Form 10-K

EXHIBIT 3(i).1

NANO-PROPRIETARY, INC.

Pursuant to the provisions of Article 4.07 (B) of the Texas Business Corporation Act (the "TBCA"), Nano-Proprietary, Inc. (the "Corporation") adopts the following Restated Articles of Incorporation (the "Restated Articles"). The Restated Articles accurately copy the Amended and Restated Articles of Incorporation of the Corporation currently in effect, and all amendments thereto that are in effect to date, and contain no change in any provision thereof.

ARTICLE ONE

The name of the corporation is Nano-Proprietary, Inc.

ARTICLE TWO

The period of its duration is perpetual.

ARTICLE THREE

The objects and purposes for which the Corporation is organized, the nature of the business to be conducted by the Corporation, and the powers which may be exercised by the Corporation are stated and declared to be as follows:

(a) To enter into and engage in any business activities that lawfully may be conducted by a Corporation organized and existing under the Texas Business Corporation Act (the "TBCA") either directly, or through affiliated or subsidiary companies which may be formed under the laws of any State or foreign nation where the conduct of such activities is lawful;

(b) To enter into and engage in business activities either for its own account, or for the account of others, as agent, and either as agent or principal, to enter upon or engage in any kind of business of any nature whatsoever, in which corporations organized under the TBCA may engage; and to the extent not prohibited thereby to enter upon and engage in any kind of business of any nature whatsoever in any other state of the United States of America, any foreign nation, and any territory of any country to the extent permitted by the laws of such other state, nation or territory;

(d) To engage in any other lawful act or activity for which a Corporation may be organized under the TBCA; and

(e) Nothing in this Article shall be construed as authorizing the Corporation to transact any business in the State of Texas prohibited by any law of the State of Texas, or to engage in any activity in the State of Texas which lawfully cannot be engaged in without first obtaining a license under the laws of the State of Texas and such license cannot be granted to a corporation, or to transact any of the business referred to in Section (B)(3)(a) or Section (B)(4) of Article 2.01 of the TBCA.

ARTICLE FOUR

The Corporation is hereby authorized to issue a total of 122,000,000 shares of capital stock which shall be subdivided into classes as follows:

DIVISION A - COMMON STOCK

One Hundred Twenty Million (120,000,000) shares of the Corporation's capital stock shall be denominated as Common Stock, have a par value of $0.001 per share, and have the rights, powers and preferences set forth in this paragraph.

(i) The holders of Common Stock shall share ratably, with all other classes of common equity, in any dividends that may, from time to time, be declared by the Board of Directors;

(ii) No dividends may be paid with respect to the Corporation's Common Stock, however, until dividend distributions to the holders of Preferred Stock, if any, have been paid in accordance with the certificate or certificates of designation relating to such Preferred Stock;

(iii) The holders of Common Stock shall share ratably, with all other classes of common equity, in any assets of the Corporation that are available for distribution to the holders of common equity securities of the Corporation upon the dissolution or liquidation of the Corporation;

(iv) The holders of Common Stock shall be entitled to cast one vote per share on all matters that are submitted for a vote of the shareholders;

(v) There are no redemption or sinking fund provisions that are applicable to the Common Stock of the Corporation; and

(vi) Subject only to the requirements of the TBCA and the foregoing limitations, the Board of Directors is expressly authorized to issue shares of Common Stock without stockholder approval, at any time and from time to time, to such persons and for such consideration as the Board of Directors shall deem appropriate under the circumstances.

DIVISION B - PREFERRED STOCK

Two Million (2,000,000) shares of the Corporation's authorized capital stock shall be denominated as Preferred Stock, par value of $1.00 per share. Shares of Preferred Stock may be issued from time to time in one or more series as the Board of Directors, by resolution or resolutions, may from time to time determine, each of said series to be distinctively designated. The voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof, if any, of each such series of Preferred Stock may differ from those of any and all other series of Preferred Stock at any time outstanding, and the Board of Directors is hereby expressly granted authority to fix or alter, by resolution or resolutions, the designation, number, voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof, of each such series of Preferred Stock, including, but without limiting the generality of the foregoing, the following:

(i) The distinctive designation of, and the number of shares of Preferred Stock that shall constitute, each series of Preferred Stock, which number (except as otherwise provided by the Board of Directors in the resolution establishing such series) may be increased or decreased (but not below the number of shares of such series then outstanding) from time to time by the Board of Directors without prior approval of the holders of such series;

(ii) The rights in respect of dividends, if any, of such series of Preferred Stock, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes or any other series of the same or other class or classes of capital stock of the Corporation, and whether such dividends shall be cumulative or noncumulative;

(iii) The right, if any, of the holders of such series of Preferred Stock to convert the same into, or exchange the same for, shares of any other class or classes or of any other series of the same or any other class or classes of capital stock of the Corporation and the terms and conditions of such conversion or exchange, including, without limitation, whether or not the number of shares of such other class or series into which shares of such series may be converted or exchanged shall be adjusted in the event of any stock split, stock dividend, subdivision, combination, reclassification or other transaction or series of transactions affecting the class or series into which such series of Preferred Stock may be converted or exchanged;

(iv) Whether or not shares of such series of Preferred Stock shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, shares of such series of Preferred Stock may be redeemed;

(v) The rights, if any, of the holder of such series of Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation or in the event of any merger or consolidation of or sale of assets by the Corporation;

(vi) The terms of any sinking fund or redemption or repurchase amount, if any, to be provided for shares of such series of Preferred Stock;

(vii) The voting owners, if any, of the holders of any series of Preferred Stock generally or with respect to any particular matter, which may be less than, equal to or greater than one vote per share, and which may, without limiting the generality of the foregoing, include the right, voting as a series by itself or together with the holders of any other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more Directors of the Corporation (which, without limiting the generality of the foregoing, may include a specified number or portion of the then-existing number of authorized Directorships of the Corporation, or a specified number or portion of Directorships in addition to the then existing number of authorized Directorships of the Corporation), generally or under such specific circumstances and on such conditions, as shall be provided in the resolution or resolutions of the Board of Directors adopted pursuant hereto; and

(viii) Such other powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof, as the Board of Directors shall determine.

Notwithstanding the foregoing, and with the sole exception of shares issued pursuant to the duly adopted stock option plans of the Corporation, no shares of Preferred Stock shall be issued or sold to any officer or director of the Corporation, or any shareholder who directly or indirectly owns more than 5 % of the issued and outstanding voting stock of the Corporation, or any affiliate of such person, without the affirmative vote of a majority in interest of the disinterested shareholders of the Corporation. Upon the creation of any new class or series of Preferred Stock of the Corporation, the Board of Directors shall prepare and file with the records of the Corporation a certificate setting forth the rights and preferences of such class or series of Preferred Stock, which certificate shall be deemed an amendment to these Restated Articles and shall not require the consent of any shareholder.

DIVISION C - SERIES OF PREFERRED STOCK

SERIES H JUNIOR PARTICIPATING PREFERRED STOCK

The designations, preferences, limitations and relative rights of the Series H Junior Participating Preferred Stock of the Corporation are as follows:

1. Designation and Amount. There shall be a series of shares of preferred stock that shall be designated as "Series H Junior Participating Preferred Stock," and the number of shares constituting such series shall be Six Hundred Thousand (600,000).

2. Dividends and Distributions.

(A) Subject to the prior and superior rights of the holders of any shares of any series of shares of preferred stock ranking prior and superior to the Series H Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series H Junior Participating Preferred Stock, in preference to the holders of shares of any class or series of shares of the Corporation ranking prior to the Series H Junior Participating Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series H Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of common stock or a subdivision of the outstanding shares of common stock (by reclassification or otherwise), declared on the shares of common stock of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series H Junior Participating Preferred Stock. The "Adjustment Number" shall initially be 100. In the event the Corporation shall at any time after June 18, 1998 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series H Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series H Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on outstanding Series H Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such Series H Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series H Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the Series H Junior Participating Preferred Stock in an

amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share by share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of Series H Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

3. Voting Rights. The holders of Series H Junior Participating Preferred Stock shall have the following voting rights:

(A) Each share of Series H Junior Participating Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on all matters submitted to a vote of the shareholders of the Corporation.

(B) Except as otherwise provided herein or by law, the holders of Series H Junior Participating Preferred Stock and the holders of the Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.

(C)

(i) If at any time dividends on any Series H Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series H Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series H Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors.

(ii) During any default period, such voting right of the holders of Series H Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of the Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Preferred Stock.

(iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him or her at his or her last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 50 days after such order or request or in default of the calling of such meeting within 50 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no such special meeting shall be called during the period within 50 days immediately preceding the date fixed for the next annual meeting of the stockholders.

(iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this Paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence.

(v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or bylaws irrespective of any increase made pursuant to the provisions of Paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or bylaws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors.

(D) Except as set forth herein or as provided by law, holders of Series H Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of the Common Shares as set forth herein) for taking any corporate action.

