<PAGE> 1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB
(Mark One)
[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
      For the fiscal year ended December 31, 2002
                                       OR
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
      For the transition period from __________ to __________

                      Commission File number:  0-10147

                     DIATECT INTERNATIONAL CORPORATION
                -------------------------------------------
            (Exact name of registrant as specified in charter)

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

     875 S Industrial Parkway, Heber City, UT                      84032
----------------------------------------------------               -----
(Address of principal executive offices)                         (Zip Code)

        Issuer's telephone number, including area code:  (435) 654-4370

          Securities registered pursuant to section 12(b) of the Act:
     Title of each class            Name of each exchange on which registered
               None                                    N/A
               ----                                    ---
          Securities registered pursuant to section 12(g) of the Act:
                        Common Stock, No Par Value
                         -------------------------
                               (Title of class)

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

     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]



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State the issuer's revenues for its most recent fiscal year:  $769,600.

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. At March 25, 2003, the aggregate market value of our voting
stock held by non-affiliates was $7,123,335 based on 37,491,238 shares held by
non-affiliates.  The average of the bid and asked price of our stock on March
25, 2003, was $0.19  per share.

At March 25, 2003, we had 44,407,415 shares of common stock, no par value,
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933:  None

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                                  PART I
                             ITEM 1.  BUSINESS
General
-------
Diatect International Corporation was incorporated in California in May 19,
1979. We produce a variety of insecticides which utilize so called "natural-
killing agents" which are non-toxic to the environment as well as humans and
other warm-blooded animal life. Whereas conventional chemical synthesized
insecticides can be composed of highly dangerous, toxic chemicals that can
seep into the water table and can be washed into rivers and lakes,
contaminating water and soil for decades, our products are composed of
materials that degrade after application leaving the environment unharmed.
Certain of these materials have been used separately for years as adequate
alternatives to hazardous chemical insecticides.  By combining these materials
together in our products, we have created a powerful synergy that leads to
more effective insect control than they can provide individually.

We have obtained five EPA registrations and nine retail labels necessary for
the production and marketing of insect control products.  The approval by the
EPA of our labels is significant since EPA approval can be a lengthy and
expensive process. Due to the long time it took to obtain EPA approval for our
labels, we did not actually begin commercial marketing of our products until
late 2001.

Over the past decade, chemical companies have voluntarily dropped the
registration of approximately 93 active ingredients and 6,100 pesticide
products that were in use at the time of cancellation.  Additionally, since
insecticides were first used in the 1940's, more than 600 insect species have
developed resistance to many synthetic pesticides, leading the industry to
constantly search for new products.

Products
--------
We recognize the future demands for environmentally acceptable insecticide
products in all agriculture-related industries worldwide.  Our business plan
calls for formulations which are natural in composition; components which, as
stand-alone insecticides, are efficient, non-toxic, user and environmentally
friendly, yet cost-effective.

The active ingredients used in our products are diatomaceous earth ("DE"),
pyrethrin and piperonyl butoxide ("PBO").  We combine DE, pyrethrin and PBO by
using surfactants to ensure a good mix and greatly increase effectiveness and
persistence.  The combination of these active ingredients results in a
compound much more effective than each ingredient individually.  When using
the ingredients together, DE breaks down the chitin, allowing the pyrethrin to
act on an insect's nerve cells directly.  The pyrethrin does not evaporate as
quickly and is released for hours rather than minutes.  PBO increases the
effectiveness of the pyrethrin by as much as ten times.

Our products consist of five fully registered EPA Labels and nine retail
labels:

EPA Registrations
1.  42850-1
2.  42850-2
3.  42850-3
4.  42850-4
5.  42850-5

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Retail Registrations

1.  Diatect II is sold in the agriculture market, the largest end-user market
for insecticides markets as "Diatect II Multi-Purpose Insect control."
Diatect II is used in a wide variety of areas, e.g., edible growing crops,
animal quarters, livestock, ornamentals, etc.

2.  Diatect III is distributed and sold in the commercial; industrial; and
government markets as "Diatect III Insect Control."  This insecticide is
approved by the EPA for use in a wide variety of areas, e.g., schools, parks,
rest stops, roadways, childcare facilities, rest homes, eating establishments,
all public places, etc.

3.  Diatect V is a product that was designed and formulated to meet the needs
of the organic food industry which requires insecticides with no synthetic
ingredients.  Diatect V is sold and distributed to the commercial grower, home
owner, and gardener.

4.  Results Ant & Insect is a domestic homeowner product which controls ants,
aphids, caterpillars, leafhoppers, lice, mites, mosquitoes, ticks, and other
insects.

5.  Results Fireant is applied directly to fire ant mounds and provides quick,
effective control in eliminating these aggressive, dangerous pests.  Each year
approximately 65,000 Americans seek hospital treatment for venomous fire ant
stings and two of those people die.  Unlike bees, fire ants can sting
repeatedly and have a very aggressive behavior.

6.  Results Indoor controls roaches, fleas, ants, silverfish, crickets,
bedbugs, box elder bugs, and other insects.  It is designed for use under
sinks, behind furniture, in air vents, under tile, and in stairwells and
basements.

7.  Results Tomato & Garden protects garden plants from many varieties of
worms, beetles, leafhoppers, stink bugs, squash vine borers, and other
insects.

8.  Results Rose & Floral protects azaleas, begonias, African violets,
chrysanthemums, dogwood, elm, roses, tulips, and many other plants.  It also
destroys insects such as mealybugs, fruit flies, white flies, and caterpillars
that ruin the beauty of garden flowers and plants.

9.  Results Pet Powder  This product is a stand-alone product for use on pet
pests for home owners, kennels, boarding facilities, veterinary clinics and
other animal facilities.

We believe the Diatect and Results products are far more effective than major
competitive synthetic chemical products.

Regulatory Approval
-------------------
In general all insecticides, purchased in stores today must, have EPA-approved
labels that disclose various required information about the product.  These
insecticide labels provide an extensive amount of information and indicate
that the insecticide has been tested, evaluated, and regulated by the EPA.  In
fact, no insecticides can be legally registered, much less sold, without going
through these procedures.

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As previously stated, all new insecticides must be "registered" with the EPA,
which specifies the conditions of their use as part of its mandate under the
Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA").  An insecticide
user or manufacturer who fails to comply with FIFRA restrictions risks
enforcement actions from both the EPA and state authorities.  Our products
comply with FIFRA restrictions and are registered with the EPA.

The cost of developing a new chemical for registration has also risen
enormously in recent years, partially because of expensive tests required to
show that the chemical poses low environmental and human health risks.  The
typical pesticide is put through more than 6000 tests and approval can take
more than eight to ten years, and can cost up to 25 million dollars.   Once
approved, labeling instructions must be followed for proper use, handling,
storage and disposal. We believe the effect of these tighter restrictions and
the removal of these active ingredients has opened the door for our products.

Competition in the Insecticide Industry
---------------------------------------
The principal players in the U.S. insecticide industry, are major companies
such as Dow, duPont, Monsanto, Shell Oil and Chevron.  Those companies all
have more extensive resources than we do and have established product
recognition.  We believe, however, that by focusing on more natural, safer,
non hazardous, eco-sensitive insecticides, we are able to acquire market
niches which have not been a focus of the larger, better established
companies. We believe we have an advantage in the products and market niche we
have identified in that we have already obtained EPA approval of our products
and labels.

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Board and Management Changes
----------------------------
In 2002, Nelson A. Carter resigned from the board of directors.  Robert E.
Crouch, Frank Priestly, and Michael P. McQuade were appointed as directors and
subsequently elected by the shareholders.  John Runft resigned as Secretary of
the Company and Margie Humphries was appointed as Secretary.

Subsidiaries
------------
At December 31, 2002, we have no active subsidiaries.  Wholly-owned inactive
subsidiaries include Enviro-Guard Corporation, Diatect International, Inc.,
and D.S.D., Inc.

                            ITEM 2.  PROPERTIES

Diatect International Corporation, 875 South Industrial Parkway, Heber City,
Utah 84032.  This facility is a 20,254 square foot class C masonry
office/warehouse building on 1.928 acres in the Heber City, Utah Industrial
Park.  During October 2001, we relocated both our office and operating
facilities to Heber City, Utah.  On January 17, 2003, we completed
negotiations of the terms for the purchase of our new facilities at a cost of
approximately $875,500 (including closing costs).  Under terms of our
financing agreement, we will pay approximately $9,200 a month in interest only
payments at a annual interest rate of 13%.  We will be seeking alternative
financing if we can secure a better interest rate.  We have returned the funds
we obtained as an escrow deposit.  We paid the down payment of $28,500 during
the fourth quarter of the year ended December 31, 2001.  During the same
period, we also secured cash in the amount of $400,000 (listed in the
financial statements at December 31, 2002 as $400,000 restricted cash), which
was needed for an escrow deposit.  These funds have been returned to the
lender.


                      ITEM 3.  LEGAL PROCEEDINGS
Resolved Litigation
-------------------

Terrance Dunne
--------------
Terrance Dunne, our former auditor, sued us for payment of unpaid fees.  In
response to his allegations, we countersued for reimbursement of fees paid for
work not performed.  In November 2002, the matter was fully settled and
resolved with mutual releases being executed by both parties.

Current Litigation
------------------

Sloan, Listrom, Eisenbarth, Sloan & Glassman, LLC
-------------------------------------------------
In November 1999, our former legal counsel was awarded a default judgment
against us in the amount of $42,166 plus post-judgment interest.  This
judgment remains outstanding and unpaid.

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Ogilvy, Adams & Rinehart
------------------------
Ogilvy, Adams & Rinehart (Ogilvy) obtained a judgment against us on November
1, 1995 in the sum of $24,346.  The entire judgment amount plus attorney's
fees and interest thereon is approximately $36,000 and has been included on
our balance sheet in settlements payable at December 31, 2002 and 2001.  Since
mid-1996, there has been no communication with the plaintiff or its attorneys,
nor has the plaintiff made any attempt to satisfy or settle this case.  We
plan to negotiate a settlement of this obligation during 2003.

L. Craig Hunt
-------------
L. Craig Hunt brought action on January 14, 1998 against us for damages and
breach of contract on a promissory note for the sum of $42,750 plus interest,
penalties and attorney's fees.  Judgment against us was rendered on February
1, 1999 in the sum of $61,543.  This judgment is presently outstanding and
unpaid.  To date, plaintiffs have made no attempt to collect on this judgment.

George Brink
------------
During December 2000, George Brink was awarded a default judgment in the total
amount of $44,648, including interest and legal fees, for the balance due on a
promissory note.  At this time, active collection on the judgment has not been
pursued.

Iver J. Longtieg
----------------
Mr. Longtieg is pursuing a claim outside of the Future Title/White Mountain
Group.  Mr. Longtieg claims an outstanding note for $23,887 plus interest
accrued theron.  Mr. Longtieg filed a notice of intent to apply for a default
judgment, in Boise, Idaho.  We did not answer the complaint and as a result a
potential default judgment is possible.  At the current time, Mr. Longtieg has
been paid $14,488, and is forbearing until such time as we resolve the issue
of the original claim.

Other Matters
-------------
We are not aware of any other threatened litigation against us.
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        ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

We held a Special Meeting of Shareholders on November 20, 2002 at our Heber
City facility.  At the meeting, the following actions were approved by a
majority of the shares eligible to vote on each matter:

1. Jay W. Downs, David H. Andrus, John L. Runft, M. Stewart Hyndman, John H.
Zenger, Michael P. McQuade, Frank Priestley and Robert E. Crouch were elected
as directors;

2. An increase in our authorized capitalization from 50,000,000 shares of
common stock to 100,000,000 shares of common stock was approved;

3. The 2002 Stock Option and Award Plan was approved, along with certain
grants of options under the Plan. Jay Downs and Dave Andrus were issued
1,250,000 and 750,000 options, respectively, for the purchase of our common
stock at an exercise price of $0.17.  The options vest in increments of one
third only upon the achievement by the company of gross sales revenues in a
fiscal year of $5 million, $10 million, and $15 million; and

4. The selection of Williams & Webster as the Company's auditors was ratified.

                                 PART II
      ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth, for the respective periods indicated, the
prices for our common stock in the over-the-counter market as reported by a
weekly reporting service and according to the NASD's OTC Bulletin Board.  The
bid prices represent inter-dealer quotations, without adjustments for retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.  At March 25, 2003, our common stock was quoted under the symbol
"DTCT" and had a high of $0.19 and a low of $0.19.  All bid prices below have
been rounded to the nearest whole cent.
                                                         Bid Prices
                                                       ---------------
     Fiscal Year Ended December 31, 2002               High       Low
     -----------------------------------              ------    ------
     Fourth Quarter                                   $ 0.20    $ 0.10
     Third Quarter                                    $ 0.34    $ 0.16
     Second Quarter                                   $ 0.39    $ 0.15
     First Quarter                                    $ 0.52    $ 0.29

     Fiscal Year Ended December 31, 2001
     -----------------------------------
     Fourth Quarter                                   $ 0.52    $ 0.09
     Third Quarter                                    $ 0.14    $ 0.07
     Second Quarter                                   $ 0.14    $ 0.07
     First Quarter                                    $ 0.25    $ 0.09

     Fiscal Year Ended December 31, 2000
     -----------------------------------
     Fourth Quarter                                   $ 0.18    $ 0.08
     Third Quarter                                    $ 0.24    $ 0.08
     Second Quarter                                   $ 0.13    $ 0.06
     First Quarter                                    $ 0.10    $ 0.04

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We have not paid any dividends on our Common Stock, and we do not anticipate
that we will pay dividends in the foreseeable future.  The future payment of
dividends, if any, on the common stock is within the discretion of the Board
of Directors and will depend on our earnings, if any, our capital requirements
and financial condition, and other relevant factors.

