**UNITED
                STATES**
 **SECURITIES
                AND EXCHANGE COMMISSION**
 **WASHINGTON,
                D.C. 20549**
 
 **FORM
                  10-Q/A**
 **Amendment
                  No. 1**
 
 (Mark
                One)
 x
                          **QUARTERLY
                              REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF
                              1934**
  For
                the
                quarterly period ended March 31, 2006
 or
  o
                          **TRANSITION
                              REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF
                              1934**
 
 For
                the
                transition period from _____ to _____
 
 Commission
                File Number:  000-50587
 
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION**
 (Exact
                Name of Registrant as Specified in its Charter)
 
 **Delaware**
                          
                          **13-4005439**(State
                              or other jurisdiction of
                              incorporation
                                or organization
                          
                          (I.R.S.
                              Employer Identification
                              No.)
  **10
                              East 40th Street, Suite 3110, New York, NY**
                          **10016**(Address
                              of principal executive offices)
                          (Zip
                              code)
  **(646)
                          742-1600**(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 (or for such shorter period that the registrant
                was required
                to file such reports), and (2) has been subject to such filing requirements
                for
                the past 90 days.  Yes x No 
                o
 
 Indicate
                  by check mark whether the registrant is a large accelerated filer,
                  an
                  accelerated filer, or a non-accelerated filer. See definition of
                  accelerated
                  filer and large accelerated filer in Rule 12b-2 of the Exchange
                  Act. (Check
                  one):
  Large
                  accelerated filer  o Accelerated
                  filer   o Non-accelerated
                  filer  x
  Indicate
                  by check mark whether the registrant is a shell company (as defined
                  in Rule
                  12b-2 of the Exchange Act).  Yes o 
No 
                  x
  As
                  of May
                  15, 2006, there were 17,836,815 shares of the registrant’s common stock, $0.01
                  par value, outstanding.
   
  
  **EXPLANATORY
                  NOTE**
 
 This
                  amendment on Form 10-Q/A (this “Form 10-Q/A”) to the Quarterly Report on Form
                  10-Q for the quarterly period ended March 31, 2006 (the “2006 First Quarter”),
                  originally filed by National Patent Development Corporation (the
“Company”) with
                  the Securities and Exchange Commission (the “SEC”) on May 19, 2006 (the “Form
                  10-Q”), is being filed with the SEC due to the amendment and restatement
                  of the
                  Company’s interim financial statements and other financial information
                  for the
                  2006 First Quarter. The Company will also be filing with the SEC
                  amendments to
                  its Quarterly Reports on Form 10-Q for the three and six month
                  periods ended
                  June 30, 2006 and for the three and nine month periods ended September
                  30, 2006,
                  respectively. The changes reflected in the Company’s Condensed Consolidated
                  Financial Statements for the first three quarters of 2006 were
                  previously
                  disclosed in
                  Note
                  20 to the Company’s Notes to Condensed Consolidated
                  Financial Statements included in the Company’s Annual Report on Form 10-K for
                  the year ended December 31, 2006 filed with the SEC on April 3,
                  2007 (the “2006
                  Form 10-K”).
  As
                  more
                  fully stated in Note 10 to the Company’s Notes to Condensed Consolidated
                  Financial Statements included in this Form 10-Q/A:
  ·
                    The
                        financial statements and other information contained in this
                        Form 10-Q/A
                        have been amended and restatedto
                        reflect the impact of a change in the financial statements
                        relating to the
                        recordation of shares of stock of Valera Pharmaceuticals,
                        Inc. (“Valera”)
                        owned by the Company through its wholly owned subsidiary,
                        MXL Industries,
                        Inc., and classified as available for sale during the period
                        (the “Valera
                        Shares”). In the fourth quarter of 2006, the Company charged*Investment
                        and other income (loss)*,
                        and credited*Accumulated
                        other comprehensive income*,
                        $180,000, representing unrealized gain for the period from
                        January 1, 2006
                        through September 30, 2006 on the Valera Shares, which unrealized
                        gain is
                        payable to related parties (as discussed in Note 7 to the
                        Company’s Notes
                        to Condensed Consolidated Financial Statements included in
                        this Form
                        10-Q/A).  ·
                    As
                        a result of the implementation of SAB 108 in December 2006,
                        previously
                        issued interim financial information consisting of costs
                        of goods sold,
                        gross margin and net income for the first three quarters
                        of the year ended
                        December 31, 2006 has been revised to correct
                        errors.  Quarterly
                  financial data for the 2006 First Quarter has been restated by
                  increasing
                  (decreasing) net loss and net loss per share as follows:
  **Unaudited**
                          
                          **Three
                              Months Ended**
                            **March
                              31, 2006**
                            **(Previously
                              Reported)**
                          
                          **Adjustment**
                          
                          **Three
                              Months Ended March 31, 2006****(As
                              Restated)**(in
                              thousands, except per share data)Net
                              loss (decrease)
                          
                          **(
                              149 )**
                          
                          **(
                              288)**
                          
                          **(
                              437 )**Net
                              loss per share
                          
                          **(
                              .01 )**
                          
                          **(
                              .01 )**
                          
                          **(
                              .02 )**
   
  This
                    amendment also revises Part I, Item 2. “Management’s Discussion and Analysis of
                    Financial Condition and Results of Operations” to reflect the impact of the
                    changes in the interim financial statements thereon, and Part
                    I, Item 4.
“Controls and Procedures” to identify the material deficiencies in the Company’s
                    internal controls and procedures as of March 31, 2006 and the
                    manner in which
                    the Company is addressing such deficiencies.
  As
                    a
                    result of this amendment, the certifications, pursuant to Section
                    302 and
                    Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished,
                    respectively, as exhibits to the Form 10-Q have been re-executed
                    and re-filed as
                    of the date of this Form 10-Q/A, as reflected in Part II, Item
                    6.
“Exhibits”.
  Except
                    as
                    described above, no other changes have been made to the Form
                    10-Q. This Form
                    10-Q/A does not amend or update any other information set forth
                    in the Form
                    10-Q.
  
  **NATIONAL
                                PATENT DEVELOPMENT CORPORATION AND
                                SUBSIDIARIES****TABLE
                                OF CONTENTS**Page
                                No.Part
                                I. Financial InformationItem
                                1.
                            
                            Financial
                                StatementsCondensed
                                Consolidated Statements of Operations-Three
                                Months Ended March 31, 2006 (Restated) and 2005 (Unaudited)
                            1Condensed
                                Consolidated Statements of Comprehensive Loss-Three
                                Months Ended March 31, 2006 (Restated) and 2005 (Unaudited)
                            2Condensed
                                Consolidated Balance Sheets -March
                                31, 2006 (Restated and Unaudited) and December 31,
                                2005
                            3Condensed
                                Consolidated Statements of Cash Flows -Three
                                Months Ended March 31, 2006 (Restated) and 2005 (Unaudited)
                            4Notes
                                to Condensed Consolidated Financial Statements
                            5Item
                                2.
                            
                            Management’s
                                Discussion and Analysis of FinancialCondition
                                and Results of Operations
                            16Item
                                3.
                            
                            Quantitative
                                and Qualitative Disclosure About Market Risk
                            26Item
                                4.
                            
                            Controls
                                and Procedures
                            26Part
                                II. Other InformationItem
                                6.
                            
                            Exhibits
                            28Signatures
                            
                            
                            29
 
 
 
  **PART
                I. FINANCIAL INFORMATION**
 
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 **CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 **(in
                thousands, except per share data)**
 
 **Three
                          Months Ended****March
                          31,****2006**
                      
                      2005**Restated
                          - see Note 10**Sales
                      
                      **$**
                      **31,205**
                      
                      $
                      30,077Cost
                          of sales
                      
                      
                      **25,992**
                      
                      
                      25,753Gross
                          margin
                      
                      
                      **5,213**
                      
                      
                      4,324Selling,
                          general and administrative expenses
                      
                      
                      **(4,722**
                      **)**
                      
                      (4,885
                      )Operating
                          profit (loss)
                      
                      
                      **491**
                      
                      
                      (561
                      )Interest
                          expense
                      
                      
                      **(379**
                      **)**
                      
                      (372
                      )Investment
                          and other income (loss)
                      
                      
                      **(237**
                      **)**
                      
                      163Loss
                          before income taxes and minority interest
                      
                      
                      **125**
                      
                      
                      770Income
                          tax expense
                      
                      
                      **(221**
                      **)**
                      
                      (43
                      )Loss
                          before minority interest
                      
                      
                      **(346**
                      **)**
                      
                      (813
                      )Minority
                          interest
                      
                      
                      **(91**
                      **)**
                      
                      (7
                      )Net
                          loss
                      
                      **$**
                      **(437**
                      **)**
                      $
                      (820
                      )Net
                          loss per shareBasic
                          and diluted
                      
                      **$**
                      **(0.02**
                      **)**
                      $
                      (0.05
                      )
 
 See
                accompanying notes to consolidated financial statements.
  1
  **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 **CONDENSED
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS**
 **(Unaudited)**
 **(in
                thousands)**
 
 **Three
                          Months Ended****March
                          31,****2006**
                      
                      **2005****Restated-**
                        **see
                          Note 10**Net
                          loss
                      
                      **$**
                      **(437**
                      **)**
                      $
                      (820
                      )Other
                          comprehensive income (loss), before tax:Net
                          unrealized gain on available-for-sale-securities
                      
                      
                      **4,296**
                      
                      
                      769Reclassification
                          adjustment for gain on securities sold included in net
                          loss
                      
                      
                      
                      
                      
