10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2007

[    ] Transition Report Under Section 13 or 15(d) of the Exchange Act

For the transition period from_____ to _____

Commission File Number: 0-10147

Diatect International Corporation

(Exact name of small business issuer as specified in its charter)

California	82-0513109
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

875 South Industrial Parkway, Heber City, Utah 84032

(Address of principal executive offices)

(435) 654-4370

(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [   ] No [ X ]

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  YES o  NO x

As of December 28, 2007 the issuer had 185,562,564 shares of common stock, no par value, outstanding.

Transitional Small Business Disclosure Format:  Yes oNox

1

	Page    Number
PART I
ITEM 1.  Condensed Financial Statements (unaudited)
Balance Sheets as of June 30, 2007 and December 31, 2006	3
Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006	4
Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006	5
Notes to Condensed Financial Statements	7
ITEM 2. Management’s Discussion and Analysis or Plan of Operation.	19
ITEM 3. Controls and Procedures.	22
PART II
ITEM 1. Legal Proceedings	23
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.	24
ITEM 6. Exhibits.	24
Signatures	25

2

DIATECT INTERNATIONAL CORPORATION

CONDENSED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	2007			2006
ASSETS
Current Assets
Cash	$	26,315		$	61,743
Trade accounts receivable, net of allowance for doubtful accounts of $41,397 and $25,397, respectively		80,344			26,502
Inventory		313,114			235,889
Prepaid expenses and other current assets		65,955			147,219
Total Current Assets		485,728			471,353
Property and Equipment, net of accumulated depreciation of $117,775 and $268,275, respectively		208,274			90,006
Intangible Assets - EPA Labels		1,116,322			1,116,322
Total Assets	$	1,810,324		$	1,677,681
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable	$	146,638		$	267,840
Accrued liabilities		269,055			289,322
Accrued interest payable		857,951			723,545
Accrued settlement obligations		131,399			259,381
Deferred gain on sale and leaseback of assets		104,947			-
Current portion of notes payable, net of unamortized discount of $77,074 and $191,094, respectively		1,744,374			1,393,822
Capital lease obligations		43,215			-
Total Current Liabilities		3,297,579			2,933,910
Long-Term Liabilities
Notes payable, net of current portion		1,785,563			1,785,563
Capital lease obligations, net of current portion		113,582			-
Total Long-Term Liabilities		1,899,145			1,785,563
Stockholders' Deficit
Common stock, no par value; 300,000,000 shares authorized; 159,802,140 shares and 151,552,140 shares outstanding, respectively		23,517,049			23,120,610
Additional paid-in capital		454,462			593,162
Accumulated deficit		(27,357,911	)		(26,755,564	)
Total Stockholders' Deficit		(3,386,400	)		(3,041,792	)
Total Liabilities and Stockholders' Deficit	$	1,810,324		$	1,677,681

The accompanying notes are an integral part of these financial statements.

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DIATECT INTERNATIONAL CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Sales	$	418,203		$	396,486		$	860,341		$	578,120
Cost of Goods Sold		100,561			136,052			180,067			198,868
Gross Profit		317,642			260,434			680,274			379,252
Expenses
Marketing and selling		211,943			55,264			392,777			205,020
General and administrative		422,528			411,963			765,524			731,982
Total Expenses		634,471			467,227			1,158,301			937,002
Loss from Operations		(316,829	)		(206,793	)		(478,027	)		(557,750	)
Other Income (Expense)
Interest expense		(163,882	)		(46,365	)		(288,040	)		(177,331	)
Gain from termination of debt		163,720			437,243			163,720			478,470
Net Other Income (Expense)		(162	)		390,878			(124,320	)		301,139
Net Income (Loss)		(316,991	)		184,085			(602,347	)		(256,611	)
Basic and Diluted Loss Per Share	$	(0.00	)	$	0.00		$	(0.00	)	$	(0.00	)
Weighted-Average Common Shares Outstanding		156,282,952			116,725,520			154,090,857			108,996,552

The accompanying notes are an integral part of these financial statements.

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DIATECT INTERNATIONAL CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2007			2006
Cash Flows from Operating Activities
Net loss	$	(602,347	)	$	(256,611	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		20,626			28,399
Amortization of discount on notes payable		141,902			702
Amortization of loan costs		31,232			307
Gain from debt termination		(163,720	)		(478,480	)
Net loss (gain) on disposal of property and equipment		(3,901	)		5,317
Issuance of stock for services		27,500			159,148
Issuance of warrants for services		177,023			260,602
Changes in operating assets and liabilities:
Accounts receivable		(53,842	)		(55,023	)
Inventory		(77,225	)		71,449
Prepaid expenses and other current assets		366			(6,869	)
Accounts payable		(17,465	)		364,974
Accrued liabilities		(30,267	)		(303,362	)
Accrued interest payable		134,406			91,274
Net Cash Used in Operating Activities		(415,712	)		(118,173	)
Cash Flows from Investing Activities
Payments for purchases of property and equipment		(30,045	)		-
Proceeds from sale of property and equipment		160,000			-
Net Cash Used in Investing Activities		129,955			-
Cash Flow from Financing Activities
Proceeds from borrowings under notes payable		358,500			319,000
Proceeds from exercise of warrants		75,000			-
Cash paid for loan costs		-			(40,000	)
Principal payments on notes payable		(111,968	)		(49,808	)
Principal payments on lease obligation		(3,203	)		-
Payments for accrued settlement obligations		(68,000	)		(17,725	)
Payments on checks drawn in excess of cash in bank		-			(10,481	)
Net Cash Provided by Financing Activities		250,329			200,986
Net Increase (Decrease) in Cash		(35,428	)		82,813
Cash at Beginning of Year		61,743			6,382
Cash at End of Period	$	26,315		$	89,195

The accompanying notes are an integral part of these financial statements.

