UNITED STATES
                       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 September 30, 2005

                                       OR

|_|   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

            For the transition period from __________ to __________

                        Commission File Number 001-14015

                                 IONATRON, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

            Delaware                                    77-0262908
--------------------------------------------------------------------------------
(State or Other Jurisdiction of                       (IRS Employer
Incorporation or Organization)                    Identification Number)

     3590 East Columbia Street
     Tucson, Arizona                                      85714
     (Address of Principal Executive Offices)           (Zip Code)

        Registrant's telephone number, including area code (520) 628-7415

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 |_|

Indicate by check whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act)

                               Yes |X| No |_|

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)

                               Yes |_| No |X|

Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of November 4, 2005 there
were 71,684,946 shares of the issuer's common stock, par value $.001 per share,
outstanding.
<PAGE>

                                 IONATRON, INC.
                               September 30, 2005

PART I -   FINANCIAL INFORMATION

Item 1-    Consolidated Financial Statements
                    Consolidated Balance Sheets as of September 30, 2005
                    (Unaudited) and December 31, 2004                          3

                    Consolidated Statements of Operations for the three
                    months ended September 30, 2005 and 2004 (Unaudited)       4

                    Consolidated Statements of Operations for the nine
                    months ended September 30, 2005 and 2004 (Unaudited)       5

                    Consolidated Statements of Cash Flows for the nine
                    months ended September 30, 2005 and 2004 (Unaudited)       6

                    Notes to Consolidated Financial Statements                 7

Item 2-    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                          19

Item 3-    Quantitative and Qualitative Disclosures About Market Risk         25

Item 4-    Controls and Procedures                                            25

PART II -  OTHER INFORMATION

Item 1-    Legal Proceedings                                                  26

Item 2-    Unregistered Sales of Equity Securities and Use of Proceeds        26

Item 6-    Exhibits                                                           26

SIGNATURES                                                                    27


                                      -2-
<PAGE>

PART I  FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                                 IONATRON, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             September 30,   December 31,
                                                                                 2005            2004
                                                                             ------------    ------------
                                                                             (Unaudited)       (Audited)
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
ASSETS
   Current assets
      Cash and cash equivalents                                              $    587,852    $  2,495,779
      Accounts receivable - net                                                 4,867,591       4,497,350
      Inventory                                                                 1,039,725         341,334
      Municipal bonds available for sale                                               --       1,000,000
      Other receivables                                                            11,430          30,403
      Prepaid expenses                                                            460,007         404,619
                                                                             ------------    ------------
   Total current assets                                                         6,966,605       8,769,485

      Property and equipment, net                                               1,510,394       1,416,072
      Goodwill                                                                  1,487,884       1,487,884
      Unamortized intangible assets                                               603,000         603,000
      Amortized intangible assets - net                                           196,800         261,450
                                                                             ------------    ------------

   TOTAL ASSETS                                                              $ 10,764,683    $ 12,537,891
                                                                             ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities
      Accounts payable                                                       $  2,587,703    $  1,639,018
      Accrued expenses                                                            763,259         841,067
      Note payable to stockholder                                               2,900,000       2,800,000
      Billings in excess of costs                                                  70,408          25,695
      Current portion of capital lease obligation                                  36,938           2,435
                                                                             ------------    ------------
   Total current liabilities                                                    6,358,308       5,308,215

   Capital lease obligation                                                        71,953           3,482
   Deferred tax liabilities                                                        38,308           9,577

   Stockholders' equity
      Preferred stock, 1,000,000 shares authorized and unissued                        --              --
      Common stock, $.001 par value, 100,000,000 shares authorized;
         71,572,470 shares issued and outstanding at September 30, 2005
         and 70,846,204 shares issued and outstanding at December 31, 2004         71,572          70,846
      Additional paid-in capital                                               11,205,176      10,406,776
      Accumulated deficit                                                      (6,980,634)     (3,261,005)
                                                                             ------------    ------------

   Total stockholders' equity                                                   4,296,114       7,216,617
                                                                             ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $ 10,764,683    $ 12,537,891
                                                                             ============    ============
</TABLE>

See accompanying notes to consolidated financial statements (unaudited)


                                      -3-
<PAGE>

                                 IONATRON, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    FOR THE THREE MONTHS ENDED
                                                                           SEPTEMBER 30,
                                                                   ----------------------------
                                                                       2005            2004
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Revenue                                                            $  6,219,161    $  2,628,982

Cost of revenue                                                       5,560,579       2,441,243
                                                                   ------------    ------------

Gross profit                                                            658,582         187,739

Operating expenses:
   General and administrative                                           580,042         726,158
   Selling and marketing                                                144,928         112,825
   Research and development                                             231,806         211,895
                                                                   ------------    ------------
Total operating expenses                                                956,776       1,050,878
                                                                   ------------    ------------

Operating loss                                                         (298,194)       (863,139)

Other (expense) income
   Interest expense                                                     (63,897)        (46,539)
   Interest income                                                        9,380          13,652
   Other                                                                  1,853              --
                                                                   ------------    ------------
 Total other                                                            (52,664)        (32,887)
                                                                   ------------    ------------

Loss before provision for income taxes                                 (350,858)       (896,026)

Income taxes                                                             10,477              --
                                                                   ------------    ------------

Net loss                                                           $   (361,335)   $   (896,026)
                                                                   ------------    ------------

Net loss per share - basic and diluted                             $      (0.01)   $      (0.01)
                                                                   ============    ============

Weighted average number of shares outstanding, basic and diluted     71,354,540      69,804,232
                                                                   ============    ============
</TABLE>

See accompanying notes to consolidated financial statements (unaudited)


                                      -4-
<PAGE>

                                 IONATRON, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    FOR THE NINE MONTHS ENDED
                                                                           SEPTEMBER 30,
                                                                   ----------------------------
                                                                       2005            2004
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Revenue                                                            $ 12,745,954    $  4,734,996

Cost of revenue                                                      11,740,891       4,422,996
                                                                   ------------    ------------

Gross profit                                                          1,005,063         312,000

Operating expenses:
   General and administrative                                         3,449,053       2,491,097
   Selling and marketing                                                375,590         344,897
   Research and development                                             723,452         512,793
                                                                   ------------    ------------
Total operating expenses                                              4,548,095       3,348,787
                                                                   ------------    ------------

Operating loss                                                       (3,543,032)     (3,036,787)

Other (expense) income
   Interest expense                                                    (180,076)       (164,239)
   Interest income                                                       30,381          34,873
   Other                                                                  2,445              --
                                                                   ------------    ------------
 Total other                                                           (147,250)       (129,366)
                                                                   ------------    ------------

Loss before provision for income taxes                               (3,690,282)     (3,166,153)

Income taxes                                                             29,347              --
                                                                   ------------    ------------

Net loss                                                           $ (3,719,629)   $ (3,166,153)
                                                                   ------------    ------------

Net loss per share - basic and diluted                             $      (0.05)   $      (0.05)
                                                                   ============    ============

Weighted average number of shares outstanding, basic and diluted     71,187,716      63,383,784
                                                                   ============    ============
</TABLE>

See accompanying notes to consolidated financial statements (unaudited)


                                      -5-
<PAGE>

                                 IONATRON, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                          For the nine months ended
                                                                         ----------------------------
                                                                         September 30,   September 30,
                                                                             2005            2004
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                             $ (3,719,629)   $ (3,166,153)
    Adjustments to reconcile net loss to net cash
       used in operating activities:
          Depreciation and amortization                                       920,773         601,295
          Loss on equipment disposal                                           58,825           2,188
          Stock and option compensation                                       211,646         153,450
          Deferred income tax provision                                        28,731              --
          Changes in working capital components:
              (Increase) in accounts receivable                              (370,241)       (343,807)
              (Increase) in costs and estimated earnings in
                   excess of billings on uncompleted contracts                     --      (1,506,155)
              (Increase) decrease in other receivable                          18,973         (76,935)
              (Increase) in inventory                                        (698,391)       (281,689)
              (Increase) decrease in prepaid expenses                           7,279         (71,752)
               Increase in accounts payable                                   948,685         674,988
               Increase in billings in excess of costs                         44,713              --
              (Decrease) in accrued expenses                                  (77,808)       (268,897)
                                                                         ------------    ------------
                   Net cash used in operating activities                   (2,626,444)     (4,283,467)
                                                                         ------------    ------------

CASH FLOW FROM INVESTING ACTIVITIES:
    Purchase of equipment                                                    (889,524)       (722,467)
    Proceeds from sale of available for sale investments                    1,000,000
    Proceeds from disposal of equipment                                            --           3,208
    Receivables from stockholder                                                   --         107,482
    Acquisition of business, net of cash acquired                                  --        (573,233)
                                                                         ------------    ------------
                   Net cash provided by (used in) investing activities        110,476      (1,185,010)
                                                                         ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from note payable to stockholder                                 100,000       1,000,000
    Repayment on note payable to stockholder                                       --        (500,000)
    Principal payments on capital lease obligation                            (16,772)           (958)
    Cash acquired from reverse merger                                              --       8,916,628
    Exercise of stock options and warrants                                    524,813       1,142,603
                                                                         ------------    ------------
                   Net cash provided by financing activities                  608,041      10,558,273
                                                                         ------------    ------------

Net increase (decrease) in cash and cash equivalents                       (1,907,927)      5,089,796

