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 March 31, 2009

¨ 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

(Registrant's telephone number)

Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 May 20, 2009 the issuer had 215,350,959 shares of common stock, no par value, outstanding.

	Page Number
PART I  Financial Information
ITEM 1. Condensed Financial Statements (Unaudited)
Balance Sheets as of March 31, 2009 and December 31, 2008	1
Statements of Operations for the Three Months Ended March 31, 2009 and 2008	2
Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008	3
Notes to Unaudited Condensed Financial Statements	5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	16
ITEM 4T. Controls and Procedures.	16
PART II Other Information
ITEM 1. Legal Proceedings	17
ITEM 1A. Risk Factors	17
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.	17
ITEM 6. Exhibits.	18
Signatures	19

DIATECT INTERNATIONAL CORPORATION

BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2009			2008
ASSETS
Current Assets
Cash	$	32,438		$	587
Trade accounts receivable, net of allowance for doubtful accounts of $16,000 and $16,000, respectively		74,206			51,814
Inventory		54,667			38,416
Deferred loan costs and other current assets		156,382			135,719
Total Current Assets		317,693			226,536
Property and Equipment, net of accumulated depreciation of$206,616 and $189,894, respectively		157,695			182,286
Total Assets	$	475,388		$	408,822
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable	$	1,329,011		$	1,009,133
Accrued liabilities		75,228			75,833
Accrued interest payable		627,617			606,556
Accrued settlement obligations		455,451			502,251
Deferred gain on sale and leaseback of assets		41,452			50,523
Notes Payable, net of discount of $14,897 and $0, respectively		2,958,757			2,749,996
Current portion of capital lease obligations		84,440			79,812
Total Current Liabilities		5,571,956			5,074,104
Long-Term Liabilities
Capital lease obligations, net of current portion		29,114			52,041
Total Long-Term Liabilities		29,114			52,041
Stockholders' Deficit
Common stock, no par value; 500,000,000 shares authorized; 215,350,959 shares and 215,350,959 shares outstanding, respectively		25,589,213			25,589,213
Warrants outstanding		2,388,103			2,318,751
Accumulated deficit		(33,102,998	)		(32,625,287	)
Total Stockholders' Deficit		(5,125,682	)		(4,717,323	)
Total Liabilities and Stockholders' Deficit	$	475,388		$	408,822

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

1

DIATECT INTERNATIONAL CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended
	March 31,
	2009			2008
Sales	$	188,427		$	372,964
Cost of Goods Sold		118,407			153,673
Gross Profit		70,020			219,291
Expenses
Marketing and selling		120,687			260,551
General and administrative		354,262			596,188
Total Expenses		474,949			856,739
Loss from Operations		(404,929	)		(637,448	)
Other Income (Expense)
Interest expense		(72,782	)		(117,114	)
Gain from termination of debt		-			4,283
Net Other Income		(72,782	)		(112,831	)
Net Loss	$	(477,711	)	$	(750,279	)
Basic and Diluted Loss Per Share	$	(0.00	)	$	(0.00	)
Weighted-Average Basic and Diluted Common Shares Outstanding		215,350,959			203,066,759

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

2

DIATECT INTERNATIONAL CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended
	March 31,
	2009			2008
Cash Flows from Operating Activities
Net loss	$	(477,711	)	$	(750,279	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		22,798			23,155
Amortization of discount on notes payable		2,705			54,971
Amortization of loan costs		30,674			53,754
Gain from debt termination		-			(4,283	)
Net gain on disposal of property and equipment		(7,278	)		(9,071	)
Issuance of stock for services		-			48,000
Issuance of warrants for services		51,750			34,272
Changes in operating assets and liabilities:
Accounts receivable		(22,391	)		(27,956	)
Inventory		(16,252	)		10,000
Deferred loan costs and other current assets		(51,337	)		(58,701	)
Accounts payable		319,879			179,501
Accrued liabilities		(605	)		(34,595	)
Accrued interest payable		21,061			39,253
Net Cash Used in Operating Activities		(126,707	)		(441,979	)
Cash Flows from Investing Activities		-			-
Cash Flow from Financing Activities
Proceeds from borrowings under notes payable		223,658			-
Proceeds from exercise of warrants		-			72,500
Proceeds from issuance of stock and warrants		-			390,000
Principal payments on notes payable		-			(6,062	)
Principal payments on lease obligation		(18,300	)		(14,340	)
Accrued settlement obligation changes		(46,800	)		(2,000	)
Net Cash Provided by Financing Activities		158,558			440,098
Net Increase (Decrease) in Cash		31,851			(1,881	)
Cash at Beginning of Period		587			9,864
Cash at End of Period	$	32,438		$	7,983

