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**June
                30, 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**





**HYDROGEN
      POWER INTERNATIONAL, INC.**


**(Formerly
      known as 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 August 21,
      2006: 12,772,679





HYDROGEN
      POWER INTERNATIONAL, INC. AND SUBSIDIARIES





(FORMERLY
      KNOWN AS EQUITEX, INC.)





PART
                I
            FINANCIAL
                INFORMATION
            PageItem
                1.
            Financial
                statements:Report
                of Independent Registered Public Accounting Firm
            2Condensed
                consolidated balance sheets -
              June
                30, 2006 (unaudited) and December 31, 2005
            3
                -
                4Condensed
                consolidated statements of operations-
              three
                and six months ended June 30, 2006 and 2005 (unaudited)
            5Condensed
                consolidated statement of changes in stockholders' equity - six months
                ended June 30, 2006 (unaudited)
            6Condensed
                consolidated statements of cash flows -
              six
                months ended June 30, 2006 and 2005 (unaudited)
            7
                -
                8Notes
                to condensed consolidated financial statements (unaudited)
            9
                -
                21Item
                2.
            Management's
                discussion and analysis of financial condition and results of
                operations
            22
                - 27Item
                3.
            Quantitative
                and qualitative disclosures of market risk
            28Item
                4.
            Disclosure
                controls and procedures
            29PART
                II
            OTHER
                INFORMATIONItem
                1.
            Legal
                proceedings
            29Item
              1A.
            Risk
              Factors
            29Item
                2.
            Changes
                in securities and use of proceeds
            29Item
                3.
            Defaults
                upon senior securities
            29Item
                4.
            Submission
                of matters to a vote of security holders
            29Item
                5.
            Other
                information
            29Item
                6.
            Exhibits
            30Signatures
            
            31











REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











Board
      of
      Directors


Hydrogen
      Power International, Inc.





We
      have
      reviewed the accompanying condensed consolidated balance sheet of Hydrogen
      Power
      International, Inc. (formerly known as Equitex, Inc. ) and subsidiaries as
      of
      June 30, 2006, the related condensed consolidated statements of operations
      for
      the three-month and six-month periods ended June 30, 2006 and 2005, the related
      condensed consolidated statement of changes in stockholders’ equity for the
      six-month period ended June 30, 2006, and the condensed consolidated statements
      of cash flows for the six-month periods ended June 30, 2006 and 2005. 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
      Hydrogen Power International, 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


August
      18, 2006





2




**HYDROGEN
                  POWER INTERNATIONAL, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  KNOWN AS EQUITEX,
                  INC.)****CONDENSED
                  CONSOLIDATED BALANCE
                  SHEETS**June
                  30,
              
              December
                  31,2006
              
              2005(unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              5,967,976
              
              $
              133,541Assets
                  of discontinued operations (including cash of $3,124,105) (Note
                  2)
              
              
              3,381,554Receivables,
                  net
              
              
              264,346
              
              
              252,089Prepaid
                  expenses and other
              
              
              69,950
              
              
              33,202Investment
                  in Hydrogen Power, Inc. (Note 1)
              
              
              
              
              
              2,526,300Assets
                  held for sale (Note 2)
              
              
              
              
              
              21,997,466Total
                  current assets
              
              
              9,683,826
              
              
              24,942,598Notes
                  and interest receivable, net, including related parties of $176,333
                  (2006)and
                  $381,136 (2005) (Note 3)
              
              
              426,333
              
              
              3,899,526Property,
                  equipment and leaseholds, net
              
              
              90,213
              
              
              52,178Intangible
                  and other assets, net (Note 1)
              
              
              19,743,018
              
              
              638,84620,259,564
              
              
              4,590,550$
              29,943,390
              
              $
              29,533,148




(Continued)


3




**HYDROGEN
                  POWER INTERNATIONAL, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  KNOWN AS EQUITEX,
                  INC.)****CONDENSED
                  CONSOLIDATED BALANCE SHEETS
                  (CONTINUED)**June
                  30,
              
              December
                  31,2006
              
              2005(unaudited)LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Checks
                  issued in excess of cash in bank
              
              
              
              
              $
              1,105,379Accounts
                  payable
              
              $
              1,251,603
              
              
              768,189Accrued
                  expenses and other liabilities, including related party accruals
                  of$576,005
                  (2006) and $410,000 (2005) (Note 5)
              
              
              1,687,253
              
              
              3,043,543Convertible
                  and other promissory notes and current portion of long-term
                  debt,including
                  related party notes of $73,823 (2006) and $614,695 (2005) (Note
                  4)
              
              
              2,289,754
              
              
              15,275,386Liabilities
                  of discontinued operations (Note 2)
              
              
              5,384,788
              
              
              513,395Liabilities
                  associated with assets held for sale (Note 2)
              
              
              
              
              
              154,047Total
                  current liabilities
              
              
              10,613,398
              
              
              20,859,939Long-term
                  debt, net of current portion (Note 4)
              
              
              922,015
              
              
              2,108,423Liabilities
                  associated with assets held for sale
              
              
              
              
              
              2,867,000922,015
              
              
              4,975,42311,535,413
              
              
              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 $1,560,700 (2006) and $2,412,700 (2005)
              
              
              783,300
              
              
              131,300Stockholders'
                  equity (Note 7):Preferred
                  stock, Series L convertible; $0.01 par value; 300,000 shares authorized,
                  issuedand
                  outstanding (2006); liquidation preference $3,000
              
              
              3,000
              
              
              -Common
                  stock, $0.01 par value; 50,000,000 shares authorized;
                  12,772,986(2006)
                  and 8,495,849 (2005) issued; 11,521,391 shares (2006)
                  and8,486,112
                  shares (2005) outstanding
              
              
              127,730
              
              
              84,958Common
                  stock to be issued
              
              
              1,321Notes,
                  interest and stock subscription receivable
              
              
              (505,366
              )
              
              (682,002
              )Additional
                  paid-in capital
              
              
              55,483,081
              
              
              32,020,956Accumulated
                  deficit
              
              
              (31,019,848
              )
              
              (27,728,484
              )Less
                  treasury stock at cost; 1,251,595 shares (2006) and 9,737 shares
                  (2005)
              
              
              (6,465,241
              )
              
              (128,942
              )Total
                  stockholders' equity
              
              
              17,624,677
              
              
              3,566,486$
              29,943,390
              
              $
              29,533,148







See
      notes
      to condensed consolidated financial statements.


