<SUBMISSION>
<ACCESSION-NUMBER>0000950131-01-502877
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20010630
<FILING-DATE>20010813
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>NANOPHASE TECHNOLOGIES CORPORATION
<CIK>0000883107
<ASSIGNED-SIC>3390
<IRS-NUMBER>363687863
<STATE-OF-INCORPORATION>IL
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-22333
<FILM-NUMBER>1706603
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>453 COMMERCE ST
<CITY>BURR RIDGE
<STATE>IL
<ZIP>60521
<PHONE>6303231200
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>453 COMMERCE STREET
<CITY>BURR RIDGE
<STATE>IL
<ZIP>60521
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.txt
<DESCRIPTION>FORM 10-Q
<TEXT>
<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               ----------------

                                   Form 10-Q


          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended:  June 30, 2001

                       Commission File Number:  0-22333


                      Nanophase Technologies Corporation
            (Exact name of registrant as specified in its charter)


           Delaware                                              36-3687863
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


               1319 Marquette Drive, Romeoville, Illinois 60446
            (Address of principal executive offices, and zip code)

      Registrant's telephone number, including area code:  (630) 771-6708

                               ----------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No
                                               ---      ---

     As of August 10, 2001, there were outstanding 13,704,760 shares of common
stock, par value $.01, of the registrant.

<PAGE>

                      NANOPHASE TECHNOLOGIES CORPORATION

                          QUARTER ENDED JUNE 30, 2001

                                     INDEX
<TABLE>
<CAPTION>

                                                                           Page
                                                                           ----
<S>                                                                        <C>
PART I - FINANCIAL INFORMATION............................................    3
  Item 1. Financial Statements............................................    3
          Balance Sheets as of June 30, 2001 (unaudited) and
            December 31, 2000.............................................    3
          Statements of Operations (unaudited) for the three months ended
            June 30, 2001 and 2000 and the six months ended June 30, 2001
            and 2000......................................................    4
          Statements of Cash Flows (unaudited) for the six months ended
            June 30, 2001 and 2000........................................    5
          Notes to Financial Statements (unaudited).......................    6
  Item 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations.......................................    8
  Item 3. Quantitative and Qualitative Disclosures About Market Risk......   10

PART II - OTHER INFORMATION...............................................   11
  Item 1. Legal Proceedings...............................................   11
  Item 2. Changes in Securities and Use of Proceeds.......................   11
  Item 4. Submissions of Matters to a Vote of Security Holders............   11
  Item 5. Other Information...............................................   12
  Item 6. Exhibits and Reports on Form 8-K................................   12

SIGNATURES................................................................   13

</TABLE>

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                       NANOPHASE TECHNOLOGIES CORPORATION

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     June 30,           December 31,
                                                                                       2001                 2000
                                                                                   -------------        -------------
                                                                                    (Unaudited)
<S>                                                                               <C>                  <C>
                                   ASSETS
Current assets:
  Cash and cash equivalents.................................................         $   995,065         $    473,036
  Investments...............................................................          11,784,333           16,831,721
  Trade accounts receivable, less allowance for doubtful accounts                                           1,238,334
    of $200,000 at June 30, 2001 and $81,450 at December 31, 2000...........             541,546
  Other receivable, net.....................................................              93,466              144,818
  Inventories, net..........................................................           2,034,359              892,674
  Prepaid expenses and other current assets.................................             691,151              770,200
                                                                                     -----------         ------------
    Total current assets....................................................          16,139,920           20,350,783
Equipment and leasehold improvements, net...................................           6,697,507            3,266,245
Other assets, net...........................................................             263,310              213,135
                                                                                     -----------         ------------
                                                                                     $23,100,737         $ 23,830,163
                                                                                     ===========         ============
                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Short-term borrowings.....................................................         $   308,707         $    285,316
  Accounts payable..........................................................           1,583,283              824,338
  Accrued expenses..........................................................             887,969              884,780
                                                                                     -----------         ------------
    Total current liabilities...............................................           2,779,959            1,994,434
  Long-term debt............................................................           1,433,667              827,984
Contingent liabilities......................................................                   -                    -

