**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 June 30, 2006





**OR**





**o**  **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 Incorporation or Organization)
            
            (IRS
                Employer Identification Number)





**3716
                  East Columbia Street**
                **Tucson,
                  Arizona**
              **85714**
                (Zip
                  Code)(Address
                  of Principal Executive Offices)**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 o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, an accelerated filer, or a non-accelerated filer. See
      definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
      the Exchange Act. (Check one):


Large
                  Accelerated Filer o
              Accelerated
                  Filer x
              Non-Accelerated
                  Filer o





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


Yes
o
      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 July 31, 2006 there were
      73,322,547 shares of the issuer's common stock, par value $.001 per share,
      outstanding.








IONATRON,
      INC.


June
      30,
      2006




PART
                  I -
              
              FINANCIAL
                  INFORMATIONItem
                  1-
              
              Consolidated
                  Financial StatementsConsolidated
                  Balance Sheets as of June 30, 2006 (Unaudited) and December 31,
                  2005
              3Consolidated
                  Statements of Operations for the three months ended June 30, 2006and
                  2005 (Unaudited)
              4Consolidated
                  Statements of Operations for the six months ended June 30, 2006
                  and2005
                  (Unaudited)
              5Consolidated
                  Statement of Stockholders' Equity for the six months ended June
                  30, 2006
                  (Unaudited)
              6Consolidated
                  Statements of Cash Flows for the six months ended June 30, 2006
                  and2005
                  (Unaudited)
              7Notes
                  to Consolidated Financial Statements
              8Item
                  2-
              
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              17Item
                  3-
              
              Quantitative
                  and Qualitative Disclosures About Market Risk
              22Item
                  4-
              
              Controls
                  and Procedures
              22PART
                  II -
              
              OTHER
                  INFORMATION
              23Item
                  1-
              
              Legal
                  Proceedings
              23Item
                  1a-
              
              Risk
                  Factors
              23Item
                  2-
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              23Item
                  4-
              
              Submission
                  of Matters to a Vote of Security Holders
              23Item
                  6-
              
              Exhibits
              24SIGNATURES
              25


-2-


**PART
      I FINANCIAL INFORMATION**


**ITEM
      1. CONSOLIDATED FINANCIAL STATEMENTS**




IONATRON,
        INC.


CONSOLIDATED
        BALANCE SHEETS


**June
                  30, 2006**
              
              **December
                  31, 2005**ASSETS
              
              **(Unaudited)**
              
              **(Audited)**Current
                  assetsCash
                  and cash equivalents
              
              $
              123,174
              
              $
              371,248Accounts
                  receivable - net
              
              
              2,856,900
              
              
              5,367,691Inventory
              
              
              2,229,029
              
              
              1,348,700Securities
                  available-for-sale
              
              
              9,000,000
              
              
              12,000,000Prepaid
                  expenses and deposits
              
              
              641,960
              
              
              486,478Other
                  receivables
              
              
              14,864
              
              
              20,085Total
                  current assets
              
              
              14,865,927
              
              
              19,594,202Property
                  and equipment - net
              
              
              2,421,151
              
              
              1,732,796Other
                  assets
              
              
              65,813
              
              
              50,449Goodwill
              
              
              1,487,884
              
              
              1,487,884Intangible
                  assets - net
              
              
              762,900
              
              
              787,500TOTAL
                  ASSETS
              
              $
              19,603,675
              
              $
              23,652,831LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  liabilitiesAccounts
                  payable
              
              $
              916,526
              
              $
              997,589Accrued
                  expenses
              
              
              511,779
              
              
              500,656Accrued
                  compensation
              
              
              406,716
              
              
              391,867Withholding
                  taxes payable
              
              
              29,062
              
              
              45Insurance
                  premium financing
              
              
              27,467
              
              
              216,043Billings
                  in excess of costs
              
              
              54,901
              
              
              84,208Current
                  portion of capital lease obligations
              
              
              45,333
              
              
              37,617Total
                  current liabilities
              
              
              1,991,784
              
              
              2,228,025Capital
                  lease obligations
              
              
              54,441
              
              
              62,290Deferred
                  tax liabilities
              
              
              68,390
              
              
              47,991Deferred
                  rent
              
              
              97,463
              
              
              82,623Total
                  liabilities
              
              
              2,212,078
              
              
              2,420,929Commitments
                  and contingenciesStockholders’
                  equitySeries
                  A Convertible Preferred stock, $.001 par value, 2,000,000 shares
                  authorized and 710,000 shares
                issued
                  and outstanding at June 30, 2006; 720,000 shares issued and outstanding
                  at
                  December 31, 2005.
              
              
              710
              
              
              720Common
                  stock, $.001 par value, 100,000,000 shares authorized; 73,367,353
                  shares
                  issued and outstanding
                at
                  June 30, 2006; 71,996,111 shares issued and outstanding at December
                  31,
                  2005
              
              
              73,367
              
              
              71,996Additional
                  paid-in capital
              
              
              33,423,724
              
              
              28,044,794Accumulated
                  deficit
              
              
              (16,106,204
              )
              
              (6,885,608
              )Total
                  stockholders’ equity
              
              
              17,391,597
              
              
              21,231,902TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              19,603,675
              
              $
              23,652,831


See
        accompanying notes to consolidated financial statements
        (unaudited)


-3-


IONATRON,
        INC.
 CONSOLIDATED
        STATEMENTS OF OPERATIONS


(Unaudited)




**For
                the three months ended**
              **June
                30,****2006**
            
            
            **2005**Revenue
            
            $
            1,997,170
            
            $
            3,956,522Cost
                of revenue
            
            
            2,023,231
            
            
            3,775,826Gross
                profit (loss)
            
            
            (26,061
            )
            
            180,696Operating
                expenses:General
                and administrative
            
            
            3,594,220
            
            
            1,345,807Selling
                and marketing
            
            
            126,291
            
            
            95,133Research
                and development
            
            
            1,201,179
            
            
            385,656Total
                operating expenses
            
            
            4,921,690
            
            
            1,826,596Operating
                loss
            
            
            (4,947,751
            )
            
            (1,645,900
            )Other
                (expense) incomeInterest
                expense
            
            
            (4,120
            )
            
            (58,102
            )Interest
                income
            
            
            111,982
            
            
            10,099Other
            
            
            35
            
            
            (7,500
            )Total
                other
            
            
            107,897
            
            
            (55,503
            )Loss
                before provision for income taxes
            
            
            (4,839,854
            )
            
            (1,701,403
            )Provision
                for income taxes
            
            
            10,603
            
            
            9,293Net
                loss
            
            
            (4,850,457
            )
            
            (1,710,696
            )Preferred
                stock dividends
            
            
            (303,663
            )
            
            —Net
                loss attributable to common stockholders
            
            $
            (5,154,120
            )
            $
            (1,710,696
            )Net
                loss per common share – basic and diluted
            
            $
            (0.07
            )
            $
            (0.02
            )Weighted
                average number of shares outstanding, basic and diluted
            
            
            73,272,731
            
            
            71,212,062




See
        accompanying notes to consolidated financial statements
        (unaudited)




-4-


IONATRON,
        INC.


