10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008

[    ]  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 registrant 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 registrant (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 [ X ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 	Accelerated filer 
Non-accelerated filer 	Smaller reporting company x

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

As of November 14, 2008 the issuer had 215,200,959 shares of common stock, no par value, outstanding.

		Page Number
PART I  Financial Information
ITEM 1.	Condensed Financial Statements (unaudited)
	Balance Sheets as of September 30, 2008 and December 31, 2007	1
	Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007	2
	Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007	3
	Notes to Condensed Financial Statements	5
ITEM 2.	Management’s Discussion and Analysis or Plan of Operation.	16
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	N/A
ITEM 4T.	Controls and Procedures.	18
PART II Other Information
ITEM 1.	Legal Proceedings	19
ITEM 1A.	Risk Factors	N/A
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	20
ITEM 6.	Exhibits.	21
Signatures		22

DIATECT INTERNATIONAL CORPORATION
CONDENSED BALANCE SHEETS
(unaudited)
	September 30,			December 31,
	2008			2007
ASSETS
Current Assets
Cash	$	12,716		$	9,864
Trade accounts receivable, net of allowance for doubtful accounts of $16,000 and $16,000, respectively		142,288			242,406
Inventory		62,386			66,688
Prepaid expenses and unamortized loan costs		184,254			306,206
Total Current Assets		401,644			625,164
Property and Equipment, net of accumulated depreciation of $166,597 and $140,673, respectively		205,583			258,229
Intangible Assets - EPA Labels		1,116,322			1,116,322
Other Assets		12,781			-
Total Assets	$	1,736,330		$	1,999,715
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable	$	721,700		$	224,213
Accrued liabilities		92,397			155,125
Accrued interest payable		566,484			456,626
Accrued settlement obligations		32,904			89,187
Deferred gain on sale and leaseback of assets		59,594			86,806
Notes payable, net of unamortized discount of $0 and $135,855, respectively		2,707,285			2,578,265
Current portion of capital lease obligations		75,440			60,021
Total Current Liabilities		4,255,804			3,650,243
Long-Term Liabilities
Capital lease obligations, net of current portion		73,712			120,212
Total Liabilities		4,329,516			3,770,455
Stockholders' Deficit
Common stock, no par value; 500,000,000 shares authorized; 215,200,959 shares and 190,562,583 shares outstanding, respectively		25,582,463			24,587,396
Warrants outstanding		2,267,001			1,561,367
Accumulated deficit		(30,442,650	)		(27,919,503	)
Total Stockholders' Deficit		(2,593,186	)		(1,770,740	)
Total Liabilities and Stockholders' Deficit	$	1,736,330		$	1,999,715

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

1

DIATECT INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
				(restated)						(restated)
Sales	$	568,848		$	657,274		$	1,575,746		$	1,517,615
Cost of Goods Sold		163,638			177,676			407,021			416,076
Gross Profit		405,210			479,598			1,168,725			1,101,539
Expenses
Marketing and selling		387,251			362,777			1,170,088			833,080
General and administrative		1,003,389			458,379			2,187,678			1,223,903
Total Expenses		1,390,640			821,156			3,357,766			2,056,983
Loss from Operations		(985,430	)		(341,558	)		(2,189,041	)		(955,444	)
Other Income (Expense)
Interest expense		(82,816	)		(184,759	)		(338,389	)		(472,799	)
Gain from termination of debt		-			96,132			4,283			259,852
Net Other Income (Expense)		(82,816	)		(88,627	)		(334,106	)		(212,947	)
Net Loss		(1,068,246	)		(430,185	)		(2,523,147	)		(1,168,391	)
Basic and Diluted Loss Per Share	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
Weighted-Average Common Shares Outstanding		212,436,132			159,841,857			207,897,388			156,028,923