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DIATECT INTERNATIONAL CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

	Six Months Ended June 30,
	2007		2006
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	6,644	$	9,113
Supplemental Schedule of Noncash Investing and Financing Activities
Conversion of notes payable into common stock		-		150,000

The accompanying notes are an integral part of these financial statements.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS AND ORGANIZATION, BASIS OF PRESENTATION

Organization and Description of Business– Diatect International Corporation (the “Company”) develops and markets non-toxic pesticide products. The Company is located in Heber, Utah and sells its products to both wholesale distributors and retail customers in the United States.

Basis of Presentation– The unaudited financial statements included in this Form 10-QSB have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B of the Securities and Exchange Act of 1934, as amended. Accordingly, these financial statements do not include all of the disclosures required by U.S. generally accepted accounting principles for complete financial statements.  These unaudited interim financial statements should be read in conjunction with the audited financial statements for the fiscal year ended December 31, 2006 in the Company’s annual report on Form 10-KSB.  The financial information furnished herein reflects all adjustments consisting of normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the Company's financial position, the results of operations and cash flows for the periods presented.  Operating results for the period ended June 30, 2007 are not necessarily indicative of future results.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates– The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates may also affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon subsequent resolution of identified matters.

Business Condition– The Company generated sales of $860,341 and incurred a net loss from operations of $478,028 during the six months ended June 30, 2007. At June 30, 2007 the Company had a total stockholders’ deficit of $3,386,400 and its current liabilities exceeded current assets by $2,811,851.

The ability of the Company to continue operations is dependent upon obtaining additional financing and being able to generate net profits in the future. Management believes that these events are likely to occur in the near future, even though no assurance thereof can be given. Additional financing arrangements have been negotiated and are discussed further in Notes 4, 6 and 9.

Cash and Cash Equivalents - Cash and cash equivalents include all highly liquid investments with original maturities of three months or less.

Credit Risk - The carrying amounts of trade accounts receivable included in the balance sheets represent the Company’s exposure to credit risk in relation to its financial assets. The Company performs ongoing credit evaluations of each customer’s financial condition. The Company has not had any significant credit losses in the past and maintains allowances for doubtful accounts and such allowances in the aggregate did not exceeded management’s estimations.

Trade Accounts Receivable and Allowance for Doubtful Accounts - Trade accounts receivables and other receivables are carried at original invoiced amounts less an allowance for doubtful accounts.

Inventory– The Company’s current inventory consists primarily of raw materials and finished goods and is valued at the lower of cost or market, with cost being determined by the average cost method. Raw materials consist of the various active ingredients that comprise the Company’s products and shipping and packaging materials. When there is evidence that inventory values are less than original cost, the inventory is reduced to market value. The Company determines market value based on current prices and whether obsolescence exists.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

Property and Equipment – Property and equipment are stated at cost. Expenditures for normal repairs and maintenance are charged to operations as incurred. The cost of an asset and related accumulated depreciation are also charged to operations when retired or otherwise disposed. Depreciation is computed based on the estimated useful life of the assets using straight-line and accelerated methods. Useful lives for equipment range from 3 to 10 years. Equipment under capital leases is amortized over the shorter of the estimated useful lives of the equipment or the lease term.

Intangible Assets– The Company’s intangible assets consist of the labels that are placed on its products and that have been registered as non-toxic insecticide products with the United States Environmental Protection Agency pursuant to the Federal Insecticide, Fungicide and Rodenticide Act. The Company recorded these labels at cost; however, it impaired the value thereof by $2,869,570 in 2003. During 2004 and for the first 6 months of 2005, the Company amortized the unimpaired value over an estimated useful life of 7 years using the straight-line method. In July 2005, the Company concluded that the estimated useful life of the labels was indefinite and will henceforth subject the labels to impairment if and when appropriate. The Company has not impaired the value of the labels since making this determination.

Long Lived Assets– Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Fair Value of Financial Instruments– Due to the short maturity of trade receivables and current liabilities, including trade payables, the carrying amount approximates fair value. The carrying amount reported for notes payable approximates fair value and interest rates on these notes approximate current interest rates given the current business condition of the Company.

Revenue Recognition– The Company manufactures and sells non-toxic pesticides to retailers, agricultural concerns and directly to the public through a Company website. Revenue from the sale of its products when (a) persuasive evidence of an arrangement exists, (b) delivery has occurred and no significant obligations remain, (c) the sales price is fixed and determinable and (d) collection is determined to be probable. Sales credits and price concessions are treated as a reduction of revenue. Product returns are permitted, but historically have occurred within a short period after the sale and are estimated and recognized as a reduction of revenue at the time of the sale.

Shipping and Handling Costs– Shipping and handling costs are billed to customers and are recorded as revenue and the associated costs are included in cost of revenues.

Marketing and Selling Expenses– Marketing and selling expenses include the salaries and wages of its in-house sales force, advertising, product samples and promotional expenses. The Company designs and prints literature and marketing materials for its products, as well as promotional materials used in trade shows.

Income Taxes – No income taxes have been paid or accrued for Federal tax purposes because the Company has had no net taxable income since inception. In accordance with SFAS 109, the Company recognizes the amount of income taxes payable or refundable for the current year and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement amounts of certain assets and liabilities and their respective tax bases. Deferred tax assets and deferred liabilities are measured using enacted tax rates expected to apply to taxable income in the years those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance to the extent that uncertainty exists as to whether the deferred tax assets will ultimately be realized.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

Basic and Diluted Loss Per Share– Basic loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the period presented. At June 30, 2007 there were potentially dilutive common shares outstanding as presented in the following table that were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive.

	June 30,		June 30,
	2007		2006
Outstanding warrants		25,000,000		32,150,000
Convertible promissory notes convertible into:
Common stock		20,920,000		2,000,000
Warrants		20,920,000		2,000,000
Total potentially dilutive common shares		66,840,000		36,150,000

Share Based Payments – The Company accounts for stock-based compensation expense in accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment” (SFAS 123R). Under SFAS 123R, stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. For the periods ended June 30, 2007 and 2006, there were no stock-based awards.  For future stock awards, the Company intends to estimate the fair value of each stock-based award on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options, a risk-free interest rate and dividend yield.