CONSOLIDATED
        STATEMENTS OF OPERATIONS


(Unaudited)






**For
                the six months ended**
              **June
                30,****2006**
            
            
            **2005**Revenue
            
            $
            7,071,997
            
            $
            6,526,793Cost
                of revenue
            
            
            6,790,409
            
            
            6,180,312Gross
                profit
            
            
            281,588
            
            
            346,481Operating
                expenses:General
                and administrative
            
            
            6,215,716
            
            
            2,869,011Selling
                and marketing
            
            
            275,249
            
            
            230,662Research
                and development
            
            
            2,276,246
            
            
            491,646Total
                operating expenses
            
            
            8,767,211
            
            
            3,591,319Operating
                loss
            
            
            (8,485,623
            )
            
            (3,244,838
            )Other
                (expense) incomeInterest
                expense
            
            
            (9,363
            )
            
            (116,179
            )Interest
                income
            
            
            224,102
            
            
            21,001Other
            
            
            44
            
            
            592Total
                other
            
            
            214,783
            
            
            (94,586
            )Loss
                before provision for income taxes
            
            
            (8,270,840
            )
            
            (3,339,424
            )Provision
                for income taxes
            
            
            21,902
            
            
            18,870Net
                loss
            
            
            (8,292,742
            )
            
            (3,358,294
            )Preferred
                stock dividends
            
            
            (607,323
            )
            
            —Net
                loss attributable to common stockholders
            
            $
            (8,900,065
            )
            $
            (3,358,294
            )Net
                loss per common share – basic and diluted
            
            $
            (0.12
            )
            $
            (0.05
            )Weighted
                average number of shares outstanding, basic and diluted
            
            
            72,726,740
            
            
            71,091,456


See
        accompanying notes to consolidated financial statements
        (unaudited)




-5-


IONATRON,
      INC.


CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY


FOR
      THE
      SIX MONTHS ENDED JUNE 30, 2006


(Unaudited)


**Common
                  Stock**
              
              
              **Preferred
                  Stock****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **APIC**
              
              
              **Accumulated
                  Deficit**
              
              
              TotalBalance
                  as ofDecember
                  31, 2005
              
              
              71,996,111
              
              $
              71,996
              
              
              720,000
              
              $
              720
              
              $
              28,044,794
              
              $
              (6,885,608
              )
              $
              21,231,902Exercise
                  of stock options andwarrants
              
              
              1,258,689
              
              
              1,259
              
              
              —
              
              
              —
              
              
              2,463,629
              
              
              —
              
              
              2,464,888Options
                  issued for servicesperformed
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              55,284
              
              
              —
              
              
              55,284Stock-based
                  compensationexpense
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,932,265
              
              
              —
              
              
              1,932,265Preferred
                  stock converted into common stock
              
              
              20,833
              
              
              21
              
              
              (10,000
              )
              
              (10
              )
              
              (11
              )
              
              —
              
              
              —Preferred
                  stock dividend paidMay
                  1, 2006
              
              
              46,914
              
              
              47
              
              
              —
              
              
              —
              
              
              624,144
              
              
              (624,191
              )
              
              —Preferred
                  stock dividendpaid
                  August 1, 2006
              
              
              44,806
              
              
              44
              
              
              —
              
              
              —
              
              
              303,619
              
              
              (303,663
              )
              
              —Net
                  loss for the six monthsended
                  June 30, 2006
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (8,292,742
              )
              
              (8,292,742
              )Balance
                  as of June 30, 2006
              
              
              73,367,353
              
              $
              73,367
              
              
              710,000
              
              $
              710
              
              $
              33,423,724
              
              $
              (16,106,204
              )
              $
              17,391,597


-6-


IONATRON,
        INC.


CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (Unaudited)
 **For
                  the six months ended**
                **June
                  30,****2006**
              
              **2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (8,292,742
              )
              $
              (3,358,294
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              442,717
              
              
              595,713Loss
                  (gain) on equipment disposal
              
              
              (5,585
              )
              
              58,825Deferred
                  income tax provision
              
              
              20,399
              
              
              19,154Provision
                  for doubtful accounts
              
              
              27,811
              
              
              —Provision
                  for obsolete inventory
              
              
              216,454
              
              
              —Non-cash
                  stock based compensation expense
              
              
              1,932,265
              
              
              —Stock
                  and option compensation
              
              
              55,284
              
              
              145,981Increases
                  in other assets
              
              
              (15,364
              )
              
              (22,225
              )Changes
                  in working capital components:Decrease
                  in accounts receivable
              
              
              2,482,980
              
              
              1,827,154(Increase)
                  decrease in other receivables
              
              
              5,221
              
              
              (8,469
              )(Increase)
                  in inventory
              
              
              (1,523,487
              )
              
              (686,878
              )(Increase)
                  in prepaid expenses and deposits
              
              
              (155,482
              )
              
              (3,823
              )Increase
                  (decrease) in accounts payable
              
              
              (81,063
              )
              
              118,054Increase
                  (decrease) in billings in excess of costs
              
              
              (29,307
              )
              
              19,347Decrease
                  in accrued expenses
              
              
              (118,747
              )
              
              (340,612
              )Net
                  cash used in operating activities
              
              
              (5,038,646
              )
              
              (1,636,073
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of equipment
              
              
              (660,329
              )
              
              (645,291
              )Proceeds
                  from sale of available-for-sale marketable securities
              
              
              3,500,000
              
              
              500,000Purchases
                  of available-for-sale marketable securities
              
              
              (500,000
              )
              
              —Proceeds
                  from disposal of equipment
              
              
              6,000
              
              
              —Net
                  cash provided by (used in) investing activities
              
              
              2,345,671
              
              
              (145,291
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Principal
                  payments on capital lease obligations
              
              
              (19,987
              )
              
              (9,441
              )Exercise
                  of stock options and warrants
              
              
              2,464,888
              
              
              411,053Net
                  cash provided by financing activities
              
              
              2,444,901
              
              
              401,612Net
                  decrease in cash and cash equivalents
              
              
              (248,074
              )
              
              (1,379,752
              )Cash
                  and cash equivalents, beginning of period
              
              
              371,248
              
              
              2,495,779Cash
                  and cash equivalents, end of period
              
              $
              123,174
              
              $
              1,116,027
  See
          non-cash investing and financing activities at Note 13
 See
        accompanying notes to consolidated financial statements
        (unaudited)





-7-


**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 products and
      systems based on Laser Guided Energy (“LGE”TM) technologies. We produce LGE
      products for specific U.S. Government customer applications and platforms and
      develop LGE and high-voltage technologies into other viable industrial and
      commercial applications. We expect to incorporate our proprietary technologies
      into Directed Energy systems and products to be developed for use by a range
      of
      U.S. Government customers. Ionatron and various U.S. Government organizations
      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"TM) based directed energy technologies. We expect
      to offer U.S. Government approved versions of our products and/or systems that
      incorporate our technology and products for commercial security applications
      in
      the future.





From
      the
      company’s inception to the present, Ionatron has been engaged in research and
      development and business development activities. Our technologies support both
      lethal and non-lethal applications, including products under development
      incorporating lasers, high voltage and other innovative technologies, many
      of
      which are subject to our patents. In 2005, in response to a heightened threat
      and at the request of a government customer, we developed both major components
      and a system that can counter Improvised Explosive Devices (“IEDs”) which
      constitute a major threat in several areas of war. The company has also entered
      into teaming agreements with other defense contractors to advance the use of
      our
      LGE technology.