4. Certain Restrictions.

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series H Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on Series H Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series H Junior Participating Preferred Stock;

(ii) declare or pay dividends on or make any other distributions on any shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series H Junior Participating Preferred Stock, except dividends paid ratably on the Series H Junior Participating Preferred Stockand all such parity shares on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration any shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series H Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire any such parity shares in exchange for any shares of the Corporation ranking junior (both as to dividends and upon dissolution, liquidation or winding up) to the Series H Junior Participating Preferred Stock; or

(iv) purchase or otherwise acquire for consideration any shares of Series H Junior Participating Preferred Stock, or any shares ranking on a parity with the Series H Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

5. Reacquired Shares. Any Series H Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of shares of Preferred Stock.

6. Liquidation, Dissolution or Winding Up.

(A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares ranking junior (either as to dividends or upon liquidation or winding up) to the Series H Junior Participating Preferred Stock, unless, prior thereto, the holders of Series H Junior Participating Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series H Liquidation Preference"). Following the payment of the full amount of the Series H Liquidation Preference, no additional distributions shall be made to the holders of Series H Junior Participating Shares unless, prior thereto, the holders of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series H Liquidation Preference by (ii) the Adjustment Number. Following the payment of the full amount of the Series H Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series H Junior Participating Preferred Stock and the Common Stock, respectively, holders of Series H Junior Participating Preferred Stock and holders of the Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and the Common Stock, on a per share basis, respectively.

(B) In the event, however, that there are not sufficient assets to permit payment in full of the Series H Liquidation Preference and the liquidation preferences of all other series of shares of preferred stock, if any, that rank on a parity with the Series H Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of the Common Stock.

7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, or other transaction in which the Common Stock are exchanged for or changed into other shares or securities, cash and/or other property, then in any such case, the Series H Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of shares, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each Common Share is changed or exchanged.

8. No Redemption. The Series H Junior Participating Stocks shall not be redeemable. Notwithstanding the foregoing sentence of this Section, the Corporation may acquire Series H Junior Participating Preferred Stock in any other manner permitted by law.

9. Ranking. The Series H Junior Participating Preferred Stock shall rank junior to all other series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

10. Amendment. At any time that any Series H Junior Participating Preferred Stock are outstanding, these Restated Articles shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series H Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding Series H Junior Participating Preferred Stock, voting separately as a class.

11. Fractional Shares. Series H Junior Participating Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series H Junior Participating Preferred Stock.

DIVISION D - PROVISIONS APPLICABLE TO ALL CLASSES OF STOCK

No holder of any stock of the Corporation shall be entitled as of right to purchase or subscribe for any part of any unissued or treasury stock of the Corporation, or of any additional stock of any class, to be issued by reason of any increase of the authorized capital stock of the Corporation, or to be issued from any unissued or additionally authorized stock, or of bonds, certificates of indebtedness, debentures or other securities convertible into stock of the Corporation, but any such unissued or treasury stock, or any such additional authorized issue of new stock or securities convertible into stock, may be issued and disposed of by the Board of Directors to such persons, firms, corporations or associations, and upon such terms as the Board of Directors may, in its discretion, determine, without offering to the shareholders then of record, or any class of shareholders, any thereof, on the same terms or any terms.

ARTICLE FIVE

The Corporation will not commence business until it has received for the issuance of its shares consideration of the value of not less than $1000.00 consisting of money paid, labor done, or property actually received.

ARTICLE SIX

The address of the registered office and the name of its registered agent is as follows:

C T Corporation

811 Dallas Avenue

Houston, Texas 77002

ARTICLE SEVEN

(a) The business and affairs of the Corporation shall be conducted and managed by, or under the direction of, the Board of Directors. Except as otherwise provided for or fixed pursuant to the provisions of Article 4 of these Restated Articles relating to the rights of the holders of any series of Preferred Stock to elect additional directors, the total number of directors constituting the entire Board of Directors shall be not less than three (3) nor more than nine (9), with the then-authorized number of directors being fixed from time to time solely by or pursuant to a resolution passed by the Board of Directors.

(b) The Board of Directors shall have the power to make, adopt, alter, amend and repeal from time to time the By-Laws of this Corporation, subject to the right of the shareholders entitled to vote with respect thereto to adopt, alter, amend and repeal the By-Laws; provided, however, that By-Laws shall not be adopted, altered, amended or repealed by the stockholders of the Corporation except by the vote of the holders of not less than sixty percent (60%) of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, considered for this purpose as one class.

(c) No director of the Corporation shall be liable to the Corporation or its shareholders for monetary damages for an act or omission (or an alleged act or omission) in a director's capacity as director, except that this Article Seven (c) does not eliminate or limit the liability of a director to the extent the director is found liable for:

(1) a breach of a director's duty of loyalty to the Corporation or its shareholders;

(2) an act or omission not in good faith which constitutes a breach of duty of the director to the Corporation, or an act or omission which involves intentional misconduct or a knowing violation of-the law;

(3) a transaction from which a director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office;

(4) an act or omission for which the liability of a director is expressly provided for by an applicable statute; or

(5) an act related to an unlawful stock repurchase or payment of a dividend.

If the Texas Miscellaneous Corporation Laws Act or the TBCA or any other applicable law is amended or adopted to authorize action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by such law(s), as so amended or adopted. Any repeal or modification of the foregoing paragraph shall not adversely affect any right of protection of a director of the Corporation existing at the time of such repeal or modification.

(d) The Board of Directors shall be divided into three classes, designated as Class I, Class II, and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Initially, Class I directors shall be elected for a one-year term, Class II directors for a two year term and Class III directors for a three-year term. At the annual meeting of shareholders beginning in 1993, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly as possible, and any additional director of that class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled only by action of majority of the Board of Directors then in office, provided that a quorum is present; any other vacancy occurring in the Board of Directors may be filled only by action of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor.

(e) Notwithstanding the foregoing, whenever, pursuant to the provisions of Article 4 of these Restated Articles, the holders of any one or more series of Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of these Restated Articles and such directors so elected shall not be divided into classes pursuant to this Article 7 (e) unless expressly provided by such terms.

(f) Directors must be at least 21 years of age and need not be shareholders. There shall be no qualifications for directors of the Corporation other than as set forth in these Amended and Restated Articles.

(g) The number of directors presently constituting the Board of Directors of the Corporation is seven (7), and the names, addresses and class of the persons now serving as directors are as follows:

Name	Address	Class

Ronald J. Berman	Jupiter, Florida	III
Marc W. Eller	Dallas, Texas	III
Eddie Lee	Dallas, Texas	II
Dr. Robert Ronstadt	Boston, Massachusetts	II
David R. Sincox	Houston, Texas	I
Dr. Zvi Yaniv	Austin, Texas	II
Charles C. Bailey	Austin, Texas	I

ARTICLE EIGHT

[Deleted pursuant to Article 4.07 (B) of the TBCA, as amended.]

ARTICLE NINE

(a) At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be otherwise properly brought before the meeting by a shareholder (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior to public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article 9(a), and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

(b) Only persons who are nominated in accordance with the procedures set forth in this Article 9(b) shall be eligible for elections as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or by any shareholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Article 9(b). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Such shareholder's notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or re-election as a Director, (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the Corporation which are beneficially owned by such person, and (D) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the shareholder giving the notice, (1) the name and address, as they appear on the

Corporation's books, of such shareholder and (2) the class and number of shares of the Corporation which are beneficially owned by such shareholder. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in this Article 9(b). The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed herein, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

ARTICLE TEN

No shareholder of the corporation shall have the right of cumulative voting at any election of directors or upon any other matter.

ARTICLE ELEVEN

(a) With respect to any matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by the TBCA, including, but not limited to, the amendment of these Restated Articles pursuant to Article 4.02 of the TBCA, the approval of any action or plan of merger or exchange pursuant to Article 5.03 of the TBCA or the disposition of assets requiring special authorization of shareholders pursuant to Article 5.10 of the TBCA, the approval of those matters shall be the affirmative vote of the majority of the shares entitled to vote on those matters, rather than the affirmative vote otherwise required by the TBCA.

(b) With respect to any matter for which the affirmative vote of the holders of a specified portion of the shares of any class or series is required by the TBCA, including, but not limited to, those matters identified in paragraph (a) of this Article Eleven, the approval of those matters shall be the affirmative vote of the holders of a majority of the shares of that class or series, rather than the affirmative vote of that class or series otherwise required by the TBCA.

(c) If the TBCA or any other applicable law is amended or adopted with respect to a matter requiring the affirmative vote of the holders of a specified portion of the shares entitled to vote on that matter, then this Article Eleven shall also require a vote of a majority of the holders of the shares entitled to vote on that matter, rather than the affirmative vote otherwise required.

IN WITNESS WHEREOF, the undersigned has executed these Restated Articles as of February 16, 2006.

	NANO-PROPRIETARY, INC.




	/s/ Douglas P. Baker
	Douglas P. Baker
	Vice President and Chief
	Financial Officer

Exhibit 3(ii).1

AMENDED AND RESTATED BYLAWS

NANO-PROPRIETARY, INC.

(Adopted by Resolution of the Board of Directors on February 16, 2006)

ARTICLE I.

CAPITAL STOCK

Section 1. Form of Certificates. The Company shall deliver certificates representing shares to which shareholders are entitled. Such certificates shall be signed by (i) the Chairman of the Board, the President or a Vice President and (ii) either the Secretary or an Assistant Secretary and (iii) shall be sealed with the seal of the Company or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer at the date of its issuance.