Cash and cash equivalents, beginning of period                              2,495,779         103,392
                                                                         ------------    ------------

Cash and cash equivalents, end of period                                 $    587,852    $  5,193,188
                                                                         ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    CASH PAID DURING THE PERIOD FOR:
            Interest                                                          118,563         164,036
            Income taxes                                                           --          66,232
</TABLE>

See non-cash investing and financing activities at Note 15

See accompanying notes to consolidated financial statements (unaudited)


                                      -6-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.    NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF BUSINESS AND SUMMARY OF OPERATIONS:

      Ionatron, Inc. ("Ionatron") was formed on June 3, 2002 to develop and
market Directed Energy Weapon technology products initially for sale to the U.S.
Government. The goal of the Company is to produce products that incorporate our
technology initially for specific U.S. Government customer applications and
platforms. Ionatron and the U.S. Government have entered into several contracts
for products and services as well as Cooperative Research and Development
Agreements for joint research on Laser Induced Plasma Channel ("LIPC") based
directed energy weapons. We expect to offer U.S. Government approved versions of
our products for commercial security applications in the future. During 2003 and
2002, the Company engaged in research and development and business development
activities culminating in our first U.S. Government contract in September of
2003. During 2004 we demonstrated the laser guided man-made lightning directed
energy technology in the laboratory; demonstrated the technology effects on a
variety of targets both under U.S. Government contract and using internal
research and development funding; delivered a compact laser source specifically
designed to enable the technology under a U.S. Government contract; and
commenced a U.S. Government contract for the development of a system on a mobile
platform for field demonstration and testing. In 2005, we developed a counter
IED ("Improvised Explosive Device") vehicle for use in Iraq called the Joint IED
Neutralizer ("JIN"). Our JIN units have been tested by the government and have
been determined to have military utility - which the Government requires before
it will consider ordering production units.

      Through North Star Power Engineering Inc. ("North Star"), we are involved
in the design and manufacture of a broad range of high voltage equipment for the
defense, aerospace, semi-conductor, and medical industries. North Star power
supplies are utilized in Ionatron products.

BASIS OF PRESENTATION

      The consolidated financial statements include the accounts of Ionatron and
its wholly owned subsidiaries, Ionatron Technologies, Inc. and North Star as of
September 30, 2005 (collectively, "Company," "Ionatron," "we," "our" and "us").
All intercompany balances and transactions have been eliminated. In the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the results for the interim periods
presented have been made. The results for the nine month period ended September
30, 2005, may not be indicative of the results for the entire year. The interim
unaudited condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
contained in its Annual Report on Form 10-K.

      Certain amounts in the 2004 consolidated financial statements have been
reclassified to conform to the 2005 presentation.

MERGER AND RECAPITALIZATION:

      On March 18, 2004, a subsidiary of U.S. Home & Garden (USHG), a
non-operating, publicly traded company merged into Ionatron, Inc. (the
"Merger"). Following the Merger, USHG stockholders held 33.89% and Ionatron
stockholders held 66.11% of USHG common stock on a fully diluted basis. The
combination has been accounted for as a recapitalization of Ionatron, Inc.,
effective from our inception on June 3, 2002 and the issuance of 19,346,090
common shares and 5,492,009 options and warrants to the USHG stockholders on the
date of merger in exchange for the cash. We also acquired in the Merger a $1.6
million principal amount subordinated promissory note from a highly leveraged
entity. This note matures in 2009 and accrues interest on a compound basis at
the rate of 9% per annum until maturity. We recorded a 100% valuation allowance
for this note due to the uncertainty of collectibility.

      The consolidated financial statements reflect the historical results of
Ionatron, Inc. prior to March 18, 2004, and the consolidated results of
operations of the Company since March 18, 2004. All outstanding shares of
Ionatron common stock were converted to 48,452,249 shares of USHG common stock.
On April 29, 2004, our stockholders approved the change of our corporate name to
Ionatron, Inc., an increase of our authorized common stock to 100,000,000
shares, and the classification of the Board of Directors into three classes. We
also changed our fiscal year end from June 30 to December 31.

ACQUISITION

      In September, we completed the acquisition of substantially all the assets
of North Star Research Acquisition Corporation (formerly North Star Research
Corporation), a New Mexico corporation engaged in the business of designing and
manufacturing a borad range of high voltage equipment for the defense,
aerospace, semi-conductor, and medical industries. Subsequent to the acquisition
we changed the corporation's name to North Star Power Engineering Inc. ("North
Star").

USE OF ESTIMATES:

      Our consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles (GAAP), which require management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. We have identified
significant accounting policies that require a higher degree of judgment and
complexity. See Note 1 to the Company's audited consolidated financial
statements contained in its Annual Report on Form 10-K, which should be read in
conjunction with these financial statements.

2.    STOCK-BASED COMPENSATION, OPTIONS AND WARRANTS

      The Company has a number of stock-based employee compensation plans. The
Company generally grants stock options for a fixed number of shares to employees
and directors with an exercise price equal to the fair market value of the
shares at the date of grant. The Company accounts for stock option grants to
employees and directors under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, as amended by Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure. Accordingly, no compensation cost has
been recognized for these stock option grants. Awards under the plans vest over
periods ranging from immediate vesting to five years, depending upon the type of
award. The following table illustrates the effect on net loss and loss per share
if the fair value based method had been applied to all outstanding and unvested
awards in each period presented, using the Black-Scholes valuation model.


                                      -7-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      Pro-forma compensation and non-employee compensation are based on the fair
value of the options granted which has been estimated at the various dates of
the grants using the Black-Scholes option-pricing model with the following
assumptions:

o     Fair market value of the underlying common stock based on our closing
      common stock price on the date the option is granted;

o     Risk-free interest rate based on the weighted averaged 5-year U.S.
      Treasury note strip rates;

o     Volatility is based on comparable companies considered as we do not have
      sufficient trading history for our common stock;

o     No expected dividend yield based on future dividend payment plans; and

o     Expected life of the options is five years.

                    For the three months ended September 30,
--------------------------------------------------------------------------------
                                                       2005            2004
                                                   -----------      -----------
Net loss:
   As reported                                     $  (361,335)     $  (896,026)

   Pro forma stock compensation expense               (380,154)        (526,611)
                                                   -----------      -----------

   Pro forma                                       $  (741,489)     $(1,422,637)
                                                   ===========      ===========

Net loss per share - basic and diluted:
   As reported                                     $     (0.01)     $     (0.01)
                                                   ===========      ===========

   Pro forma                                       $     (0.01)     $     (0.02)
                                                   ===========      ===========

      Compensation expense recorded for shares and options delivered to
non-employees for the three months ended September 30, 2005 and 2004, was
approximately $66,000 and $0, respectively, which was charged to operating
expenses with an offsetting entry to additional paid-in capital.

                     For the nine months ended September 30,
--------------------------------------------------------------------------------
                                                      2005             2004
                                                   -----------      -----------
Net loss:
   As reported                                     $(3,719,629)     $(3,166,153)

   Pro forma stock compensation expense             (3,190,581)        (722,142)
                                                   -----------      -----------

   Pro forma                                       $(6,910,210)     $(3,888,295)
                                                   ===========      ===========

Net loss per share - basic and diluted:
   As reported                                     $     (0.05)     $     (0.05)
                                                   ===========      ===========

   Pro forma                                       $     (0.10)     $     (0.06)
                                                   ===========      ===========


                                      -8-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      Compensation expense recorded for shares and options delivered to
non-employees for the nine months ended September 30, 2005 and 2004, was
approximately $212,000 and $153,000, respectively, which was charged to
operating expenses with an offsetting entry to additional paid-in capital.

      The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following assumptions for the
three month periods ended September 30, 2005 and 2004, respectively: risk-free
interest rates of 4.0% and 3.0% per annum; and expected volatility of 68% and
75%, respectively. We used the following assumptions for the nine month periods
ended September 30, 2005 and 2004, respectively: risk-free interest rates of
3.5% and 3.0% per annum; and expected volatility of 68% and 75%.