As of June 30, 2007 and December 31, 2006, the Company has no unvested options and did not grant any options to employees during the six months ended June 30, 2007.

Recently Enacted Accounting Standards– In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance for applying those definitions in GAAP that are dispersed among the many accounting pronouncements that require fair value measurements. SFAS No. 157 retains the exchange price notion in earlier definitions of fair value, but clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or liability in the principal or most advantageous market for the asset or liability. Moreover, the SFAS states that the transaction is hypothetical at the measurement date, considered from the perspective of the market participant who holds the asset or liability. Consequently, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price), as opposed to the price that would be paid to acquire the asset or received to assume the liability at the measurement date (an entry price).

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). Finally, SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Entities are encouraged to combine the fair value information disclosed under SFAS No. 157 with the fair value information disclosed under other accounting pronouncements, including SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” where practicable. The guidance in this Statement applies for derivatives and other financial instruments measured at fair value under SFAS No.133, “Accounting for Derivative Instruments and Hedging Activities,” at initial recognition and in all subsequent periods. The impact of adoption of this statement on the Company’s consolidated financial statements, if any, has not yet been determined.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115”,which permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not expect SFAS 159 to have a material impact on its results of operations or financial position.

NOTE 2 – INVENTORY

Inventory is comprised of the following:

	June 30,		December 31,
	2007		2006
Raw materials	$	279,777	$	202,291
Finished goods		33,337		33,598
Total Inventory	$	313,114	$	235,889

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Expenditures for normal repairs and maintenance are charged to operations as incurred. The cost of an asset and related accumulated depreciation are also charged to operations when retired or otherwise disposed. Depreciation is computed based on the estimated useful life of the assets using straight-line and accelerated methods. Depreciation expense for the six months ended June 30, 2007 and 2006 was $20,626 and $28,399, respectively. The components of property and equipment are as follows:

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

	Estimated
	Useful Life	June 30,			December 31,
	in Years	2007			2006
Computer equipment	3 to 5	$	80,859		$	81,329
Office furniture and equipment	5		45,620			31,432
Manufacturing equipment	3 to 10		199,570			245,610
Total Property and Equipment			326,049			358,371
Less: Accumulated depreciation			(117,775	)		(268,275	)
Net Property and Equipment		$	208,274		$	90,096

The Company owns association placer diatomaceous earth mining claims and placer diatomaceous earth mining claims, in the state of Oregon. The Company has not engaged in any mining operations and does not anticipate undertaking mining operations in the near future. The mining claims are carried at no cost.

NOTE 4 – NOTES PAYABLE

Notes payable is comprised of the following:

	June 30,		December 31,
	2007		2006
Revolving line of credit with financial institution	$	49,436	$	49,436
Cash advances from shareholder, unsecured		97,000		97,000
Unsecured 10% notes payable to investors, in default		302,512		306,980
Unsecured 12% notes payable to investors, in default		40,000		50,000
Unsecured 15% notes payable to investors, in default		286,500		286,500
Unsecured 12% convertible promissory notes payable, net of unamortized discount of $77,074 and $191,094, respectively		968,926		603,906
Unsecured 5% notes payable to shareholders, due in 2008		1,220,937		1,220,937
Unsecured 5% notes payable to vendors, due in 2008		564,626		564,626
Total Notes Payable		3,529,937		3,179,385
Less: Current portion		1,744,374		1,393,822
Long-Term Notes Payable	$	1,785,563	$	1,785,563

Revolving Lines of Credit – The Company currently has unsecured, revolving credit notes with a financial institution totaling $49,436. The line of credit bears interest at 9.75% per annum, is due on demand and requires monthly interest only payments. The line is unsecured and is personally guaranteed by a former director of the Company.

Cash Advances from Shareholder – A shareholder advanced $97,000 of cash to the Company. The cash advances are unsecured and have no stated maturity date.

Unsecured Notes Payable– The Company has borrowed money from several entities, including shareholders of the Company, with various terms including demand promissory notes. The notes are unsecured and bear interest at rates from 5% to 15% payable at different times.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

Convertible Promissory Notes Payable –In June 2006, the Company commenced a private placement offering of convertible promissory notes. From June through December 31, 2006, the Company issued $795,000 of convertible promissory notes. During the six months ended June 30, 2007, the Company issued an additional $358,500 of convertible promissory notes.  Based upon the market price of the Company’s common stock on the dates the notes were issued during the six months ended June 30, 2007, the investors received a beneficial conversion option of $27,882. The beneficial conversion option was computed as the difference between the fair value and the allocated proceeds of the common stock issuable upon conversion of the promissory notes. The recognition of the beneficial conversion option resulted in a discount to the notes payable that is being amortized over the term of the convertible notes using the effective interest method.  A total of $141,902 and $702 was recognized as interest expense during the six months ended June 30, 2007 and 2006 for all notes issued pursuant to the private placement.

The convertible promissory notes bear interest at 12% per annum, are unsecured and are due one year from the date of issuance. The effective interest rates of the notes issued range from 12% to 39%. The notes are convertible into units at $0.05 per unit, each unit consisting of one share of common stock and one warrant to purchase one share of common stock at $0.075 per share for a period of three years from the date of issuance. Thus, the notes are convertible into an aggregate of 20,920,000 shares of common stock and warrants to purchase an additional 20,920,000 shares of common stock. The Company has the option to redeem the notes at their face value plus accrued interest if the average market price of the Company’s common stock is $0.10 per share for a period of twenty consecutive days. In conjunction with this offering, the Company paid Pointe loan fees of $63,600 in 2006 that were capitalized and included in prepaid expenses and other assets. The loan costs are being amortized over the terms of the respective notes.  A total of $31,232 and $307 of amortization was recorded for the six months ended June 30, 2007 and 2006, respectively.