At March 25, 2002, we had approximately 1,170 shareholders of record based on
information provided by our transfer agent.

During the quarter ended December 31, 2002, we issued 206,000 shares of our
common stock valued at $19,770 in payment of services provided by the board
and for employee year-end bonuses, 615,000 shares of our common stock valued
at $84,500 in payment of consulting services, 462,880 shares of our common
stock valued at $53,139 for debt settlement, 1,000,000 shares of our common
stock for cash of $100,000, and 180,500 shares of our common stock valued at
$20,800 as loan incentives.  See Consolidated Statements of Stockholders'
Equity in the attached financial statements and the notes thereto.  500,000 of
the above shares issued in payment of consulting services valued at $50,000
were issued pursuant to a Registration Statement on Form S-8.  All of the
remaining above securities have been issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.

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               ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                                PLAN OF OPERATION

Cautionary Statement Regarding Forward-looking Statements
---------------------------------------------------------
This report may contain "forward-looking" statements.  Examples of forward-
looking statements include, but are not limited to: (a) projections of
revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of plans and objectives
of our management or Board of Directors; (c) statements of future economic
performance; (d) statements of assumptions underlying other statements and
statements about us and our business relating to the future; and (e) any
statements using the words "anticipate," "expect," "may," "project," "intend"
or similar expressions.

General
-------
Our founders envisioned establishing a business venture built upon the
creation, development, production and marketing of a quality line of natural,
environmentally-friendly insecticide products.  We have lacked the financial
resources to compete head-to-head with the international corporations that
dominate the industry, but regulatory pressures and public concern for the
environment have provided opportunities for us to gain a foothold in niche
markets. We have researched the markets and acquired product formulations and
EPA Labels for them.

In 2001, we reorganized management, relocated administration and production in
Heber City, Utah, expanded production capability and hired a marketing team.
In 2002, we focused our marketing efforts on sales of our FireAnt product to
retail outlets. To date, we have increased our customer base and market
awareness of our products, and increased sales and support staff in
preparation for major marketing efforts in 2003.

Results of Operations
---------------------
Year ended December 31, 2002 compared to year ended December 31, 2001
---------------------------------------------------------------------
Revenues.  We had revenues of $769,600 and cost of sales of $346,301 with a
gross profit of $423,299 for the year ended December 31, 2002, compared to
revenues of $570,904 and cost of sales of $249,782 with a gross profit of
$321,122 for the prior year period.  The increase in revenues and compared to
prior year reflects the success of our increased marketing efforts.  We
believe the increase in sales is indicative of a positive trend which we
expect to continue through the next fiscal year.  We anticipate that our cost
of sales as a percentage of revenues will decrease as our sales volume rises.
However, we believe we will not be able to accurately project our cost of
sales as a percentage of revenues until we have established a consistent
revenue stream over extended and comparable periods of time.

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Operating Expenses.  For our fiscal year ended December 31, 2002, we had total
operating expenses of $2,196,077 compared to $1,427,578 for prior year, an
overall increase of $768,499.  The overall increase in operating expenses is
primarily attributable to increases of other operating expenses of $228,569,
royalty expense of $113,623, advertising and promotion expense of $139,939,
consulting expense of $85,285, bad debt expense of $110,916, and salaries,
wages and benefits of $596,151.  These increases were offset by decreases of
$99,369 in executive compensation, depreciation and amortization expenses of
$226,443, and distribution expense of $190,918.  The decrease in executive
compensation is a result of the restructuring that occurred from 2001 to 2002.
The increase in salaries, wages and benefits expenses is due to a decision to
restructure the business strategy for the sales force and maintaining certain
administrative duties in-house.  The royalty expense is a fee from the
purchase of the "Results and Diatect" product lines from National Diatect in
2000.  The increase in other operating expenses is related to increased sales
and production staffing requirements to meet certain marketing demands for our
product line.  The increase in consulting fees is due to certain fees spent on
our transfer agent and outside help in obtaining investors.  We anticipate
that our overall operating expenses may increase in the next twelve months as
our sales increase due to additional production and distribution expenses.
However, we believe such increases in production and distributions expenses
will be offset for corresponding increased sales revenue.

Other Income and Expenses.  Other expenses for the year ended December 31,
2002 totaled $203,319 consisting primarily of interest expense of $406,512
donations of $23,414 and an impairment loss of $27,050, offset by $253,657 in
gain from termination of debt. Other Income for the year ended December 31,
2001 totaled $231,210, consisting of $611,252 in gain from termination of
debt, offset by interest and finance fees of $355,676, litigation settlement
expense of $20,000, and miscellaneous expense of $4,366.

During 2002, we obtained releases of certain contingent liabilities in the
amount of $253,657, recorded as gain from termination of debt.  During 2001, a
former supplier of ours agreed to write off a balance owed them in the amount
of $8,100, and we declared a note payable and the interest accrued thereon as
invalid and void, recorded as the $611,252 as gain from termination of debt.

Because we still have a number of claims against us, we expect to continue to
incur interest and finance fees and litigation settlement expenses during the
upcoming fiscal year. We cannot at this time accurately project what these
expenses will be.

We experienced a net loss of $1,976,097 for the year ended December 31, 2002,
compared to $1,051,422 for the year ended December 31, 2001.   In 2001 we
experienced product returns due to changes we made in our distribution system
which resulted in loss of $176,176 as an extraordinary item.  The basic loss
per share for the year ended December 31, 2002 was $0.05, based on the
weighted average number of shares outstanding of 40,673,014 shares. The basic
loss per share before extraordinary items in 2001 was $0.03 per share based on
the weighted average of 30,824,930 shares outstanding.  We cannot predict at
this time whether or not we will experience any gains or losses due to
settlement of debt or other matters in fiscal 2003.

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Liquidity and Capital Resources
-------------------------------
During the year ended December 31, 2002, our liquidity was substantially
derived from the issuance of notes payable and the issuance of common stock
for cash.  Although revenues increased, cash used in operations far exceeded
revenues.  We hope that the next twelve months will prove the effectiveness of
our marketing and distribution efforts and anticipate increases in production
and sales will bring us closer to profitability.

At December 31, 2002, we had current assets of $2,182,018 consisting of cash
of $4,509 cash, cash in escrow of $400,000 restricted for the purchase of our
new facility in Heber City, Utah, accounts receivable of $352,643, an employee
receivable of $1,270, prepaid interest of $108,048, prepaid expenses of
$56,399, and inventories of $1,259,149, and current liabilities of $4,735,981
for a working capital deficit of $2,553,963. At December 31, 2002, we had
property, plant and equipment assets totaling $324,637, net of depreciation,
and other assets of $1,764,822, consisting primarily of our investment in EPA
labels, net of amortization of $1,736,322, plus deposits of $28,500.

Cash used in our operations for the year ended December 31, 2002 was
$1,407,399 compared to $934,394 for the prior year.  In 2002 and 2001, our
operations were funded primarily by loans, issuance of common stock and sales
of our products.

Our cash flows used by investing activities during the year ended December 31,
2002, was $220,746 paid for the purchase of property, plant and equipment.  In
the prior year, cash flows used by investing activities was $134,705,
consisting of a deposit of $28,500 on our new facility in Heber City, and
$106,205 paid for the purchase of property, plant and equipment.

Our cash flows from financing activities during the year ended December 31,
2002 was $1,631,766, consisting of $254,048 from a line of credit, $722,065
from the sale of common stock, $50,000 payment of a stock subscription and
$693,943 from the issuance of notes payable, offset by $2,000 in settlement
payments, $7,759 in payments on a lease payable and $78,531 in payments on
existing notes. Our cash flows from financing activities during the year ended
December 31, 2001 was $1,066,603, consisting of $144,000 from the sale of our
common stock and $1,074,000 from the issuance of notes payable, offset by
$20,730 in settlement payments and $130,667 in payments on existing notes.

On January 15, 2003, we borrowed $750,000 from George Ann Pope Charitable
Trust through a short term note due on July 15, 2003.  The note is secured by
an inventory security agreement whereby $0.25 of each dollar of gross proceeds
from the sale of inventory is allocated and set aside in a special account for
continuing security until the note is paid and bears interest at the rate of
10% per annum.  We issued 375,000 shares of our common stock as additional
consideration for the loan.

We believe that in 2003, we will increase revenues from operations as we
continue to move from the development stage of our products to a full
marketing and sales program.  With our products in the marketplace, we
anticipate revenues to offset ongoing expenses.  We are uncertain, however, as
to whether there will be sufficient revenue to cover past obligations,
therefore, we will continue to attempt to make offers in settlement and
compromise on such obligations in an effort to reduce our contingent and other
liabilities.

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<PAGE> 13

We lack working capital and that affects our ability to effectively market our
products.  We believe two of the largest and most important markets for our
products are the agricultural and home and garden markets.  When we obtain
sufficient working capital, we plan to conduct affordable advertising and
maintain a sales force that can effectively reach these markets.  Accordingly,
although we anticipate more revenue from the sale of our products than we have
received in the past, we will not be as profitable without additional cash to
fund our advertising and marketing campaign.


                      ITEM 7. FINANCIAL STATEMENTS

Our financial statements are set forth immediately following the signature
page to this Form 10-KSB.  (See ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K for
Index to Financial Statements.)


           ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE

We have had no disagreements with our certified public accountants with
respect to accounting practices or procedures or financial disclosure.


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                               PART III

       ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
     PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth as of March 21, 2003, the name, age and
position of each of our executive officers and directors and their respective
terms of office.
                                                               Director and/or
Name                     Age      Position                     Officer Since
-------------------      ---      --------                     ---------------
Jay W. Downs              56      Director                      March 1999
                                  President                     September 2001
                                  Chairman of the Board         September 2001
John L. Runft             65      Director                      February 1995
Margie Humphries          53      Secretary                     October 2002

M. Stewart Hyndman        46      Director                      December 1997
David H. Andrus           38      Director                      July 2001
                                  Vice-President                September 2001
John H. Zenger            67      Director                      December 2001
Robert E. Crouch          38      Director                      November 2002
Frank Priestly            47      Director                      November 2002
Michael P. McQuade        69      Director                      May 2002

Our directors serve for a term of one year or until his or her successor is
elected at our annual shareholders meeting, subject to removal by our
Company's shareholders.  All officers serve at the pleasure of the Board of
Directors or until his or her successor is elected at the annual meeting of
the Board of Directors.

Set forth below is certain biographical information regarding each of our
executive officers and directors.

Jay W. Downs joined the Board of Directors in 1999 and assumed the post of
President and Board Chairman in September, 2001 when Herb Henderson retired.
Jay has over 30 years experience in Sales and Market planning. He is a leader
and engenders respect and loyalty from all those who work with him. He thinks
and has the ability to negotiate successfully without alienating his opponent.
Jay spent 10 years in the institutional fund sale & supply business and then
operated his own insurance brokerage which developed and marketed complete
employee benefit packages throughout the U.S. with over 700 field
representatives serving 40 states. In 1992, at the request of the Company, Jay
and his family spent six months in Kenya learning the pyrethrum business in
detail and establishing relationships with the Kenya Pyrethrum Board. He spent
three years consulting and formulating a market plan for the company. He then
established and operated a successful full line mortgage banking business
serving Utah, Idaho, Wyoming, and Colorado which he gave up in 2000, when he
was appointed Senior Vice President of Diatect International.

John L. Runft has been practicing law since 1965, emphasizing business
organizations and litigation.  He received his BA from Albertson's College of
Idaho in 1962, and his J.D. from the University of Chicago School of Law in
1965 John is a member of the Idaho Bar,and has appeared as lead counsel in
litigation or appeals before the United States Court of Appeals for the
Federal Circuit, and the United States Supreme Court.  He is a member of the
Board of Litigation of the Mountain States Legal Foundation, is a member of
the Idaho Law Foundation, served as a Director of the Idaho Community
Foundation (1989-1996), and has served as Civilian Aide to the Secretary of
the Army of the United States for the State of Idaho (1988-1996).

<PAGE>
<PAGE> 15

M. Stewart Hyndman is the President of Magic Miles Ltd; Inc., Meridan, Idaho,
an export trading company established in 1995 specializing in the export of
agricultural commodities and industrial products.  Following his graduation
from the University of Idaho, Stewart has continued to play an active role in
industry, agriculture, marketing and business development.

David H. Andrus began an affiliation with Diatect in 1992.  Dave served in the
U.S. Marine Corps for 10 years in the logistics and intelligence field, and
was medically retired in 1991.  He formed Venture Creations which performed
contract research and development for EnviroGuard (now Diatect).  As R&D
project manager, Dave supervised extensive field trials of the Diatect Insect
Control within the poultry industry and for Fireant concerns in that region.
In 1998, Dave became manager of National Diatect, a distributor of Diatect
insecticides (later acquired by us).  As technical manager for Diatect, Dave
was responsible for all field studies of our product, and was instrumental in
our transition from research and development to commercialization.  Since
September 2001, Dave has served as Vice-president of Operations and was
appointed a director.

John H. (Jack) Zenger, B.S. Psychology, BYU 1953, MBA, UCLA 1959, PHD Business
Administration, USC 1974. Jack has extensive experience as a management
consultant and in personnel administration, having been V.P. Human Resources
at Syntex Corp for 11 years and a VP of Times Mirror and in charge their
Training Company for 5 years. He has been actively engaged in community
affairs in Palo Alto, Calif and here in Midway, Utah.

Frank S. Priestly joined the Board of Directors on October 18, 2002.  He has
been in the farming business in Idaho since 1970.  He currently serves as
President of the Idaho Farm Bureau Federation, Farm Bureau Finance Co.,
Agricultural and Educational Research Foundation and the Farm Bureau Insurance
Companies of Idaho.  He also serves on the Board of Directors for the American
Farm Bureau Federation, with an appointment to the executive committee.  He
comes to Diatect International with lots of experience in agriculture growing
alfalfa, barley, corn and pasture for the family dairy operation.

Margie Humphries was appointed Corporate Secretary in October of 2002.  She
relocated to Heber, Utah, in September of 2002.  She comes with 25 years of
professional work experience.  Starting in December of 1991 until July of
1998, she worked for Wasatch Medical Center.  Responsibilities included the
billing and collection process for five physicians and monitoring accounts
receivable.  From July of 1998 until March 2002, when she joined Diatect
International, she worked full time as a medical transcriber for Utah Valley
Regional Medical Center, where she had been appointed a team leader.

Robert E. Crouch also joined the Board of Directors on October 18, 2002.  He
graduated in 1987, with a Bachelor of Science in Accounting, from Utah State
University, in Logan, Utah.  He lives in Pleasant View, Utah.  He has
extensive experience in corporate finance, accounting and as an administrative
executive.  He presently works for Wells Fargo Business Credit, Inc., as a
collateral examiner where he conducts financial and operational audits on
customers and potential borrowers.  His career has encompassed the following;
chief financial officer, controller, auditor, and bank examiner.

<PAGE>
<PAGE> 16

Dr. Michael P. McQuade has had a private dental practice since 1987, living in
Richmond, Virginia.  He graduated from Virginia Polytechnic Institution &
State University with a B.S. in Biology.  He then graduated from the Virginia
Commonwealth University as a Doctor of Dental Surgery.  For the last five
years Dr. McQuade has worked extensively in the poultry industry particularly
in the Northeast as well as the Southeast region of the United States and
research universities with respect to our product.

Involvement in Certain Legal Proceedings
----------------------------------------
See ITEM 3. LEGAL PROCEEDINGS of this Form 10-KSB.

                  ITEM 10. EXECUTIVE COMPENSATION

The following tables set forth certain summary information concerning the
compensation paid or accrued for each of our last three completed fiscal years
to our chief executive officer and each of our other executive officers that
received compensation in excess of $100,000 during such period (as determined
at December 31, 2002, the end of our last completed fiscal year):
<TABLE>
<CAPTION>
                                                         Long Term Compensation
                                                        ----------------------
                     Annual Compensation               Awards       Payouts
                                            Other      Restricted
Name and                                    Annual      Stock     Options  LTIP     All other
Principal Position Year  Salary   Bonus($) Compensation Awards   /SARs    Payout  Compensation
------------------ ----  ------   -------- ------------ -------  -------  ------  ------------
<S>              <C>     <C>     <C>      <C>          <C>      <C>      <C>     <C>

Jay W. Downs       2002  $120,000  $ 6,739          -         -        -       -             -
C.E.O.(1)          2001  $120,000  $ 5,709          -   $60,000        -       -             -


George H Henderson 2002    n/a
C.E.O.(2)          2001  $ 90,000        -          -   $40,000        -       -       $50,000
                   2000  $      -        -          -         -        -       -       $19,000

David Andrus       2002  $ 90,000  $ 6,739          -         -        -       -             -
Vice President     2001  $ 90,000  $ 5,709          -   $40,000        -       -             -

</TABLE>

(1) Jay Downs was appointed as President and C.E.O. in September 2001.  On his
appointment, he received a bonus of 750,000 shares of our restricted common
stock valued at $0.08 per share.  In 2002, he was granted options for the
purchase of 1,250,000 shares of our common stock at an exercise price of $.17
per share which vest in increments of one third only upon the achievement by
the company of gross sales revenues in a fiscal year of $5 million, $10
million, and $15 million.  In January 2003, he also received the listed bonus
payments for 2001 and 2002 which had been accrued.

(2) George Henderson resigned as President and C.E.O. in September 2001.  Upon
his resignation, he received a settlement and severance package consisting of
$50,000 cash and 500,000 shares of our restricted common stock valued at $0.08
per share.

<PAGE>
<PAGE> 17

(3) Dave Andrus was appointed vice-president in September 2001.  Pursuant to
his employment agreement, he received a bonus of 500,000 shares of our
restricted common stock valued at $0.08 per share.  In 2002, he was granted
options for the purchase of 750,000 shares of our common stock at an exercise
price of $.17 per share which vest in increments of one third only upon the
achievement by the company of gross sales revenues in a fiscal year of $5
million, $10 million, and $15 million.  In January 2003, he also received the
listed bonus payments for 2001 and 2002 which had been accrued.

Employment Agreements
---------------------
Jay Downs signed an employment agreement effective January 2001 for a term of
three years at an annual salary of $120,000 per year, with a signing bonus of
350,000 options for the purchase of our common stock at $0.10 per share.  At
the filing date of this report, all 350,000 options have been exercised.  The
agreement includes provisions for bonus pay based on 1% of gross sales
receipts as determined on a quarterly basis.  Accrued bonuses for 2001 and
2002 pursuant to his agreement were paid in January 2003.

David Andrus signed an employment agreement effective July 1, 2001 for a term
of three years at an annual salary of $90,000 per year, with a signing bonus
of 500,000 shares of our restricted common stock.  The agreement includes
provisions for a reasonable automobile allowance and pay based on 1% of gross
sales receipts as determined on a quarterly basis.  Accrued bonuses for 2001
and 2002 pursuant to his agreement were paid in January 2003.

On April 25, 2000, we executed a retainer agreement with John L. Runft to act
as our legal counsel.  Mr. Runft received a signing bonus of an option to
acquire 500,000 shares of our common stock at $0.06 per share.  The options
were originally to vest over a three year period.  At December 31, 2001, the
vesting provisions were modified to permit immediate exercise of the remaining
unvested options.  At the filing date of this report, all the remaining
options have been exercised.

George Henderson, our former president, resigned in September 2001.  His
employment agreement was terminated pursuant to a settlement of the balance of
our obligations under the agreement.  The settlement consisted of $50,000 cash
and 500,000 shares of our restricted common stock.

Board Compensation
------------------
Members of the board of directors are compensated for service at a rate of
1,000 shares of stock per month of service.  In 2002, we issued a total of
82,000 shares to the current directors pursuant to this compensation
arrangement as follows:

 Jay Downs                 15,000 shares
 Dave Andrus               15,000 shares
 John Runft                 6,000 shares
 Stewart Hyndman           15,000 shares
 John H. Zenger            15,000 shares
 Michael McQuade           12,000 shares
 Frank Priestly             2,000 shares
 Robert E. Crouch           2,000 shares

Two former directors, Robert B. Crouch and Nelson Carter, received 4,000
shares and 6,000 shares, respectively, for their service.

<PAGE>
<PAGE> 18

    ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth as of March 25, 2003, the name and address and
the number of shares of our Common Stock, held of record or beneficially by
each person who held of record, or was known by us to own beneficially, more
than 5% of the 44,407,415 issued and outstanding shares, and the name and
share holdings of all officers and directors as a group.

Security Ownership of Certain Beneficial Owners
-----------------------------------------------
Title of     Name and Address of           Amount and Nature of     Percent
Class         Beneficial Owner             Beneficial Ownership     of Class
--------     -------------------           --------------------     --------
             None

Security Ownership of Officers and Directors
--------------------------------------------
Title of     Name and Position of          Amount and Nature of     Percent
Class        Officer and Director          Beneficial Ownership     of Class
--------     --------------------          --------------------     --------
Common       Jay W. Downs                     2,150,389                4.84
             Director/President
             Chairman of the Board

Common       John L. Runft, Director          2,133,290                4.80

Common       David Andrus, Director             589,000                1.33
                Vice-president

Common       Robert Crouch, Director          1,104,864                2.49

Common       M. Stewart Hyndman, Director       265,800                0.60

Common       John H. Zenger, Director            40,000                0.09

Common       Frank Priestly, Director             2,000                   -

Common       Michael P. McQuade, Director       558,334                1.26

Common       Margie Humphries, Secretary         72,500                0.16
                                              ----------------        ------
All Officers/Directors as a Group (9 persons) 6,916,177               15.57
                                              ================        ======


<PAGE>
<PAGE> 19
           ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except as indicated below, and for the periods indicted, there were no
material transactions, or series of similar transactions, since the beginning
of our last fiscal year, or any currently proposed transactions, or series of
similar transactions, to which we are a party, in which the amount involved
exceeds $60,000, and in which any director or executive officer, or any
security holder who is known by us to own of record or beneficially more than
5% of any class of our common stock, or any member of the immediate family of
any of the foregoing persons, has an interest.

We have notes payable to 29 shareholders totaling $2,132,181 and $1,703,914 as
of December 31, 2002 and 2001, respectively.  See Note 5.

John L. Runft performs services as our main legal counsel.  Legal services
performed by this officer totaled $19,119 and $45,226 for the years ended
December 31, 2002 and 2001, respectively, of which $7,377 are included in
accounts payable - related party at December 31, 2002.

We have employment contracts to pay our president and vice-president of
operations annual compensation in the amounts of $120,000 and $90,000
respectively.  During January 2001, our president received as a signing bonus
an option to acquire 350,000 shares of common stock at an exercise price of
$0.10 per share.  Upon his appointment to the position of C.E.O., he received
a bonus of 750,000 shares of our restricted common stock, valued at $0.08 per
share, for additional compensation of $60,000.  In 2002, he received options
to purchase 1,250,000 shares of common stock at an exercise price of $0.17 per
share which vest subject to revenue targets.  SEE EXECUTIVE COMPENSATION.

Our vice-president also received a signing bonus on his employment agreement
of 500,000 shares of our restricted common stock, valued at $0.08 per share,
for additional compensation of $40,000.  In 2002, he received options to
purchase 750,000 shares of common stock at an exercise price of $0.17 per
share which vest subject to revenue targets.  SEE EXECUTIVE COMPENSATION.

We also had an employment contract to pay our former president annual
compensation of $120,000, which was terminated in September 2001.  As
settlement and severance, he received $50,000 cash and 500,000 shares of our
restricted common stock, valued at $.08 per share, for additional compensation
of $40,000.  See ITEM 10, EXECUTIVE COMPENSATION.

In fiscal 2001, our president contributed office furniture and equipment
valued at $30,320 in exchange for a non-interest bearing convertible note
payable.  The note was subsequently converted to 86,629 shares of our common
stock valued at $0.35 per share. See Note 18 to our financial statement
included with this report.

Members of our board of directors receive compensation in the form of 1,000
shares of our common stock per month of service.  In 2002, board members were
issued shares totaling 82,000 shares for board service.  Two former directors
were issued 10,000 shares. SEE ITEM 10. EXECUTIVE COMPENSATION under the
heading Board Compensation.

