Heading into earnings yesterday, Applied Energetics (NASDAQ:AERG) shares were already off 20% from their just-post-earnings price back in May, and selling for a depressing 35% discount to what they fetched after the much-ballyhooed contract announcement of early June. Given the declines experienced already, you might have thought things couldn't get worse.

You'd have been wrong.

AE shares fell an additional 5% yesterday in response to an earnings report that looked ... actually, it looked surprisingly good on the surface. Sales in the fiscal second quarter 2008 zoomed 80% year over year. As usual, the company lost money, but this time around, the per-share loss was only a third as bad as last year. AE lost only a penny a share.

Management tells us, "This improvement was driven by higher revenues accompanied with lower operating expenses." And the numbers bear that out. Selling, general, and administrative spending dropped by half. Where operating costs rose, it was exactly where you would want to see a rise -- R&D spending jumped 32%.

And so, you ask, if I think AE did better than other investors appear to believe it did, why am I still down on the stock?

Call it a hunch. Call it my experience following Xybernaut so many years ago. Whatever the reason, I just don't get the impression that this company has a bright future.

I mean, the company came within a whisker of earning a profit last quarter. That's what a penny's loss is supposed to mean. But how does AE get over the hump? In this "good" quarter, its gross margin was still mired in the single digits. Even though they are far larger companies, major defense contractors such as Raytheon (NYSE:RTN) and Northrop Grumman (NYSE:NOC) consistently report double-digit gross margins.

Successful upstarts, those with at least a chance of rewarding their shareholders, boast even higher gross margins. iRobot (NASDAQ:IRBT) gets 30% gross margins. TASER (NASDAQ:TASR), nearly twice that.

Nor does AE seem set to capitalize on its good quarter. To maintain momentum, it needs to be collecting orders at least as fast as it cashes revenue checks. But with sales up 80% last quarter, backlog at AE rose only 41%.

Call it what you like -- an R&D shop, a raygun maker, or a flash in the pan -- but don't overlook its very real problems.

For related Foolishness on Applied Energetics (under its previous name), read: