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      Response to SEC Comments

      3006
        Longhorn Blvd., Suite 107, Austin, TX 78758

      Phone
        (512) 339-5020, Fax (512) 339-5021,
        WWW.NANO-PROPRIETARY.COM

      September
        9, 2005

      United
        States Securities and Exchange Commission

      Washington,
        D.C. 20549

              Attn:

                Larry
                  Spirgel, Assistant Director

                Ivette
                  Leon, Assistant Chief Accountant

                Christine
                  Bashaw, Staff Accountant

      Re: Response
        of Nano-Proprietary, Inc. (File No. 1-11602) to Comment Letter of August
        18,
        2005

      Ladies
        and Gentlemen:

      In
        this
        letter below, we have addressed the issues in your comment letter of August
        18,
        2005, relating to our Form 10-K/A for the fiscal year ended December 31,
        2004,
        and our Form 10-Q for the fiscal quarter ended June 30, 2005.

      Comment:

      Form
        10-K/A for the Year Ended December 31, 2004, filed April 27,
        2005

      Notes
        to the Consolidated Financial Statements, page 24

      Note
        2. Summary of Significant Accounting Policies, page 24

      Revenue
        Recognition

              1.

                Tell
                  us, citing the appropriate accounting literature, your basis for
                  recognizing reimbursements under agreements to perform research
                  and
                  development for others as revenue. Indicate how much of the revenue
                  recognized in 2004, 2003 and 2002 was generated by these research
                  and
                  development agreements.

      RESPONSE: Following
        is a table showing the revenue for the years ended December 31, 2002, 2003,
        and
        2004. The lines items “Contract Research” and “Government Contracts” identify
        the revenue generated by these agreements.

                Year
                  ended December 31,

                2004

                2003

                2002

                Revenues

                Contract
                  Research

                $

                -

                $

                400,000

                $

                1,000,000

                Government
                  Contracts

                305,721

                339,790

                254,152

                License
                  fees and Royalties

                10,852

                2,248

                -

                Other

                65,949

                31,921

                160,696

                Total
                  Revenues

                $

                382,522

                $

                773,959

                $

                1,414,848

      Government
        Contracts - Virtually all of our government contracts are based on the
        reimbursement of costs. These contracts are billed either monthly or quarterly
        as called for by the contract. This is usually monthly, but may be quarterly
        in
        some instances. The billing method is set forth in the contract/grant documents.
        It may involve billing hours at pre-established rates, or billing labor dollars
        and

      material
        dollars marked up by pre-established overhead rates, or some combination
        of the
        two methods. In rare instances, we may have fixed fee contracts where the
        billing is initiated as the result of predefined events, such as the issuance
        of
        a final report. Any fixed fee contracts are usually small. We recognize the
        revenue at the time the billing is prepared and submitted to applicable
        government agency. This is in compliance with FASB Statement of Financial
        Concepts (SFAC) No. 5 which states that revenues are considered earned when
        the
        entity has substantially accomplished what it must do to be entitled to the
        benefits represented by the revenues. At that time, the revenues meet the
        criteria set forth in SAB 101 in that there is persuasive evidence of an
        arrangement (grant agreement), services have been performed, the price is
        fixed
        or determinable, and collectibility is reasonably assured.

      Other
        contracts - From a conceptual standpoint, we always have a written contract
        for
        any material research agreement. This agreement sets forth the services to
        be
        performed, payment terms, and milestones or deliverables, if any, as well
        as
        numerous other terms. We normally receive either full or partial payment
        up
        front. In the specific case of the revenues in these three years, all revenues
        came from one customer, spread over three separate phases. None of these
        phases
        spanned more than one reporting year. In instances where payment is received
        up
        front, we account for this as deferred revenue until the project is complete
        or
        a portion of it is earned under the terms of the contract, such as in the
        case
        where the contract calls for the delivery of samples at intermediate stages.
        We
        rely on the same guidance referenced in the paragraph on government contracts.
        The only difference is that government contracts virtually always have a
        billing
        associated with them. In some cases, our private research contracts may also
        have a billing associated with intermediate stages. This was not the case
        with
        the $1.4 million recognized in 2002 and 2003.

              2.

                Further,
                  on page 24 you state that you recognize revenue on research contracts
                  when
                  it is earned pursuant to the terms of the contract. Please tell
                  about the
                  terms of such contracts, and citing the appropriate accounting
                  literature
                  the persuasive evidence that you rely upon in your determination
                  to
                  recognize revenue in accordance with these
                  contracts.

      RESPONSE:
        See
        the answer to Item 1above. The “terms of the contract” phrase would refer to
        items discussed in there, such as hours incurred, or costs incurred, under
        “government contracts”, or the completion of intermediate stages in “Other
        contracts”.