Stockholders' equity:
Preferred stock, $.01 par value, 24,088 shares authorized and
  no shares issued and outstanding..........................................                   -                    -
Common stock, $.01 par value, 25,000,000 shares authorized;
  13,699,760 and 13,593,914 shares issued and outstanding at June 30, 2001
  and December 31, 2000, respectively.......................................             136,998              135,939
Additional paid-in capital..................................................          50,170,062           49,885,751
Accumulated deficit.........................................................         (31,419,949)         (29,013,945)
                                                                                     -----------         ------------
  Total stockholders' equity................................................          18,887,111           21,007,745
                                                                                     -----------         ------------
                                                                                     $23,100,737         $ 23,830,163
                                                                                     ===========         ============

</TABLE>
                      See Notes to Financial Statements.

                                       3

<PAGE>

                       NANOPHASE TECHNOLOGIES CORPORATION

                            STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                  Three months ended June 30,                  Six months ended June 30,
                                           ---------------------------------------     ----------------------------------------
                                                 2001                   2000                   2001                  2000
                                           ----------------     ------------------     ------------------     -----------------
<S>                                        <C>                  <C>                    <C>                    <C>
Revenue:
  Product revenue......................     $       957,314      $       1,000,836      $       1,937,489      $      1,488,007
  Other revenue........................              92,065                104,500                183,815               236,250
                                            ---------------      -----------------      -----------------      ----------------
    Total revenue......................           1,049,379              1,105,336              2,121,304             1,724,257

Operating expense:
  Cost of revenue......................           1,006,749              1,305,233              1,857,122             2,123,985
  Research and development expense.....             362,519                452,950                800,189             1,042,612
  Selling, general and administrative
   expense.............................           1,090,995                899,435              2,226,949             1,827,725
                                            ---------------      -----------------      -----------------      ----------------
    Total operating expense............           2,460,263              2,657,618              4,884,260             4,994,322
                                            ---------------      -----------------      -----------------      ----------------
Loss from operations...................          (1,410,884)            (1,552,282)            (2,762,956)           (3,270,065)
Interest income........................             124,164                299,515                356,952               582,739
                                            ---------------      -----------------      -----------------      ----------------
Net loss...............................     $    (1,286,720)     $      (1,252,767)     $      (2,406,004)     $     (2,687,326)
                                            ===============      =================      =================      ================

Net loss per share- basic and diluted..     $         (0.09)     $           (0.09)     $           (0.18)     $          (0.20)
                                            ===============      =================      =================      ================

Weighted average number of common
 shares outstanding....................          13,643,771             13,451,344             13,628,562            13,230,156
                                            ===============      =================      =================      ================
</TABLE>
                      See Notes to Financial Statements.

                                       4
<PAGE>

                       NANOPHASE TECHNOLOGIES CORPORATION

                            STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Six months ended June 30,
                                                                                  -----------------------------------
                                                                                      2001                   2000
                                                                                  ------------           ------------
<S>                                                                               <C>                    <C>
Operating activities:
Net loss..............................................................            $ (2,406,004)          $ (2,687,326)
 Adjustments to reconcile net loss to net cash used in operating
  activities:
       Depreciation and amortization..................................                 379,755                355,998
       Allowance for excess inventory quantities......................                 (12,172)               (60,768)
       Provision for asset write-down.................................                  14,086                      -
 Changes in assets and liabilities related to operations:
       Trade accounts receivable......................................                 696,788               (752,430)
       Other receivable...............................................                  51,352               (365,121)
       Inventories....................................................              (1,129,513)              (123,267)
       Prepaid expense and other assets...............................                  25,072                (43,956)
       Accounts payable...............................................                 758,945                191,122
       Accrued liabilities............................................                   3,189                118,276
                                                                                  ------------           ------------
Net cash used in operating activities.................................              (1,618,502)            (3,367,472)

Investing activities:
Acquisition of equipment and leasehold improvements...................              (3,821,301)              (180,698)
Purchases of held-to-maturity investments.............................             (36,035,911)           (38,323,803)
Maturities of held-to-maturity investments............................              41,083,299             40,754,599
                                                                                  ------------           ------------
Net cash provided by investing activities.............................               1,226,087              2,250,098