      A summary of the activity of options under the plans for the nine months
ended September 30, 2005 follows:
                                                              Weighted Average
                                          Number of Options   Exercise Price
                                          -----------------   --------------

Outstanding at December 31, 2004              3,647,925          $2.34

Granted                                         862,850           7.70
Exercised                                      (714,083)          0.87
Forfeited                                      (116,625)          6.05
                                             ----------          -----
Outstanding at September 30, 2005             3,680,067          $3.71
                                             ==========          =====

      Additional information about outstanding options to purchase the Company's
common stock as of September 30, 2005 is as follows:

<TABLE>
<CAPTION>
                                    Options Outstanding                     Options Exercisable
                   --------------------------------------------------   ---------------------------
                                      Weighted Avg.        Weighted                       Weighted
                                        Remaining            Avg.                           Avg.
                      Number of      Contractual Life      Exercise       Number of       Exercise
Exercise Price         Shares           (In Years)          Price          Shares          Price
--------------     ---------------   -----------------    ----------    ------------    -----------
<S>                   <C>                  <C>              <C>           <C>              <C>
$0.48 - $0.75         1,376,750            3.46             $0.63         1,376,750        $0.63
$2.85 - $5.77         1,285,717            3.58             $3.85           901,097        $4.00
$6.00 - $8.79         1,017,600            4.33             $7.68           389,369        $7.92
                                                                        ------------    -----------
    Total                                                                 2,667,216        $2.83
                                                                        ------------    -----------
</TABLE>

      A summary of the activity of warrants follows:

                                            Number of
                                           Underlying         Weighted Average
                                             Shares            Exercise Price
                                           ----------          --------------
Outstanding at December 31, 2004            607,460                $0.63

Exercised                                   (43,860)               $0.63
                                           ----------          --------------

Outstanding at September 30, 2005           563,600                $0.63
                                           ----------          --------------


                                      -9-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      Additional information about outstanding warrants to purchase the
Company's common stock as of September 30, 2005 is as follows:

<TABLE>
<CAPTION>
                                   Warrants Outstanding                     Warrants Exercisable
                   --------------------------------------------------   ---------------------------
                                       Weighted Avg.       Weighted                       Weighted
                                         Remaining           Avg.                           Avg.
                      Number of         Contractual        Exercise       Number of       Exercise
Exercise Price         Shares         Life (In Years)       Price          Shares          Price
--------------     ---------------   -----------------    ----------    ------------    -----------
   <S>                <C>                  <C>              <C>           <C>              <C>
   $0.63              563,600              3.46             $0.63         563,600          $0.63
                                                                        ------------    -----------
   Total                                                                  563,600          $0.63
                                                                        ------------    -----------
</TABLE>

3.    PENDING ACCOUNTING PRONOUNCEMENTS

The Securities and Exchange Commission (SEC) has changed the effective date of
the Statement of Financial Accounting Standards No. 123 (revised 2004) (SFAS
123(R)), "Share-Based Payment," to the beginning of the first annual period
beginning after June 15, 2005. In addition, the SEC has issued interpretation of
SFAS No. 123(R) in its Staff Accounting Bulleting (SAB) 107. Thus, Ionatron must
adopt SFAS 123(R), while taking into consideration the guidance in SAB 107 no
later than January 1, 2006. SFAS No. 123(R) and SAB 107 may negatively impact
our earnings; however, we have not completed an analysis of all of the
differences between Statement No. 123(R), SFAS No. 123 and SAB 107, including
the specific transition method to be utilized upon adoption.

4.    ACCOUNTS RECEIVABLE

      Accounts receivable consist of the following at:

<TABLE>
<CAPTION>
                                                               September 30,  December 31,
                                                                   2005          2004
                                                               --------------------------
<S>                                                             <C>            <C>
Billed:
            Completed contracts                                 $  309,292     $   17,432
            Contracts in progress                                4,425,755      2,264,509
            Retained                                               100,000        100,000

Unbilled cost and estimated earnings on uncompleted contracts       32,544      2,132,841
                                                               --------------------------

                                                                 4,867,591      4,514,782
            Less: Allowance for doubtful accounts                       --         17,432
                                                               --------------------------

            Total                                               $4,867,591     $4,497,350
                                                               ==========================
</TABLE>


                                      -10-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      The components of unbilled cost and estimated earnings on uncompleted
contracts consist of the following at:

<TABLE>
<CAPTION>
                                                                       September 30,      December 31,
                                                                           2005               2004
                                                                       -------------------------------
<S>                                                                    <C>                <C>
Cost incurred on uncompleted contracts                                 $ 22,699,468       $ 10,054,620
Estimated earnings                                                        1,601,906            739,332
                                                                       -------------------------------

  Total billable costs and estimated earnings                            24,301,374         10,793,952
  Less: Billings to date                                                 24,339,238          8,686,806
                                                                       -------------------------------

            Total                                                      $    (37,864)      $  2,107,146
                                                                       ===============================

Included in accompanying balance sheet under the following captions:

Unbilled costs and estimated earnings on uncompleted contracts
            included in accounts receivable                            $     32,544       $  2,132,841
Billings in excess of costs                                                 (70,408)           (25,695)
                                                                       -------------------------------

            Total                                                      $    (37,864)      $  2,107,146
                                                                       ===============================
</TABLE>

5.    INVENTORY

      Inventories, primarily consisting of labor, overhead and materials
pertaining to long-term contracts, are carried at cost. At December 31, 2004,
inventory was comprised only of materials. The reserve for obsolescence was zero
at September 30, 2005 and December 31, 2004.

6.    MUNICIPAL BONDS AVAILABLE FOR SALE

      Municipal bonds available for sale are those investments that the Company
intends to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available for sale would
be based on various factors, including significant movements in interest rates,
changes in the mix of the Company's assets and liabilities, liquidity needs, or
other similar factors. These investments are carried at fair value and are based
upon quoted prices. There can be no assurance that prices estimated for such
securities can be realized upon ultimate sale. Unrealized gains or losses are
reported as increases or decreases in accumulated other comprehensive income
(loss) in the consolidated statements of stockholders' equity. Realized gains or
losses are determined on the basis of the cost of specific investments sold and
are included in earnings.


                                      -11-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      The following is a summary of the Company's investment in marketable debt
securities as of September 30, 2005 and December 31, 2004:

                             Gross        Gross        Gross
                           amortized    unrealized   unrealized     Fair
                              cost        gains        losses       value
                   -------------------------------------------------------------
                                        September 30, 2005
                   -------------------------------------------------------------
Municipal bonds           $       --    $      --     $     --    $       --

                   -------------------------------------------------------------
                                         December 31, 2004
                   -------------------------------------------------------------
Municipal bonds           $1,000,000    $      --     $     --    $1,000,000

      At December 31, 2004, municipal bonds available for sale are classified as
current assets on the consolidated balance sheets with a variable interest rate
that is adjusted to the current market rate of interest every seven days. These
municipal bonds are readily convertible into cash.

7.    PROPERTY AND EQUIPMENT

      Property and Equipment consists of the following at:

                                                    September 30,   December 31,
                                                        2005           2004
                                                     -----------    -----------

Furniture and leasehold improvements                 $   413,384    $   201,249

Equipment and software                                 3,596,130      2,957,035
                                                     -----------    -----------

            Total                                      4,009,514      3,158,284

Less accumulated depreciation and amortization        (2,499,120)    (1,742,212)
                                                     -----------    -----------

Net property and equipment                           $ 1,510,394    $ 1,416,072
                                                     ===========    ===========
<PAGE>

8.    GOODWILL AND INDEFINITE LIFE INTANGIBLE ASSETS

      We account for Goodwill and Indefinite Life Intangible Assets based on the
method of accounting proscribed by the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets," and we have determined that Ionatron and North Star
are separate reporting units. We believe that the North Star trade name is an
indefinite life intangible asset.

      Ionatron has the ability to continue the business of North Star and
intends to do so. The $603,000 value assigned to the trade name was determined
by a valuation analysis prepared by Ionatron with the assistance of outside
consultants in connection with the acquisition of North Star. The value is based
on a discount of projected future cash flows. North Star is a segment of
Ionatron and the trade name is used in the continued promotion of North Star
products.

      Goodwill and indefinite life intangible assets will be tested annually for
impairment or more frequently if events or changes in circumstances indicate
that the assets might be impaired. In assessing the recoverability of goodwill
and indefinite life intangible assets, we must make assumptions about the
estimated future cash flows and other factors to determine the fair value of
these assets.

      Assumptions about future revenue and cash flows require significant
judgment because of the current state of the economy and the fluctuation of
actual revenue and the timing of expenses. We develop future cash flows based on
projected sales with the assumption that expenses will grow at rates consistent
with historical rates. If the expected cash flows are not realized, impairment
losses may be recorded in the future.

      For goodwill, the impairment evaluation includes a comparison of the
carrying value of the reporting unit (including goodwill) to that reporting
unit's fair value. If the reporting unit's estimated fair value exceeds the
reporting unit's carrying value, no impairment of goodwill exists. If the fair
value of the reporting unit does not exceed the unit's carrying value, then an
additional analysis is performed to allocate the fair value of the reporting
unit to all of the assets and liabilities of that unit. If the excess of the
fair value of the reporting unit over the fair value of the identifiable assets
and liabilities is less than the carrying value of the unit's goodwill, an
impairment charge is recorded for the difference.