                      (152
                      )Net
                          unrealized gain on interest rate swap, net of minority
                          interest
                      
                      
                      **45**
                      
                      
                      151Comprehensive
                          income (loss) before tax
                      
                      
                      **3,904**
                      
                      
                      (52
                      )Income
                          tax expense related to items of other comprehensive loss
                      
                      
                      **(18**
                      **)**
                      
                      (63
                      )Comprehensive
                          income (loss)
                      
                      **$**
                      **3,886**
                      
                      $
                      (115
                      )
 
 
 See
                accompanying notes to consolidated financial statements.
  2
  **NATIONAL
                PATENT DEVELOPMENT CORPORATION**
 **CONDENSED
                CONSOLIDATED BALANCE SHEETS**
 **(in
                thousands)**
 
 **March
                          31,**
                      
                      **December
                          31,****2006**
                      
                      **2005****Restated-
                          see Note 10****(unaudited)****Assets****Current
                          assets**Cash
                          and cash equivalents
                      
                      **$**
                      **5,072**
                      
                      $
                      5,115Accounts
                          receivable, less allowancefor
                          doubtful accounts of $401 and $480
                      
                      
                      **19,621**
                      
                      
                      12,083Receivable
                          from GP Strategies Corporation
                      
                      
                      **946**
                      
                      
                      1,142Inventories
                      
                      
                      **26,321**
                      
                      
                      24,021Prepaid
                          expenses and other current assets
                      
                      
                      **852**
                      
                      
                      997Deferred
                          tax asset
                      
                      
                      **540**
                      
                      
                      352**Total
                          current assets**
                      
                      
                      **53,352**
                      
                      
                      43,710Marketable
                          securities available for sale
                      
                      
                      **584**
                      
                      
                      477Property,
                          plant and equipment, net
                      
                      
                      **3,030**
                      
                      
                      3,085Investment
                          in Valera, including available for sale securities of $4,533
                          in
                          2006
                      
                      
                      **5,779**
                      
                      
                      1,590Other
                          assets
                      
                      
                      **3,434**
                      
                      
                      3,360**Total
                          assets**
                      
                      **$**
                      **66,179**
                      
                      $
                      52,222**Liabilities
                          and stockholder’s equity****Current
                          liabilities**Current
                          maturities of long-term debt
                      
                      **$**
                      **226**
                      
                      $
                      291Short
                          term borrowings
                      
                      
                      **22,095**
                      
                      
                      20,764Accounts
                          payable and accrued expenses
                      
                      
                      **18,315**
                      
                      
                      9,566**Total
                          current liabilities**
                      
                      
                      **40,636**
                      
                      
                      30,621Long-term
                          debt less current maturities
                      
                      
                      **1,079**
                      
                      
                      1,106Deferred
                          tax liability
                      
                      
                      **279**
                      
                      
                      279Other
                          liabilities
                      
                      
                      **296**
                      
                      
                      20Minority
                          interest
                      
                      
                      **1,716**
                      
                      
                      1,727**Stockholder’s
                          equity**Common
                          Stock
                      
                      
                      **178**
                      
                      
                      178Additional
                          paid-in capital
                      
                      
                      **25,947**
                      
                      
                      25,921Accumulated
                          deficit
                      
                      
                      **(8,407**
                      **)**
                      
                      (7,762
                      )Accumulated
                          other comprehensive income
                      
                      
                      **4,455**
                      
                      
                      132**Total
                          stockholder’s equity**
                      
                      
                      **22,173**
                      
                      
                      18,469**Total
                          liabilities and stockholder’s equity**
                      
                      **$**
                      **66,179**
                      
                      $
                      52,222
 See
                accompanying notes to consolidated financial statements.
  3
  **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 **CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 **(in
                thousands)**
 
 **Three
                          Months Ended****March
                          31,****2006**
                      
                      **2005****Restated-
                          see Note 10****Cash
                          flows from operations:**Net
                          loss
                      
                      **$**
                      **(437**
                      **)**
                      $
                      (820
                      )Adjustments
                          to reconcile net loss tonet
                          cash used in operating activities:Depreciation
                          and amortization
                      
                      
                      **186**
                      
                      
                      177Minority
                          interest
                      
                      
                      **91**
                      
                      
                      7Expenses
                          paid in common stock
                      
                      
                      **26**Deferred
                          income taxes
                      
                      
                      **27**Net
                          gain on marketable securities
                      
                      
                      
                      
                      
                      (152
                      )Loss
                          on sale of fixed assets
                      
                      
                      
                      
                      
                      79Changes
                          in other operating items
                      
                      
                      **(1,240**
                      **)**
                      
                      (9,116
                      )**Net
                          cash used in operations**
                      
                      
                      **(1,347**
                      **)**
                      
                      (9,825
                      )**Cash
                          flows from investing activities:**Additions
                          to property, plant and equipment, net
                      
                      
                      **(131**
                      **)**
                      
                      (550
                      )Proceeds
                          from sale of investments
                      
                      
                      
                      
                      
                      1,002Proceeds
                          from sale of fixed assets
                      
                      
                      **-**
                      
                      
                      33Repayment
                          of receivable from GP Strategies
                      
                      
                      **196**
                      
                      
                      -**Net
                          cash provided by investing activities**
                      
                      
                      **65**
                      
                      
                      485**Cash
                          flows from financing activities:**Contribution
                          from GP Strategies
                      
                      
                      
                      
                      
                      5,000Proceeds
                          from short-term borrowings
                      
                      
                      **1,331**
                      
                      
                      10,221Repayment
                          of long-term debt
                      
                      
                      **(92**
                      **)**
                      
                      (1,690
                      )**Net
                          cash provided by financing activities**
                      
                      
                      **1,239**
                      
                      
                      13,531Net
                          increase (decrease) in cash and cash equivalents
                      
                      
                      **(43**
                      **)**
                      
                      4,191Cash
                          and cash equivalents at beginning of period
                      
                      
                      **5,115**
                      
                      
                      2,087**Cash
                          and cash equivalents at end of period**
                      
                      **$**
                      **5,072**
                      
                      $
                      6,278
 
  See
                accompanying notes to the condensed consolidated financial
                statements.
 
 4
 **NATIONAL
                    PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                    to
                    Condensed Consolidated Financial Statements
 (Unaudited)
  **1.**  **Basis
                of presentation and summary of significant accounting
                policies**
 
 *Basis
                of presentation*
 
 The
                accompanying Condensed Consolidated Balance Sheet as of March 31,
                2006 and the
                Condensed Consolidated Statements of Operations and Cash Flows for
                the three
                months ended March 31, 2006 and 2005 have not been audited, but have
                been
                prepared in conformity with accounting principles generally accepted
                in the
                United States for interim financial information and with the instructions
                to
                Form 10-Q and Article 10 of Regulation S-X. These financial statements
                should be
                read in conjunction with the audited consolidated financial statements
                and notes
                thereto for the year ended December 31, 2005 as presented in our
                Annual Report
                on Form 10-K. In the opinion of management, this interim information
                includes
                all material adjustments, which are of a normal and recurring nature,
                necessary
                for a fair presentation. The results for the 2006 interim periods
                are not
                necessarily indicative of results to be expected for the entire
                year.
 
 *Description
                of business.*National
                Patent Development Corporation (the “Company” or “National Patent Development
“), through its wholly owned subsidiary, MXL Industries, Inc. (“MXL”),
                manufactures polycarbonate parts requiring strict adherence to optical
                quality
                specifications, and in the application of abrasion and fog resistant
                coating to
                these parts. Products include shields and face masks and non-optical
                plastic
                products. The Company’s 64% owned subsidiary, Five Star Products, Inc. (“Five
                Star”), is engaged in the wholesale distribution of home decorating, hardware
                and finishing products. It serves over 3,500 independent retail dealers
                in
                twelve states in the Northeast. Products distributed include paint
                sundry items,
                interior and exterior stains, brushes, rollers, caulking compounds
                and hardware
                products.
 
 *Revenue
                recognition.* Revenue
                on product sales is recognized at the point in time when the product
                has been
                shipped, title and risk of loss has been transferred to the customer,
                and the
                following conditions are met: persuasive evidence of an arrangement
                exists, the
                price is fixed and determinable, and collectibility of the resulting
                receivable
                is reasonably assured. Allowances for estimated returns and allowances
                are
                recognized when sales are recorded.
 
 *Shipping
                and handling costs.* Shipping
                and handling costs are included as a part of selling, general and
                administrative
                expense. These cost amounted to $1,244,000 and $1,228,000, for the
                three months
                ended March 31, 2006 and 2005, respectively.
 
 *Inventories.* Inventories are valued at the lower of cost or market, using the
                first-in,
                first-out method.
 
 *Derivatives
                and hedging activities.* The
                interest rate swap and interest rate collar entered into by Five
                Star in
                connection with its Loan and Security Agreement (see Note 5) is being
                accounted
                for under SFAS No. 133, as amended, "Accounting for Derivative Instruments
                and
                Hedging Activities." SFAS No. 133 requires all derivatives to be
                recognized in
                the balance sheet at fair value. Derivatives that are not hedges
                must be
                adjusted to fair value through earnings. If the derivative is a cash
                flow hedge,
                changes in the fair value of the derivative are recognized in
                other
  (Continued)
 5
 **NATIONAL
                  PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                  to
                  Condensed Consolidated Financial Statements
 (Unaudited)
  comprehensive
                income until the hedged item is recognized in earnings. The ineffective
                portion
                of a derivative's change in fair value is immediately recognized
                in earnings.
                Changes in the fair value of the interest rate swap, which has been
                designated
                as a cash flow hedge, are recognized in other comprehensive income.
                Changes in
                the fair value of the interest rate collar are recognized in earnings.
                For the
                three months ended March 31, 2006 and 2005, the Company recognized
                losses of
                $5,000 and $25,000, respectively, as part of other income for the
                changes in the
                fair value of the interest rate collar.
 
 **2.**  **Stock
                based compensation.**
  The
                Company and Five Star have stock-based compensation plans for employees
                and
                non-employee members of the Board of Directors. The plans provide
                for
                discretionary grants of stock options, restricted stock shares, and
                other
                stock-based awards. The plans are administered by the Compensation
                Committee of
                the Board of Directors, consisting of non-employee directors.
  Effective
                January 1, 2006, the Company and Five Star adopted Statement of Financial
                Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, (“SFAS
                123R”), utilizing the modified prospective method whereby prior periods
                will not
                be restated for comparability. SFAS 123R requires recognition of
                stock-based
                compensation expense in the statement of operations over the vesting
                period
                based on the fair value of the award at the grant date. Previously,
                the Company
                used the intrinsic value method under Accounting Principles Board
                Opinion No.
                25, “Accounting for Stock Issued to Employees” (“APB 25”), as amended by related
                interpretations of the FASB. Under APB 25, no compensation cost was
                recognized
                for stock options because the quoted market price of the stock at
                the grant date
                was equal to the amount per share the employee had to pay to acquire
                the stock
                after fulfilling the vesting period. SFAS 123R supersedes APB 25
                as well as
                Statement of Financial Accounting Standard 123 “Accounting for Stock-Based
                Compensation”, which permitted pro forma footnote disclosures to report the
                difference between the fair value method and the intrinsic value
                method. As of
                December 31, 2005 and March 31, 2006, no awards have been granted
                under the
                Company’s plan. In addition, during the three months ended March 31, 2006,
                Five
                Star did not grant any stock options or any other stock-based awards
                under its
                plan, and therefore the adoption of this pronouncement did not have
                a material
                effect on the Company’s consolidated results of operations for the three months
                ended March 31, 2006.
  At
                March
                31, 2006, Five Star had 1,100,000 options outstanding all of which
                were
                exercisable under its stock option plan with an aggregate weighted
                average price
                of $.14 per share and a contractual remaining life of .8 years. The
                aggregate
                intrinsic value of the options outstanding at March 31, 2006 was
                $40,000.
  The
                following table provides the pro forma effect on net earnings as
                if the
                fair-value-based measurement method had been applied to all stock-based
                compensation for the three months ended March 31, 2005 (in thousands,
                except per
                share amounts):
   (Continued)
 6
 **NATIONAL
                  PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                  to
                  Condensed Consolidated Financial Statements
 (Unaudited)
   Three
                        months ended**March
                            31,
                            2005**Net
                          loss - As reported
                      
                      $
                      (820
                      )Compensation
                          expense, net of taxFive
                          Star stock options (1)
                      
                      
                      (2
                      )Pro
                          forma net loss
                      
                      $
                      (822
                      )Basic
                          and diluted loss per shareAs
                          reported
                      
                      $
                      (.05
                      )Pro
                          forma net loss per share
                      
                      $
                      (.05
                      )
 
 (1)
                Expense relates to option grants made by Five Star prior to the acquisition
                of a
                controlling interest in Five Star by the Company.
 
 **3.**  **Per
                share data**
 
 Basic
                and
                diluted loss per share for the three months ended March 31, 2006
                and 2005 is
                based upon the actual number of National Patent Development shares
                outstanding
                for the period. Outstanding warrants to acquire 1,423,887 common
                shares issued
                in December 2004 were not included in the 2006 and 2005 diluted computation,
                as
                their effect would be anti-dilutive.
 
 Loss
                per
                share for the three months ended March 31, 2006 and 2005 are as follows
                (in
                thousands, except per share amounts):
 
 **Three
                          months ended****March
                          31,****2006**
                      
                      2005Basic
                          and Diluted EPSNet
                          loss
                      
                      **$**
                      **(437**
                      **)**
                      $
                      (820
                      )Weighted
                          average sharesoutstanding,
                          basic and diluted
                      
                      
                      **17,825**
                      
                      
                      17,799Basic
                          and diluted loss per share
                      
                      **$**
                      **(.02**
                      **)**
                      $
                      (.05
                      )
 
  (Continued)
 7
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                to
                Condensed Consolidated Financial Statements
 (Unaudited)
  4.  Long-term
                debt
 
 *Long-term
                debt*
 
 Long-term
                debt is comprised of the following (in thousands):
 
 **March
                          31,**
                      
                      **December
                          31,****2006**
                      
                      **2005**MXL
                          Pennsylvania Mortgage (a)
                      
                      **$**
                      **1,180**
                      
                      $
                      1,205Other
                          debt
                      
                      
                      **124**
                      
                      
                      186Capital
                          lease obligations
                      
                      
                      **1**
                      
                      
                      6**1,305**
                      
                      
                      1,397Less
                          current maturities
                      
                      
                      **(226**
                      **)**
                      
                      (291
                      )**$**
                      **1,079**
                      
                      $
                      1,106
 
 (a)  The
                loan,
                which is collateralized by real estate and fixtures, requires monthly
                repayments
                of $8,333 plus interest at 2.5% above the one month LIBOR rate and
                matures on
                March 8, 2011, when the remaining amount outstanding of approximately
                $680,000
                is due in full. The loan is guaranteed by GP Strategies Corporation
                (“GPS”).
 
 **5.**  **Short
                term borrowings**
 
 *Five
                Star short-term borrowings*
 
 In
                2003,
                Five Star obtained a Loan and Security Agreement (the “Loan Agreement”) with
                Bank of America Business Capital (formerly Fleet Capital Corporation)
                (the
“Lender”). The Loan Agreement has a five-year term, with a maturity date
                of June
                30, 2008. The Loan Agreement, as amended on August 1, 2005 provides
                for a
                $35,000,000 revolving credit facility, which allows Five Star to
                borrow based
                upon a formula of up to 65% of eligible inventory and 85% of eligible
                accounts
                receivable, as defined therein. The interest rates under the Loan
                Agreement
                consist of LIBOR plus a credit spread of 1.5% (7.07% at March 31,
                2006) for
                borrowings not to exceed $15,000,000 and the prime rate (7.75% at
                March 31,
                2006) for borrowings in excess of the above-mentioned LIBOR-based
                borrowings.
                The credit spreads can be reduced in the event that Five Star achieves
                and
                maintains certain performance benchmarks. At March 31, 2006 and December
                31,
                2005, approximately $21,120,000 and $19,764,000 was outstanding under
                the Loan
                Agreement and approximately $6,885,000 and $1,451,000 was available
                to be
                borrowed, respectively. Substantially all of Five Star’s assets are pledged as
                collateral for these borrowings. Under the Loan Agreement Five Star
                is subject
                to covenants requiring minimum net worth, limitations on losses,
                if any, and
                minimum or maximum values for certain financial ratios. As of March
                31, 2006
                Five Star was in compliance with all required covenants.
 
 In
                connection with the Loan Agreement, Five Star also entered into a
                derivative
                transaction with the Lender. The derivative transaction is an interest
                rate swap
                and has been designated as a cash flow hedge. Effective July 1, 2004
                through
                June 30, 2008, Five Star will pay a fixed interest rate
  (Continued)
 8
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                to
                Condensed Consolidated Financial Statements
 (Unaudited)
  of
                3.38%
                to the Lender on notional principal of $12,000,000. In return, the
                Lender will
                pay to Five Star a floating rate, namely, LIBOR, on the same notional
                principal
                amount. The credit spread under the new Loan Agreement is not included
                in, and
                will be paid in addition to this fixed interest rate of 3.38%. The
                fair value of
                the interest rate swap amounted to $466,000 and $395,000 at March
                31, 2006 and
                December 31, 2005, respectively and is included in other assets in
                the
                accompanying balance sheets.
 
 On
                June
                17, 2004, Five Star also entered into a derivative interest rate
                collar
                transaction during the period from July 1, 2004 through June 30,
                2008 on
                notional principal of $12,000,000. The transaction consists of an
                interest rate
                floor of 2.25%, whereas if LIBOR is below 2.25%, the Lender will
                pay to Five
                Star the difference between LIBOR and 2.25%, on the same notional
                principal
                amount. The transaction also consists of an interest rate cap of
                5.75%, whereas
                if LIBOR is above 5.75%, Five Star will pay to the Lender the difference
                between
                LIBOR and 5.75%, on the same notional principal amount.
 
 ***MXL*** ** ***short-term
                borrowings***
 
 On
                March
                1, 2005, MXL obtained a Line of Credit Loan (the “MXL Line”) from M&T Bank
                with a one year term, maturing on March 1, 2006, which has been extended
                to June
                30, 2006 on the same terms. The MXL Line provides for a $1,000,000
                revolving
                credit facility, which is secured by MXL’s eligible accounts receivable,
                inventory and a secondary claim on the Lancaster, PA property. The
                interest
                rates under the MXL Line consist of LIBOR plus a credit spread of
                3% or the
                prime rate plus a credit spread of 0.25%. The MXL Line is subject
                to an unused
                commitment fee of 0.25% of the average daily unused balance of the
                line payable
                quarterly. National Patent Development has guaranteed the MXL Line.
                At March 31,
                2006, $950,000 was outstanding under the MXL Line and $50,000 was
                available to
                be borrowed. The MXL Line contains certain financial covenants, most
                significant
                being a cash flow coverage ratio of 1.25 to 1.00, which is calculated
                at
                December 31.
 
