**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 March 31, 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**(Address
                of Principal Executive Offices)
            (Zip
                Code)





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








Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No 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) Y es 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 May 10, 2006 there were
      73,255,147 shares of the issuer's common stock, par value $.001 per share,
      outstanding.










IONATRON,
      INC.


March
      31,
      2006





PART
                  I -
              FINANCIAL
                  INFORMATIONItem
                  1-
              Consolidated
                  Financial StatementsConsolidated
                    Balance Sheets as of March 31, 2006 (Unaudited) andDecember
                    31, 2005
              3Consolidated
                    Statements of Operations for the three months ended March 31,
                    2006and
                    2005 (Unaudited)
              4Consolidated
                    Statement of Stockholders' Equity for the three months endedMarch
                    31, 2006
              5Consolidated
                    Statements of Cash Flows for the three months ended March 31,
                    2006and
                    2005 (Unaudited)
              6Notes
                  to Consolidated Financial Statements
              7Item
                  2-
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              16Item
                  3-
              Quantitative
                  and Qualitative Disclosures About Market Risk
              20Item
                  4-
              Controls
                  and Procedures
              20PART
                  II -
              OTHER
                  INFORMATION
              21Item
                  1-
              Legal
                  Proceedings
              21Item
                  1a-
              Risk
                  Factors
              21Item
                  2-
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              21Item
                  6-
              Exhibits
              21SIGNATURES
              22






-2-




**PART
      I FINANCIAL INFORMATION**


**ITEM
      1. CONSOLIDATED FINANCIAL STATEMENTS**


IONATRON,
                  INC.CONSOLIDATED
                  BALANCE SHEETS**March
                  31, 2006**
              
              **December
                  31, 2005**ASSETS
              
              **(Unaudited)**
              
              **(Audited)**Current
                  assetsCash
                  and cash equivalents
              
              $
              1,812,567
              
              $
              371,248Accounts
                  receivable - net
              
              
              6,173,862
              
              
              5,367,691Inventory
              
              
              2,759,010
              
              
              1,348,700Securities
                  available-for-sale
              
              
              9,000,000
              
              
              12,000,000Prepaid
                  expenses and deposits
              
              
              782,665
              
              
              536,927Other
                  receivables
              
              
              19,485
              
              
              20,085Total
                  current assets
              
              
              20,547,589
              
              
              19,644,651Property
                  and equipment - net
              
              
              1,913,731
              
              
              1,732,796Goodwill
              
              
              1,487,884
              
              
              1,487,884Intangible
                  assets - net
              
              
              775,200
              
              
              787,500TOTAL
                  ASSETS
              
              $
              24,724,404
              
              $
              23,652,831LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  liabilitiesAccounts
                  payable
              
              $
              1,715,528
              
              $
              997,589Accrued
                  expenses
              
              
              480,771
              
              
              500,656Accrued
                  compensation
              
              
              600,849
              
              
              391,867Withholding
                  taxes payable
              
              
              595,182
              
              
              45Insurance
                  premium financing
              
              
              109,070
              
              
              216,043Billings
                  in excess of costs
              
              
              58,484
              
              
              84,208Current
                  portion of capital lease obligations
              
              
              44,535
              
              
              37,617Total
                  current liabilities
              
              
              3,604,419
              
              
              2,228,025Capital
                  lease obligations
              
              
              66,078
              
              
              62,290Deferred
                  tax liabilities
              
              
              58,191
              
              
              47,991Deferred
                  rent
              
              
              90,477
              
              
              82,623Total
                  liabilities
              
              
              3,819,165
              
              
              2,420,929Commitments
                  and contingencies
              
              
              —
              
              
              —Stockholders’
                  equitySeries
                  A Convertible Preferred stock, $.001 par value, 950,000 shares
                  authorizedand
                  710,000 shares issued and outstanding at March 31, 2006; 720,000
                  sharesissued
                  and outstanding at December 31, 2005.
              