Certain Business Relationships
------------------------------
Except as indicated, and for the periods indicated, there were no material
relationships regarding officers or directors that exist, or have existed
during our last fiscal year.
<PAGE>
<PAGE> 20

                                 PART IV
                 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) Financial Statements. The following financial statements are included
in this report:

Title of Document                                                       Page
-----------------                                                       ----
Independent Auditors Report of Williams & Webster, P.S.,
 Certified Public Accountant                                              23
Consolidated Balance Sheets as of
 December 31, 2002 and 2001                                               24
Consolidated Statement of Operations for the years ended
 December 31, 2002 and 2001                                               26
Consolidated Statement of Stockholders' Equity
 for the years ended December 31, 2002 and 2001                           27
Consolidated Statement of Cash Flows for the years ended
 December 31, 2002 and 2001                                               29
Notes to Financial Statements                                             31

(a)(2) Financial Statement Schedules.

     Not applicable

(b)  The following exhibits are included in this report:

Exhibit 99 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(c) Reports on Form 8-K. The following reports on Form 8-K were filed with the
Commission during the quarter ended December 31, 2002.

     None.

                   ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. We believe our
disclosure controls and procedures (as defined in Sections 13a-14(c) and 15d-
14(c) of the Securities Exchange Act of 1934, as amended) are adequate, based
on our evaluation of such disclosure controls and procedures on March 27,
2003.

(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.




<PAGE>
<PAGE> 21

                                 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this amended report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:

     DIATECT INTERNATIONAL CORPORATION

Date: March 28, 2003

/s/ Jay W. Downs, Chief Executive Officer, Principal Accounting Officer

/s/ Margie Humphries Secretary

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this amended report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:

Date: March 28, 2003

/s/ Jay W. Downs, Director

/s/ John L. Runft, Director

/s/ Robert Crouch, Director

/s/ David Andrus, Director

/s/ M. Stewart Hyndman, Director

/s/ John H. Zenger, Director

/s/ Frank Priestly, Director

/s/ Michael P. McQuade, Director



<PAGE>
<PAGE> 22
                              CERTIFICATIONS

I, Jay W. Downs, certify that:

1. I have reviewed this annual report on Form 10-KSB of Diatect International
Corporation;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; 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;
and

6. The registrant's other certifying officers and I have indicated in this
annual report whether of not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 28, 2003                             /S/Jay W. Downs
                                                 Principal Executive Officer
                                                 Principal Financial Officer

<PAGE>
<PAGE> 23

Board of Directors
Diatect International Corp.
Heber City, UT

Independent Auditor's Report

We have audited the accompanying consolidated balance sheets of Diatect
International Corp. as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for years then ended.  These financial statements are the responsibility
of the Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards in the United States of America.  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Diatect
International Corp. as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 2, the Company
has significant operating losses, negative equity, unsatisfied collection
judgments and delinquencies in repaying its debt obligations.  These
conditions raise substantial doubt about the Company's ability to continue as
a going concern.  Management's plans regarding those matters also are
described in Note 2.  The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/S/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
March 28, 2003

<PAGE>
<PAGE> 24
DIATECT INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001

                                                       2002         2001
                                                   -----------   -----------
ASSETS
CURRENT ASSETS
 Cash                                             $      4,509  $        888
 Cash in escrow                                        400,000       400,000
 Accounts receivable                                   352,643       202,660
 Employee receivable                                     1,270             -
 Prepaid interest                                      108,048       154,019
 Prepaid expenses                                       56,399        26,804
 Inventories                                         1,259,149       109,332
                                                   -----------   -----------
   Total Current Assets                              2,182,018       893,703
                                                   -----------   -----------
PROPERTY, PLANT AND EQUIPMENT
 Mining property                                           940           540
 Building                                                    -        23,501
 Furniture & equipment                                 420,839       185,180
 Less accumulated depreciation                         (97,142)      (38,338)
                                                   -----------   -----------
   Total Property, Plant and Equipment                 324,637       170,883
                                                   -----------   -----------
OTHER ASSETS
 Deposits                                               28,500        28,500
 Goodwill                                                    -        27,050
 Investment in EPA labels, net of amortization       1,736,322     1,736,322
                                                   -----------   -----------
   Total Other Assets                                1,764,822     1,791,872
                                                   -----------   -----------
TOTAL ASSETS                                      $  4,271,477  $  2,856,458
                                                   ===========   ===========











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

<PAGE>
<PAGE> 25
DIATECT INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2002 and 2001

                                                       2002         2001
                                                   -----------   -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
 Accounts payable                                 $  1,400,610  $    259,459
 Accounts payable - related parties                     37,710             -
 Bank overdraft                                              -        22,268
 Lease payable - current                                18,067             -
 Lines of credit                                       351,048        97,000
 Interest payable                                      310,434       288,928
 Other accrued liabilities                             304,574        16,051
 Settlements payable                                   181,357       214,693
 Notes payable                                       2,132,181     1,703,914
                                                   -----------   -----------
   Total Current Liabilities                         4,735,981     2,602,313
                                                   -----------   -----------
LONG-TERM DEBT
 Lease payable - net of current portion                  3,392             -
                                                   -----------   -----------

COMMITMENTS AND CONTINGENCIES                          134,739       461,605
                                                   -----------   -----------
STOCKHOLDERS' DEFICIT
 Common stock, no par value; 100,000,000
 shares authorized; 45,013,414 and 36,928,161
 shares issued and outstanding, respectively.       14,971,327    13,391,574
 Common stock subscribed                               (20,000)      (70,000)
 Stock options                                          36,070        84,901
 Accumulated deficit                               (15,590,032)  (13,613,935)
                                                   -----------   -----------
   Total Stockholders' Deficit                        (602,635)     (207,460)
                                                   -----------   -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)                                  $  4,271,477  $  2,856,458
                                                   ===========   ===========










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

<PAGE>
<PAGE> 26
DIATECT INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2002 and 2001

                                                       2002          2001
                                                   -----------   -----------
REVENUES                                          $    769,600  $    570,904

COST OF SALES                                          346,301       249,782
                                                   -----------   -----------
GROSS PROFIT                                           423,299       321,122
                                                   -----------   -----------
OPERATING EXPENSES
 Salaries, wages and benefits                          668,306        72,155
 Executive compensation                                310,568       409,937
 Consulting                                            170,431        85,146
 Depreciation and amortization                          69,534       295,977
 Legal and professional fees                           167,215       156,469
 Distributor expenses                                        -       190,918
 Advertising and promotion                             139,939             -
 Royalties                                             113,623             -
 Bad debts                                             110,916             -
 Other operating expense                               445,545       216,976
                                                   -----------   -----------
   Total Operating Expenses                          2,196,077     1,427,578
                                                   -----------   -----------
OPERATING LOSS                                    $ (1,772,778) $ (1,106,456)
                                                   -----------   -----------
OTHER INCOME (EXPENSES)
 Gain from termination of debt                         253,657       611,252
 Interest and finance fees                            (406,512)     (355,676)
 Litigation settlement                                       -       (20,000)
 Donations                                             (23,414)            -
 Impairment loss                                       (27,050)            -
 Miscellaneous                                               -        (4,366)
                                                   -----------   -----------
   Total Other Income (Expenses)                      (203,319)      231,210
                                                   -----------   -----------
LOSS BEFORE EXTRAORDINARY ITEMS                     (1,976,097)     (875,246)

EXTRAORDINARY ITEMS
 Product returns, distribution system changes                -      (176,176)
                                                   -----------   -----------
   Total Extraordinary Items                                 -      (176,176)
                                                   -----------   -----------
LOSS BEFORE INCOME TAXES                            (1,976,097)   (1,051,422)

INCOME TAXES                                                 -             -
                                                   -----------   -----------
NET LOSS                                          $ (1,976,097) $ (1,051,422)
                                                   ===========   ===========
NET LOSS PER COMMON SHARE, BASIC AND DILUTED
 Net loss before extraordinary items              $      (0.05) $      (0.03)
 Net loss from extraordinary items                           -             -
                                                   -----------   -----------
NET LOSS PER COMMON SHARE                         $      (0.05) $      (0.03)
                                                   ===========   ===========
WEIGHTED AVERAGE NUMBER OF
 COMMON SHARES OUTSTANDING, BASIC AND DILUTED       40,673,014    30,824,930
                                                   ===========   ===========
The accompanying notes are an integral part of these financial statements.

<PAGE>
<PAGE> 27
DIATECT INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                           Common
                                          Common Stock          Stock       Stock      Accumulated
                                      Shares      Amount       Options    Subscribed     Deficit      Total
                                   -----------  -----------  -----------  -----------  -----------  -----------
<S>                             <C>           <C>          <C>          <C>          <C>          <C>
Balances as of December 31, 2000    28,716,073  $12,260,630  $    51,370  $         - $(12,562,513) $  (250,513)

Issuance of shares for debt at
 $0.15 to $0.25 per share            1,408,343      266,619            -            -            -      266,619

Issuance of shares for guarantee
 of debt and line of credit at
 $0.07 to $0.50 per share            2,107,500      196,550            -            -            -      196,550

Issuance of shares for cash at
 $0.10 to $0.12 per share              400,000       44,000            -            -            -       44,000

Issuance of share in settlement of
salary claim at $0.25 per share        188,000       47,000            -            -            -       47,000

Issuance of shares for consulting
 at $0.08 per share                     50,000        3,750            -            -            -        3,750

Issuance of shares to officers
 for services at $0.08 per share     1,250,000       93,750            -            -            -       93,750

Issuance of shares for settlement
 of distributor agreement and
 severance agreement at $0.08
 per share                           1,000,000       75,000            -            -            -       75,000

Issuance of shares for cash and
receivable at $0.10 to $0.25
per share                              800,000      170,000            -      (70,000)           -      100,000

Issuance of share for payment of
accounts payable at $0.21 per
share                                  200,000       41,035            -            -            -       41,035

Issuance of shares for payment of
legal fees and exercise of options
at $0.06 per share                     499,998       85,354      (55,354)           -            -       30,000

Issuance of shares to officers for
payment of accrued legal fees
and debt at $0.35 per share            308,247      107,886            -            -            -      107,886

Options granted to officer as
bonus for contract                           -            -       18,890            -            -       18,890

Options granted to stockholder for
financing and extension of
options to officer                           -            -       69,995            -            -       69,995

Net loss for the year ended,
December 31, 2001                            -            -            -            -   (1,051,422)  (1,051,422)
                                   -----------  -----------  -----------  -----------  -----------  -----------
Balances as of December 31, 2001    36,928,161 $ 13,391,574 $     84,901 $    (70,000)$(13,613,935)$   (207,460)
                                   ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>




The accompanying notes are an integral part of these financial statements.
<PAGE> 28
DIATECT INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>

                                                                           Common
                                          Common Stock          Stock       Stock      Accumulated
                                      Shares      Amount       Options    Subscribed     Deficit      Total
                                   -----------  -----------  -----------  -----------  -----------  -----------
<S>                             <C>           <C>          <C>          <C>          <C>          <C>
Balance as of December 31, 2001
(brought forward)                   36,928,161  $13,391,574  $    84,901  $   (70,000)$(13,613,935)$   (207,460)

Issuance of stock for cash at
 $0.20 to $0.30 per share            2,945,260      572,065            -            -            -      572,065

Issuance of shares for cash at
 $0.25 per share and exercise
 of options                            600,000      216,110      (66,110)           -            -      150,000

Issuance of stock for debt
 and interest at $0.10 to
 $0.35 per share                     2,507,113      503,549            -            -            -      503,549

Issuance of stock to officers,
 directors, employees,
 consultants and others for
 services at $0.10 to $0.35
 per share                           2,032,880      288,029            -            -            -      288,029

Payment of stock subscription                -            -            -       50,000            -       50,000

Options granted to officers as
contract bonus                               -            -       17,279            -            -       17,279

Net loss for the year ended
December 31, 2002                            -            -            -            -   (1,976,097)  (1,976,097)
                                   -----------  -----------  -----------  -----------  -----------  -----------
Balances as of December 31, 2002    45,013,414 $ 14,971,327 $     36,070 $    (20,000)$(15,590,032)$   (602,635)
                                   ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>







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


<PAGE>
<PAGE> 29
DIATECT INTERNATIONAL CORP.
CONSOLIDATED CASH FLOW STATEMENTS
Years Ended December 31, 2002 and 2001