 **6.**  **Inventories**
 
 Inventories
                are comprised of the following (in thousands):
 
 **March
                          31, 2006**
                      
                      December
                          31, 2005Raw
                          materials
                      
                      **$**
                      **346**
                      
                      $
                      386Work
                          in process
                      
                      
                      **221**
                      
                      
                      113Finished
                          goods
                      
                      
                      **25,754**
                      
                      
                      23,522**$**
                      **26,321**
                      
                      $
                      24,021
 
 **7.**  **Investment
                in Valera Pharmaceuticals, Inc. (“Valera”)**
 
 Valera
                is
                a specialty pharmaceutical company engaged in the development and
                commercialization of prescription pharmaceuticals principally utilizing
                Valera’s
                patented Hydron drug delivery technology.
  (Continued)
 9
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                to
                Condensed Consolidated Financial Statements
 (Unaudited)
  Valera ’s
                lead
                product is a twelve-month implant that delivers histrelin, a synthetic
                nonapeptide agonist of luteinizing hormone-releasing hormone (LHRH).
                LHRH
                agonists have become a mainstay in treating locally advanced and
                metastatic
                prostate cancer. On October 13, 2004, Valera announced that the FDA
                approved the
                marketing of VantasTM, the name for Valera’s long-acting LHRH implant for
                treating prostate cancer. Prior to June 2000, Valera operated
                as a division of GPS. In connection with an offering of GPS 6% Convertible
                Subordinated Exchangeable Notes due June 2003,
                Valera was
                incorporated as a separate company and became a wholly-owned subsidiary
                of GPS
                through GPS’ ownership of 100% of
                the common stock of Valera.
  In December
                2 001,
                Valera completed a $7 million private placement of Series A convertible
                preferred stock
                to certain institutional investors. As a condition of the private
                placement, GP
                Strategies contractually gave up operating control over Valera through
                an Investors Rights Agreement,  which
                gave GPS the right to designate one director on Valera’s board of directors and
                gave the other stockholders the right to designate the other directors, and
                subsequent thereto accounted for the investment under the equity
                method .
                As a
                result of Valera operating losses, GPS investment was written down
                to
                zero.
  In
                2003, Valera completed a private placement offering pursuant to which Valera raised
                approximately $13.5 million in gross proceeds from the sale of Series
                B
                convertible preferred stock. As part of such transaction, G PS
                was granted
                an option until March 31, 2004, to purchase up to $5 million of the Series
                B
                convertible preferred stock at the offering price of $ 0.725 per
                share, which was
                subsequently verbally extended to June 30, 2004. On June 30, 2004,
                GPS
                transferred a portion of its option to an institutional investor,
                who exercised
                such option and purchased from Valera 3,448,276 shares of Series
                B convertible
                preferred stock for $0.725 per share. The balance of the option expired
                unexercised. In consideration of such transfer ,
                such
                institutional investor granted the Company an option until October
                28, 2004 to
                purchase up to 2,068,966 shares of Series
                B
                convertible preferred stock owned by such institutional investor
                for prices
                ranging from $0.725 to $0.7685 per share. The
                Company exercised such option on October 28, 2004 at a price of $0.7685
                per
                share, for an aggregate exercise price of $1,590,000. On November
                12, 2004, the
                Company obtained the funds necessary to pay the exercise price (see
                Note 9(a)).
                On August 16, 2004, Valera sold 11,600,000 shares of Series C convertible
                preferred stock and received gross proceeds of $11.6 million. As
                of December 31,
                2005 and 2004, the Company owned 10,000,000 shares of Valera common
                stock and
                2,068,966 shares of Valera series B convertible preferred stock.
                Assuming
                conversion of all of the outstanding shares of Series A, Series B
                and Series C
                convertible preferred stock and exercise of stock options held by
                employees of
                Valera at December 31, 2005, the Company would own approximately
                18% of Valera.
                On February 7, 2006 Valera completed an initial public offering of
                3,862,500
                shares of common stock at $9.00 per share. All the convertible preferred
                stock
                outstanding at the time of the offering, including accrued dividends,
                automatically converted into
   (Continued)
 10
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                to
                Condensed Consolidated Financial Statements
 (Unaudited)
  common
                stock. In addition, Valera effected a 1 for 6 reverse split of common
                stock.
                Subsequent to the public offering after giving effect to the conversion
                of the
                Series B preferred stock and the reverse split the Company owned
                2,070,670
                shares of Valera common stock or approximately 14% of the outstanding
                shares of
                common stock. The Company entered into a lock-up agreement with the
                underwriters
                of the public offering which restricts the Company from selling or
                otherwise
                disposing of its shares of Valera common stock for a period of 180
                days from
                February 1, 2006.
  On
                October 17, 2003, MXL received from GPS in partial payment of a note
                receivable
                the common shares of Valera and recorded such shares at zero representing
                their
                carrying amount to GPS. As a result of the Investors Rights Agreement
                referred
                to above, the Company was accounting for its investment in Valera
                under the
                equity method. However as the Company had not guaranteed obligations
                of Valera
                and had not otherwise committed to provide further support for Valera,
                it had
                discontinued recognizing additional losses of Valera.
  As
                described above, the Company’s investment in voting stock of Valera has declined
                below 20%. In addition, at December 31, 2005 Valera’s board of directors
                consists of nine directors only one of which has been designated
                by the Company.
                Accordingly the Company believes that it no longer has the ability
                to exercise
                significant influence over operating and financial policies of Valera
                and no
                longer accounts for its investment in Valera by the equity method.
                As a result
                thereof, as of December 31, 2005 the investment in Valera’s Series B convertible
                preferred stock is being accounted for at cost.
  As
                a
                result of the initial public offering, the Company’s investment in Valera’s
                common stock became a marketable security and accordingly, at March
                31, 2006,
                the investment, to the extent of shares available to be sold within
                a year at
                any balance sheet date under Rule 144 or an effective registration
                statement,
                has been classified as available for sale securities and measured
                at fair value
                with the adjustment to fair value and changes therein to be retained
                by the
                Company recorded in other comprehensive income. The remainder of
                the investment
                is considered restricted and will continue to be carried at cost.
                In addition,
                if it is determined that the Company is no longer an affiliate, the
                shares would
                become freely tradable after the initial six month lock-up period.
                The Valera
                shares available for sale over the next 12 months at March 31, 2006
                totaled
                446,566 and resulted in an unrealized gain of $3,919,000 being included
                in
                accumulated other comprehensive income as of such date. Two related
                parties,
                Bedford Oak Partners and Mr. Jerome I. Feldman, are entitled to receive
                50% of
                any profit received from the sale, on a pro-rata basis, of 404,004
                shares of
                Valera common stock in excess of $3.94 per share (see Note 9(a)).
                The unrealized
                gain on Valera shares available for sale at March 31, 2006 which
                would be
                payable to the related parties upon sale totaled $271,000, which
                is included in
                Investment and other income (loss) and Other liabilities in the March
                31, 2006
                financial statements.
  **8.**  **Business
                segments**
 
 The
                operations of the Company currently consist of the following two
                business
                segments, by which the Company is managed.
  (Continued)
 11
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                to
                Condensed Consolidated Financial Statements
 (Unaudited)
  The
                MXL
                Segment manufactures precision coated and molded optical plastic
                products. MXL
                is a specialist in the manufacture of polycarbonate parts requiring
                adherence to
                strict optical quality specifications, and in the application of
                abrasion and
                fog resistant coatings to those parts.
 
 The
                Five
                Star Segment distributes paint sundry items, interior and exterior
                stains,
                brushes, rollers, caulking compounds and hardware products on a regional
                basis.
 
 The
                following tables set forth the sales and operating income (loss)
                of each of the
                Company's operating segments (in thousands):
 
 **Three
                          months**
                        **ended
                          March 31,****2006**
                      
                      2005**Sales**Five
                          Star
                      
                      **$**
                      **28,952**
                      
                      $
                      28,239MXL
                      
                      
                      **2,253**
                      
                      
                      1,838**$**
                      **31,205**
                      
                      $
                      30,077
 
 **Three
                          months**
                        **ended
                          March 31,****2006**
                      
                      2005**Segment
                          operating income (loss)**Five
                          Star
                      
                      **$**
                      **877**
                      
                      $
                      478MXL
                      
                      
                      **94**
                      
                      
                      (504
                      )**$**
                      **971**
                      
                      $
                      (26
                      )
 
 A
                reconciliation of the segment operating income (loss) to loss before
                income
                taxes and minority interest in the condensed consolidated statements
                of
                operations is shown below (in thousands):
 
 **Three
                          months****ended
                          March 31,****2006**
                      
                      2005Segment
                          operating income (loss)
                      
                      **$**
                      **971**
                      
                      $
                      (26
                      )Corporate
                          and other general and administrative expenses
                      
                      
                      **(480**
                      **)**
                      
                      (535
                      )Interest
                          expense
                      
                      
                      **(379**
                      **)**
                      
                      (372
                      )Investment
                          and other income (loss)
                      
                      
                      **(237**
                      **)**
                      
                      163Loss
                            before income taxes and minority interest
                      
                      **$**
                      **125**
                      
                      $
                      770
 
  (Continued)
 12
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                to
                Condensed Consolidated Financial Statements
 (Unaudited)
  9.  **Related
                party transactions**
  a)  On
                November 12, 2004, the Company entered into an agreement to borrow
                approximately
                $1,022,000 from Bedford Oak Partners, which is controlled by Harvey
                P. Eisen, a
                director of the Company, and approximately $568,000 from Jerome I.
                Feldman, who
                is Chairman and Chief Executive Officer of the Company, to exercise
                the option
                to purchase Series B Convertible Preferred shares of Valera. The
                loans bore
                interest at 6% per annum, matured on October 31, 2009, and were secured
                by all
                shares of Valera owned by the Company, including the purchased shares.
                Bedford
                Oak Partners and Jerome I. Feldman are entitled to receive 50% of
                any profit
                received by the Company from the sale on a pro-rata basis of the
                Valera
                purchased shares. On January 11, 2005, the Company prepaid the loans,
                including
                accrued interest of approximately $16,000, to Bedford Oak Partners
                and Jerome I.
                Feldman out of the proceeds from the claims relating to the Learning
                Technologies acquisition.
 
 b)  Certain
                of the Company’s executive officers are also executive officers of GP Strategies
                and will remain on GPS’ payroll. The executive officers do not receive any
                salary from the Company; however, they provide the Company with management
                services under a management agreement between GPS and the Company.
                Services
                under the agreement relate to corporate federal and state income
                taxes,
                corporate legal services, corporate secretarial administrative support,
                and
                executive management consulting. The term of the agreement extends
                for three
                years from the date of the spin-off, or through November 24, 2007,
                and may be
                terminated by either the Company or GPS on or after July 30, 2006
                with 180 days
                prior written notice. Prior to July 1, 2005 GPS charged the Company
                a management
                fee to cover an allocable portion of the compensation of these officers,
                based
                on the time they spent providing services to the Company, in addition
                to an
                allocable portion of certain other corporate expenses.
 
 Effective
                July 1, 2005 GPS and the Company amended the above management agreement.
                Pursuant to the amendment, the Company will pay GPS an annual fee
                of not less
                than $970,000 as compensation for these services, payable in equal
                monthly
                installments. The fee includes $698,000 for the period July 1, 2005
                through June
                30, 2006, representing approximately 80% of the cost of the compensation
                and
                benefits required to be provided by GPS to Jerome Feldman, who serves
                as the
                Company’s Chief Executive Officer. Such fee shall be increased by 80% of
                any
                increase of the cost of the compensation and benefits required to
                be provided by
                GPS to Mr. Feldman; in addition, the Company shall remain liable
                for paying to
                GPS 80% of the cost of the compensation and benefits required to
                be provided by
                GPS to Mr. Feldman if the management agreement expires, is terminated,
                or is
                otherwise not extended through May 31, 2007. The Company paid GPS
                approximately
                $216,000 for the quarter ended March 31, 2006 as compensation for
                services. The
                Company also occupies a portion of corporate office space leased
                by GPS. The
                Company compensates GPS approximately an additional $205,000 annually
                for use of
                this space. GPS’ lease extends through December 31, 2006.
   (Continued)
 13
 **NATIONAL
                  PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                  to
                  Condensed Consolidated Financial Statements
 (Unaudited)
 **10.**
                    **Restatement
                        of previously issued financial statements and SAB 108
                        Adjustment**  In
                the
                fourth quarter of 2006, the Company charged Investment and other
                income (loss)
                for $180,000 and credited other comprehensive income representing
                unrealized
                gain for the period from January 1 through September 30, 2006 on
                Valera shares
                classified as available for sale which is payable to related parties
                (see Note
                7).
 
 In
                addition, as result of the implementation of SAB 108 in December
                2006,
                previously issued interim financial information consisting of costs
                of goods
                sold, gross margin and net income for the first three quarters of
                the year ended
                December 31, 2006 has been revised. The net effect on net income
                for the
                previously issued quarters ended March 31, 2006 was a decrease of
                $17,000,.
                There was no effect on earning per share for the period.
 
 Reconciliation
                of net losses previously reported to net loss as restated for the
                quarter ended
                March 31, 2006 (in thousands, except per share data) is as follows:
 March
                          31,2006Net
                          loss previously reported
                      
                      $
                      (149
                      )**Increase(decrease)**Investment
                          and other income (loss)
                      
                      
                      (271
                      )SAB
                          108 adjustment
                      
                      
                      (17
                      )Net
                          loss, as restated
                      
                      $
                      (437
                      )Net
                          loss per share, as reported
                      
                      $
                      (.01
                      )Increase
                          (decrease)
                      
                      
                      (.01
                      )Net
                          loss per share, as restated
                      
                      $
                      (.02
                      )
  The
                following is a reconciliation of the balance sheet captions at March
                31, 2006
                from previously reported to restated:
  (in
                          thousands)
                      
                      Previously
                          reported
                      
                      Adjustments
                      
                      
                      
                      RestatedInventories
                      
                      $
                      26,904
                      
                      $
                      (583
                      )
                      
                      (b
                      )
                      $
                      26,321Deferred
                          taxes
                      
                      
                      308
                      
                      
                      231
                      
                      
                      (b
                      )
                      
                      540Accounts
                          payable and accrued expenses
                      
                      
                      18,586
                      
                      
                      (271
                      )
                      
                      (a
                      )
                      
                      18,315Other
                          liabilities
                      
                      
                      25
                      
                      
                      271
                      
                      
                      (a
                      )
                      
                      296Minority
                          interest
                      
                      
                      1,842
                      
                      
                      (126
                      )
                      
                      (b
                      )
                      
                      1,716Accumulated
                          deficit
                      
                      
                      (7,911
                      )
                      
                      (271
                      )
                      
                      (a
                      )
                      
                      (8,407
                      )(225
                      )
                      
                      (b
                      )Accumulated
                          other comprehensive income
                      
                      
                      4,184
                      
                      
                      271
                      
                      
                      (a
                      )
                      
                      4,455
  (a)
                    Investment
                        and other income adjustment (b)
                    SAB
                        108 adjustment 
  (Continued)
 14
 **NATIONAL
                  PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 Notes
                  to
                  Condensed Consolidated Financial Statements
 (Unaudited)
  **11.**  **Subsequent
                event**
 
 On
                May 9,
                2006 the Company announced that it and its 64% owned subsidiary Five
                Star had
                signed a non-binding letter of intent with FLJ Partners, LLC (“FLJ”) providing
                for the sale by the Company to FLJ of its approximately 64% interest
                in Five
                Star for $2,950,000, or approximately $.3230 per share. The Company
                and Five
                Star have agreed to negotiate exclusively with FLJ with respect to
                Five Star
                until May 31, 2006.
 
 The
                letter of intent, which is subject to a number of conditions including,
                without
                limitation, due diligence by FLJ, the negotiation and execution of
                definitive
                agreements, and possible third party consents, contemplates that
                (i) FLJ will
                create a newly formed entity (“Newco”), which will enter into a merger agreement
                with Five Star and a stock purchase agreement with the Company, (ii)
                Newco will
                commence a tender offer for all of Five Star’s outstanding shares, at the same
                $.3230 price per share that it will pay for the Company’s Five Star stock, (iii)
                after the expiration of the tender offer, FLJ will consummate a merger
                providing
                any non-tendering holders of Five Star shares with the same consideration
                as
                those who tendered, and (iv) upon consummation of the merger, FLJ
                would cause
                Five Star to repay its $2.8 million note to the Company, together
                with all
                accrued interest . As
                a
                result of the above, if and when the Company enters into a final
                agreement to
                sell its Five Star shares, Five Star will be reflected as a discontinued
                operation in the Company’s consolidated financial statements. There can be no
                assurances that the proposed transactions will be consummated, either
                on the
                terms set forth in the letter of intent or at all.
 
 15
 
 **NATIONAL
                PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES**
 
 **Item
                2.**   **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**
 
 **General
                Overview**
 
 The
                Company operates in two segments: MXL and Five Star. The Company
                also owns
                certain other non-core assets, including investments in 2 publicly
                held
                companies, Millennium Cell and Valera Pharmaceuticals; and certain
                real estate.
                National Patent Development monitors Millennium Cell for progress
                in the
                commercialization of Millennium Cell’s emerging technology and monitors Valera
                Pharmaceuticals for progress in the sales efforts related to their
                product.
 
 **MXL
                Overview**
 
 The
                primary business of MXL is the manufacture of polycarbonate parts
                requiring
                adherence to strict optical quality specifications, and the application
                of
                abrasion and fog resistant coatings to those parts. MXL also designs
                and
                constructs injection molds for a variety of applications. Some of
                the products
                that MXL produces include:
 
 ·
                    facemasks
                        and shields for recreation purposes and industrial safety
                        companies, ·
                    precision
                        optical systems, including medical optics, military eye wear
                        and custom
                        molded and decorated products, and ·
                    tools,
                        including optical injection mold tools and standard injection
                        mold tools. 
 MXL’s
                manufactures and sells its products to various commercial and government
                customers, who utilize MXL’s parts to manufacture products that will be
                ultimately delivered to the end-user. MXL’s government customers include various
                offices of the Department of Defense, while MXL’s commercial customers are
                primarily in the recreation, safety, and security industries. Some
                of MXL’s
                consumer based products are considered to be at the high-end of their
                respective
                markets. As a result, sales of MXL’s products may decline together with a
                decline in discretionary consumer spending; therefore a key performance
                indicator that the Company’s management uses to manage the business is the level
                of discretionary spending in key markets, specifically the United
                States and
                Japan. Other key performance measures used by the Company’s management to run
                the business include:
 
 ·
                    consumer
                        confidence indices in key markets, ·
                    sales
                        levels of complementary items in the recreational vehicle
                        market, such as
                        motorcycles, RV’s and snowmobiles, ·
                    levels
                        of defense spending, and ·
                    new
                        OSHA safety standards.  16
  MXL
                believes that the principal strengths of its business are its state-of-the-art
                injection molding equipment, advanced production technology, high
                quality
                standards, and on time deliveries. However, due to the focused nature
                of the
                market, MXL has a limited customer base and tends to be adversely
                affected by a
                loss in business from its significant customers. As a result of losses
                of
                business from certain of its key customers, MXL sales and operating
                profits for
                the past several years have shown a declining trend, reflecting a
                loss in market
                share. To reverse the declining sales trend, a new management team
                with
                significant sales and marketing experience has was established in
                2004. To
                further grow, MXL not only intends to regain market share in its
                existing
                market, but to leverage its expertise as a molder and coater of optical
                quality
                products by expanding into other markets and products. However, due
                to the
                spin-off from GP Strategies, MXL may have less financial resources
                at its
                disposal with which to support and grow the business, as National
                Patent
                Development has a smaller market capitalization and less access to
                capital
                markets than GP Strategies.
 