Through
      our wholly owned subsidiary, North Star Power Engineering, Inc. (“North Star”),
      we are engaged in the business of designing and manufacturing a broad range
      of
      customized, high performance electrical equipment for the defense, aerospace,
      semi-conductor and medical industries. North Star also produces proprietary
      technology directly for Ionatron applications. The company is continually
      exploring ways to apply and advance its unique technologies to provide
      commercially viable products in a range of worldwide markets.







**BASIS
      OF PRESENTATION**





The
      consolidated financial statements include the accounts of Ionatron and our
      wholly owned subsidiaries, Ionatron Technologies, Inc. and North Star as of
      June
      30, 2006 (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. For comparative purposes, we have reclassified prior
      year rent deposits to long term other assets to conform to current year
      presentations. The results for the six-month period ended June 30, 2006, 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 our Annual
      Report on Form 10-K.





**USE
      OF ESTIMATES**





Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States (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 our Annual
      Report on Form 10-K, which should be read in conjunction with these financial
      statements.





**2.**  **RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an
      interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the
      recognition threshold and measurement of a tax position taken on a tax return.
      FIN 48 is effective for fiscal years beginning after December 15, 2006. FIN
      48
      also requires expanded disclosure with respect to the uncertainty in income
      taxes. We are currently evaluating the requirements of FIN 48 and the impact
      this interpretation may have on our financial statements.





-8-


**3.**  **STOCK-BASED
      COMPENSATION**




Stock
      Options - Employees and Directors





We
      have a
      number of stock-based employee compensation plans. We have the ability to grant
      stock options for a fixed number of shares or restricted stock grants to
      employees and directors. Awards under the plans vest over periods ranging from
      immediate vesting to four years, depending upon the type of award or attainment
      of specified performance criteria. Effective January 1, 2006, the Company
      adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)
      No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) establishes
      accounting for stock-based awards exchanged for employee services. Accordingly,
      stock-based compensation cost is measured at grant date, based on the fair
      value
      of the award, and is recognized as an expense over the employee’s requisite
      service period.




We
      previously accounted for our employee stock option awards under the intrinsic
      value based method of accounting prescribed by APB Opinion 25, “Accounting for
      Stock Issued to Employees,” and related interpretations, including FASB
      Interpretation No. 44 “Accounting for Certain Transactions Including Stock
      Compensation, an interpretation of APB Opinion 25.” Under the intrinsic value
      based method, compensation cost is the excess of the quoted market price of
      the
      stock at grant date or other measurement date over the amount an employee must
      pay to acquire the stock. We had 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 had been recognized for employee stock option
      grants that did not have an intrinsic value at the time of grant.




We
      adopted the modified prospective application method as provided by SFAS 123(R).
      Under this method, SFAS 123(R) is applied to stock-based compensation made
      after
      the effective date. Additionally, compensation cost for the portion of awards
      for which the requisite service has not been rendered, such as unvested stock
      options, that are outstanding as of the date of adoption will be recognized
      as
      the remaining requisite services are rendered. The compensation cost relating
      to
      unvested awards at the date of adoption will be based on the grant-date fair
      value for those awards.




The
      fair
      value of each option is estimated at the date of grant using the Black-Scholes
      option valuation model. We estimate expected stock price volatility based on
      historical volatility within a representative peer group. We estimate expected
      life and forfeiture rates. The risk-free interest rate for periods within the
      contractual life of the option is based on the U.S. Treasury yield for
      comparable periods.




We
      recognized non-cash employee stock-based compensation expense of approximately
      $832,000 during the three months ended June 30, 2006 and $1,932,000 for the
      six
      months ended June 30, 2006. There is no related income tax benefit recognized
      in
      the condensed consolidated statements of operations recorded for the three
      and
      six months ended June 30, 2006 because our deferred tax assets are fully offset
      by a valuation allowance.  The estimated fair value of our stock options,
      less expected forfeitures, is amortized over the awards’ and restricted stock
      grants’ expected service period on a straight-line basis.




The
      modified prospective transition method of SFAS 123(R) requires the presentation
      of pro forma information, for periods presented prior to the adoption of SFAS
      123(R), regarding net loss and net loss per share as if we had accounted for
      our
      stock plans under the fair value method of SFAS 123(R). For pro forma purposes,
      the fair value of stock options was estimated using the Black-Scholes option
      valuation model and amortized on a straight-line basis.  The pro forma
      amounts are as follows:





-9-




**For
                  the three months ended June 30, 2005**
              
              **For
                  the six monthsended June 30, 2005**Net
                  loss:As
                  reported
              
              $
              (1,710,696
              )
              $
              (3,358,294
              )Pro
                  forma stock compensation expense
              
              
              (722,959
              )
              
              (2,810,427
              )Pro
                  forma
              
              $
              (2,433,655
              )
              $
              (6,168,721
              )Net
                  loss per share – basic and diluted:As
                  reported
              
              $
              (0.02
              )
              $
              (0.05
              )Pro
                  forma
              
              $
              (0.03
              )
              $
              (0.09
              )





The
      fair
      value of our stock options granted in the three months ended June 30, 2006
      and
      2005 was estimated at the date of grant using the following
      assumptions:


**Six
                  Months Ended June 30****2006**
              
              **2005**Expected
                  life (years)
              
              2.5
                  years
              
              5.0
                  yearsDividend
                  yield
              
              0.0%
              
              0.0%From
              
              
              To
              
              
              From
              
              
              ToExpected
                  volatility
              
              
              38.44%
              
              
              40.24%
              
              
              62.0%
              
              
              75.0%Risk
                  free interest rates
              
              
              4.57%
              
              
              4.96%
              
              
              3.29%
              
              
              3.31%


The
      following table summarizes the activity of our stock option plans for the six
      months ended June 30, 2006:




**Shares**
              
              **Weighted
                    Average****ExercisePrice**
              
              **Aggregate****Intrinsic
                  Value**Outstanding
                  at December 31, 2005
              
              
              3,481,615
              
              $
              4.30Granted
              
              
              2,690,850
              
              $
              7.85Exercised
              
              
              (1,357,635
              )
              $
              2.72Forfeited
              
              
              (450,107
              )
              $
              9.26Outstanding
                  at June 30, 2006
              
              
              4,364,723
              
              $
              6.55
              
              $
              13,891,071Exercisable
                  at June 30, 2006
              
              
              1,821,404
              
              $
              5.14
              
              $
              8,247,477


As
      of
      June 30, 2006, there was approximately $6.0 million of unrecognized compensation
      cost related to unvested stock options granted and outstanding, net of estimated
      forfeitures. The cost is expected to be recognized on a weighted average basis
      over a period of approximately two years.





Stock
      Options and Warrants - Non Employees





Compensation
      expense recorded for shares and options issued to non-employees for the three
      months ended June 30, 2005 and 2006 was approximately $51,000 and $28,000
      respectively, which was charged to operating expenses with an offsetting entry
      to additional paid-in capital. Compensation expense recorded for shares and
      options issued to non-employees for the six month period ended June 30, 2005
      and
      2006 was approximately $146,000 and $55,000 respectively, which was charged
      to
      operating expenses with an offsetting entry to additional paid in
      capital.