4




**HYDROGEN
                  POWER INTERNATIONAL, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  KNOWN AS EQUITEX,
                  INC.)****CONDENSED
                  CONSOLIDATED STATEMENTS OF
                  OPERATIONS****THREE
                  AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
                  (UNAUDITED)**Three
                  months ended June 30,
              
              Six
                  months ended June 30,2006
              
              2005
              
              2006
              
              2005Credit
                  card income, net of provision for losses
              
              $
              31,079
              
              $
              45,774
              
              $
              67,368
              
              $
              118,578Corporate
                  selling, general and administrative
              
              
              1,522,813
              
              
              2,409,041
              
              
              2,391,039
              
              
              3,025,391Loss
                  from operations
              
              
              (1,491,734
              )
              
              (2,363,267
              )
              
              (2,323,671
              )
              
              (2,906,813
              )Other
                  income (expense):Interest
                  income, including related party interest of $0 and $19,799for
                  the three and six months (2005)
              
              
              56,789
              
              
              
              
              
              65,142
              
              
              19,797Interest
                  expense, including related party interest for thethree
                  months of $2,102 (2006) and $1,796 (2005) and$9,492
                  (2006) and $4,147 (2005) for the six months
              
              
              (292,105
              )
              
              (80,378
              )
              
              (706,920
              )
              
              (193,987
              )(235,316
              )
              
              (80,378
              )
              
              (641,778
              )
              
              (174,190
              )Loss
                  from continuing operations before income taxes
              
              
              (1,727,050
              )
              
              (2,443,645
              )
              
              (2,965,449
              )
              
              (3,081,003
              )Income
                  tax expense (Note 8)
              
              
              (424,000
              )
              
              
              
              
              (737,000
              )Loss
                  from continuing operations
              
              
              (2,151,050
              )
              
              (2,443,645
              )
              
              (3,702,449
              )
              
              (3,081,003
              )(Loss)
                  gain from discontinued operations, net of income taxes(Note
                  2)
              
              
              (1,098,121
              )
              
              (1,383,298
              )
              
              411,085
              
              
              (2,602,933
              )Net
                  loss
              
              
              (3,249,171
              )
              
              (3,826,943
              )
              
              (3,291,364
              )
              
              (5,683,936
              )Accretion
                  of preferred stock (Note 6)
              
              
              (164,500
              )
              
              
              
              
              (852,000
              )Deemed
                  preferred stock dividends (Note 6)
              
              
              (35,200
              )
              
              (57,830
              )
              
              (73,000
              )
              
              (113,200
              )Net
                  loss applicable to common stockholders
              
              $
              (3,448,871
              )
              $
              (3,884,773
              )
              $
              (4,216,364
              )
              $
              (5,797,136
              )Basic
                  and diluted net loss per common share:Loss
                  from continuing operations
              
              $
              (0.20
              )
              $
              (0.39
              )
              $
              (0.45
              )
              $
              (0.53
              )(Loss)
                  income from discontinued operations
              
              
              (0.10
              )
              
              (0.22
              )
              
              0.04
              
              
              (0.42
              )Basic
                  and diluted net loss per share
              
              $
              (0.30
              )
              $
              (0.61
              )
              $
              (0.41
              )
              $
              (0.95
              )Weighted
                  average number of common shares outstanding:Basic
                  and diluted
              
              
              11,421,344
              
              
              6,365,980
              
              
              10,226,022
              
              
              6,130,183




See
      notes to condensed consolidated financial
      statements.


5




**HYDROGEN
                  POWER INTERNATIONAL, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  KNOWN AS EQUITEX,
                  INC.)****CONDENSED
                  CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
                  EQUITY****SIX
                  MONTHS ENDED JUNE 30, 2006
                  (UNAUDITED)**Notes,
                  interestCommon
              
              Additional
              
              Common
              
              and
                  stock
              
              
              
              TotalPreferred
                  Stock
              
              Common
                  stock
              
              stock
                  to be
              
              paid-in
              
              treasury
              
              subscription
              
              Accumulated
              
              stockholders'Shares
              
              Amount
              
              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 preferred stock, common stock,warrants
                  and stock to be issuedto
                  shareholders of HPI (Note 1)
              
              
              300,000
              
              $
              3,000
              
              
              2,338,990
              
              
              23,390
              
              $
              1,321
              
              
              14,127,848
              
              
              
              
              
              
              
              
              
              
              
              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)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              42,000
              
              
              
              
              
              42,000Conversion
                  of Series K preferred stock to common stock(Note
                  6)
              
              
              
              
              
              
              
              
              73,859
              
              
              739
              
              
              
              
              
              199,261
              
              
              
              
              
              
              
              
              
              
              
              200,000Accretion
                  of Series K preferred stock (Note 6)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (852,000
              )
              
              
              
              
              
              
              
              
              
              
              (852,000
              )Issuance
                  of common stock in consideration of extensionson
                  notes payable (Note 7)
              
              
              
              
              
              
              
              
              8,878
              
              
              89
              
              
              
              
              
              33,126
              
              
              
              
              
              
              
              
              
              
              
              33,215Issuance
                  of common stock in satisfaction of note payable,long-term
                  debt and accrued interest (Notes 4 and 7)
              
              
              
              
              
              
              
              
              282,983
              
              
              2,830
              
              
              
              
              
              1,371,546
              
              
              
              
              
              
              
              
              
              
              
              1,374,376Write-off
                  of stock subscription receivable (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              135,000
              
              
              
              
              
              135,000Increase
                  in advances receivable
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (364
              )
              
              
              
              
              (364
              )Issuance
                  of warrants to noteholders (including $73,882for
                  subsidiary noteholders) (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              291,357
              
              
              
              
              
              
              
              
              
              
              
              291,357Extension
                  of warrant expiration (Note 7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,632
              
              
              
              
              
              
              
              
              
              
              
              12,632Issuance
                  of common stock and warrants under privateplacement
                  (Note 7)
              
              
              
              
              
              
              
              
              60,000
              
              
              600
              
              
              
              
              
              239,400
              
              
              
              
              
              
              
              
              
              
              
              240,000Purchase
                  by subsidiary of 41,858 shares of common stock(Note
                  7)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (192,299
              )
              
              
              
              
              
              
              
              (192,299
              )Issuance
                  of common stock in satisfaction of subsidiaryliabilites
                  (Notes 4 and 7)
              
              
              
              
              
              
              
              
              312,427
              
              
              3,124
              
              
              
              
              
              1,525,555
              
              
              
              
              
              
              
              
              
              
              
              1,528,679Issuance
                  and repricing of subsidiary warrants (Notes 4 and 5)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              381,400
              
              
              
              
              
              
              
              
              
              
              
              381,400Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,291,364
              )
              
              (3,291,364
              )Balances,
                  June 30, 2006
              
              
              300,000
              
              $
              3,000
              
              
              12,772,986
              
              $
              127,730
              
              $
              1,321
              
              $
              55,483,081
              
              $
              (6,465,241
              )
              $
              (505,366
              )
              $
              (31,019,848
              )
              $
              17,624,677




See
      notes to condensed consolidated financial
      statements.