Financing activities:
Principal payment on debt obligation..................................                (153,259)                     -
Proceeds from borrowing...............................................                 782,333                      -
Proceeds from sale of common stock....................................                 285,370                997,646
                                                                                  ------------           ------------
Net cash provided by financing activities.............................                 914,444                997,646
                                                                                  ------------           ------------
Increase (decrease) in cash and cash equivalents......................                 522,029               (119,728)
Cash and cash equivalents at beginning of period......................                 473,036                624,509
                                                                                  ------------           ------------
Cash and cash equivalents at end of period............................            $    995,065           $    504,781
                                                                                  ============           ============

</TABLE>

                      See Notes to Financial Statements.

                                       5
<PAGE>

                       NANOPHASE TECHNOLOGIES CORPORATION

                         NOTES TO FINANCIAL STATEMENTS
                                  (Unaudited)

(1) Basis of Presentation

       The accompanying unaudited interim financial statements of Nanophase
Technologies Corporation (the "Company") reflect all adjustments (consisting of
normal recurring adjustments) which, in the opinion of management, are necessary
for a fair presentation of the financial position and operating results of the
Company for the interim periods presented.  Operating results for the three and
six month periods ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001.

       These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 2000, included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Securities and Exchange
Commission.

(2) Description of Business

       The Company was incorporated on November 30, 1989, for the purpose of
developing nanocrystalline materials for commercial production and sale in
domestic and international markets.

       In the course of its corporate development, the Company has experienced
net losses and negative cash flows from operations. Historically, the Company
has funded its operations primarily through the issuance of equity securities.

       Revenue from international sources approximated $625,000 and $267,500 for
the six months ended June 30, 2001 and 2000, respectively.

(3) Investments

       Investments are classified by the Company at the time of purchase for
appropriate designation and such designations are reevaluated as of each balance
sheet date. Investments are classified as held-to maturity when the Company has
the positive intent and ability to hold the securities to maturity. Held-to
maturity securities are stated at amortized costs and are adjusted to maturity
for the amortization of premiums and accretion of discounts. Such adjustments
for amortization and accretion are included in interest income.

(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
<S>                                                             <C>                     <C>
                                                            June 30, 2001         December 31, 2000
                                                           ---------------       -------------------

Raw materials...........................................  $       307,462       $           328,786
Finished goods..........................................        1,806,313                   655,475
                                                           ---------------       -------------------
                                                                2,113,775                   984,261

Allowance for excess inventory quantities...............          (79,416)                  (91,587)
                                                           ---------------       -------------------
                                                          $     2,034,359       $           892,674
                                                           ===============       ===================
</TABLE>

                                       6
<PAGE>

                       NANOPHASE TECHNOLOGIES CORPORATION

                  NOTES TO FINANCIAL STATEMENTS - (Continued)
                                  (Unaudited)

(5) Stock Options and Warrants

       During the six months ended June 30, 2001, 99,041 shares of Common Stock
were issued pursuant to exercises of stock options, compared to 319,092 shares
of Common Stock in the same period in 2000. In the same six-month period in
2000, 372,579 shares of Common Stock were issued pursuant to exercises of
warrants.

(6) Contingent Liabilities

       Five separate complaints were filed in the United States District Court
for the Northern District of Illinois, each alleging that the Company, certain
of its officers and directors, and the underwriters of the Company's initial
public offering of Common Stock ("the Offering") were liable under the federal
Securities Act of 1933 for making supposedly negligent or reckless material
misstatements or omissions of fact in the Registration Statement and Prospectus
relating to the Offering. A consolidated complaint was filed in those cases in
October 1998. The consolidated complaint alleged that the action should be
maintained as (i) a plaintiff class action on behalf of certain persons who
purchased the Common Stock from November 26, 1997 through January 8, 1998, and
(ii) a defendant class action against the underwriters who participated in the
Offering. The consolidated complaint sought unquantified damages, pre- and post-
judgment interest, attorneys'and expert witness fees. After the Court granted in
part and denied in part certain motions to dismiss the consolidated complaint,
each defendant filed its respective answer to the remaining claims in the
consolidated complaint in November 1999.