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

2

DIATECT INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
	For the Nine Months Ended
	September 30,
	2008			2007
				(restated)
Cash Flows from Operating Activities
Net loss	$	(2,523,147	)	$	(1,168,391	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		69,607			40,279
Amortization of discount on notes payable		135,855			232,050
Amortization of loan costs		118,834			45,039
Gain from debt termination		(4,283	)		(259,852	)
Net gain on disposal of property and equipment		(27,212	)		(12,483	)
Issuance of common stock for services		238,200			43,250
Issuance of warrants for services		651,555			192,716
Issuance of warrant for interest		5,446
Changes in operating assets and liabilities:
Accounts receivable		100,118			(131,396	)
Inventory		4,302			88,670
Prepaid expenses and unamortized loan costs		11,390			(5,634	)
Accounts payable		497,487			(30,572	)
Accrued liabilities		(62,726	)		(69,386	)
Accrued interest payable		119,584			219,580
Net Cash Used in Operating Activities		(664,990	)		(816,130	)
Cash Flows from Investing Activities
Payments for purchases of property and equipment		(1,893	)		(71,811	)
Proceeds from sale of property and equipment		-			160,000
Other assets		(12,781	)		-
Net Cash Used in Investing Activities		(14,674	)		88,189
Cash Flow from Financing Activities
Proceeds from borrowings under notes payable		55,000			883,535
Proceeds from exercise of warrants		172,500			75,000
Proceeds from issuance of common stock and warrants		565,000			-
Principal payments on notes payable		(11,835	)		(121,968	)
Principal payments on capital lease obligations		(46,149	)		(13,157	)
Payments on accrued settlement obligations		(52,000	)		(96,000	)
Net Cash Provided by Financing Activities		682,516			727,410
Net Increase (Decrease) in Cash		2,852			(531	)
Cash at Beginning of Period		9,864			61,743
Cash at End of Period	$	12,716		$	61,212

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

3

DIATECT INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS (continued)
(unaudited)
	For the Nine Months Ended
	September 30,
	2008		2007
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	50,574	$	16,099
Supplemental Schedule of Noncash Investing and Financing Activities
Purchase of equipment under capital lease obligations		15,067		-
Conversion of notes payable and interest into common stock and warrants		65,174		-

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

4

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-Q have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. 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, 2007 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 September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

Restatement and reclassification

During the second quarter of 2008 the Company realized that the September 30, 2007 financial statements needed to be revised to correct an overstatement of inventory as of September 30, 2007 and an understatement of cost of goods sold for the three and nine months ended September 30, 2007. As a result, the Company corrected the financial statements for September 30, 2007 and for the three and nine months then ended. The corrected statements of operations and statement of cash flows are included in these financial statements.  There was no effect of these adjustments on the financial statements as of December 31, 2007. In addition, the Company has reclassified freight costs from cost of goods sold to marketing and selling expense in the amount of $59,543 and $137,069 for the three and nine months ended September 30, 2007 to conform to the current year presentation. The effects of the restatements and the reclassifications were as follows:

	As Reported			Restatement and Reclassification			As Restated
Condensed Balance Sheet as of September 30, 2007
Inventory	$	386,870		$	(239,651	)	$	147,219
Total Current Assets		485,728			(239,651	)		246,077
TOTAL ASSETS		1,810,324			(239,651	)		1,570,673
Accumulated deficit		(27,684,304	)		(239,651	)		(27,923,955	)
Total Stockholders' Deficit		(3,386,400	)		(239,651	)		(3,626,051	)
Total Liabilities and Stockholders' Deficit	$	1,810,324		$	(239,651	)	$	1,570,673
Condensed Statement of Operations
For the three months ended September 30, 2007
Cost of Goods Sold	$	133,427		$	44,249		$	177,676
Gross profit		523,847			(44,249	)		479,598
Marketing and selling		303,234			59,543			362,777
Loss from Operations		(237,766	)		(103,792	)		(341,558	)
Net Loss		(326,393	)		(103,792	)		(430,185	)
Basic and Diluted Loss Per Share	$	-		$	-		$	-

5

Condensed Statement of Operations
For the nine months ended September 30, 2007
Cost of Goods Sold	$	313,494		$	102,582		$	416,076
Gross profit		1,204,121			(102,582	)		1,101,539
Marketing and selling		696,011			137,069			833,080
Loss from Operations		(715,793	)		(239,651	)		(955,444	)
Net Loss		(928,740	)		(239,651	)		(1,168,391	)
Basic and Diluted Loss Per Share	$	-		$	(0.01	)	$	(0.01	)
Statement of Cash Flows
For the nine months ended June 30, 2007
Net loss	$	(928,740	)	$	(239,651	)	$	(1,168,391	)
Change in inventory		(150,981	)		239,651			88,670
Net Cash used in Operating Activities		(816,130	)		-			(816,130	)

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 $1,575,746 and incurred a net loss of $2,523,147 during the nine months ended September 30, 2008. At September 30, 2008 the Company had a total stockholders’ deficit of $2,593,186 and its current liabilities exceeded current assets by $3,854,160.