              
              710
              
              
              720Common
                  stock, $.001 par value, 100,000,000 shares authorized; 73,001,758
                  sharesissued
                  and outstanding at March 31, 2006; 71,996,111 shares issued
                  andoutstanding
                  at December 31, 2005
              
              
              73,049
              
              
              71,996Additional
                  paid-in capital
              
              
              31,783,563
              
              
              28,044,794Accumulated
                  deficit
              
              
              (10,952,083
              )
              
              (6,885,608
              )Total
                  stockholders’ equity
              
              
              20,905,239
              
              
              21,231,902TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              24,724,404
              
              $
              23,652,831See
                  accompanying notes to consolidated financial statements
                  (unaudited)






-3-


IONATRON,
                  INC.CONSOLIDATED
                  STATEMENTS OF OPERATIONS(Unaudited)**For
                  the three months ended****March
                  31,****2006**
              
              **2005**Revenue
              
              $
              5,074,827
              
              $
              2,570,271Cost
                  of revenue
              
              
              4,767,178
              
              
              2,404,486Gross
                  profit
              
              
              307,649
              
              
              165,785Operating
                  expenses:General
                  and administrative
              
              
              2,706,427
              
              
              1,523,204Selling
                  and marketing
              
              
              148,958
              
              
              135,529Research
                  and development
              
              
              990,135
              
              
              105,990Total
                  operating expenses
              
              
              3,845,520
              
              
              1,764,723Operating
                  loss
              
              
              (3,537,871
              )
              
              (1,598,938
              )Other
                  (expense) incomeInterest
                  expense
              
              
              (5,243
              )
              
              (58,077
              )Interest
                  income
              
              
              112,120
              
              
              10,902Other
              
              
              9
              
              
              8,092Total
                  other
              
              
              106,886
              
              
              (39,083
              )Loss
                  before provision for income taxes
              
              
              (3,430,985
              )
              
              (1,638,021
              )Provision
                  for income taxes
              
              
              11,299
              
              
              9,577Net
                  loss
              
              
              (3,442,284
              )
              
              (1,647,598
              )Preferred
                  stock dividends
              
              
              (288,438
              )
              
              —Net
                  loss attributable to common stockholders
              
              $
              (3,730,722
              )
              $
              (1,647,598
              )Net
                  loss per common share - basic and diluted
              
              $
              (0.05
              )
              $
              (0.02
              )Weighted
                    average number of shares outstanding, basicand
                    diluted
              
              
              72,212,214
              
              
              70,969,510See
                  accompanying notes to consolidated financial statements
                  (unaudited)




-4-




IONATRON,
      INC.


CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY


FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2006


(Unaudited)


**Common
                  Stock**
              
              **Preferred
                  Stock****Accumulated****Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **APIC**
              
              **Deficit**
              
              **Total**Balance
                    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
              
              
              984,814
              
              
              985
              
              
              —
              
              
              —
              
              
              1,986,961
              
              
              —
              
              
              1,987,946Options
                    issued for servicesperformed
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              27,642
              
              
              —
              
              
              27,642Stock-based
                    compensationexpense
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,100,033
              
              
              —
              
              
              1,100,033Preferred
                  stock converted
              
              
              20,833
              
              
              21
              
              
              (10,000
              )
              
              (10
              )
              
              (11
              )
              
              —
              
              
              —Preferred
                    stock dividend paidMay
                    1, 2006
              
              
              46,914
              
              
              47
              
              
              —
              
              
              —
              
              
              624,144
              
              
              (624,191
              )
              
              —Net
                    loss for the three monthsended
                    March 31, 2006
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,442,284
              )
              
              (3,442,284
              )Balance
                  as of March 31, 2006
              
              
              73,048,672
              
              $
              73,049
              
              
              710,000
              
              $
              710
              
              $
              31,783,563
              
              $
              (10,952,083
              )
              $
              20,905,239






-5-




IONATRON,
                  INC.CONSOLIDATED
                  STATEMENTS OF CASH FLOWS(Unaudited)
  **For
                  the three months ended****March
                  31,****2006**
              
              **2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (3,442,284
              )
              $
              (1,647,598
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              213,167
              
              
              275,575Loss
                  (gain) on equipment disposal
              
              
              (25,041
              )
              
              58,418Deferred
                  income tax provision
              
              
              10,200
              
              
              9,577Provision
                  for doubtful accounts
              
              
              167,811
              
              
              —Provision
                  for losses on projects
              
              
              139,996
              
              
              —Non-cash
                  stock based compensation expense
              
              
              1,100,033
              
              
              —Stock
                  and option compensation
              
              
              27,642
              
              
              95,206Changes
                  in working capital components:(Increase)
                  decrease in accounts receivable
              
              
              (973,982
              )
              
              2,377,894(Increase)
                  decrease in other receivables
              
              
              600
              
              
              (8,990
              )(Increase)
                  decrease in inventory
              
              
              (1,550,306
              )
              
              (1,079,111
              )(Increase)
                  decrease in prepaid expenses and deposits
              