       Following certain discovery, the Company agreed to settle all claims
against all defendants in the consolidated complaint for $4,025,000. The
settlement is not an admission of liability by any party. Because the settlement
has been funded by the Company's directors and officers liability insurance, the
settlement payment has not had a material adverse effect on the Company's
financial condition or results of operations. The Court ordered final approval
of the settlement and dismissed the consolidated complaint with prejudice as to
all defendants on March 27, 2001.

       The above-described settlement did not resolve a separate complaint filed
in the Northern District of Illinois in November 1998, alleging that the
Company, certain of its officers and directors, and the underwriters of the
Company's Offering are liable under the federal Securities Exchange Act of 1934
for making supposedly fraudulent material misstatements and omissions of fact in
connection with the solicitation of consents to proceed with the Offering from
certain of the Company's preferred stockholders. The complaint alleges that the
action should be maintained as a plaintiff class action on behalf of certain
former preferred stockholders whose shares of preferred stock were converted
into Common Stock on or about the date of the Offering. The complaint seeks
unquantified damages, pre- and post-judgment interest, attorneys' and expert
witness fees. After the Court denied defendants' joint motion to dismiss, each
defendant filed its respective answer to the preferred stockholders' complaint
in September 2000.

       Upon completing certain discovery, the Company recently reached an oral
agreement in principle to settle all claims against all defendants in the
preferred stockholders' complaint for $800,000, including

                                       7
<PAGE>

up to an additional $50,000 for the cost of settlement administration. The
Company anticipates that the settlement will be funded by the Company's
directors and officers liability insurance, and that the settlement payment
therefore will not have a material adverse effect on the Company's financial
condition or results of operations. The tentative settlement is subject both to
the parties preparing and signing a definitive Stipulation of Settlement, and to
subsequent submission of that formal Stipulation to the Court for preliminary
and final approval.


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

Overview

       Since January 1, 1997, Nanophase Technologies Corporation (the "Company")
has been engaged in the commercial production and sale of its nanocrystalline
materials. All of the Company's revenue since January 1, 1997 has been generated
through commercial sources. From its inception in November 1989 through June 30,
2001, the Company was primarily capitalized through the private offering of
approximately $19,558,000 of equity securities and its initial public offering
of $28,838,000 of the Company's common stock (the "Common Stock"), each net of
issuance costs. The Company has incurred cumulative losses of $31,419,949 from
inception through June 30, 2001.

Results of Operations

       Product revenue is recorded when title transfers, other revenue is
recorded when specific milestones are met regarding development arrangements or
when the Company licenses its technology and transfers proprietary information.
Total revenue decreased to $1,049,379 for the three months ended June 30, 2001,
compared to $1,105,336 for the same period in 2000. Total revenue increased to
$2,121,304 for the six months ended June 30, 2001, compared to $1,724,257 for
the same period in 2000. Product revenue decreased to $957,314 for the three
months ended June 30, 2001, compared to $1,000,836 for the same period in 2000.
Product revenue increased to $1,937,489 for the six months ended June 30, 2001,
compared to $1,488,007 for the same period in 2000. Increases in total product
revenue were attributed to additional customers and growth with existing
customers. Other revenue decreased to $92,065 and $183,815 for the three and
six-month periods ended June 30, 2001, compared to $104,500 and $236,250 for the
same periods in 2000. The majority of the revenue generated during the three and
six months ended June 30, 2001 was from customers in the healthcare and catalyst
markets.

       Cost of revenue generally includes costs associated with commercial
production, customer development arrangements, the transfer of technology, and
licensing fees. Cost of revenue decreased to $1,006,749 and $1,857,122 for the
three and six months, respectively, ended June 30, 2001, compared to $1,305,233
and $2,123,985 for the same periods in 2000. The decrease in cost of revenue was
generally attributed to anticipated manufacturing cost-saving measures being
recognized fully in production in the second quarter of 2001 and a favorable
product mix. Cost of revenue as a percentage of total revenue decreased for the
three and six months, respectively, ended June 30, 2001, compared to the same
period in 2000, due primarily to efficiencies gained in the manufacture of the
Company's products as well as a more favorable product mix, specifically in the
three months ended March 31, 2001.

