuance
                      of common stock, warrants and stock to beissued
                      to shareholders of HPI (Note 1)
                  
                  
                  2,338,990
                  
                  
                  23,390
                  
                  $
                  1,321
                  
                  
                  14,130,848
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  14,155,559Issuance
                      of common stock to subsidiary in satisfactionof
                      amounts owed (Notes 1 and 7)
                  
                  
                  1,200,000
                  
                  
                  12,000
                  
                  
                  
                  
                  
                  6,132,000
                  
                  
                  (6,144,000
                  )
                  
                  
                  
                  
                  
                  
                  
                  -Non-cash
                      compensation expense (Note 5)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  16,800
                  
                  
                  
                  
                  
                  16,800Conversion
                      of Series K preferred stock to common stock(Note
                      6)
                  
                  
                  73,859
                  
                  
                  739
                  
                  
                  
                  
                  
                  199,261
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  200,000Accretion
                      of Series K preferred stock (Note 6)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (687,500
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (687,500
                  )Issuance
                      of common stock in consideration of extensionson
                      notes payable (Note 7)
                  
                  
                  2,975
                  
                  
                  30
                  
                  
                  
                  
                  
                  15,265
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  15,295Issuance
                      of common stock in satisfaction of note payable,long-term
                      debt and accrued interest (Notes 4 and 7)
                  
                  
                  193,638
                  
                  
                  1,936
                  
                  
                  
                  
                  
                  978,027
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  979,963Issuance
                      of warrants to noteholders (including $147,764for
                      subsidiary noteholders) (Note 7)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  341,894
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  341,894Issuance
                      of common stock in satisfaction of subsidiaryliabilites
                      (Note 7)
                  
                  
                  90,247
                  
                  
                  903
                  
                  
                  
                  
                  
                  445,623
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  446,526Issuance
                      of subsidiary warrants (Note 5)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  355,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  355,000Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (42,193
                  )
                  
                  (42,193
                  )Balances,
                      March 31, 2006
                  
                  
                  12,395,558
                  
                  $
                  123,956
                  
                  $
                  1,321
                  
                  $
                  53,931,374
                  
                  $
                  (6,272,942
                  )
                  $
                  (665,202
                  )
                  $
                  (27,770,677
                  )
                  $
                  19,347,830






See
            notes to condensed consolidated financial statements.
 6


**EQUITEX,
                  INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH
                  FLOWS****THREE
                  MONTHS ENDED MARCH 31, 2006 AND 2005
                  (UNAUDITED)**2006
              
              2005Cash
                  flow used in operating activities from operating
                  activities:Net
                  loss
              
              $
              (42,193
              )
              $
              (1,856,993
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Gain
                  on sale of assets (Note 1)
              
              
              (4,145,835
              )Bad
                  debt expense
              
              
              75,000
              
              
              30,465Depreciation
                  and amortization
              
              
              514,510
              
              
              384,936Amortization
                  of discounts on convertible promissory notes payable related
                  tobeneficial
                  conversion features
              
              
              
              
              
              627,994Amortization
                  of discounts related to warrants attached to notes payable
              
              
              229,699Expense
                  incurred upon issuance of stock and warrants
              
              
              778,754Deferred
                  income taxes
              
              
              1,333,000Non-cash
                  compensation expense
              
              
              16,800Changes
                  in assets and liabilities, net of business acquisition and asset
                  sale:Decrease
                  in accounts receivable
              
              
              123,761
              
              
              427,658(Increase)
                  decrease in other receivables
              
              
              (13,504
              )
              
              14,866(Increase)
                  decrease in interest receivable and other assets
              
              
              (29,165
              )
              
              91,545Increase
                  (decrease) in due to credit card holders
              
              
              23,871
              
              
              (542
              )(Decrease)
                  increase in accounts payable and accrued liabilities
              
              
              (837,316
              )
              
              76,246Total
                  adjustments
              
              
              (1,930,425
              )
              
              1,653,168Net
                  cash used in operating activities
              
              
              (1,972,618
              )
              
              (203,825
              )Cash
                  flows from investing activites:Cash
                  acquired in business acquisition of HPI (Note 1)
              
              
              2,203,121Net
                  (increase) decrease in credit card receivables
              
              
              (13,584
              )
              
              7,596Purchase
                  of furniture, fixtures and equipment
              
              
              (5,000
              )
              
              (89,922
              )Issuances
                  of notes receivable
              
              
              
              
              
              (1,080
              )Repayments
                  of notes receivable, other
              
              
              25,461
              
              
              1,080Proceeds
                  received from FFFC asset sale, net of costs (Note 1)
              
              
              12,712,784Net
                  cash provided by (used in) investing activities
              
              
              14,922,782
              
              
              (82,326
              )Cash
                  flows from financing activities:Decrease
                  in checks issued in excess of cash in bank
              
              
              (1,086,904
              )Sale
                  of treasury stock
              
              
              
              
              
              243,833Proceeds
                  from the exercise of warrants and options
              
              
              
              
              
              371,621Increase
                  in deferred loan costs
              
              
              
              
              
              (4,000
              )Issuances
                  of notes payable, related parties and other
              
              
              565,000
              
              
              603,000Repayments
                  of notes payable, related parties and other
              
              
              (8,347,595
              )
              
              (945,364
              )Net
                  cash (used in) provided by financing activities
              
              
              (8,869,499
              )
              
              269,090






(Continued)
 7


**EQUITEX,
                  INC. AND SUBSIDIARIES****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                  (CONTINUED)****THREE
                  MONTHS ENDED MARCH 31, 2006 AND 2005
                  (UNAUDITED)**2006
              
              2005Increase
                  (decrease) in cash and cash equivalents
              
              
              4,080,665
              
              
              (16,265
              )Cash
                  and cash equivalents, beginning of year, including cash and cash
                  equivalents includedin
                  assets held for sale (2005)
              
              
              8,406,794
              
              
              8,389,686Cash
                  and cash equivalents, end of year, including cash and cash equivalents
                  included inassets
                  of discontinued operations (2006)
              
              $
              12,487,459
              
              $
              8,373,421Supplemental
                  disclosure of cash flow information:Cash
                  paid for interest
              
              $
              743,184
              
              $
              433,781Cash
                  paid for income taxes
              
              $
              -
              
              $
              13,325Non-cash
                  investing and financing activities:Issuance
                  of common stock in satisfaction of note payable, long-term debt
                  and
                  accrued interest
              
              $
              979,963
              
              $
              572,012Issuance
                  of common stock in satisfaction of subsidiary liability
              
              $
              380,862Return
                  of common stock previously issued for conversion of accounts
                  payable
              
              
              
              
              $
              6,450Return
                  and retirement of subsidiary common stock in exchange for note
                  receivable
              
              
              
              
              $
              81,000Conversion
                  of Series K preferred stock to common stock
              
              $
              200,000Issuance
                  of common stock to subsidiary in satisfaction of amounts
                  owed
              
              $
              6,144,000Purchase
                  of Hydrogen Power, Inc. (Note 1)Fair
                  value of tangible assets acquiredInterest
                  receivable
              
              $
              (38,339
              )Prepaid
                  and other assets
              
              
              (85,681
              )Property
                  and equipment
              
              
              (14,906
              )Sub-license
                  agreement
              
              
              (2,310,956
              )Intangible
                  assets
              
              
              (17,184,792
              )Liabilities
                  assumed:Accounts
                  payable and accrued expenses
              
              
              197,190Notes
                  payable
              
              
              3,000,000License
                  fee payable
              
              
              1,731,067Fair
                  value of common stock and warrants exchanged
              
              
              16,909,538Cash
                  acquired
              
              $
              2,203,121




See
            notes to condensed consolidated financial statements.
 8
 **EQUITEX,
              INC. AND SUBSIDIARIES**
 
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **THREE
              MONTHS ENDED MARCH 31, 2006 and 2005
              (UNAUDITED)**




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





**Business
      and organization:**





Equitex,
      Inc. (the “Company”) is a holding company, and through January 31, 2006,
      operated primarily through its majority-owned subsidiary FastFunds Financial
      Corporation (“FFFC”). As disclosed in the December 31, 2005 Form 10-K, Equitex
      and FFFC also have several other non-operating wholly-owned subsidiaries. As
      of
      March 31, 2006, Equitex owns and controls 81% 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”).





The
      Asset
      Sale is discussed below under “Recent Events”. As a result of the Asset Sale,
      the operations of FFFC are presented retroactively as discontinued operations,
      and all of its operating assets, including liabilities, are presented as assets
      and liabilities of discontinued operations.





As
      discussed below under “Recent Events”, on March 14, 2006, the Company acquired
      Hydrogen Power, Inc. (“HPI”). HPI is a development stage company based in
      Seattle, Washington that performs hydrogen-related testing, research and
      engineering, and has developed a patented system (HPI **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 HPI 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.





HPI
      has
      entered into a sub-license agreement with its former parent company, which
      gives
      HPI exclusive rights to use the Hydorgen Now technology developed by the
      Univeristy 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 gives 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 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.





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





**Basis
      of presentation:**





The
      condensed consolidated interim financial statements of Equitex, Inc. and
      subsidiaries (the “Company”) as of March 31, 2006, and for the three months
      ended March 31, 2006 and 2005, have been prepared by the Company without audit
      by the Company’s independent auditors. In the opinion of the Company’s
      management, all adjustments necessary to present fairly the financial position,
      results of operations, and cash flows of the Company as of March 31, 2006,
      and
      for the periods ended March 31, 2006 and 2005, have been made. Except as
      described below, those adjustments consist only of normal and recurring
      adjustments.





Certain
      information and note disclosures normally included in the Company’s annual
      financial statements prepared in accordance with accounting principles generally
      accepted in the United States of America have been condensed or omitted. These
      condensed consolidated financial statements should be read in conjunction with
      a
      reading of the consolidated financial statements and notes thereto included
      in
      the Company’s Form 10-K annual report filed with the Securities and Exchange
      Commission (“SEC”) on April 17, 2006. The results of operations for the three
      months ended March 31, 2006, are not necessarily indicative of the results
      to be
      expected for the full year.





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 have been retroactively restated to reflect
      the new capital structure.





9
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





**Business
      and organization (continued):**





**Basis
      of presentation (continued):**





The
      interim condensed consolidated financial statements presented herein include
      the
      financial statements of Equitex, Inc. and its wholly-owned subsidiaries, Key
      Financial Systems, Inc. (“Key”) and Nova Financial Systems, Inc. (“Nova”), and
      Equitex’s majority-owned subsidiaries, FFFC and Denaris Corporation (“Denaris”)
      as of March 31, 2006 and December 31, 2005, and effective March 14, 2006, its
      wholly-owned subsidiary, HPI. The excess of the losses for the three months
      ended March 31, 2006 and 2005 applicable to minority interest has been charged
      to the Company and therefore no minority interest is reflected in the Company’s
      condensed consolidated balance sheets. All significant intercompany accounts
      and
      transactions have been eliminated in consolidation.





**Recent
      events:**





***Nasdaq
      delisting:***




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 the Company’s securities are subject
      to delisting from The Nasdaq Capital Market. In anticipation of compliance
      with
      Rule 4340(a), the Company filed an initial listing application with The Nasdaq
      Stock Market on March 9, 2006. Additionally, pending Nasdaq’s review of the
      initial listing application on March 23, 2006, the Company has exercised its
      right to appeal the delisting of its securities by The Nasdaq Stock Market
      to a
      Listing Qualifications Panel (the “Panel”) pursuant to the procedures set forth
      in The Nasdaq Marketplace Rule 4800 Series. A hearing before the Panel was
      held
      on April 20, 2006, at which time the Panel granted our request to remain listed
      through May 31, 2006, while Nasdaq staff complete its review of our application
      for initial listing on the Nasdaq Capital Market. On May 19, 2006, the Company
      withdrew the listing application and accordingly, its securities will cease
      trading on Nasdaq beginning May 23, 2006, and the Company will immediately
      begin
      trading on the Over the Counter Pink Sheets. The Company came to believe that
      its application would not be approved and as a result is choosing to immediately
      seek to apply for trading on the Over the Counter (“OTC”) Bulletin Board and
      concurrently will pursue alternative listings.





***Acquisition
      of Hydrogen Power Inc.:***





On
      March
      14, 2006, the Company acquired all of the outstanding capital stock of HPI.
      The
      purchase price of HPI consisted of the issuance of 2,338,990 shares of the
      Company’s common stock and the Company has reserved 132,122 shares to be issued
      upon exercise of options to purchase 1,550,000 shares of HPI common stock
      outstanding immediately prior to the time of the merger. These shares were
      valued at $9,909,159 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 was agreed
      to
      by the Company and the HPI shareholders). Pursuant to a Share Exchange Agreement
      dated December 5, 2005 with a shareholder of HPI, prior to the effective date
      of
      the merger, we issued 700,000 shares of our common stock in exchange for 850,000
      shares of HPI common stock. These shares 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. Additionally, the Company recorded acquisition costs of $227,162 in
      connection with the transaction.





10
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





**Recent
      events (continued):**





***Acquisition
      of Hydrogen Power Inc. (continued):***





The
      Company also issued warrants to purchase up to 1,600,000 shares of Equitex
      common stock at an exercise price of $3.00 per share in exchange for all
      outstanding warrants of HPI at the date of merger. The warrants are exercisable
      for the remainder of the unexpired term of the original HPI warrants through
      February 2007. The warrants were valued at $4,246,400 based on the Black-Scholes
      option pricing model.





The
      Company also issued to the stockholders of HPI 300,000 shares of its Series
      L
      Preferred Stock (the “Preferred Stock”). The Preferred Stock is convertible into
      Equitex 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 Equitex common stock outstanding immediately prior to such
      conversion. The conversion of the Preferred Stock is subject to the achievement
      by 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 Equitex in its sole discretion. In the event all three series
      of
      Series L Preferred Stock are converted into Equitex common stock, the former
      stockholders of HPI would own approximately 73% of Equitex’s common stock on a
      post-transaction basis (assuming that Equitex 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).





The
      Company also entered into an employment agreement with HPI’s Chief Executive
      Officer (the “CEO”), effective with the closing, which provides the CEO an
      annual base salary of $350,000. The term of the agreement is for five years
      and
      the compensation is to be reviewed annually.





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





Cash
                and equivalents
            
            $
            2,203,121Interest
                receivable
            
            
            38,339Prepaid
                expenses
            
            
            85,681Property,
                plant and equipment
            
            
            14,906Sub-license
                agreement, net of accumulated amortization of $304,244
            
            
            2,310,956Unidentified
                intangible assets and goodwill
            
            
            17,184,792Accounts
                payable and accrued expenses
            
            
            (197,190
            )Note
                payable
            
            
            (3,000,000
            )License
                fee payable
            
            
            (1,731,067
            )$
            16,909,538





The
      purchase price allocation is not considered final as of the date of this
      report, as we, along with our independent valuation advisors are still reviewing
      and completing the analysis of the underlying assumptions and calculations
      used
      in the above allocation. The actual allocation of the purchase price and the
      resulting effect on income (loss) from operations may differ significantly
      from
      the amounts included herein.