Subsequent to June 30, 2007, the Company issued an additional $175,000 of convertible promissory notes on the same terms. The notes are convertible into an aggregate of 3,500,000 shares of common stock and warrants to purchase an additional 3,500,000 shares of common stock. The related beneficial conversion option was valued at $36,539. During the second quarter of 2007, a total of $107,500 of the above notes was repaid in cash.

5% Notes Payable to shareholders – In 2004, the Company executed modified notes payable to several note holders to extend the terms of the notes to be due in 2008 and accrue interest at an annual rate of 5%.

Notes Payable to Vendors – In 2004, vendors agreed to extend the terms of outstanding accounts payables by converting them into promissory notes that are due in 2008 and accrue interest at 5% per annum.

NOTE 5 – SETTLEMENT OBLIGATIONS AND LITIGATION CLAIMS

Accrued Settlement Obligations– The Company has obligations due to creditors that arose from cash loans and the receipt of goods or services. The Company is in default in its payment of each of these obligations. The obligations are unsecured and are currently due. Certain of the obligations are in dispute as further described below. The obligations have not been reduced by any amounts that may be compromised by the creditors in the future, but include all amounts due and include default judgments obtained by the creditors.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

The accrued settlement obligations include the following:

	June 30,		December 31,
	2007		2006
Complete Packaging, LLC d.b.a. Compax	$	19,622	$	69,622
Litho-Flexo Graphics, Inc.		63,283		63,283
Williams & Webster		-		54,564
Xerox		17,590		17,590
National Bulk		-		20,418
Downs and Parkinson		30,904		33,904
Total	$	131,399	$	259,381

Complete Packaging, LLC d.b.a. Compax– On October 17, 2003, Complete Packaging, LLC, doing business as Compax, filed a complaint in the Third   District   Court   of   Salt   Lake   County, State of Utah, naming the Company as the defendant. Compax contended that the Company failed to make payment of a trade payable that, with interest and costs amounted to $323,892, which   amount continued to accrue interest from November 30, 2004. The complaint concluded in Compax obtaining a judgment against the Company. During 2005, the Company entered into a settlement agreement with Compax that required the Company to make three monthly payments of $25,000 through May 2005 and a lump sum payment of $145,000 in June 2005. As a result, the Company accrued a $220,000 settlement obligation liability at December 31, 2004. The Company made two of the monthly payments but failed to make the remaining payments due under the terms of the settlement agreement. In July 2006, the Company and Compax reached a further agreement dated June 6, 2006 under which Compax agreed to accept payment of $150,000 in total satisfaction of the Company’s obligation. The Company paid $75,000 of this obligation during 2006 and $50,000 during the six months ended June 30, 2007.  The remaining amount was paid on September 1, 2007, which resulted in the Company being released from the judgment.

Litho-Flexo Graphics, Inc.– On May 23, 2003, Litho-Flexo Graphics, Inc. filed a complaint in the Fourth District Court in and for Wasatch   County, State of Utah, naming the Company as the defendant. Litho-Flexo contended that the Company failed to make payment of a trade payable that, with interest and costs amounted to $92,478. The Company contended that the packaging labels purchased from Litho-Flexo were defective and could not be used in the packaging of the Company’s products. The Company filed a counterclaim claiming in excess of $100,000 for damages resulting from the use of the defective labels. The Company accrued a $72,625 accrued settlement obligation liability at December 31, 2004. During the year ended December 31, 2005, the Company paid $9,342 to the vendor, which decreased the recorded accrued settlement obligation liability to $63,283 at June 30, 2007 and December 31, 2006. No resolution has been reached under the claims, which continue to be in litigation.

Williams and Webster – The Company reached a settlement on May 24, 2007 resulting in no amount being due from the Company and recognized a gain from termination of debt of $54,564 in the accompanying statement of operations.

National Bulk – On May 4, 2007 the Company negotiated a settlement for all amounts due, paid $15,000 and recognized a gain from termination of debt of $5,418 in the accompanying statement of operations.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 6 – COMMITMENTS AND CONTINGENCIES

On January 1, 2007, the Company entered into a five year lease for their manufacturing and office building facilities located in Heber, Utah with Aspen Capital Management, LLC, an entity that is affiliated with a one of our directors, requiring monthly rental payments of $12,000 plus taxes and maintenance. The lease is renewable for two additional 5 year terms with 10% increases of the rental payments to $13,200 per month and $14,250 per month, respectively.

In February 2006, the Company entered into a one year Investment Banking Agreement with Pointe. The Company issued Pointe 8,000,000 warrants to purchase common stock at $0.01 per share for a period of 3 years. The warrants issued pursuant to this agreement were valued at $125,892. This amount was recorded as a prepaid expense and is being amortized over the one-year term of the agreement. The Company further agreed to pay Pointe a 7% commission and a 1% unaccountable expense allowance upon receipt of financing brought to the Company by Pointe, agreed to pay Pointe a fee equal to 5% of the value of the transaction as defined in the agreement in the event of a merger or acquisition of the Company.  This agreement expired in February, 2007.

In February 2006, the Company entered into a renewable two-year non-exclusive engagement letter ( the “Engagement Letter”) with Aspen Capital Partners, LLC, an entity that employs a person that was on the board of directors of the Company at that time for consulting services in a variety of areas relating to financial, strategic and developmental growth of the Company. The financial terms of the Engagement Letter required a non-refundable retainer fee of $25,000, the issuance of 2,500,000 shares of common stock and payments of $15,000 per month for a two-year period. Additional provisions of the Engagement Letter provide that the Company issue 8,000,000 warrants to purchase common stock at $0.01 per share for a period of five years and, upon the completion of the $150,000 bridge financing, the Company issued 4,500,000 warrants to purchase common stock at $.01 per share for a period of five years. The 8,000,000 warrants issued pursuant to the Engagement Letter were valued at $125,892. This amount was recorded as a prepaid expense and will be amortized over the two year term of the agreement. The 4,500,000 warrants were valued at $76,410 and were recorded as interest expense. The agreement also provides for the issuance of 5,000,000 warrants to purchase common stock at $0.05 per share for a period of five years upon the completion of one million dollars of funding. These warrants were issued in May, 2007.  The fair value of the warrants of $127,357 was recorded in the second quarter of 2007 as general and administrative expense and was computed using the Black-Scholes method with the following assumptions.