-10-


**4.**  **ACCOUNTS
      RECEIVABLE**




Accounts
                  receivable consist of the following at:
              
              June
                  30, 2006
              
              December
                  31, 2005Contracts
                  in progress
              
              $
              867,522
              
              $
              3,375,104Retained
              
              
              100,000
              
              
              100,000Cost
                  and estimated earnings on uncompleted contracts
              
              
              1,896,607
              
              
              1,931,4342,864,129
              
              
              5,406,538Less:Allowance
                  for doubtful accounts
              
              
              7,229
              
              
              38,847Total
              
              $
              2,856,900
              
              $
              5,367,691







Contract
      receivables at June 30, 2006 and December 31, 2005 are expected to be collected
      within 60 days. There are no claims or unapproved change orders included in
      contract receivables presented. The allowance for doubtful accounts represents
      an estimate for potentially uncollectible accounts receivable related to
      non-governmental customers which is based upon a review of the individual
      accounts outstanding and the Company’s prior history of uncollectible accounts
      receivable.




Costs
                  and Estimated Earnings on Uncompleted ContractsJune
                  30, 2006
              
              December
                  31, 2005Cost
                  incurred on uncompleted contracts
              
              $
              21,848,888
              
              $
              14,457,299Estimated
                  earnings
              
              
              1,584,569
              
              
              1,122,673Total
                  billable costs and estimated earnings
              
              
              23,433,457
              
              
              15,579,972Less:Billings
                  to date
              
              
              21,591,751
              
              
              13,732,746Total
              
              $
              1,841,706
              
              $
              1,847,226Included
                  in accompanying balance sheet under the following
                  captions:Unbilled
                  costs and estimated earnings on uncompleted contracts included
                  in accounts
                  receivable
              
              $
              1,896,607
              
              $
              1,931,434Billings
                  in excess of costs and estimated earnings on uncompleted
                  contracts
              
              
              (54,901
              )
              
              (84,208
              )Total
              
              $
              1,841,706
              
              $
              1,847,226
  **5.
      INVENTORY**





Inventories,
      consisting of materials, assemblies and sub-assemblies, are stated at average
      cost. Manufactured products (work-in-process) include the costs of materials,
      labor and manufacturing and administrative overhead. Our inventories consist
      of
      the following at June 30, 2006 and December 31, 2005:




June
                  30, 2006
              
              December
                  31, 2005Materials
              
              $
              1,779,240
              
              $
              815,788Work-in-process
              
              
              449,789
              
              
              532,912Total
              
              $
              2,229,029
              
              $
              1,348,700


-11-





Rapid
      technological change and new product introductions and enhancements could result
      in excess or obsolete inventory. To minimize this risk, the Company evaluates
      inventory levels and expected usage on a periodic basis.





**6.**  **SECURITIES
      AVAILABLE FOR SALE**





Our
      investments are classified as available-for-sale and are reported at fair value,
      with unrealized gains or losses, net of tax recorded in stockholders’ equity.
      Fair value for these securities is based on quoted market prices. The cost
      of
      investments sold is based on the specific identification method. Realized gains
      or losses on the sale or exchange of investments and declines in value judged
      to
      be other than temporary are recorded as gains or losses in the statement of
      operations. We consider numerous factors when assessing impairment on
      investments; however, in general, investments are judged to be impaired if
      the
      fair value is less than cost continuously for nine months, absent compelling
      evidence to the contrary. Unrealized gains and losses are determined at each
      balance sheet date and are recorded in other comprehensive income, if
      applicable.




Available-for-sale
      securities consist of the following as of June 30, 2006 and December 31,
      2005:




June
                  30, 2006
              
              December
                  31, 2005Asset
                  Backed Securities Repriced Monthly
              
              $
              3,000,000
              
              $
              3,000,000Municipal
                  Bonds
              
              
              4,500,000
              
              
              5,500,000Total
                  Debt Securities
              
              
              7,500,000
              
              
              8,500,000Preferred
                  stock
              
              
              1,500,000
              
              
              3,500,000Total
                  Equity Securities
              
              
              1,500,000
              
              
              3,500,000Total
                  available-for-sale securities
              
              $
              9,000,000
              
              $
              12,000,000








As
      of
      June 30, 2006 and December 31, 2005, there were no unrealized gains or losses
      relative to the above securities.








**7.**  **ACCRUED
      EXPENSES**





Accrued
      expenses consisted of the following at:




June
                  30, 2006
              
              December
                  31, 2005Accrued
                  professional fees
              
              $
              30,000
              
              $
              123,000Overdraft
              
              
              —
              
              
              87,698Property
                  taxes
              
              
              38,681
              
              
              —Additional
                  relocation costs
              
              
              77,285
              
              
              —Other
                  accrued
              
              
              365,813
              
              
              289,958Total
                  accrued expenses
              
              $
              511,779
              
              $
              500,656


**8.**  **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.




-12-


For
      the
      three and six months ended June 30, 2006, we recorded provisions for income
      taxes of approximately $11,000 and $22,000, respectively due to an increase
      in
      deferred tax liabilities as a result of the tax amortization of goodwill related
      to the North Star Acquisition.





**9.**  **SIGNIFICANT
      CUSTOMERS**





The
      substantial majority of our customers are either the U.S. Government or
      contractors to the U.S. Government and represent approximately 96% and 98%
      of
      revenues for the six months ended June 30, 2006 and 2005,
      respectively.








**10.**  **NET
      LOSS PER SHARE**





Basic
      loss per share is computed as net loss attributable to common stockholders
      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 1,897,252 and 2,839,000
      shares for the three months ended June 30, 2006 and 2005, respectively and
      1,741,840 and 2,729,433 for the six months ended June 30, 2006 and 2005,
      respectively.








**11.**  **DIVIDENDS**





On
      June
      21, 2006, the Board of Directors declared the 6.5% dividend payable on August
      1,
      2006 to the holders of our Series A Redeemable Cumulative Preferred Stock and
      that the dividend will be paid in shares of our common stock to the holders
      of
      record on July 15, 2006. Dividends on Preferred Stock are accrued when the
      Board
      of Directors declares the dividend. To record the June 21, 2006 declaration
      we
      recorded a non-cash dividend in the amount of approximately $304,000. The
      recording of the dividend had no effect on our cash or net equity. Dividends
      on
      our Preferred Stock are payable quarterly on the first day of February, May,
      August and November, in cash or shares of Common Stock, at the discretion of
      the
      Company.








**12.**  **COMMITMENTS
      AND CONTINGENCIES**








**OPERATING
      LEASES**





In
      Tucson, Arizona, we lease office, manufacturing and storage space under four
      non-cancellable operating lease agreements. Our primary research and prototype
      facility is leased at an annual rental of $330,000 from a company that is
      partially owned by principal stockholders. This lease expires in November 2012,
      contains renewal options and an escalation provision at the end of 2007 that
      increases our annual rent by $49,500. We account for the escalation provision
      by
      straight-lining the rent expense. On September 16, 2005 we took possession
      of
      additional manufacturing space at an annual rental of $48,682 under a
      non-cancelable operating lease agreement that expires on September 30, 2006.
      In
      January 2006, we consolidated executive and administrative offices into one
      location proximate to our Tucson research and prototype facilities under a
      renewable 11-month operating lease, with monthly rent of approximately $9,400.
      We have exercised our option to renew this lease for a three-year period
      beginning December 1, 2006. In connection with the relocation of our North
      Star
      operations, on June 1, 2006 we commenced a 3-year non-cancellable, renewable
      operating lease at an annual rent of approximately $64,000 with annual
      escalations. We are also responsible for certain property related costs,
      including insurance, utilities and property taxes.