Section 2. Shareholders of Record. The Board of Directors of the Company may appoint one or more transfer agents or registrars of any class of stock of the Company. The Company shall be entitled to treat the holder of record of any shares of the Company as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or any rights deriving from such shares, on the part of any other person, including (but without limitation) a purchaser, assignee or transferee, unless and until such other person becomes the holder of record of such shares, whether or not the Company shall have either actual or constructive notice of the interest of such other person.

Section 3. Transfer of Shares. The shares of the Company shall be transferable on the stock certificate books of the Company by the holder of record thereof, or his duly authorized attorney or legal representative, upon surrender for cancellation of the certificate for such shares. All certificates surrendered for transfer shall be canceled and no new certificate shall be issued until a former certificate or certificates for a like number of shares shall have been surrendered and canceled except that in the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such conditions for the protection of the Company and any transfer agent or registrar as the Board of Directors or the Secretary may prescribe.

Section 4. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Company alleged to have been

lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Company a bond in such sum as it may direct as indemnity against any claim that may be made against the Company with respect to the certificate alleged to have been lost, stolen or destroyed.

Section 5. Voting Securities Owned by the Company. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Company may be executed in the name of and on behalf of the Company by the Chairman of the Board, the President, any Vice President or the Secretary, and any such officer may, in the name of and on behalf of the Company, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Company may own securities, and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Company might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.

ARTICLE II.

MEETINGS OF SHAREHOLDERS

Section 1. Place of Meetings. All meetings of shareholders shall be held at the registered office of the Company, in the City of Austin, Texas, or at such other place within or without the State of Texas as may be designated by the Board of Directors or officer calling the meeting.

Section 2. Annual Meetings. The Annual Meetings of shareholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the shareholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting.

Section 3. Special Meetings. Special Meetings of the shareholders may only be called by the Board of Directors, the Chairman of the Board, the President or the holders of not less than ten percent (10%) of all shares outstanding and entitled to vote at such meeting. Only business related to the purposes set forth in the notice of the meeting may be transacted at a special meeting.

Section 4. Notice of Meeting. Written or printed notice of all meetings stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered to each shareholder of record entitled to vote at such meetings not less than ten (10) nor more than sixty (60) days before the date

of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, the Secretary or the officer or person calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Company, with postage thereon prepaid.

Section 5. Closing of Transfer Books and Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, the Board of Directors may either provide that the stock transfer books shall be closed for a stated period of not less than ten (10) nor more than sixty (60) days before the meeting, or it may fix in advance a record date for any such determination of shareholders, such date to be not less than ten (10) days nor more than sixty (60) days prior to the meeting. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, then the date on which the notice of the meeting is mailed shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as herein provided, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired.

Section 6. Voting List. The officer or agent having charge of the stock transfer books for shares of the Company shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the Company and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any meeting of shareholders. Failure to comply with any requirements of this Section 6 shall not affect the validity of any action taken at such meeting.

Section 7. Voting at Meetings. Except as otherwise provided in the Restated Articles of Incorporation of the Company, as amended to date (the "Articles of Incorporation"), each holder of shares of capital stock of the Company entitled to vote shall be entitled to one vote for each share of such stock, either in person or by proxy executed in writing by him or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. A proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. At each election for Directors, every holder of shares of the Company entitled to vote shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected, and for whose election he has a right to vote, but in no event shall he be permitted to cumulate his votes for one or more Directors.

All voting, including on the election of Directors but except where otherwise provided herein or required by law or the Articles of Incorporation, may be by a voice vote, provided, however, that upon demand therefor by a shareholder entitled to vote or such shareholder's proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the shareholder or proxy voting and such other information as may be required under the procedure established for the meeting.

All elections of Directors shall be determined by a plurality of the votes cast, and except as otherwise required by applicable law or the Articles of Incorporation, all other matters shall be determined by a majority of the votes cast.

Section 8. Quorum; Adjournment. Except as otherwise provided in the Articles of Incorporation of the Company, the holders of a majority of shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, the affirmative vote of the holders of a majority of the shares entitled to vote and thus represented at a meeting at which a quorum is present shall be the act of the shareholders' meeting. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of the majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date or time without notice other than announcement at the meeting, until a quorum shall be present or represented.

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

Section 9. Officers. The Chairman of the Board shall preside at, and the Secretary shall keep the records of, each meeting of shareholders. In the absence of either such officer, his duties shall be performed by another officer of the Company appointed at the meeting.

Section 10. Inspectors of Election. In advance of any meeting of shareholders, the Board of Directors may appoint inspectors of election, who need not be shareholders, to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the person presiding at any such meeting may, and on the request of any shareholder entitled to vote at the meeting and before voting begins shall, appoint inspectors of election. If any person who is appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting, or at the meeting by the person presiding at the meeting. Each inspector, before entering upon the discharge of his duties, shall take an oath faithfully to execute the duties of inspector at such meeting.

If inspectors of election are appointed as aforesaid, they shall determine from the lists referred to in Section 6 of this Article II the number of shares outstanding, the shares represented at the meeting, the existence of a quorum and the voting power of shares represented at the meeting, determine the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote or the number of votes which may be cast, count and tabulate all votes or ballots, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all shareholders entitled to vote thereat.

The inspectors shall make a report in writing of any challenge or question matter which is determined by them, and execute a sworn certificate of any facts found by them.

ARTICLE III.

DIRECTORS

Section 1. Number and Classification of Board of Directors. The business and affairs of the Company shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Company and do all such lawful acts and things as are not by law or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders of the Company. Pursuant to Article Seven of the Company's Articles of Incorporation, the total number of Directors constituting the entire Board of Directors shall not be less than three (3) nor more than nine (9), with the then-authorized number of Directors being fixed from time to time solely by or pursuant to a resolution passed by the Board of Directors. The Directors shall be divided into three classes, Class I, Class II and Class III. Such classes shall be as nearly equal in number of Directors as possible.

Directors need not be shareholders of the Company. All Directors shall be elected in accordance with the procedures specified in the Company's Articles of Incorporation, and each Director so elected shall hold office for a term of three years and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal.

At each annual election, the Directors chosen to succeed those whose terms then expire shall be of the same class as the Directors they succeed, unless, by reason of any intervening changes in the authorized number of Directors, the Board of Directors shall designate one or more Directorships whose term then expires as Directorships of another class in order more nearly to achieve equality of number of Directors among the classes.

Notwithstanding the rule that the three classes shall be as nearly equal in number of Directors as possible, in the event of any change in the authorized number of Directors, each Director then continuing to serve as such shall nevertheless continue as a Director of the class of which he is a member until the expiration of his current term, or his prior death, resignation, disqualification or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director.

Section 2. Newly Created Directorships and Vacancies. Newly created Directorships resulting from any increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office for a term of office continuing only until the next election of one or more Directors by the shareholders entitled to vote thereon; provided, however, that the Board of Directors shall not fill more than two such Directorships during the period between two successive annual meetings of shareholders. Except as provided in Section 1 of this Article III, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. Any Director elected to fill any such vacancy shall hold office for the remainder of the full term of the Director whose departure from the Board of Directors created the vacancy and until such newly elected Director's successor shall have been duly elected and qualified.

Section 3. Nomination of Directors. Nominations for the election of Directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any shareholder (a "Nominator") entitled to vote in the election of Directors. Such nominations, other than those made by the Board of Directors or a committee appointed by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Secretary of the Company as set forth in Article Nine (b) of the Company's Articles of Incorporation.

Section 4. Place of Meetings and Meetings by Telephone. Meetings of the Board of Directors may be held either within or without the State of Texas, at whatever place is specified by the officer calling the meeting. Meetings of the Board of Directors may also be held by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting by means of conference telephone or similar communications equipment shall constitute a presence in person at such meeting, except where a Director participates in a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. In the absence of specific designation by the officer calling the meeting, the meetings shall be held at the registered office of the Company in the City of Austin, Texas.

Section 5. Regular Meetings. The Board of Directors shall meet each year immediately following the annual meeting of the shareholders at the place of such meeting, for the transaction of such business as may properly be brought before the meeting. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. No notice of any kind to either old or new members of the Board of Directors for such annual or regular meetings shall be necessary.

Section 6. Special Meetings. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board, the Chief Executive Officer, the Secretary of the Company, or a majority of the Directors then in office. Notice shall be sent by mail or telegram to the last known address of the Director at least three days before the meeting. Notice of the time, place and purpose of such meeting may be waived in writing before or after such meeting, and shall be equivalent to the giving of notice. Attendance of a Director at such meeting shall also constitute a waiver of notice thereof, except where he attends for the announced purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Except as otherwise provided by these Bylaws, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Section 7. Quorum and Voting. Except as otherwise provided by law, the Articles of Incorporation of the Company or these Bylaws, a majority of the number of Directors fixed in the manner provided in these Bylaws as from time to time amended shall constitute a quorum for the transaction of business. Except as otherwise provided by law, the Articles of Incorporation of the Company or these Bylaws, the affirmative vote of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Any regular or special Directors' meeting may be adjourned from time to time by those present, whether or not a quorum is present.