              
              (245,738
              )
              
              38,664Increase
                  (decrease) in accounts payable
              
              
              717,939
              
              
              (579,470
              )Increase
                  (decrease) in billings in excess of costs
              
              
              (25,724
              )
              
              (9,663
              )Increase
                  (decrease) in accrued expenses
              
              
              685,115
              
              
              (99,328
              )Net
                  cash used in operating activities
              
              
              (3,200,572
              )
              
              (568,826
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of equipment
              
              
              (336,907
              )
              
              (259,176
              )Proceeds
                  from sale of available-for-sale marketable securities
              
              
              3,500,000
              
              
              —Purchases
                  of available-for-sale marketable securities
              
              
              (500,000
              )
              
              —Net
                  cash provided by (used in) investing activities
              
              
              2,663,093
              
              
              (259,176
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Principal
                  payments on capital lease obligations
              
              
              (9,148
              )
              
              (1,385
              )Exercise
                  of stock options and warrants
              
              
              1,987,946
              
              
              243,866Net
                  cash provided by financing activities
              
              
              1,978,798
              
              
              242,481Net
                  increase (decrease) in cash and cash equivalents
              
              
              1,441,319
              
              
              (585,521
              )Cash
                  and cash equivalents, beginning of period
              
              
              371,248
              
              
              2,495,779Cash
                  and cash equivalents, end of period
              
              $
              1,812,567
              
              $
              1,910,258See
                  non-cash investing and financing activities at Note 12See
                  accompanying notes to consolidated financial statements
                  (unaudited)






-6-


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





**1.** **NATURE
      OF OPERATIONS AND BASIS OF PRESENTATION**





**NATURE
      OF BUSINESS AND SUMMARY OF OPERATIONS:**





Ionatron,
      Inc. (“Ionatron”) was formed on June 3, 2002 to develop and market Laser Guided
      Energy (“LGE”) technologies. Our goal is to produce LGE products for specific
      U.S. Government customer applications and platforms and launch LGE technologies
      into other viable industrial and commercial settings. Such initial LGE products
      are expected to include Directed Energy Weapon technology initially for sale
      to
      the U.S. Government. Ionatron and the U.S. Government have entered into several
      contracts for products and services as well as Cooperative Research and
      Development Agreements for joint research on Laser Induced Plasma Channel
      ("LIPC") based directed energy weapons. We expect to offer U.S. Government
      approved versions of our products for commercial security applications in the
      future.





During
      2002 and 2003, the Company engaged in research and development and business
      development activities that culminated in its first U.S. Government contract
      in
      September of 2003. During 2004, the Company





>
            Demonstrated
                the Laser-Guided Energy technology in the
                laboratory;


>
            Demonstrated
                the technology effects on a variety of targets both under U.S. Government
                contract and using internal research and development
                funding;


>
            Delivered
                a compact laser source specifically designed to enable the technology
                under a U.S. Government contract;
                and


>
            Commenced
                a U.S. Government contract for the development of a system on a mobile
                platform for field demonstration and
                testing.





In
      2005,
      we developed a counter IED (“Improvised Explosive Device”) vehicle for use in
      areas of war called the Joint IED Neutralizer (“JIN”). The
      12
      unit preproduction contract for our JIN counter IED technology recently
      concluded. The U.S. Government customer concluded that the JIN counter IED
      technology performed well and offers promise, but determined that the current
      vehicle platform should be changed. We are in the process of identifying
      potentially more rugged and capable platforms and may also offer our counter
      IED
      technology as a modification to existing military vehicles. Any new funding
      will
      come from statements of work.





We
      intend
      to continue the long-term development of our LGE and LIPC product lines and
      expect that some LIPC products for high priority, mission specific applications,
      will enter into low rate initial production.





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 electrical equipment for the defense, aerospace, semi-conductor
      and
      medical industries including products it’s Parent, Ionatron
      produces.








**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
      March 31, 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, certain prior year amounts
      were reclassified to conform to current year presentations. The results for
      the
      three-month period ended March 31, 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.