In
      Albuquerque, New Mexico, we exercised the early termination provisions of our
      North Star office facilities lease by providing 120 days notice on July 1,
      2006
      and agreeing to pay approximately $15,000 in early termination fees in
      accordance with our lease agreement.




On
      April
      1, 2005 we took possession of office, manufacturing and warehouse facilities
      at
      the Stennis Space Center in Mississippi under a non-cancelable operating lease.
      The lease expires in 2010 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.




-13-


We
      also
      lease vehicles under non-cancelable operating lease agreements to facilitate
      our
      material purchasing activities. These lease commitments total approximately
      $1,062 per month. We are responsible for registration, licensing and insurance
      costs.




Rent
      expense was approximately $257,000 and $175,000 for the three months ended
      June
      30, 2006 and 2005 respectively. For the six months ended June 30, 2006 and
      2005,
      rent expense was approximately $540,000 and $302,000, respectively. Rent expense
      includes lease payments and lease related expenses including rental taxes,
      passed-through property taxes, common-area maintenance charges and certain
      utilities that are not separately metered and billed.




Future
      annual minimum lease payments under these operating lease agreements are as
      follows:





Years
                  ending December 31,
              
              Amount2006
              
              $
              450,4162007
              
              
              759,7282008
              
              
              812,5652009
              
              
              777,8932010
              
              
              457,600Thereafter
              
              
              711,563Total
              
              $
              3,969,765


**CAPITAL
      LEASES**





We
      rent
      office equipment under capital lease agreements with approximately $2,078 in
      monthly payments. We also rent two vehicles for use in our operations under
      capital lease agreements with approximately $2,155 in monthly payments.




Future
      annual minimum lease payments under these leases are:


Years
                  ending December 31,
              
              AmountRemaining
                  six months of 2006
              
              $
              25,4052007
              
              
              50,8102008
              
              
              29,3092009
              
              
              2,044Total
                  payments
              
              
              107,568Less:
                  interest
              
              
              (7,794
              )Total
                  principal
              
              
              99,774Less:
                  Current portion of capital lease obligations
              
              
              45,333Long-term
                  capital lease obligations
              
              $
              54,441





**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 June 30, 2006 and 2005.





-14-


**LITIGATION**





In
      July
      2006, two purported class action complaints were filed by George Wood and
      Raymond Veedon against Ionatron and its founders. Each of the class actions
      were
      filed in the United States District Court for the District of Arizona and
      allege, among other things, violations of Section 10(b) and Rule 10b-5 of the
      Securities Exchange Act of 1934, claiming that the Company issued false and
      misleading statements concerning the development of its counter IED product.
      As
      of the date of this report we have not been served with either complaint. We
      are
      unable to evaluate the likelihood of an unfavorable outcome or estimate the
      range of potential loss, if any. However, the company intends to defend itself
      vigorously in any legal proceedings.





In
      addition, 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 have not
      received notice of any other legal proceedings.





**13.**   **SUPPLEMENTAL
      CASH FLOW INFORMATION**




Six
                Months Ended June 30,2006
            
            2005Cash
                paid during the period for:Interest
            
            $
            9,363
            
            $
            58,077Income
                taxes
            
            
            1,100
            
            
            —Non-cash
                Investing and Financing Activities:Capital
                lease obligations incurred for use of equipment
            
            
            19,854
            
            
            50,777Common
                stock issued for the payment of preferred stock dividends
            
            
            927,854
            
            
            —Assets
                transferred from inventory to property and equipment
            
            
            426,704
            
            
            —





-15-


**14.**  **INDUSTRY
      SEGMENTS**





The
      Company is currently engaged in developing and marketing through two distinct
      segments: (1) Ionatron, where the focus is on LGE technology products for sale
      and (2) North Star, where the focus is on the manufacture of customized
      electrical equipment for sale in a more broad-based market.




**Selected
          Financial Data for the Three Months Ended June 30,
          2006**
 BusinessSegment
              
              Revenues
              
              Depreciation
                  andAmortization
              
              Interest
                Income
              
              Interest
                Expense
              
              Net
                (Loss)
              
              Capital
                Expenditures
              
              Identifiable
                AssetsIonatron
              
              $
              1,882,908
              
              $
              203,773
              
              $
              111,949
              
              $
              3,936
              
              $
              (4,176,278
              )
              $
              289,595
              
              $
              20,881,617North
                  Star
              
              
              162,196
              
              
              25,777
              
              
              33
              
              
              184
              
              
              (674,179
              )
              
              33,827
              
              
              2,781,662Total
                  Company
              
              
              2,045,104
              
              
              229,550
              
              
              111,982
              
              
              4,120
              
              
              (4,850,457
              )
              
              323,422
              
              
              23,663,279Intersegment
              
              
              (47,934
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,644,604
              )Investment
                  in Sub
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (2,415,000
              )Consolidated
                  Company
              
              $
              1,997,170
              
              $
              229,550
              
              $
              111,982
              
              $
              4,120
              
              $
              (4,850,457
              )
              $
              323,422
              
              $
              19,603,675
  **Selected
          Financial Data for the Six Months Ended June 30,
          2006**
 BusinessSegment
                
                Revenues
                
                Depreciation
                    andAmortization
                
                Interest
                  Income
                
                Interest
                  Expense
                
                Net
                  (Loss)
                
                CapitalExpendituresIonatron
                
                $
                6,672,224
                
                $
                391,614
                
                $
                223,640
                
                $
                8,986
                
                $
                (6,970,312
                )
                $
                620,822North
                    Star
                
                
                774,002
                
                
                51,103
                
                
                462
                
                
                377
                
                
                (1,322,430
                )
                
                59,361Total
                    Company
                
                
                7,446,226
                
                
                442,717
                
                
                224,102
                
                
                9,363
                
                
                (8,292,742
                )
                
                680,183Intersegment
                
                
                (374,229
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Consolidated
                    Company
                
                $
                7,071,997
                
                $
                442,717
                
                $
                224,102
                
                $
                9,363
                
                $
                (8,292,742
                )
                $
                680,183




**Selected
        Financial Data for the Three Months Ended June 30, 2005**
 Business
                Segment
              
              Revenues
              
              Depreciation
                  and
                Amortization
              
              Interest
                Income
              
              Interest
                Expense
              
              Net
                (Loss)
              
              Capital
                Expenditures
              
              IdentifiableAssetsIonatron
              
              $
              3,518,772
              
              $
              290,364
              
              $
              9,737
              
              $
              57,618
              
              $
              (1,756,228
              )
              $
              426,877
              
              $
              9,532,085North
                  Star
              
              
              614,117
              
              
              29,774
              
              
              362
              
              
              484
              
              
              45,532
              
              
              10,015
              
              
              3,037,940Total
                  Company
              
              
              4,132,889
              
              
              320,138
              
              
              10,099
              
              
              58,102
              
              
              (1,710,696
              )
              
              436,892
              
              
              12,570,025Intersegment
              
              
              (176,367
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (561,115
              )Investment
                  in Sub
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (2,415,000
              )Consolidated
                  Company
              
              $
              3,956,522
              
              $
              320,138
              
              $
              10,099
              
              $
              58,102
              
              $
              (1,710,696
              )
              $
              436,892
              
              $
              9,593,910




**Selected
          Financial Data for the Six Months Ended June 30,
          2005**
 BusinessSegment
              
              Revenues
              
              Depreciation
                  and Amortization
              
              InterestIncome
              
              InterestExpense
              
              Net(Loss)
              
