UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[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

[ ] TRANSITION REPORT PURSAUNT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from                   to
                              --------------------------------------------------

Commission File Number:                        333-118568
                       ---------------------------------------------------------


                     NATIONAL PATENT DEVELOPMENT CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

         Delaware                                               13-4005439
------------------------------------                      ----------------------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization                              Identification No.)

777 Westchester Avenue, White Plains, NY                          10604
--------------------------------------------------------------------------------
(Address of principal executive offices)                        (Zip code)

                                 (914) 249-9700
--------------------------------------------------------------------------------
              (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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Exchange Act). Yes      No      X

Indicate the number of shares outstanding of each of issuer's classes of common
stock as of May 15, 2006:

           Common Stock                                17,836,815 shares


<PAGE>



            NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES

                                TABLE OF CONTENTS
                                                                        Page No.
                          Part I. Financial Information

Item 1.      Financial Statements

             Condensed Consolidated Statements of Operations-
                Three Months Ended March 31, 2006 and 2005 (Unaudited)        1

             Condensed Consolidated Statements of Comprehensive Loss-
                Three Months Ended March 31, 2006 and 2005 (Unaudited)        2

             Condensed Consolidated Balance Sheets -
                March 31, 2006 (Unaudited) and December 31, 2005              3

             Condensed Consolidated Statements of Cash Flows -
                Three Months Ended March 31, 2006 and 2005 (Unaudited)        4

             Notes to Condensed Consolidated Financial Statements             5

Item 2.      Management's Discussion and Analysis of Financial
                Condition and Results of Operations                          15

Item 3.      Quantitative and Qualitative Disclosure about Market Risk       25

Item 4.      Controls and Procedures                                         25

                           Part II. Other Information

Item 1.      Legal Proceedings                                               26

Item 1A.     Risk Factors                                                    26

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds     27

Item 3.      Defaults Upon Senior Securities                                 27

Item 4.      Submission of Matters to a Vote of Security Holders             27

Item 5.      Other Information                                               27

Item 6.      Exhibits                                                        27

Signatures                                                                   28


<PAGE>


                          PART I. FINANCIAL INFORMATION

            NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (in thousands, except per share data)

<TABLE>

                                                                          Three Months Ended
                                                                              March 31,
                                                                           2006            2005
                                                                           ----            ----
<S>                                                                     <C>              <C>
  Sales                                                                 $31,205          $30,077
  Cost of sales                                                          25,829           25,528
                                                                        -------          -------
  Gross margin                                                            5,376            4,549

  Selling, general and administrative expenses                           (4,842)          (5,110)
                                                                       ---------        ---------

        Operating  profit (loss)                                            534             (561)

  Interest expense                                                         (379)            (372)
  Investment and other income                                                34              163
                                                                        -------         --------

       Income (loss) before income taxes and  minority
       interest                                                             189             (770)

  Income tax expense                                                       (238)             (43)
                                                                      ----------        ---------

       Loss before minority interest                                        (49)            (813)

  Minority interest                                                        (100)              (7)
                                                                     -----------        ---------

       Net loss                                                        $   (149)        $   (820)
                                                                       =========        =========

  Net loss per share
       Basic and diluted                                               $  (0.01)        $  (0.05)
                                                                       =========        =========

</TABLE>




          See accompanying notes to consolidated financial statements.





            NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                   (Unaudited)
                                 (in thousands)

<TABLE>

<CAPTION>

                                                                      Three Months Ended
                                                                          March 31,
                                                                       2006             2005
                                                                       -----            ----
<S>                                                                  <C>              <C>
  Net loss                                                           $ (149)          $ (820)

  Other comprehensive income (loss), before tax:
  Net unrealized gain on available-for-sale-securities                4,025              769
  Reclassification adjustment for gain on securities sold
  included in net loss                                                                  (152)
  Net unrealized gain on interest rate swap, net of minority
   interest                                                              45              151
                                                                    -------         --------

  Comprehensive income (loss) before tax                              3,921              (52)

  Income tax expense related to items of other
  comprehensive loss                                                    (18)             (63)
                                                                     -------          -------

  Comprehensive income (loss)                                       $ 3,903           $ (115)
                                                                    =======           =======

</TABLE>

















          See accompanying notes to consolidated financial statements.