      The impairment evaluation for indefinite life intangible assets is
performed by a comparison of the asset's carrying value to the asset's fair
value. When the carrying value exceeds fair value an impairment charge is
recorded for the amount of the difference. An intangible asset is determined to
have an indefinite useful life when there are no legal, regulatory, contractual,
competitive, economic, or any other factors that may limit the period over which
the asset is expected to contribute directly or indirectly to our future cash
flows. In addition, each reporting period, we evaluate the remaining useful life
of an intangible asset that is not being amortized to determine whether events
and circumstances continue to support an indefinite useful life. If an
intangible asset that is not being amortized is determined to have a finite
useful life, the asset will be amortized prospectively over the estimated
remaining useful life and accounted for in the same manner as intangible assets
subject to amortization.
<PAGE>
<TABLE>
<CAPTION>
                                                                   As of September 30, 2005
                                              ----------------------------------------------------------------
                                                  Gross Carrying Amount            Accumulated Amortization
                                              ------------------------------     -----------------------------
<S>                                           <C>                                <C>
Amortized Intangible Assets
   Patent                                                            34,000                             6,800
   Contractual Backlog                                               37,000                            37,000
   Technological Know-How                                           212,000                            42,400
                                              ------------------------------     -----------------------------
        Total                                                       283,000                            86,200
                                              ==============================     =============================

Unamortized Intangible Assets
                                              ------------------------------
   Tradename                                                        603,000
                                              ==============================
</TABLE>

<TABLE>
<CAPTION>
                                                                  As of December 30, 2004
                                              ----------------------------------------------------------------
                                                  Gross Carrying Amount            Accumulated Amortization
                                              ------------------------------     -----------------------------
Amortized Intangible Assets
<S>                                           <C>                                <C>
   Patent                                                            34,000                            1,700
   Contractual Backlog                                               37,000                            9,250
   Technological Know-How                                           212,000                           10,600
                                              ------------------------------     -----------------------------
        Total                                                       283,000                           21,550
                                              ==============================     =============================

Unamortized Intangible Assets
                                              ------------------------------
   Tradename                                                        603,000
                                              ==============================

Aggregate Amortization Expense:

For the nine months ended September 30, 2005                                                          64,650


Estimated Amortization Expense:
For the three months ended December 31, 2005                                                          12,300
For the year ended December 31, 2006                                                                  49,200
For the year ended December 31, 2007                                                                  49,200
For the year ended December 31, 2008                                                                  49,200
For the year ended December 31, 2009                                                                  36,900
                                                                                 -----------------------------
        Total                                                                                        196,800
                                                                                 =============================
</TABLE>


<PAGE>

The changes in the carrying amount of goodwill for the nine months ended
September 30, 2005 are as follows:

                                     North Star Segment  Company Total
                                       --------------   --------------
Balance as of December 31, 2004        $    1,487,884   $    1,487,884
Goodwill acquired during nine months               --               --
Impairement losses                                 --               --
                                       --------------   --------------
Balance as of September 30, 2005       $    1,487,884   $    1,487,884
                                       ==============   ==============

9.    ACCRUED EXPENSES

      Accrued expenses consisted of the following at:

                                          September 30, 2005   December 31, 2004
                                          --------------------------------------
Payroll liability                                   $505,039            $309,818
Deferred rent                                         74,769              52,874
Warranty reserve                                          --              40,000
Loss reserve                                          29,469                  --
Insurance premium financing                               --             199,171
Other                                                153,982             239,204
                                          --------------------------------------
Total accrued expenses                              $763,259            $841,067
                                          ======================================


                                      -12-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

10.   NOTE PAYABLE TO STOCKHOLDER

      The Company's Chairman, a significant stockholder, has provided funds from
the inception of the Company under a revolving credit arrangement. The maximum
amount borrowed was $5.3 million. After pay down of $500,000 and contribution of
$2 million of the revolving credit into equity in the first quarter of 2004, the
remainder of $2.8 million was incorporated into a new $3 million revolving
credit arrangement with the same terms as the original revolving credit
agreement. The note payable to stockholder bears interest at a variable annual
rate equal to the prime rate plus two percent (2%), is due upon demand subject
to Board approval, and is collateralized by the assets of our subsidiary,
Ionatron Technologies, Inc. $2.9 and $2.8 million was outstanding under the
revolving credit arrangements at September 30, 2005 and December 31, 2004,
respectively. Interest on this note was approximately $173,000 and $164,000 for
the nine months ended September 30, 2005 and September 30, 2004, respectively.

11.   INCOME TAXES

      We account for income taxes under an asset and liability approach that
requires the expected future tax consequences of temporary differences between
book and tax bases of assets and liabilities to be recognized as deferred tax
assets and liabilities. During the first quarter of 2004, we established a full
valuation allowance against our deferred tax assets because we determined it is
more likely than not that these deferred tax assets will not be realized in the
foreseeable future. Included in the deferred tax asset is a portion that is
attributable to losses that were incurred prior to a "change in ownership" as
defined by Internal Revenue Code rules. The amount that can be utilized each
year is fixed; however, annual limitation amounts not previously utilized carry
over to subsequent years and can be utilized to the extent of the total
unexpired NOL carryforward amount. The pre-change of control NOL carryforwards
will begin to expire in 2020.

      For the three and nine months ended September 30, 2005 we recorded a
provision for income taxes of $10,477 and $29,347, respectively, due to an
increase in deferred tax liabilities as a result of the tax amortization of
goodwill related to the North Star Acquisition.

12.   SIGNIFICANT CUSTOMERS

      The majority of our customers are either the U.S. Government or
contractors to the U.S. Government and represented 98% and 100% of revenues for
the nine months ended September 30, 2005 and 2004, respectively.

13.   NET LOSS PER SHARE

      Basic loss per share is computed as net income (loss) divided by the
weighted average number of common shares outstanding for the period. Diluted
loss per share reflects the potential dilution that could occur from common
shares issuable through exercise of stock options and warrants. The dilutive
effect of options and warrants, which were not included in the total of diluted
shares because the effect was antidilutive, was 2,553,938 and 3,225,055 shares
for the quarters ended September 30, 2005 and 2004, respectively.

14.   COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

      We lease office, manufacturing and storage space at our Tucson facility at
an annual rental of $330,000 under a non-cancelable operating lease agreement
from a company that is partially owned by our Chairman and other principal
stockholders. The lease expires in November 2012, contains renewal options and
an escalation provision at the end of five years that increases our annual rent
by $49,500. We account for the escalation provision by straight-lining the rent
expense. We are also responsible for certain property related costs, including
insurance, utilities and property taxes. Rent expense was approximately $89,000
for the three months ended September 30, 2005 and 2004.

      We lease office, manufacturing and storage space at our Albuquerque
facility with an annual rental of approximately $99,000. The lease expires in
August 2007 and contains an escalation provision for the last 12 months of the
lease that increases our annual rent by $2,900. The lease also contains an early
termination provision effective after July 1, 2006 which is permissible with a
120 day advance notice and a payment of approximately $15,000. We are also
responsible for certain property related costs, including insurance and
utilities. Rent expense was approximately $25,000 and $0 for the three months
ended September 30, 2005 and 2004, respectively.


                                      -13-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      We also lease office space in New York City for use by our Chairman with a
monthly rental of $925. The lease is month to month and we pay a portion of the
rent and office supplies including telephone and photocopy usage. Rent expense
was approximately $2,700 for the three months ended September 30, 2005 and 2004.

      On April 1, 2005 we took possession of the office, manufacturing and
warehouse facilities at the Stennis Space Center in Mississippi for which we had
entered into a lease in July 2004. Prior to taking possession on April 1, 2005,
the facility was being improved by the landlord to make the space ready for
lease and these improvements needed to be completed before we could take
possession. We did not have access to or control over the facility prior to
taking possession and had no financial obligations until the improvements were
completed to our satisfaction and the property was turned over to us on April 1,
2005. We are also not subject to any incentives or allowances for leasehold
improvements from the landlord. The lease is for a five-year term with the
annual rent increasing from $266,000 in the first year to $280,000 in the final
year for an aggregate commitment of $1,367,000. We account for the escalation
provision by straight-lining the rent expense. The lease may be renewed three
times in five-year increments. Through September 2005 we have paid a total of
$44,000 in deposits on the facility. Rent expense was approximately $68,000 for
the three months ended September 30, 2005.

      In addition, on September 16, 2005 we took possession of office and
manufacturing space at a Tucson facility at an annual rental of $48,682 under a
non-cancelable operating lease agreement that expires on September 30, 2006. We
are also responsible for certain property related costs, including insurance,
utilities and property taxes. Rent expense was approximately $4,000 for the
three months ended September 30, 2005.

      The Company also leases vehicles in both the Tucson and Albuquerque
facilities to facilitate our material purchasing activities. These lease
commitments total approximately $1,062 per month. We are responsible for
registration, licensing and insurance costs.

      Approximate future minimum lease payments due under these leases are:

             Years ending December 31,                          Amount
      --------------------------------------                  ----------
      For the remaining three months of 2005                  $  190,000
                       2006                                      746,000
                       2007                                      687,000
                       2008                                      660,000
                       2009                                      661,000
                    Thereafter                                 1,162,000
                                                              ----------

                         Total                                $4,106,000
                                                              ==========

GUARANTEES

      We agree to indemnify our officers and directors for certain events or
occurrences arising as a result of the officers or directors serving in such
capacity. The term of the indemnification period is for the officer's or
director's lifetime. The maximum amount of future payments that we could be
required to make under these indemnification agreements is unlimited. However,
we maintain a director's and officer's liability insurance policy that limits
our exposure and enables us to recover a portion of any future amounts paid. As
a result, we believe the estimated fair value of these indemnification
agreements is minimal because of our insurance coverage and we have not
recognized any liabilities for these agreements as of September 30, 2005.

LITIGATION

      We may from time to time be involved in legal proceedings arising from the
normal course of business. As of the date of this report, we were not involved
in any legal proceedings.


                                      -14-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

15.   SUPPLEMENTAL CASH FLOW INFORMATION

      Non-cash Investing and Financing Activities:

                                                            Nine months Ended
                                                              September 30,
                                                         -----------------------
                                                            2005         2004
                                                         ----------   ----------
Conversion of note payable to common stock               $       --   $2,000,000
Capital lease obligations incurred for use of equipment     119,746           --

16.   AGGREGATE PRODUCT WARRANTY LIABILITY:

      Included in the acquisition of North Star's assets, the Company assumed
liabilities for warranty claims against the purchased assets for $40,000. The
warranty is for products sold by North Star prior to the merger and will be
re-evaluated throughout the year.