              CapitalExpendituresIonatron
              
              $
              5,881,919
              
              $
              536,334
              
              $
              20,219
              
              $
              115,596
              
              $
              (3,257,299
              )
              $
              654,858North
                  Star
              
              
              960,325
              
              
              59,379
              
              
              782
              
              
              583
              
              
              (100,995
              )
              
              41,210Total
                  Company
              
              
              6,842,244
              
              
              595,713
              
              
              21,001
              
              
              116,179
              
              
              (3,358,294
              )
              
              696,068Intersegment
              
              
              (315,451
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Consolidated
                  Company
              
              $
              6,526,793
              
              $
              595,713
              
              $
              21,001
              
              $
              116,179
              
              $
              (3,358,294
              )
              $
              696,068






-16-


**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, 2005.





**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 Item 1A. (Risk Factors) of our
      Annual Report on Form 10-K for the year ended December 31, 2005. 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,
      Inc. (“Ionatron”) was formed on June 3, 2002 to develop and market products and
      systems based on Laser Guided Energy (“LGE”TM) technologies. We produce LGE
      products for specific U.S. Government customer applications and platforms and
      develop LGE and high-voltage technologies into other viable industrial and
      commercial applications. We expect to incorporate our proprietary technologies
      into Directed Energy systems and products to be developed for use by a range
      of
      U.S. Government customers. Ionatron and various U.S. Government organizations
      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"TM) based directed energy technologies. We expect
      to offer U.S. Government approved versions of our products and/or systems that
      incorporate our technology and products for commercial security applications
      in
      the future.





From
      the
      company’s inception to the present, Ionatron has been engaged in research and
      development and business development activities. Our technologies support both
      lethal and non-lethal applications, including products under development
      incorporating lasers, high voltage and other innovative technologies, many
      of
      which are subject to our patents. In 2005, in response to a heightened threat
      and at the request of a government customer, we developed both major components
      and a system that can counter Improvised Explosive Devices (“IEDs”) which
      constitute a major threat in several areas of war. The company has also entered
      into teaming agreements with other defense contractors to advance the use of
      our
      LGE technology.





Through
      our wholly owned subsidiary, North Star Power Engineering, Inc. (“North Star”),
      we are engaged in the business of designing and manufacturing a broad range
      of
      customized, high performance electrical equipment for the defense, aerospace,
      semi-conductor and medical industries. North Star also produces proprietary
      technology directly for Ionatron applications. The company is continually
      exploring ways to apply and advance its unique technologies to provide
      commercially viable products in a range of worldwide markets.





Our
      intellectual property strategy is directed toward establishing an integral
      position for us to be involved with a broad range of products and applications
      that utilize concepts, know-how, and technology invented through our own
      internal funding and creativity. We believe this approach will enhance our
      ability to work for the Government as well as other entities in mutually
      productive collaborations. Furthermore, we believe our patent applications
      can
      be used as justification for sole source, non-competitive awarding of contracts
      in accordance with the Federal Acquisition Regulations. In May 2006, we received
      notification from the United States Patent and Trademark office that a patent
      has been issued for applications incorporating our technologies. Presently
      we
      have four patents and 18 patent applications. Of the 18 patent applications,
      we
      have received secrecy orders on seven and expect to receive secrecy orders
      on
      another three. Secrecy orders are applied when the underlying technology is
      deemed by the US Government to be hidden as an issue of national security,
      among
      other reasons. These patents and patent applications relate to our core LIPC
      technology and other technologies related to LGE and high voltage
      applications.





-17-


U.S.
      Government support for our LGE and LIPC technologies continues through
      Congressional Plus Ups to the U.S. Navy budget. Work continues on our fiscal
      year 2005 contract which was delayed until the third quarter of fiscal year
      2005
      pending release of funds by the military awaiting passage of the Iraq
      Supplemental Bill. Funding for fiscal year 2006 has been released and we
      anticipate a contract award in the near future. We expect the new funding to
      support continued technology development and effects testing. Additionally,
      we
      believe that the U.S. Government will internally transfer management of the
      LIPC
      transportable demonstrator project to the military. Total LIPC and LGE dedicated
      funding was $11.1 million and $12.7 million for fiscal years 2006 and 2005,
      respectively.





**OPERATING
      SEGMENTS**





We
      are
      currently engaged in developing and marketing through two operating 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 customized electrical equipment for sale to a more broad-based
      market.





**RESULTS
      OF OPERATIONS**





**COMPARISON
      OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005 IS AS
      FOLLOWS:**




2006
              
              2005Revenue
              
              $
              1,997,170
              
              $
              3,956,522Cost
                  of revenue
              
              
              2,023,231
              
              
              3,775,826General
                  and administrative
              
              
              3,594,220
              
              
              1,345,807Selling
                  and marketing
              
              
              126,291
              
              
              95,133Research
                  and development
              
              
              1,201,179
              
              
              385,656Other
                  (expense) income:Interest
                  expense
              
              
              (4,120
              )
              
              (58,102
              )Interest
                  income
              
              
              111,982
              
              
              10,099Other
              
              
              35
              
              
              (7,500
              )Loss
                  before provision for income taxes
              
              
              (4,839,854
              )
              
              (1,701,403
              )Provision
                  for income taxes
              
              
              10,603
              
              
              9,293Net
                  loss
              
              
              ($4,850,457
              )
              
              ($1,710,696
              )


**REVENUE**





The
      decrease of approximately $1,959,000 in revenue for the three months ended
      June
      30, 2006 compared to 2005 is attributable to the completion of certain Ionatron
      government contracts, including the completion of our initial 12-unit counter
      IED (“Improvised Explosive Device”) order, and an approximately eight-week
      temporary interruption in North Star’s operations while we effected facility
      relocation from Albuquerque to Tucson. As a result of its completion, revenue
      from our initial 12-unit counter IED order project was reduced by approximately
      81% in the three months ended June 30, 2006 when compared to the three months
      ended March 31, 2006.





**COST
      OF REVENUE**





Cost
      of
      revenue decreased approximately $1,753,000 when compared to the three months
      ended June 30, 2005 due to decreased direct revenue activity. Cost of revenue
      includes an allocation of general and administrative expenses and research
      and
      development costs in accordance with the terms of our contracts. As a result
      of
      the decline in revenue, the amount of allowable expenses allocable to our
      projects declined thereby increasing our general and administrative costs.
      In
      addition, for the three months ended June 30, 2006, cost of revenue exceeded
      revenue on a consolidated basis in part due to certain North Star commitments
      to
      external customers that were completed at a loss that was not completely offset
      by Ionatron gross profit.





-18-


**GENERAL
      AND ADMINISTRATIVE**





The
      increase of approximately $2.2 million in general and administrative expenses
      for the three months ended June 30, 2006 from the three months ended June 30,
      2005 included the recognition of non-cash employee stock option compensation
      expense of approximately $832,000 as a result of our adoption of SFAS 123(R).
      One-time costs of approximately $525,000 associated with the relocation of
      North
      Star facilities and resettlement of North Star employees are included in this
      increase. We also experienced increases in personnel costs and temporary and
      contract labor costs of approximately $571,000 and $275,000 respectively, which
      is attributable to our increased number of employees over the second quarter
      of
      2005 and our need for temporary staffing to assist in short-term projects.
      We
      also improved our competencies in marketing, accounting and finance by hiring
      additional personnel. Through the relocation of North Star operations and
      through consolidation of administrative tasks and other optimizations, we have
      reduced our overall head-count from March 2006 levels and expect to realize
      the
      cost savings of these efficiencies going forward. Also contributing to this
      increase was a reduced amount of allowable expenses allocable to our
      projects.