Under
      the
      terms of the Merger Agreement, the Company agreed to utilize the first $10
      million of the net proceeds received from the Asset Sale discussed below towards
      the exploitation and commercialization of HPI’s intellectual property. As a
      condition to close, the Company was required to make a $5 million contribution
      (of a total required contribution of $10 million) to capital to HPI, which
      proceeds were transferred to HPI at closing. The remaining $5 million
      contribution has not yet been made. 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 is due March 14, 2007, and accrues interest
      at
      10% per annum. Pursuant to the Pledge, the Company has pledged all of its shares
      of 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 HPI during the period the Note
      is
      outstanding.





11
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





**Recent
      events (continued):**





***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 FFFC and 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 cash proceeds of $13,710,630 ($12,712,784
      after
      certain transactions related costs) and realized a pre-tax book gain of
      approximately $4 million.





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
      and
      Game paid FFFC $150,000 per month. The TSA expired May 19, 2006.





**Pro
      forma information:**





The
      following pro forma information has been prepared assuming the Asset Sale and
      Acquisition of HPI had taken place at the beginning of each of the respective
      periods. The pro forma information includes adjustments to eliminate the
      location revenues and expenses related to the financial services that Chex
      provided prior to the Asset Sale and assumes a 17-year amortizable life related
      to the intangible assets acquired in the Acquisition of HPI. Revenues represent
      fees pursuant to the TSA.





The
      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.





Three
                  months ended March 31,2006
              
              2005Revenues
              $
              488,000
              
              $
              523,000Net
                  loss
              
              (3,779,000)
              
              
              (2,172,000)Net
                  loss applicable to common stockholders
              
              (4,504,000)
              
              
              (2,227,000)Basic
                  and diluted loss per common share
              
              (0.41)
              
              
              (0.24)Shares
                  used in per share calculation
              
              10,914,598
              
              
              9,246,298





***Issuance
      and receipt of FFFC common stock:***





On
      January 30, 2006, FFFC issued 4,717,344 shares of its common stock to the
      Company in exchange for an outstanding notes payable with accrued interest
      in
      the aggregate amount of $3,905,961. The shares were valued at $0.83, which
      represented a 10% discount to the closing price of $0.92 on the conversion
      date.
      As a result of this transaction, the Company’s ownership of FFFC increased to
      approximately 81% of FFFC’s outstanding common stock.





On
      March
      29, 2006, Equitex agreed to issue 1,200,000 shares of its common stock to FFFC
      in satisfaction of $6,144,000 in notes, advances and interest payable that
      Equitex and its majority-owned subsidiary (“Denaris”) owed FFFC and
      Chex.





12
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





**Recent
      events (continued):**





***Potential
      business acquisitions:***





In
      May
      2005, the Company entered into an agreement to acquire 100% of Digitel Network
      Corporation (“Digitel”), and National Business Communications, Inc. (“NBC”).
      Digitel’s wholly-owned subsidiaries are Platinum Benefit Group, Inc., Personal
      Voice, Inc. and Private Voice, Inc. Digitel, NBC and their subsidiaries
      (collectively the “Companies”) all of which are based in Clearwater, Florida.
      The Companies design, develop and market stored value card programs as well
      as
      personal voice mail products through their call center operations. In
      conjunction with their stored value card products, the Companies offer the
      Platinum Benefit Group premium service that includes vehicle roadside
      assistance, a prescription discount program, a dental care discount program,
      a
      registered nurse hotline and a family legal plan. The Companies also offer
      personal voice mail services through Personal Voice, Inc. and Private Voice,
      Inc. Finalization of this transaction is subject to completion of the schedules,
      exhibits and related contracts to the agreement, board of director approval,
      negotiation of certain promissory notes and any applicable stockholder
      approvals. Currently, the purchase price per the terms of the to-be-finalized
      agreement is $9 million; $5 million cash due at closing and two, $1.750 million
      promissory notes.





**Management’s
      plans:**





The
      Company incurred a loss of $42,193 for the three months ended March 31, 2006,
      and losses from continuing operations were $1,551,399. Additionally, the Company
      incurred previous significant losses, including a net loss of $8,842,237 and
      $7,457,983 for the years ended December 31, 2005 and 2004, respectively.
      Although the net losses included certain non-cash net expenses of approximately
      $2,947,000 (2006), $4,937,000 (2005) and $4,051,000 (2004), it was becoming
      increasingly difficult for the Company to continue to fund its current
      operations and any future growth. 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
      the FFFC’s difficulty in attracting and retaining experienced employees, the
      Company decided to complete the Asset Sale.





Management
      believes that the Asset Sale and its plans will provide sufficient resources
      to
      fund its 2006 debt payments and working capital needs, which will consist
      primarily of supporting the development stage operations of HPI, payment of
      salaries, rent and utilities for the foreseeable future, as well as allow the
      Company to meet its reporting compliance obligations as a Securities and
      Exchange Commission (“SEC”) issuer through at least March 31, 2007.





**Stock
      based compensation:**





During
      the first quarter of fiscal 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 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 elected the modified-prospective method, under which prior
      periods are not revised for comparative purposes. The valuation provisions
      of
      SFAS 123R apply to new grants and to grants that were outstanding as of the
      effective date and are subsequently modified. There were no options granted
      for
      the three months ended March 31, 2005 and 2006, and all options granted prior
      to
      the adoption of SFAS 123(R) were fully-vested.





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 vest immediately upon issuance. All options outstanding
      at
      March 31, 2006, are fully-vested and exercisable. A summary of each plan and
      their outstanding balances at March 31, 2006, is as follows:





13
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





**Stock
      based compensation (continued):**





Options
                outstanding
            1999
                Plan
            2003
                PlanJanuary
                1, 2006
            1,667
            484,966March
                31, 2006
            1,667
            484,966Weighted
                average exercise price
            $36.00
            $5.23Weighted
                average remaining life
            .22
                years
            2.95
                yearsAggregate
                intrinsic value
            $0
            $0








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





***FFFC:***





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





ASSETS
            
            2006
            
            2005Cash
                and cash equivalents
            
            $
            6,169,261
            
            $
            8,273,253Accounts
                receivable
            
            
            39,283
            
            
            163,044Notes
                and interest receivable
            
            
            323,515
            
            
            75,461Property
                and equipment, net
            
            
            22,355
            
            
            1,077,802Goodwill
            
            
            
            
            
            5,636,000Intangible
                and other assets
            
            
            
            
            
            2,183,902Deferred
                tax asset
            
            
            
            
            
            4,200,000Other
                assets
            
            
            57,373
            
            
            388,004$
            6,611,787
            
            $
            21,997,466LIABILITIESChecks
                issued in excess of cash in bank
            
            $
            18,475Accounts
                payable
            
            
            759,183Accrued
                expenses
            
            
            1,307,589
            
            $
            69,800Notes
                payable to individuals
            
            
            4,787,061Convertible
                promissory notes
            
            
            500,000Capital
                lease obligations
            
            
            
            
            
            84,247$
            7,372,308
            
            $
            154,047











14
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





***FFFC
      (continued):***





Losses
      from discontinued operations for the three months ended March 31, 2006 and
      2005
      of FastFunds were as follows:





2006
            
            2005Revenues
            
            $
            2,011,956
            
            $
            4,414,143Operating
                expenses
            
            
            (3,191,321
            )
            
            (4,677,918
            )Loss
                from operations
            
            
            (1,179,365
            )
            
            (263,775
            )Gain
                on sale of assets
            
            
            4,145,835Other
                expenses
            
            
            (428,737
            )
            
            (945,260
            )Income
                tax expense
            
            
            (1,028,000
            )
            
            (8,000
            )Net
                income (loss)
            
            $
            1,509,733
            
            $
            (1,217,035
            )





***Key:***





The
      carrying amounts of assets and liabilities of Key (presented as discontinued
      operations) at March 31, 2006 and December 31, 2005 are as follows:





March
                31,
            
            December
                31,2006
            
            2005Cash
                (included in prepaid expenses and other)
            
            $
            213
            
            $
            140Accounts
                payable
            
            $
            515,395
            
            $
            513,395





Key
      had
      no revenues for the three months ended March 31, 2006 and 2005. Losses incurred
      by Key for the three months ended March 31, 2006 were $527 and for the three
      months ended March 31, 2005 were $2,600.