       Research and development expense primarily consists of costs associated
with the Company's development or acquisition of new product applications and
coating formulations and the cost of enhancing the Company's manufacturing
processes. Research and development expense decreased to $362,519 and $800,189
for the three and six months, respectively, ended June 30, 2001, compared to
$452,950 and $1,042,612 for the same periods in 2000. The decrease in research
and development expense was largely attributed to the capitalization of a
portion of engineering salaries attributed to the

                                       8
<PAGE>

build out of the Company's new pilot manufacturing and powder coating facilities
in the six months ended June 30, 2001, a reduction in fees and expenses paid to
outside consultants in 2001, more research personnel being hired in this period
in 2000, to whom the Company paid negotiated bonuses and recruiting and
relocation costs, and fewer travel expenses being incurred for this period in
2001 than in the same period in 2000.

       Selling, general and administrative expense increased to $1,090,995 and
$2,226,949 for the three and six-month periods, respectively, ended June 30,
2001, compared to $899,435 and $1,827,725 for the same periods in 2000. The net
increase was primarily attributed to rent and associated expenses relating to
the Company's new facility, bad debt expense related to an estimated reserve for
a portion of a customer's account currently under negotiation, insurance, and
printing costs. These increases were somewhat offset by reductions in legal
expenses and expenditures for marketing and promotional materials.

       Interest income decreased to $124,164 and $356,952 for the three- and
six-month periods, respectively, ended June 30, 2001, compared to $299,515 and
$582,739 for the same periods in 2000. This decrease was primarily due to a
reduction in funds available for investment and reduced investment yields.

Liquidity and Capital Resources

       The Company's cash, cash equivalents and investments amounted to
$12,779,398 at June 30, 2001, compared to $17,304,757 at December 31, 2000. The
net cash used in the Company's operating activities was $1,618,502 for the six
months ended June 30, 2001, compared to $3,367,472 for the same period in 2000.
The net cash used in operating activities for the six-month period ended June
30, 2001 was primarily for the further development of product applications, the
funding of research and development activities and sales efforts, and the
funding of inventories, which was offset by an increase in accounts payable and
a decrease in accounts receivable. Net cash provided by investing activities,
which is due to maturities of securities largely offset by capital expenditures
and purchases of securities, amounted to $1,226,087 for the six months ended
June 30, 2001 compared to $2,250,098 of net cash provided by investing
activities for the same period in 2000. Capital expenditures, primarily related
to the build out of the Company's new pilot manufacturing and powder blending
facilities within its Romeoville, Illinois facility and further expansion of the
Company's existing manufacturing facility in Burr Ridge, Illinois and the
purchase of related operating equipment, amounted to $3,821,301 for the six
months ended June 30, 2001, compared to $180,698 for the same period in 2000.
Net cash provided by financing activities, which related to a loan from a
customer and other financing agreements, and the issuance of shares of Common
Stock pursuant to the exercise of options, offset somewhat by principal payments
on debt obligations, amounted to $914,444 for the six-month period ended June
30, 2001, compared to $997,646 for the same period in 2000. Net cash provided by
financing activities for the same period in 2000 related only to the issuance of
shares of Common Stock pursuant to the exercise of options and warrants.

       The Company believes that cash from operations and cash on hand, together
with the remaining net proceeds from the Company's initial public offering of
Common Stock ("the Offering") and interest income thereon, will be adequate to
fund the Company's current operating plans. The Company's actual future capital
requirements will depend, however, on many factors, including customer
acceptance of the Company's current and potential nanocrystalline materials and
product applications, continued progress in the Company's research and
development activities and product testing programs, the magnitude of these
activities and programs, and the costs necessary to increase and expand the
Company's manufacturing capabilities and to market and sell the Company's
materials and product applications. Depending on future requirements, the
Company may seek additional funding through public or private

                                       9
<PAGE>

financing, collaborative relationships, government contracts or additional
licensing agreements. Additional financing may not be available on acceptable
terms or at all, and any such additional financing could be dilutive to the
Company's stockholders.