The ability of the Company to continue operations is dependent upon obtaining additional financing and being able to generate net profits in the future even though no assurance can be given that such events will occur.

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 has maintained 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.

Prepaid expenses and unamortized loan costs - Prepaid expenses and unamortized loan costs are comprised of prepaid insurance and the unamortized portion of loan costs.

6

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. Leasehold improvements are depreciated over the lesser of the remaining term of the lease or the remaining useful life of the asset.

Intangible Assets – The Company’s intangible assets consist of the labels that are placed on its products and that have been registered with the United States Environmental Protection Agency pursuant to the Federal Insecticide, Fungicide and Rodenticide Act. The estimated useful life of the labels is indefinite and the labels are assessed for impairment at least annually and when otherwise appropriate. The Company has not impaired the value of the labels in 2008 or 2007.

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. No impairment was recognized during 2008 or 2007.

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 pesticides to retailers, agricultural concerns and directly to the public through a Company and an affiliate website. Revenue from the sale of its products are recognized 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 billed to customers are recorded as revenue and the associated costs are recorded as marketing expenses.  Total shipping and handling costs included in marketing expenses for the three months ended September 30, 2008 and 2007 were $59,651 and $70,044, respectively.  Total shipping and handling costs included in marketing expenses for the nine months ended September 30, 2008 and 2007 were $186,863 and $152,115, respectively.

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.

7

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 September 30, 2008 and 2007, there were potentially dilutive common shares outstanding as presented in the following table that were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.

	September 30,	September 30,
	2008	2007
Outstanding warrants	94,383,820	29,000,000
Convertible promissory notes convertible into:
Common stock	5,500,000	29,420,000
Warrants	500,000	29,420,000
Total potentially dilutive common shares	100,383,820	87,840,000

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. The Company estimates 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.  The Company has no stock options issued or outstanding for any of the periods presented.

Recently Enacted Accounting Standards - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.  The adoption of the portions of SFAS No. 157 that were not postponed did not have a material impact on our financial statements. The Company does not expect the adoption of the postponed portions of SFAS No. 157 to have a material impact on our financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements, consolidated net income shall be adjusted to include the net income attributed to the non-controlling interest and consolidated comprehensive income shall be adjusted to include the comprehensive income attributed to the non-controlling interest. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. SFAS No. 141(R) and SFAS No. 160 are not expected to have a material impact on our results of operations or financial position.

8

Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115,” which permits entities to elect to measure eligible items at fair value at specified dates. The Company did not elect the fair value option for any eligible items.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities", an amendment of SFAS No. 133. SFAS 161 applies to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and related hedged items accounted for under SFAS 133. SFAS 161 requires entities to provide greater transparency through additional disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity's financial position, results of operations, and cash flows. SFAS 161 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2008. The Company does not expect SFAS 161 to have a material impact on its results of operations or financial position.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 will provide a framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. SFAS 162 will be effective 60 days following the Securities and Exchange Commission’s approval of amendments to the Public Company Accounting Oversight Board’s standards. The Company does not expect the adoption of SFAS 162 will have a material impact on its financial condition or results of operation.

NOTE 2 – INVENTORY

Inventory is comprised of the following:

	September 30,		December 31,
	2008		2007
Raw materials	$	43,501	$	32,836
Finished goods		18,885		33,852
Total Inventory	$	62,386	$	66,688

NOTE 3 – PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:

	Estimated
	Useful Life	September 30,			December 31,
	in Years	2008			2007
Computer equipment	3 to 5	$	80,613		$	89,774
Office furniture and equipment	5		45,724			48,024
Manufacturing equipment	3 to 10		240,908			256,169
Leasehold improvements	15		4,935			4,935
Total Property and Equipment			372,180			398,902
Less: Accumulated depreciation			(166,597	)		(140,673	)
Net Property and Equipment		$	205,583		$	258,229

9

Depreciation expense for the nine months ended September 30, 2008 and 2007 was $69,607 and $40,279, respectively.