**3.**  **Notes
      and interest receivable:**





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





2006
              
              2005Notes
                  receivable, HPI**[A]**
              
              
              
              
              $
              3,000,000Notes
                  receivable from Equitex 2000, Inc., an affiliate of the Company
                  through
                  common control
              
              $
              1,190,674
              
              
              1,190,674Note
                  receivable, Chex customer
              
              
              336,500
              
              
              336,500Note
                receivable, Paymaster Jamaica
              
              
              500,000
              
              
              500,000Notes
                  receivable from various Chex employees
              
              
              
              
              
              25,461Notes
                  receivable from Coast ATM, LLC
              
              
              50,000
              
              
              50,0002,077,174
              
              
              5,102,635Interest
                  receivable, includes related party interest of $163,978 (2006)
                  and
                  $158,852(2005)
              
              
              210,659
              
              
              158,852





15
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





2006
            
            2005Notes
                receivable, net of current portion, before valuation
                allowance
            
            2,287,833
            
            
            5,261,487Less
                valuation allowance**[B]**
            
            (1,361,500)
            
            
            (1,286,500)926,333
            
            
            3,974,987Less
                net amount included in assets of discontinued operations (2006) and
                assets
                held for sale (2005)
            
            (323,515)
            
            
            (75,461)Notes
                and interest receivable, net, long-term
            $
            602,818
            
            $
            3,899,526





**[A]**
            In
                September 2005, in connection with the Merger Agreement, Equitex
                loaned
                HPI $3,000,000 under a Secured Convertible Promissory Note (the “SCPN”).
                Interest accrues at a variable rate equal to the prime rate (6.75%
                per
                annum of the date of the SCPN) and was to mature on September 16,
                2008
                (the “Maturity Date”). 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 HPI at
                closing.




**[B]**
            A
                summary of the valuation allowance are as
                follows:





2006
            
            2005Equitex
                2000, Inc.
            
            $
                775,000
            
            $
                700,000Paymaster
                Jamaica
            
            250,000
            
            250,000Chex
                customer
            
            336,500
            
            336,500$
                1,361,500
            
            $
                1,286,500





**4.**  **Convertible
      and other promissory notes and long-term debt:**





Convertible
      and other promissory notes and long-term debt at March 31, 2006 and December
      31,
      2005, consist of the following:





March
                31,
            
            December
                31,2006
            
            2005Notes
                payable to individual investors, including related party of $100,000
                (2006)
            
            $
                4,787,061
            
            $
                11,301,497Notes
                payable to affiliates through common ownership
            
            39,122
            
            380,351Convertible
                promissory notes, net of discount of $570,520 (2006) and $765,833
                (2005)**[A]**
            
            3,799,045
            
            5,287,323Note
                payable to officers
            
            104,914
            
            234,344Notes
                payable to third parties
            
            265,000
            
            180,294Obligations
                under capital leases
            
            
            
            84,2478,995,142
            
            17,468,056Less
                amounts included in liabilities of discontinued operations (2006)
                and
                liabilities associated with assets held for sale (2005)**[B]**
            
            (5,287,061)
            
            (84,247)Less
                current maturities
            
            (2,286,763)
            
            (15,275,386)Long-term
                debt, net of current portion
            
            $
                1,421,318
            
            $
                2,108,423










16
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




**4.**  **Convertible
      and other promissory notes and long-term debt (continued):**





**[A]**
            For
                the three months ended March 31, 2006, Equitex issued a total of
                94,701
                shares of its common stock as payment of $402,766 due under these
                notes.
                The common stock was valued at $501,753 (based on the market value
                of the
                Company’s common stock). Therefore, the Company recorded additional
                interest expense of $71,337 during the three months ended March 31,
                2006
                related to these transactions, which represents the 15% discount
                to the
                market value of the common stock
                issued.





**[B]**
            In
                December 2004, FFFC closed on the sale of $1,774,064 of unsecured
                convertible promissory notes (the “Convertible Notes”) with various note
                holders (the “Holders”). The Convertible Notes carry 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 a rate of $1.00 per share for a three-year period
                commencing on the due date. The Holders also received warrants to
                purchase
                an aggregate of 1,774,064 shares of FFFC common stock at an exercise
                price
                of $2.00 per share. Through March 31, 2006, FFFC repaid $862,500
                of these
                Convertible Notes. As of March 31, 2006, $300,000 of these notes
                remains
                unpaid, were past due and are due on demand. In May 2006, FFFC and
                Equitex
                negotiated a settlement regarding the remaining Convertible Notes,
                whereby
                Equitex agreed to issue 84,363 shares of its common stock. Additionally,
                Equitex has agreed to issue warrants to purchase 42,182 shares of
                common
                stock at $5.10 per share, expiring three years after the date of
                issuance.




As
      of
      March 31, 2006 and December 31, 2005, FFFC also had $200,000 of outstanding
      convertible promissory notes issued in June 2004. These notes bear interest
      at
      5% per annum, and unless converted, are due in April 2007. The notes are
      convertible into shares of FFFC common stock at $0.10 per share based on certain
      criteria. In May 2006, Equitex negotiated a settlement regarding these
      convertible notes, whereby Equitex has agreed to issue 180,000 shares of its
      common stock.





**5.**  **Commitments
      and contingencies:**





**Bonus
      to officer:**





In
      June
      2003, the Company’s Board of Directors approved a bonus arrangement with the
      Company’s president. The bonus arrangement provides for an annual bonus to be
      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
      are to be made at the discretion of the Company’s management from time to time,
      as cash flow permits. There was no compensation expense recorded under this
      arrangement for the three months ended March 31, 2006. Compensation expense
      recorded under this arrangement was $32,710 for the three months ended March
      31,
      2005. As of March 31, 2006 and December 31, 2005, approximately $410,000 is
      included in accrued liabilities.





**Subsidiary
      executive compensation:**





In
      July
      2005, FFFC’s Board of Directors authorized a proposal for a stock based
      compensation plan (the “Plan”) for its CEO. In August 2005, the FFFC Board of
      Directors retained an independent consultant to review the Plan for
      reasonableness. As a result of that review, in September 2005, the FFFC Board
      of
      Directors approved the Plan, which consists of the following: i) a fully-vested
      warrant to purchase up to 125,000 shares of FFFC’s $.001 par value common stock
      for a period of three years at an exercise price of $1.81 per share (the 10
      day
      average market price of the stock from the date of the proposal); ii) a number
      of shares of common stock of FFFC based on 5% of the increase in the market
      value of FFFC’s common stock on an annual basis, with the exception of the first
      payment, which shall be for the period from July 1, 2005 to December 31, 2005;
      and, iii) a grant of 125,000 fully-vested options under FFFC’s 2004 Stock Option
      Plan. Each option has an exercise price of $1.10 (the market value of the common
      stock on the date of grant) with an expiration of September 2015. FFFC recorded
      compensation expense of $184,557, equal to the 5% increase in the market value
      of FFFC’s common stock for the three months ended March 31, 2006.





17
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




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





**Subsidiary
      board of director’s compensation:**





In
      September 2005 FFFC’s Board of Directors authorized a new compensation plan for
      its directors, which includes the grant of 30,000 options to purchase FFFC
      common stock to each director on an annual basis, as well as annual compensation
      of $25,000 to each director, to be paid monthly. Accordingly, in September
      2005,
      60,000 options to purchase FFFC common stock were granted with an exercise
      price
      of $1.10 (the market value of the common stock on the date of the grant) for
      services provided during 2004 and 2005 and cash compensation of approximately
      $29,200 was paid to each FFFC director for the period of July 2004 through
      August 30, 2005. Additionally, FFFC’s secretary was granted 20,000 options at
      $1.10 per share (the market value of the common stock on the date of the grant).
      All options are fully-vested at the date of the grant.





