Mmm. Fresh crow. Shall I dine?

Wednesday, in our pre-earnings Foolish Forecast for Ionatron (NASDAQ:IOTN), I argued that the ray gun maker's long-term history of losing money, its trend of declining gross margins, and stagnant revenue, put it "on a fast track to zero." Today, the earnings are out, and the stock is up 11%. So was I wrong?

Yes, and no. Absolutely, and I'm afraid not.

Yes
I was absolutely mistaken in my short-term pessimism about Ionatron. No doubt. The company accomplished several things last quarter that will keep it alive, and perhaps even enable it to thrive. For example, Ionatron grew its revenue 55% year over year, to $3.1 million. It shrank its per-share loss by more than half, to $0.03 per share.

Helping to reduce the loss were several feats that reduced Ionatron's cost of doing business and reduced the drain on all the extra revenue it brought in during the quarter. To begin with, the firm eked out a 2.5% gross margin. It shrank its selling, general, and administrative expenses by a third, and slashed research and development costs down to the barest of budgetary bones, spending 85% less on R&D this year than last. (Interestingly, according to its recent earnings report, similar company TASER (NASDAQ:TASR) managed to reverse its year-earlier loss even as it increased R&D spending.)

Finally, although Ionatron did not give us a cash flow statement to look over, I suspect it may even have slowed down its cash burn -- hoarding its $26.6 million war chest and enabling it to finance what I estimate to be about three more years of losses. For although inventories skyrocketed in comparison with last year (up 81%), Ionatron succeeded in getting some of its customers to pay their bills, so accounts receivable fell 60%.

No
That, however, is just the good news. There's also a bit of bad news in the report. For instance, the fact that the fully diluted share count rose 7.5% year over year. Granted, that helped to shrink the firm's per-share loss this quarter (an effect I've dubbed the "dilution solution"). But it also means that, if and when Ionatron begins to earn profits in the future, each dollar of profit will be split among more shares, reducing existing shareholders' "take."

The other bit of bad news relates to Ionatron's good news -- the decline in costs, which was headlined by a $1 million decrease (85% year over year) in research and development spending. With few sales, and no profits, Ionatron remains an R&D shop. Not just its future, but its very reason for existence, is tied to its research of directed energy weapons technology. As such, I consider cutting costs by cutting R&D spending nothing less than a mortgaging of Ionatron's future.

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Fool contributor Rich Smith does not own shares of any company named above. Why do we tell you this? Because The Motley Fool has a disclosure policy.