Closing price for the Company's common stock	$0.03
Estimated volatility	135%
Risk free interest rate	4.56%
Expected dividend rate	-

On May 22, 2007 the Company entered into a Master Lease Line with Gulf Pointe Capital, LLC.  The terms of the lease line provide a credit limit of $500,000 that can be used for various new and used tier one production, material handling, computer, technology and fixture related equipment. Upon entering into the lease agreement, the Company sold certain manufacturing, computer and office furniture and equipment to Pointe for $160,000 and leased the assets back from Pointe under the terms of a three-year lease agreement. The assets sold had a net book value of $51,152.  The resultant gain on sale of $108,848 was deferred and is being recognized over the three-year term of the capital lease obligation. During the six months ended June 30, 2007, the Company recognized $3,901 of this gain. In connection with entering into the lease for the equipment, the Company recognized a $160,000 capital lease obligation which bears interest at a rate of 21.5% and requires payments of principal and interest of $6,069 per month over the 36-month term of the lease. The $160,000 of assets acquired under the capital lease obligation are being depreciated over the three-year term of the lease. The following is a schedule by years of future minimum lease payments under the capital leases together with the present value of the net minimum lease payments as of June 30, 2007:

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

Years ending December 31:
2007	$	36,413
2008		72,826
2009		72,826
2010		30,344
Total minimum lease payments		212,408
Less:  Amount representing interest		(55,611	)
Present value of minimum lease payments		156,797
Less: Current portion		(43,215	)
Capital lease obligations, long-term	$	113,582

The production of pesticides is subject to complex environmental regulations. As of the date of these financial statements and the date of this report, the Company is unaware of any significant pending environmentally related litigation or of any specific past or prospective matters involving environmental concerns, which could impair the marketing of its products.

NOTE 7 - COMMON STOCK

During the six months ended June 30, 2007, the Company issued 500,000 shares valued at $20,000 or $0.04 per share and 250,000 shares of common stock valued at $7,500 or $0.03 per share as compensation to employees. The value represents the market price of the Company’s common stock on the dates of issuance.

NOTE 8 - STOCK WARRANTS

In May 2004, the Company issued three year warrants to purchase 4,650,000 shares of common stock at prices ranging from $0.20 to $0.50 per share. These warrants expired unexercised in May, 2007.

During February 2006, the Company issued five year warrants to purchase an aggregate of 8,000,000 shares of its common stock at an exercise price of $0.01 per share pursuant to the Engagement Letter as discussed in Note 6.  In addition, the Company issued three year warrants to purchase an aggregate of 8,000,000 shares of its common stock to Pointe pursuant to the investment banking agreement as discussed in Note 6. These warrants were each valued at $125,892 and were recorded as prepaid expenses in the accompanying balance sheet of June 30, 2007.  The values are being amortized to General and administrative expenses in the accompanying statement of operations over the lives of the respective agreements of two years and one year, respectively. Also, the Company, pursuant to the Engagement Letter issued five year warrants to purchase an aggregate of 4,500,000 shares of its common stock at an exercise price of $0.01 per share valued at $76,410.

During the second quarter of 2007, Aspen Capital Management, LLC exercised warrants to purchase 7,500,000 shares of common stock with an exercise price of $0.01 per share resulting in proceeds of $75,000 to the Company.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

In March 2006, the Company issued three year warrants to purchase 7,000,000 shares of its common stock at an exercise price of $0.01 per share a to a consultant to the Company for marketing services.

The following summarizes the outstanding warrants as of June 30, 2007:

		Weighted-Average
Exercise	Warrants	Remaining Contractual	Number
Price	Outstanding	Life (Years)	Exercisable
$0.01	20,000,000	2.3	20,000,000
$0.05	5,000,000	4.9	5,000,000
	25,000,000		25,000,000

NOTE 9 – SUBSEQUENT EVENTS

Subsequent to June 30, 2007, the Company issued 100,000 shares of common stock as compensation to an employee valued at $4,500 or $0.045 per share and 250,000 shares to a vendor for services valued at $11,250 or $0.045 per share.  All prices represent the closing market price on the date of issuance.

Through December 20, 2007, an aggregate of $1,146,000 of the convertible promissory notes plus $124,523 of accrued interest have been converted at the conversion price of $0.05 per share into an aggregate of 25,410,424 shares of common stock. In addition, the Company issued an aggregate of 22,920,000 three year warrants to purchase the Company’s common stock at an exercise price of $0.075 per share.

In July 2007, the Company issued a 12% convertible promissory note for $250,000 and five-year warrants to purchase 5,000,000 shares of common stock at an exercise price of $0.075 to Aspen Opportunity Fund LP in exchange for proceeds of $250,000. The note is convertible at a rate of $0.05 per share for 5,000,000 shares of common stock. The estimated fair value of the warrants of $138,291 was calculated using the Black-Scholes option pricing model and the following assumptions:

Closing price for the Company's common stock	$0.04
Estimated volatility	135%
Risk free interest rate	4.56%
Expected dividend rate	-

The proceeds were allocated between the promissory note and the warrants based upon their relative fair values and resulted in allocating $121,924 to the promissory notes, $89,038 to the warrants and $39,038 to the beneficial conversion option. The resulting $128,076 discount to the note payable is being amortized over the term of the convertible notes using the effective interest method.

The shares issuable upon conversion and the shares underlying the warrants have certain registration rights and are required to file a registration statement no later than March 31, 2008.  Should the Company fail to file the registration statement by the required date, the registration rights agreement stipulates penalties of 1% of the purchase price per month as liquidated damages.  Should the Company be unable to have the registration statement declared effective within 120 days, the same penalty of 1% per month will be assessed.  The penalty is payable in either cash or stock at the option of the note holder.