              3.

                Referring
                  to research and development projects performed for third parties,
                  please
                  tell us if you are required to repay the funding agent for any
                  portion of
                  the funds received if the project fails. If you are required to
                  repay the
                  funding agent for any portion, please tell us how you account for
                  this
                  liability.

      RESPONSE: We
        do
        not enter into agreements that would require us to repay any funds if the
        desired results are not obtained. We occasionally have projects that are
        done in
        phases, where there is funding associated with each phase and moving from
        phase
        I to phase II (for example) is contingent on the results of phase I. If phase
        I
        was not successful, then there would not be a phase II, however that would
        not
        affect the payment for phase I. There are no agreements that are contingent
        upon
        successful results.

      Rule
        13a-14(a) Certifications

              4.

                We
                  note that you incorporate the certifications required by Rule 13a-14(a)
                  by
                  reference to your Form 10-K filed March 7, 2005. You are required
                  to
                  provide revised certifications in your amendment. Please amend
                  your Form
                  10-K/A to include revised certifications per Item 601(b)(31) of
                  Regulation
                  S-K.

      RESPONSE: We
        have made the corresponding change in our Form 10-K/A filed with this response
        letter.

      Section
        1350 Certifications

              5.

                Further,
                  amend to include revised Section 1350
                  certifications.

      RESPONSE: We
        have made the corresponding change in our Form 10-K/A filed with this response
        letter.

      Form
        10-Q for the Quarter Ended June 30, 2005

      Item
        4. Controls and Procedures, page 13

              6.

                We
                  note your disclosure that “…we
                  conducted an evaluation of the effectiveness of the design and
                  operation
                  of our disclosure controls and procedures, as defined in Rules
                  13a-14(c)
                  and 15d-14(c) under the Securities and Exchange Act of 1934 within
                  90 days
                  of the filing date of this report (the “Evaluation
                  Date”).
                  Please note that filings after August 14, 2003 must comply with
                  the
                  disclosure requirements of revised Item 307. That is, you must
                  disclose
                  the conclusion of your certifying officers regarding the effectiveness
                  of
                  your disclosure controls and procedures as
                  of the end of the period covered by the report,
                  based upon the evaluation of these controls and procedures. Please
                  confirm
                  for us supplementally that, if true, your certifying officers concluded
                  that your disclosure controls and procedures were effective as
                  of the end
                  of the period covered by this
                  report.

      RESPONSE: We
        hereby supplementally confirm that our disclosure controls and procedures
        were
        effective as of the end of the period covered by the report and will change
        the
        disclosure in our future filings.

              7.

                We
                  note your disclosure that “there were no significant
                  changes in our internal controls over financial reporting or in
                  other
                  factors that could significantly affect these controls subsequent
                  to the
                  Evaluation Date.” Item 308(c) of Regulation S-K requires the disclosure of
                  any
                  change in your internal control over financial reporting identified
                  in
                  connection with an evaluation thereof that occurred during
                  your last fiscal quarter that has materially affected, or is reasonably
                  likely to materially affect, your internal control over financial
                  reporting.
                  Please confirm for us supplementally that there was no change in
                  your
                  internal control over financial reporting that occurred during
                  the quarter
                  ended June 30, 2005 that has materially affected, or is reasonably
                  likely
                  to materially affect, your internal control over financial reporting.
                  In
                  future filings, provide the disclosure required by Item 308(c)
                  of
                  Regulation S-K.

      RESPONSE: We
        hereby supplementally confirm that there were no change in our internal control
        over financial reporting that occurred during the quarter ended June 30,
        2005
        that has materially affected, or is reasonably likely to materially affect,
        our
        internal control over financial reporting. We will provide this disclosure
        in
        future filings.

      In
        addition, we hereby acknowledge that:

              ·

                We
                  are responsible for the adequacy and accuracy of the disclosures
                  in our
                  filings.

              ·

                Comments
                  by the SEC staff or changes to our disclosure in response to staff
                  comments do not foreclose the Commission from taking any action
                  with
                  respect to the filings

              ·

                We
                  may not assert staff comments as a defense in any proceeding initiated
                  by
                  the Commission or any person under the federal securities laws
                  of the
                  United States.

      If
        you
        have any other questions or comments, you can contact me at (248) 391-0612
        or by
        email at dbaker@ameritech.net,
        or Don
        Locke by phone at (919) 807-5623 or by email at don.locke@summus.com.

                Very
                  truly yours,

                /s/
                  Douglas P. Baker

                Douglas
                  P. Baker

                Chief
                  Financial Officer