Lot78 Inc. (LOTE)

[chessman]

It is appropriate to note that the Company is aware of ...

the recent volatility in the pricing and trading of our shares.

The Company is advised that certain market participants are actively shorting the company's shares and the Company had been advised that much of this activity may be in violation of applicable federal securities laws.

As reported by the SEC, in their bi-monthly publication of significant FTD's (Failure to Deliver) – shares of the company began to experience significant fails on settlement date from April 24, 2013 to April 30, 2013 (the last date reported by the SEC) rising from 31,918 and reaching as high as 1,129,254 shares. The table below outlines the reported number of fails on each day in that period.

Date


Number of Shares Failing

4/30/2013


1,129,254

4/29/2013


1,178,227

4/26/2013


303,129

4/25/2013


347,379

4/24/2013


312,175

4/23/2013


197,806

4/22/2013


136,099

4/19/2013


31,918

Source: http://www.sec.gov/foia/docs/failsdata.htm

In addition to the FTD information two additional data points raise cause for concern that the shares failing amount to a naked short position initiated by certain market makers:

The entire short interest as reported bi-monthly amounts to 1,088,000 as of April 30 2013. The rise of FTD's to 1,129,254 on April 30 2013 indicates that this is not attributable to legally borrowed short position.
The Company continues to remain on the REG SHO list indicating that there were at least 285,000 shares failing (based on the minimum threshold formula for being added to the list) at the close yesterday. This marks the 13th consecutive day that the Company has been on the REG SHO list.

The Company is advised that some or all of this short interest may be in violation of Rule 10b-21 and Regulation SHO, this trading practice is known as "naked short selling." Short selling is a trading practice whereby investors borrow stock from a broker to sell in the hope that the stock price will decline before they have to return the share to the broker to cover their position. Simply stated, "naked short selling" involves groups of people working in concert to manipulate the market in order to force a company's share price lower.

The Company has been advised that there are the relevant indications of a significant naked shorting attack directed at the Company. The Company is concerned that such activities continue in apparent violation of applicable regulations.

Forward Stock Split (4:1)

Having regard to these concerns and in order to seek to stabilize the market for our common stock and for our shareholders as a whole, the Company is announcing a four-for-one (4:1) forward split of our common stock, with a record date of May 15, 2013 (the "Record Date").

The forward split will take effect upon approval of the same by FINRA (the "Payable Date"). On the Payable Date, every one (1) share of the Company's pre-split common shares held by a shareholder as of the Record Date, will automatically be split into four (4) shares of the Company's post-split common shares.

In addition, the Company will increase the number of authorized common shares from 75,000,000 to 350,000,000.

The forward split will affect all shareholders uniformly and will not affect any shareholder's ownership percentage.