16

DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

On September 20, 2007 the Company entered into an accounts receivable loan agreement with Aspen Opportunity Fund, L.P. for advances up to $500,000 in $5,000 increments, subject to maintaining a borrowing base of 80% of eligible accounts receivable as defined in the agreement. The Note bears interest at a rate of 12.0%, is secured by eligible accounts receivable as defined in the agreement, requires monthly interest payments and is due on September 30, 2009.  Mandatory prepayments of principal are required in the event that the eligible borrowing base falls below amounts advanced under the agreement.  In conjunction with the loan agreement, the Company issued a five year warrant to purchase 4,000,000 shares of the Company’s common stock at an exercise price of $0.075 per share. The warrant was valued at $169,294 and will be recorded during the third quarter as prepaid expenses and other assets and amortized over the life of the loan.

The estimated fair value of the above warrant was calculated using the Black Scholes method and the following assumptions.

Closing price for the Company's common stock	$0.05
Estimated volatility	135%
Risk free interest rate	4.35%
Expected dividend rate	-

The shares underlying the warrants have certain registration rights and the Company is required to file a registration statement no later than March 31, 2008.  Should the Company fail to file the registration statement by the required date, the registration rights agreement stipulates penalties of 1% of the purchase price per month as liquidated damages.  Should the Company be unable to have the registration statement declared effective within 120 days, a penalty of 1% per month of the total warrant exercise price of $300,000 will be assessed.

In October, 2007 the Company issued three year warrants to purchase 1,000,000 shares of its common stock to a vendor at an exercise price of $0.05 for services. The estimated fair value of the warrant of $40,614 will be charged to general and administrative expenses during the fourth quarter of 2007 and was calculated using the Black Scholes method and the following assumptions.

Closing price for the Company's common stock	$0.05
Estimated volatility	130%
Risk free interest rate	4.36%
Expected dividend rate	-

The Company has agreements with three vendors to issue three year warrants to purchase of an aggregate of 4,500,000 shares of common stock at a price of $0.05 per share upon the achievement of certain performance milestones as defined in the respective agreements.  None of the contractually defined milestones have been achieved and no warrants have been issued pursuant to these agreements.

Administrative Proceeding – U.S. Securities and Exchange Commission

One September 27, 2007, the Commission entered an order instituting a proceeding under Section 12(j) of the Securities Exchange Act of 1934 (“1934 Act”) naming the Company as a respondent.  This administrative proceeding has file no. 3-12843.

Section 12(j) empowers the Commission to revoke a company’s registration under the 1934 Act for not filing the required periodic reports such as Form 10-QSB’s and Form 10-KSB’s. The order states that we have not filed periodic reports since we filed a report on Form 10-QSB for the period ended March 31, 2005.  The order also set a hearing date which has since been postponed.  We answered the allegations of the Order.  On November 1, 2007, Administrative Law Judge Kelly allowed the parties to proceed by summary disposition.  Recently we filed seven of the delinquent reports and we intend to file the other delinquent reports with dispatch.  Our plan is to file the most delinquent reports first.

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DIATECT INTERNATIONAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

Section 12(j) provides that the Commission may suspend the trading of our shares for a period of up to twelve months.

U.S. Securities and Exchange Commission ,  On October 1, 2007, the Company and its acting president and a director through their attorney accepted service of a Complaint filed on September 24, 2007, by the U.S. Securities and Exchange Commission in the U.S. District Court, District of Utah, Central Division having Case No.: 2:07cv00709.  The caption on the Complaint is Securities and Exchange Commission v. Diatect International Corporation et al.   The four defendants are the acting president who is also a director, a former officer and director, a former director, and the Company.   The allegations of the Complaint claim that the Defendants engaged in a transaction in 2003 involving the sale of mining claims located in the State of Oregon which transaction was improperly recorded on the Company’s financial statements causing the overstatement of revenues and assets.   The allegations of the Complaint also claim that certain revenues were improperly recorded in the Company’s 2002 financial statements because the sales were consignment sales and not actual sales.   The Complaint alleges various violations of the federal securities laws and regulations promulgated thereunder including violations of the anti-fraud provisions and violations of regulations pertaining to periodic reports filed by the Company with the SEC in 2003 and 2004.   On April 14, 2005, the Company issued restated financial statement as of December 31, 2004, which restated the sale of the mining claims and our revenues.  The Complaint seeks injunctive action against the defendants including the Company and seeks fines from the three individual defendants, and from two individual defendant’s disgorgement of stock sale proceeds and a bar as an officer and director.  We intend to vigorously defend the allegations of the Complaint.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

Forward Looking Statements

We are including the following cautionary statement in this Quarterly Report on Form 10-QSB to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements. All statements other than statements of historical fact, including statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions, future results of operations or financial position, made in this Quarterly Report on Form 10-QSB are forward looking. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.

The forward-looking statements contained herein involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith and are believed by management to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management's expectation, beliefs or projections will result or be achieved or accomplished.

The following discussion and analysis should be read in conjunction with the Condensed Financial Statements and Notes thereto appearing elsewhere in this Form 10-QSB.

Overview

Diatect International Corporation (the “Company”) is a California corporation operating in Utah as a developer and marketer of non-toxic pesticide products. The Company sells its products to both wholesale distributors and retail customers in the United States.  As of the date of this filing, we have established an internet presence as well to sell directly to the consumer via our website at www.diatect.com.

Our ability to continue operations is dependent upon obtaining additional financing and being able to generate net profits in the future. Management believes that these events are likely to occur, even though no assurance thereof can be given.

Results of Operations

Comparison results for the three months ended June 30, 2007

Revenues for the three months ended June 30, 2007 were $418,203 as compared to $396,486 for the three months ended June 30, 2006, an increase of $21,717. The increase is due to an increase in sales to the agriculture supply market and increases in internet based sales.