**SELLING
      AND MARKETING**





Selling
      and marketing expenses increased by approximately $31,000 during the three
      months ended June 30, 2006 from the same period in 2005 as we continue to
      advance our marketing efforts aided by the addition of one staff member in
      2006.





**RESEARCH
      AND DEVELOPMENT**





Research
      and development expenses increased approximately $816,000 during the three
      months ended June 30, 2006 as compared to 2005 due to our continued strategic
      decision to internally-fund research and development. During the three months
      ended June 30, 2006, we commenced new research and development initiatives
      and
      continued work on our on-going research projects to expedite the advancement
      of
      our core LGE and LIPC technologies. Research and development projects also
      include work on the vehicle-stopper technology which was derived from our core
      LGE and LIPC knowledge base. These strategic decisions are designed to advance
      and strengthen our intellectual property rights and progress technology
      development at a rate that is less dependent on contract funding.





**INTEREST
      EXPENSE AND INTEREST INCOME**





Interest
      expense in the second quarter of 2006 decreased approximately $54,000 from
      the
      same period of 2005 as a result of our retirement of debt in 2005. Interest
      income increased approximately $102,000 earned through our investment in
      securities available for sale.





**NORTH
      STAR OPERATIONS**





Our
      consolidated financial information contains the results of North Star for the
      three months ended June 30, 2006. North Star’s revenue, net of intersegment
      transactions, decreased to approximately $115,000 for the three months ended
      June 30, 2006 from approximately $437,000 for the same period in 2005. This
      decrease is due to the relocation of North Star operations which necessitated
      a
      temporary suspension of operations for a period of approximately eight weeks.
      North Star’s revenue activity for the quarter resulted in a negative gross
      margin as we concluded certain projects for external customers that were
      completed at a loss. The operations were in place in Tucson as of the end of
      the
      quarter and revenue-generating activities have resumed. Net income for North
      Star decreased from approximately $45,000 for the three months ended June 30,
      2005 to a net loss of approximately $674,000 for the same period in 2006
      including approximately $525,000 of one-time relocation charges. Management
      has
      instituted additional management changes at the subsidiary that are intended
      to
      improve North Star’s financial and operational performance.





**NET
      LOSS**





Our
      operations for the three months ended June 30, 2006 resulted in a net loss
      of
      approximately $4.8 million, an increase in our period loss of approximately
      $3.1
      million when compared to the same period in 2005. This increase includes
      non-cash employee stock option compensation of approximately $832,000, one-time
      relocation charges of approximately $525,000 and the effect of dedicating
      substantial resources to increased research and development initiatives
      (research and development expenditures increased by approximately $816,000
      for
      the quarter).








-19-





**COMPARISON
      OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 IS AS
      FOLLOWS:**




2006
              
              2005Revenue
              
              $
              7,071,997
              
              $
              6,526,793Cost
                  of revenue
              
              
              6,790,409
              
              
              6,180,312General
                  and administrative
              
              
              6,215,716
              
              
              2,869,011Selling
                  and marketing
              
              
              275,249
              
              
              230,662Research
                  and development
              
              
              2,276,246
              
              
              491,646Other
                  (expense) income:Interest
                  expense
              
              
              (9,363
              )
              
              (116,179
              )Interest
                  income
              
              
              224,102
              
              
              21,001Other
              
              
              44
              
              
              592Loss
                  before provision for income taxes
              
              
              (8,270,840
              )
              
              (3,339,424
              )Provision
                  for income taxes
              
              
              21,902
              
              
              18,870Net
                  loss
              
              
              ($8,292,742
              )
              
              ($3,358,294
              )





**REVENUE**





Consolidated
      revenues for the six-month period ended June 30, 2006 increased approximately
      $545,000 over the same period in 2005. These year-to-date revenues were
      supported by a stronger first quarter in both Ionatron and North Star revenue
      production and overall have produced a year-to-date revenue increase
      notwithstanding the effects of relocating North Star operations during the
      second quarter and our increased resource allocations to research and
      development.








**COST
      OF REVENUE**





Cost
      of
      revenue increased approximately $610,000 when compared to the six months ended
      June 30, 2005 due to increased revenue activity. The gross margin percentage
      associated with these costs decreased by approximately 1.33% compared to the
      same period performance in 2005, in part due to the completion of certain North
      Star commitments at a gross margin loss. 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 of approximately $3.3 million in general and administrative expenses
      for the six months ended June 30, 2006 from the six months ended June 30, 2005
      included the recognition of non-cash employee stock option compensation expense
      of approximately $1.9 million as a result of our adoption of SFAS 123(R).
      One-time costs of approximately $525,000 associated with the relocation of
      North
      Star facilities and resettlement of North Star employees are included in this
      increase. We also experienced increases in personnel costs and temporary and
      contract labor costs of approximately $900,000 and $453,000 respectively, which
      is attributable to our increased number of employees over the same period of
      2005 and our need for temporary staffing to assist in short-term projects and
      increased competencies in marketing, finance and accounting. Also contributing
      to this increase was a reduced amount of allowable expenses allocable to our
      projects.








**SELLING
      AND MARKETING**





Selling
      and marketing expenses increased by approximately $45,000 during the six months
      ended June 30, 2006 from the same period in 2005 as we continue to advance
      our
      marketing efforts through the addition of one staff member in 2006.





-20-


**RESEARCH
      AND DEVELOPMENT**





Research
      and development expenses increased approximately $1.8 million during the six
      months ended June 30, 2006 as compared to 2005 due to our continued strategic
      decision to internally-fund research and development. During the six months
      ended June 30, 2006 we commenced new research and development initiatives and
      we
      continued work on our on-going research projects to expedite the advancement
      of
      our core LGE and LIPC technologies. Research and development projects also
      include work on the vehicle-stopper technology which was derived from our core
      LGE and LIPC knowledge base. These strategic decisions are designed to advance
      and strengthen our intellectual property rights and progress technology
      development at a rate that is less dependent on contract funding.








**INTEREST
      EXPENSE AND INTEREST INCOME**





Interest
      expense in the first six months of 2006 decreased approximately $107,000 from
      the first six months of 2005 as a result of our retirement of debt in 2005.
      Interest income increased approximately $203,000 earned through our investment
      in securities available for sale.








**NORTH
      STAR OPERATIONS**





Our
      consolidated financial information contains the results of North Star for the
      six months ended June 30, 2006. North Star’s revenue, net of intersegment
      transactions, decreased to approximately $400,000 for the six months ended
      June
      30, 2006 from approximately $645,000 for the same period in 2005. This decrease
      is due to the relocation of North Star operations which necessitated a temporary
      suspension of operations of approximately eight weeks during the second quarter.
      The operations were in place in Tucson as of the end of the quarter and
      revenue-generating activities have resumed. Net loss for North Star increased
      from approximately $101,000 for the six months ended June 30, 2005 to a net
      loss
      of approximately $1.3 million for the same period in 2006. The 2006 first
      six-month North Star loss includes approximately $525,000 in one-time relocation
      charges, and negative gross margins associated with completing certain projects.
      Management has instituted additional changes at the subsidiary that are intended
      to improve North Star’s financial and operational performance.