Section 8. Compensation. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefore. Members of special or standing committees may be allowed like compensation for attending committee meetings.

Section 9. Removal; Resignation. No Director of the Company shall be removed from his office as a Director by vote or other action of the shareholders or otherwise except (a) with cause, as defined below, by the affirmative vote of the holders of at least a majority of the voting power of all outstanding shares of capital stock of the Company entitled to vote in the election of Directors, voting together as a single class, or (b) without cause by (i) the affirmative vote of at least 60% of all Directors then in office at any regular or special meeting of the Board of Directors called for that purpose or (ii) the affirmative vote of the holders of at least 60% of the voting power of all outstanding shares of capital stock of the Company entitled to vote in the election of Directors, voting together as a single class.

Except as may otherwise be provided by law, cause for removal of a Director shall be construed to exist only if: (a) the Director whose removal is proposed has been convicted, or where a Director is granted immunity to testify where another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (b) such Director has been found by the affirmative vote of at least 60% of all Directors then in office at any regular or special meeting of the Board of Directors called for that purpose or by a court of competent jurisdiction to have been negligent or guilty of misconduct in the performance of his duties to the Company in a matter of substantial importance to the Company; or (c) such Director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a Director of the Company.

No proposal by a shareholder to remove a Director of the Company shall be voted upon at a meeting of the shareholders unless such shareholder shall have delivered or mailed in a timely manner (as set forth in this Section 9) and in writing to the Secretary of the Company (a) notice of such proposal, (b) a statement of the grounds, if any, on which such Director is proposed to be removed, (c) evidence, reasonably satisfactory to the Secretary of the Company, of such shareholder's status as such and of the number of shares of each class of the capital stock of the Company beneficially owned by such shareholder, (d) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Company, if any, with whom such shareholder is acting in concert, and of the number of shares of each class of the capital stock of the Company beneficially owned by each such beneficial owner, and (e) an opinion of counsel, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Company (excluding the Director proposed to be removed), to the effect that, if adopted at a duly called special or annual meeting of the shareholders of the Company by the required vote as set forth in the first paragraph of this Section 9, such removal would not be in conflict with the laws of the State of Texas, the Articles of Incorporation of the Company or these Bylaws. To be timely in connection with an annual meeting of shareholders, a shareholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Company not less than ninety nor more than 180 days prior to the date on which the immediately preceding year's annual meeting of shareholders was held. To be timely in connection with the removal of any Director at a special meeting of the shareholders, a shareholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Company not less than forty days nor more than sixty days prior to the date of such meeting; provided, however, that in the event that less than fifty days' notice or prior public disclosure of the date of the special meeting of shareholders is given or made to the shareholders, the shareholder's notice and other aforesaid items to be timely must be so received not later than the close of business on the seventh day following the day on which such notice of date of the meeting was mailed or such public disclosure was made. Within thirty days (or such shorter period that may exist prior to the date of the meeting) after such shareholder shall have delivered the aforesaid items to the Secretary of the Company, the Secretary and the Board of Directors of the Company shall respectively determine whether the items to be ruled upon by them are reasonably satisfactory and shall notify such shareholder in writing of

their respective determinations. If such shareholder fails to submit a required item in the form or within the time indicated, or if the Secretary or the Board of Directors of the Company determines that the items to be ruled upon by them are not reasonably satisfactory, then such proposal by such shareholder may not be voted upon by the shareholders of the Company at such meeting of shareholders. The presiding person at each meeting of shareholders shall, if the facts warrant, determine and declare to the meeting that a proposal to remove a Director of the Company was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. Beneficial ownership shall be determined as specified in Section 6 of Article VIII of these Bylaws.

Any Director of the Company may resign at any time by giving written notice to the Chairman of the Board or the Secretary. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 10. Executive and Other Committees. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and other committees, each of which shall be comprised of two or more members and, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors.

Notwithstanding the foregoing paragraph of this Section 10, no such committee shall have the authority of the Board of Directors to:

amend the Articles of Incorporation of the Company;

amend, alter or repeal the Bylaws of the Company or adopt new Bylaws for the Company;

alter or repeal any resolution of the Board of Directors;

approve a plan of merger or consolidation;

take definitive action on any reclassification or exchange of securities, or repurchase by the Company of any of its equity securities;

declare a dividend on the capital stock of the Company;

call a special meeting of the shareholders;

recommend any proposal to the shareholders for action by the shareholders;

fill vacancies in the Board of Directors or any such committee;

fill any Directorship to be filled by reason of an increase in the number of Directors;

elect or remove officers or members of any such committee; or

fix the compensation of any member of such committee.

The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law, nor shall such committee function where action of the Board of Directors is required under applicable law. The Board of Directors shall have the power at any time to change the membership of any such committee and to fill vacancies in it. A majority of the members of any such committee shall constitute a quorum. Each such committee may elect a chairman and appoint such subcommittees and assistants as it may deem necessary. Except as otherwise provided by the Board of Directors, meetings of any committee shall be conducted in accordance with the provisions of Sections 4 and 6 of this Article III as the same shall from time to time be amended. Any member of any such committee elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of a member of a committee shall not of itself create contract rights.

ARTICLE IV.

OFFICERS

Section 1. General. The officers of the Company shall be appointed by the Board of Directors and shall consist of a Chairman of the Board, a Chief Executive Officer or President, or both, one or more Vice Presidents, a Chief Financial Officer and a Secretary. The Board of Directors may also choose such other officers and agents as the Board of Directors, in its sole and absolute discretion, shall deem necessary or appropriate. Any number of offices may be held by the same person, unless the Articles of Incorporation or these By-laws provide otherwise.

Section 2. Election; Term of Office. The Board of Directors, at its first meeting held after each Annual Meeting of Shareholders, shall elect a Chairman of the Board, a Chief Executive Officer or a President, or both, one or more Vice Presidents, a Secretary and a Chief Financial Officer, and may also elect at that meeting or any other meeting, such other officers and agents as it shall deem necessary or appropriate. Each officer of the Company shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors together with the powers and duties which are customarily exercised by such officer; and each officer of the Company shall hold office until such officer's successor is elected and qualified or until such officer's earlier resignation or removal. Any officer may resign at any time upon written notice to the

Company. The Board of Directors may at any time, with or without cause, by the affirmative vote of a majority of Directors then in office, remove an officer.

Section 3. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and the Board of Directors, and shall have such other duties and powers as may be prescribed by the Board of Directors from time to time.

Section 4. Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Company, shall have general and active management of the business of the Company, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall have and exercise such further powers and duties as may be specifically delegated to or vested in the Chief Executive Officer from time to time by these By-laws or the Board of Directors. In the absence of the Chairman of the Board or in the event of his inability or refusal to act, or if the Board has not designated a Chairman, the Chief Executive Officer shall perform the duties of the Chairman of the Board, and when so acting, shall have all the powers and be subject to all of the restrictions upon the Chairman of the Board.

Section 5. Vice President. In the absence of the Chief Executive Officer or in the event of his inability or refusal to act, the Vice President (or in the event that there be more than one vice president, the vice presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The vice presidents shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe.

Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders, and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given notice of meetings of shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the shareholders and special meetings of the board of Directors, and if there be no assistant secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Company and the Secretary or any assistant secretary, if there be one, shall have authority to affix same to any instrument requiring it and when so affixed, it may be attested to by the signature of the Secretary or by the signature of any such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Company and to attest to the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

Section 7. Chief Financial Officer. The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep complete and accurate accounts of all receipts and disbursements of the Company, and shall deposit all moneys and other valuable effects of the Company in its name and to its credit in such banks and other depositories as may be designated from time to time by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Company, taking proper vouchers and receipts for such disbursements, and shall render to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the Company. The Chief Financial Officer shall, when and if required by the Board of Directors, give and file with the Company a bond, in such form and amount and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful performance of his or her duties as Chief Financial Officer. The Chief Financial Officer shall have such other powers and perform such other duties as the Board of Directors or the Chief Executive Officer shall from time to time prescribe.

Section 8. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Company the power to choose such other officers and to prescribe their respective duties and powers.

Section 9. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, the President or the Secretary which shall be deemed to constitute notice to the Company. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 10. Removal. Any officer or agent may be removed, either with or without cause, at any time, by the Board of Directors at any meeting called for that purpose; provided, however, that the President may remove any agent appointed by him.

Section 11. Vacancies. Whenever any vacancies shall occur in any office by death, resignation, increase in the number of offices of the Company, or otherwise, the officer so elected shall hold office until his successor is chosen and qualified. The Board of Directors may at any time remove any officer of the company, whenever in its judgment the best interests of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.