                                                     2002           2001
                                                 ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                        $  (1,976,097) $  (1,051,422)
Adjustments to reconcile net loss to net cash
used by operating activities:
 Gain from debt termination                          (253,657)      (611,252)
 Depreciation and amortization                         69,534        295,977
 Impairment loss                                       27,050              -
 Donation of building                                  23,284              -
 Issuance of stock for services                       288,029        182,000
 Issuance of stock options for services                17,279         18,890
 Issuance of stock options for financing                    -         66,010
 Extension of options to officer for services               -          3,984
 Issuance of stock for finance charges and interest    95,242         76,175
 Issuance of stock for distributor expense                  -         37,500
 Issuance of note payable for distributor expense           -         50,000
 Litigation settlement                                      -         20,000
 Distributor expenses paid from deposits                    -        150,000
 Notes and settlement gains charged to operations           -        763,591
Changes in assets and liabilities:
 Cash in escrow                                             -       (400,000)
 Accounts receivable                                 (149,983)      (144,646)
 Employee receivable                                   (1,270)             -
 Prepaid interest                                      67,221          8,906
 Prepaid expenses                                     (29,595)        10,696
 Inventories                                       (1,149,817)        14,643
 Accounts payable                                   1,168,611         24,588
 Accounts payable - related parties                    37,710        (30,795)
 Bank overdraft                                       (22,268)        22,268
 Deposit payable                                            -        (20,000)
 Interest payable                                      92,805       (436,537)
 Other accrued liabilities                            288,523         15,030
                                                 ------------   ------------
NET CASH FLOWS USED BY OPERATING
ACTIVITIES                                         (1,407,399)      (934,394)
                                                 ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits paid                                               -        (28,500)
Purchase of property, plant and equipment            (220,746)      (106,205)
                                                 ------------   ------------
NET CASH FLOWS USED BY INVESTING ACTIVITIES          (220,746)      (134,705)
                                                 ------------   ------------



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

<PAGE>
<PAGE> 30
DIATECT INTERNATIONAL CORP.
CONSOLIDATED CASH FLOW STATEMENTS (Continued)
Years Ended December 31, 2002 and 2001

                                                     2002           2001
                                                 ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit                    $     254,048  $           -
Issuance of common stock for cash                     722,065        144,000
Payment of stock subscription                          50,000              -
Payments on settlements                                (2,000)       (20,730)
Payments on lease payable                              (7,759)             -
Net payment of notes payable                          (78,531)      (130,667)
Net proceeds from notes payable                       693,943      1,074,000
                                                 ------------   ------------
NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES                                          1,631,766      1,066,603
                                                 ------------   ------------
NET INCREASE (DECREASE) IN CASH                         3,621         (2,496)

CASH AT BEGINNING OF YEAR                                 888          3,384
                                                 ------------   ------------
CASH AT END OF YEAR                             $       4,509  $         888
                                                 ============   ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:

Interest expense paid                           $       3,248  $      32,177
                                                 ============   ============
Income taxes paid                               $           -  $           -
                                                 ============   ============
NON-CASH FINANCING ACTIVITIES:
Issuance of common stock for prepaid
 finance charges                                $      21,250  $     120,375
Issuance of common stock for services           $     288,029  $     182,000
Issuance of common stock for forbearance of
notes payable, finance charges and interest     $      51,700  $      76,175
Issuance of stock options for services          $      17,279  $      18,890
Issuance of common stock for debt and interest  $     430,594  $     445,540
Issuance of common stock for settlement of
 distributor agreement                          $           -  $      37,500
Issuance of note payable for distributor
 expense                                        $           -  $      50,000
Issuance of stock options for financing         $           -  $      66,010
Issuance of note payable for prepaid expenses   $      50,000  $           -
Issuance of note payable for furniture and
 equipment                                      $           -  $      30,320
Extension of stock options for services         $           -  $       3,984
Donation of building                            $      23,284  $           -
Equipment financed with lease                   $      25,826  $           -





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

<PAGE>
<PAGE> 31
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Diatect International Corp. (formerly Applied Earth Technologies, Inc.)
(formerly San Diego Bancorp) was incorporated in California in 1979 as a bank
holding corporation.  During 1986, the Company liquidated its subsidiaries and
became a dormant "shell" corporation.

On August 22, 1996, the Company changed its name from San Diego Bancorp to
Applied Earth Technologies, Inc. to better reflect the Company's principal
business activities, which primarily consist of developing and marketing
pesticide products.  The Company later became informed that another
corporation already had been authorized to use the name Applied Earth
Technologies, Inc. and approval of this name had been granted in error.  In
response to this information, the Company changed its name to Diatect
International Corp. ("Diatect" or "the Company") on June 5, 1998.

The Company's wholly owned subsidiaries consist of Enviro-Guard Corporation,
Diatect International, Inc. and D.S.D., Inc.  The Company's subsidiaries are
inactive.

Magic International, Inc.
On May 24, 1999, the Company entered into an agreement to purchase Magic
International, Inc. ("Magic") in exchange for $3,000 cash, effective payment
of an outstanding obligation in the amount of $4,050 and 200,000 shares of
Diatect International Corporation's common stock.  This transaction was valued
at $27,050.  At the time of the transaction, the authorized level of the
Company's capitalization did not permit an issuance of 200,000 shares of
stock. The Company increased its authorized capital, issued the aforementioned
stock and finalized the acquisition in March 2000, at which time Magic became
a wholly owned subsidiary.  During 2002, the Company recognized an impairment
write-off of $27,050 since Magic had become dormant.  Magic was subsequently
transferred to IXG.  See Note 14.

National Diatect, Inc.
In July 2000, the Company signed a letter of intent to purchase the inventory
of National Diatect, Inc. in a transaction which requires the issuance of
400,000 shares of the Company's common stock, payment of future royalties in
the amount of $120,000 payable at the rate of $0.10 per pound of certain
products and assumption of a note payable in the amount of $110,000 (bearing
interest at 12% and collateralized by inventory and equipment).  The Company
has issued 400,000 shares and the agreement has been ratified by the board of
directors to a mutually agreed upon reduced note payable balance of $70,419.
The balance owing on this note is $43,306 as of December 31, 2002.  See Note
13.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Diatect International Corp.
is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and

<PAGE>
<PAGE> 32
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

objectivity.  These accounting policies conform to accounting principles
generally accepted in the United States of America and have been consistently
applied in the preparation of the financial statements.

Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the
United States of America.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, after elimination of the intercompany accounts
and transactions.  Wholly owned subsidiaries of the Company are listed in Note
1.

Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investment (or short-term debt) purchased with original maturity of
three months or less to be cash equivalents.

Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for
doubtful accounts.  On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts, bases on a
history of past write-offs and collections and current credit conditions.

The Company reserves the right to accrue interest on trade receivables 30 days
after invoice date.  A receivable is considered past due if payments have not
been received by the Company for 30 days.  At that time, the Company will
contact the account representative with a payment reminder.  A second contact
with warning of collection procedures will follow if payment has not been
received by the Company for 60 days.  If payments still have not been received
by the Company for 90 days, a third contact will be made with a response
required within two weeks from the contact date.  If no response is received
pursuant to the third contact, the account will be turned over for collection.

Inventories
Inventories consist primarily of packaging materials, raw materials and
finished product and are valued at the lower of cost (first in, first out) or
market.

Property and Equipment
Property, plant and equipment are stated at cost including the allocable
purchase price applicable to the respective assets of purchased subsidiaries.
All expenditures for improvements, replacements and additions are added to the
asset accounts at cost.


<PAGE>
<PAGE> 33
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and Equipment (continued)
Expenditures for normal repairs and maintenance are charged against earnings
as incurred.  The cost and related accumulated depreciation are eliminated
from the accounts and the resulting gain or loss is reflected in the
statements of operations when depreciable assets are retired or otherwise
disposed.  Depreciation is provided for by the use of straight-line and
accelerated methods over the estimated useful lives of the assets.
Depreciation expense for the years ended December 31, 2002 and 2001 was
$69,534 and $12,765, respectively.  Depletion is computed using the
unit-of-production method, for any mining property placed in production.  At
December 31, 2002, the Company has no mining properties in production.

Goodwill
Goodwill represents the excess of the purchase price and related direct costs
over the fair value of net assets acquired as of the date of the acquisition.
The Company periodically reviews its goodwill to assess recoverability based
on projected undiscounted cash flows from operations.  Impairments are
recognized in operating results when a permanent diminution in value occurs.
Goodwill was fully impaired during 2002.

Intangible Assets
Prior to 2002 most intangible assets are amortized over the remaining useful
life on a straight-line basis, which range from 15 to 17 years.  EPA labels
were amortized on a straight-line basis over a 15-year life, commencing with
the beginning of product sales.  Amortization expense for the year ending
December 31, 2001 was $283,212. On January 1, 2002, the Company adopted SFAS
No. 142. Application of the nonamortization provision of SFAS No. 142 resulted
in an increase in net income of approximately $280,000 during the year ended
December 31, 2002.

Basic and Diluted Loss Per Share
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the year.  The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time they were outstanding. Outstanding options were not
included in the computation of net loss per share because they would be
antidilutive.

Income Taxes
Income taxes are provided based upon the liability method of accounting
pursuant to SFAS No. 109 "Accounting for Income Taxes."  Under this approach,
deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end.  A valuation allowance is
recorded against deferred tax assets if management does not believe the
Company has met the "more likely than not" standard imposed by SFAS No. 109 to
allow recognition of such an asset.

At December 31, 2002, the Company had net deferred tax assets of approximately
$5,224,470, principally arising from net operating loss carryforwards for
income tax purposes based on an average tax rate of 34%.  SFAS No. 109
requires a valuation allowance to be recorded when it is

<PAGE>
<PAGE> 34
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes (Continued)
more likely than not that some or all of the deferred tax assets will not be
realized.  At December 31, 2002, a valuation allowance for $2,320,825 of the
net deferred tax asset was recorded because of uncertainties as to the amount
of taxable income that will be generated in future years.  In 2002, management
determined that it was more likely than not that future taxable income would
be sufficient to enable the Company to realize a portion of its deferred tax
assets attributable to the issuance of stock options for services.

At December 31, 2002, the Company has net operating loss carryforwards of
approximately $15,000,000, which expire in the years 2011 through 2022.

Shipping and Handling Fees and Costs
The Emerging Issues Task Force ("EITF") issued EITF No. 00-10, "Accounting for
Shipping and Handling Fees and Costs", which was adopted during fiscal 2001.
The impact of adopting EITF No. 00-10 was to increase revenues and cost of
sales by approximately $90,496 and $25,543 in the years ended December 31,
2002 and 2001 respectively.  All amounts in the accompanying consolidated
statements of operations have been reclassified for the year ended December
31, 2001 to reflect this adoption.

Revenue Recognition Policy
Revenues from sales of product are recognized when the product is shipped.
The customer may return the product at any time and receive credit for the
full amount, however, the customer must pay the shipping fees to return the
product.

Product Warranties
The Company sold the majority of its products to distributors along with
replacement warranties.  Warranty expense is included in cost of sales.

Compensated Absences
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off, depending on job classification, length of service, and
other factors. Due to the existence of a relatively high employee turnover
rate, it is impractical to estimate the amount of compensation for future
absences.  Accordingly, no liability has been recorded in the accompanying
financial statements.  The Company's policy is to recognize the costs of
compensated absences when actually paid to employees.

Estimates
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses.  Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.

<PAGE>
<PAGE> 35
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments
The Company's financial instruments as defined by SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," include cash, advances to
affiliate, trade accounts receivable, investment in securities
available-for-sale, restricted cash, accounts payable and accrued expenses and
short-term borrowings.  All instruments other than the investment in
securities available-for-sale are accounted for on a historical cost basis,
which, due to the short maturity of these financial instruments, approximates
fair value at December 31, 2002.  The Company has no investment in securities
available-for-sale at December 31, 2002.

Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which is effective for the
Company as of January 1, 2001.  These standards establish accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.  They
require that an entity recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those instruments at
fair value.

If certain conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to
the hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in income in the period of change.

Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.

At December 31, 2002, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.

Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during 2001. SFAS No. 131 established standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services and geographic areas.
Operating segments are defined as components of an enterprise about which
separate financial information is available, evaluated regularly by the chief
operating decision makers, or a decision making group, in deciding how to
allocate resources and in assessing performance.

<PAGE>
<PAGE> 36
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Going Concern
As shown in the financial statements, the Company incurred a net loss of
$1,976,097 for the year ended December 31, 2002 and has an accumulated deficit
of $15,590,032 at December 31, 2002.  (This equates to a potential NOL tax
carryforward of approximately $15,000,000.)

The Company recently received a purchase order from a major new customer and
ramped up production to meet the demand.  Because the customer has asked for a
delay in shipment, this has given Diatect excess inventory.  Upon shipment,
the Company expects to improve working capital, increase its profitability and
stockholders' equity and commence repayment of its debt obligations.