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

3

DIATECT INTERNATIONAL CORPORATION

STATEMENTS OF CASH FLOWS (continued)

	For the Three Months Ended
	March 31,
	2009		2008
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	709	$	17,694
Supplemental Schedule of Noncash Investing and
Financing Activities
Discount on issuance of Notes payable and warrants	$	17,602	$	-
Purchase of equipment under capital lease obligations		-		15,067

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

4

DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE 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 sells its products to both wholesale distributors and retail customers in the United States. The Company's administrative offices, manufacturing facilities and operations are located in Heber, Utah.

Basis of Presentation – The unaudited condensed 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, 2008 in the Company’s annual report on Form 10-K.  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 March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

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 $188,427 and incurred a net loss of $477,711 during the three months ended March 31, 2009. At March 31, 2009 the Company had a total stockholders’ deficit of $5,125,682 and its current liabilities exceeded current assets by $5,254,263.

In addition, our independent registered accountants, Hansen Barnett and Maxwell, P.C. expressed substantial doubt about the Company’s ability to continue as a going concern in their audit opinion on our financial statements for the year ended December 31, 2008.

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.  Additional financing arrangements have been arranged and are discussed further in Note 9.  The Company is continuing to seek out additional sources of debt and/or equity financing.

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.

5

DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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.

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.

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 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 March 31, 2009 and 2008 were $15,888 and $47,242, 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.

6

DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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.

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 March 31, 2009 and 2008, 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.

	March 31,
	2009		2008
Outstanding warrants		96,217,153		75,460,444
Convertible promissory notes convertible into:
Common stock		5,500,000		6,500,000
Warrants		500,000		1,500,000
Total potentially dilutive common shares		102,217,153		83,460,444

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.

NOTE 3 – INVENTORY

Inventory is comprised of the following:

	March 31,		December 31,
	2009		2008
Raw materials	$	20,601	$	18,352
Finished goods		34,066		20,064
Total Inventory	$	54,667	$	38,416

7

DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

NOTE 4 – PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:

	Estimated
	Useful Life	March 31,			December 31,
	in Years	2009			2008
Computer equipment	3 to 5	$	77,744		$	80,613
Office furniture and equipment	5		40,724			45,724
Manufacturing equipment	3 to 10		240,908			240,908
Leasehold improvements	15		4,935			4,935
Total Property and Equipment			364,311			372,180
Less: Accumulated depreciation			(206,616	)		(189,894	)
Net Property and Equipment		$	157,695		$	182,286

Depreciation expense for the three months ended March 31, 2009 and 2008 was $22,798 and $23,155, respectively.

NOTE 5 – NOTES PAYABLE

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

	March 31,		December 31,
	2009		2008
Revolving line of credit with financial institution	$	49,683	$	49,683
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		95,000		95,000
Unsecured 15% notes payable to investors, in default		32,500		32,500
Promissory Note, 12%, secured by EPA Labels, in default		45,000		45,000
Unsecured 15% notes payable to investor, net of discount of $7,453, due July 30, 2009		92,547		-
Unsecured 20% note payable to investor, net of discount of $7,444, due April 30, 2009		92,556		-
Unsecured 12% convertible promissory notes payable		275,000		275,000
Unsecured 5% notes payable to shareholders, in default		1,234,595		1,210,937
Unsecured 5% notes payable to vendors, in default		564,626		564,626
Total Notes Payable	$	2,958,757	$	2,749,996

Revolving Lines of Credit – The Company currently has unsecured, revolving credit notes with a financial institution totaling $49,683. The line of credit bears interest at 9.0% 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. The loan as amended has a total available amount of $250,000 and 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.  At March 31, 2009 the Company’s borrowing base is less than the amounts advanced under the loan.

8

DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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 March 31, 2009.