**NET
      LOSS**





Our
      operations for the six months ended June 30, 2006 resulted in a net loss of
      approximately $8.3 million, an increase in our period loss of approximately
      $4.9
      million when compared to the same period in 2005. This increase includes
      non-cash employee stock option compensation of approximately $1.9 million,
      one-time relocation charges of more than $547,000 and the effect of dedicating
      substantial resources to increased research and development initiatives
      (research and development expenditures increased by approximately $1.8 million
      for the year to date). Other general and administrative costs increased
      approximately $2.8 million for expenditures associated with increased rent
      and
      facilities expense and an increase in staff and consulting expenses compared
      to
      our 2005 same period operations.





**LIQUIDITY
      AND CAPITAL RESOURCES**





At
      June
      30, 2006, we had approximately $123,000 of cash and cash equivalents, a decrease
      of approximately $248,000 from cash and cash equivalents at December 31, 2005
      of
      $371,000. The reduction in cash on hand is attributable to the timing of and
      reduction in accounts payable as well as our strategic cash management decisions
      that result in increased interest earning. We keep sufficient cash on hand
      to
      service our anticipated immediate cash requirements and invest our excess cash
      of $9 million in available-for-sale marketable securities and other highly
      liquid investments. Our invested cash is readily available for conversion to
      cash to support our ongoing requirements.





During
      the first six months of 2006, we used approximately $5.0 million of cash in
      operating activities. This amount is comprised of primarily of our net loss
      of
      $8.3 million, reduced by a decrease in accounts receivable net collections
      of
      approximately $2.5 million, non-cash stock option compensation expense of
      approximately $1.9 million and depreciation and amortization expense of
      approximately $443,000 partially offset by an increase in inventory of
      approximately $1.5 million. We anticipate that short-term and long-term funding
      needs will be provided from cash and available-for-sale marketable securities
      and cash flow from government contracts. In the first six months of 2006,
      investment activities provided approximately $2.3 million of cash, consisting
      of
      the proceeds from the sale and purchase of investments of $3.0 million,
      partially offset by equipment purchases of approximately $660,000. During the
      first six months of 2006, financing activities provided approximately $2.4
      million of cash, primarily from the proceeds of option exercises.





-21-


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. Contracts related to our core technologies 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 may 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
      June
      30, 2006, we had a backlog (that is, work load remaining on signed contracts)
      of
      approximately $5,702,000 to be completed within the next twelve months. The
      backlog does not include proposals and contracts under negotiation.







**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





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 and transactions within
      the United States and we are not subject to market risk associated with changes
      in foreign exchange rates.








**ITEM
      4. CONTROLS AND PROCEDURES**





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





Our
      management, with the participation of our Chief Executive Officer and Chief
      Financial Officer, evaluated the effectiveness of our disclosure controls and
      procedures as of June 30, 2006. Based on that evaluation, our Chief Executive
      Officer and Chief Financial Officer have 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 June 30, 2006, there was no significant change in our internal
      controls over financial reports that has materially affected, or which is
      reasonably likely to materially affect our internal controls over financial
      reporting.





-22-


**PART
      II - OTHER INFORMATION**








**ITEM
      1**  **LEGAL
      PROCEEDINGS**





In
      July
      2006, two purported class action complaints were filed by George Wood and
      Raymond Veedon against Ionatron and its founders. Each of the class actions
      were
      filed in the United States District Court for the District of Arizona and
      allege, among other things, violations of Section 10(b) and Rule 10b-5 of the
      Securities Exchange Act of 1934, claiming that the Company issued false and
      misleading statements concerning the development of its counter IED product..
      As
      of the date of this report we have not been served with either complaint. We
      are
      unable to evaluate the likelihood of an unfavorable outcome or estimate the
      range of potential loss, if any. However, the company intends to defend itself
      vigorously in any legal proceedings.





In
      addition, 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 have not
      received notice of any other legal proceedings.





**ITEM
      1a**  **RISK
      FACTORS**





The
      contract for our 12-unit pre-production JIN products was concluded during the
      second quarter of 2006. This contract accounted for approximately 68.4% and
      70.2% of our revenue for the year ended December 31, 2005 and the three months
      ended March 31, 2006, respectively. As the current pre-production order and
      assessment ended during the second quarter of 2006, the path forward is
      currently being identified and evaluated. Any new funding will come from
      approved statements of work and will require additional satisfactory testing
      by
      the government.





We
      rely
      on government funding for certain aspects of LIPC development through funding
      provided in the federal government budget and contracts with various government
      agencies. Due to federal budgetary constraints and an anticipated overall
      reduction in the defense budget, we cannot assure you that any continued
      Government funding will be made available, or that we will be able to enter
      into
      any agreements with government customers for the further development of LIPC.
      We
      expect that additional funding for LIPC will be subject to our technology
      meeting certain government established milestones. If our LIPC technology does
      not meet government established milestones, additional government funding may
      be
      reduced or eliminated. If additional government funding for LIPC is reduced
      or
      is not forthcoming, in the absence of additional funding, our LIPC technology
      development efforts and revenues will be adversely affected.





**ITEM
      2**  **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**





During
      the six months ended June 30, 2006, the Company issued
      260,105 shares of common stock upon exercise of outstanding options and warrants
      to employees, directors and consultants in addition to shares of common stock
      issued upon exercise of options granted under stock option plans and stock
      incentive plans. The securities were issued pursuant to an exemption from
      registration pursuant to Section 3(a)(9) of the Securities Act of
      1933.





**ITEM
      4**  **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





At
      the
      Annual Meeting of Stockholders of Ionatron, Inc. held on June 21, 2006,
      62,590,414 shares of Ionatron’s Common Stock, or 85.4% of the total Common Stock
      outstanding on the record date for such meeting, were represented.




The
      stockholders of Ionatron elected Mr. Thomas C. Dearmin and Mr. George P. Farley
      as Class II Directors with terms expiring at the Annual Meeting of Stockholders
      to be held in 2009. Of the shares voted with respect to the election of Mr.
      Dearmin, 62,226,993 were voted in favor and 363,421 were withheld. Of the shares
      voted with respect to the election of Mr. Farley, 62,067,543 were voted in
      favor
      and 522,871 were withheld.




Continuing
      as a Class I Director with a term expiring in 2008 is Mr. James A. McDivitt.
      Continuing as Class III Directors with terms expiring in 2007 are Mr. James
      K.
      Harlan, and Mr. David C. Hurley.




The
      stockholders of Ionatron also approved an amendment to the Company’s Certificate
      of Incorporation to increase the number of authorized shares of preferred stock
      from 1,000,000 to 2,000,000. Of the shares voted with respect to the approval
      of
      the amendment of the Certificate of Incorporation, 50,511,910 were voted in
      favor, 609,725 were voted against and 244,315 abstained. In addition, there
      were
      11,224,464 shares that were not voted on this proposal.


-23-


**ITEM
      6**  **EXHIBITS**





EXHIBIT
              NUMBER
            
            DESCRIPTION3.1
            
            Certificate
                of Amendment to Certificate of Incorporation of Ionatron, Inc. filed
                June
                21, 2006.31.1
            
            Certification
                of Chief Executive 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 2002.31.2
            
            Certification
                of 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 Certification pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            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.






-24-


**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. DearminChief
              Executive OfficerDate: August 7, 2006






-25-