Cost of revenues for the three months ended June 30, 2007 were $100,561 as compared to $136,052 for the three months ended June 30, 2006, a decrease of $35,491. The Company was able to negotiate reduced pricing with a vendor for certain key materials used in the production of their products and as a result their cost to manufacture the product has decreased.

Marketing and selling expenses were $211,943 for the three months ended June 30, 2007 as compared to $55,264 for the three months ended June 30, 2006, an increase of $156,679. The increase is primarily due increases in salaries paid and an increase in internet marketing in the three months ended June 30, 2007.

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General and administrative expenses were $422,528 for the three months ended June 30, 2007 as compared to $411,963 for the three months ended June 30, 2006, an increase of $10,565.  The change is due to increased professional fees for the three months ended June 30, 2007 when compared to the three months ended June 30, 2006.  Included in professional fees during the quarter ended June 30, 2007 is the value of warrants valued at $127,657 issued to Aspen Capital Management for which no amount exists for the three months ended June 30, 2006.

Other income and expense is comprised of interest expense and gain from termination of debt. Interest expense was $163,882 for the three months ended June 30, 2007 as compared to $46,365 for the three months ended June 30, 2006, an increase of $117,517.  Included in interest expense is the amortization of discount related to the convertible promissory notes in the amount of $83,584 and $702 for the three months ended June 30, 2007 and 2006, respectively.  The remaining increase is due to higher levels of debt during the three months ended June 30, 2007.  Gain from termination of debt was $163,720 for the three months ended June 30, 2007 as compared to $437,243 for the three months ended June 30, 2006, a decrease of $273,523.  The decrease is primarily due to the gain recognized during the quarter ended June 30, 2006 for the settlement of notes related to the attempted Chapter 7 receivership action.

Comparison results for the six months ended June 30, 2007

Revenues for the six months ended June 30, 2007 were $860,341 as compared to $578,120 for the six months ended June 30, 2006, an increase of $282,221. The increase is due to an increase in sales to the agriculture supply market and increases in internet based sales.

Cost of revenues for the six months ended June 30, 2007 were $180,067 as compared to $198,068 for the six months ended June 30, 2006, a decrease of $18,801. The Company was able to negotiate reduced pricing with a vendor for certain key materials used in the production of their products and as a result their cost to manufacture the product has decreased.

Marketing and selling expenses were $392,777 for the six months ended June 30, 2007 as compared to $205,020 for the six months ended June 30, 2006, an increase of $187,757. The increase is primarily due increases in salaries paid and an increase in internet marketing in the six months ended June 30, 2007. Included in the six months ended June 30, 2006 is the value of the warrant issued to a consultant in the amount of $116,935 for which no current year amount exists.

General and administrative expenses were $765,524 for the six months ended June 30, 2007 as compared to $731,982 for the six months ended June 30, 2006, an increase of $33,542.  Included in professional fees during the six months ended June 30, 2007 is the value of warrants valued at $127,657 issued to Aspen Capital Management for which no amount exists for the six months ended June 30, 2006.  Included in the six months ended June 30, 2006 is the value of shares of common stock issued to certain vendors for services in the amount of $77,500 for which no amount exists for the six months ended June 30, 2007.

Other income and expense is comprised of interest expense and gain from termination of debt. Interest expense was $288,040 for the six months ended June 30, 2007 as compared to $177,331 for the six months ended June 30, 2006, an increase of $110,709. Included in interest expense is the amortization of discount related to the convertible promissory notes in the amount of $141,902 and $702 for the six months ended June 30, 2007 and 2006, respectively. Included in interest expense for the six months ended June 30, 2006 is the value of the warrant issued in conjunction with the bridge financing in the amount of $76,410. Gain from termination of debt was $163,720 for the six months ended June 30, 2007 as compared to $478,470 for the six months ended June 30, 2006, a decrease of $314,750.  The decrease is primarily due to the gain recognized during the six months ended June 30, 2006 for the settlement of notes related to the attempted Chapter 7 receivership action.

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Liquidity and Capital Resources

Our cash and cash equivalents of $26,315 as of June 30, 2007 are not considered sufficient to support our current levels of operations for the next 12 months.  According, we intend to seek additional financing through debt or equity offerings.

In June 2006, we commenced a Convertible Promissory Note (“Convertible Note”) offering through Pointe. The Convertible Notes issued pursuant to the offering bear interest at the rate of 12%, are unsecured and are due one year from the date of issuance.  The notes are convertible into units comprised of the Company’s common stock with a conversion price of $0.05 per share. For each share of common stock, the note holder will receive 1 warrant to purchase the Company’s common stock. The warrants that comprise the unit are exercisable into common stock at $.075 per share and are exercisable for a period of 3 years. We have the option to redeem the Convertible Note under certain conditions at its face value plus accrued interest if the average price of the Company’s common stock is 200% of the conversion price per share for a period of twenty consecutive days.

During 2007, we continued the Convertible Promissory Note private placement offering, and have received gross proceeds in 2007 of an additional $533,500. We have repaid an aggregate of $107,500 of the Convertible Promissory Notes issued in 2006 and 2007.  Through December 20, 2007, an aggregate of $1,146,000 of the convertible promissory notes plus $124,523 of accrued interest have been converted at the conversion price of $0.05 per share into an aggregate of 25,410,424 shares of common stock. In addition, we issued an aggregate of 22,920,000 three year warrants to purchase our common stock at an exercise price of $0.075 per share.

In May 2007 we entered into a Master Lease Line with Gulf Pointe Capital, LLC.  The terms of the lease line are a credit limit of $500,000 that can be used for various new and used tier one production, material handling, computer, technology and fixture related equipment.  To date the company has drawn $205,600 of the available credit.  

During the second quarter of 2007, the Company received proceeds of $75,000 pursuant to the exercise of outstanding warrants with an exercise price of $0.01 per share.