Aggregate Product Warranty Liability:
--------------------------------------------------------------------------------
Beginning Balance at December 31, 2004                               $   40,000
  Payments made under warranties                                        (16,500)
  Change for accruals related to product warranties                          --
  Change for accruals related to preexisting warranties                 (23,500)
                                                                     ----------
Ending Balance at September 30, 2005                                 $       --
                                                                     ==========

17.   INDUSTRY SEGMENTS

      The Company is currently engaged in developing and marketing through two
distinct segments: (1) Ionatron, where the focus is on Directed Energy Weapon
technology products for sale to the U.S. Government and (2) North Star which was
acquired September 30, 2004, where the focus is on the manufacture of custom
high voltage equipment for sale in a more broad-based market. Prior to the
acquisition of North Star there was only one segment.

Selected Financial Data for the Three Months Ended September 30, 2005

<TABLE>
<CAPTION>
                                    Depreciation
     Business                           and          Interest       Interest          Net           Capital     Identifiable
     Segment          Revenues      Amortization      Income         Expense     Income/(Loss)   Expenditures      Assets
----------------------------------------------------------------------------------------------------------------------------
<S>                 <C>             <C>            <C>            <C>            <C>             <C>            <C>
Ionatron            $  5,904,014    $    295,285   $      8,913   $     63,594   $   (510,030)   $    244,233   $ 10,390,958
North Star             1,035,671          29,775            467            303        148,695              --      2,874,105
                    --------------------------------------------------------------------------------------------------------
Total Company          6,939,685         325,060          9,380         63,897       (361,335)        244,233     13,265,063
Intersegment            (720,524)             --             --             --             --              --        (85,380)
Investment in Sub             --              --             --             --             --              --     (2,415,000)
                    --------------------------------------------------------------------------------------------------------
Consolidated
   Company          $  6,219,161    $    325,060   $      9,380   $     63,897   $   (361,335)   $    244,233   $ 10,764,683
                    ========================================================================================================
</TABLE>


                                      -15-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Selected Financial Data for the Nine months Ended September 30, 2005

<TABLE>
<CAPTION>
                                       Depreciation
      Business                             and          Interest        Interest        Net            Capital
      Segment            Revenues      Amortization      Income         Expense     Income/(Loss)   Expenditures
----------------------------------------------------------------------------------------------------------------
<S>                    <C>             <C>            <C>            <C>            <C>             <C>
Ionatron               $ 11,785,933    $    831,619   $     29,132   $    179,190   $ (3,767,329)   $    858,329
North Star                1,995,996          89,154          1,249            886         47,700          31,195
                       -----------------------------------------------------------------------------------------
Total Company            13,781,929         920,773         30,381        180,076     (3,719,629)        889,524
Intersegment             (1,035,975)             --             --             --             --              --
Investment in Sub                --              --             --             --             --              --
                       -----------------------------------------------------------------------------------------
Consolidated Company   $ 12,745,954    $    920,773   $     30,381   $    180,076   $ (3,719,629)   $    889,524
                       =========================================================================================
</TABLE>

18.   SUBSEQUENT EVENTS

      Unregistered Sales of Equity Securities

      On October 27, 2005 we sold an aggregate of 720,000 shares (the "Offered
Shares") of its 6.5% Series A Redeemable Convertible Preferred Stock (the
"Series A Preferred Stock") with a stated value of $25 per share to 16
institutional accredited investors and one accredited investor for aggregate
gross proceeds of $18,000,000 (the "Financing"). The Company also granted to
each investor a 30-day option to purchase a number of additional shares of
Series A Preferred Stock equal to 15% of the Offered Shares, which shares will
be identical to the Offered Shares (the "Optional Shares" and, together with the
Offered Shares, the "Shares").

      The Series A Preferred Stock has a liquidation preference of $25.00 per
Share. The Series A Preferred Stock will bear dividends at the rate of 6.5% of
the liquidation preference per share per annum, which shall accrue from the date
of issuance, and shall be payable quarterly on February 1, May 1, August 1 and
November 1 of each year, commencing May 1, 2006, to the holders of record at the
close of business on the preceding January 15, April 15, July 15 and October 15,
respectively.

      Each share of Series A Preferred Stock is convertible at any time at the
option of the holder into a number of shares (the "Conversion Shares") of common
stock equal to the liquidation preference (plus any accrued and unpaid dividends
for periods prior to the dividend payment date immediately preceding the date of
conversion by the holder) divided by the conversion price (initially $12.00 per
share, subject to adjustment in the event of a stock dividend or split,
reorganization, recapitalization or similar event.)

      The Company may redeem the Series A Preferred Stock in whole or in part at
any time commencing November 1, 2008 and continuing through October 31, 2010,
upon at least 30 days' notice, at a redemption price, payable in cash, equal to
100% of the liquidation preference of the shares to be redeemed, plus accrued
and unpaid dividends thereon to, but excluding, the redemption date if: (1) the
closing price of the Common Stock has equaled or exceeded 140% of the then
effective conversion price on each of at least 20 trading days within a period
of 30 consecutive trading days ending within five trading days prior to the date
the Company mails the notice of redemption; (2) the Common Stock is listed on a
U.S. national securities exchange or The Nasdaq Stock Market; and (3) a shelf
registration statement covering resales of the Series A Preferred Stock and the
Common Stock issuable upon conversion of the Series A Preferred Stock is
effective on the redemption date, unless registration is no longer required.

      In addition, beginning November 1, 2010, the Company may redeem the Series
A Preferred Stock in whole or in part, upon at least 30 days' notice, at a
redemption price, payable in cash, equal to 100% of the liquidation preference
of the Series A Preferred Stock to be redeemed, plus accrued and unpaid
dividends thereon to, but excluding, the redemption date, if: (1) the Common
Stock is listed on a U.S. national securities exchange or The Nasdaq Stock
Market; and (2) a shelf registration statement covering resales of the Preferred
Stock and the Common Stock issuable upon conversion of the Series A preferred
stock is effective on the redemption date, unless registration is no longer
required.


                                      -16-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      If a Change of Control (as defined in the Certificate of Designation of
the Series A Preferred Stock (the "Designation")) occurs, the holders of
Preferred Stock may require the Company to purchase all or part of their
outstanding shares of Preferred Stock at a repurchase price equal to 101% of
their liquidation preference, plus accrued and unpaid dividends thereon to, but
excluding, the repurchase date. The Company will have the option to pay for
these shares either in cash, shares of Common Stock valued at 95% of the
weighted average closing sale price of the Common Stock for the ten-trading day
period ending on the third trading day prior to the date of purchase, or a
combination of cash and shares of Common Stock.

      If a Make Whole Change of Control (defined below) becomes effective prior
to December 12, 2007, holders of Series A Preferred Stock shall be entitled to
receive a make whole premium, payable in shares of Common Stock or in the same
form of consideration into which all or substantially all of the Common Stock
has been converted or exchanged in connection with the Make Whole Change of
Control. The make whole premium is a dollar amount as specified in the
Designation and will be based on the effect date of the Make Whole Change of
Control. Holders of Preferred Stock will not be entitled to the make whole
premium if the per share cash consideration paid to the Company's Common Stock
holders for the related Make Whole Change of Control as determined in accordance
with the Designation is less than $10.34 or greater than $20.68 (which amounts
are subject to adjustment as of any date on which the conversion rate is
adjusted).

      A "Make Whole Change of Control" means a change of control transaction
involving a merger or consolidation in which the Company is not the surviving
entity, unless (x) at least 90% of the consideration (excluding cash payments
for fractional shares and cash and cash payments for dissenters' appraisal
rights) in the make whole change of control consists of common stock of a United
States company traded on a U.S. national securities exchange or quoted on the
Nasdaq Stock Market (or will be so quoted or traded when issued or exchanged in
connection with such transaction) and (y) as a result of such transaction or
transactions, the outstanding shares of Series A Preferred Stock become
convertible into such common stock.

      The Series A Preferred Stock will rank, with respect to dividend rights
and rights upon liquidation, winding-up or dissolution:

      > junior to all of the existing and future liabilities, whether or not for
borrowed money;

      > junior to each class or series of the Company capital stock the terms of
which expressly provide that it will rank senior to the Series A Preferred
Stock;

      > on a parity with any other class or series of the Company's capital
stock that has terms which expressly provide that it will rank on a parity with
the Series A Preferred Stock;

      > senior to the Common Stock and each other class or series of capital
stock that has terms which do not expressly provide that it will rank senior to
or on a parity with the Series A Preferred Stock; and

      > effectively junior to all of the existing and future liabilities of
existing and future subsidiaries.

      Holders of the Series A Preferred Stock will have no voting rights with
respect to such shares except as required by law and except that the Company may
not create or increase the amount of any class or series of capital stock that
ranks senior to the Series A Preferred Stock or amend its certificate of
incorporation or alter or change any power, preference or special right of the
outstanding Series A Preferred Stock in any manner materially adverse to the
interest of the holders thereof without the consent of the holders of at least
two-thirds of the shares of Series A Preferred Stock then outstanding.

