Can we call this a lesson learned? I've warned investors several times that those hype-driven stocks everyone thought would be the next TASER International (NASDAQ:TASR) were more likely to zap their wallets than provide for their retirements. The problem was two-pronged. First, TASER itself wasn't doing so well. And the wannabes? Well, they were talking a lot about their stun guns but have yet to show any traction in the market or, in some cases, even get a product on the streets.

Today, the final year-end numbers from one of these, Law Enforcement Associates (AMEX:AID), show, even more than the chart, what investors can take home when they jump at penny stocks with snappy stories.

To put the bottom line up top, for the full year 2005, all the addition and subtraction added up to a 31% increase in revenue, to $8.2 million, but a $0.01-per-share loss. Gross margins dropped to 40% from 46% the year before. But things aren't as simple as that.

I recently talked about how LEA was stuck with a need to restate past earnings, and today, we got more of the details as to why. There are several issues that needed to be resolved, beginning with an asset purchase that was erroneously classified as a business purchase during the acquisition of Audio Intelligence Devices. This also gave rise to valuation problems for a put option associated with the purchase.

More troubling to me were several other accounting glitches, including the booking of gross revenues when, in fact, the firm should have recorded only earned commissions. There were also problems with revenue for future services being booked improperly -- not as deferred revenue -- and the training revenues in question were later reversed entirely. Finally, there was an example of expenses pushed out into a future quarter.

These are accounting no-nos, and while I take a dimmer view, at the very least, LEA seems to have played a bit fast and loose with the accounting rules. And I worry that this is part of the culture here. I've previously highlighted the firm's past dealings with stock promoters -- a charge it denied even though its very press release denial provided proof to the contrary. Just follow the links. A tidbit from the latest filing gives me more cause for pause.

LEA's largest shareholder, former North Carolina state Sen. John Carrington, whose resignation as a director in April 2005 was said to be "for personal reasons, including his health and age and had nothing to do with any matter involving the Company," was already in hot water for breaking U.S. export codes at his other company, Sirchie Fingerprint Laboratories (which is a major holder of LEA).

According to the new 10-K, in December of 2005, Carrington plead guilty to a charge of "exporting crime control equipment to the People's Republic of China without required authorization from the Secretary of Commerce. . Mr. Carrington was ordered to pay an $850,000 fine and he also gave up his exporting privileges for five years."

According to the RaleighNews & Observer's recent report on the case, federal authorities said Carrington knew he needed an export license yet routed the shipments through an Italian distributor to "hide the transaction."

As for the promised stun pistol that was relentlessly promoted in late 2004 and early 2005 -- via no fewer than seven press releases from September 2004 to March 2005 while Carrington was selling plenty of shares -- well, that appears to remain in limbo. The latest 10-K only mentions, "We are currently negotiating with several companies to license the manufacture and sale of that weapon," while today's press release points out that TASER's litigation problems "could impact the timing of our establishing a formal partnership."

Compare that with an LEA press release from March 2005, announcing "Law Enforcement Associates Successfully Introduces It's [Sic.] Production, Less Lethal STUN PISTOL at the Trexpo Conference ..." and you'll see why I continue to believe this company will not deliver on its promises.

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At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.