                                       2
<PAGE>



                     NATIONAL PATENT DEVELOPMENT CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                              March 31,         December 31,
                                                                               2006                     2005
                                                                               ----                     ----
                                                                             (unaudited)
Assets
Current assets
<S>                                                                           <C>                <C>
Cash and cash equivalents                                                     $   5,072          $     5,115
Accounts receivable, less allowance
  for doubtful accounts of $401 and $480                                         19,621               12,083
Receivable from GP Strategies Corporation                                           946                1,142
Inventories                                                                      26,904               24,021
Prepaid expenses and other current assets                                           852                  997
Deferred tax asset                                                                  308                  352
                                                                                 ------               ------
Total current assets                                                             53,703               43,710

Marketable securities available for sale                                            584                  477
Property, plant and equipment, net                                                3,030                3,085
Investment in Valera, including available for sale
securities of $4,533 in 2006                                                      5,779                1,590
Other assets                                                                      3,434                3,360
                                                                              ---------            ---------
Total assets                                                                    $66,530              $52,222
                                                                                =======              =======

Liabilities and stockholder's equity
Current liabilities
Current maturities of long-term debt                                           $    226             $    291
Short term borrowings                                                            22,095               20,764
Accounts payable and accrued expenses                                            18,586                9,566
                                                                               --------               ------
Total current liabilities                                                        40,907               30,621
Long-term debt less current maturities                                            1,079                1,106
Deferred tax liability                                                              279                  279
Interest rate collar, at market                                                      25                   20

Minority interest                                                                 1,842                1,727

Stockholder's equity
Common Stock                                                                        178                  178
Additional paid-in capital                                                       25,947               25,921
Accumulated deficit                                                              (7,911)              (7,762)
Accumulated other comprehensive income                                            4,184                  132
                                                                          -------------            ---------
Total stockholder's equity                                                       22,398               18,469
                                                                             ----------             --------
Total liabilities and stockholder's equity                                      $66,530              $52,222
                                                                                =======              =======
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       3
<PAGE>



            NATIONAL PATENT DEVELOPMENT CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                          March 31,
                                                                                      2006           2005
                                                                                      ----           ----
   Cash flows from operations:
<S>                                                                                 <C>                <C>
   Net loss                                                                         $ (149)            $ (820)
   Adjustments to reconcile net loss to
    net cash used in operating activities:
   Depreciation and amortization                                                       186                177
   Minority interest                                                                   100                  7
   Expenses paid in common stock                                                        26
   Deferred income taxes                                                                44
   Net gain on marketable securities                                                                     (152)
   Loss on sale of fixed assets                                                                            79
   Changes in other operating items                                                 (1,554)            (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                                                                    1,002
   Proceeds from sale of fixed assets                                                    -                 33
   Repayment of  receivable from GP Strategies                                         196                  -
                                                                                       ---              -----
   Net cash provided by investing activities                                            65                485

   Cash flows from financing activities:
   Contribution from GP Strategies                                                                      5,000
   Proceeds from short-term borrowings                                               1,331             10,221
   Repayment of long-term debt                                                         (92)            (1,690)
                                                                                   --------        -----------
   Net cash provided by financing activities                                         1,239             13,531
                                                                                   -------           --------

   Net increase (decrease) in cash and cash equivalents                                (43)             4,191
   Cash and cash equivalents at beginning of period                                  5,115              2,087
                                                                                ----------         ----------
   Cash and cash equivalents at end of period                                       $5,072             $6,278
                                                                                  ========           ========

</TABLE>



   See accompanying notes to the condensed consolidated financial statements.




                                       4
<PAGE>



            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.


                                       5
<PAGE>

If the derivative is a cash flow hedge, changes in the fair value of the
derivative are recognized in other 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.



                                       6
<PAGE>

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):


                                                            Three months ended
                                                                 March 31,
                                                                   2005
   Net loss - As reported                                         $(820)
   Compensation expense, net of tax
               Five Star stock options (1)                           (2)
                                                                --------
               Pro forma net loss                                 $(822)
   Basic and diluted loss per share
               As 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             2005
                                                 ----             ----
       Basic and Diluted EPS
       Net loss                                   $(149)          $(820)
       Weighted average shares
         outstanding, basic and diluted          17,825          17,799
       Basic and diluted loss per share          $(.01)          $(.05)





                                       7
<PAGE>







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           $1,205
  Other debt                                     124              186
  Capital lease obligations                        1                6
                                             -------                -
                                               1,305            1,397
                                             -------          -------
  Less 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 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 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.



                                       8
<PAGE>

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 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, 2005
                            --------------             -----------------
   Raw materials              $      346                 $      386
   Work in process                   221                        113
   Finished goods                 26,337                     23,522
                                 -------                   --------
                                 $26,904                    $24,021
                                 =======                    =======


                                       9
<PAGE>


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.

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 Vantas(TM), 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 GP Strategies through GP Strategies'
ownership of 100% of the common stock of Valera.

In December 2001, 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, GPS 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


                                       10
<PAGE>

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 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
profit 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
Accounts payable and accrued expenses on the March 31, 2006 balance sheet.


                                       11
<PAGE>


8.       Business segments

The operations of the Company currently consist of the following two business
segments, by which the Company is managed.

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         $28,239
      MXL                                                2,253           1,838
                                                     ---------       ---------
                                                       $31,205         $30,077

                                                            Three months
                                                           ended March 31,
                                                       2006            2005
                                                       ----            ----
      Segment operating income (loss)
      Five Star                                        $  920          $  478
      MXL                                                  94            (504)
                                                         -----         --------
                                                       $1,014            $(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             2005
                                                         ----             ----
       Segment operating income (loss)                 $1,014             $(26)
       Corporate and other general and
            administrative expenses                      (480)            (535)
       Interest expense                                  (379)            (372)
       Investment and other income                         34              163
                                                      -------         --------
       Income (loss) before income taxes
              and minority interest                      $189            $(770)



                                       12
<PAGE>

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.



                                       13
<PAGE>

10.      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.



                                       14
<PAGE>





            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:

     o  facemasks and shields for recreation purposes and industrial safety
        companies,
     o  precision optical systems, including medical optics, military eye wear
        and custom molded and decorated products, and
     o  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:

     o  consumer confidence indices in key markets,
     o  sales levels of complementary items in the recreational vehicle market,
        such as motorcycles, RV's and snowmobiles,
     o  levels of defense spending, and
     o  new OSHA safety standards.



                                       15
<PAGE>

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:

     o  its ability to negotiate the lowest prices from its suppliers,
     o  its ability to increase revenue by obtaining new customers, while
        maintaining a level fixed cost structure by utilizing its existing
        warehouses,
     o  the housing market in general,
     o  consumers' confidence in the economy,
     o  consumers' willingness to invest in their homes, and
     o  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:

     o  new U.S. housing starts,
     o  sales of existing homes,
     o  sales of high margin products to its customers,
     o  purchases from each vendor, and
     o  performance benchmarks used by Home Depot and Lowe's, such as number of
        stores and square footage, as well as financial benchmarks.



                                       16
<PAGE>

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 net income before
income tax expense and minority interests of $189,000 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 $959,000 is primarily a result
of increased gross margin at both Five Star and MXL totaling $827,000, as well
as reduced corporate and other general and administrative expenses of $268,000,
partially offset by reduced investment and other income of $129,000.