Without greatly increased sales, the Company may be unable to continue in
existence.  The financial statements do not include any adjustments related to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue existence.

Management's plans for ensuring the Company's continued viability are based on
an aggressive, direct and indirect marketing program to all of the major
independent U.S. hardware chains (Ace, TrueValue, DoItBest, Handy Hardware) in
addition to increased emphasis on big box accounts and niche markets.

Management's plans include increased product placement and sales, and the sale
of new common stock issuances, which are expected to raise the capital needed
to satisfy collection judgments and repay debt obligations.

Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS No. 146").  SFAS No. 146 addresses
significant issues regarding the recognition, measurement, and reporting of
costs associated with exit and disposal activities, including restructuring
activities.  SFAS No. 146 also addresses recognition of certain costs related
to terminating a contract that is not a capital lease, costs to consolidate
facilities or relocate employees, and termination benefits provided to
employees that are involuntarily terminated under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement or an
individual deferred-compensation contract.  SFAS No. 146 was issued in June
2002 and is not yet effective.  The impact on the Company's financial position
or results or operations from adopting SFAS No. 146 has not been determined.

In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 44,
4 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
(hereinafter "SFAS No. 145"), which updates, clarifies and simplifies existing
accounting pronouncements.  FASB No. 4, which required all gains and losses
from the extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related tax effect was rescinded.  As a

<PAGE>
<PAGE> 37
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

result, FASB No. 64, which amended FASB No. 4, was rescinded, as it was no
longer necessary.  FASB No. 44, Accounting for intangible Assets of Motor
Carriers, established the accounting requirements for the effects of
transition to the provisions of the Motor Carrier Act of 1980.  Since the
transition has been completed, FASB No. 44 is no longer necessary and has been
rescinded.  SFAS No. 145 amended FASB No. 13 to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic effects
that are similar to sale-leaseback transactions.  The Company adopted SFAS No.
145 and does not believe that the adoption will have a material effect on the
financial statements of the Company at December 31, 2002.

In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144").  SFAS 144 replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of."  This new standard establishes a single accounting model
for long-lived assets to be disposed of by sale, including discontinued
operations.  Statement 144 requires that these long-lived assets be measured
at the lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or discontinued operations.  This statement
is effective beginning for fiscal years after December 15, 2001, with earlier
application encouraged.  The Company adopted SFAS 144 and the adoption did not
impact the financial statements of the Company at December 31, 2002.

In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143").  SFAS No. 143 establishes guidelines related to
the retirement of tangible long-lived assets of the Company and the associated
retirement costs.  This statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made.  The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived assets.  This statement is effective for financial statements
issued for the fiscal years beginning after June 15, 2002 and with earlier
application encouraged.  The Company adopted SFAS No. 143 which does not
impact the financial statements of the Company at December 31, 2002.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 provides for the elimination of the pooling-of-interests
method of accounting for business combinations with an acquisition date of
July 1, 2001 or later. SFAS No. 142 prohibits the amortization of goodwill and
other intangible assets with indefinite lives and requires periodic
reassessment of the underlying value of such assets for impairment. SFAS No.
142 is effective for fiscal years beginning after December 15, 2001. An early
adoption provision exists for companies with fiscal years beginning after
March 15, 2001. On January 1, 2002, the Company adopted SFAS No. 142.
Application of the nonamortization provision of SFAS No. 142 resulted in an
increase in net income of approximately $280,000 in fiscal 2002. The Company
is currently evaluating the impact of the transitional provisions of the
statement.

<PAGE>
<PAGE> 38
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounting Pronouncements (Continued)
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities."  This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities and also provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings.  SFAS No. 140 is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000,
and is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001.  The adoption
of this standard did not have a material effect on the Company's results of
operations or financial position.

New Accounting Pronouncements
In December 2002, the "FASB" Financial Accounting Standards Board, issued
"SFAS" Statement of Financial Accounting Standards, No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure".  SFAS 148 amends SFAS
123, Accounting for Stock-Based Compensation," to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation.  In addition, the statement
amends the disclosure requirements of SFAS 123 to require prominent disclosure
in both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results.  The provisions of the statement are effective for financial
statements for fiscal years ending after December 15, 2002.  As the Company
accounts for stock-based compensation using the intrinsic value method
prescribed in APB No. 25, "Accounting for Stock Issued to Employee's", the
adoption of SFAS 148 has no impact on the Company's financial condition or
results of operations.

NOTE 3 - INVENTORIES
Inventories at December 31, 2002 and 2001 consist of the following:

                           2002         2001
                       -----------   -----------
Raw Materials         $     78,169  $     32,813
Packaging Material          12,874             -
Finished Goods           1,168,106        76,519
                       -----------   -----------
   Total              $  1,259,149  $    109,332
                       ===========   ===========

<PAGE>
<PAGE> 39
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 4 - INVESTMENT IN EPA LABELS

The Company has acquired five product registrations ("labels") approved by the
U.S. Environmental Protection Agency granting federal clearance to
manufacture, market and sell specified insecticide products.  Included are:
No. 42850-1 for use against flies, roaches, ants, etc., in and around homes
and commercial buildings; No. 42850-2 for use in grain storage; No. 42850-3
for use against fleas, ticks and lice on pets; No. 42850-4 for use against
over 60 insects on over 130 edible crops and plants; and No. 42850-5 (approved
November 23, 1999) for use in the organic market to control all major pest
problems.


NOTE 5 - NOTES PAYABLE

All of the Company's notes payable are considered short-term.  At December 31,
2002 and 2001, notes payable consisted of the following:

Creditor and Conditions

                                                        2002          2001
                                                    -----------   -----------

Jeffrey Linabery, unsecured, interest at 14%,
 due on demand                                     $      7,500  $      7,500

David Russell, (a shareholder of the Company),
 unsecured, interest at 10%, due on demand.                   -        15,000

David Russell, (a shareholder of the Company),
 unsecured, interest at 8%, due on demand.                    -        25,000

David J. Black, (a shareholder of the Company),
 unsecured, interest at 10%, dated August 5, 1997,
 due on demand.                                          20,000        20,000

Greg Cloward, (a shareholder of the Company),
 unsecured, interest at 15%, dated January 6, 1997,
 due on demand.                                         251,000       251,000

David N. Sim, (a shareholder of the Company),
 unsecured, interest at 15%, dated October 1, 1999,
 due on December 31, 1999, delinquent.                    6,500         6,500

Shining Star Investment, Inc., a Nevada corporation,
 (a shareholder of the Company), unsecured, interest
 at 14%, dated July 14, 1995, due December 31, 1995,
 delinquent.                                              5,239         5,239
                                                    -----------   -----------
Subtotal                                           $    290,239  $    330,239
                                                    -----------   -----------

<PAGE>
<PAGE> 40
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions                                 2002         2001
                                                    -----------   -----------
Subtotal (brought forward)                         $    290,239  $    330,239

Hopper Asset Management Company, conditionally
 secured by 50,000 shares Diatect International
 Corporation common stock, interest at 15%, dated
 May 22, 1998, due May 5, 1999.                               -        10,000

Jack S. Stites, (a shareholder of the Company),
 unsecured, interest at 15%, dated September 1,
 1999, due on December 31, 1999, delinquent.              8,800         8,800

Hopper Asset Management Company, unsecured,
 interest at 15%, dated June 19, 1999, due on
 December 31, 1999.                                           -        50,000

D.N. Sim, (a shareholder of the Company) unsecured,
 interest at 10%, dated January 4, 2000, due on
 May 4, 2000, delinquent.                                 2,500         2,500

Robert L. Drake and Sandra K Drake, (shareholders
 of the Company), secured by sale of inventory,
 interest at 12%, dated July 12, 2000, due on July
 12, 2001, delinquent.                                   43,306        62,445

George H. Henderson, (a shareholder of the Company),
 unsecured, interest  at 10%, dated April 14, 2000,
 due on December 31, 2000, amended on September 20,
 2001, payable in principal installments of $5,000
 per month commencing January 15, 2002, delinquent.      40,000        50,000

Johnny and Jack Stites, (shareholders of the Company)
 unsecured , interest at 10%, dated February 25, 2000,
 due on May 1, 2000, delinquent.                         20,000        20,000

K & R "Stuff" LC, unsecured, interest at 12%, dated
 August 22, 2000, due on August 22, 2001, renewed on
 November 22, 2001, convertible to 232,000 shares of
 the Company's common stock on demand, due on
 August 22, 2002.                                             -        58,000
                                                    -----------   -----------
Subtotal                                           $    404,845  $    591,984
                                                    -----------   -----------

<PAGE>
<PAGE> 41
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions                                 2002          2001
                                                    -----------   -----------
Subtotal (brought forward)                         $    404,845  $    591,984

Joseph E. Pigg, Jr., unsecured, interest at 10%,
 dated September 25, 2000, due on September 25,
 2001, delinquent.                                       10,000        10,000

Robert B. Crouch, (officer and shareholder of
 the Company), unsecured, interest at 12%, dated
 November 16, 2000, due on demand.                            -         2,610

Jack Stites, (shareholder of the Company),
 unsecured, interest at 12%, dated December 22,
 2000, due on demand.                                     3,000         3,000


Venture Creations, Inc. (shareholders of the
 Company), unsecured, interest at 10%, dated
 September 20, 2001, due on October 1, 2003.             50,000        50,000

Gary Hanson, (shareholder of the Company),
 unsecured, interest at 12%, dated July 24,
 2001, due on October 24, 2001.                               -        20,000

RCK, LLC, (a shareholder of the Company)
 unsecured, interest at 12%, dated September
 28, 2001, due on demand.                               600,000       600,000

Ed L. Shannon, Jr. and Bruce L Shannon,
 (shareholders of the Company), unsecured,
 interest at 12%, dated August 1, 2001, due
 on August 1, 2002, delinquent.                         200,000       200,000

Robinson Family, LLC, (shareholders of the
 Company), unsecured, interest at 12%, dated
 April 1, 2001, due on April 1, 2002, delinquent.       106,000       106,000


Ronald Davis, (a shareholder of the Company),
 unsecured, interest at 12%, dated December 28,
 2001, due on June 28, 2002, delinquent.                      -        25,000
                                                    -----------   -----------
Subtotal                                           $  1,373,845  $  1,608,594
                                                    -----------   -----------
<PAGE> 42
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions                                 2002          2001
                                                    -----------   -----------
Subtotal (brought forward)                         $  1,373,845  $  1,608,594

Kyle Baird, (a shareholder of the Company),
 unsecured, interest at 12%, dated November 26,
 2001, due on March 26, 2002.                                 -        25,000

Max Burdick, (a shareholder of the Company),
 unsecured, interest at 12%, dated November 26,
 2001, due on March 1, 2002.                                  -        30,000

Richard Humphries, (a shareholder of the Company),
 unsecured, interest at 12%, dated October 1,
 2001, due on April 1, 2002.                                  -        10,000

Jay Downs, (an officer and shareholder of the
 Company), unsecured, non-interest bearing,
 dated October 15, 2001, due on October 15, 2002,
 convertible to common stock at $0.35 per share.              -        30,320

Kyle Baird, (a shareholder of the Company),
 unsecured, interest at 10%, dated July 5, 2002,
 due on September 30, 2002, delinquent.                  74,000             -

Ronald Davis, (a shareholder of the Company),
 unsecured, interest at 10%, dated July 10, 2002,
 due on December 31, 2002, delinquent.                   79,250             -

Amanda Wright, unsecured, interest at 10%, dated
 January 11, 2002, due on July 11, 2002, delinquent.     10,000             -

Marelko L.C., (a shareholder of the Company),
 unsecured, interest at 12%, dated April 3, 2002,
 due on July 3, 2002, delinquent.                        40,000             -

Jack Stites, (a shareholder of the Company),
 secured by collateral assignment to collectible
 accounts receivables, interest at 12%, dated June
 19, 2002, due on August 18, 2002, delinquent.           40,000             -
                                                    -----------   -----------
Subtotal                                           $  1,617,095  $  1,703,914
                                                    -----------   -----------


<PAGE>
<PAGE> 43
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions                                 2002         2001
                                                    -----------   -----------
Subtotal (brought forward)                         $  1,617,095  $  1,703,914

Jeffrey Matthews, (a shareholder of the Company),
 unsecured, interest at 8%, dated April 24, 2002,
 due on July 20, 2002, delinquent.                       10,403             -

Hyrum L. & Helen Mae Andrus, (shareholders of
 the Company), interest at 8%, dated April 24,
 2002, due on June 24, 2002, delinquent.                 36,002             -