-7-




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


**2.** **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 do 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
      $1.1 million during the three months ended March 31, 2006. There is no related
      income tax benefit recognized in the condensed consolidated statements of
      operations recorded for the three months ended March 31, 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’ vesting 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:




-8-




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


**For
                  the three months ended March 31, 2005**Net
                  loss:As
                  reported
              
              $
              (1,647,598
              )Pro
                  forma stock compensation expense
              
              
              (2,087,468
              )Pro
                  forma
              
              $
              (3,735,066
              )Net
                  Loss per share - basic and diluted:As
                  reported
              
              $
              (0.02
              )Pro
                  forma
              
              $
              (0.05
              )








The
      fair
      value of our stock options granted in the three months ended March 31, 2006
      and
      2005 was estimated at the date of grant using the following
      assumptions:


**Three
                  Months Ended March 31****2006**
              
              **2005**Expected
                  life (years)
              
              
              2.5
                  years
              
              
              5.0
                  yearsDividend
                  yield
              
              
              0.0
              %
              
              0.0
              %Expected
                  Volatility
              
              
              38.4
              %
              
              75.0
              %
  From
              
              To
              
              From
              
              ToRisk
                  Free Interest Rates
              
              
              4.29
              %
              
              4.57
              %
              
              3.18
              %
              
              3.29
              %








The
      following table summarizes activity of options activity under the plans for
      the
      three months ended March 31, 2006:


**Outstanding
                  Options**
              
              **Aggregate****Weighted**
              
              **Intrinsic****Options**
              
              **Shares**
              
              **Exercise
                  Price**
              
              **Value**Outstanding
                  at December 31, 2005
              
              
              3,481,615
              
              $
              4.30Granted
              
              
              666,900
              
              $
              9.56Exercised
              
              
              (1,015,765
              )
              $
              2.34Forfeited
              
              
              (239,206
              )
              $
              9.56Outstanding
                  at March 31, 2006
              
              
              2,893,544
              
              $
              5.89
              
              $
              15,890,600Exercisable
                  at March 31, 2006
              
              
              1,902,497
              
              $
              4.62
              
              $
              12,835,850







As
      of
      March 31, 2006, there was approximately $3.9 million of unrecognized
      compensation cost related to unvested stock options granted and outstanding,
      net
      of estimated forfeitures. The cost is expected to be recognized over a weighted
      average 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 March 31, 2005 and 2006 were approximately $95,000 and $28,000,
      respectively, which were charged to operating expenses with an offsetting entry
      to additional paid-in capital.




-9-




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


**3.** **ACCOUNTS
      RECEIVABLE**


Accounts
                  receivable consist of the following at:
              
              March
                  31, 2006
              
              December
                  31, 2005Contracts
                  in progress
              
              $
              4,083,341
              
              
              3,375,104Retained
              
              
              100,000
              
              
              100,000Cost
                  and estimated earnings on uncompleted contracts
              
              
              2,197,179
              
              
              1,931,4346,380,520
              
              
              5,406,538Less:Allowance
                  for doubtful accounts
              
              
              206,658
              
              
              38,847Total
              
              $
              6,173,862
              
              $
              5,367,691








Contract
      receivables at March 31, 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
                  ContractsMarch
                  31, 2006
              
              December
                  31, 2005Cost
                  incurred on uncompleted contracts
              
              $
              19,929,278
              
              $
              14,457,299Estimated
                  earnings
              
              
              1,441,952
              
              
              1,122,673Total
                  billable costs and estimated earnings
              
              
              21,371,230
              
              
              15,579,972Less:Billings
                  to date
              
              
              19,232,535
              
              
              13,732,746Total
              
              $
              2,138,695
              
              $
              1,847,226Included
                  in accompanying balance sheet under the following
                  captions:Unbilled
                  costs and estimated earnings on uncompleted contracts included
                  inaccounts
                  receivable
              
              $
              2,197,179
              
              $
              1,931,434Billings
                  in excess of costs and estimated earnings on uncompleted
                  contracts
              
              
              (58,484
              )
              
              (84,208
              )Total
              
              $
              2,138,695
              
              $
              1,847,226






-10-




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




**4.
      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 March 31, 2006 and December 31, 2005:


March
                  31, 2006
              
              December
                  31, 2005Materials
              
              $
              1,572,328
              
              $
              815,788Work-in-process
              
              
              1,186,682
              
              
              532,912Total
              
              $
              2,759,010
              
              $
              1,348,700











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 period basis.





**5.** **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 March 31, 2006 and December 31,
      2005:


March
                  31, 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
      March 31, 2006 and December 31, 2005, there were no unrealized gains or losses
      relative to the above securities.