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 are classified as current liabilities and are comprised of the following:

	September 30,		December 31,
	2008		2007
Revolving line of credit with financial institution	$	49,972	$	49,807
Accounts receivable line of credit		185,000		185,000
Unsecured 10% notes payable to investors, in default		292,250		292,250
Unsecured 12% notes payable to investors, in default		40,000		40,000
Unsecured 12% notes payable due February 28, 2009		55,000		-
Unsecured 15% notes payable to investors, in default		34,500		36,500
Unsecured 12% convertible promissory notes payable, net
of unamortized discount of $0 and $135,855, respectively, in default		275,000		189,145
Unsecured 5% notes payable to shareholders, due in 2008, in default		1,210,937		1,220,937
Unsecured 5% notes payable to vendors, due in 2008, in default		564,626		564,626
Total Notes Payable	$	2,707,285	$	2,578,265

Revolving Lines of Credit – The Company currently has unsecured, revolving credit notes with a financial institution totaling $49,972. The line of credit bears interest at 7.0% 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.

Accounts Receivable Line of Credit – 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 was recorded as prepaid expenses and unamortized loan costs and is being amortized over the life of the loan.  A total of $62,370 was amortized for the nine months ended September 30, 2008.

In August, 2008 the Company executed an amendment to increase the currently available amount of credit under the line to the greater of $185,000 or 80% of eligible accounts receivable as defined in the agreement until January 1, 2009.  The amendment also reduced the total available amount from $500,000 to $250,000, subject to eligible accounts receivable requirements.

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% and are in default at September 30, 2008.

In September, 2008 the Company issued an unsecured 12% note in the amount of $55,000 for cash payable February 28, 2009.

10

Convertible Promissory Notes Payable –The Company has a past due 12% unsecured convertible promissory note with a face amount of $25,000 issued in conjunction with a private placement in 2007. The note is 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. The note is convertible into 500,000 shares of common stock and a warrant to purchase 500,000 shares of common stock. The Company has the option to redeem the note at its 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. Based upon the market price of the Company’s common stock on the date the note was issued, the investor received a beneficial conversion option. 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 note payable that was amortized over the term of the convertible notes using the effective interest method.  The discount was fully amortized at September 30, 2008. A total of $3,523 and $206,756 was recognized as interest expense during the nine months ended September 30, 2008 and 2007 for the notes issued pursuant to the private placement.

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 investor received a beneficial conversion option resulting in a discount which is fully amortized as of September 30, 2008.  A total of $132,333 of the discount was recognized as interest expense for the nine months ended September 30, 2008.

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%. These notes are presently in default.

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.  These notes are presently in default.

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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The accrued settlement obligations include the following:

	September 30,		December 31,
	2008		2007
Litho-Flexo Grafics, Inc.	$	10,000	$	63,283
Other		22,904		25,904
Total	$	32,904	$	89,187

Litho-Flexo Grafics, Inc. – On May 23, 2003, Litho-Flexo Grafics, Inc. (“Litho-Flexo”) 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 2005, the Company paid $9,342 to the vendor, which decreased the recorded accrued settlement obligation liability to $63,283 at December 31, 2007.  In March, 2008 the Company entered into a settlement agreement by which all claims of both parties will be settled upon the payment by the Company of an aggregate of $60,000 to Litho-Flexo.  A payment of $30,000 was due May 31, 2008 with six monthly payments of $5,000 due on the first of each month beginning in July, 2008.  Should the Company fail to make any of the payments within 10 days of the due dates, Litho-Flexo is entitled to have a judgment entered against the Company for $150,000 less any amounts paid according to the schedule. The Company has made the required payments on a timely basis.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

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.The administrative proceeding sought to revoke the Company’s registration under the Securities Exchange Act of 1934 (“Exchange Act”) under which the Company files quarterly and annual financial reports.  The Company had not filed nine quarterly and annual financial reports.  All of these reports have been filed.

On January 30, 2008, Administrative Law Judge James Kelly issued an Initial Decision. This decision denied the Division of Enforcement’s Motion for revocation and granted the Company’s motion for summary disposition. The Judge found that the Company violated rules promulgated under the Exchange Act which required the filing of annual and quarterly reports.  In the decision the Judge expressly stated that the sanctions of revocation or trading suspension would not be imposed as such sanctions were not appropriate or necessary and denied the Division’s motion for revocation.  The initial decision dismissed the administrative proceeding. The parties had 21 days to appeal which has expired.  Neither party appealed and on March 6, 2008 the Commission issued a notice making the Initial Decision the Final Decision.

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U.S. Securities and Exchange Commission ,  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 former president who was 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 May 17, 2004 the Company issued restated financial statements as of December 31, 2003.  On April 14, 2005, the Company issued restated financial statements as of December 31, 2004.  These filings restated the sale of the mining claims and revenues for those years. 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 bars them as an officer and director. In February, 2008 a scheduling conference was held and a tentative trial date has been set for January, 2010. The Company intends to vigorously defend the allegations of the Complaint.