Brent J. Larsen, (a shareholder of the Company),
 unsecured, interest at 10%, convertible to common
 stock at any time after July 18, 2002, dated July
 17, 2002, due on October 17, 2002, delinquent.          50,000             -

Scot & Jan Lythgoe, (shareholders of the Company),
 unsecured, interest at 10%, convertible to common
 stock at any time after August 22, 2002, dated
 August 21, 2002, due on November 21, 2002,
 delinquent.                                             30,000             -

Keven Jensen, (a shareholder of the Company),
 unsecured, interest at 10%, convertible to
 common stock from September 12, 2002 through
 March 11, 2003, dated September 11, 2002,
 due on March 30, 2003.                                  50,000             -

Keven Jensen, (a shareholder of the Company),
 unsecured, interest at 10%, convertible to
 common stock from October 1, 2002 through
 March 11, 2003, dated September 30, 2002,
 due on March 11, 2003.                                  50,000             -

Orion B. & Sue Bishop, (shareholders of the
 Company), unsecured, interest at 10%,
 convertible to common stock from October 1,
 2002 through April 30, 2003, dated September
 30, 2002, due on April 30, 2003.                        12,500             -
                                                    -----------   -----------
Subtotal                                           $  1,856,000  $  1,703,914
                                                    -----------   -----------

<PAGE>
<PAGE> 44
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions
                                                    -----------   -----------
Subtotal (brought forward)                         $  1,856,000  $  1,703,914

David L. or Eileen S. Russell, (shareholders of
 the Company), unsecured, interest at 10%,
 convertible to common stock from October 2, 2002
 through April 2, 2003, dated October 1, 2002,
 due on demand.                                          25,000             -

Orion B & Sue Bishop, (shareholders of the
 Company), unsecured, interest at 10%,
 convertible to common stock from October 16,
 2002 through April 15, 2003, due on April 15, 2003.     12,500             -

Jerry Sink, (a shareholder of the Company),
 unsecured, interest at 10%, convertible to common
 stock from October 5, 2002 through April 4, 2003,
 dated October 4, 2002, due on April 4, 2003.            25,000             -

Jerry Sink, (a shareholder of the Company),
 unsecured, interest at 10%, convertible to common
 stock from October 23, 2002 through April 22, 2003,
 dated October 22, 2002, due on April 22, 2003.          12,500             -

Brian S. and Roxanne R. Clark, (shareholders of
 the Company), unsecured, interest at 10%,
 convertible to common stock from October 31, 2002
 through April 30, 2003, dated October 30, 2002,
 due on April 30, 2003.                                   8,111             -

John H. and Holly Zenger, (shareholders of the
 Company), unsecured, interest at 10%, convertible
 to common stock from November 16, 2003 through
 March 15, 2003, dated November 15, 2002,
 due on March 15, 2003.                                  25,000             -

La Jolla Cove Investors, Inc., (a shareholder of
 the Company), unsecured, interest at 8%, convertible
 to common stock, dated December 27, 2002,
 due on demand.                                         150,000             -
                                                    -----------   -----------
Subtotal                                           $  2,114,111  $  1,703,914
                                                    -----------   -----------


<PAGE>
<PAGE> 45
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions                                 2002          2001
                                                    -----------   -----------
Subtotal (brought forward)                         $  2,114,111  $  1,703,594

David J. Stecher, (a shareholder of the Company),
 unsecured, interest at 15%, dated December 18,
 2002, due on March 19, 2003.                            18,070             -
                                                    -----------   -----------
   Total                                           $  2,132,181  $  1,703,914
                                                    ===========   ===========

NOTE 6 - LINES OF CREDIT

At December 31, 2002 and 2001, the Company had $97,000 borrowed on an
outstanding line of credit.  The line of credit was extended to the Company by
a shareholder utilizing his personal line of credit.  This credit facility is
unsecured, has no stated maturity, and bears interest at 12%.

At December 31, 2002, the Company had $3,821 borrowed on an automatic line of
credit with America First Credit Union.  This credit facility is unsecured,
has no stated maturity and bears interest at 9.75%.

At July 19, 2002, the Company secured a $250,000 line of credit with Zion
Bank.  As of December 31, 2002, the Company has borrowed $250,000.  This line
of credit was secured by Company assets and carries a stated interest rate of
6.75%, and is due in full on January 19, 2003.


NOTE 7 - LEASE PAYABLE

At March 2002, the Company secured a line of credit with HP/Compaq Financial
Services in the amount of $37,606.  The Company used $25,826 of this credit to
lease computer related equipment for a 36-month period with a $1 buy out
option at the end of the lease.  The computer related equipment is deemed to
be fully depreciated at the end of this lease.


NOTE 8 - LITIGATION

Resolved Litigation

Terrance Dunne
Terrance Dunne, the Company's former auditor, initiated action against the
Company for payment of unpaid fees.  In response to the allegations, the
Company countersued for reimbursement of fees paid for work not performed.  In
November 2002, the matter was fully settled and resolved with mutual releases
being executed by both parties.

<PAGE>
<PAGE> 46
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 8 - LITIGATION (Continued)

Resolved Litigation (Continued)

Mid-America Venture Capital Fund, Inc.
Mid-America Venture Capital Funds, Inc. brought action on July 23, 1997
against the Company for failure to pay loans on two promissory notes totaling
$35,000.  Judgment was awarded on August 4, 1997 for a total of $39,336
including principal, interest, and attorney's fees and costs.  The balance
owing at December 31, 2001 was included in settlements payable in these
financial statements at December 31, 2001 and was fully paid as of December
31, 2002.

Mike Glazer
A consultant rendered services to a Company subsidiary during 1996 in the
amount of $17,230 and has brought action for this amount.  The Company has
chosen not to contest this case.  Settlement efforts are expected to be
undertaken after entry of judgment and demonstration that the assets of the
subsidiary, Diatect International, Inc., are fully encumbered.  This amount
was paid in full during the year ended December 31, 2001.

Danny Wirken
During June 2001, the Company declared a note payable to Danny Wirkin (one of
the brokers involved in the selling of Diatect stock, which gave rise to
certain litigation for stock manipulation) in the amount of $386,581 and the
interest accrued thereon as invalid and void.  Legal counsel for the Company
further asserted that the obligation has passed the statute of limitations for
collection thereon.  This resulted in a gain from termination of debt, which
was reflected in the financial statements at December 31, 2001.  This amount
has been reclassified to other income in accordance with FAS 145. (See Note
5.). The Company was considering litigation however, at this time, all
consideration of litigation against Danny Wirken has been discontinued.

Current Litigation

Sloan, Listrom, Eisenbarth, Sloan & Glassman, LLC
In November 1999, the Company's former legal counsel was awarded a default
judgment against the Company in the amount of $42,166 plus post-judgment
interest.  This judgment remains outstanding and unpaid and is included as a
liability on the Company's balance sheet in settlements payable at December
31, 2002 and 2001 in the amount of $40,166.

Ogilvy, Adams & Rinehart
Ogilvy, Adams & Rinehart (Ogilvy) obtained a judgment against Diatect on
November 1, 1995 in the sum of $24,346.  The entire judgment amount plus
attorney's fees and interest thereon is approximately $36,000 and has been
included on the Company's balance sheet in settlements payable at December 31,
2002 and 2001.  Since mid-1996, there has been no communication with the
plaintiff or its attorneys, nor has the plaintiff made any attempt to satisfy
or settle this case.  The Company plans to negotiate a settlement of this
obligation during 2003.

<PAGE>
<PAGE> 47
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 8 - LITIGATION (Continued)

Current Litigation (Continued)

L. Craig Hunt
L. Craig Hunt brought action on January 14, 1998 against Diatect for damages
and breach of contract on a promissory note for the sum of $42,750 plus
interest, penalties and attorney's fees.  Judgment against Diatect
International Corp. was rendered on February 1, 1999 in the sum of $61,543.
This judgment is presently outstanding and unpaid.  At December 31, 2002 and
2001, $60,543 is included in settlements payable in these financial
statements.  To date, plaintiffs have made no attempt to collect on this
judgment.

George Brink
During December 2000, George Brink was awarded a default judgment in the total
amount of $44,648, including interest and legal fees, for the balance due on a
promissory note.  At this time, active collection on the judgment has not been
pursued.  The outstanding and unpaid amount is included as a liability on the
Company's balance sheet in settlements payable at December 31, 2002 and 2001.

Iver J. Longtieg
Mr. Longtieg is pursuing a claim outside of the Future Title/White Mountain
Group.  Mr. Longtieg claims an outstanding note for $23,887 plus interest
accrued theron.  Mr. Longtieg filed a notice of intent to apply for a default
judgment, in Boise, Idaho.  The Company did not answer the complaint and as a
result a potential default judgment is possible.  At the current time, Mr.
Longtieg has been paid $14,488, and is forbearing until such time as Diatect
resolves the issue of the original claim.

Former Officers and Consultant
In September 2000, the Company received notice from two former officers and a
former consultant that they intend to bring action for nonpayment of back
wages.  During May 2001, the Company issued 188,000 shares of its common stock
valued at $47,000 ($0.25 per share) to one former officer in full settlement.
During August 2001, the Company paid $5,000 to another former officer for
settlement with mutual release of his claim for nonpayment of back wages in
the amount of $38,500.

Threatened Litigation
On November 15, 2002, the Company received a letter from attorneys
representing the Scotts Company and its affiliate, OMS Investments, Inc.,
claiming ownership of the character and trademark "Freddy the Fire Ant" and
demanding that the Company withdraw its application with the U.S. Trademark
office to register "Freddy the Fire Ant" as the Company's trademark.  The
claim alleges trademark infringement and unfair competition.  The outcome of
this claim is uncertain and no amounts are accrued in the financial
statements.

Other Matters
The Company is not aware of any other threatened litigation against it or its
subsidiaries.  However, there remains a possibility of litigation against
Diatect and/or its subsidiaries by creditors.

<PAGE>
<PAGE> 48
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 9 - COMMON STOCK

During the year ended December 31, 2001, the Company issued 2,107,500 shares
of its common stock valued at $196,550 in consideration for a note payable,
1,716,590 shares of its common stock valued at $374,505 for debt, 188,000
shares of its common stock valued at $47,000 to a former officer for back
wages (Note 7), 1,300,000 shares of its common stock valued at $97,500 for
services to officers and others, 500,000 shares of its common stock valued at
$37,500 in settlement of a distributor agreement, 500,000 shares of its common
stock valued at $37,500 as a severance bonus to the Company's former president
and 200,000 shares of its common stock valued at $41,035 in payment of a
vendor account.  The shares were valued at their fair market value on the date
of issuance.  The Company also sold 1,200,000 shares of its common stock at
prices ranging from $0.10 to $0.25 per share for cash and a receivable.  An
officer, to whom options with a FMV of $55,534 had been previously issued,
exercised the options and purchased 499,998 shares of common stock.  The
exercise price of the stock of $30,000 was exchanged for accrued legal fees.

In November 2002, the Company increased its authorized capital to 1000,000,000
shares of common stock.  During the year ended December 31, 2002, the Company
issued 2,032,880 shares of its common stock valued at $288,029 in payment of
services, 2,507,113 shares of its common stock valued at $503,549 in payment
of notes payable and accrued interest and sold 2,945,260 shares of its common
stock for $572,065.  The Company also sold 600,000 shares of its common stock
for $150,000 and exercise of options.  See Note 10.

NOTE 10 - COMMON STOCK SUBSCRIBED

During the year ended December 31, 2001, the Company sold stock valued at
$170,000 and received $100,000.  During the year ended December 31, 2002, the
Company received $50,000 in payment of the stock subscription.  The remaining
$20,000 is reflected in the attached financial statements as stock
subscription receivable.  See Note 8.

NOTE 11 - STOCK OPTIONS

In November 2002, the Company adopted the Diatect International Corporation
2002 Stock Option and Award Plan (the "Plan") under which 3,000,000 shares of
Common Stock are available for issuance with respect to awards granted to
officers, directors, management and other employees of the Company and/or its
subsidiaries.  As of December 31, 2002, the Company had issued options for
2,000,000 shares of Common Stock to officers of the Company.  None of these
options have become vested and therefore are unexercisable at December 31,
2002.

This Plan superceded the 1995 Stock Option Plan, which was initiated in order
to aid the Company in maintaining and developing a management team, attracting
qualified officers and employees.  A total of 3,000,000 shares of stock were
subject to, or issued pursuant to the terms of the plan.