**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.





**Consulting
      agreements:**





In
      February 2006, FFFC entered into a consulting agreement with a financial advisor
      (a former officer of the Company) 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 to be compensated if the advisor is
      successful in completing a debt or equity financing for or on behalf of FFFC.
      In
      March 2006, the financial advisor assisted FFFC in restructuring $4,137,061
      of
      investor notes and placing an additional $225,000 of debt. Pursuant to the
      agreement, the advisor was paid $134,972 and received 30,120 shares of Equitex
      common stock, valued at $152,407, which was included in general and
      administrative expenses for the three months ended March 31, 2006.




Lastly,
      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 was included
      in
      selling, general and administrative expense for the three months ended March
      31,
      2006.





In
      conjunction with the Asset Sale, a FFFC officer 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. The Company agreed to
      compensate the officer $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 officer. If the officer breaches his non-compete
      agreement, the officer is no longer entitled to compensation and will be liable
      for any amount remaining on the loan. Accordingly, during the three months
      ended
      March 31, 2006, interest receivable was reduced by $16,800.





**6.**  **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. 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


18
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




**6.**  **Redeemable
      preferred stock (continued):**





**Series
      K convertible preferred stock (continued):**




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 $164,500 for the three months ended
      March 31, 2006. Additionally, during the three months ended March 31, 2006,
      based on the conversion of 711 shares of Series K since inception, the Company
      accreted an additional $523,000, with an offset to additional paid-in
      capital.





In
      the
      event the common stock of the Company achieves certain benchmarks, the Series
      K
      Preferred Stock is redeemable by the Company at a redemption price of $1,350
      per
      share plus accrued and unpaid dividends. In the event the holders do not elect
      to convert the Series K Preferred Stock during the conversion period, the Series
      K Preferred Stock is required to be redeemed by the Company at stated value
      plus
      accrued unpaid dividends. 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 at March 31, 2006. During the three months ended March 31, 2006, 200
      shares of the Series K Preferred Stock, plus cumulative unpaid dividends of
      $5,806, were converted into 73,859 shares of common stock, at a conversion
      price
      of $2.75 for the 200 shares of Series K Preferred Stock and $5.13 for the unpaid
      dividends.





**7.**  **Stockholders’
      equity:**





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





At
      March
      31, 2006, notes and interest receivable from an officer of Chex of $530,202
      are
      presented as a reduction in stockholders’ equity based on management’s
      evaluation of repayment intentions. The notes are due on demand and the Company
      is no longer accruing interest on these notes due to uncertainty as to
      collection. The notes are collateralized by unregistered shares of the Company’s
      common stock. Pursuant to the consulting agreement between FFFC and the officer,
      all compensation earned under the agreement will be applied to these
      receivables.





In
      addition, at March 31, 2006, $135,000 is presented as a stock subscription
      receivable related to $25,000 shares of FFFC common stock that were issued
      to
      convertible noteholders.





**Issuances
      of common stock:**





During
      the three months ended March 31, 2006, the Company issued 130,845 shares of
      common stock valued at $659,014 as payment on long-term debt and accrued
      interest of $558,719. The stock was issued at 85% of market value and
      accordingly, the Company recorded additional expense of $98,987 during the
      three
      months ended March 31, 2006.





During
      the three months ended March 31, 2006, the Company issued 62,793 shares of
      its
      common stock to third parties in consideration of convertible promissory notes
      and accrued and unpaid interest aggregations of $256,900. The stock issued
      was
      valued at $320,949 (20% discount to the ten day average market price prior
      to
      the conversion) and accordingly, the Company has included $64,049 in additional
      interest expense for the three months ended March 31, 2006.





During
      the three months ended March 31, 2006, the Company issued 90,247 shares of
      common stock valued at $446,525 to satisfy liabilities of FFFC. The stock was
      issued at 85% of market value, and accordingly, the Company recorded an
      additional expense of $65,663.





During
      the three months ended March 31, 2006, the Company issued 2,975 shares of common
      stock valued at $15,265 in consideration of not meeting the due date on a
      promissory note. The $15,625 is included in interest expense for the three
      months ended March 31, 2006.





19
 **EQUITEX,
            INC. AND SUBSIDIARIES**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **THREE
            MONTHS ENDED MARCH 31, 2006 and 2005
            (UNAUDITED)**




**7.**  **Stockholders’
      equity (continued):**





**Treasury
      stock transactions:**





In
      March
      2006, the Company issued 1,200,000 shares of its common stock to FFFC in
      satisfaction of $6,144,000 in notes, advances and interest payable that Equitex
      and its majority-owned subsidiary owed FFFC and Chex.





**Warrants:**





During
      the three months ended March 31, 2006, the Company issued warrants to
      noteholders to purchase 55,000 shares of the Company’s common stock for a period
      of three years at an exercise price of $4.71. The market prices as of the date
      of the issuances ranged from $4.86 to $5.15. These warrants were valued at
      $194,130 based on the Black-Scholes option pricing model and are included in
      corporate general, selling and administrative expense for the three months
      ended
      March 31, 2006.





In
      March
      2006, the Company issued warrants (to FFFC convertible noteholders as part
      of a
      settlement) to purchase 42,182 shares of the Company’s common stock for a period
      of three years at an exercise price of $5.10 per share (the market price of
      the
      common stock on the date the terms of the settlement were reached). These
      warrants were valued at $147,764 based on the Black-Scholes option pricing
      model
      and are included in interest expense for the three months ended March 31,
      2006.





Also
      in
      March 2006, in conjunction with the HPI acquisition, the Company issued warrants
      to purchase 1,600,000 shares of the Company’s commons tock 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 HPI.





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





Income
      tax expense for the three months ended March 31, 2006, was $313,000. This amount
      is primarily related to income taxes recorded as a result of the Asset Sale
      in
      January 2006.





20




**ITEM
      2.**


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








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
      COMPANY’S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS
      CONCERNING THE COMPANY’S OPERATIONS, ECONOMIC PERFORMANCE, FINANCIAL CONDITION,
      GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS, AMOUNTS RECEIVABLE FROM NET
      FIRST NATIONAL BANK, 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 COMPANY’S CONTROL, AND
      ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON THE VARIETY OF IMPORTANT
      FACTORS, INCLUDING UNCERTAINTY RELATED TO THE COMPANY’S OPERATIONS, MERGERS OR
      ACQUISITIONS, GOVERNMENTAL REGULATION, THE VALUE OF THE COMPANY’S ASSETS AND ANY
      OTHER FACTORS DISCUSSED IN THIS AND OTHER COMPANY FILINGS WITH THE SECURITIES
      AND EXCHANGE COMMISSION.





GENERAL





Equitex,
      Inc. (the “Company”) is a holding company, and through January 31, 2006,
      operated primarily through its majority-owned subsidiary FastFunds Financial
      Corporation (“FFFC”). As disclosed in the December 31, 2005 Form 10-K, Equitex
      and FFFC also have several other non-operating wholly-owned subsidiaries. As
      of
      March 31, 2006, Equitex owns and controls 81% 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”).





The
      Asset
      Sale is discussed below. As a result of the Asset Sale, the operations of FFFC
      are presented retroactively as discontinued operations, and all of its operating
      assets, including liabilities, are presented as assets and liabilities of
      discontinued operations.