 **Five
                Star Overview**
 
 Five
                Star
                is a publicly held company that is a leading distributor in the United
                States of
                home decorating, hardware, and finishing products. Five Star offers
                products
                from leading manufacturers in the home improvement industry and distributes
                those products to retail dealers, which include lumber yards, “do-it yourself”
centers, hardware stores and paint stores. Five Star has grown to
                be one of the
                largest independent distributors in the Northeast United States by
                providing a
                complete line of competitively priced products, timely delivery and
                attractive
                pricing and financing terms to its customers.
 
 The
                following key factors affect Five Star’s financial and operation
                performance:
 
 ·
                    its
                        ability to negotiate the lowest prices from its
                        suppliers, ·
                    its
                        ability to increase revenue by obtaining new customers, while
                        maintaining
                        a level fixed cost structure by utilizing its existing
                        warehouses, ·
                    the
                        housing market in general, ·
                    consumers’
                        confidence in the economy, ·
                    consumers’
                        willingness to invest in their homes, and ·
                    weather
                        conditions that are conducive to home improvement
                        projects. 
 The
                following key performance measures are utilized by the Company’s management to
                run Five Star’s business:
 
 ·
                    new
                        U.S. housing starts, ·
                    sales
                        of existing homes, ·
                    sales
                        of high margin products to its customers, ·
                    purchases
                        from each vendor, and ·
                    performance
                        benchmarks used by Home Depot and Lowe’s, such as number of stores and
                        square footage, as well as financial
                        benchmarks.  17
  Five
                Star
                operates in the Home Improvement market, which has grown in recent
                years and for
                which the Home Improvement Research Institute predicts average annual
                industry
                growth of nearly 5% for the next several years. Nonetheless, Five
                Star faces
                intense competition from large national distributors, smaller regional
                distributors, and manufacturers that bypass the distributor and sell
                directly to
                the retail outlet. The principal means of competition for Five Star
                are its
                strategically placed distribution centers and its extensive inventory
                of
                quality, name-brand products. In addition, Five Star’s customers face stiff
                competition from Home Depot and Lowe’s, which purchase directly from
                manufacturers. As a result of such competition, while the Home Improvement
                market has expanded significantly in recent years, Five Star’s revenue has
                increased only incrementally, and such revenue would have declined
                if Five Star
                had not entered into new geographic sales territories as described
                below. In
                spite of this, the independent retailers that are Five Star’s customers remain a
                viable alternative to Home Depot and Lowe’s, due to the shopping preferences of
                and the retailer’s geographic convenience for some consumers.
 
 Five
                Star
                has also established a presence in the Mid-Atlantic States, servicing
                customers
                as far south as North Carolina, which has generated additional annual
                revenues
                of approximately $10.4 million. Five Star services this territory
                from its
                existing New Jersey warehouse, enabling Five Star to leverage its
                fixed costs
                over a broader revenue base. To further expand, Five Star will attempt
                to grow
                its revenue base in the Mid-Atlantic States, to acquire complementary
                distributors and to expand the distribution of its use of private-label
                products
                sold under the “Five Star” name. However, due to the spin-off from GPS, Five
                Star has less financial resources at its disposal with which to support
                and grow
                the business, as the Company has a smaller market capitalization
                and less access
                to capital markets than GPS.
 
 On
                May 9,
                2006 the Company announced that it and its 64% owned subsidiary Five
                Star had
                signed a non-binding letter of intent with FLJ Partners, LLC (“FLJ”) providing
                for the sale by the Company to FLJ of its approximately 64% interest
                in Five
                Star for $2,950,000, or approximately $.3230 per share. As a result
                of the
                above, Five Star will be reflected as a discontinued operation in
                the Company’s
                consolidated financial statements if and when the Company enters
                into a final
                agreement to sell its Five Star shares. There can be no assurances
                that the
                proposed transactions will be consummated, either on the terms set
                forth in the
                letter of intent or at all.
 
 **Operating
                Highlights**
 
 ***Three
                months ended March 31, 2006 compared to the three months ended March
                31,
                2005***
 
 For
                the
                three months ended March 31, 2006, the Company had a loss before
                income tax
                expense and minority interests of $125,000 compared to a loss before
                income tax
                expense and minority interests of $770,000 for the three months ended
                March 31,
                2005. The change in pre-tax income of $645,000 is primarily a result
                of
                increased gross margin at both Five Star and MXL totaling $889,000,
                as well as
                reduced corporate and other general and administrative expenses of
                $163,000,
                partially offset by reduced investment and other income of
                $400,000.
  18
  **Sales**
 
 **Three
                          months**
                        **ended
                          March 31,****2006**
                      
                      2005Five
                          Star
                      
                      **$**
                      **28,952,000**
                      
                      $
                      28,239,000MXL
                      
                      
                      **2,253,000**
                      
                      
                      1,838,000**$**
                      **31,205,000**
                      
                      $
                      30,077,000
 
 The
                increase in Five Star sales of $713,000 during the quarter ended
                March 31, 2006,
                were the result of a small increase in unit sales as well increased
                prices from
                major vendors that were passed on to the Five Star’s customers, effective
                January 1, 2006.
 
 The
                increase in MXL sales of $415,000 was a result of increased sales
                volume and
                prices from existing customers resulting from a concerted effort
                to expand sales
                opportunities with existing customers. Of the increased sales approximately
                $100,000 was attributable to MXL’s second largest customer.
 
 **Gross
                margin**
 
 **Three
                          months ended****March
                          31,**2006
                      
                      %
                      
                      2005
                      
                      %Five
                          Star
                      
                      **$**
                      **4,605,000**
                      
                      
                      **15.9**
                      
                      $
                      4,179,000
                      
                      
                      14.8MXL
                      
                      
                      **608,000**
                      
                      
                      **27.0**
                      
                      
                      145,000
                      
                      
                      7.9**$**
                      **5,213,000**
                      
                      
                      **16.7**
                      
                      $
                      4,324,000
                      
                      
                      14.4
 
 Five
                Star’s gross margin increased to $4,605,000, or 15.9% of net sales, for
                the
                quarter ended March 31, 2006, as compared to $4,179,000, or 14.8%
                of net sales,
                for the quarter ended March 31, 2005. The increase in gross margin
                dollars and
                gross margin percentage for the quarter ended March 31, 2006 was
                primarily
                driven by Five Star’s efforts to restructure its pricing strategies, less
                aggressive trade show pricing and a reduction in direct shipments
                to customers,
                which historically generate lower gross margins, with a number of
                vendors,
                including its major exterior stain supplier and 2 of its largest
                hardware
                vendors. In addition, Five Star achieved reduced warehouse expenses
                due to the
                elimination of an outside warehouse as a result of reduced inventory
                levels as
                compared to March 31, 2005.
 
 MXL
                gross
                profit of $608,000, or 27% of sales, for the quarter ended March
                31, 2006
                increased by $463,000 when compared to gross profit of $145,000,
                or 7.9% of
                sales, for the quarter ended March 31, 2005, mainly due to the following;
                (i)
                increased margins in all product lines due to increased pricing,
                (ii) reduced
                business with low margin customers, (iii) reduced costs due to exiting
                the
                Massachusetts facility and the consolidation of all MXL’s injection molding and
                precision coating operations at its Lancaster, PA facility.
 
  19
  Selling,
                general, and administrative
                expenses
  For
                the
                three months ended March 31, 2006, selling, general and administrative
                expenses
                decreased by $163,000 from $4,885,000 for the three months ended
                March 31, 2005
                to $4,722,000 partially due to the following; (i) reduced general
                and
                administrative expenses of $52,000 at the Company corporate level,
                (ii)
                increased selling, general and administrative expenses at Five Star
                of $27,000
                primarily, attributable to reduced vendor marketing allowances in
                the period and
                increased delivery expenses due to rising fuel prices, partially
                offset by a
                $175,000 recovery of bad debts written off in prior years,(iii )
                reduced
                selling, general and administrative expenses of $135,000 at MXL primarily
                due to
                reduced facility costs related to closing of the Massachusetts facility
                in 2005,
                as well as increased operating efficiencies.
 
 **Investment
                and other income, net**
 
 The
                Company recognized investment and other income (loss) of ($237,000)
                for the
                three months ended March 31, 2006 compared to gains of $163,000 for
                the three
                months ended March 31, 2005. The reduced investment and other income,
                is
                primarily attributable to $271,000 representing the unrealized profit
                which
                would be paid to related parties upon sale of Valera available for
                sale shares
                and a gain of $152,000 realized on the sale of Millennium Cell, Inc.
                common
                stock during the three months ended March 31, 2005.
 