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 former 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 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 ongoing financial terms of the Engagement Letter require payments of $15,000 per month for a two-year period. The agreement has been extended on a month to month basis with monthly payments increasing to $20,000.

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 nine months ended September 30, 2008, the Company recognized $18,141 of this gain.

In conjunction with the Master Lease Line, the Company issued a five-year warrant to purchase 10,000,000 shares of common stock at an exercise price of $0.05 per share.  A total of 2,500,000 of these warrants vested upon the execution of the Master Lease Line.  The remaining 7,500,000 warrants vest pro-rata upon the funding of the credit limit of $500,000.  Based upon the estimated total funding that will take place under the Master Lease Line, the Company has estimated that it is probable that 5,809,984 of the warrants will vest and have been valued at $212,994. That amount has been recorded as deferred loan costs and is being amortized to interest expense over the term of the respective capital lease obligations. A total of $68,474 was recorded as amortization expense during the nine months ended September 30, 2008.  In August, 2008 the Company executed an amendment to the Master Lease Line who agreed to exercise 2,000,000 warrants to purchase common stock at an exercise price of $0.05 per share in exchange for past due payments totaling $51,943 and cash of $48,057.  In addition, the Company agreed to vest the remaining 4,190,016 of the warrants to purchase common stock at an exercise price of $0.05 per share issued in conjunction with the Master Lease Line. Upon vesting, the Company expensed the remaining fair value at issuance of $153,630 as additional loan cost amortization.

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During the second quarter of 2008, the Company terminated an agreement with a vendor which included the potential issuance of three year warrants to purchase 750,000 shares of common stock at an exercise price of $0.05 per share.  The Company continues to have agreements with two vendors to issue three year warrants to purchase of an aggregate of 3,750,000 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 has been achieved and no warrants have been issued pursuant to these agreements.

The Company is party to certain litigation from time to time regarding trade accounts payable and certain notes payable.  The amount surrounding the litigation has in each case been properly recorded in the financial statements.

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

In May 2008, the shareholders approved an increase of the authorized common stock of the Company from 300,000,000 shares to 500,000,000 shares.

For the nine months ended September 30, 2008, the Company issued 1,600,000 shares valued at $115,200 or $0.072 per share, as compensation to a vendor, 1,640,000 shares valued at $123,000 or $0.075 per share, as compensation to employees and two vendors. The values represent the market price of the Company’s common stock on the dates of issuance.

The Company issued 9,250,000 shares of common stock upon the exercise of warrants for proceeds of $172,500.

The Company issued 9,800,000 shares of common stock and two year warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.075 per share for gross proceeds of $490,000.  The proceeds were allocated based on the relative fair values of the common stock and the warrants on the dates of issuance.  The allocated fair value of the warrants was $190,282 and the balance of the proceeds of $299,718 was allocated to the common stock. The fair value of the warrants, determined using the Black-Scholes Option Pricing Model, was calculated using the following weighted average assumptions: risk free interest rate of 1.80% - 2.48%, expected dividend yield of 0%, expected volatility of 117% - 131% and an expected life of 2 years.

The Company also issued 1,153,845 shares of common stock and two year warrants to purchase 1,153,845 shares of common stock at an exercise price of $0.13 per share for gross proceeds of $75,000.  The proceeds were allocated based on the relative fair values of the common stock and the warrants on the dates of issuance.  The allocated fair value of the warrants was $22,590 and the balance of the proceeds of $52,410 was allocated to the common stock. The fair value of the warrants, determined using the Black-Scholes Option Pricing Model, was calculated using the following weighted average assumptions: risk free interest rate of 2.35% - 2.52%, expected dividend yield of 0%, expected volatility of 113% - 117% and an expected life of 2 years.

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NOTE 8 - STOCK WARRANTS

In May, 2008 the Company issued a warrant to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share to a vendor for services which expires November 30, 2011.  The value of the warrant of $61,000 was charged to General and Administrative expenses on the issuance date. The fair value of the warrants, determined using the Black-Scholes Option Pricing Model, was calculated using the following assumptions: risk free interest rate of 2.7%, expected dividend yield of 0%, expected volatility of 117% and an expected life of 3.55 years.