      In connection with the Financing, the Company entered into a registration
rights agreement with each purchaser of Series A Preferred Stock in which the
Company agreed to file a shelf registration statement with the SEC covering the
resale of Shares, including any Option Shares and the shares of Common Stock
issuable upon conversion of the Shares within 45 days after the closing. The
Company also agreed in the registration rights agreement to use its best efforts
to have the registration statement declared effective within 150 days, subject
to extension in certain circumstances to date no later than March 31, 2006 and
to keep the shelf registration statement effective for a specified period.


                                      -17-
<PAGE>

                                 IONATRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

      If the shelf registration statement is not timely filed or made effective
or if the prospectus in the registration statement is unavailable for periods in
excess of specified periods (referred to as a "registration default") or the
Company fails to make a dividend payment within five business days following a
dividend payment date, the dividend rate shall immediately and automatically
increase by 1% from 6.5% of the liquidation preference per share of Series A
Preferred Stock to 7.5% of such liquidation preference for as long as such
failure continues and immediately return to 6.5% of the liquidation preference
per shares of Series A Preferred Stock per annum at such time as such failure no
longer continues), but only up to 90 days in the case of a registration default
and thereafter in the case of a registration default if, at such time, the
failure is continuing, the dividend rate shall immediately and automatically
further increase to 10% of the liquidation preference per offered share per
annum for as long as such failure continues and shall immediately and
automatically return to 6.5% at such time as the failure is no longer
continuing; and, if a dividend payment default occurs for two consecutive
dividend payment dates, the dividend rate shall immediately and automatically
increase to 10% of the liquidation preference per share of Series A Preferred
Stock per annum until such dividend payment default is no longer continuing.

      The Company entered into an agency agreement with J Giordano Securities
Group ("J Giordano"), pursuant to which J Giordano served as placement agent in
connection with the Financing. For serving as placement agent, J Giordano
received a placement agent fee of $1,220,000 and issued to J Giordano five-year
warrants to purchase an aggregate of 101,666 shares of Common Stock (the "Agent
Warrants"). The Agent Warrants are exercisable at a price of $12.00 per share
and contain a cashless exercise provision. J Giordano will also receive
additional placement agent fees of up to 7% of the gross proceeds from the sale
of any Option Shares issued upon the exercise of options by the investors and
additional Agent Warrants of up to 7% of the number of shares of Common Stock
issuable upon conversion of the Option Shares issued to investors upon exercise
of options exercised by investors. The Company granted J Giordano certain
registration rights with respect to the Shares of Common Stock issuable upon
exercise of the Agent Warrants. In addition, if within twelve months following
the closing of the Financing, the Company sells, directly or indirectly,
securities to any purchasers (other than securities in connection with a working
capital loan or facility or project debt financing), J Giordano will be entitled
to receive the same compensation with respect to such sale of securities as it
will receive in connection with the Financing.

      The net proceeds to the Company from the Financing, after deducting
placement agent fees and expenses and other expenses were approximately $16.6
million. The Company intends to use a portion of the net proceeds from the
Financing to repay the $2.9 million principal amount note payable to the
Company's Chairman of the Board under its revolving credit facility.

      The shares and the Agent Warrant (the "Financing Securities") were issued
in the Financing without registration under the Securities Act of 1933, as
amended (the "Act"), in reliance upon the exemptions from registration provided
under Section 4(2) of the Act and Regulation D promulgated there under. The
issuances did not involve any public offering; the Company made no solicitation
in connection with the Financing other than communications with the investors;
the Company obtained representations from the investors and J Giordano regarding
their investment intent, experience and sophistication; the investors and J
Giordano either received or had access to adequate information about the Company
in order to make informed investment decisions; the Company reasonably believed
that the investors and J Giordano were sophisticated within the meaning of
Section 4(2) of the Act and "accredited investors" as defined in Regulation D;
and the Financing Securities were issued with restricted securities legends.

      Amendment to Articles of Incorporation

      On October 27, 2005, the Company filed a Certificate of Elimination, filed
with the Secretary of State of the State of Delaware a Certificate of
Elimination electing its primarily designated 10% Series A Convertible Preferred
Stock, par value $.001 per share (the "10% Preferred Stock"). The elimination of
the 10% Preferred Stock was approved by the Company's Board of Directors on
October 18, 2005 and did not require a vote of stockholders. No shares of 10%
Preferred Stock were outstanding.

      On October 27, 2005, the Company filed a Certificate of Designation with
the Secretary of State of the State of Delaware designating 950,000 shares of
6.5% Series A Convertible Preferred Stock.


                                      -18-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      Our discussion and analysis of the financial condition and results of
operations should be read in conjunction with the unaudited consolidated
financial statements and the related disclosures included elsewhere herein and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations included as part of our Annual Report on Form 10-K for the year ended
December 31, 2004.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the securities laws.
Forward-looking statements include all statements that do not relate solely to
the historical or current facts, and can be identified by the use of forward
looking words such as "may", "believe", "will", "expect", "expected", "project",
"anticipate", "anticipated estimates", "plans", "strategy", "target",
"prospects" or "continue". These forward looking statements are based on the
current plans and expectations of our management and are subject to a number of
uncertainties and risks that could significantly affect our current plans and
expectations, as well as future results of operations and financial condition
and may cause our actual results, performances or achievements to be materially
different from any future results, performances or achievements expressed or
implied by such forward-looking statements. Important factors that could cause
our actual results to differ materially from our expectations are described in
Exhibit 99.1 (Risk Factors) to our Annual Report on From 10-K for the year ended
December 31, 2004. In making these forward-looking statements, we claim the
protection of the safe-harbor for forward-looking statements contained in the
Private Securities Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. We do not
assume any obligation to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors affecting
such forward-looking statements.

OVERVIEW

      Ionatron was formed on June 3, 2002 to develop and market Directed Energy
Weapon technology products initially for sale to the U.S. Government. Ionatron
and the U.S. Government have entered into several contracts for products and
services as well as Cooperative Research and Development Agreements for joint
research on Laser Induced Plasma Channel ("LIPC") based directed energy weapons.
We expect to offer U.S. Government approved versions of our products for
commercial security applications in the future. During 2003 and 2002, the
Company engaged in research and development and business development activities
culminating in our first U.S. Government contract in September of 2003. During
2004, we demonstrated the laser guided man-made lightning directed energy
technology in the laboratory; demonstrated the technology effects on a variety
of targets both under U.S. Government contract and using internal research and
development funding; delivered a compact laser source specifically designed to
enable the technology under a U.S. Government contract; and commenced a U.S.
Government contract for the development of a system on a mobile platform for
field demonstration and testing. In 2005, we developed a counter IED
("Improvised Explosive Device") vehicle for use in Iraq called the Joint IED
Neutralizer ("JIN"). Our JIN units have been tested by the government and have
been determined to have military utility - which the Government requires before
it will consider ordering production units.

      On March 18, 2004, a subsidiary of U. S. Home & Garden Inc. (USHG), a
non-operating, publicly traded company, merged into Ionatron Technologies, Inc.,
formerly Ionatron, Inc. (the "Merger"). Following the Merger, USHG shareholders
held 33.89% and Ionatron shareholders held 66.11% of the outstanding USHG common
stock. The combination has been accounted for as a recapitalization of Ionatron,
Inc., from our inception on June 3, 2002, and the issuance of 19,346,090 common
shares and 5,429,009 options and warrants to the USHG shareholders on the date
of merger in exchange for cash. The consolidated financial statements reflect
the historical results of Ionatron, Inc., prior to March 18, 2004 and the
consolidated results of operations of the Company since March 18, 2004. On April
29, 2004, our shareholders approved the change of our corporate name to
Ionatron, Inc., an increase of authorized common stock to 100,000,000 shares and
the classification of the Board of Directors into three classes. Ionatron also
changed its fiscal year end from June 30 to December 31.

      In September 2004, we completed the acquisition of substantially all the
assets of North Star Research Acquisition Corporation (formerly North Star
Research Corporation), a New Mexico corporation engaged in the business of
designing and manufacturing a broad range of high voltage equipment for the
defense, aerospace, semi-conductor, and medical industries. Subsequent to the
acquisition we changed the corporation's name to North Star Power Engineering
Inc. ("North Star"). North Star power supplies are utilized in Ionatron
products.

OPERATING SEGMENTS:

      We are currently engaged in developing and marketing through two distinct
segments: (1) Ionatron, where the focus is on Directed Energy Weapon technology
products for sale to the U.S. Government and (2) North Star, where the focus is
on the manufacture of custom high voltage equipment for sale to a more
broad-based market.


                                      -19-
<PAGE>

CRITICAL ACCOUNTING POLICIES

Use of Estimates

      Our consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles (GAAP), which require management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. We have identified the
following significant accounting policies that require a higher degree of
judgment and complexity. See Note 1 to the Company's audited consolidated
financial statements contained in its Annual Report on Form 10-K, which is
incorporated herein by reference for information with respect to other
significant accounting policies.

Revenues

      Revenue has been derived from ongoing contract work for effects testing
and the design and development of an in house demonstration system for a
government customer. It is expected that continued work on effects testing,
design and development of use specific Ionatron systems, advanced design and
proof of principle on an existing contract, compact laser source development and
the manufacture of a transportable demonstrator will contribute to revenues
through June 2006. This work is expected to be generally performed under
cost-plus contracts with U.S. Government customers.