6




**HYDROGEN
                  POWER INTERNATIONAL, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  KNOWN AS EQUITEX,
                  INC.)****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH
                  FLOWS****SIX
                  MONTHS ENDED JUNE 30, 2006 AND 2005
                  (UNAUDITED)**2006
              
              2005Cash
                  flow used in operating activities from operating
                  activities:Net
                  loss
              
              $
              (3,291,364
              )
              $
              (5,683,936
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Gain
                  on sale of assets (Note 1)
              
              
              (4,145,835
              )Provision
                  for losses on notes and interest receivable, including bad debt
                  expense
              
              
              518,392
              
              
              1,811,441Depreciation
                  and amortization
              
              
              912,012
              
              
              772,332Amortization
                  of discounts on convertible promissory notes payable related
                  tobeneficial
                  conversion features
              
              
              
              
              
              1,287,718Amortization
                  of discounts related to warrants attached to notes payable
              
              
              241,718
              
              
              30,000Expense
                  incurred upon issuance of stock and warrants
              
              
              1,738,606Deferred
                  income taxes
              
              
              1,333,000Non-cash
                  compensation expense
              
              
              42,000Changes
                  in assets and liabilities, net of business acquisition and asset
                  sale:Decrease
                  in accounts receivable
              
              
              163,044
              
              
              304,156(Increase)
                  decrease in other receivables
              
              
              (2,643
              )
              
              31,211Decrease
                  in interest receivable and other assets
              
              
              20,992
              
              
              44,858Increase
                  (decrease) in due to credit card holders
              
              
              4,213
              
              
              (23,973
              )(Decrease)
                  increase in accounts payable and accrued liabilities
              
              
              (1,275,784
              )
              
              351,374Total
                  adjustments
              
              
              (450,285
              )
              
              4,609,117Net
                  cash used in operating activities
              
              
              (3,741,649
              )
              
              (1,074,819
              )Cash
                  flows from investing activites:Cash
                  acquired in business acquisition of HPI (Note 1)
              
              
              2,203,121Net
                  (increase) decrease in credit card receivables
              
              
              (9,824
              )
              
              890Purchase
                  of furniture, fixtures and equipment
              
              
              (35,695
              )
              
              (279,122
              )Issuances
                  of notes receivable
              
              
              
              
              
              (11,073
              )Repayments
                  of notes receivable, other
              
              
              30,265
              
              
              305,151Proceeds
                  received from FFFC asset sale, net of costs (Note 1)
              
              
              12,712,784Net
                  cash provided by investing activities
              
              
              14,900,651
              
              
              15,846Cash
                  flows from financing activities:Decrease
                  in checks issued in excess of cash in bank
              
              
              (1,080,971
              )Proceeds
                  from private placement
              
              
              240,000
              
              
              1,260,000Sale
                  of treasury stock
              
              
              
              
              
              243,833Purchase
                  of treasury stock
              
              
              (192,299
              )Proceeds
                  from the exercise of warrants and options
              
              
              
              
              
              871,621Increase
                  in deferred loan costs
              
              
              
              
              
              (4,000
              )Borrowings
                  of notes payable, related parties and other
              
              
              635,000
              
              
              1,268,000Repayments
                  of notes payable, related parties and other
              
              
              (10,075,445
              )
              
              (1,560,405
              )Net
                  cash (used in) provided by financing activities
              
              
              (10,473,715
              )
              
              2,079,049






(Continued)


7


**HYDROGEN
                  POWER INTERNATIONAL, INC. AND
                  SUBSIDIARIES****(FORMERLY
                  KNOWN AS EQUITEX,
                  INC.)****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                  (CONTINUED)****SIX
                  MONTHS ENDED JUNE 30, 2006 AND 2005
                  (UNAUDITED)**2006
              
              2005Increase
                  in cash and cash equivalents
              
              
              685,287
              
              
              1,020,076Cash
                  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 period, including cash and cash equivalents
                  included inassets
                  of discontinued operations (2006)
              
              $
              9,092,081
              
              $
              9,409,762Supplemental
                  disclosure of cash flow information:Cash
                  paid for interest
              
              $
              1,178,010
              
              $
              768,703Cash
                  paid for income taxes
              
              $
              -
              
              $
              17,906Non-cash
                  investing and financing activities:Issuance
                  of common stock in satisfaction of note payable, long-term debt,
                  accounts
                  payableand
                  accrued interest
              
              $
              1,152,193
              
              $
              977,367Issuance
                  of common stock in satisfaction of subsidiary liabilities
              
              $
              730,862Conversion
                  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 acquired:Interest
                  receivable
              
              $
              (38,339
              )Prepaid
                  and other assets
              
              
              (85,681
              )Property
                  and equipment
              
              
              (14,906
              )Technology
                  and sub-license agreement
              
              
              (16,115,000
              )Trade
                  name
              
              
              (3,380,748
              )Liabilities
                  assumed:Accounts payable and accrued expenses
              
              
              197,190Notes payable
              
              
              3,000,000License fee payable
              
              
              1,731,067Purchase
                  price
              
              
              16,909,538Cash
                  acquired
              
              $
              2,203,121Return
                  of common stock previously issued for conversion of accounts
                  payable
              
              
              
              
              $
              6,450Return
                  and retirement of subsidiary common stock in exchange for note
                  receivable
              
              
              
              
              $
              81,000Cash
                  flows from discontinued operations:Net
                  cash used in operating activities
              
              $
              (4,692,159
              )
              $
              (306,743
              )Net
                  cash provided by investing activities
              
              
              12,712,784
              
              
              15,846Net
                  cash used in financing activities
              
              
              (9,928,206
              )
              
              (294,530
              )$
              (1,907,581
              )
              $
              (585,427
              )




See
      notes to condensed consolidated financial
      statements.


8
 **HYDROGEN
              POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
              KNOWN AS EQUITEX, INC.)**
 
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **SIX
              MONTHS ENDED JUNE 30, 2006 AND 2005
              (UNAUDITED)**




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





**Business
      and organization:**





Equitex,
      Inc., which on July 24, 2006, changed its name to Hydrogen Power International,
      Inc. and subsidiaries (“HPII” or 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, HPII and FFFC also have several other non-operating
      wholly-owned subsidiaries. As of June 30, 2006, HPII owns and controls 80%
      of
      FFFC’s outstanding common stock.





FFFC’s
      wholly-owned subsidiary Chex Services, Inc. (“Chex”), a Minnesota corporation,
      provided financial services prior to the sale of substantially all of Chex’s
      assets, which primarily consisted of check cashing, automated tell machine
      (ATM)
      access, and credit card advances to customers primarily at Native American
      owned
      casinos and gaming establishments (the “Asset Sale”).





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 Hydrogen Now technology developed by the
      University of British Columbia (“UBC”) and any improvements and to market,
      manufacture and distribute products using the technology in the United States,
      Mexico and Central and South America. The agreement also 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 HPII as of June 30,
      2006,
      and for the three and six months ended June 30, 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 June 30, 2006, and for the periods ended June 30, 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
      and six months ended June 30, 2006, are not necessarily indicative of the
      results to be expected for the full year.





9
 **HYDROGEN
              POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
              KNOWN AS EQUITEX, INC.)**
 
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
              MONTHS ENDED JUNE 30, 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):**





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.