In September, 2008 the Company issued three-year warrants to purchase 1,741,667 shares of common stock at an exercise price of $0.05 per share to five consultants for services provided.  In addition, the Company issued three-year warrants to purchase 1,500,000 shares of common stock at an exercise price of $0.75 per share to two vendors for services provided.  The fair value of the warrants of $134,925 was charged to General and Administrative expenses on the issuance date.  The fair value was determined using the Black Scholes Option Pricing Model using the following assumptions: risk free interest rate of 2.0%, expected dividend yield of 0%, expected volatility of 115% and an expected life of 3 years.

On September 25, 2008 the Company issued 12,000,000 three-year warrants to purchase common stock at an exercise price of $0.07 per share its officers and directors.  The Chief Executive Officer received 5,000,000 warrants, the Chief Financial Officer received 3,000,000 warrants, and four directors each received 1,000,000 warrants. The director warrants vested on the date of issuance.  The warrant issued to the Chief Executive Officer vests 1,000,000 shares on the date of issuance, with 2,000,000 warrants vesting on September 25, 2009 and 2010, respectively.  The warrant issued to the Chief Financial Officer vests 1,000,000 shares on issuance, with 1,000,000 shares vesting on September 25, 2009 and 2010, respectively.  The warrants were valued at $552,000, of which $276,000 was recognized as General and Administrative expenses, representing the vested portion of the fair value of the warrants on the issuance date.  The fair value was determined using the Black Scholes Option Pricing Model using the following assumptions: risk free interest rate of 2.4%, expected dividend yield of 0%, expected volatility of 112% and an expected life of 3 years.  The exercise price exceeded the closing market price on the date of issuance.

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The following summarizes the outstanding warrants as of September 30, 2008:

		Weighted-Average
Exercise	Warrants	Remaining Contractual	Number
Price	Outstanding	Life (Years)	Exercisable
$0.01	12,750,000	1.1	12,750,000
$0.05	15,075,000	3.6	15,075,000
$0.07	12,500,000	3.0	7,500,000
$0.075	51,904,975	2.1	51,904,975
$0.10	1,000,000	3.1	1,000,000
$0.13	1,153,845	1.8	1,153,845
	94,383,820		89,383,820

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-Q 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-Q 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-Q.

Overview

Diatect International Corporation (the “Company”) is a California corporation operating in Utah as a developer and marketer of pesticide products. The Company sells its products to both wholesale distributors and retail customers in the United States.  We have established an internet presence as well to sell directly to the consumer via our website.  In addition, in November, 2008 we became a distributor of products for Source Direct, Inc., a provider of a proprietary line of green, all-purpose, all-surface, non-toxic, biodegradable cleaning products, for a term of ten years.

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.

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Results of Operations

Comparison results for the three months ended September 30, 2008 and 2007

Revenues for the three months ended September 30, 2008 were $568,848 as compared to $657,274 for the three months ended September 30, 2007, a decrease of $88,426. The decrease is due to decreases in agricultural sales offset by increases in internet based sales.

Cost of revenues for the three months ended September 30, 2008 were $163,638 as compared to $177,676 for the three months ended September 30, 2007, a decrease of $14,038. The decrease is due the decrease in sales volumes partially offset by decreased product costs associated with internet based sales.

Marketing and selling expenses were $387,251 for the three months ended September 30, 2008 as compared to $362,777 for the three months ended September 30, 2007, an increase of $24,474. The increase is primarily due to increases in internet marketing and increases in media content related expenses in the three months ended September 30, 2008 when compared to the prior year period.

General and administrative expenses were $1,003,387 for the three months ended September 30, 2008 as compared to $458,379 for the three months ended September 30, 2007, an increase of $545,010.  The increase is primarily due to increases in director and officer compensation, increases in professional fees, and increases in amortization of loan costs.  Included in general and administrative expenses for the three months ended September 30, 2008 and 2007 are the non-cash costs of shares and warrants to purchase common stock valued at $410,925 and $15,693, respectively issued for officer, director and professional service fees. In addition, the three months ended September 30, 2008 and 2007 include non-cash costs for the amortization of loan costs in the amount of $176,517 and $13,807, respectively.

Other income and expense is comprised of interest expense and gain from termination of debt. Interest expense was $82,816 for the three months ended September 30, 2008 as compared to $184,759 for the three months ended September 30, 2007, a decrease of $101,943.  Included in interest expense is the amortization of discount related to the convertible promissory notes in the amount of $2,598 and $90,148 for the three months ended September 30, 2008 and 2007, respectively.  The remaining decrease is due to lower levels of debt during the three months ended September 30, 2008.  Gain from termination of debt for the three months ended September 30, 2007 was $96,132 pertains primarily to the settlement of certain liabilities at less than the recorded value.  There was no comparable amount for the three months ended September 30, 2008.