                                       17
<PAGE>

<PAGE>



Sales

                                    Three months
                                   ended March 31,
                        2006                         2005
                        ----                         ----
     Five Star       $28,952,000                  $28,239,000
     MXL               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   $4,768,000        16.5       $4,404,000       15.6
          MXL            608,000        27.0          145,000        7.9
                      ----------      ------     ------------      -----
                      $5,376,000        17.2       $4,549,000       15.1
                      ----------        ----       ----------       ----

Five Star's gross margin increased to $4,768,000, or 16.5% of net sales, for the
quarter ended March 31, 2006, as compared to $4,404,000, or 15.6% 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.



                                       18
<PAGE>

Selling, general, and administrative expenses

For the three months ended March 31, 2006, selling, general and administrative
expenses decreased by $268,000 from $5,110,000 for the three months ended March
31, 2005 to $4,842,000 partially due to the following; (i) reduced general and
administrative expenses of $52,000 at the Company corporate level, (ii) reduced
selling, general and administrative expenses at Five Star of $78,000 primarily
attributable to a $175,000 recovery of bad debts written off in prior years,
partially offset by increased delivery expenses due to rising fuel prices,(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 of $34,000 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 due
to 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 $238,000, or an effective rate of 126% 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 $149,000, an increase in accounts receivable of
$7,538,000, an increase in inventory of $2,883,000, partially offset by an
increase in accounts payable and accrued expenses of $8,750,000; net cash


                                       19
<PAGE>

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:

<TABLE>
<CAPTION>

Covenant                      Required                  Calculated
--------                      --------                  ----------
<S>                           <C>                       <C>
Minimum tangible net worth    $6,000,000                $7,648,000
Debt to tangible net worth    < 6                       2.76
Fixed charge coverage         >1.1                      3.92
Quarterly income              No loss in consecutive   $278,000-first quarter income
                              quarters
</TABLE>



                                       20
<PAGE>

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.



                                       21
<PAGE>

         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.

         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,


                                       22
<PAGE>

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 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 amounts payable to the related parties totaled $271,000 at March 31,
2006 and has been recorded as a liability within Accounts payable and accrued
expenses on the March 31, 2006 balance sheet.

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.



                                       23
<PAGE>



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.



                                       24
<PAGE>



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

a.   Evaluation of disclosure controls and procedures. The Company's Chief
     Executive Officer and Chief Financial Officer have reviewed and evaluated
     the effectiveness of the Company's disclosure controls and procedures (as
     defined in Exchange Act Rules 240.13a-15(e) and 15d-15(c)) as of a date
     covered by this quarterly report. Based on that evaluation, the Chief
     Executive Officer and Chief Financial Officer have concluded that the
     Company's current disclosure controls and procedures are effective as of
     the evaluation date, providing them with material timely information
     relating to the Company required to be disclosed in the reports the Company
     files or submits under the Exchange Act.

c.   Changes in internal controls. There have been no significant changes in the
     Company's internal controls or in other factors that could significantly
     affect these controls subsequent to the date of their evaluation.





                                       25
<PAGE>


                           PART II. OTHER INFORMATION


Item 1.     Legal Proceedings

            None

Item 1A.    Risk Factors

            The Company has no material changes to the disclosure on this
matter made in its Annual Report on Form 10-K for the fiscal year ended December
31, 2005.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

            None

Item 3.     Defaults Upon Senior Securities

            None

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

            None

Item 5.     Other Information

            None


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Item 6. Exhibits

        10.1    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 dated
        May 19, 2006 pursuant to Securities and Exchange Act Rule
        13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404
        of the Sarbanes-Oxley Act of 2002.*

        31.2    Certification of Chief Financial Officer of the Company dated
        May 19, 2006 pursuant to Securities and Exchange Act Rule
        13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404
        of the Sarbanes-Oxley Act of 2002.*

        32.2    Certification of Chief Executive Officer and Chief Financial
        Officer of the Company dated May 19, 2006 pursuant to 18 U.S.C.
        Section 1350 as adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002.*

________
        -
*Filed herewith



                                       27
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                                   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 19, 2006                              Jerome I. Feldman
                                                Chairman of the Board and
                                                Chief Executive Officer


DATE: May 19, 2006                              Scott N. Greenberg
                                                Chief Financial Officer


                                       28
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