The
      interim condensed consolidated financial statements presented herein include
      the
      financial statements of Hydrogen Power International, Inc. and its wholly-owned
      subsidiaries, Key Financial Systems, Inc. (“Key”) and Nova Financial Systems,
      Inc. (“Nova”), and HPII’s majority-owned subsidiaries, FFFC and Denaris
      Corporation (“Denaris”) as of June 30, 2006 and December 31, 2005, and effective
      March 14, 2006, its wholly-owned subsidiary, HPI. The excess of the losses
      for
      the six months ended June 30, 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, the Company 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
      were 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
      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
      the
      Company’s request to remain listed through May 31, 2006, while Nasdaq staff
      completed its review of the Company’s application for initial listing on the
      Nasdaq Capital Market. On May 19, 2006, the Company withdrew the listing
      application and accordingly, its securities ceased trading on Nasdaq beginning
      May 23, 2006, and the Company immediately began trading on the Over the Counter
      Pink Sheets. The Company came to believe that its application would not be
      approved and as a result chose to immediately seek to apply for trading on
      the
      Over the Counter (“OTC”) Bulletin Board and is currently pursuing 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, the Company issued 700,000 shares of its 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.





The
      Company also issued warrants to purchase up to 1,600,000 shares of HPII 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.





10
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 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 to the stockholders of HPI 300,000 shares of its Series
      L
      Preferred Stock (the “Preferred Stock”). The Preferred Stock is convertible into
      HPII 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 HPII 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
      HPII
      in its sole discretion. In the event all three series of Series L Preferred
      Stock are converted into HPII common stock, the former stockholders of HPI
      would
      own approximately 73% of HPII’s common stock on a post-transaction basis
      (assuming that HPII does not, prior to the conversion of the L-3 Preferred
      Stock, issue any additional shares of common stock other than pursuant to
      conversion of the Series L Preferred Stock). As of the date of this quarterly
      report, none of the preferred stock has been converted to common
      stock.




HPI
      is a
      party to an Employment Agreement executed in 2004 and amended on October 20,
      2005 (the “Employment Agreement”) with Ricky Gujral, Chief Executive Officer
      (the “CEO”), whereby effective with the closing of the merger but relating back
      to October 20, 2005 in such an event, the CEO is to receive an annual base
      salary of $350,000. The term of the agreement is for five years and the
      compensation is to be reviewed annually. On October 20, 2005, HPI also entered
      into an Executive Severance Agreement with the CEO, whereby the CEO is entitled
      to a severance of two years base salary and bonus in the event of termination
      under certain circumstances.





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
            
            
            14,906Technology
                and sub-license agreement
            
            
            16,115,000Trade
                name
            
            
            3,380,748Accounts
                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 the Company, along with its independent valuation advisors are still
      reviewing and completing the analysis of the underlying assumptions and
      calculations used in the above allocation. The Company has estimated a fifteen
      year useful life for the technology and sub-license agreement as well as the
      trade name. The actual allocation of the purchase price and the resulting effect
      on income (loss) from operations may differ significantly from the amounts
      included herein.




11
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




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





**Recent
      events (continued):**




Under
        the
        terms of the Merger Agreement, the Company agreed to utilize the first $10
        million of the net proceeds received from the monetization of its holdings
        of
        the capital stock of FFFC 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 capital to HPI, which proceeds were
        transferred to HPI at closing. The remaining $5 million of any proceeds received
        from the monetization of the FFFC capital stock has not yet been made as
        further
        monetization has not occured. 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.


HPII
      is
      currently negotiating the terms of an agreement and series of transactions
      with
      the management of HPI that may result in a change in control of HPII’s board of
      directors and effect a change in HPII’s management. In addition, the
      negotiations may require HPII to divest all or substantially all of its holdings
      of equity in FFFC and eliminate all intercompany obligations between HPII and
      FFFC. As of the date of this quarterly report no agreements have been reached
      and no assurance can be given that one will be reached.





***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, and FFFC
      recorded $177,500 and $477,500 of other income (included in loss from
      discontinued operations) pursuant to the agreement for the three and six months
      ended June 30, 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 15-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.





12
 **HYDROGEN
                POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
                KNOWN AS EQUITEX, INC.)**
 
 **NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
                MONTHS ENDED JUNE 30, 2006 AND 2005
                (UNAUDITED)**




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





**Recent
      events (continued):**




Three
                  months ended June 30,
              Six
                  months ended June 30,2006
              
              2005
              
              2006
              
              2005Revenues
              
              $
                  58,000
              
              $
                  73,000
              
              $
                  545,000
              
              $
                  596,000Net
                  loss
              
              (3,684,000)
              
              (7,955,000)
              
              (7,463,000)
              
              (10,127,000)Net
                  loss applicable to common stockholders
              
              (3,884,000)
              
              (8,013,000)
              
              (8,388,000)
              
              (10,240,000)Basic
                  and diluted loss per common share
              
              (0.34)
              
              (0.85)
              
              (0.75)
              
              (1.12)Shares
                  used in per share calculation
              
              11,421,344
              
              9,404,970
              
              11,169,371
              
              9,169,173


***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 note 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 80% of FFFC’s outstanding common stock.





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





**Management’s
      plans:**





The
      Company incurred a net loss of $3,291,364 for the six months ended June 30,
      2006, and the loss from continuing operations was $3,702,449. 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 expenses of approximately
      $4,786,000 (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 SEC issuer through
      at
      least June 30, 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 Accounting Standards No. 123 (“SFAS 123”),
“Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25
      (“APB 25”), “Accounting for Stock Issued to Employees”.




13
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




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





**Stock
      based compensation (continued):**


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 and six
        months ended June 30, 2006 and 2005, 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
        June 30, 2006, are fully-vested and exercisable. A summary of each plan and
        their outstanding balances at June 30, 2006, is as follows:





Options
                outstanding
            1999
                Plan
            
            2003
                PlanJanuary
                1, 2006
            1,667
            
            484,966Expired
            (1,667)June
                30, 2006
            -
            
            484,966Weighted
                average exercise price
            -
            
            $5.23Weighted
                average remaining life
            -
            
            2.7
                yearsAggregate
                intrinsic value
            $0
            
            $0




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




***FFFC:***





The
      carrying amount at June 30, 2006 and December 31, 2005, of assets and
      liabilities of FFFC are presented as discontinued operations at June 30, 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
            
            $
            3,124,105
            
            $
            8,273,253Accounts
                receivable
            
            
            
            
            
            163,044Notes
                and interest receivable
            
            
            135,000
            
            
            75,461Property
                and equipment, net
            
            
            18,662
            
            
            1,077,802Goodwill
            
            
            
            
            
            5,636,000Intangible
                and other assets
            
            
            
            
            
            2,183,902Deferred
                tax asset
            
            
            
            
            
            4,200,000Other
                assets
            
            
            103,787
            
            
            388,004$
            3,381,554
            
            $
            21,997,466




14
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




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





***FFFC
      (continued):***




LIABILITIES
              
              
              2006
              
              
              2005Checks
                  issued in excess of cash in bank
              
              $
              24,408Accounts
                  payable
              
              
              489,373Accrued
                  expenses
              
              
              696,551
              
              $
              69,800Notes
                  payable to individuals
              
              
              3,659,061Capital
                  lease obligations
              
              
              
              
              
              84,247$
              4,869,393
              
              $
              154,047
 
 Losses
        from discontinued operations for the three and six months ended June 30,
        2006
        and 2005 of FFFC were as follows:
 
