A Periodic Update - March 1, 2011

We have filed our 2010 annual report on form 10K with the SEC. As 2010 was a transitional year for the company, I wanted to take the opportunity to provide an update, starting with our financial results.

Financial Results

2010 can certainly be described as the best financial year in the history of the company. Our revenues, which exceeded $8.0 million, represent the highest revenues for any year in the Company’s history. These revenues only include revenues related to our research contracts and licenses. They do not include any amounts related to patent sales, which are not considered revenue, and income from patent sales is only included lower in the income statement as a gain on the sale of assets. We were also profitable in 2010 for the first time in over ten years, with net income over $400,000 and income from operations (prior to interest and taxes) of over $1.4 million.

All of our financial measures improved substantially over 2009 and the previous years. We ended the year with a strong cash position, over $2.7 million, and had a strong revenue backlog of $3.4 million heading into 2011. We had positive working capital of $2.2 million, a working capital ratio of 2.5, positive cash flow from operations, and positive shareholders equity. While a small portion of the convertible notes have been converted to common stock, once the balance of those notes have been converted, our shareholder equity will increase substantially. All of the details are included in our 10K and I would urge anyone with an interest to review the full report, which is available at www.sec.gov.

While we are pleased with our progress in 2010, the upcoming year is even more important for us. We have transformed from a pure research and development organization to one that actually has commercialized technology in the market place and 2011 will continue to be an important transitional year for us. We are targeting minimum revenues of $10 million for 2011 and increased profits. While $10 million will represent very nice growth for the company, we hope to see even higher growth in 2011, but I believe it is important to be realistic, since we believe 2012 is the year we will start seeing substantial recurring royalties.

Commercialization

Even though 2012 will be the first year for substantial recurring royalties, we are still expecting several products using our technology on the market in 2011 that will begin generating recurring royalties, starting with golf clubs and badminton racquets from Yonex. Yonex formally introduced its golf line using Nanopreme™ (their trademarked name for the material using our technology) in the U.S. at the PGA show in Orlando in January 2011, and in Japan at the Japan Golf show in Tokyo in February 2011. They also introduced their badminton racquets in February at the Tokyo Sports show and are planning extensive publicity at the All England Open Badminton Championships, which is starting later this week.

In the inks area, we are anticipating that Ishihara will have its copper inks, which are based on APNT technology, commercially available by the end of the year. They are currently readying their facility, refining the manufacturing process, and performing substantial testing with their customers.

Our new pilot facility in Austin for solar inks (Aluminum, Nickel, etc.) is progressing well. While we currently provide small quantities of our inks, as we complete our scale-up process over the next two or three months, we will begin increasing our production of samples. Although we will generate small amounts of revenue from the sale of inks produced in this facility, the real goal is to accelerate the introduction of the technology by increasing our ability to provide samples and larger quantities to potential end users for testing. In addition, we will be able to develop the necessary manufacturing processes and quality control procedures that will be required for higher volume manufacturing, all of which will enhance our licensing and partnership efforts.

With regards to the CNT composite side of the business, now that Yonex has products on the market and given the fact this area of our technology is so well developed, we are seeing interest from several other parties to license and/or partner with us in this field. Potential applications include other sporting goods applications, military applications including protective gear, and several other industrial applications.

Sichuan Anxian Yinhee Constructional and Chemical Company (“YHCC”)

We are very excited about our new relationship with YHCC. Asia, and more specifically China, is, and will continue to be, one of the key locations for commercialization of our technology. We have had success in penetrating the Japanese market, but have been looking for the right partner in China. At the same time, YHCC has been looking for a partner with the technology and research and development expertise to help them fulfill their business plan and maintain their impressive growth rate of recent years.

YHCC has a strong expertise in manufacturing and commercialization of technologies. With sophisticated manufacturing operations, they start with basic raw materials and develop a variety of basic products, which are then used for multiple applications. Their expertise is a perfect match for our technologies, with their expertise in the chemical industry being of particular value to us.

While I realize that shareholders want as many details as possible, as soon as possible, it is in our best business interest to proceed methodically, complete our exchange of information, and sign licenses, before providing details about negotiations publicly. Of course, what is in our best business interest as a company is ultimately what is in the best interest of shareholders. If and when we complete license agreements, we will announce the appropriate details.

We are also pleased that YHCC expressed a desire to invest in APNT as part of the overall relationship. While we were not anticipating raising additional capital, the additional cash investment from YHCC further solidifies our strong financial condition. Their investment is a strong recognition on their part of the substantial value that can be created by the two companies working together. This probably also marks the first time since our IPO that someone made a direct investment in the company at straight market prices, rather than at some discount to market, which is common in most private placements for all companies. Of course, the subsequent rise in our share price may make some think there was a discount involved, but that could not be further from the truth.

We are also thrilled that YHCC has expressed an interest in participation at the Board level. YHCC is truly an entrepreneurial company with visionary leadership. Their input, including their unique perspective on international matters, will be an added value. Furthermore, it addresses one issue that shareholders frequently bring up, which is that they perceive a lack of any significant share ownership by Board Members. This will certainly change that perception.

Finally, we have high hopes that the YHCC relationship will reach beyond the initial license discussions and be a catalyst to bring other of our core technologies to commercialization quicker than would otherwise have been possible.

Trade Shows and Conferences

We have just completed two very successful conferences. The first was nano tech 2011 held in Tokyo in February, one of the largest nanotech shows in the world. That was immediately followed by the solar show in Shanghai. These shows serve two important purposes for us. First, they enable us to showcase our technology to others and are an important part of our business development activities. A second important purpose is that it enables us to see what other new technologies are out there, analyze potential competition, and stay abreast of developments in the industry. Now that there will be products on the market using our technologies, we are going to begin shifting our focus to more specialized shows and conferences. We are very pleased with the results of both of these conferences and expect the contacts made to ultimately result in more business in the future.

We are also in the process of finalizing a schedule of investor conferences to attend this year and would expect to attend 2-4 such conferences in 2011. Now that our fundamentals have improved, the fact we have built a strong base for growth, and are very close to predictable recurring revenues, we believe it is the time to expand our investor relations efforts. Once our attendance is finalized at these conferences we will let everyone know the dates and locations. In a related matter, as many of you may know, Marc Eller (APNT’s CEO from 1996-2006) has agreed to join the company in a consulting role to help promote the company to the financial community (which he has been doing since the beginning of the year) and to help negotiate licenses and partnerships

In conclusion, Applied Nanotech is by far on more solid footing now than ever before. With a strong balance sheet, a healthy R&D backlog, the start of recurring royalties as products hit the market using our technologies, a strong pipeline of potential licensees, and a partner (YHCC) that is committed to bringing more of our technologies to market in an expeditious manner, all bodes well for a very exciting future for APNT and its shareholders.

Sincerely,
Doug Baker
Chief Executive Officer

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Safe Harbor Statement

This letter contains forward-looking statements that involve risks and uncertainties concerning our business, products, and financial results. Actual results may differ materially from the results predicted. More information about potential risk factors that could affect our business, products, and financial results are included in our annual report on Form 10-K for the fiscal year ended December 31, 2010, and in reports subsequently filed by us with the Securities and Exchange Commission ("SEC"). All documents are available through the SEC's Electronic Data Gathering Analysis and Retrieval System (EDGAR) at www.sec.gov or from our website at www.appliednanotech.net . We hereby disclaim any obligation to publicly update the information provided above, including forward-looking statements, to reflect subsequent events or circumstances.

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