-11-




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




**6.
      ACCRUED EXPENSES**





Accrued
      expenses consisted of the following at:


March
                  31, 2006
              
              December
                  31, 2005Accrued
                  professional fees
              
              $
              184,539
              
              $
              123,000Overdraft
              
              
              —
              
              
              87,698Property
                  taxes
              
              
              53,340
              
              
              —Other
              
              
              242,892
              
              
              289,958Total
                  accrued expenses
              
              $
              480,771
              
              $
              500,656







**7.** **INCOME
      TAXES**





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





For
      the
      three months ended March 31, 2006 and 2005 we recorded a provision for income
      taxes of $10,199 and $9,577, respectively due to an increase in deferred tax
      liabilities as a result of the tax amortization of goodwill related to the
      North
      Star Acquisition.





**8.** **SIGNIFICANT
      CUSTOMERS**





The
      majorities of our customers are either the U.S. Government or contractors to
      the
      U.S. Government and represent 98% of revenues for the three months ended
      March 31, 2006 and 2005.





**9.** **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 1,860,528 and 3,007,768
      shares for the quarters ended March 31, 2006 and 2005,
      respectively.





**10.** **DIVIDENDS**





On
      March
      14, 2006, the Board of Directors declared the 6.5% dividend payable on May
      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 April 15, 2006. Dividends on Preferred Stock are accrued when the
      Board of Directors declares the dividend. To record the March 14, 2006
      declaration we recorded a non-cash dividend in the amount of approximately
      $624,000. 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-




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


**11.** **COMMITMENTS
      AND CONTINGENCIES**





**OPERATING
      LEASES**





In
      Tucson, Arizona, we lease office, manufacturing and storage space under three
      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. We are also responsible for certain property related
      costs, including insurance, utilities and property taxes.





In
      Albuquerque, New Mexico, we lease office, manufacturing and storage facilities
      at an annual rental of approximately $99,000 under a non-cancelable operating
      lease. The lease expires in August 2007 and contains an escalation provision
      for
      the last 12 months of the lease that increases our annual rent by $2,900. The
      lease also contains an early termination provision effective after July 1,
      2006
      which is permissible with a 120 day advance notice and a payment of
      approximately $15,000. We are also responsible for certain property related
      costs, including insurance and utilities.





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.





We
      also
      lease vehicles at both the Tucson and Albuquerque facilities 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 $252,000 and $87,000 for the three months ended March
      31, 2006 and 2005 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
              
              $
              660,9212007
              
              
              763,2472008
              
              
              745,9092009
              
              
              749,7782010
              
              
              457,600Thereafter
              
              
              711,563Total
              
              $
              4,089,018




-13-




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


**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,
              
              Amount2006
              
              $
              38,1072007
              
              
              50,8102008
              
              
              29,3092009
              
              
              2,044Total
                  payments
              
              
              120,270Less:
                  interest
              
              
              (9,657
              )Total
                  principal
              
              
              110,613Less:
                  Current portion of capital lease obligations
              
              
              44,535Long-term
                  capital lease obligations
              
              $
              66,078








**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 March 31, 2006 and 2005.





**LITIGATION**





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





**12.** **SUPPLEMENTAL
      CASH FLOW INFORMATION**


Three
                  months Ended March 31,2006
              
              2005Cash
                paid during the period for:Interest
              
              $
              5,243
              
              $
              58,077Income
                  taxes
              
              
              1,100
              
              
              —Non-cash
                  Investing and Financing Activities:Capital
                  lease obligations incurred for use of equipment
              
              
              19,854
              
              
              26,490Common
                  stock issued in May for the payment of preferred stock
                  dividends
              
              
              624,191
              
              
              —




-14-




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




**13.** **INDUSTRY
      SEGMENTS**





The
      Company is currently engaged in developing and marketing through two distinct
      segments: (1) Ionatron, where the focus is on Laser Guided Energy 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 March 31,
                  2006**
 Business
              
              
              
              Depreciation
                  and
              
              Interest
              
              Interest
              
              Net
                  Income/
              
              Capital
              
              IdentifiableSegment
              
              Revenues
              
              Amortization
              
              Income
              
              Expense
              
              (Loss)
              
              Expenditures
              
              AssetsIonatron
              
              $
              4,789,316
              
              $
              187,841
              
              $
              111,691
              
              $
              5,050
              
              $
              (2,794,033
              )
              $
              331,227
              
              $
              25,221,418North
                  Star
              
              
              611,806
              
              
              25,326
              
              
              429
              
              
              193
              
              
              (648,251
              )
              
              25,534
              
              
              2,739,080Total
                  Company
              
              
              5,401,122
              
              
              213,167
              
              
              112,120
              
              
              5,243
              
              
              (3,442,284
              )
              