 Three
                    months ended June 30,
                
                Six
                    months ended June 30,2006
                
                2005
                
                2006
                
                2005Revenues
                
                $
                180,426
                
                $
                4,572,406
                
                $
                2,192,382
                
                $
                8,986,549Operating
                    expenses
                
                
                (696,061
                )
                
                (4,902,007
                )
                
                (3,887,382
                )
                
                (9,579,925
                )Loss
                    from operations
                
                
                (515,635
                )
                
                (329,601
                )
                
                (1,695,905
                )
                
                (593,376
                )Gain
                    on sale of assets
                
                
                
                
                
                
                
                
                4,145,835Other
                    expenses
                
                
                (1,006,486
                )
                
                (1,042,929
                )
                
                (1,435,223
                )
                
                (1,988,189
                )Income
                    tax benefit (expense)
                
                
                424,000
                
                
                (8,000
                )
                
                (604,000
                )
                
                (16,000
                )Net
                    (loss) income
                
                $
                (1,098,121
                )
                $
                (1,380,530
                )
                $
                411,612
                
                $
                (2,597,565
                )
 ***Key:***





The
      carrying amounts of assets and liabilities of Key (presented as discontinued
      operations) at June 30, 2006 and December 31, 2005 are as follows:





June
                30,
            
            December
                31,2006
            
            2005Cash
                (included in prepaid expenses and other)
            
            $
            213
            
            $
            140Accounts
                payable
            
            $
            515,395
            
            $
            513,395





Key
      had
      no revenues for the three and six months ended June 30, 2006 and 2005. Losses
      incurred by Key for the three and six-months ended June 30, 2006 were $0 and
      $527 and for the three and six-months ended June 30, 2005 were $2,768 and
      $5,368, respectively.







15
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




**3.**  **Notes
        and interest receivable:**
 
 Notes
        receivable at June 30, 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
                  
                  $
                  1,185,870
                  
                  
                  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
                  
                  
                  50,0002,072,370
                  
                  
                  5,102,635Interest
                      receivable, related party
                  
                  
                  95,463
                  
                  
                  158,852Notes
                      receivable, net of current portion, before valuation
                      allowance
                  
                  
                  2,167,833
                  
                  
                  5,261,487Less
                      valuation allowance**[B]**
                  
                  
                  (1,606,500
                  )
                  
                  (1,286,500
                  )


561,333
                
                3,974,987Less
                    net amount included in assets of discontinued operations (2006)
                    and assets
                    held for sale (2005)
                
                
                (135,000
                )
                
                (75,461
                )Notes
                    and interest receivable, net, long-term
                
                $
                426,333
                
                $
                3,899,526





**[A]**
            In
                September 2005, in connection with the Merger Agreement, HPII 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 is as
                follows:





2006
            
            2005Equitex
                2000, Inc.
            
            $
            1,105,000
            
            $
            700,000Paymaster
                Jamaica
            
            
            250,000
            
            
            250,000Chex
                customer
            
            
            201,500
            
            
            336,500Coast
                ATM, LLC
            
            
            50,000$
            1,606,500
            
            $
            1,286,500





16
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




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




Convertible
      and other promissory notes and long-term debt at June 30, 2006 and December
      31,
      2005, consist of the following:


June
                  30,
              
              December
                  31,2006
              
              2005Notes
                  payable to individual investors, including related party of $100,000
                  (2006)
              
              $
              3,659,061
              
              $
              11,301,497Notes
                  payable to affiliates through common ownership
              
              
              39,122
              
              
              380,351Convertible
                  promissory notes, net of discount of $543,821 (2006) and $765,833
                  (2005)**[A]**
              
              
              2,847,045
              
              
              5,287,323Note
                  payable to officers
              
              
              34,701
              
              
              234,344Notes
                  payable to third parties
              
              
              290,901
              
              
              180,294Obligations
                  under capital leases
              
              
              
              
              
              84,2476,870,830
              
              
              17,468,056Less
                  amounts included in liabilities of discontinued operations (2006)
                  and
                  liabilities associated with assets held for sale (2005)**[B]**
              
              
              (3,659,061
              )
              
              (84,247
              )Less
                  current maturities
              
              
              (2,289,754
              )
              
              (15,275,386
              )Long-term
                  debt, net of current portion
              
              $
              922,015
              
              $
              2,108,423


**[A]**
            For
                the six months ended June 30, 2006, total principal and interest
                due on
                these notes was $1,198,212. HPII paid $302,919 in cash and also issued
                220,190 shares of its common stock to satisfy the amount due on these
                notes. The 220,190 shares of common stock were valued at $1,053,428
                (based
                on the market value of the Company’s common stock). Therefore, the Company
                recorded additional interest expense of $59,152 and $158,135 for
                the three
                and six months ended June 30, 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 carried a stated interest
                rate of 9.5% per annum, had a 9-month original term, and were convertible
                at the holders’ option (including any unpaid interest) into shares of FFFC
                common stock at 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. During the year ended December 31, 2005, FFFC
                repaid
                $611,564 of these Convertible Notes. Through June 30, 2006, FFFC
                repaid an
                additional $1,012,500 of these Convertible Notes. In consideration
                of not
                meeting the original payment term on certain amounts, FFFC agreed
                to issue
                200,000 shares of its common stock to the Holders. The Holders also
                agreed
                to surrender 800,000 of the FFFC warrants originally received to
                purchase
                800,000 shares of FFFC common stock. The value of the 200,000 shares
                of
                FFFC common stock issued did not exceed the value of the 800,000
                FFFC
                warrants at the time of the exchange and accordingly, no additional
                expense was recorded.





In
      May
      2006, FFFC and HPII negotiated a settlement regarding the remaining $150,000
      of
      these Convertible Notes, whereby HPII issued 42,182 shares of its common stock
      to the Holders in exchange for payment of the Convertible Notes. The fair market
      value of the 42,182 shares of common stock issued by HPII was $212,155, and
      accordingly, $62,155 is included in interest expense (included in loss from
      discontinued operations) for the six months ended June 30, 2006. HPII also
      issued warrants to purchase 21,091 shares of its common stock at $5.10 per
      share, expiring three years after the date of issuance. The warrants were valued
      at $73,882 based on the Black-Scholes option-pricing model, which is included
      in
      interest expense (included in loss from discontinued operations) for the six
      months ended June 30, 2006. Additionally, FFFC agreed to lower the exercise
      price of warrants to purchase 300,000 shares of its common stock from $2.00
      to
      $1.75 per share. As a result of this reduction in the exercise price, FFFC
      recognized an additional $26,400 of interest expense (included in loss from
      discontinued operations) for the six months ended June 30, 2006.