OVERVIEW





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, 2005, 2004 and
      2003. The financial results presented for the three months ended March 31,
      2006
      and 2005 are those of FastFunds Financial Corporation (“FFFC”), Key Financial
      Systems, Inc. (“Key”), Nova Financial Systems, Inc. (“Nova”) and Denaris
      Corporation (“Denaris”), on a consolidated basis with those of Equitex, Inc. and
      since March 14, 2006, Hydrogen Power, Inc. FFFC sold substantially all of its
      assets in January 2006 and Key ceased “run-off” operations in the fourth quarter
      of 2003, accordingly, FFFC’s and Key’s results for both periods are presented in
      a one-line presentation and are included in “income (loss) from discontinued
      operations”.





*Business
      acquisition:*





*Acquisition
      of HPI:*





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





21





Per
      the
      terms of the merger agreement, as amended, the Company issued to the former
      shareholders of HPI 2,338,990 shares of its common stock and has reserved
      132,122 shares of its common stock to be issued upon exercise of options to
      purchase 1,550,000 shares of HPI common stock outstanding immediately prior
      to
      the time of the merger. The shares were valued at $9,909,159 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 HPI’s shareholders.





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





The
      Company also issued to the stockholders of HPI 300,000 shares of its Series
      L
      Preferred Stock (the “Preferred Stock”). The Preferred Stock is convertible into
      Equitex 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 Equitex common stock outstanding immediately prior to such
      conversion. The conversion of the Preferred Stock is subject to the achievement
      by 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 Equitex in its sole discretion. In the event all three series
      of
      Series L Preferred Stock are converted into Equitex common stock, the former
      stockholders of HPI would own approximately 73% of Equitex’s common stock on a
      post-transaction basis (assuming that Equitex 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).





In
      addition, the Company issued warrants to purchase up to 1,600,000 shares of
      Equitex common stock at an exercise price of $3.00 per share in exchange for
      all
      outstanding warrants of HPI at the date of merger. The warrants are exercisable
      for the remainder of the unexpired term of the original HPI warrants through
      February 2007. The warrants were valued at $4,246,400 based on the Black-Scholes
      option pricing model.





In
      July
      and September 2005, the Company loaned to HPI an aggregate of $3,000,000 to
      be
      used for the exploitation and commercialization of HPI’s 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 to the Merger Sub and the proceeds were transferred to HPI at
      closing.





HPI,
      a
      development stage company, based in Seattle, Washington, performs
      hydrogen-related testing, research and engineering, and has developed a patented
      system (HPI **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 HPI 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.





Hydrogen
      Power’s 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 not feasible. HPI management
      believes, based on its preliminary research, that its hydrogen production
      process may be a commercially viable process for fuel cell applications where
      on-demand hydrogen is required or is an advantage. Fuel cells that use hydrogen
      are being considered for the following applications, although use of
      hydrogen-based fuel cells for these applications has been of limited commercial
      application to date and there is no widespread adoption of hydrogen-based fuel
      cells:





·
            Fuel
                cells for transportation, including buses, trucks and automobiles;
                and





·
            Portable
                and small-scale fuel cell based stationary power generation, including
                power for mobile electronics, small power equipment, residential
                and
                commercial/institutional power generation
                systems.





Where
      fuel cells are used for transportation and for portable and small-scale
      stationary power generation, it may be advantageous for the hydrogen to be
      created on-demand when required, rather than being stored in pressurized storage
      vessels. As Hydrogen Power’s licensed process has the potential to offer a means
      of creating hydrogen on demand and due to the potential commercial demand for
      hydrogen-based fuel cells, we believe that investigation of our licensed
      hydrogen generation process and hydrogen generation reactors for use in
      commercial applications is warranted.





22




Hydrogen
      Power has a fully functional product development laboratory equipped to carry
      out hydrogen-related testing, research and engineering. Hydrogen Power has
      also
      made 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. Hydrogen Power is at the early stage of testing and evaluating
      the commercial application of the licensed technology and the design and
      engineering of prototypes.





Under
      the
      terms of the Merger Agreement, the Company agreed to utilize the first $10
      million of the net proceeds received from the Asset Sale towards the
      exploitation and commercialization of HPI’s intellectual property. As a
      condition to close, the Company was required to make a $5 million contribution
      (of a total required contribution of $10 million) to capital of HPI, which
      proceeds were transferred to HPI at closing. The remaining $5 million
      contribution has not yet been made. 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 is due March 14, 2007, and accrues interest
      at
      10% per annum. Pursuant to the Pledge, the Company has pledged all of its shares
      of 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 HPI during the period the Note
      is
      outstanding.





In
      May
      2005, the Company entered into an agreement to acquire 100% of Digitel Network
      Corporation (“Digitel”), and National Business Communications, Inc. (“NBC”).
      Digitel’s wholly-owned subsidiaries are Platinum Benefit Group, Inc., Personal
      Voice, Inc. and Private Voice, Inc. Digitel, NBC and their subsidiaries
      (collectively the “Companies”), all of which are based in Clearwater, Florida.
      The Companies design, develop and market stored value card programs as well
      as
      personal voice mail products through their call center operations. In
      conjunction with their stored value card products, the Companies offer the
      Platinum Benefit Group premium service that includes vehicle roadside
      assistance, a prescription discount program, a dental care discount program,
      a
      registered nurse hotline and a family legal plan. The Companies also offer
      personal voice mail services through Personal Voice, Inc. and Private Voice,
      Inc. Finalization of this transaction is subject to completion of the schedules,
      exhibits and related contracts to the agreement, board of director approval,
      negotiation of certain promissory notes and any applicable stockholder
      approvals. Currently, the purchase price per the terms of the to-be-finalized
      agreement is $8.5 million; $5 million cash due at closing and two, $1.750
      million promissory notes.





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 FFFC and 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 cash proceeds of $13,710,630 ($12,712,784
      after
      certain transactions related costs) and realized a pre-tax book gain of
      approximately $4 million.





NASDAQ
      DELISTING





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 the Company’s 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 Letter concluded that the Company’s
      recent acquisition of HPI is considered a “reverse merger” and 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.





In
      anticipation of compliance with Rule 4340(a), the Company filed an initial
      listing application with The Nasdaq Stock Market on March 9, 2006, prior to
      closing our transaction with HPI. Additionally, pending Nasdaq’s review of the
      initial listing application on March 23, 2006, the Company has exercised its
      right to appeal the delisting of its securities by The Nasdaq Stock Market
      to a
      Listing Qualifications Panel (the “Panel”) pursuant to the procedures set forth
      in The Nasdaq Marketplace Rule 4800 Series. A hearing before the Panel was
      held
      on April 20, 2006, at which time the Panel granted our request to remain listed
      through May 31, 2006, while Nasdaq staff complete its review of our application
      for initial listing on the Nasdaq Capital Market. On May 19, 2006, the Company
      withdrew the listing application and accordingly, its securities will cease
      trading on Nasdaq beginning May 23, 2006, and the Company will immediately
      begin
      trading on the Over the Counter Pink Sheets. The Company came to believe that
      its application would not be approved and as a result is choosing to immediately
      seek to apply for trading on the Over the Counter (“OTC”) Bulletin Board and
      concurrently will pursue alternative listings.


23




LIQUIDITY
      AND CAPITAL RESOURCES





On
      December 22, 2005, FastFunds and Chex entered into an Asset Purchase Agreement
      (the “APA”) with Game Financial Corporation (“Game”), pursuant to which
      FastFunds an Chex agreed to sell substantially all of their cash access
      contracts and certain related assets, which represent substantially all the
      assets of Chex (the “Asset Sale”). Such assets also represent substantially all
      of the operating assets of FastFunds on a consolidated basis. On January 31,
      2006, FastFunds and Chex completed the Asset Sale for $14 million pursuant
      to
      the APA and received net cash proceeds of $13,710,630 ($12,712,784 after
      adjustments for certain transaction related expenses and liabilities assumed
      by
      Game).