Comparison results for the nine months ended September 30, 2008 and 2007

Revenues for the nine months ended September 30, 2008 were 1,575,746 as compared to $1,517,615 for the nine months ended September 30, 2007, an increase of $58,131. 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 nine months ended September 30, 2008 were $407,021 as compared to $416,076 for the nine months ended September 30, 2007, an decrease of $4,983. The increase is due to higher sales volumes partially offset by decreased product costs associated with internet based sales.

Marketing and selling expenses were $1,170,088 for the nine months ended September 30, 2008 as compared to $833,080 for the nine months ended September 30, 2007, an increase of $337,008. The increase is primarily due to increases in internet marketing, increases in freight and commissions expenses due to increased sales and increases in media content related expenses in the nine months ended September 30, 2008 when compared to the prior year period.

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General and administrative expenses were $2,187,678 for the nine months ended September 30, 2008 as compared to $1,223,903 for the nine months ended September 30, 2007, an increase of $963,775.  The increase is primarily due to increases in director and officer compensation, professional fees, investor relations fees and amortization of loan costs.  Included in general and administrative expenses for the nine months ended September 30, 2008 and 2007 are the non-cash costs of shares and warrants to purchase common stock valued at $497,925 and $127,657, respectively issued for director and officer compensation, professional services and investor relations services.  In addition, the nine months ended September 30, 2008 and 2007 include non-cash costs for the amortization of loan costs in the amount of $270,963 and $45,039, respectively.

Other income and expense is comprised of interest expense and gain from termination of debt. Interest expense was $338,389 for the nine months ended September 30, 2008 as compared to $472,799 for the nine months ended September 30, 2007, a decrease of $134,410.  Included in interest expense is the amortization of discount related to the convertible promissory notes in the amount of $135,055 and $232,050 for the nine months ended September 30, 2008 and 2007, respectively.  The remaining decrease is due to lower levels of debt during the nine months ended September 30, 2008.  Gain from termination of debt for the nine months ended September 30, 2008 and 2007 was $4,283 and $259,852, respectively and pertains primarily to the settlement of certain liabilities at less than the recorded value.

Liquidity and Capital Resources

Our cash and cash equivalents of $12,716 as of September 30, 2008 are not considered sufficient to support our current levels of operations for the next 12 months.  Accordingly, we are actively seeking additional financing through debt or equity offerings.

We must raise working capital to fund our on-going operations through one or more debt or equity financings. Our efforts to raise capital may not be successful, and even if we are able to obtain additional financing, the terms of any such financing may be unfavorable to us and may be highly dilutive to existing stockholders. Any future debt or equity financings, when and if made, may not be sufficient to sustain our required levels of operations. Any inability to obtain additional cash as needed would have a material adverse effect on our financial position and results of operations and may result in our having to severely curtail or even cease our operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4T. 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 September 30, 2008.

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There have been no changes in our internal controls over financial reporting in connection with this evaluation that occurred during the third quarter of fiscal 2008 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 the Company as a respondent.  This administrative proceeding has file no. 3-12843.The administrative proceeding sought to revoke the Company’s registration under the Securities Exchange Act of 1934 (“Exchange Act”) under which the Company files quarterly and annual financial reports.  The Company had not filed nine quarterly and annual financial reports.  All of these reports have been filed as of January 2, 2008.

On January 30, 2008, Administrative Law Judge James Kelly issued an Initial Decision. This decision denied the Division of Enforcement’s Motion for revocation and granted the Company’s motion for summary disposition. The Judge found that the Company violated rules promulgated under the Exchange Act which required the filing of annual and quarterly reports.  In the decision the Judge expressly stated that the sanctions of revocation or trading suspension would not be imposed as such sanctions were not appropriate or necessary and denied the Division’s motion for revocation.  The initial decision dismissed the administrative proceeding. The parties had 21 days to appeal which has expired.  Neither party appealed and on March 6, 2008 the Commission issued a notice making the Initial Decision the Final Decision.