17
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




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


As
        of
        December 31, 2005, FFFC also had $200,000 of outstanding convertible promissory
        notes issued in June 2004. These notes carried interest at 5% per annum,
        and
        unless converted, were due in April 2007. The notes were convertible into
        shares
        of FFFC common stock at $0.10 per share based on certain criteria. In May
        2006,
        HPII negotiated a settlement regarding these convertible notes, whereby HPII
        issued 180,000 shares of its common stock. The fair market value of the 180,000
        shares of common stock issued by HPII as of the date of the settlement was
        $870,000 and accordingly, an additional $670,000 was recognized as debt
        conversion costs (included in loss from discontinued operations) for the
        three
        and six months ended June 30, 2006. In addition, FFFC recorded $351,000 of
        expenses related to the settlement of $200,000 of convertible debt. The
        settlement terms stipulate a price protection clause whereby HPII must reimburse
        the former debt holders if the market price of the HPII common stock issued
        to
        them in the settlement is below $4.00 per share at the time they sell the
        stock.
        As a result, the Company has recorded a liability representing the difference
        between the market value of the shares issued as of June 30, 2006 and the
        $4.00
        stated in the settlement agreement.


**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 or other exchange 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 and six months ended June 30,
      2006, as the market value of the Company’s common stock has not increased since
      January 1, 2006. Compensation expense recorded under this arrangement was
      $53,000 and $85,000 for the three and six months ended June 30, 2005. As of
      June
      30, 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. No
      compensation expense has been recorded for the six months ended June 30, 2006
      under the Plan, as the market value of FFFC common stock has not increased
      from
      January 1, 2006.





**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.





18
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




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




**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 FFFC) to provide assistance to FFFC in the placement
        of
        debt or equity financing with prospective investors. The term of the agreement
        is for three years, but can be terminated at any time by either party with
        60
        days notice. The advisor is to be compensated if the advisor is successful
        in
        completing a debt or equity financing for or on behalf of FFFC. Through June
        30,
        2006, the financial advisor assisted FFFC in restructuring and or obtaining
        $3,579,061 of investor notes. Pursuant to the agreement, the advisor was
        paid
        $134,972 and received 30,120 shares of HPII common stock, valued at $152,407,
        which was included in loss from discontinued operations for the six months
        ended
        June 30, 2006.


**Consulting
      agreements (continued):**





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
      loss from discontinued operations for the six months ended June 30,
      2006.





In
      conjunction with the Asset Sale, a FFFC director and former officer (the
“Director”) 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 Director $100,800
      annually, over the five-year term of the non-compete agreement. Such
      compensation is to be applied to reduce the loan and interest receivable from
      the Director. If the Director breaches his non-compete agreement, the Director
      is no longer entitled to compensation and will be liable for any amount
      remaining on the loan. Accordingly, for the six months ended June 30, 2006;
      accordingly, for the six months ended June 30, 2006, FFFC recognized $42,000
      (included in loss from discontinued operations) and interest receivable was
      reduced by $42,000.





**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 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 $329,000 for the six months
      ended June 30, 2006. Additionally, during the six months ended June 30, 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.




19
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 2006 AND 2005
            (UNAUDITED)**




**6.**  **Redeemable
        preferred stock:**
 
 **Series
        K convertible preferred stock:**





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 June 30, 2006. During the six months ended June 30, 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
      June
      30, 2006, notes and interest receivable from a Director of Chex of $505,366
      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
      Director, all compensation earned under the agreement will be applied to these
      receivables.





At
      December 31, 2005, $135,000 is presented as a stock subscription receivable
      related to 25,000 shares of FFFC common stock that were issued to convertible
      noteholders. The $135,000 was written off during the second quarter of 2006
      in
      conjunction with the settlement agreement with the convertible noteholders
      as
      described in Note 4.





**Issuances
      of common stock:**





During
      the six months ended June 30, 2006, the Company issued 220,190 shares of common
      stock valued at $1,053,428 as payment on long-term debt and accrued interest
      of
      $895,293. The stock was issued at 85% of market value and accordingly, the
      Company recorded additional expense of $59,152 and $158,135, for the three
      and
      six months ended June 30, 2006.





During
      the six months ended June 30, 2006, the Company issued 62,793 shares of its
      common stock to third parties to satisfy convertible promissory notes and
      accrued 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 six months ended June 30, 2006.





During
      the six months ended June 30, 2006, the Company issued 312,427 shares of common
      stock valued at $1,528,679 to satisfy $350,000 of convertible notes and other
      liabilities of FFFC. The stock was issued at 85% of market value, and
      accordingly, the Company recorded an additional expense of $797,818 (included
      in
      loss from discontinued operations) for the six months ended June 30,
      2006.





During
      the six months ended June 30, 2006, the Company issued 60,000 shares of common
      stock and warrants to purchase 60,000 shares of the Company’s common stock to
      third parties in conjunction with a private placement. The warrants have a
      term
      of three years and an exercise price of $5.00. The Company received $240,000
      in
      the private placement. The market price of the common stock on the date of
      the
      grant was $4.61 per share.





During
      the six months ended June 30, 2006, the Company issued 8,878 shares of common
      stock valued at $33,215 in consideration of not meeting the due date on a
      promissory note. Accordingly, $17,921 and $33,215 is included in interest
      expense for the three and six months ended June 30, 2006.




20
 **HYDROGEN
            POWER INTERNATIONAL, INC. AND SUBSIDIARIES**
 
 **(FORMERLY
            KNOWN AS EQUITEX, INC.)**
 
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 
 **SIX
            MONTHS ENDED JUNE 30, 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 HPII
      and
      its majority-owned subsidiary owed FFFC and Chex.




During
      the six months ended June 30, 2006, FFFC purchased 41,858 shares from a third
      party of HPII common stock for $192,299 or $4.59 per share (the market price
      of
      the Company’s common stock on the purchase date). The cost of the shares has
      been added to treasury stock.




**Warrants:**





During
      the six months ended June 30, 2006, the Company issued warrants to noteholders
      to purchase 62,500 shares of the Company’s common stock for a period of three
      years at exercise prices of $2.00 and $4.71 per share. The market prices as
      of
      the date of the issuances ranged from $3.22 to $5.15. These warrants were valued
      at $217,475 based on the Black-Scholes option pricing model and are included
      in
      corporate general, selling and administrative expense for the six months ended
      June 30, 2006.





During
      the six months ended June 30, 2006, the Company issued warrants (to FFFC
      convertible noteholders as part of a settlement) to purchase 21,091 shares
      of
      the Company’s common stock for a period of three years at an exercise price of
      $5.10 per share (the market price of the common stock on the date the terms
      of
      the settlement were reached). These warrants were valued at $73,882 based on
      the
      Black-Scholes option pricing model and are included in loss from discontinued
      operations for the six months ended June 30, 2006.





During
      the six months ended June 30, 2006, the Company extended certain warrants by
      an
      additional year. The extended warrants were valued at $12,632 greater than
      the
      original warrants at the date of the extension based on the Black-Scholes
      option-pricing model and are included in corporate, general, selling and
      administrative expense for the six months ended June 30, 2006.





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 and six months ended June 30, 2006, was $424,000
      and
      $737,000, respectively. This amount represents income taxes recorded as a result
      of the Asset Sale in January 2006.  In addition, the Company has not
      recognized a tax benefit related to net operating losses generated during the
      six months ended June 30, 2006, as realization of the deferred tax asset is
      not
      considered more likely than not, and therefore an allowance has been applied
      against this amount.