              356,761
              
              
              27,960,498Intersegment
              
              
              (326,295
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (821,094
              )Investment
                  in Sub
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,415,000
              )Consolidated
                  Company
              
              $
              5,074,827
              
              $
              213,167
              
              $
              112,120
              
              $
              5,243
              
              $
              (3,442,284
              )
              $
              356,761
              
              $
              24,724,404
  **Selected
                  Financial Data for the Three Months Ended March 31,
                  2005**
 Business
              
              
              
              Depreciation
                  and
              
              Interest
              
              Interest
              
              Net
                  Income/
              
              Capital
              
              IdentifiableSegment
              
              Revenues
              
              Amortization
              
              Income
              
              Expense
              
              (Loss)
              
              Expenditures
              
              AssetsIonatron
              
              $
              2,363,147
              
              $
              245,970
              
              $
              10,482
              
              $
              57,978
              
              $
              (1,501,071
              )
              $
              227,981
              
              $
              10,758,667North
                  Star
              
              
              346,208
              
              
              29,605
              
              
              420
              
              
              99
              
              
              (146,527
              )
              
              31,195
              
              
              2,761,603Total
                  Company
              
              
              2,709,355
              
              
              275,575
              
              
              10,902
              
              
              58,077
              
              
              (1,647,598
              )
              
              259,176
              
              
              13,520,270Intersegment
              
              
              (139,084
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (529,684
              )Investment
                  in Sub
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,415,000
              )Consolidated
                  Company
              
              $
              2,570,271
              
              $
              275,575
              
              $
              10,902
              
              $
              58,077
              
              $
              (1,647,598
              )
              $
              259,176
              
              $
              10,575,586




**14.** **SUBSEQUENT
      EVENTS**





In
      April
      2006 Management elected to relocate the operations of our North Star subsidiary
      from Albuquerque to Tucson. We are currently assessing the amount of reserves
      required for the relocation but expect it to be in the range of $500,000 to
      $1
      million. We are also evaluating the impact this move will have on our operations
      as well as the valuation of our goodwill and intangibles.




-15-





**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 Laser Guided
      Energy (“LGE”) technologies. Our goal is to develop and produce next generation
      Directed Energy Weapons for specific U.S. Government customer applications
      and
      platforms and launch LGE technologies into other viable industrial and
      commercial settings. Such initial LGE products are expected to include Directed
      Energy Weapon technology initially for sale to the U.S. Government. Ionatron
      and
      the U.S. Government have entered into several contracts for products and
      services as well as Cooperative Research and Development Agreements for joint
      research on Laser Induced Plasma Channel ("LIPC") based directed energy weapons.
      We expect to offer U.S. Government approved versions of our products for
      commercial security applications in the future.





During
      2002 and 2003, the Company engaged in research and development and business
      development activities that culminated in our first U.S. Government contract
      in
      September of 2003. During 2004, the Company





>
            Demonstrated
                Laser-Guided Energy technology in the
                laboratory;


>
            Demonstrated
                the technology effects on a variety of targets both under U.S. Government
                contract and using internal research and development
                funding;


>
            Delivered
                a compact laser source specifically designed to enable the technology
                under a U.S. Government contract;
                and


>
            Commenced
                a U.S. Government contract for the development of a system on a mobile
                platform for field demonstration and
                testing.





In
      2005,
      we developed a counter IED (“Improvised Explosive Device”) vehicle for use in
      areas of war called the Joint IED Neutralizer (“JIN”). The
      12
      unit preproduction contract for our JIN counter IED technology recently
      concluded. The U.S. Government customer concluded that the JIN counter IED
      technology performed well and offers promise, but determined that the
      current vehicle platform should be changed. We are in the process of identifying
      potentially more rugged and capable platforms and may also offer our counter
      IED
      technology as a modification to existing military vehicles. Any new funding
      will
      come from statements of work.





We
      intend
      to continue the long-term development of our LGE and LIPC product lines and
      expect that some LIPC products for high priority, mission specific applications,
      will enter into low rate initial production.





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 electrical equipment for the defense, aerospace, semi-conductor
      and
      medical industries including products it’s Parent, Ionatron
      produces.




-16-





In
      April
      2006, we received notification from our U.S. Government customer that secrecy
      orders are being placed on eight of Ionatron's patent applications. Presently,
      two of our patent applications have been allowed by the U.S. Patent and
      Trademark Office and we have received notice that these are expected to be
      issued as U.S. Patents. These two patent applications are not subject to secrecy
      orders. Additionally, a third patent application relating to these two patent
      applications was filed and will likely not be subject to a secrecy order either.
      We have filed 14 additional patent applications, approximately nine of which
      may
      be subject to secrecy orders. These patent applications relate to our core
      Laser
      Induced Plasma Channel (“LIPC”®) technology, and other technologies related to
      Laser Guided Energy and LIPC technology development.





Our
      intellectual property strategy enables us to develop broader scope inventions
      through our own internal funding. We believe this approach makes it beneficial
      for the Government as well as other entities to work directly with us.
      Furthermore, we believe the patent applications can be used as justification
      for
      sole source, non-competitive awarding of contracts in accordance with the
      Federal Acquisition Regulations.





U.S.
      Government support for our Laser Guided Energy (“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 now 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 MARCH 31, 2006 AND 2005 IS AS
      FOLLOWS:**


2006
              
              2005Revenue
              
              $
              5,074,827
              
              $
              2,570,271Cost
                  of revenue
              
              
              4,767,178
              
              
              2,404,486General
                  and administrative
              
              
              2,706,427
              
              
              1,523,204Selling
                  and marketing
              
              
              148,958
              
              
              135,529Research
                  and development
              
              
              990,135
              
              
              105,990Other
                  (expense) income:Interest
                  expense
              
              
              (5,243
              )
              
              (58,077
              )Interest
                  income
              
              
              112,120
              
              
              10,902Other
              
              
              9
              
              
              8,092Loss
                  before provision for income taxes
              
              
              (3,430,985
              )
              
              (1,638,021
              )Provision
                  for income taxes
              
              
              11,299
              
              
              9,577Net
                  loss
              
              $
              (3,442,284
              )
              
              ($1,647,598
              )







**REVENUE**





The
      increase of approximately $2.5 million in revenue for the three months ended
      March 31, 2006 compared to 2005 was derived from work on existing contracts
      with
      agencies of the U.S. government and revenue from the Company's JIN
      pre-production contract.




-17-





**COST
      OF REVENUE**





Cost
      of
      revenue increased approximately $2.4 million when compared to the three months
      ended March 31, 2005 due to increased revenue. Cost of revenue includes an
      allocation of general and administrative expenses and research and development
      costs in accordance with the terms of our contracts.





**GENERAL
      AND ADMINISTRATIVE**





The
      increase of approximately $1.2 million in general and administrative expenses
      for the three months ended March 31, 2006 from the three months ended March
      31,
      2005 was primarily due to the recognition of non-cash employee stock option
      compensation expense of approximately $1.1 million as a result of our adoption
      of SFAS 123(R). We also experienced increases in personnel costs and recruiting
      costs of approximately $421,000 and $248,000 respectively, which reflects the
      increase in the number of employees from 52 in March 2005 to 109 in March 2006,
      and an increase of approximately $221,000 in insurance expenses, associated
      with
      the increased number of buildings we occupy. Net of the non-cash compensation
      expense recognition and increases attributable to a 100% increase in staffing
      levels, general and administrative expenses decreased due to our increased
      ability to recapture certain overhead expenses as a function of our revenue
      activity which increased over 90% from the first quarter of 2005.





**SELLING
      AND MARKETING**





Selling
      and marketing expenses increased by only $13,000 during the three months ended
      March 31, 2006 from the same period in 2005 as a result of consolidating our
      marketing efforts.





**RESEARCH
      AND DEVELOPMENT**





Research
      and development expenses increased approximately $884,000 during the three
      months ended March 31, 2006 as compared to 2005 due to our continued shift
      to
      internally-funded proof-of-concept and research and development and our
      concentrated efforts to expedite the advancement of our core technologies.








**INTEREST
      INCOME**





Interest
      income in the first quarter of 2006 increased approximately $101,000 from the
      first three months of 2005 as a result of our increased investment in
      securities available for sale obtained with the proceeds of our October
      2005 Series A Redeemable Convertible Preferred Stock offering.