On March 1, 2009 the Company issued a $100,000 note payable due on August 1, 2009 bearing interest at a rate of 15% per annum and two-year warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.025 per share.  The proceeds of the note were allocated among the note and the warrant, resulting in the recording of a discount to the note payable in the amount of $9,910, representing the fair value of the warrant issued.  The discount is being amortized over the term of the note as additional interest expense.  A total of $2,457 of additional interest expense was recognized during the three months ended March 31, 2009.  The value of the warrant was determined using the Black Scholes valuation method and the following assumptions: closing market price of common stock of $0.02, risk free interest rate of 0.89%, expected dividend yield of 0%, expected volatility of 128% and an expected life of 2 years.

On March 30, 2009 the Company issued a $100,000 note payable due on April 30, 2009 bearing interest at a rate of 20% per annum and two-year warrants to purchase 833,333 shares of common stock at an exercise price of $0.03 per share.  The proceeds of the note were allocated among the note and the warrant, resulting in the recording of a discount to the note payable in the amount of $7,692, representing the fair value of the warrant issued.  The discount is being amortized over the term of the note as additional interest expense.  A total of $248 of additional interest expense was recognized during the three months ended March 31, 2009.  The value of the warrant was determined using the Black Scholes valuation method and the following assumptions: closing market price of common stock of $0.02, risk free interest rate of 0.84%, expected dividend yield of 0%, expected volatility of 115% and an expected life of 2 years.  This note payable has been extended as described in Note 9.

Secured Promissory Note – On December 30, 2008 the Company issued a secured 12% promissory note in the amount of $45,000 for cash payable February 28, 2009 and is presently in default.  The promissory note is secured by all tangible and intangible property related to the Company’s EPA labels.

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.

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 was fully amortized during 2008.

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DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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 converted outstanding accounts payables into promissory notes that were due in 2008 and accrue interest at 5% per annum.  These notes are presently in default.

NOTE 6 – 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.

The accrued settlement obligations include the following:

	March 31,		December 31,
	2009		2008
Litigation Claim	$	282,367	$	282,367
Jack Stites		150,180		150,180
Other		22,904		69,704
Total	$	455,451	$	502,251

Litigation Claim - - The Company has been threatened with litigation regarding a loan agreement on which the statute of limitations was believed by management to have expired.  Although the Company has not received a formal complaint regarding this claim, the Company accrued an estimated loss in 2008 from this threatened litigation in the amount of $282,367.

Jack Stites- On June 23, 2008 Jack Stites (“Stites”) filed a complaint in the Chancery Court of Putnam County, Tennessee naming the Company as a defendant.  Stites contends that the Company failed to make payment on an unsecured note payable in the amount of $40,000 plus accrued interest and fees of $110,180.  The Company did not respond to the suit, and a default judgment was entered against the Company in the amount of $150,180. Stites has also obtained a judgment in the state of Utah against the Company. The Company has recorded this amount as loss contingency during 2008.

10

DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

NOTE 7 – COMMITMENTS AND CONTINGENCIES

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 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 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 is seeking to constructively resolve this issue by settlement with the SEC.

On January 1, 2007, the Company entered into a five year building lease with Aspen Capital Management, LLC, 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 $14,520 per month, respectively.

In October 2008, the Company entered into a one year Investment Banking Agreement with Pointe Atlantic, Inc. The terms of the Investment Banking Agreement required that the Company pay a monthly retainer of $7,500. If a merger or acquisition transaction is consummated during the term of this agreement, the Company shall pay a cash fee equal to the sum of 5% of the aggregate consideration and 2.5% if the aggregate consideration exceeds $5 million. In the event that Pointe assists in the arranging of a debt financing, the Company will pay Pointe a fee of 2.5% of the total debt facility. As the exclusive placement agent, Pointe shall be paid 8% of the gross proceeds of a securities transaction plus a 2% non-accountable expense allowance and warrants equal to 20% of the offering at the offering price.

In March 2008, the Company entered into a renewable two-year non-exclusive engagement letter (the “2008 Engagement Letter”) with Aspen Capital Partners, LLC. In addition to providing consulting services in a variety of areas relating to the financial, strategic and developmental growth, Aspen agreed to provide one of its employees to serve in the position of the Company’s Chief Financial Officer. The Company agreed to pay Aspen a monthly consulting fee of $20,000 for the services provided by both Aspen and the Chief Financial Officer. On July 15, 2008, Aspen agreed to reduce its monthly retainer to $15,000 in conjunction with the appointment of Patrick Carr as the Company’s new President.