21




**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





Hydrogen
      Power International, Inc. (“HPII or the “Company”) formerly known as Equitex,
      Inc. 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, HPII and FFFC also have several
      other non-operating wholly-owned subsidiaries. As of June 30, 2006, HPII owns
      and controls 80% of FFFC’s outstanding common stock.





FFFC’s
      wholly-owned subsidiary Chex Services, Inc. (“Chex”), a Minnesota corporation,
      provided financial services prior to the sale of substantially all of Chex’s
      assets, which primarily consisted of check cashing, automated teller 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.





On
      March
      14, 2006, the Company acquired Hydrogen Power, Inc. (“HPI”). This acquisition is
      described below. HPII is currently negotiating the terms of an agreement and
      series of transactions with the management of HPI that may result in a change
      in
      control of HPII’s board of directors and effect a change in HPII’s management.
      In addition, the negotiations may require HPII to divest all or substantially
      all of its holdings of equity in FFFC and eliminate all intercompany obligations
      between HPII and FFFC. As of the date of this quarterly report no agreements
      have been reached and no assurance can be given that one will be
      reached.





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 and six-months ended June
      30, 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 HPII and
      since March 14, 2006, HPI. 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”.





22




BUSINESS
      ACQUISITION :





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





Per
      the
      terms of the merger agreement, as amended, the Company issued to the former
      shareholders of 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,
      HPII 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
      HPII 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 HPII 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
      HPII
      in its sole discretion. In the event all three series of Series L Preferred
      Stock are converted into HPII common stock, the former stockholders of HPI
      would
      own approximately 73% of HPII’s common stock on a post-transaction basis
      (assuming that HPII does not, prior to the conversion of the L-3 Preferred
      Stock, issue any additional shares of common stock other than pursuant to
      conversion of the Series L Preferred Stock). As of the date of this quarterly
      report no Preferred Stock has been converted to common stock.





In
      addition, the Company issued warrants to purchase up to 1,600,000 shares of
      HPII
      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.





23




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.





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 (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 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.





POTENTIAL
      BUSINESS ACQUISITION





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. As of the date of this quarterly report the Company, Digitel and
      NBC
      have mutually decided not to go forward with a transaction at this
      time.





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, the Company 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.





24


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 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 the Company’s request to
      remain listed through May 31, 2006, while Nasdaq staff completed its review
      of
      the Company’s application for initial listing on the Nasdaq Capital Market. On
      May 19, 2006, the Company withdrew the listing application and accordingly,
      its
      securities ceased trading on Nasdaq beginning May 23, 2006, and the Company
      immediately began trading on the Over the Counter Pink Sheets. The Company
      came
      to believe that its application would not be approved and as a result chose
      to
      immediately seek to apply for trading on the Over the Counter (“OTC”) Bulletin
      Board and is currently pursuing alternative listings.





LIQUIDITY
      AND CAPITAL RESOURCES





The
      Company’s liquidity and capital resources during the six months ended June 30,
      2006, have been primarily provided through the January 31, 2006, Asset Sale
      which provided the Company with net cash proceeds of $13,710,630 ($12,712,784
      after adjustments for certain transaction related expenses and liabilities
      assumed by Game).





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





For
      the
      six months ended June 30, 2006, net cash used in operating activities was
      $3,741,649 compared to $1,074,819 for the six months ended June 30, 2005. The
      net loss for the six months ended June 30, 2006 decreased to $3,291,364 from
      $5,683,936 for the six months ended June 30, 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
      $1,102,000, and an increase in deferred income taxes of $1,333,000 (including
      $596,000 in discontinued operations). Adjustments to the current period’s
      results included non-cash expenses of $4,785,728, significantly comprised of
      $1,333,000 of deferred income taxes, $1,738,606 of expenses related to stock
      and
      warrant issuances, $912,012 for depreciation and amortization and $518,392
      for
      increases to allowances on notes receivable and bad debt expense.





Net
      cash
      provided by investing activities for the six months ended June 30, 2006 was
      $14,900,651 compared to $15,846 for the six months ended June 30, 2005. Net
      cash
      provided 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.





Net
      cash
      used in financing activities for the six months ended June 30, 2006 was
      $10,763,715 compared to cash provided by financing activities for the six months
      ended June 30, 2005 of $2,079,049. The significant activity for the six months
      ended June 30, 2006 included the receipt of $635,000 from the issuances of
      notes
      payable and $240,000 received from a private placement. In addition, the Company
      repaid $10,075,445 of notes payable and $1,080,971 of checks issued in excess
      of
      bank cash from the proceeds of the Asset Sale. The significant activity for
      the
      six months ended June 30, 2005, included the Company receiving proceeds of
      $1,268,000 upon the issuance of notes payable, receiving $243,833 upon the
      sale
      of 82,308 shares of treasury stock by Chex, proceeds of $1,260,000 received
      from
      the private placement and proceeds received of $871,621 upon the exercise of
      options and warrants. These proceeds were used for the repayment of notes
      payable of $1,560,405.





For
      the
      six months ended June 30, 2006, net cash increased by $685,287 compared to
      an
      increase of $1,020,076 for the six months ended June 30, 2005. Ending cash
      at
      June 30, 2006, was $9,092,081 compared to $9,409,762 at June 30, 2005. The
      cash
      balances include cash included in discontinued operations of $3,124,105 and
      $8,273,253 at June 30, 2006 and 2005, respectively.





RESULTS
      OF OPERATIONS





Financial
      statements for the three and six months ended June 30, 2006 and 2005 report
      the
      Company’s subsidiaries FFFC and Key as discontinued operations.





REVENUES





Consolidated
      revenues from continuing operations, which consist of credit card income on
      Nova’s remaining portfolio, for the three and six months ended June 30, 2006,
      was $31,079 and $67,368 compared to consolidated revenues of $45,774 and
      $118,578 for the three and six months ended June 30, 2005.





25


CORPORATE
      SELLING, GENERAL AND ADMINISTRATIVE





Corporate
      expenses include those of HPII, Denaris, Nova and as of March 14, 2006, HPI.
      Total corporate activity expenses for the three and six months ended June 30,
      2006 and 2005 were comprised as follows:




Three
                  months ended June 30,
              
              Six
                  months ended June 30,2006
              
              2005
              
              2006
              
              2005Employee
                costs
              
              $
              393,428
              
              $
              163,308
              
              $
              537,447
              
              $
              308,274Accounting
                and legal
              
              
              219,904
              
              
              292,513
              
              
              320,227
              
              
              520,467Impairment
                of notes receivable
              
              
              125,000
              
              
              1,781,911
              
              
              200,000
              
              
              1,901,911Warrant
                costs
              
              
              35,977
              
              
              
              
              
              230,107Other
              
              
              748,504
              
              
              171,308
              
              
              1,103,258
              
              
              294,739$
              1,522,813
              
              $
              2,409,040
              
              $
              2,391,039
              
              $
              3,025,391





Employee
      costs for the three months ended June 30, 2006, were $230,120 higher than for
      the three months ended June 30, 2005. The increase was caused by the inclusion
      of HPI costs of $278,339, while the 2005 costs included $52,793 of officer’s
      bonuses, which were not incurred in 2006. Employee costs for the six months
      ended June 30, 2006 increased by $229,173 from the six months ended June 30,
      2005. Included in the 2006 period are costs of $316,066 related to HPI. The
      2005
      costs include $85,503 of officer’s bonus, which were not incurred in 2006.
      Accounting and legal expense decreased by $72,609 and $200,240 for the three
      and
      six months ended June 30, 2006 compared to June 30, 2005. The decrease was
      primarily attributable to expenses incurred in the 2005 periods 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 and six months ended June 30, 2006, the Company increased the
      allowance related to notes receivable from Equitex 2000, Inc. by $125,000 and
      $200,000, compared to an increase of $1,781,911 and $1,901,911 (of which
      $1,596,911 was related to iGames) for the three and six months ended June 30,
      2005.