U.S. Securities and Exchange Commission ,  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 former president who was 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 May 17, 2004 the Company issued restated financial statements as of December 31, 2003.  On April 14, 2005, the Company issued restated financial statements as of December 31, 2004.  These filings restated the sale of the mining claims and revenues for those years. 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 bars as an officer and director. In February, 2008 a scheduling conference was held and a tentative trial date has been set for January, 2010. The Company intends to vigorously defend the allegations of the Complaint.

Litho-Flexo Grafics, Inc. – On May 23, 2003, Litho-Flexo Grafics, Inc. (“Litho-Flexo”) filed a complaint in the Fourth District Court in and for Wasatch County, State of Utah, naming us as the defendant. Litho-Flexo contended that we failed to make payment of a trade payable that, with interest and costs amounted to $92,478. We contended that the packaging labels purchased from Litho-Flexo were defective and could not be used in the packaging of our products. We filed a counterclaim claiming in excess of $100,000 for damages resulting from the use of the defective labels. We accrued a $72,625 accrued settlement obligation liability at December 31, 2004. During 2005, the Company paid $9,342 to the vendor, which decreased the recorded accrued settlement obligation liability to $63,283 at December 31, 2007.  In March, 2008 we entered into a settlement agreement by which all claims of both parties will be settled upon the our payment of an aggregate of $60,000 to Litho-Flexo.  A payment of $30,000 was paid May 31, 2008 with six monthly payments of $5,000 due on the first of each month beginning in July, 2008.  Should we fail to make any of the payments within 10 days of the due dates, Litho-Flexo is entitled to have a judgment entered against us for $150,000 less any amounts paid according to the schedule.  The Company has made the required payments on a timely basis.

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ITEM 1A. RISK FACTORS

Not Applicable

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

We issued 1,000,000 shares valued at $75,000 or $0.075 per share as compensation to a vendor. The value represents the market price of our common stock on the dates of issuance.

We issued 1,153,845 shares of common stock and two-year warrants to purchase 1,143,845 shares of common stock at an exercise price of $0.13 per share for gross proceeds of $75,000 in a private placement.

We issued three-year warrants to purchase 1,500,000 shares of common stock at an exercise price of $0.075 per share to two vendors for services.

We issued a three-year warrant to purchase 1,500,000 shares of common stock at an exercise price of $0.075 per share to two vendors for services.

We issued 1,194,531 shares and a two-year warrant to purchase 1,194,531 shares of common stock at an exercise price of $0.75 per share upon the conversion of a note payable in the amount of $50,000 and related interest of $9,728.

We issued three-year warrants to purchase 12,000,000 shares of common stock at an exercise price of $0.07 per share as compensation to our officers and directors.  The exercise price exceeded the market price on the date of grant.

We issued a three-year warrant to purchase 500,000 shares of common stock at an exercise price of $0.07 per share as compensation to a vendor.

We issued 2,000,000 shares of common stock upon the exercise of a warrant to purchase common stock at an exercise price of $0.05 per share for proceeds of 48,057 and the conversion of amounts due the warrant holder of $51,943.

ITEM 5. OTHER INFORMATION.

Not Applicable

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ITEM 6. EXHIBITS

31.1 Rule 13a-14(a)/15d-14(a) Certification of Patrick Carr, Principal Executive Officer

31.2 Rule 13a-14(a)/15d-14(a) Certification of Robert Rudman Principal Financial Officer

32.1 Certification of Patrick Carr, Principal Executive Officer and Robert Rudman, 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: November 14, 2008
By:	/s/ Patrick Carr
	Patrick Carr
	Principal Executive Officer
By:	/s/ Robert Rudman
	Robert Rudman
	Principal Accounting Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Patrick Carr, certify that:

1. I have reviewed this Form 10-Q 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 registrant as of, and for, the periods presented in this report;

4. The registrant'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) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant'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

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

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting.

November 14, 2008	/s/ Patrick Carr
	Patrick Carr
	Principal Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Robert Rudman, certify that:

1. I have reviewed this Form 10-Q 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 registrant as of, and for, the periods presented in this report;

4. The registrant'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) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant'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

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

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting.

November 14, 2008	/s/ Robert Rudman
	Robert Rudman
	Principal Accounting 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-Q for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), We, Patrick Carr, Principal Executive Officer and Robert Rudman, Principal Accounting Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 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.

November 14, 2008	/s/ Patrick Carr
	Patrick Carr
	Principal Executive Officer
November 14, 2008	/s/ Robert Rudman
	Robert Rudman
	Principal Accounting Officer
	Principal Accounting Officer