<PAGE>
<PAGE> 49
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 11 - STOCK OPTIONS (Continued)

The Company estimates the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used during the year ended December 31, 2001:
dividend yield of zero percent; expected volatility of thirty percent;
risk-free interest rate of six percent.  The weighted average fair value at
date of grant for options granted to employees and stockholders in the years
ended December 31, 2002 and 2001 was $0.08 per option, respectively.  The
following assumptions were used during the year during the year ended December
31, 2002:  dividend yield of zero percent: expected volatility of 98.37%;
risk-free interest rate of five percent.  Compensation cost charged to
operations was $17,279 and $18,890 during the years ended December 31, 2002
and 2001, respectively.

Finance fees charged to other expenses was $66,010 and legal fees charged to
operations was $3,985 during the year ended December 31, 2001.

Following is a summary of the status of these performance-based options during
the years ended December 31, 2002 and 2001:


                                    Number of Shares
                                                                  Weighted
                                                                   Average
                            2002 Plan    1995 Plan      Total     per Share
                           ----------   ----------   ----------   ----------
Outstanding at
     December 31, 2000              -      499,304      499,304        $0.06
     Granted                        -    1,100,000    1,100,000         0.18
     Exercised                      -     (499,304)    (499,304)        0.06
     Expired/forfeited              -            -            -            -
                           ----------   ----------   ----------   ----------
Outstanding at
   December 31, 2001                -    1,100,000    1,000,000        $0.18
                           ==========   ==========   ==========   ==========
Options Exercisable at
   December 31, 2001                -    1,100,000    1,100,000        $0.18
                           ==========   ==========   ==========   ==========
Weighted average fair
   value of options granted
   during 2001                      -         0.08         0.08
                           ==========   ==========   ==========

<PAGE>
<PAGE> 50
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 11 - STOCK OPTIONS (Continued)
                                    Number of Shares
                                                                  Weighted
                                                                   Average
                            2002 Plan    1995 Plan      Total     per Share
                           ----------   ----------   ----------   ----------

Outstanding at
   December 31, 2001                -    1,100,000    1,100,000        $0.18
   Granted                  2,000,000            -    2,000,000         0.13
   Exercised                        -     (600,000)    (600,000)        0.18
   Expired/forfeited                -            -            -            -
                           ----------   ----------   ----------   ----------
Outstanding at
   December 31, 2002        2,000,000      500,000    2,500,000        $0.14
                           ==========   ==========   ==========   ==========
Options exercisable at
   December 31, 2002                -      500,000      500,000        $0.18
                           ==========   ==========   ==========   ==========
Weighted average fair
   value of options
   granted during 2002          $0.13        $   -      $  0.13
                           ==========   ==========   ==========

                                    Number of Shares
                                                                  Weighted
                                                                   Average
                            2002 Plan    1995 Plan      Total     per Share
                           ----------   ----------   ----------   ----------
Exercise Date
-------------
On or before
   December 31, 2004                -      500,000      500,000        $0.10

On or before
   December 31, 2007 and
   after the Company
   attaining $5,000,000
   in gross annual sales      666,667            -      666,667         0.17

On or before
   December 31, 2007 and
   after the Company
   attaining $10,000,000 in
   gross annual sales         666,667            -      666,667         0.17

On or before
   December 31, 2007 and
   after the Company
   attaining $15,000,000 in
   gross annual sales         666,666            -      666,666        $0.17
                           ----------   ----------   ----------   ----------
   Totals                   2,000,000      500,000    2,500,000
                           ==========   ==========   ==========   ==========

<PAGE>
<PAGE> 51
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 11 - STOCK OPTIONS (Continued)

The following table gives information about the Company's common stock that
may be issued upon the exercise of options under all of the Company's existing
stock option plans as of December 31, 2002.

                           Weighted                               Weighted
                            Average    Contractual                 Average
 Exercise    Number of     Exercise       Life       Number       Exercise
  Prices       Options       Price     (in years)  Exercisable      Price
----------   ----------   ----------   ----------   ----------   ----------
   $0.10        500,000      $0.10         2.00        500,000       $0.10
    0.17        666,667       0.17         2.15              -        0.17
    0.17        666,667       0.17         3.20              -        0.17
    0.17        666,666       0.17         4.42              -        0.17
             ----------   ----------   ----------   ----------   ----------
              2,500,000      $0.15         3.01        500,000       $0.10

NOTE 12 - CONCENTRATION OF RISK

Credit
The Company is a wholesale supplier of products and grants credit to its
customers, a substantial portion of which are retailers of agricultural
products throughout the country.


NOTE 13 - SETTLEMENTS PAYABLE

The Company is obligated to pay certain notes and settlements under judgments
awarded to outside parties.  These amounts, included in settlements payable at
December 31, 2002 and 2001, are as follows:
                                               2002         2001
                                            ----------   ----------
L Craig Hunt                               $    60,543  $    60,543
Mid-America Venture Capital Fund, Inc.               -       33,336
Sloan, Listrom, Eisenbarth,
     Sloan & Glassman, LLC                      40,166       40,166
Ogilvy, Adams & Rinehart                        36,000       36,000
George Brink                                    44,648       44,648
                                            ----------   ----------
                                           $   181,357  $   214,693
                                            ==========   ==========

NOTE 14 - COMMITMENTS AND CONTINGENCIES

Futura Title Corporation
During the year ended December 31, 2001, the Company reclassified a note
payable to Alliance Title & Escrow acting on the behalf of various
individuals.  The reclassified amount also included interest accrued thereon
to commitments and contingencies for a total amount of $461,605.  During the
year ended December 31, 2002, the Company obtained releases of liability from
several individuals.  This resulted in a gain from termination of debt, which
is reflected in the financial statements at December 31, 2002.  A remaining
balance in the amount of $106,620 is included in commitments and contingencies
at December 31, 2002.  The Company is currently negotiating a settlement
agreement on this liability.  Although the outcome is uncertain, the Company
expects to settle for considerably less.

<PAGE>
<PAGE> 52
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
NOTE 14 - COMMITMENTS AND CONTINGENCIES (Continued)
Lease Commitments
In April 2000, the Company entered into a lease agreement for new office
facilities in Boise.  The agreement called a three-year lease with monthly
payments of $820 during the first year, $838 during the second year and $857
during the third year.  The Company occupied these facilities from May 1, 2000
through October 1, 2001.  The Company negotiated a settlement on the remaining
lease in the amount of $2,089, which was paid.

The Company leased operating facilities in Smith Center, Kansas from an
individual through July 2001.  The lease was a month-to-month handshake
agreement, with monthly payments of $273.

Other Contingencies
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 pending environmentally related litigation or of any
specific past or prospective matters involving environmental concerns which
could impair the marketing of its products.

IX Group, Inc.
On November 14, 2001, Diatect entered into an agreement with IX Group, Inc.
(hereinafter "IXG") whereby Diatect would sell to IXG all of the common stock
of a subsidiary, Magic International, Inc. (hereinafter "Magic"), in exchange
for approximately 5% of the common stock of Magic after IXG's merger with and
into Magic and the post-merger payment of cash.  Although Magic was
transferred to IXG, IXG subsequently ceased operations and Diatect never
received any consideration for the transfer.

The transaction is considered a related party event because IXG's president
and principal shareholder is also a shareholder of Diatect.  Prior to its
transfer to IXG, Magic had no assets or liabilities.

Purchase of Facilities
During October 2001, the Company relocated both its office and operating
facilities to Heber City, Utah.  During January 2003 and subsequent to the
date of these financial statements, the Company completed negotiations for the
purchase of its new facilities at a total cost of $875,500.  Terms of the
financing agreement call for approximately $9,200 in interest only payments at
13% annual interest rate. Under terms of the original agreement, the Company
occupied the facilities with no charge until closing. Other terms of the
agreement called for a down payment of $28,500, escrow deposit in the amount
of $384,000 and a letter of credit in the amount of $412,500.  The Company
paid the down payment of $28,500 during the fourth quarter of the year ended
December 31, 2001 and this amount is reflected in the attached financial
statements as deposits.  During the same period, the Company also secured cash
in the amount of $400,000, which is considered restricted for an escrow
deposit.  These funds were returned to the lender in 2003.  The Company
occupied the facilities on October 10, 2001.

NOTE 15 - RELATED PARTY TRANSACTIONS
Diatect International Corp. has notes payable to shareholders totaling
$1,964,681 and $1,633,851 as of December 31, 2002 and 2001, respectively.  See
Note 5.
The Company's assistant secretary performs services as the Company's main
legal counsel.  Legal services performed by this officer totaled $19,312 and
$17,067 for the years ended December 31, 2002 and 2001, respectively, of which
$7,570 are included in accounts payable - related party at December 31, 2002.

<PAGE>
<PAGE> 53
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
NOTE 15 - RELATED PARTY TRANSACTIONS (Continued)
The Company has employment contracts to pay the Company's president and
vice-president of operations annual compensation in the amounts of $120,000
and $90,000 respectively.  During the year ended December 31, 2002, the
Company's president and vice-president of operations received options to
purchase 2,000,000 shares of the Company's common stock at $0.17 per share.
These options vest when the Company attains various targeted gross annual
sales levels.  (See Note 11.)  During January 2001, the Company's president
received a signing bonus of 350,000 options for the purchase of shares of
common stock.  During the year ended December 31, 2001, the Company also had
an employment contract to pay the Company's former president annual
compensation of $120,000.  See Note 11.  Executive compensation totaled
$310,568 and $409,937 for the years ended December 31, 2002 and 2001,
respectively.

NOTE 16 - MINING PROPERTY

During September 2001, the Company acquired title to unpatented mining claims
on a section of land in Malheaur County, Oregon.  This property, with proven
and probable reserves of diatomaceous earth, is recorded at cost on the
Company's balance sheet.

NOTE 17 - BUSINESS SEGMENT AND GEOGRAPHICAL AREA DATA
The Company's operations were classified into two principal reporting segments
based upon geographical location during the year ended December 31, 2001.  All
operations were relocated to Utah during the fourth quarter of fiscal 2001,
therefore, no reportable segments are deemed to exist for the year ended
December 31, 2002.  Separate accounting for each segment for the year ended
December 31, 2001 is required due to varying strategies used by the Company in
each location.

The table below presents information about the Company's reportable segments
during the prior year:
                                     Year Ended December 31, 2001
                          Kansas     Idaho/Utah   Eliminations   Consolidated
                        ----------   ----------   ------------   ------------
External revenue       $         -  $   570,904  $           -  $     570,904
                        ==========   ==========   ============   ============
Operating income (loss)$   (20,005) $(1,086,451) $           -  $  (1,106,456)
                        ==========   ==========   ============
Corporate expenses                                                          -
                                                                 ------------
 Total operating
  income (loss)                                                 $  (1,106,456)
                                                                 ============
Depreciation and
 Amortization          $       456  $   295,521  $           -  $     295,977
                        ==========   ==========   ============   ============
Interest expense
 and finance charges   $         -  $   278,501  $           -  $     278,501
                        ==========   ==========   ============   ============
Identifiable assets    $   160,618  $ 2,850,764  $    (154,924) $   2,856,458
                        ==========   ==========   ============
General corporate
 assets                                                                     -

 Total assets                                                   $   2,856,458
                                                                 ============

<PAGE>
<PAGE> 54
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002

NOTE 17 - BUSINESS SEGMENT AND GEOGRAPHICAL AREA DATA (Continued)

Kansas operations, the first reportable segment, performed services including
mixing and distribution of pesticide products during early 2001. Idaho
operations, the second reportable segment, manufactures product and generates
sales revenues.

NOTE 18 - OTHER LIABILITIES

At December 31, 2002, the Company had a $157,767 liability for unpaid federal
and state withholding taxes, social security tax, medicare tax and federal and
state unemployment taxes.  This amount may be subject to penalties and
interest.

NOTE 19 - ROYALTIES

During the year ended December 31, 2001, the Company agreed to pay a former
distributor royalties equal to $0.10 per pound of product produced.  During
the year ended December 31, 2002, the Company accrued $113,623 for royalties
pursuant to this agreement.

NOTE 20 - SUBSEQUENT EVENTS

Purchase of Facilities
During January 2003 and subsequent to the date of these financial statements,
the Company completed negotiations for the purchase of its new facilities at a
total price of $875,500.  Under the terms of the financing agreement, the
Company began making interest only monthly payments in the amount of $9,200.
The Company also returned $400,000 of cash restricted for the escrow deposit
to the lender. See Note 14.

Note Payable
On January 15, 2003, the Company borrowed $750,000 from George Ann Pope
Charitable Trust.  The note is secured by an inventory security agreement
whereby $0.25 of each dollar of gross proceeds from the sale of inventory is
allocated and set aside in a special account for continuing security until the
note is paid and bears interest at the rate of 10% per annum.  The Company
issued 375,000 shares of its common stock as additional consideration for the
loan.  The note is due on July 15, 2003.