 **Income
                taxes**
 
 For
                the
                three months ended March 31, 2006 and 2005, the Company recorded
                an income tax
                expense of $221,000, or an effective rate of 177% and an income tax
                expense of
                $43,000, or an effective tax rate of 5.6%, respectively, which represents
                the
                Company’s applicable federal, state and local tax expense for the periods.
                The
                provision for income taxes differs from the tax computed at the federal
                statutory income tax rate due primarily to recording income tax expense
                on the
                income of Five Star, a 64% owned subsidiary, which is not included
                in the
                Company’s consolidated return and not recording income tax benefit for the
                losses of National Patent and MXL.
 
 **Liquidity
                and capital resources**
 
 At
                March
                31, 2006, the Company had cash and cash equivalents totaling of $5,072,000.
                The
                Company believes that cash, investments on hand and borrowing availability
                under
                existing credit agreements will be sufficient to fund the Company’s working
                capital requirements for at least the next twelve months.
 
 For
                the
                three months ended March 31, 2006, the Company’s working capital decreased by
                $293,000 to $12,796,000 from $13,089,000 as of December 31, 2005.
                The working
                capital decrease was primarily a result of a net loss for the
                period.
 
 The
                decrease in cash and cash equivalents of $43,000 for the three months
                ended
                March 31, 2006 resulted from net cash used in operations of $1,347,000,
                due
                primarily to a net loss of $437,000, an increase in accounts receivable
                of
                $7,538,000, an increase in inventory of $2,840,000,  20
  partially
                offset by an increase in accounts payable and accrued expenses of
                $8,750,000;
                net cash provided by investing activities of $65,000, consisting
                of repayment of
                a receivable from GPS of $196,000, partially offset by purchases
                of property,
                plant and equipment of $131,000; and net cash provided by financing
                activities
                of $1,239,000, consisting of proceeds of short term borrowings of
                1,331,000,
                offset by repayments of long-term debt of $92,000.
  On
                March
                1, 2005, MXL obtained a Line of Credit Loan (the “MXL Line”) from M&T Bank
                with a one year term, maturing on March 1, 2006, which has been extended
                to June
                30, 2006 on the same terms. The MXL Line provides for a $1,000,000
                revolving
                credit facility, which is secured by MXL’s eligible accounts receivable,
                inventory and a secondary claim on the Lancaster, PA property. The
                interest
                rates under the MXL Line consist of LIBOR plus a credit spread of
                3% or the
                prime rate plus a credit spread of 0.25%. The MXL Line is subject
                to an unused
                commitment fee of 0.25% of the average daily unused balance of the
                line payable
                quarterly. The Company has guaranteed the MXL Line. At March 31,
                2006, $950,000
                was outstanding under the MXL Line and $50,000 was available to be
                borrowed. The
                MXL Line contains certain financial covenants, most significant being
                a cash
                flow coverage ratio of 1.25 to 1.00, which is calculated at December
                31.
  In
                2003,
                Five Star obtained a Loan and Security Agreement (the “Loan Agreement”) with
                Bank of America Business Capital (formerly Fleet Capital Corporation)
                (the
“Lender”). The Loan Agreement has a five-year term, with a maturity date
                of June
                30, 2008. The Loan Agreement, as amended in August 1, 2005 provides
                for a
                $35,000,000 revolving credit facility, which allows Five Star to
                borrow based
                upon a formula of up to 65% of eligible inventory and 85% of eligible
                accounts
                receivable, as defined therein. The interest rates under the Loan
                Agreement
                consist of LIBOR plus a credit spread of 1.5% (7.07% at March 31,
                2006) for
                borrowings not to exceed $15,000,000 and the prime rate (7.75% at
                March 31,
                2006) for borrowings in excess of the above-mentioned LIBOR-based
                borrowings.
                The credit spreads can be reduced in the event that Five Star achieves
                and
                maintains certain performance benchmarks. At March 31, 2006, approximately
                $21,120,000 was outstanding under the Loan Agreement and approximately
                $6,885,000 was available to be borrowed. Substantially all of Five
                Star’s assets
                are pledged as collateral for these borrowings. Under the Loan Agreement
                Five
                Star is subject to covenants requiring minimum net worth, limitations
                on losses,
                if any, and minimum or maximum values for certain financial ratios.
                As of March
                31, 2006 Five Star was in compliance with all required covenants.
                The following
                table sets forth the significant debt covenants at March 31, 2006:
 **Covenant**
                      
                      **Required**
                      
                      **Calculated**Minimum
                          tangible net worth
                      
                      $
                      6,000,000
                      
                      $
                      7,648,000Debt
                          to tangible net worth
                      
                      
                      <
                          6
                      
                      
                      2.76Fixed
                          charge coverage
                      
                      
                      >1.1
                      
                      
                      3.92Quarterly
                          income
                      
                      
                      No
                          loss in consecutive quarters
                      
                      $
                      278,000
                          -first quarter income
 
 21
 **Management
                  discussion of critical accounting policies**
 The
                preparation of our financial statements in conformity with accounting
                principles
                generally accepted in the United States of America requires us to
                make estimates
                and assumptions that affect the reported amounts of assets and liabilities
                and
                disclosure of contingent assets and liabilities at the date of the
                financial
                statements and the reported amounts of revenues and expenses during
                the
                reporting period. Our estimates, judgments and assumptions are continually
                evaluated based on available information and experience. Because
                of the use of
                estimates inherent in the financial reporting process, actual results
                could
                differ from those estimates.
 
 Certain
                of our accounting policies require higher degrees of judgment than
                others in
                their application. These include valuation of accounts receivable,
                accounting
                for investments, and impairment of long-lived assets which are summarized
                below.
 
 *Revenue
                recognition*
 
 Revenue
                on product sales is recognized at the point in time when the product
                has been
                shipped, title and risk of loss has been transferred to the customer,
                and the
                following conditions are met: persuasive evidence of an arrangement
                exists, the
                price is fixed and determinable, and collectibility of the resulting
                receivable
                is reasonably assured. Allowances for estimated returns and allowances
                are
                recognized when sales are recorded.
 
 *Valuation
                of accounts receivable*
 
 Provisions
                for allowance for doubtful accounts are made based on historical
                loss experience
                adjusted for specific credit risks. Measurement of such losses requires
                consideration of National Patent Development’s historical loss experience,
                judgments about customer credit risk, and the need to adjust for
                current
                economic conditions. The allowance for doubtful accounts as a percentage
                of
                total gross trade receivables was 2.04% and 4.2% at March 31, 2006
                and December
                31, 2005, respectively.
 
 *Impairment
                of long-lived tangible assets*
 
 Impairment
                of long-lived tangible assets with finite lives results in a charge
                to
                operations whenever events or changes in circumstances indicate that
                the
                carrying amount of an asset may not be recoverable. Recoverability
                of long-lived
                tangible assets to be held and used is measured by a comparison of
                the carrying
                amount of the asset to future undiscounted net cash flows expected
                to be
                generated by the asset. If such assets are considered to be impaired,
                the
                impairment to be recognized is measured by determining the amount
                by which the
                carrying amount of the assets exceeds the fair value of the asset.
                Assets to be
                disposed of are reported at the lower of their carrying amount or
                fair value
                less cost of sale.
 
 The
                measurement of the future net cash flows to be generated is subject
                to
                management’s reasonable expectations with respect to National Patent
                Development’s future operations and future economic conditions which may affect
                those cash flows.
  22
  As
                of
                March 31, 2006, National Patent Development holds undeveloped land
                in Pawling,
                New York with a carrying amount of approximately $2.5 million and
                in East
                Killingly, Connecticut with a carrying amount of approximately $0.4
                million,
                which management believes is less than its fair value, less cost
                of sale.
 
 *Accounting
                for investments*
 
 The
                Company’s investment in marketable securities are classified as
                available-for-sale and recorded at their market value with unrealized
                gains and
                losses recorded as a separate component of stockholders’ equity. A decline in
                market value of any available-for-sale security below cost that is
                deemed to be
                other than temporary, results in an impairment loss, which is charged
                to
                earnings.
 
 On
                October 8, 2003 the Company acquired additional shares of Five Star,
                bringing
                its ownership to 54%. Five Star is consolidated into the Company’s consolidated
                financial statements and is no longer accounted for as an equity
                investment
                effective as of that date.
  Determination
                of whether an investment is impaired and whether an impairment is
                other than
                temporary requires management to evaluate evidence as to whether
                an investment’s
                carrying amount is recoverable within a reasonable period of time
                considering
                factors which include the length of time that an investment’s market value is
                below its carrying amount and the ability of the investee to sustain
                an earnings
                capacity that would justify the carrying amount of the investment.
 