      Revenue under long-term U.S. Government contracts is recorded under the
percentage of completion method. Revenues, billable monthly, under cost plus
fixed fee contracts are recorded as costs are incurred and include estimated
earned fees in the proportion that costs incurred to date bear to total
estimated costs. Costs include direct labor, direct materials, and subcontractor
costs and overhead. As contracts can extend over one or more accounting periods,
revisions in costs and earnings estimated during the course of work are
reflected during the accounting period in which the facts become known. When the
current contract estimate indicates a loss, provision is made for the total
anticipated loss in the current period.

      The asset accounts receivable includes costs and estimated earnings in
excess of billings on uncompleted contracts which represents revenues recognized
in excess of amounts billed. Such revenues are billable under the terms of the
contracts as of the balance sheet date, yet were not invoiced until the
following month, and are generally expected to be collected within 60 days. The
liability "billings in excess of costs" represents billings and estimated
earnings in excess of revenues recognized on uncompleted contracts

      Revenues for other products and services are recognized when such products
are delivered and, in connection with certain sales to government agencies, when
the products and services are accepted, which is normally negotiated as part of
the initial contract. Revenues from commercial, non-governmental, customers are
based on fixed price contacts where the sale is recognized upon acceptance of
the product or performance of the service.

Cost of Revenue

      Cost of revenue under long-term U.S. Government contracts is recorded
using the cost plus fixed fee method. Cost of revenue is recorded as costs are
incurred. Costs include direct labor, direct materials, subcontractor costs and
manufacturing and administrative overhead. General and administrative expenses
allowable under the terms of the contracts are allocated per contract depending
on its direct labor and material proportion to total direct labor and material
of all contracts.

      As contracts can extend over one or more accounting periods, revisions in
costs estimated during the course of work are reflected during the accounting
period in which the facts become known.

Goodwill and Indefinite Life Intangible Assets

      We account for Goodwill and Indefinite Life Intangible Assets based on the
method of accounting proscribed by the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets," and we have determined that Ionatron and North Star
are separate reporting units. We believe that the North Star trade name is an
indefinite life intangible asset.

      Ionatron has the ability to continue the business of North Star and
intends to do so. The $603,000 value assigned to the trade name was determined
by a valuation analysis prepared by Ionatron with the assistance of outside
consultants in connection with the acquisition of North Star. The value is based
on a discount of projected future cash flows. North Star is a segment of
Ionatron and the trade name is used in the continued promotion of North Star
products.


                                      -20-
<PAGE>

      Goodwill and indefinite life intangible assets will be tested annually for
impairment or more frequently if events or changes in circumstances indicate
that the assets might be impaired. In assessing the recoverability of goodwill
and indefinite life intangible assets, we must make assumptions about the
estimated future cash flows and other factors to determine the fair value of
these assets.

      Assumptions about future revenue and cash flows require significant
judgment because of the current state of the economy and the fluctuation of
actual revenue and the timing of expenses. We develop future cash flows based on
projected sales with the assumption that expenses will grow at rates consistent
with historical rates. If the expected cash flows are not realized, impairment
losses may be recorded in the future.

      For goodwill, the impairment evaluation includes a comparison of the
carrying value of the reporting unit (including goodwill) to that reporting
unit's fair value. If the reporting unit's estimated fair value exceeds the
reporting unit's carrying value, no impairment of goodwill exists. If the fair
value of the reporting unit does not exceed the unit's carrying value, then an
additional analysis is performed to allocate the fair value of the reporting
unit to all of the assets and liabilities of that unit. If the excess of the
fair value of the reporting unit over the fair value of the identifiable assets
and liabilities is less than the carrying value of the unit's goodwill, an
impairment charge is recorded for the difference.

      The impairment evaluation for indefinite life intangible assets is
performed by a comparison of the asset's carrying value to the asset's fair
value. When the carrying value exceeds fair value an impairment charge is
recorded for the amount of the difference. An intangible asset is determined to
have an indefinite useful life when there are no legal, regulatory, contractual,
competitive, economic, or any other factors that may limit the period over which
the asset is expected to contribute directly or indirectly to our future cash
flows. In addition, each reporting period, we evaluate the remaining useful life
of an intangible asset that is not being amortized to determine whether events
and circumstances continue to support an indefinite useful life. If an
intangible asset that is not being amortized is determined to have a finite
useful life, the asset will be amortized prospectively over the estimated
remaining useful life and accounted for in the same manner as intangible assets
subject to amortization.

RESULTS OF OPERATIONS

      COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND
2004 IS AS FOLLOWS:

                                                       2005             2004
                                                   ----------------------------
Revenue                                            $ 6,219,161      $ 2,628,982
Cost of revenue                                      5,560,579        2,441,243
     General and administrative                        580,042          726,158
     Selling and marketing                             144,928          112,825
     Research and development                          231,806          211,895
Other (expense) income:
     Interest expense                                  (63,897)         (46,539)
     Interest income                                     9,380           13,652
     Other                                               1,853               --
                                                   ----------------------------
Loss before provision for income taxes                (350,858)        (896,026)
Provision for income taxes                              10,477               --
                                                   ----------------------------

Net loss                                           $  (361,335)     $  (896,026)
                                                   ============================

      REVENUE

      The increase in revenue for the three months ended September 30, 2005
compared to 2004 was derived from work on existing contracts with agencies of
the U.S. government, revenue from the Company's JIN pre-production contract as
well as the inclusion of North Star's revenue of approximately $315,000, which
is net of intersegment revenue. Ionatron had total revenues of approximately
$6.3 million for the three months ended September 30, 2005 compared to
approximately $2.6 million for the three months ended September 30, 2004. North
Star had total revenues of approximately $315,000, which is net of intersegment
revenues, for the three months ended September 30, 2005. Ionatron acquired North
Star on September 30, 2004. Accordingly, North Star's operations had no impact
on Ionatron's consolidated results of operations for the three months ended
September 30, 2004.


                                      -21-
<PAGE>

      COST OF REVENUE

      Cost of revenue increased when compared to the three months ended
September 30, 2004 due to more work being done and more materials acquired under
our government contracts by approximately $2.9 million and the inclusion of
North Star's cost of revenue of approximately $227,000, net of intersegment cost
of revenue. Cost of revenue includes an allocation of general and administrative
expenses and research and development costs in accordance with the terms of our
contracts.

      GENERAL AND ADMINISTRATIVE

      The decrease in general and administrative expenses for the three months
ended September 30, 2005 from the three months ended September 30, 2004 was due
to significant rise in the amount of indirect costs which were allocated to cost
of sales. This was offset in part by an increase of approximately $113,000 in
personnel costs, higher insurance costs of approximately $70,000, increases in
recruiting costs of approximately $57,000 and increases in depreciation and
amortization expense of approximately $68,000.

      SELLING AND MARKETING

      Selling and marketing expenses increased by approximately $32,000 during
the three months ended September 30, 2005 primarily resulting from increased
efforts to market our technology and increase our customer base.

      RESEARCH AND DEVELOPMENT

      Research and development expenses increased approximately $20,000 during
the three months ended September 30, 2005 as compared to 2004 primarily due to
our shift to internally funded proof of concept and research and development
from production and research and development under contracts in 2005.

      INTEREST EXPENSE

      The interest expense on our credit line payable to our Chairman increased
approximately $17,000 from the second quarter of 2004 to the same period in 2005
primarily as a result of the increase in prime rate. See "Liquidity and Capital
Resources" for further information concerning the restructuring of the credit
line agreement.

      INTEREST INCOME

      Interest income in the third quarter of 2005 decreased approximately
$4,000 from the second quarter of 2004 as a result of reduction of investment in
the short-term investment fund.

      NET LOSS

      The operations for the three months ended September 30, 2005 resulted in a
net loss of approximately $361,000, an improvement from the 2004 net loss of
approximately $896,000. Revenues increased 137% primarily due to increased work
under our JIN project and other government contracts, cost of sales increased
128% primarily due to more work being done and more materials being acquired,
general and administrative expenses decreased 20% primarily due to a significant
rise in the amount of indirect costs allocated to cost of sales. Research and
development expenses increased 9% from 2004 due to the shift to internal
research and development from development under contracts. Selling and marketing
expenses increased 29% during the third quarter of 2005 as compared to the third
quarter of 2004 due to efforts to market our technology and increase our
customer base.


                                      -22-
<PAGE>

      COMPARISON OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND
2004 IS AS FOLLOWS:

                                                     2005              2004
                                                 ------------------------------
Revenue                                          $ 12,745,954      $  4,734,996
Cost of revenue                                    11,740,891         4,422,996
     General and administrative                     3,449,053         2,491,097
     Selling and marketing                            375,590           344,897
     Research and development                         723,452           512,793
Other (expense) income:
     Interest expense                                (180,076)         (164,239)
     Interest income                                   30,381            34,873
     Other                                              2,445                --
                                                 ------------------------------
Loss before provision for income taxes             (3,690,282)       (3,166,153)
Provision for income taxes                             29,347                --
                                                 ------------------------------

Net loss                                         $ (3,719,629)     $ (3,166,153)
                                                 ==============================

      REVENUE

      The increase in revenue for the nine months ended September 30, 2005
compared to 2004 was derived from approximately $7.2 million increased revenue
from work on existing contracts with agencies of the U.S. government, revenue
from the Company's JIN pre-production contract as well as the inclusion of North
Star's revenue of approximately $960,000, which is net of intersegment revenue.