ARTICLE V

INDEMNIFICATION

Section 1. Indemnification of Directors and Officers in Third Party Proceedings. The Company may indemnify any Director or officer of the Company who was or is an "authorized representative" of the Company (which shall mean for the purposes of this Article V a Director or officer of the Company, or a person serving at the request of the Company as a Director, officer, partner or trustee of another corporation, partnership, joint venture, trust or other enterprise) and who was or is a "party" (which shall include for purposes of this Article V the giving of testimony or similar involvement) or is threatened to be made a party to any "third party proceeding" (which shall mean for purposes of this Article V any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Company) by reason of the fact that such person was or is an authorized representative of the Company, against expenses (which shall include for purposes of this Article V attorney's fees and disbursements), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such third party proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Company, or with respect to a criminal third party proceeding (which shall include for purposes of this Article any investigation which could or does lead to a criminal third party proceeding) if such person had not reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, indictment, conviction or upon a plea of no contest or its equivalent, shall not, of itself, create a presumption that the authorized representative did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful.

Section 2. Indemnification of Directors and Officers in Corporate Proceedings. The Company may indemnify any Director or officer of the Company who was or is an authorized representative of the Company and who was or is a party or is threatened to be made a party to any "corporate proceeding" (which shall mean for purposes of this Article V any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor or any investigative proceeding by or on behalf of the Company) by reason of the fact that such person was or is an authorized representative of the Company, against expenses (including attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with the defense or settlement of such corporate proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Company, except that no indemnification shall be made in the performance of such person's duty to the Company unless and only to the extent that the court in which such corporate proceeding was pending shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such authorized representative is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

Section 3. Indemnification of Authorized Representatives. To the extent that an authorized representative of the Company who neither was nor is a Director or officer of the Company has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses actually and reasonably incurred by such person in connection therewith. Such an authorized representative may, at the discretion of the Company, be indemnified by the Company in any other circumstance to any extent if the Company would be required by Section 1 or 2 of this Article V to indemnify such person in such circumstances to such extent as if such person were or had been a Director or officer of the Company.

Section 4. General Terms. Any indemnification under Section 1 and Section 2 of this Article V (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper under the circumstances because he had met the applicable standard of conduct set forth in Section 1 and Section 2 of this Article V. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum of disinterested Directors so directs, by independent legal counsel in written opinion, or (iii) by the shareholders.

Section 5. Amendment. Any amendment to Article V shall not apply to any liability of a Director, officer, employee or agent arising out of a transaction or omission occurring prior to the adoption of such amendment, but any such liability based on a transaction or omission occurring prior to the adoption of such amendment shall be governed by Article V of these By-laws, as in effect at the time of such transaction or omission.

Section 6. Insurance and Trust Fund. In furtherance and not in limitation of the powers conferred by statute:

a. the Company may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Company, or is serving at the request of another corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his power to indemnify him against such liability under the provisions of law; and

b. the Company may create a trust fund, grant a security interest and/or use other means (including without limitation, letters of credit, surety bonds, and/or other similar arrangements), as well as enter into contracts providing indemnification to the fullest extent permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to ensure the payment of such amount as may become necessary to effect indemnification as provided therein, or elsewhere.

Section 7. Indemnification of Employees and Agents of the Company. The Company may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, including the right to be paid by the Company the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Company to the fullest extent of the provisions of the Section or otherwise with respect to the indemnification and advancement of expenses of Directors and officers of the Company. Notwithstanding any other provision of these by-laws, no officer, Director, agent or employee of the Company shall receive indemnification payments under this section in advance of the final disposition of any action or proceeding against such officer, Director, agent or employee unless the Company shall have received, prior to the date of such payment, a written undertaking to repay the amounts advanced by the Company if it shall subsequently be determined that the officer, Director, agent or employee was not entitled to indemnification for such costs under the terms of these By-Laws.

ARTICLE VI.

CONTRACTS AND TRANSACTIONS WITH DIRECTORS AND OFFICERS

Section 1. General Procedure. No contract or transaction between the Company and one or more of its Directors or officers, or between the Company and any other corporation, partnership, association or other organization in which one or more of the Company's Directors or officers are Directors or officers or have a financial interest, shall be void or voidable solely for this reason, solely because the Director or officer is present at or participates in the meeting of the Company's Board of Directors or committee which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if:

a. The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors constitute less than a quorum; or

b. The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or

c. The contract or transaction is fair to the Company as of the time it is authorized, approved or ratified by the Board of Directors, the committee thereof, or the shareholders.

Section 2. Determination of Quorum. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction as provided in Section 1 of this Article VI.

ARTICLE VII.

NOTICES

Section 1. Notice. Whenever, under the provisions of the laws of Texas or the Articles of Incorporation or these By-laws, any notice, request, demand or other communication is required to be or may be given or made to any officer, Director, or registered shareholder, it shall be construed to mean that such notice, request, demand or other communication must be given or made in person, but the same may be given or made by mail, telegraph, cablegram, telex, or telecopier to such officer, Director or registered shareholder. Any such notice, request, demand or other communication shall be considered to have been properly given or made, in the case of mail, when deposited in the mail or delivered to the appropriate office for telegraph or cable transmission, and in other cases when transmitted by the party giving or making the same, directed to the officer or Director at his address as it appears on the record of shareholders, or, if the shareholder shall have filed with the Secretary of the Company a written request that notices to him be mailed to some other address, then directed to the shareholder at such other address. Notice to Directors may also be given in accordance with Section 6 of Article III hereof.

Whenever, under the provisions of the laws of this state or the Articles of Incorporation or these By-laws, any notice, request, demand or other communication is required to be or may be given or made to the Company, it shall also not be construed to mean that such notice, request, demand or other communication must be given or made in person, but that the same may be given or made to the Company by mail, telegraph, cablegram, telex or telecopier. Any such notice, request, demand or other communication shall be considered to have been properly given or made, in the case of mail, telegram or cable, when deposited in the mail or delivered to the appropriate office for telegraph or cable transmission.

Section 2. Waivers of Notice. Whenever any written notice is required to be given under the provisions of the Articles of Incorporation, these By-laws or a statute, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders, Directors, or members of a committee of Directors need be specified in any written waiver of notice of such meeting.

Attendance of a person, either in person or by proxy at any meeting, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice of such meeting.

ARTICLE VIII.

MISCELLANEOUS PROVISIONS

Section 1. Offices. The principal office of the Company shall be located in Austin, Texas, unless and until changed by resolution of the Board of Directors. The Company may also have offices at such other places as the Board of Directors may designate from time to time, or as the business of the Company may require. The principal office and registered office may be, but need not be, the same.

Section 2. Resignations. Any Director or officer may resign at any time. Such resignations shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.

Section 3. Fixing Record Dates for Payment of Dividends and Other Purposes. For the purpose of determining shareholders entitled to receive payment of any dividend or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Company may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, sixty days. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date to be not more than sixty days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to receive payment of a dividend, then the date on which the resolution of the Board of Directors declaring such dividend is adopted shall be the record date for such determination of shareholders.

Section 4. Corporate Seal. The corporate seal, if the Company shall have a corporate seal, shall have inscribed thereon the name of the Company. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.

Section 5. Separability. If one or more of the provisions of these Bylaws shall be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provision hereof and these Bylaws shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein.

Section 6. Beneficial Owners. The Company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. "Beneficial Owner" as used in these Bylaws means any of the following:

a. a person who individually or with any of his affiliates or associates beneficially owns (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) any capital stock of the Company, directly or indirectly;

b. a person who individually or with any of his affiliates or associates has either of the following rights:

(i) to acquire capital stock of the Company, whether such right is exercisable immediately or only after the passage of time, pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise;

(ii) to vote capital stock of the Company pursuant to any agreement, arrangement or understanding; or

c. a person who has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of capital stock of the Company with any other person who beneficially owns or whose affiliates beneficially own (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, such shares of capital stock.

Section 7. Dividends. Dividends upon the capital stock of the Company, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting or by any Committee of the Board of Directors having such authority at any meeting thereof, and may be paid in cash, in property, in shares of capital stock, or in any combination thereof. Before payment of any dividend, there may be set aside out of any funds of the Company available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

Section 8. Disbursements. All notes, checks, drafts, and orders for the payment of money issued by the Company shall be signed in the name of the Company by such officers or such other persons as the Board of Directors may from time to time designate.

ARTICLE IX.

AMENDMENT OF BYLAWS

Section 1. Vote Requirements. The Board of Directors shall have the power to make, adopt, alter, amend and repeal from time to time the Bylaws of this Company, subject to the right of the shareholders entitled to vote with respect thereto to adopt, alter, amend and repeal the Bylaws; provided, however, that Bylaws shall not be adopted, altered, amended or repealed by the shareholders of the Company, except by the vote of the holders of not less than sixty percent (60%) of the outstanding shares of the capital stock of the Company entitled to vote generally in the election of Directors, considered for this purpose as one class.

[Remainder of This Page is Blank]

CERTIFICATE OF CORPORATE SECRETARY

The undersigned, acting in his capacity as Corporate Secretary of Nano-Proprietary, Inc. (the "Company") attests that the foregoing Amended and Restated Bylaws were duly adopted and approved by the Board of Directors of the Company at a meeting which was duly called and held on February 16, 2006.

NANO-PROPRIETARY, INC.