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 three months ended March 31, 2009 and 2008, the Company recognized $9,071 and $9,071 of this gain, respectively.

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. All of these warrants were fully vested in 2008. The Company had recorded deferred loan costs related to the value of the warrants which is being amortized to interest expense over the term of the respective capital lease obligations. A total of $30,674 and $32,974 was recorded as amortization expense during the three months ended March 31, 2009 and 2008, respectively.

11

DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

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 8 - STOCK WARRANTS

The following summarizes the outstanding warrants as of March 31, 2009:

			Weighted-Average
Exercise	Warrants		Remaining Contractual	Number
Price	Outstanding		Life (Years)	Exercisable
$0.01		12,750,000	0.6		12,750,000
$0.02		833,333	3.0		833,333
$0.025		1,000,000	2.9		1,000,000
$0.05		15,075,000	3.0		15,075,000
$0.07		12,500,000	2.5		6,500,000
$0.075		51,904,975	1.6		51,904,975
$0.10		1,000,000	2.7		1,000,000
$0.13		1,153,845	1.3		1,153,845
		96,217,153	1.4		90,217,153

NOTE 9 – SUBSEQUENT EVENTS

On April 30, 2009, the Company entered into a promissory note agreement in the amount of $100,000 that satisfied and replaced the March 30 2008 note as discussed in Note 5.  This second note bears interest at the rate of 20% per annum and is due and payable on May 31, 2009.  Pursuant to this note, the Company entered into a common stock purchase warrant agreement granting the noteholder the right to purchase a total of 1,250,000 shares of the Company’s common stock at a price of $0.02 per share for two years from the date of the agreement. The estimated fair value of the warrant of $15,000 was recorded as additional interest expense over the remaining term of the note. The value of the warrant was determined using the Black Scholes valuation method and the following assumptions: closing market price of common stock of $0.019, risk free interest rate of 0.91%, expected dividend yield of 0%, expected volatility of 131% and an expected life of 2 years.

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DIATECT INTERNATIONAL CORPORATION

UNAUDITED NOTES TO THE CONDENSED FINANCIAL STATEMENTS

On May 7, 2009, the Company entered into a promissory note agreement in the amount of $500,000.  The note bears interest at the rate of 18% per annum and is due and payable on July 31, 2009.  Pursuant to this note, the Company entered into a common stock purchase warrant agreement granting the noteholder the right to purchase a total of 3,000,000 shares of the Company’s common stock at a price of $0.025 per share for two years from the date of the agreement.

On May 7, 2009, the Company entered into a common stock purchase warrant agreement with the co-guarantor of the $500,000 note and granted the right to purchase a total of 3,000,000 shares of the Company’s common stock at a price of $0.025 per share for two years from the date of the agreement.  Also on May 7, 2009, the Company entered into a common stock purchase warrant agreement with the guarantor of the April 30, 2009 note and the co-guarantor of the $500,000 note and granted the right to purchase a total of 4,000,000 shares of the Company’s common stock at a price of $0.025 per share for two years from the date of the agreement.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 developer and marketer of non-toxic pesticide products, selling its products to wholesale distributors and retail customers in the United States.  We also sell directly to the consumer via our website at www.diatect.com.  The Company was incorporated under the laws of the State of California in 1979 as San Diego Bancorp., and we changed our name to Diatect International Corporation in 1998.  During 2002, we consolidated our operations in Utah, moving our administrative offices from Idaho and our manufacturing facilities from Kansas.

We have nine different insecticide products that utilize so called "natural-killing agents" which are non-toxic to the environment as well as humans and other warm-blooded animals. The ingredients in our products have been used separately for years as adequate alternatives to hazardous chemical insecticides and therefore represent an alternative to synthetic products that often utilize hazardous chemical compounds. We rely on five registrations that we obtained from the Environmental Protection Agency (EPA) that allowed us to formulate eight labels for retail sales. These registrations are required for the production and marketing of our insect control products. Obtaining EPA registrations and approval of our labels represents an essential asset of the Company and is the result of lengthy and costly effort.