       At June 30, 2001, the Company had a net operating loss carryforward of
approximately $31.4 million for income tax purposes. Because the Company may
have experienced "ownership changes" within the meaning of the U.S. Internal
Revenue Code in connection with its various prior equity offerings, future
utilization of this carryforward may be subject to certain limitations as
defined by the Internal Revenue Code. If not utilized, the carryforward expires
at various dates between 2005 and 2015. As a result of the annual limitation, a
portion of this carryforward may expire before ultimately becoming available to
reduce income tax liabilities. At June 30, 2001, the Company also had a foreign
tax credit carryforward of $186,000, which could be used as an offsetting tax
credit to reduce U.S. income taxes. The foreign tax credit will expire in 2016
if not utilized before that date.

Legal Proceedings

       See Note 6 to the Financial Statements for additional information.


Safe Harbor Provision

       Because the Company wants to provide investors with more meaningful and
useful information, the Quarterly Report on Form 10-Q contains certain "forward-
looking statements" (as such term is defined in Section 21E of the Securities
Exchange Act of 1934, as amended). Statements contained in this Quarterly Report
on Form 10-Q that are not historical facts are forward-looking statements that
are made pursuant to the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. These statements reflect the Company's current
expectations regarding its future results of operations, performance, and
achievements and are based on information currently available to the Company.
The Company has tried, wherever possible, to identify these forward-looking
statements by using words such as "intends," "believes," "estimates," "expects,"
"plans," and similar expressions. These statements are subject to certain risks,
uncertainties, and factors which could cause the Company's actual results,
performance, and achievements in 2001 and beyond to differ materially from those
expressed in, or implied by, such statements. These risks, uncertainties, and
factors include, without limitation: uncertain demand for, and acceptance of,
the Company's nanocrystalline materials; the Company's dependence on a limited
number of key customers; the Company's limited manufacturing capacity and
experience; the Company's limited marketing experience; changes in development
and distribution relationships; the impact of competitive products and
technologies; the Company's dependence on patents and protection of proprietary
information; the resolution of litigation the Company is involved in; and other
risks set forth in the Company's previous filings with the Securities and
Exchange Commission. Readers of this Quarterly Report on Form 10-Q should not
place undue reliance on any forward-looking statements. Except as required by
federal securities laws, the Company undertakes no obligation to update or
revise these forward-looking statements to reflect new events or uncertainties.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

       The Company is exposed to interest rate risk on its investment portfolio.
A 1% fluctuation in interest rate would result in a change in the portfolio
earnings of approximately $130,000 per year.

                                       10
<PAGE>

                          PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         See Note 6 to the Financial Statements for additional information.


Item 2.  Changes in Securities and Use of Proceeds

         On November 26, 1997 (the "Effective Date"), the Company's Registration
Statement on Form S-1 (File No. 333-36937) relating to the Offering was declared
effective by the Securities and Exchange Commission. Since the Effective Date,
of its $28,837,936 of net proceeds from the Offering, the Company has used
approximately $6,619,000 for capital expenditures primarily related to the
further expansion of the Company's existing manufacturing facility and the
purchase of operating equipment and approximately $9,439,000 for working capital
and other general corporate purposes. The remainder of the net proceeds has been
invested by the Company, pending its use, in short-term, investment grade,
interest-bearing obligations.

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

         a)   The 2001 Annual Meeting of Stockholders of the Company was held on
              June 5, 2001.

         b)   The stockholders voted to re-elect one Class I director to the
              Company's Board of Directors. Results of the voting were as
              follows:

<TABLE>
<CAPTION>
<S>                                 <C>                 <C>                 <C>                <C>
         Directors                  For          Authority Withheld      Abstentions      Broker Non-Votes
         ---------                  ---          ------------------      -----------      ----------------
   James A. McClung, Ph.D        12,370,761           132,119                 -                  -
</TABLE>

         Edward E. Hagenlocker, Ph.D. chose not to run for re-election to the
         Company's Board of Directors.