By: /s/ Douglas P. Baker

Douglas P. Baker,

Corporate Secretary

ý	Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2005; or

¨	Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

Title of each class	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	OTC Bulletin Board

			Page
PART I.
	Item 1.	Business	1
	Item 1A.	Risk Factors	10
	Item 1B.	Unresolved Staff Comments	15
	Item 2.	Properties	15
	Item 3.	Legal Proceedings	16
	Item 4.	Submission of Matters to a Vote of Security Holders	16

PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
	Item 6.	Selected Financial Data	18
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 8.	Financial Statements and Supplementary Data	25
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	47
	Item 9A.	Controls and Procedures	47
	Item 9B.	Other Information	49

PART III
	Item 10.	Directors and Executive Officers of the Registrant	50
	Item 11.	Executive Compensation	53
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
	Item 13.	Certain Relationships and Related Transactions	58
	Item 14.	Principal Accountant Fees and Services	58
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	59

	2005			2004			2003
Revenues
ANI	$	565,660		$	382,522		$	773,959
EBT	$	—		$	—		$	—
Other	$	—		$	—		$	—
Total Revenues	$	565,660		$	382,522			773,959

Net loss from continuing operations
ANI	$	(3,730,450	)	$	(4,030,353	)	$	(2,890,175	)
EBT	$	(3,734	)	$	106,251		$	(361,784	)
Other	$	(927,350	)	$	(687,924	)	$	(962,243	)
Total	$	(4,661,534	)	$	(4,612,026	)	$	(4,214,202	)
Assets
ANI	$	301,870		$	310,005		$	1,424,724
EBT	$	—		$	—		$	527
Other	$	886,111		$	834,363		$	2,358,766
Total	$	1,187,981		$	1,144,368		$	3,784,017

Year Ended December 31		Net Income (Loss)

1995		($14,389,856)
1996		($13,709,006)
1997		($6,320,901)
1998		($3,557,548)
1999		$1,118,134
2000		($7,671,014)
2001		($5,081,559)
2002		($4,908,856)
2003		($4,214,202)
2004		($4,612,026)
2005		($4,661,534)

Year Ended December 31	Revenues from Government Contracts	Percentage of Total Revenue
1995	$1,009,000	33%
1996	$2,869,000	50%
1997	$854,000	24%
1998	$0	0%
1999	$0	0%
2000	$352,341	13%
2001	$466,680	15%
2002	$254,152	18%
2003	$339,790	44%
2004	$305,721	80%
2005	$208,211	37%

		High	Low

2004	First Quarter	$3.23	$1.98
	Second Quarter	$2.70	$1.38
	Third Quarter	$2.14	$1.29
	Fourth Quarter	$2.52	$1.80

2005	First Quarter	$3.53	$2.01
	Second Quarter	$3.99	$1.56
	Third Quarter	$2.81	$1.86
	Fourth Quarter	$2.45	$1.97

2006	First Quarter (through February 24, 2006)	$2.68	$2.05

		2005		2004		2003		2002		2001

Revenues from continuing operations	$	565,660	$	382,522	$	773,959	$	1,414,848	$	1,101,951

Income (loss) from continuing operations	$	(4,661,534)	$	(4,612,026)	$	(4,214,202)	$	(4,683,419)	$	(4,850,770)

Income (loss) from continuing operations per share	$	(0.05)	$	(0.05)	$	(0.05)	$	(0.07)	$	(0.07)

Total assets	$	1,187,981	$	1,144,368	$	3,784,017	$	321,955	$	1,839,055

Long-term obligations	$	—	$	5,944	$	27,353	$	46,283	$	121,651

Net shareholders’ equity (deficit)	$	859,339	$	846,456	$	3,552,829	$	(2,460,595)	$	(945,614)

Cash dividends per common share	$	—	$	—	$	—	$	—	$	—

Contractual Obligations		Total		2006		2007		2008		2009
Notes payable including interest	$	—	$	—	$	—	$	—	$	—
Long-term debt including interest		—		—		—		—		—
Operating leases		207,003		131,891		34,862		21,000		19,250
Capital leases including interest		4,368		4,368		—		—		—
Total contractual cash obligations	$	211,371	$	136,259	$	34,862	$	21,000	$	19,250

Independent Auditor’s Report	26
Consolidated Balance Sheets - December 31, 2005 and 2004	27
Consolidated Statement of Operations - Years Ended December 31, 2005, 2004, and 2003	28
Consolidated Statements of Shareholders’ Equity - Years Ended December 31, 2005, 2004, and 2003	29
Consolidated Statements of Cash Flows - Years Ended December 31, 2005, 2004, and 2003	30
Notes to Consolidated Financial Statements	31

ASSETS
	December 31,
	2005			2004
Current assets:
Cash and cash equivalents	$	897,247		$	901,585
Accounts receivable, trade - net of allowance for doubtful accounts		94,103			6,735
Prepaid expenses and other current assets		85,306			85,135
Total current assets		1,076,656			993,455
Property and equipment, net		101,785			141,373
Other assets		9,540			9,540
Total assets	$	1,187,981		$	1,144,368

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	231,131		$	140,597
Obligations under capital lease		4,348			21,430
Accrued liabilities		93,163			74,956
Deferred Revenue		—			54,985
Total current liabilities		328,642			291,968
Obligations under capital lease, long-term		—			5,944
Commitments and contingencies		—			—
Total liabilities		328,642			297,912
Shareholders’ equity :
Preferred stock, $1.00 par value, 2,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, 120,000,000 shares authorized, $.001 par value, 99,746,440 and 97,246,422 shares issued and outstanding, respectively		99,746			97,246
Additional paid-in capital		85,494,542			80,822,625
Accumulated deficit		(84,734,949	)		(80,073,415	)
Total shareholders’ equity		859,339			846,456
Total liabilities and shareholders’ equity	$	1,187,981		$	1,144,368

	Year ended December 31,
	2005			2004			2003

Revenues
Contract research	$	59,995		$	—		$	400,000
Government contracts		208,211			305,721			339,790
License fees and royalties		—			10,852			2,248
Other		297,454			65,949			31,921

Total revenues		565,660			382,522			773,959

Operating costs
Research and development		2,525,292			2,611,583			1,861,660
Selling, general and administrative expenses		2,732,658			1,903,363			2,684,112
Royalty expense		—			500,000			400,000
Total operating costs		5,257,950			5,014,946			4,945,772

Income (loss) from operations		(4,692,290	)		(4,632,424	)		(4,171,813	)

Other income (expense):
Gain (loss) on disposal of assets		—			125			4,695
Interest income		33,346			24,857			8,981
Interest expense		(2,590	)		(4,584	)		(56,065	)
Other income (loss)		—			—			—

Loss before taxes		(4,661,534	)		(4,612,026	)		(4,214,202	)

Provision for taxes		—			—			—

Net (loss) applicable to common shareholders	$	(4,661,534	)	$	(4,612,026	)	$	(4,214,202	)
Earnings (loss) per share
Basic and diluted	$	(0.05	)	$	(0.05	)	$	(0.05	)
Weighted average common shares outstanding
Basic and diluted		98,957,812			96,609,237			87,366,507

	Preferred				Common				Additional			Accumulated
	Shares		Amount		Shares		Amount		Paid-In Capital			Deficit			Total

Balance January 1, 2003		-	$	-		76,970,792	$	76,971	$	68,709,621		$	(71,247,187	)	$	(2,460,595	)

Issuance of common stock as compensation		-		-		-		-		101,400			-			101,400
Issuance of common stock for patents		-		-		71,021		71		13,565			-			13,636
Issuance of common stock as a result of the exercise of employee stock options		-		-		3,132,060		3,132		2,508,765			-			2,511,897
Issuance of common stock for cash		-		-		7,607,097		7,607		4,805,336			-			4,812,943
Issuance of common stock in payment of accounts payable		-		-		125,000		125		276,657			-			276,782
Issuance of common stock as result of convertible notes payable		-		-		7,707,020		7,707		1,753,506			-			1,761,213
Variable Option Pricing		-		-		-		-		749,755			-			749,755
Net (loss)		-		-		-		-		-			(4,214,202	)		(4,214,202	)

Balance December 31, 2003		-		-		95,612,990		95,613		78,918,605			(75,461,389	)		3,552,829

Issuance of common stock options as compensation		-		-		-		-		116,600			-			116,600
Issuance of common stock as a result of the exercise of employee stock options		-		-		1,211,545		1,211		972,138			-			973,349
Issuance of common stock for cash		-		-		421,887		422		1,082,978			-			1,083,400
Variable Option Pricing		-		-		-		-		(267,696	)		-			(267,696	)
Net (loss)		-		-		-		-		-			(4,612,026	)		(4,612,026	)

Balance December 31, 2004		-		-		97,246,422		97,246		80,822,625			(80,073,415	)		846,456

Issuance of common stock options as compensation		-		-		-		-		106,278			-			106,278
Issuance of common stock as a result of the exercise of employee stock options		-		-		817,625		818		542,121			-			542,939
Issuance of common stock for cash		-		-		1,682,393		1,682		3,998,318			-			4,000,000
Variable Option Pricing		-		-		-		-		25,200			-			25,200
Net (loss)		-		-		-		-		-			(4,661,534	)		(4,661,534	)

