For those of us who believe that nanotechnology is the biggest of all the next big things, the story of Nanophase Technologies (NASDAQ:NANX) should be a cautionary tale.

Having become the first true nanotechnology public company way back in 1997, it was all systems go, or it should have been. It was the first mover, recording 40% annual growth, increasing production capacity, increasing customers, and generally doing what one would expect of a nanomaterials company with exciting and breakthrough products. Sure, there were lots of losses, but that's not unusual when a company is being built.

Then sales began to slow, customers began to withdraw from deals, and customers who took delivery of Nanophase's proprietary nano-oxides began to report that the powders didn't work in mixing in their factories as they did in the samples.

What Nanophase learned was that its powders -- designed to be atomically precise and to interact with the molecules around them in a mixture -- also had a nasty habit of interacting with every other atom around. So a mix that worked in the production plant reacted differently in the less pristine -- or even the more pristine -- conditions of the customers' plants. In other words, the nano-oxides did what they were supposed to do, but a lot more besides. Growth levels disappeared, and a few frivolous class-action lawsuits from investors cost the company several million dollars, leading Nanophase management to take action.

The result was increased production capacity, reduced production costs, and an attack on new markets.

The original product lines did find success in sunscreen lotions, notably those made by BASF (NYSE:BF), which became Nanophase's largest customer. Then came a deal with another European partner, Rohm and Haas, to develop nanomaterials for use in polishing slurry, the slush that cleans chips under manufacture. Finally, another partner in Altana Chemie, part of the Altana Group (NYSE:AAA), came on board earlier this year. The latter took a 7% equity interest, and together they are developing nano powders for a variety of uses in the chemical industry.

Meanwhile, the market watches all this and now, seven years on, assigns the company a value less than when it first went public. So much for being the next big thing.

Everything is now in place, products are functional, clients are more like partners, and production capacity is under cost control. There can be no more excuses. With a current price of around $6.40 giving a modest price to sales of 21, there certainly seems more upside than down. But we have thought that of Nanophase many, many times in the past seven years.

Perhaps this time, Nanophase finally will reward long-suffering shareholders with a sustainable rise.

Both Carl and John believe that nanotechnology is the biggest of all the next big things, but only Carl owns Nanophase Technologies. Neither has any stake in any other company mentioned.

Both of them are working to find Nano Rule Breakers , and they hope you will try a 30-day free trial to Motley Fool Rule Breakers, where they advise and educate on all things nano under the guise of TMFBreakerCarl and TMFBreakerJohn.