In July 2007, we issued a 12% convertible promissory note for $250,000 and a five year warrant to purchase 5,000,000 shares of its common stock at an exercise price of $0.075 to Aspen Opportunity Fund LP for proceeds of $250,000.  The note is convertible at a rate of $0.05 per share for 5,000,000 shares of common stock.

In September 2007, we entered into an accounts receivable line of credit agreement with Aspen Opportunity Fund LP, with a credit line of $500,000.  The company can draw advances against accounts receivable, in $5,000 increments as needed.

We believe that, with the proceeds of the Convertible Promissory Notes, the Master Lease Line, the accounts receivable credit line, proceeds from the exercise of warrants and our working capital that we will have sufficient resources for the next 12 months from the date of this report on Form 10-QSB.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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ITEM 3. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Exchange Act, as of the end of the fiscal period covered by this report, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at June 30, 2007.

There have been no changes in our internal controls over financial reporting in connection with this evaluation that occurred during the second quarter of fiscal 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (b) is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Administrative Proceeding – U.S. Securities and Exchange Commission

One September 27, 2007, the Commission entered an order instituting a proceeding under Section 12(j) of the Securities Exchange Act of 1934 (“1934 Act”) naming us as a respondent.  This administrative proceeding has file no. 3-12843.

Section 12(j) empowers the Commission to revoke a company’s registration under the 1934 Act for not filing the required periodic reports such as Form 10-QSB’s and Form 10-KSB’s.  The order states that we have not filed periodic reports since we filed a report on Form 10-QSB for the period ended March 31, 2005.  The order also set a hearing date which has since been postponed.  We answered the allegations of the Order.  On November 1, 2007, Administrative Law Judge Kelly allowed the parties to proceed by summary disposition.  Recently we filed seven of the delinquent reports and we intend to file the other delinquent reports with dispatch.  Our plan is to file the most delinquent reports first.

Section 12(j) provides that the Commission may suspend the trading of our shares for a period of up to twelve months.

U.S. Securities and Exchange Commission ,  On October 1, 2007, the Company and its acting president and a director through their attorney accepted service of a Complaint filed on September 24, 2007, by the U.S. Securities and Exchange Commission in the U.S. District Court, District of Utah, Central Division having Case No.: 2:07cv00709.  The caption on the Complaint is Securities and Exchange Commission v. Diatect International Corporation et al.   The four defendants are the acting president who is also a director, a former officer and director, a former director, and the Company.   The allegations of the Complaint claim that the Defendants engaged in a transaction in 2003 involving the sale of mining claims located in the State of Oregon which transaction was improperly recorded on the Company’s financial statements causing the overstatement of revenues and assets.   The allegations of the Complaint also claim that certain revenues were improperly recorded in the Company’s 2002 financial statements because the sales were consignment sales and not actual sales.   The Complaint alleges various violations of the federal securities laws and regulations promulgated thereunder including violations of the anti-fraud provisions and violations of regulations pertaining to periodic reports filed by the Company with the SEC in 2003 and 2004.   On April 14, 2005, the Company issued restated financial statement as of December 31, 2004, which restated the sale of the mining claims and our revenues.  The Complaint seeks injunctive action against the defendants including the Company and seeks fines from the three individual defendants, and from two individual defendant’s disgorgement of stock sale proceeds and a bar as an officer and director.  We intend to vigorously defend the allegations of the Complaint.

Complete Packaging, LLC d.b.a. Compax– On October 17, 2003, Complete Packaging, LLC, doing business as Compax, filed a complaint in the Third   District   Court   of   Salt   Lake   County, State of Utah, naming the Company as the defendant. Compax claimed a trade payable, with interest and costs of $323,892. Compax obtained a judgment against the Company. During 2005, we entered into a settlement agreement with Compax that required us to make three monthly payments of $25,000 through May 2005 and a lump sum payment of $145,000 in June 2005. We accrued a $220,000 settlement obligation liability at December 31, 2004. The Company made two of the monthly payments but failed to make the remaining payments due under the terms of the settlement agreement. In July 2006, the Company and Compax reached a further agreement dated June 6, 2006 under which Compax agreed to accept payment of $150,000 as total satisfaction of our obligation.   We made the payments and received a judgment release on September 1, 2007.

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Litho-Flexo Graphics, Inc.– On May 23, 2003, we were named as defendant in a complaint filed by Litho-Flexo Graphics, Inc. in the Fourth District Court in and for Wasatch County, State of Utah. Litho-Flexo claimed a trade payable of $92,478. We contended that the packaging labels we received from Litho-Flexo were defective and could not be used in the packaging of our products. We filed a counterclaim claiming damages in excess of $100,000 caused by the defective labels. We accrued a $72,625 settlement obligation liability at December 31, 2004. During the year ended December 31, 2005, we paid $9,342 to Litho-Flexo, which decreased the accrued settlement obligation liability to $63,283 at December 31, 2006.   We intend to defend the complaint and pursue our counterclaim.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We issued 7,500,000 shares of common stock upon the exercise of warrants at a price of $0.01 per share for proceeds of $75,000 and 250,000 shares of common stock valued at $7,500 or $0.03 per share based on the closing market price on the date of issuance to a vendor for services rendered.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6.

(a) Exhibits

31.1 Rule 13a-14(a)/15d-14(a) Certification of David Andrus, Principal Executive Officer and Principal Financial Officer

32.1 Certification of David Andrus, Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Diatect International Corporation
	(Registrant)
	Dated: December 31, 2007
By:	/s/ David Andrus
	David S. Andrus
	Principal Executive Officer
	Principal Financial Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, David Andrus, certify that:

1. I have reviewed this Form 10-QSB of Diatect International Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) for the small business issuer and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

December 31, 2007	/s/ David S. Andrus
	David S. Andrus
	Principal Executive Officer
	Principal Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Diatect International Corporation (the "Company") on Form 10-QSB for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Andrus, Principal Executive Officer and Principal Accounting Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

December 31, 2007	/s/ David Andrus
	David S. Andrus
	Principal Executive Officer
	Principal Financial Officer