Balance December 31, 2005		-	$	-		99,746,440	$	99,746	$	85,494,542		$	(84,734,949	)	$	859,339

	Year Ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net loss	$	(4,661,534	)	$	(4,612,026	)	$	(4,214,202	)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation and amortization expense		56,260			54,928			44,419
(Gain) loss on disposal of assets		—			(125	)		(4,695	)
Stock and options issued for services		106,278			116,600			101,400
Stock issued for patent option		—			—			13,636
Variable option accounting charge		25,200			(267,696	)		749,755
Changes in assets and liabilities:
Accounts receivable, trade		(87,368	)		34,397			(8,816	)
Prepaid expenses and other assets		(171	)		6,326			57,531
Accounts payable		90,534			13,788			(181,287	)
Accrued expenses		18,207			17,310			(274,705	)
Customer deposits and other current liabilities		(54,985	)		54,985			—

Total adjustments		153,955			30,513			497,238

Net cash used in operating activities		(4,507,579	)		(4,581,513	)		(3,716,964	)

Cash flows from investing activities:
Capital expenditures		(16,672	)		(118,987	)		(6,494	)
Proceeds from sale of assets		—			125			4,695

Net cash provided by (used in) investing activities		(16,672	)		(118,862	)		(1,799	)

Cash flows from financing activities:
Proceeds from issuance of common stock		4,542,939			2,056,749			7,324,840
Repayment of long-term notes payable and capital lease obligations		(23,026	)		(19,359	)		(57,375	)

Net cash provided by financing activities		4,519,913			2,037,390			7,267,465
Net increase (decrease) in cash and cash equivalents		(4,338	)		(2,662,985	)		3,548,702
Cash and cash equivalents, beginning of year		901,585			3,564,570			15,868
Cash and cash equivalents, end of year	$	897,247		$	901,585		$	3,564,570

	2005			2004
Capital leases for copier equipment due in monthly installments totaling $1,932 through 2006. The equipment value and lease obligation was determined using a discount rate of 10%. The equipment is included in office equipment at December 31, 2005 at a cost of $94,383 and with accumulated amortization of $91,018.	$	4,368		$	29,228

Less interest		(20	)		(1,854	)
Less current portion		(4,348	)		(21,430	)

Capital Lease Obligations, long-term	$	—		$	5,944

	2005	2004	2003
Net Loss
As reported	$(4,661,534)	$(4,612,026)	$(4,214,202)
SFAS No. 123 Charge	1,182,482	2,259,387	552,927
Pro Forma	(5,844,016)	(6,871,413)	(4,767,129)
Net income (loss) per common share - basic and diluted
As reported	$(0.05)	$(0.05)	$(0.05)
Pro Forma	$(0.06)	$(0.07)	$(0.05)

	2005	2004	2003

Options	6,703,151	5,398,703	5,253,175
Warrants	95,000	95,000	155,000
Weighted average exercise price	$1.57	$1.29	$1.10

	2005	2004	2003
Net Loss
As reported	$(4,661,534)	$(4,612,026)	$(4,214,202)
SFAS No. 123 Charge	1,182,482	2,259,387	552,927
Pro Forma	(5,844,016)	(6,871,413)	(4,767,129)
Net income (loss) per common share - basic and diluted
As reported	$(0.05)	$(0.05)	$(0.05)
Pro Forma	$(0.06)	$(0.07)	$(0.05)

	2005	2004	2003

Dividend Yield	0%	0%	0%
Risk Free Interest Rate	3.5%	3.5%	3%
Expected Option Life	3.5 Years	5 Years	5 Years
Turnover/Forfeiture Rate	0%	45%	25%
Volatility	100%	72%	108%

	Shares		Proceeds
2005		1,682,393	$	4,000,000
2004		401,887	$	1,065,000
2003		7,607,097	$	4,812,943

Exercise of stock warrants			95,000
Exercise and future grants of stock options			8,724,260

Total shares reserved			8,819,260

	Number of Shares			Wgtd. Ave. Exercise Price

Options outstanding at January 1, 2003		6,965,629		$0.79

Granted		1,496,995		$1.88
Exercised		(3,132,060	)	$0.80
Canceled		(77,389	)	$0.82

Options outstanding at December 31, 2003		5,253,175		$1.09

Granted		2,457,073		$2.73
Exercised		(1,211,545	)	$0.80
Cancelled		(1,100,000	)	$2.94

Options outstanding at December 31, 2004		5,398,703		$1.52

Granted		2,872,073		$2.25
Exercised		(817,625	)	$0.66
Cancelled		(750,000	)	$2.42

Options outstanding at December 31, 2005		6,703,151		$1.84

	Options Outstanding		Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/05	Wgtd. Avg. Remaining Contractual Life	Wgtd. Avg. Exercise Price	Number Exercisable at 12/31/05	Wgtd. Avg. Exercise Price

$0.00 - $0.50	804,089	3.9 Years	$0.44	804,089	$0.44
$0.51 - $1.00	1,124,083	5.7 Years	$0.83	1,124,083	$0.83
$1.01 - $2.00	745,833	5.8 Years	$1.54	745,833	$1.54
$2.01 - $2.99	4,029,146	8.6 Years	$2.45	1,929,146	$2.49

Total	6,703,151	7.3 Years	$1.84	4,603,151	$1.57

	Number of Shares			Exercise Price

Warrants outstanding at January 1, 2003		155,000		$0.92-2.15
Expired or canceled		—		—

Warrants outstanding at December 31, 2003		155,000		$0.92-2.15
Exercised		(20,000	)	$0.92
Expired or canceled		(40,000	)	$2.15

Warrants outstanding at December 31, 2004		95,000		$1.00-2.00
Exercised		—		—
Expired		—		—

Warrants outstanding at December 31, 2005		95,000		$1.00-2.00


	ANI			EBT			All Other			Total
2005
Revenue	$	565,660		$	-		$	-		$	565,660
Interest Expense		2,193			-			397			2,590
Depreciation and Amortization		52,242			-			4,018			56,260
Research and Development		2,525,292			-			-			2,525,292
Income (Loss) from Continuing Operations		(3,730,450	)		(3,734	)		(927,350	)		(4,661,534	)
Assets		301,870			-			886,111			1,187,981
Capital Expenditures		13,017			-			3,655			16,672

2004
Revenue	$	382,522		$	-		$	-		$	382,522
Interest Expense		3,949			-			635			4,584
Depreciation and Amortization		50,185			-			4,743			54,928
Research and Development		2,611,583			-			-			2,611,583
Income (Loss) from Continuing Operations		(4,030,353	)		106,251			(687,924	)		(4,612,026	)
Assets		310,005			-			834,363			1,144,368
Capital Expenditures		116,613			-			2,374			118,987

2003
Revenue		773,959			-			-			773,959
Interest Expense		5,999			20			50,046			56,065
Depreciation and Amortization		37,653			-			6,766			44,419
Research and Development		1,861,660			-			-			1,861,660
Loss from Continuing Operations		(2,890,175	)		(361,784	)		(962,243	)		(4,214,202	)
Assets		1,424,724			527			2,358,766			3,784,017
Capital Expenditures		6,494			-			-			6,494

	First			Second			Third			Fourth			Total
	Quarter			Quarter			Quarter			Quarter			Year
2005
Revenues	$	68,815		$	88,544		$	245,917		$	162,384		$	565,660
Operating income (loss)		(1,472,793	)		(984,223	)		(1,014,643	)		(1,220,631	)		(4,692,290	)
Net (loss)		(1,469,192	)		(974,181	)		(1,005,078	)		(1,213,083	)		(4,661,534	)
Earnings (loss) per share
Basic and Diluted		(0.02	)		(0.01	)		(0.01	)		(0.01	)		(0.05	)

2004
Revenues	$	77,658		$	100,718		$	100,473		$	103,673		$	382,522
Operating income (loss)		(1,117,862	)		(1,269,201	)		(1,108,338	)		(1,137,023	)		(4,632,424	)
Net (loss)		(1,111,641	)		(1,263,529	)		(1,100,534	)		(1,136,322	)		(4,612,026	)
Earnings (loss) per share
Basic and Diluted		(0.01	)		(0.01	)		(0.01	)		(0.01	)		(0.05	)

2003
Revenues		444,452			160,380			88,195			80,932			773,959
Operating income (loss)		(749,524	)		(681,333	)		(1,200,627	)		(1,540,329	)		(4,171,813	)
Net (loss)		(770,969	)		(696,056	)		(1,212,280	)		(1,534,897	)		(4,214,202	)
Earnings (loss) per share
Basic and Diluted		(0.01	)		(0.01	)		(0.01	)		(0.02	)		(0.05	)

	•	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
	•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and
	•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

*Name*	*Age*	*Class*	*Position*	*Director/Officer Since*	*Term Expires*

Marc W. Eller	50	III	Director, Chairman, Chief Executive Officer	November 1995	2006
Dr. Zvi Yaniv	59	II	Director, President, Chief Operating Officer	July 1996	2006
Douglas P. Baker	49	N/A	Chief Financial Officer	June 1996	N/A
John Ruberto	60	N/A	Senior Vice President	May 2005	N/A
Charles C. Bailey	57	I	Director	November 1999	2006
Ronald J. Berman	49	III	Director	May 1996	2006
Eddie Lee	43	II	Director	October 2001	2006
Dr. Robert Ronstadt	64	II	Director	January 2003	2006
David R. Sincox	67	I	Director	October 1994	2006

			Annual Compensation (1)				Long-Term Compensation
Name and Principal Position	Year		Salary($)		Bonus($)		Securities Underlying Options(#)

Marc W. Eller,		2005		$250,000		-0-		700,000
Chief Executive Officer		2004		$200,000		-0-		750,000
		2003		$145,000		-0-		280,000

Zvi Yaniv, President and		2005		$250,000		-0-		700,000
Chief Operating Officer		2004		$200,000		-0-		750,000
		2003		$145,000		$147,917		280,000

Douglas P. Baker,		2005		$180,000		-0-		350,000
Chief Financial Officer		2004		$150,000		-0-		400,000
		2003		$127,083		-0-		213,000
John Ruberto
Vice President		2005		$120,000		-0-		535,000

(1)	No Named Executive Officers received perquisites that exceeded in value the lesser of $50,000 or 10% of such officers' salary and bonus.

(2)	Mr. Ruberto started employment on May 1, 2005.

Name	Number of Securities Underlying Options Granted(#)(1)	Percent of Total Options Granted to Employees in Fiscal Year 2005	Exercise or Base Price ($/Sh)	Expiration Date	Grant Date Present Value (5)

Marc W. Eller	400,000 (2)	13.93%	$2.17	1/1/15	$583,960
	300,000 (3)	10.45%	$2.30	11/17/15	$421,470

Dr. Zvi Yaniv	400,000 (2)	13.93%	$2.17	1/1/15	$583,960
	300,000 (3)	10.45%	$2.30	11/17/15	$421,470

Douglas P. Baker	200,000 (2)	6.96%	$2.17	1/1/15	$291,980
	150,000 (3)	5.22%	$2.30	11/17/15	$210,735

John Ruberto	535,000 (4)	18.63%	$2.30	4/25/15	$827,806

(1)	The options were granted for a term of ten (10) years, subject to earlier termination in certain events related to termination of employment.
(2)	For Mr. Eller and Dr. Yaniv, these options vest as follows: 200,000 if royalty or other agreements that will result in revenues totaling $3 million are executed in 2005 or 2006 and 200,000 options if the Company achieves profitability in 2005. The options for Mr. Baker vest according to the same milestones, but the amounts are 100,000 for each milestone. Since the Company did not achieve profitability in 2005, all options related to that milestone did not vest and expired December 31, 2005. The present value includes all options granted, including those which expired at the end of 2005.
(3)	These options will vest if the Company achieves profitability in 2006.
(4)	A total of 35,000 of these options vested on the grant date. The remaining 500,000 options are performance based options that vest when the Company receives commitments for future revenues related to specific sources. A total of 150,000 of these options vested by December 31, 2005. The remaining 350,000 may still vest in the future.
(5)	The fair value of these options at the date of grant was estimated using a Black-Scholes option pricing model. The following weighted average assumptions were used to estimate the value of the options: a 3.5 year expected life of the options, a dividend yield of 0%, expected volatility for the shares of 100%, a turnover/forfeiture percentage of 0%, and a risk free rate of return of 3.5%.

	Beneficial Ownership	Percent of Outstanding Common Stock

Pinnacle Fund, L.P.	6,821,461	6.84%
Barry Kitt, General Partner 4965 Preston Park Blvd.,Suite 240 Plano, TX 75093

Jeffrey L. Feinberg	5,955,350	5.97%
JLF Asset Management LLC 2775 Via de la Valle, Suite 204 Del Mar, CA 92014

Name	Options Included in Beneficial Ownership (1)		Common Stock Beneficial Ownership		Percentage of Class
Dr. Robert Ronstadt		125,000		125,000		*
David R. Sincox		445,000		570,000		*
Charles C. Bailey		218,333		218,333		*
Marc W. Eller		230,000		247,500		*
Eddie Lee		216,667		216,667		*
Ronald J. Berman		689,383		1,104,925		1.10%
Dr. Zvi Yaniv		560,000		596,000		*
Douglas P. Baker		725,000		734,500		*
John Ruberto		185,000		185,000		*
All Executive Officers and Directors as a group (9 persons)		3,394,383		3,997,925		3.88%

*	Less than 1%

(1)	This column lists shares that are subject to options exercisable within sixty (60) days of February 24, 2006, and are included in common stock beneficial ownership pursuant to Rule 13d-3(d)(1) of the Exchange Act.

Equity Compensation Plans Not Approved by the Shareholders of the Nano-Proprietary	Number of Securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options	Number of Securities remaining available for future issuance under equity compensation plans (3)
	(a)	(b)	(c)
1992 Employee Plan (1)	977,000	$1.01	-
1992 Outside Directors Plan (2)	327,716	$1.09	-
1998 Directors and Officers Plan	550,000	$0.47	-
2002 Equity Compensation Plan	4,848,435	$2.21	2,010,109
Total	6,703,151	$1.57	2,010,109

(1)	The 1992 Employee Plan was originally approved by shareholders and authorized 3.0 million shares. The plan was subsequently amended twice by the Board to increase the authorized number of shares and is therefore classified as a plan not approved by our shareholders.

(2)	The 1992 Outside Directors Plan was originally approved by shareholders and authorized 500,000 shares. The plan was subsequently amended by the Board to increase the authorized number of shares and is therefore classified as a plan not approved by our shareholders

(3)	This column excludes securities reflected in column (a)

Signature	Title	Date

/s/ Marc W. Eller Marc W. Eller	Chairman, Chief Executive Officer (Principal Executive Officer and Director)	March 2, 2006

/s/ Douglas P. Baker Douglas P. Baker	Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 2, 2006

Dr. Robert Ronstadt* David R. Sincox* Eddie Lee* Ronald J. Berman* Charles G. Bailey* Dr. Zvi Yaniv*	Directors	March 2, 2006

EXHIBIT NUMBER	DESCRIPTION OF EXHIBIT
3(i).1	Restated Articles of Incorporation of Company, as filed March 1, 2006 with the Secretary of State for the State of Texas.
3(ii).1	Amended and Restated Bylaws of the Company.
4.1 *	Form of Certificate for shares of the Company’s common stock (Exhibit 4.1 to the Company’s Registration Statement on Form SB-2[No.33-51446-FW] dated January 7, 1993).
4.2*	Amended and Restated Rights Agreement dated as of November 16, 2000, between the Company and American Securities Transfer, Incorporated, as Rights Agent, which includes as Exhibit A the form of Statement of Resolution establishing and designating series of preferred stock as “Series H Junior Participating Preferred Stock” and fixing and determining the relative rights and preferences thereof, as Exhibit B the form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Shares. (Exhibit 4.1 to the Company’s Current Report on Form 8-K dated as of November 16, 2000).
4.3*	Form of Regulation D Subscription agreement by and between the Company and the participants of private placements. (Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004)
4.4*	Form of Registration Rights Agreement by and between the Company and the participants of private placements. (Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004)
10.1*	Amended and Restated 1992 Outside Directors’ Stock Option Plan (Exhibit 4.2 to the Company’s Registration Statement on Form S-8 [No. 333-56547] dated June 9, 1998).
10.2*	1998 Directors and Officers Stock Option Plan (Exhibit 4.3 to the Company’s Registration Statement on Form S-8 [No. 333-56547] dated June 9, 1998).
10.3*	Amended and Restated 1992 Stock Option Plan (Exhibit 4.1 to the Company’s Registration Statement on Form S-8 [No. 333-56457] dated June 9, 1998)
10.4*	Amended and Restated 2002 Equity Compensation Plan. (Exhibit 10.4.to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004)
10.5*	Patent Assignment and Royalty Agreement between Electronic Billboard Technology, Inc. and Advanced Technology, Incubator, Inc. dated as of October 6, 1998. (Exhibit 10.18 to the Company’s Current Report on Form 10-KSB dated as of March 31, 1999).
10.6*	Lease agreement between the Company and Industrial Properties Corporation dated as of February 15, 2004. (Exhibit 10.11 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004).
10.7*	Patent License Agreement, dated as of March 26, 1999, by and between the Company and Canon, Inc. (Exhibit 10.1 to the Company’s amended Current Report on Form 8-K/A dated as of April 16, 1999).
10.8*	Agreement of Research and Development by and between the Applied Nanotech, Inc. and Futaba Corporation (Exhibit 10.1 to the Company’s Current Report on Form 8-K dated as of January 1, 2001)
10.9*	Agreement of Research and Development by and between the Applied Nanotech, Inc. and Futaba Corporation for Phase II development (Exhibit 10.14 to the Company’s Annual Report on From 10-KSB for the fiscal year ended December 31, 2001).
10.10*	Agreement for HyFED™ Development Team Phase II by and between Field Emission Picture Element Technology, Inc. and Electrovac Ges.m.b.H. (Exhibit 10.2 to the Company’s Current Report on Form S-2 date August 24, 2001)