         Joseph E. Cross, Jerry K. Pearlman, Donald S. Perkins, and Richard W.
         Siegel, Ph.D. continued their terms of office as directors of the
         Company after the 2001 Annual Meeting of Stockholders.

         c)   The stockholders also voted to ratify the appointment by the
              Company's Board of Directors of Ernst & Young LLP as the
              independent auditors of the Company's financial statements for the
              year ended December 31, 2001. Results of the voting were as
              follows:

<TABLE>
<CAPTION>
<S>                                  <C>                         <C>                        <C>
          For                      Against                   Abstentions               Broker Non-Votes
          ---                      -------                   -----------               ----------------
      12,289,120                   111,360                     102,400                        -
</TABLE>


         d)   The stockholders also voted to approve the adoption of the
              Nanophase Technologies Corporation 2001 Equity Compensation Plan.
              Results of the voting were as follows:


<TABLE>
<CAPTION>
<S>                                  <C>                         <C>                         <C>
          For                      Against                   Abstentions               Broker Non-Votes
          ---                      -------                   -----------               ----------------
       5,715,278                   740,763                      38,531                     6,008,308
</TABLE>

                                       11
<PAGE>

Item 5.  Other Information

         On July 10, 2001, the Company's Board of Directors appointed James A.
Henderson as a Class I Director of the Company.



Item 6.  Exhibits and Reports on Form 8-K


          A.  Exhibits.
              Exhibit 4.5 -- Amendment to Rights Agreement dated August 1, 2001
              between the Company and LaSalle National Association as Rights
              Agent.


          B.  Reports on Form 8-K.
              The Company did not file any Current Reports on Form 8-K during
              the second quarter of 2001.

                                       12
<PAGE>

                                   SIGNATURES

       Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                  NANOPHASE TECHNOLOGIES CORPORATION


Date: August 13, 2001             By:  /s/ JOSEPH E. CROSS
                                       -------------------
                                       Joseph E. Cross
                                       President, Chief Executive Officer
                                       (principal executive officer) and a
                                       Director



Date: August 13, 2001             By:  /s/ JESS A. JANKOWSKI
                                       ---------------------
                                       Jess A. Jankowski
                                       Acting Chief Financial Officer, Corporate
                                       Controller, Secretary, and Treasurer
                                       (principal financial and accounting
                                       officer)



                                       13

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5
<SEQUENCE>3
<FILENAME>dex45.txt
<DESCRIPTION>AMENDMENT TO RIGHTS AGREEMENT
<TEXT>
<PAGE>

                                                                     Exhibit 4.5

                                   AMENDMENT

                                       TO

                                RIGHTS AGREEMENT

     THIS AMENDMENT TO RIGHTS AGREEMENT (this "Amendment") is made this 1st day
of August, 2001 by Nanophase Technologies Corporation (the "Company") and
LaSalle National Bank, as Rights Agent (the "Rights Agent") under that certain
Rights Agreement dated October 28, 1998 (the "Rights Agreement") between the
Company and the Rights Agent.  This Amendment only amends certain portions of
the Rights Agreement and is effective as of 12:00 p.m. (Eastern Time), August 1,
2001.  All provisions of the Rights Agreement which are not amended by this
Amendment shall remain in full force and effect.

     1.  Section 1(a) of the Rights Agreement is hereby amended by deleting the
word "15%" in each place that it appears in such section and replacing it with
the word "20%".  In addition, any corresponding reference to a term defined in
such Section 1(a) shall be similarly amended.  It is the intent of the Company
and the Rights Agent that the 15% ownership threshold referenced in such Section
1(a) be increased to 20%.  Accordingly, any provision of the Rights Agreement
inconsistent with such purpose is hereby also amended.

     2.  Except as specifically set forth herein, all other terms and conditions
as set forth in the Rights Agreement shall remain in full force and effect, and
are not otherwise amended, altered, modified, or revised.

     3.  This document may be executed in one or more counterparts, each of
which so executed and delivered shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
day and year first above written.


Nanophase Technologies Corporation        LaSalle National Association as Rights
                                          Agent


By:   /s/ Jess Jankowski                  By:    /s/ Gregory Malatia
     -----------------------------              --------------------------------
      Jess Jankowski, Secretary           Name:  Gregory Malatia
                                           Its:  First Vice President


</TEXT>
</DOCUMENT>
</SUBMISSION>
