As an overhyped microcap name touted by dubious stock promoters, Lot78 ( OTC: LOTE ) sure looks like a fashion stock that will soon go out of style. After rocketing all the way from $1 to $9 a share in recent weeks – an inexplicable spike that has left the bleeding retailer with a bloated $500 million market value that now exceeds 1,000 times its prior-year sales – LOTE bears an awfully close resemblance to another hot fashion pick that wound up with the shelf life of a momentary fad.

Forget about all of the warnings that LOTE has included in its official regulatory  filings for a moment: the modest sales, totaling less than $500,000 annually, that actually declined last year; the relentless losses and lack of  cash that drove the company to borrow $40,000 from its founder just to stay afloat; the onerous debt, owed to its major shareholder, that literally exceeds the dwindling sales mustered by the company over the course of the past year; the  doubt expressed by its independent auditor over its very chances of survival; even the insolvent status of the company reflected by the imbalance between the meager assets and the far larger liabilities recorded on its books.

In fact, go ahead and forget about the reverse merger that magically transformed the company from a defunct energy firm into a highflying retailer – using a vehicle long associated with “pump-and-dump”  schemes – that has somehow exploded to reach double-digit prices rarely achieved (let alone maintained) on the lowly penny-stock exchange. Granted, under the terms of that reverse  merger , the original owners of the empty shell wound up holding almost half of the stock that now trades under the LOTE symbol and now stand to make a tremendous fortune by unloading those expensive shares with the stock in overdrive. Of course, now that LOTE has mysteriously surfaced on a foreign stock  exchange that’s particularly vulnerable to manipulation, those lucky investors could further boost their outsized gains by actually selling some of that overvalued stock short – effectively betting on its decline -- and hitting a nice jackpot on any future collapse.

Overlook the fact that the founder’s citizenship makes it virtually impossible for poor, disgruntled shareholders to seek justice, should the need arise. Indeed, filings state:

"Our sole officer and director, Mr.  Oliver Amhurst , is a resident of Great Britain. As a result, it may be difficult or impossible for our investors to effect service of process within the United States upon him, to bring suit against him in the United States or to enforce in the United States courts any judgment obtained there against him predicated upon any civil liability provisions of the United States federal securities laws."

Forget that, anyway. Simply focus on the glossy newsletter mailed to thousands of potential investors – courtesy of a massive publicity campaign with a $2.5 million budget that actually exceeds the total sales achieved by LOTE to date – instead. Go ahead and wait to read the fine print on the final page for now. (TheStreetSweeper gladly reviews and expands upon the worrisome revelations included in the “important notice and disclaimer” buried at the end of that paid advertisement  here .) The celebratory boasts, particularly those heralding LOTE as the next Horiyoshi the III ( OTC: HHWW.BB ), say quite enough.

Yet another obscure fashion name that seemed to burst out of nowhere, this one headquartered just blocks away from several Los Angeles homeless shelters that cater to Skid Row, HHWW caught the attention of  TheStreetSweeper after the stock literally tripled in the span of just a few short weeks. The target of a powerful multimillion-dollar publicity campaign orchestrated by the same promoters now touting LOTE itself, HHWW hit a record-high of $3.25 a share – with the company valued at roughly $200 million after reporting less than $1,000 in quarterly sales – when TheStreetSweeper rushed forward to issue an  early warning about the risky stock. By the time that TheStreetSweeper managed to complete a full-blown investigative report detailing its concerns about HHWW later on that month, however, the stock had already plummeted to barely half of that record-breaking price. Three years later, with the promoters who once favored that temporary winner now embracing a new fashion stock instead, HHWW currently languishes around the 20-cent mark and spends entire days without trading a single share at all.

Despite the rather disturbing lesson provided by that stock  chart , those promoters continue to boldly celebrate HHWW as a winning pick and even go so far as to predict that LOTE will follow that same pattern. In a paid advertisement bankrolled by Capital Financial Media (CFM) – a notorious firm hired to oversee big-ticket publicity campaigns for HHWW and a string of other doomed penny stocks -- Eric Dickson, the promoter behind a newsletter known as Breakaway Stocks, openly brags about HHWW as his “ first fashion pick ” and repeatedly points to LOTE as a brand-new winner that will likely achieve (or even exceed) the same measure of success.

“When I first brought Horiyoshi the III to the public’s attention, shares were trading at just about a dollar and were still moving under mainstream Wall Street’s radar,” Dickson  proclaims in a glowing 12-page endorsement that characterizes LOTE as a blockbuster investment opportunity likely to deliver “massive 5,300% gains” for those who pile into the stock right now. “But shares didn’t stay that inexpensive for long. Just three short weeks later, shares had exploded to $3.25, and early investors cashed out with a fast, yet hefty, 215% profit.

“That is why you can’t wait on LOTE,” Dickson continues. “This stock has many similarities to Horiyoshi, and could very well follow the same path as the 215% winner …

“Don’t miss out,” he warns. “You’ll be kicking yourself when you read all about them in The Wall Street Journal!”

Talk about a selective memory. Even for a stock promoter, a group curiously susceptible to amnesia, Dickson seems to forget an awful lot. Look at all of the pesky details that somehow escaped his mind when discussing HHWW alone:

A $1 stock before Dickson proudly “discovered” the company as his first fashion pick, HHWW now fetches some  80% less than it did when he originally started urging gullible investors to pounce on those “cheap” shares in the first place.

Still flying under the radar of sophisticated Wall Street traders who rarely bother with such obscure – and dangerous – penny stocks, HHWW caught the attention of retail investors alone and, as a stock that has traded only  one day in more than a week (with a mere 200 shares changing hands on that isolated exception) has clearly lost all of its appeal for even that limited crowd.

Other than the two-day period when it approached and ultimately set its all-time  high , HHWW has never traded above $3 a share throughout its three-year history on the penny-stock exchange. Moreover, within two short months of briefly topping the $3 mark, HHWW actually sold at even cheaper prices than the stock had fetched when Dickson pushed investors to buy the “inexpensive” shares. All told, HHWW has now  lost almost 95% of its peak value at this point.

It’s not too late for LOTE investors to take a skeptical, well-reasoned look at all this promoting and bad news. TheStreetSweeper believes that the promotions are a last ditch effort to prop up an obviously floundering company. Indeed, the magic of this promotion has created out of thin air a company which is now worth over $500 million. The only people who might stand to benefit from this are non-US citizens who can serve process should securities fraud occur.

Unlike the promoters, the SEC does not force-mail this information to investors and highlight important parts in bold. Investors must find it themselves or rely on TheStreetSweeper.

Contributing: Sonya Colberg, Senior Investigative Reporter.

Important Disclosure: Prior to publication of this investigative report, TheStreetSweeper’s owners established a short position in Lot78 (OTC:LOTE) and stand to profit on any future declines in the share price.

As a matter of policy, TheStreetSweeper prohibits writers and members of its editorial team from taking financial positions in any of the companies that they cover. To contact Melissa Davis, the principal author of this story, please send an email to  editor@thestreetsweeper.org