**NORTH
      STAR OPERATIONS**





Our
      consolidated financial information contains the results of North Star for the
      three months ended March 31, 2006. North Star’s revenue, net of intersegment
      transactions, remained relatively level, with an increase from approximately
      $207,000 for the first three months of 2005, to approximately $231,000 for
      the
      same period in 2006. Cost of revenue for North Star, net of intersegment
      activity, increased from approximately $194,000 for the first three months
      of
      2005, to approximately $439,000 for the same period in 2006. Net of intersegment
      transactions, North Star had a net loss for the first three months of 2006
      of
      approximately $648,000, and approximately $147,000 for the first three months
      of
      2005. Management has increased its focus on North Star’s financial performance
      and intends to review the effectiveness of its cost and revenue position and
      has
      instituted additional management changes at the subsidiary in an effort to
      improve North Star’s financial results. In April 2006, management elected to
      relocate the operations of our North Star subsidiary from Albuquerque to Tucson.
      We are currently assessing the amount of reserves required for the relocation
      but expect it to be in the range of $500,000 to $1 million. We are also
      evaluating the impact this move will have on our operations as well as the
      valuation of our goodwill and intangibles. It is expected that moving the North
      Star facility to Tucson will ultimately result in overall cost savings and
      more
      efficient operation of this subsidiary.








**NET
      LOSS**





The
      operations for the three months ended March 31, 2006 resulted in a net loss
      of
      approximately $3.4 million and includes non-cash employee stock option
      compensation of approximately $1.1 million. Net of the non-cash compensation
      expense, our operating loss for the quarter shows an increase from our 2005
      first quarter loss. This increase, despite our substantial increase in research
      and development investment, is reflective of our increased efficiency and the
      economies of scale derived from increased revenue activities.




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**LIQUIDITY
      AND CAPITAL RESOURCES**





At
      March
      31, 2006, we had approximately $1.8 million of cash and cash equivalents, an
      increase of approximately $1.4 million from cash and cash equivalents at
      December 31, 2005 of $371,000. 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.





During
      the first three months of 2006, we used approximately $3.2 million of cash
      in
      operating activities, consisting primarily of our net loss of $3.4 million
      and
      increase in inventory and accounts receivable of approximately $1.6 million
      and
      approximately $974,000, respectively, offset by non-cash stock option
      compensation expense of approximately $1.1 million, depreciation and
      amortization expense of approximately $213,000 and an increase in accounts
      payable and accrued expenses of approximately $718,000 and approximately
      $685,000, respectively. The increase in inventory is primarily the result of
      material acquisitions in the JIN project with the U.S. government. We anticipate
      that short-term and long-term funding needs will be provided from cash on hand
      and cash flow from government contracts.





In
      the
      first quarter of 2006, investing activities provided approximately $2.7 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 $337,000.





During
      the first three months of 2006, financing activities provided approximately
      $2.0
      million of cash, primarily from the proceeds of option and warrant exercises.





We
      believe that we have sufficient cash, or access to sufficient cash through
      potential banking or investing relationships to meet current and future cash
      needs. The transportable demonstrator contract, the JIN contract and one other
      contract, that presently represent a major portion of our current activity,
      are
      on a cost plus fixed fee basis. This means the majority of work performed is
      done at our government-approved rates, which include general and administrative
      costs, overhead, labor and materials, fees and profit. These costs are accrued
      as incurred and billed monthly. These government-approved rates are adjusted
      periodically and 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
      March
      31, 2006, we had a backlog (that is, work load remaining on signed contracts)
      of
      approximately $3.7 million to be completed within the next twelve months,
      including a $2.8 million contract signed January 2006 with the U.S. Navy to
      further develop our LIPC® technology. The backlog does not include proposals and
      contracts under negotiation.




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





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





Our
      available cash balances are invested on a short-term basis and are not subject
      to significant risks associated with changes in interest rates. Substantially
      all of our cash flows are derived from our operations 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 March 31, 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 March 31, 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.




-20-




**PART
      II - OTHER INFORMATION**





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





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





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





The
      contract for our 12-unit pre-production JIN products was concluded. 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.
      The overall assessment is that the technology works well and offers great
      promise, however the current vehicle platform needs to be changed. As the
      current pre-production order and assessment has ended, the path forward is
      currently being identified and evaluated. Any new funding will come from
      approved statements of work.







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





During
      the three months ended March 31, 2006, the Company issued
      110,000 shares of common stock upon exercise of outstanding options and warrants
      to employees, directors and consultants. The securities were issued pursuant
      to
      an exemption from registration pursuant to Section 3(a)(9) of the Securities
      Act
      of 1933.








**ITEM
      6** **EXHIBITS**





EXHIBIT
              NUMBER
            DESCRIPTION31.1
            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.








-21-





**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 Officer, President


Date:
      May
      10, 2006




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