Our independent registered accountants, Hansen Barnett and Maxwell, P.C. expressed substantial doubt about the Company’s ability to continue as a going concern in their audit opinion on our financial statements for the year ended December 31, 2008.

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 March 31, 2009 and 2008

Revenues for the three months ended March 31, 2009 were $188,427 as compared to $372,964 for the three months ended March 31, 2008, a decrease of $184,537. The decrease is primarily due to a decrease in internet based sales.

Cost of goods sold for the three months ended March 31, 2009 were $118,407 as compared to $153,673 for the three months ended March 31, 2008, a decrease of $35,266. The decrease is primarily due to decreases in sales volumes and decreased product costs associated with internet based sales.

Marketing and selling expenses for the three months ended March 31, 2009 were $120,687 as compared to $260,551 for the three months ended March 31, 2008, a decrease of $139,864. The decrease is primarily due to decreases in internet marketing in the three months ended March 31, 2009 when compared to the prior year period.

General and administrative expenses for the three months ended March 31, 2009 were $354,262 as compared to $596,188 for the three months ended March 31, 2008, a decrease of $241,926. The decrease is primarily due to decreases in professional fees, consulting fees and amortization of loan costs.

Other income and expense is comprised of interest expense and gain from termination of debt. Interest expense was $72,782 for the three months ended March 31, 2009 as compared to $117,114 for the three months ended March 31, 2008, a decrease of $44,332.  Included in interest expense is the amortization of discount related to the convertible promissory notes in the amount of $2,705 and $54,971 for the three months ended March 31, 2009 and 2008, respectively.  Gain from termination of debt for the three months ended March 31, 2008 was $4,283 and pertains primarily to the settlement of certain liabilities at less than the recorded value.  There was no comparable amount for the three months ended March 31, 2009.

Liquidity and Capital Resources

Our cash and cash equivalents of $32,438 as of March 31, 2009 are not sufficient to support our current levels of operations for the next 12 months.  Accordingly, we are actively seeking additional financing through debt and/or equity offerings.

On May 7, 2009 we issued a Note Payable in the amount of $500,000 and an aggregate of 10,000,000 warrants to purchase common stock at an exercise price of $0.025 per share for total proceeds of $500,000.

Even with the proceeds from the Note Payable, we must raise additional 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.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required information for the Company as a smaller reporting company.

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 March 31, 2009.

There have been no changes in our internal controls over financial reporting in connection with this evaluation that occurred during the first quarter of fiscal 2009 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.

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.

Litigation Claim - - The Company has been threatened with litigation regarding a loan agreement on which the statute of limitations was believed by management to have expired.  Although the Company has not received a complaint regarding this claim, they have accrued an estimated loss from this threatened litigation in the amount of $282,367.

Jack Stites- On June 23, 2008 Jack Stites (“Stites”) filed a complaint in the Chancery Court of Putnam County, Tennessee naming the Company as a defendant.  Stites contends that the Company failed to make payment on an unsecured note payable in the amount of $40,000 plus accrued interest and fees of $110,180.  The Company did not respond to the suit, and a default judgment was entered against the Company in the amount of $150,180. Stites has also obtained a judgment in the state of Utah against the Company. The Company has recorded this amount as loss contingency on the accompanying statement of operations as of December 31, 2008.

ITEM 1A. RISK FACTORS

Not Applicable

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

The following provides information regarding sales of equity securities by us during the three months ended March 31, 2009 which were not registered under the Securities Act.  All issuances pertained to the Company’s no par common stock. The Company relied upon the exemption from registration of the issuance of the securities discussed below provided by Section 4(2) of the Securities Act of 1933 (the “Securities Act”), in view of the close relationships that each of the purchasers acquiring such securities had with the Company and the access to all material information about the Company provided to all such purchasers.

17

On March 1, 2009 we issued two year warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.025 per share.

On March 30, 2009 we issued two year warrants to purchase 833,333 shares of common stock at an exercise price of $0.03 per share.

ITEM 5. OTHER INFORMATION.

Not Applicable

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: May 20, 2009
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.

May 20, 2009	/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.

May 20, 2009	/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 March 31, 2009 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.

May 20, 2009	/s/ Patrick Carr
	Patrick Carr
	Principal Executive Officer
May 20, 2009	/s/ Robert Rudman
	Robert Rudman
	Principal Accounting Officer
	Principal Accounting Officer