Ionatron Ionized

The past several days have not been kind to stock market investors. On the bright side, most of these investors have probably not even heard of, much less invested in, Ionatron (Nasdaq: IOTN). Since reporting earnings on Thursday, this cutting-edge weapons manufacturer's stock has fallen more than three times as fast as that of the average S&P 500 company.

Actually, check that. Calling Ionatron a "manufacturer" may be a bit generous. This is really much more of an R&D shop, living a hand-to-mouth existence funded by contracts to research new weapons technologies for the U.S. government and other contractors. Eventually, it may evolve into a company that manufactures products that customers will want to buy -- but not today.

Instead, Ionatron appears to be moving in the opposite direction. In Thursday's release, the firm announced that it has given up its lease of 100,000 square feet of manufacturing space, which it had intended to use to build a "remotely operated counter-IED [improvised explosive device] vehicle" that the military no longer wants. Abandonment of its manufacturing aspirations here brought Ionatron a $1.5 million write-down on inventory associated with the project.

Searching frantically for something nice to say about its quarter, the company came up with:

• Somewhere north of $3.1 million in U.S. military contracts to develop technologies to detect and counter IEDs.
• A somewhat vague $0.5 million contract for a "commercial high-voltage product" to be used in "a unique manufacturing situation."
• And finally, an update on its "Exclusive Supplier Agreement for long-term technology and systems development related to advanced commercial and military applications with a leading aerospace company." That company is rumored to be Boeing (NYSE: BA), but I could see any of the firms involved in the "flying laser" project -- including Lockheed (NYSE: LMT), Northrop (NYSE: NOC) and Raytheon (NYSE: RTN) -- as potential counterparties here.

Bad news wrapped in good news
There are a few problems with that last item, however. According to Ionatron, its mysterious customer has not yet accepted even the "initial phase" of this potential 10-year contract. Moreover, doing the work is costing Ionatron more money than its customer is willing to pay -- $1.1 million more. That may not sound like a lot, but for a company that pulled in only $10 million in revenues last year, yeah, it really is. However, it's not atypical for Ionatron to spend more on research than its customers pay for the results. So far this year, the company has incurred cost of revenue that exceeded revenue itself by more than $700,000 -- a reversal from last year's performance, in which it made a small gross profit of almost $300,000 in the first three quarters.

Looks to me as if Ionatron is moving in reverse in more ways than one.

Follow this company's earnings ion trail in:

• Ionatron Blasts Expenses
• Ionatron Evolves
• Ionatron Misfires
• Sex, Lies, and Tickertape