 On
                October 17, 2003, the Company received GPS’ shares of Valera Pharmaceuticals
                pursuant to the Repayment and recorded such shares at zero representing
                their
                carrying amount to GPS after reflecting Valera losses. On December
                31, 2005, the
                Company owned 100% of Valera’s common stock and 2,068,966 shares of
                the
                Series B convertible preferred stock (a 17.7%
                ownership interest, assuming conversion of Valera outstanding preferred
                stock
                and exercise of stock options held by employees of Valera) but no
                longer had
                financial and operating control of Valera. As a condition of a private
                placement
                of preferred stock in December 2001, GPS contractually gave up operating
                control
                over Valera through an Investors Rights Agreement. At December 31,
                2005 the
                Company accounted for its investment in Valera’s Series B convertible preferred
                stock under the cost method. On February 7, 2006 Valera completed
                an initial
                public offering of 3,862,500 shares of common stock at $9.00 per
                share. After
                giving effect to the conversion of the preferred stock into common
                stock and a 1
                for 6 reverse stock split of common stock effected by Valera in connection
                with
                the offering, the Company’s preferred shares were converted into common stock
                and the Company now owns 2,070,670 shares of common stock of Valera
                or
                approximately 14% of the currently outstanding shares of common stock
                as of
                March 31, 2006.
  As
                a
                result of the initial public offering, the Company’s investment in Valera’s
                common stock became a marketable security and accordingly, at March
                31, 2006,
                the investment, to the extent of shares available to be sold within
                a year at
                any balance sheet date under Rule 144 or an effective registration
                statement,
                has been classified as available for sale securities and measured
                at fair value
                with the adjustment to fair value and changes therein to be retained
                by the
                Company recorded in other comprehensive income. The remainder of
                the investment
                will be considered
   23
  restricted
                  and will continue to be carried at cost. In addition, if it is
                  determined that
                  the Company is no longer an affiliate, the shares would become
                  freely tradable
                  after the initial six month lock-up period. The Valera shares available
                  for sale
                  over the next 12 months at March 31, 2006 totaled 446,566. Two
                  related parties,
                  Bedford Oak Partners and Mr. Jerome I. Feldman, are entitled to
                  receive 50% of
                  any profit received from the sale, on a pro-rata basis, of 404,004
                  shares of
                  Valera common stock in excess of $3.94 per share. The unrealized
                  gain on Valera
                  shares available for sale at March 31, 2006 which would be payable
                  to the
                  related parties upon sale totaled $271,000, which is included in
                  Investment and
                  other income (loss) and Other liabilities in the March 31, 2006
                  financial
                  statements.
  *Income
                taxes*
 
 To
                arrive
                at our income tax provision and other tax balances, significant judgment
                is
                required. In the ordinary course of our business, there are many
                transactions
                and calculations where the ultimate tax outcome is uncertain. Some
                of these
                uncertainties arise as a consequence of the treatment of capital
                assets,
                financing transactions and multistate taxation of operations. Although
                we
                believe that our estimates are reasonable, no assurance can be given
                that the
                final tax outcome of these matters will not be different than that
                which is
                reflected in our historical tax provisions and accruals. Such differences
                could
                have a material impact on our income tax provision, other tax accounts
                and net
                income in the period in which such determination is made.
 
 The
                Company records a valuation allowance against deferred income tax
                assets when
                management believes it is more likely than not that some portion
                or all of the
                deferred income tax assets will not be realized. Management considers
                factors
                such as reversal of deferred income tax liabilities, projected future
                taxable
                income, tax planning strategies, changes in tax law and other factors.
                A change
                to these factors could impact the estimated valuation allowance and
                income tax
                expense.
 
 Under
                SFAS No. 109, “Accounting for Income Taxes,” deferred tax assets and
                liabilities are determined based on differences between the financial
                reporting
                and tax basis of assets and liabilities, and are measured using enacted
                tax
                rates and laws that will be in effect when the differences are expected
                to
                reverse. SFAS No. 109 provides for the recognition of deferred tax
                assets if realization of such assets is more likely than not. Based
                on the
                weight of available evidence, we have provided a valuation allowance
                against
                certain deferred tax assets. The valuation allowance was based on
                the historical
                earnings patterns within individual tax jurisdictions that make it
                uncertain
                that we will have sufficient income in the appropriate jurisdictions
                to realize
                the full value of the assets. We will continue to evaluate the realizability
                of
                the deferred tax assets on a quarterly basis.
  24
 
 **Forward-looking
                statements**
 
 The
                forward-looking statements contained herein reflect the Company’s management’s
                current views with respect to future events and financial performance.
                These
                forward-looking statements are subject to certain risks and uncertainties
                that
                could cause actual results to differ materially from those in the
                forward-looking statements, all of which are difficult to predict
                and many of
                which are beyond the control of the Company, including, but not limited
                to the
                risks and uncertainties detailed in the Company’s periodic reports and
                registration statements filed with the Securities and Exchange
                Commission.
  25
  **Item
                3.**  **Quantitative
                and Qualitative Disclosure About Market Risk**
 
 We
                have
                no material changes to the disclosure on this matter made in our
                report on Form
                10-K for the fiscal year ended December 31, 2005.
 
 **Item
                4.**  **Controls
                and Procedures**
 
 The
                  Company’s Chief Executive Officer and Chief Financial Officer completed
                  an
                  evaluation of the effectiveness of the design and operation of
                  the Company’s
                  disclosure controls and procedures (as such term is defined in
                  Rules 13a-15(e)
                  and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
                  for the
                  quarterly period ended on March
                  31,
                  2006 and concluded that the Company’s disclosure controls and procedures were
                  effective as of the end of that period .
                  Subsequently, information came to management’s attention regarding the Company’s
                  recordation of certain financial information that caused the Chief
                  Executive
                  Officer and the Chief Financial Officer to reconsider the results
                  of this
                  evaluation and conclude that, as of the end of the fiscal period
                  covered by the
                  original Quarterly Report on Form 10-Q for the quarterly period
                  ended March 31,
                  2006, the Company's disclosure controls and procedures were not
                  effective to
                  assure that certain line items of our condensed consolidated financial
                  statements were prepared in conformance with generally accepted
                  accounting
                  principles and that a material weakness existed as of March 31,
                  2006. A material
                  weakness is a control deficiency or combination of control deficiencies
                  that
                  results in more than a remote likelihood that a material misstatement
                  of the
                  annual or interim financial statements will not be prevented or
                  detected.
  The
                  Chief
                  Executive Officer and Chief Financial Officer have determined that,
                  for the
                  quarterly periods ended on March
                  31,
                  2006 , June
                  30,
                  2006 and September 30, 2006, the
                  Company did not maintain effective disclosure controls and procedures.
                  Specifically, the Company did not maintain effective disclosure
                  controls and
                  procedures to ensure the proper recordation of unrealized gain for
                  the
                  period from January 1, 2006 through September 30, 2006 on shares
                  of Valera
                  common stock owned by a subsidiary of the Company and classified
                  as available
                  for sale, which unrealized gain is payable to related parties .
                  This
                  control deficiency resulted in the misstatement of four line items,
                  namely,
                  Investment and other income (loss), Net loss, Accumulated other
                  comprehensive
                  income and Net loss per share.
  The
                  Company included a schedule of the effect of the restatement on
                  quarterly data
                  in the Notes to Consolidated Financial Statements included in its
                  Annual Report
                  on Form 10-K for the year ended December 31, 2006 filed with the
                  SEC on April 3,
                  2007.
  **Remediation
                  Plan**
  As
                  of the
                  date of the filing of this Form 10-Q/A, the Company has taken the
                  following
                  steps to remediate the material weakness described above:
  ·
                    The
                        Company has taken a thorough review of the classification
                        requirements of
                        each component line item and the individual elements that
                        comprise each
                        line item of its Condensed Consolidated Statement of Operations
                        and its
                        Condensed Consolidated Balance Sheet in accordance with Generally
                        Accepted
                        Accounting Principles.  26
 ·
                      The
                          Company has engaged outside consultants to review the Company's
                          accounting
                          position where the accounting treatment is considered by
                          the Company to be
                          particularly complex or, under certain circumstances, to
                          involve
                          subjective decision making.
  The
                  Company is in the process of identifying and targeting for hire
                  additional
                  internal accounting and finance personnel and anticipates hiring
                  such persons by
                  the end of the second quarter of 2007. The Company’s Chief Executive Officer and
                  Chief Financial Officer have concluded that there was no change
                  in the Company’s
                  internal control over financial reporting (as such term is defined
                  in Rule
                  13a-15(f) under the Securities Exchange Act of 1934, as amended)
                  that occurred
                  during the quarter ended March 31, 2006 that has materially affected,
                  or is
                  reasonably likely to materially affect, the Company’s internal control over
                  financial reporting.
  
 
 
  27
  **PART
                II. OTHER INFORMATION**
 
 
 **Item
                6.**  **Exhibits**
  Exhibit
                          No.
                      
                      Description10.1
                      
                      Non-Binding
                          Letter of Intent among the Company, FLJ Partners, Inc.
                          and Five Star Five
                          Star Products, Inc. (incorporated herein by reference to
                          Exhibit 99 of the
                          Company’s Form 8-K dated May 10, 2006)10.2
                      
                      Form
                          of Indemnification Agreement (incorporated herein by reference
                          to Exhibit
                          10.1 of the Company’s Form 8-K dated May 15, 2006)31.1
                      *
                      Certification
                          of Chief Executive Officer of the Company, pursuant to
                          Securities Exchange
                          Act Rule 13a-14(a)31.2
                      *
                      Certification
                          of Chief Financial Officer of the Company, pursuant to
                          Securities Exchange
                          Act Rule 13a-14(a)32.1
                      *
                      Certifications
                          pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                          to Section 906 of
                          The Sarbanes-Oxley Act of 2002, signed by the Chief Executive
                          Officer of
                          the Company and the Chief Financial Officer of the Company
  ________
 *Filed
                herewith
  28
  
 **SIGNATURES**
 
 Pursuant
                to the requirements of the Securities Exchange Act of 1934, the registrant
                has
                duly caused this report to be signed in its behalf by the undersigned
                thereunto
                duly authorized.  **NATIONAL
                                PATENT DEVELOPMENT****CORPORATION**DATE:
                                May 15, 2007
                            
                            /s/
                                JEROME I. FELDMANName:
                            Jerome
                                I. FeldmanTitle:
                            Chairman
                                of the Board andChief
                                Executive OfficerDATE:
                                May 15, 2007
                            
                            /s/
                                SCOTT N. GREENBERGName:
                            Scott
                                N. GreenbergTitle:
                            Chief
                                Financial Officer
   29