Additionally,
      FastFunds and Chex entered into a Transition Services Agreement (the “TSA”) with
      Game pursuant to which FastFunds and Chex agreed to provide certain transitional
      services to Game for the cash-access financial services business. Pursuant
      to
      the TSA, FastFunds and Chex are to provide the necessary services for a minimum
      of three months and Game will pay FastFunds $150,000 per month. Equitex agreed
      to serve as a guarantor of FastFunds’ and Chex’s performance obligations under
      the TSA. The TSA terminated May 19, 2006.






In
      September 2005, Equitex issued an aggregate of $1,500,000 of additional
      convertible promissory notes to the Lenders. The notes bear interest at 10%
      and
      have a 24-month term. Interest only payments are due October 2005 through
      December 2005 and beginning in January 2006 monthly principal and interest
      payments of $78,157 will be due over the remaining 21-month term. In addition
      to
      the Collateral described in the Whitebox Notes above, the Company pledged its
      shares of FFFC common stock. The principal balance of the notes, with accrued
      interest, is convertible at the option of the lender, at a conversion price
      of
      $5.50 (the market value of Equitex’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 paid-in capital. Equitex
      has the right, subject to certain limitations, to make any monthly payment
      of
      principal and interest in shares of its common stock. The common stock is to
      be
      issued based on 85% of the average bid price for 20 trading days prior to the
      payment due date. 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 have been allocated between the estimated fair value of the
      warrants ($286,000) and the notes based on their relative fair values. As a
      result, the Company recorded the value of the warrants as a discount to the
      notes. The warrants and beneficial conversion features are being amortized
      over
      the 24-month term of the Notes and accordingly, $38,142 has been recorded as
      additional interest expense for the three months ended March 31, 2006. In
      connection with the Pandora Notes, Equitex paid a 3% origination fee and $20,000
      in closing costs. These costs were recorded by the Company as deferred loan
      costs and are being amortized over the 24-month term of the notes. Accordingly,
      $8,125 was expensed for the three months ended March 31, 2006.




In
      September 2005, Equitex issued an aggregate of $454,000 and $200,000 of
      promissory notes to related parties and third parties, respectively. The third
      party promissory notes bear interest at 6% per annum and have a 120-day term.
      The third party note holders also received warrants to purchase up to 100,000
      shares of Equitex common stock at an exercise price of $4.71 for a three-year
      period. The proceeds from the notes have been allocated between the estimated
      fair value of the warrants ($127,000) and the notes based on their relative
      fair
      values. As a result, the Company recorded the value of the warrants as a
      discount to the notes and is amortizing the cost over the 120-day term of the
      notes. Accordingly, $19,706 has been included in interest expense for the three
      months ended March 31, 2006. The related party 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. In September 2005, Equitex initiated an
      assignment of these notes to a corporation that is owned by a director of the
      Company in exchange for a promissory note to this corporation that is due
      December 9, 2005, and which bears annual interest at 10%. The Company paid
      the
      related party notes in February 2006.





For
      the
      three months ended March 31, 2006, net cash used in operating activities from
      continuing operations was $1,972,618
      compared to $203,825 for the three months ended March 31, 2005. The net loss
      for
      the three months ended March 31, 2006 decreased to $42,193 from $1,856,993
      for
      the three months ended March 31, 2005. The decrease in net loss was primarily
      attributable to the gain on the Asset Sale of $4,145,835. That gain was offset
      by increases in losses from operations of FFFC of approximately $916,000,
      increase in deferred income taxes of $1,333,000 (including $1,020,000 in
      discontinued operations) and an increase in interest expense of approximately
      $300,000. Adjustments to the current period’s results included non-cash expenses
      of $2,947,763, significantly comprised of $1,333,000 of deferred income taxes,
      $514,510 of expenses related to stock and warrant issuances, $744,209 for
      depreciation and amortization and $75,000 for an increase to allowance on a
      note
      receivable.





Net
      cash
      provided by investing activities from continuing operations for the three months
      ended March 31, 2006 was $14,922,782
      compared to cash used in investing activities of $82,326 for the three months
      ended March 31, 2005. Net cash used in 2006 investing activities was primarily
      attributable to the net proceeds of $12,712,784 from the Asset Sale and
      $2,203,121 cash acquired in the HPI acquisition.




24




Net
      cash
      used in financing activities for the three months ended March 31, 2006 was
      $8,869,499 compared to cash provided by financing activities for the three
      months ended March 31, 2005 of $269,090. The significant activity for the three
      months ended March 31, 2006 included the receipt of $565,000 from the issuances
      of notes payable. In addition, the Company repaid $8,347,595 of notes payable
      from the proceeds of the Asset Sale. The significant activity for the three
      months ended March 31, 2005, included the Company receiving proceeds of $603,000
      upon the issuance of notes payable, receiving $243,833 upon the sale of 82,308
      shares of treasury stock by Chex and proceeds received of $371,624 upon the
      exercise of options and warrants. These proceeds were used for the repayment
      of
      notes payable of $945,364.





For
      the
      three months ended March 31, 2006, net cash increased by $4,080,665 compared
      to
      a decrease of $16,265 for the three months ended March 31, 2005. Ending cash
      at
      March 31, 2006, was $12,487,459 compared to $8,373,421 at March 31, 2005. The
      cash balances include cash included in discontinued operations of $6,169,261
      and
      $8,332,737 at March 31, 2006 and 2005, respectively.





RESULTS
      OF OPERATIONS





Financial
      statements for the three months ended March 31, 2006 and 2005 report the
      Registrant’s FastFunds Financial Corporation and Key Financial Systems
      subsidiaries as discontinued operations.





REVENUES





Consolidated
      revenues from continuing operations, which consist of credit card income on
      Nova's remaining portfolio, for the three months ended March 31, 2006, were
      $36,289 compared to consolidated revenues of $72,804 for the three months ended
      March 31, 2005.





CORPORATE
      SELLING, GENERAL AND ADMINISTRATIVE





Corporate
      expenses include those of Equitex, Denaris, Nova and as of March 14, 2006,
      HPI.
      Total corporate activity expenses for the three months ended March 31, 2006
      and
      2005 were comprised as follows:




2006
            
            2005Employee
                costs
            
            $
            144,019
            
            $
            144,965Accounting
                and legal
            
            
            100,323
            
            
            227,954Impairment
                of notes receivable
            
            
            75,000
            
            
            120,000Warrant
                costs
            
            
            194,130Other
            
            
            354,754
            
            
            123,431$
            868,226
            
            $
            616,350





Employee
      costs for the three months ended March 31, 2006 decreased by $946 from the
      three
      months ended March 31, 2005. Included in the 2006 period are costs of $37,727
      related to HPI. The 2005 costs include $32,710 of officer’s bonus. Accounting
      and legal expense decreased by $127,631 for the three months ended March 31,
      2006 compared to March 31, 2005. The decrease was primarily attributable to
      expenses incurred in the 2005 period related to legal expenses associated with
      the lawsuit against iGames, as well as defending claims made against the Company
      by iGames. The lawsuits have been settled and the Company anticipates no further
      expenses associated with the settlement.





During
      the three months ended March 31, 2006, the Company increased the allowance
      related to notes receivable from Equitex 2000, Inc. by $75,000, compared to
      an
      increase of $120,000 for the three months ended March 31, 2005.





During
      the three months ended March 31, 2006, the Company recognized an expense of
      $194,130 for the issuance of warrants to noteholders of the Company. Other
      expenses for the three months ended March 31, 2006 and 2005 include the general
      operating costs of Equitex, Denaris, Nova and from March 14, 2006, HPI.





OTHER
      INCOME (EXPENSE):





Consolidated
      other expenses for the three months ended March 31, 2006 was $406,462 compared
      to other expense of $93,812 for the three months ended March 31, 2005. Interest
      expense increased by $301,206 for the three months ended March 31, 2006 compared
      to March 31, 2005. The increase was primarily attributable to the increase
      in
      non-cash interest expense of approximately $230,000. Interest income decreased
      by $11,444 for the three months ended March 31, 2006 compared to March 31,
      2005.