      COST OF REVENUE

      Cost of revenue also increased when compared to the nine months ended of
September 30, 2004 due to more work being done and more materials acquired under
government contracts and under the JIN contracts as well as the inclusion of
North Star's cost of revenue of approximately $663,000, which is net of
intersegment costs. Cost of revenue includes an allocation of general and
administrative expenses and research and development costs in accordance with
the terms of our contracts.

      GENERAL AND ADMINISTRATIVE

      The increase in general and administrative expenses for the nine months
ended September 30, 2005 from the nine months ended September 30, 2004 is
primarily due to an increase of approximately $1.4 million in personnel costs.
Also contributing to the increase is a rise in depreciation and amortization
expense of approximately $256,000 and increases in professional fees and
insurance of approximately $662,000 and $288,000, respectively. Included in the
professional fees are costs of approximately $386,000 related to compliance with
Section 404 of the Sarbanes-Oxley Act of 2002. Offsetting these increases was a
significant rise in the amount of indirect costs which were allocated to cost of
sales. North Star's general and administrative expense for the nine months ended
September 30, 2005 was approximately $119,000.

      SELLING AND MARKETING

      Selling and marketing expenses increased approximately $31,000 during the
nine months ended September 30, 2005 when compared to the nine months ended
September 30, 2004 due to increased efforts to market our technology and
increase our customer base.

      RESEARCH AND DEVELOPMENT

      Research and development expenses increased approximately $211,000 during
the nine months ended September 30, 2005 as compared to 2004 primarily due to
our shift to internally funded proof of concept and research and development
from production and research and development under contracts in 2005.


                                      -23-
<PAGE>

      NET LOSS

      The operations for the nine months ended September 30, 2005 resulted in a
net loss of $3,720,000 an increase from the 2004 net loss of $3,166,000. Revenue
increased 169% and cost of revenue increased 166%. General and administrative
expenses increased 39% primarily due to additional staff, additional costs
associated with being a publicly held company and depreciation expense. 2005
research and development expenses increased by 41% from 2004 as expected due to
the shift to internal research and development from development under contracts.
Selling and marketing expenses increased 8% resulting from increased efforts to
market our technology and increase our customer base. North Star's net income
for the nine months ended September 30, 2005 was approximately $58,000.

      LIQUIDITY AND CAPITAL RESOURCES

      At September 30, 2005, we had approximately $588,000 of cash and cash
equivalents, a decrease of $1.9 million from cash and cash equivalents at
December 31, 2004 of $2.5 million. Additionally at December 31, 2004, we had
$1.0 million of investments held in a bond fund which is re-priced weekly.

      During the first three quarters of 2005, we used $2.6 million of cash in
operating activities, consisting primarily of our net loss of $3.7 million and
an increase in inventory and accounts receivable of $698,000 and $370,000,
respectively, offset by depreciation and amortization expense of $921,000 and an
increase in accounts payable of $1 million. The increase in inventory is
primarily the result of material acquisitions in the JIN project with the U.S.
government. We anticipate that short-term and long-term funding needs will be
provided from cash on hand, cash flow from government contracts, as well as our
available line of credit.

      In the first nine months of 2005, investing activities provided
approximately $110,000 of cash, consisting of liquidation of the investments of
$1 million partially offset by equipment purchases of $890,000.

      During the first nine months of 2005, financing activities provided
$608,000 of cash, primarily due to cash proceeds of $525,000 from option
exercises. During the third quarter of 2005, we increased outstanding borrowings
under the revolving credit agreement with our Chairman by $100,000 to $2.9
million.

      On October 27, 2005 we sold an aggregate of 720,000 shares of its 6.5%
Series A Redeemable Convertible Preferred Stock with a stated value of $25 per
share to 16 institutional accredited investors and one accredited investor for
aggregate gross proceeds of $18,000,000. In connection with the financing, we
granted each purchaser a 30-day option to purchase an additional 15% of the
number of shares of preferred stock purchased by the purchasers at the same
price as the shares sold in the offering. After payment of placement agent fees
and other transaction expenses, we received proceeds of approximately $16.6
million.

      As a result of Hurricane Katrina, we temporarily shifted our manufacturing
operations from our Stennis facility in Mississippi to a temporary facility in
Tucson. This move did not create any material interruption in our production nor
result in any additional material costs. We are in process of bringing Stennis
facility up to production status.

      We believe that we have sufficient cash, or access to sufficient cash
through potential banking or investing relationships to meet current and future
cash needs. The transportable demonstrator contract, the JIN contract and one
other contract, that presently represent a major portion of our current
activity, are on a cost plus fixed fee basis. This means the majority of work
performed is done at our government-approved rates, which include general and
administrative costs, overhead, labor and materials, fees and profit. These
costs are accrued as incurred and billed monthly. These government-approved
rates are adjusted periodically and will be adjusted in the future to
incorporate additional costs as the operations expand. Other contracts are at
fixed prices which have commercial type gross margins associated with them.

      BACK-LOG OF ORDERS

      At September 30, 2005, we had a backlog (that is, work load remaining on
signed contracts) of $10,080,000 to be completed within the next twelve months.
In July 2005, we received a $6.4 million contract for the further development of
our LIPC technology which was increased to $6.9 million in September. The
funding for this contract is derived from the Fiscal Year 2005 Congressional
Plus Up contained in the 2005 Department of Defense budget. The contract allows
work to begin on critical items desired by the customer while further
discussions continue as to the remainder of the Scope of Work for that funding.
In September 2005, we definitized the contract for production of the first JIN
(Joint IED Neutralizer) system prototypes for $7.6 million. We then received a
new letter contract for an additional $2.1 million from the U.S. government for
this project to complete the training and testing phases. Final contract details
are being negotiated for deployment and system improvements. With respect to the
LIPC Transportable Demonstrator project, that effort remains on hold as the
Government is transferring responsibility for the project to a different end
user organization. Upon completion of the formal transfer for project
responsibility, we expect the funding will be restarted and the Demonstrator
will be completed and delivered to the new sponsoring organization.

                                      -24-
<PAGE>

      CONTRACTUAL OBLIGATIONS

      As of September 30, 2005, the Company had contractual obligations in the
form of non-cancelable and cancelable leases and note payable to stockholder as
follows:

<TABLE>
<CAPTION>
                                                    Payment by Period
                              --------------------------------------------------------------
                                           Less than      1 to 3        4 to 5     More than
                                Total        1 Year       Years         Years       5 Years
                              --------------------------------------------------------------
<S>                           <C>          <C>          <C>          <C>          <C>
Capital lease                 $  120,513   $   43,561   $   76,010   $      942   $       --
Note payable to stockholder    2,900,000    2,900,000           --           --           --
Operating lease                4,106,000      758,000    1,360,000    1,181,000      807,000
                              --------------------------------------------------------------

    Total                     $7,126,513   $3,701,561   $1,436,010   $1,181,942   $  807,000
                              ==============================================================
</TABLE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

      In the normal course of business, our financial position is subject to a
variety of risks, such as the collectibility of our accounts receivable and the
recoverability of the carrying values of our long-term assets. We do not
presently enter into any transactions involving derivative financial instruments
for risk management or other purposes.

      Our available cash balances are invested on a short-term basis and are not
subject to significant risks associated with changes in interest rates.
Substantially all of our cash flows are derived from our operations within the
United States and we are not subject to market risk associated with changes in
foreign exchange rates.

      We are exposed to market risk for the impact of interest rate changes, as
the interest rate of our borrowings under our revolving credit agreement with
our Chairman is subject to changes based on changes in the prime interest rate;
should that rate increase by 1%, the effect would be an increase in the net loss
for the nine months ended September 30, 2005 by approximately $21,000.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

      As of the end of the period covered by this report, an evaluation was
carried out under the supervision and with the participation of our management,
including our chief executive officer/chief financial officer, of the
effectiveness of our disclosure controls and procedures. Based on that
evaluation, our chief executive officer/chief financial officer has concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. During the quarter ended September 30, 2005, there were no
significant changes in our internal controls over financial reports that have
materially affected, or which are reasonably likely to materially affect our
internal controls over financial reporting.


                                      -25-
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

      We may from time to time be involved in legal proceedings arising from the
normal course of business. As of the date of this report, we were not involved
in any legal proceedings.

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      During the nine months ended September 30, 2005, the Company issued
668,708 shares of common stock upon exercise of outstanding options and warrants
to employees, directors and consultants, as well as 10,000 shares of common
stock issued to consultants for services. The securities were issued pursuant to
an exemption from registration pursuant to Section 3(a)(9) of the Securities Act
of 1933.

ITEM 6 EXHIBITS

      EXHIBIT
      NUMBER      DESCRIPTION
      --------------------------------------------------------------------------

      31.1        Certificationv of Chief Executive and Chief Financial Officer
                  pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange
                  Act of 1934, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

      32.1        Chief Executive Officer and Chief Financial Officer
                  Certification  pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                      -26-
<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.

                                          IONATRON, INC.

               By /s/ Thomas C. Dearmin
                  ---------------------
                  Thomas C. Dearmin
                  Chief Executive Officer, President and Chief Financial Officer

Date: November 9, 2005


                                      -27-