For
      the
      three and six months ended June 30, 2006, the Company recognized an expense
      of
      $35,977 and $230,107 for the issuance of warrants to noteholders of the Company.
      Other expenses for the six months ended June 30, 2006 and 2005 include the
      general operating costs of HPII, Denaris, Nova and from March 14, 2006, HPI.
      The
      2006 results include operating expenses of HPI of $361,044 and $406,428 for
      the
      three and six months ended June 30, 2006 (from March 14, 2006, the date of
      the
      acquisition of HPI), as well as $333,000 for amortization related to the
      intangible assets acquired in the acquisition of HPI.





OTHER
      INCOME (EXPENSE):





Consolidated
      other expenses for the three and six months ended June 30, 2006 was $235,316
      and
      $641,778 compared to other expenses of $80,378 and $174,190 for the three and
      six months ended June 30, 2005. Interest expense increased by $211,727 and
      $515,933 for the three and six months ended June 30, 2006 compared to June
      30,
      2005. The increase was primarily attributable to the increase in non-cash
      interest expense of approximately $100,000 and $400,000 related to the
      settlement of various obligations to note holders for the three and six months
      ended June 30, 2006. Interest income decreased by $56,789 and $45,345 for the
      three and six months ended June 30, 2006 compared to June 30, 2005.





DISCONTINUED
      OPERATIONS





Discontinued
      operations represent the operations of FastFunds and Key. The loss from
      discontinued operations was $1,098,121 for the three months ended June 30,
      2006
      compared to $1,383,298 for the three months ended June 30, 2005. The gain from
      discontinued operations was $411,085 for the six months ended June 30, 2006,
      compared to a loss of $2,602,933 for the six months ended June 30,
      2005.





The
      results were comprised of as follows:




Three
                  months ended June 30,
              
              Six
                  months ended June 30,2006
              
              2005
              
              2006
              
              2005FastFunds
              
              $
              (1,098,121
              )
              $
              (1,380,530
              )
              $
              411,612
              
              $
              (2,597,565
              )Key
              
              
              
              
              
              (2,768
              )
              
              (527
              )
              
              (5,368
              )$
              (1,098,121
              )
              $
              (1,383,298
              )
              $
              411,085
              
              $
              (2,602,933
              )





26




The
      results of FastFunds for the three and six months ended June 30, 2006 and 2005
      are as follows:




Three
                  months ended June 30,
              
              Six
                  months ended June 30,2006
              
              2005
              
              2006
              
              2005Revenues
              
              $
              180,426
              
              $
              4,572,407
              
              $
              2,192,382
              
              $
              8,986,550Location
                  income (expenses)
              
              
              32,392
              
              
              (3,422,631
              )
              
              (1,200,778
              )
              
              (6,665,370
              )Location
                  support expenses
              
              
              (728,453
              )
              
              (1,479,376
              )
              
              (2,686,604
              )
              
              (2,914,555
              )Other
                  expenses
              
              
              (1,006,486
              )
              
              (1,042,930
              )
              
              (1,435,223
              )
              
              (1,988,190
              )Gain
                  on sale of assets
              
              
              
              
              
              
              
              
              4,145,835Income
                  tax benefit (expense)
              
              
              424,000
              
              
              (8,000
              )
              
              (604,000
              )
              
              (16,000
              )Net
                  (loss) income
              
              $
              (1,098,121
              )
              $
              (1,380,530
              )
              $
              411,612
              
              $
              (2,597,565
              )





INCOME
      TAX EXPENSE





Income
      tax expense for the three and six months ended June 30, 2006 was $424,000 and
      727,000, respectively, and is primarily related to the income taxes as a result
      of the Asset Sale in January 2006.  In addition, the Company has not
      recognized a tax benefit related to net operating losses generated during the
      six months ended June 30, 2006, as realization of the deferred tax asset is
      not
      considered more likely than not, and therefore an allowance has been applied
      against this amount.





CONTRACTUAL
      OBLIGATIONS





There
      were no new material contractual obligations during the quarter ended June
      30,
      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 three and six months ended June 30, 2006
      and
      all options outstanding prior to the adoption of SFAS 123(R) by the Company
      were
      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.


27




**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 only fixed rate debt, as follows:





June
                30,
            
            
            December
                31,Contractual
                obligation
            
            2006
            
            
            2005
            
            Interest
                rateNotes
                payable(1)
            
            $3,659,061
            (2)
            
            $11,301,497
            
            Fixed
                9% - 15%Convertible
                promissory notes
            
            3,390,866
            
            
            4,690,656
            
            Fixed
                7%Convertible
                promissory notes
            
            
            
            
            1,362,500
            
            Fixed
                5% - 10%Notes
                payable, officers
            
            73,823
            
            
            614,695
            
            Fixed
                8% - 10%Notes
                payable, other
            
            290,901
            
            
            200,000
            
            Fixed
                6%Operating
                lease obligations(2)
            
            
            
            
            84,247
            
            Fixed
                6.5% - 7%Debt
                outstanding, before note discounts
            
            $7,414,651
            
            
            $18,253,595





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


(2)
            Included
                in liabilities as discontinued operations (2006) and as liabilities
                associated with assets held for sale
                (2005).





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.








28




**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 defined under Rule 13a-15(e) or 15d-15(e) promulgated under
      the Securities Exchange Act of 1934, as amended) 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
        1A.**  **Risk
        Factors**
 
 The
        Company does not have new risk factors in addition to those disclosed in
        its
        Annual Report on Form 10-K for the fiscal year ended December 31,
        2005.


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





During
      the quarter ended June 30, 2006, the Company converted $17,920 in fees into
      5,903 shares of the Company's $0.01 par value common stock at a conversion
      price
      of $3.04 per share.





In
      May
      2006, we issued 42,182 shares of our $0.01 par value common stock to the holders
      of certain convertible notes of our subsidiary FastFunds Financial Corp. in
      exchange for payment of the convertible notes. The fair market value of the
      42,182 shares of common stock issued by HPII was $212,155, or $5.03 per
      share.





HPII
      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.





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




None.





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




None.




29




**Item
        6.**  **Exhibits**
 
 Exhibits
 31.1
              Certifiction
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  200232.1
              Certification
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002






30


**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.





Hydrogen
                Power International, Inc.(Registrant)Date:August
                21, 2006
            By:/s/
                Henry FongHenry
                FongPresident,
                Treasurer andChief
                Financial Officer

















31