25




DISCONTINUED
      OPERATIONS





Discontinued
      operations represent the operations of FastFunds and Key. The gain
      from discontinued operations was $1,509,206 for the three months ended
      March 31, 2006, compared to a loss of $1,219,635 for the three months ended
      March 31, 2005.





The
      results were comprised of as follows:





2006
            
            2005FastFunds
            
            $
            1,509,733
            
            
            (1,217,035
            )Key
            
            
            (527
            )
            
            (2,600
            )$
            1,509,206
            
            $
            (1,219,635
            )





The
      results of FastFunds for the three months ended March 31, 2006 and 2005 are
      as
      follows:





2006
            
            2005Revenues
            
            $
            2,011,956
            
            $
            4,414,143Location
                expenses
            
            
            (1,233,170
            )
            
            (3,242,739
            )Location
                support expenses
            
            
            (1,958,151
            )
            
            (1,435,179
            )Other
                expenses
            
            
            (428,737
            )
            
            (945,260
            )Gain
                on Asset Sale
            
            
            4,145,835Income
                tax expense
            
            
            (1,028,000
            )
            
            (8,000
            )Gain
                (loss) from discontinued operations
            
            $
            1,509,733
            
            $
            (1,217,035
            )






INCOME
      TAX EXPENSE





Income
      tax expense for the three months ended March 31, 2006 was $313,000, and is
      primarily related to the income taxes as a result of the Asset Sale in January
      2006.





CONTRACTUAL
      OBLIGATIONS





There
      were no new material contractual obligations during the quarter ended March
      31,
      2006.





RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      No.
      123(R), *Share-Based
      Payment* ,
      which
      addresses the accounting for share-based compensation transactions. SFAS No.
      123(R) eliminates the ability to account for share-based compensation
      transactions using APB 25, and generally requires instead that such transactions
      be accounted and recognized in the statement of operations based on their fair
      value. The Company adopted SFAS No. 123(R) on January 1, 2006. The adoption
      of
      this standard did not have an impact on the Company’s results of operations as
      no options were issued during the quarter ended March 31, 2006 and all options
      outstanding prior to the adoption of SFAS 123(R) by the Company very
      fully-vested. Depending on the number and terms of options that may be granted
      in future periods, the implementation of this standard could have a material
      impact on the Company’s financial position and results of
      operations.


26




**ITEM
      3.**


**QUANTITATIVE
      AND QUALITATIVE DISCLOSURES OF 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 risk 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, as follows:





March
                  31,
              
              
              December
                  31,Contractual
                  obligation
              
              2006
              
              
              2005
              
              Interest
                  rateNotes
                  payable(1)
              
              $4,787,061
              (2)
              
              $11,301,497
              
              Fixed
                  9% - 15%Convertible
                  promissory notes
              
              3,869,565
              
              
              4,690,656
              
              Fixed
                  7%Convertible
                  promissory notes
              
              500,000
              (2)
              
              1,362,500
              
              Fixed
                  5% - 10%Notes
                  payable, officers
              
              144,036
              
              
              614,695
              
              Fixed
                  8% - 10%Notes
                  payable, other
              
              265,000
              
              
              200,000
              
              Fixed
                  6%Operating
                  lease obligations
              
              
              
              
              84,247
              
              Fixed
                  6.5% - 7%Debt
                  outstanding, before note discounts
              
              $9,565,662
              
              
              $18,253,595


(1)
            Notes
                are unsecured, mature in March
                2007.


(2)
            Included
                in liabilities as discontinued
                operations.





Amounts
      above exclude discounts recorded on the face value of the related debt. As
      most
      of the Company’s average outstanding indebtedness is renewed annually and
      carries a fixed rate of interest, a change in interest rates is not expected
      to
      have a material impact on the consolidated financial position, results of
      operations or cash flows of the Company during the year ending December 31,
      2006.








27





**ITEM
      4.**


**DISCLOSURE
      CONTROLS AND PROCEDURES**




A
        review
        and evaluation was performed by the Company’s management, including the
        Company’s Chief Executive Officer and Treasurer, of the effectiveness of the
        design and operation of the Company’s disclosure controls and procedures as of
        the end of the last day of the period of the accompanying financial statements.
        Based on that review and evaluation, management has concluded that the Company’s
        current disclosure controls and procedures, as designed and implemented,
        were
        effective. There have been no changes in the Company’s internal controls over
        financial reporting identified in connection with such evaluation that occurred
        during the Company’s last fiscal quarter that has materially affected, or is
        reasonably likely to materially affect, the Company’s internal control over
        financial reporting. Nevertheless, we have limited Company resources devoted
        to
        financial reporting.  The Company is currently evaluating its accounting
        resources needed to accommodate future non-routine, complex accounting
        issues.





**PART
      II.**  **OTHER
      INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





None





**Item
      2.**  **Changes
      in Securities**





On
      March
      9, 2006, the Company converted $130,861 in debts payable by the Company’s
      subsidiary, FastFunds Financial Corporation, into 30,120 shares of the Company's
      $0.01 par value common stock at a conversion price of $4.34 per
      share.





On
      March
      21, 2006, the Company converted $256,899 in notes and interest payable 62,793
      shares of the Company's $0.01 par value common stock at a conversion price
      of
      $4.09 per share.





On
      March
      31, 2006, the Company converted $15,295 in fees into 2,975 shares of the
      Company's $0.01 par value common stock at a conversion price of $5.14 per
      share.





On
      April
      14, 2006 we sold 60,000 units, each unit consisting of one share of common
      stock
      and one three-year warrant to purchase an additional share of common stock
      at an
      exercise price of $5.00 per share. The purchase price per unit was $4.00, and
      resulted in aggregate proceeds of $240,000.





Equitex
      offered and sold the securities in reliance on an exemption from federal
      registration under Section 4(2) of the Securities Act of 1933 and Rule 506
      promulgated thereunder. The Company relied on this exemption and rule based
      on
      the fact that there were a limited number of investors, all of whom were
      accredited investors and (i) either alone or through a purchaser representative,
      had knowledge and experience in financial and business matters such that each
      was capable of evaluating the risks of the investment, and (ii) we had obtained
      subscription agreements from such investors indicating that they were purchasing
      for investment purposes only. The securities were not registered under the
      Securities Act and may not be offered or sold in the United States absent
      registration or an applicable exemption from registration requirements. The
      disclosure contained herein does not constitute an offer to sell or a
      solicitation of an offer to buy any securities of the Company, and is made
      only
      as permitted by Rule 135c under the Securities Act.




**Item
      3.**  **Defaults
      upon Senior Securities**





None.




28




**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**





On
        February 28, 2006, we held a special meeting of stockholders at which the
        following two proposals were presented and voted upon at the meeting, and
        approved by our stockholders, with the votes cast as follows:
 
 To
        approve a Merger Agreement with Hydrogen Power, Inc., the merger transaction
        and
        other transactions contemplated by the Merger Agreement:
 
 For
              Against
              Abstain4,711,852
              95,866
              11,359
 
 To
        approve Equitex’s issuance of common stock (and securities convertible into
        common stock) in ther merger (together with certain related securities
        issuances):
 
 For
              Against
              Abstain4,710,283
              97,344
              11,450





**Item
      5.**  **Other
      Information**





None.




**Item
      6.**  **Exhibits**





Exhibits





31.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232.1
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002








29





**SIGNATURES**





Pursuant
      to the requirements 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.





Equitex,
                Inc.(Registrant)Date:May
                22, 2006
            By:/s/
                Henry FongHenry
                FongPresident,
                Treasurer andChief
                Financial Officer














30