<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, 2001
                                       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                                   95-355578
             ----------                                   ---------
(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:  $570,904

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. At March 26, 2001, the aggregate market value of our voting
stock held by nonaffiliates was $9,908,099 based on 31,454,282 shares.  The
average of the bid and asked price of our stock on March 26, 2001, was $0.315
per share.

     At March 26, 2001, we had 37,229,082 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
-------
We are Diatect International Corporation and were 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
diatomaceous earth ("DE") and Pyrethrin that degrade after application leaving
the environment unharmed.  DE and Pyrethrin have been used separately for
years as adequate alternatives to hazardous chemical insecticides.  By putting
these two natural insecticides together in our products, we have created a
powerful synergy that leads to more effective insect control than either DE or
Pyrethrin can provide individually.

We have obtained EPA registrations and labels necessary for the production and
marketing of five insecticides.  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.


Industry
--------
According to information published in the U.S. Department of Agriculture
"Agriculture Statistics (1993)" and the U.S. Department of Commerce
Statistical Abstract (119th ed.), over the previous ten years the worldwide
market for pesticides grew by 30% as the total amount of acreage planted
continued to increase in the United States and the world.  Pesticide
consumption in dollar terms is expected to grow 4.4% per year through 2003,
compared with 3% during 1983-93.  Agriculture is the largest end-user sector
for insecticides, followed by commercial, industrial, home, garden and
government applications.  The United States spent approximately $3.3 billion
in 1980 for agricultural pesticides and estimated $320 billion in 2000,
representing an growing increase over a 20-year period.

Four markets---corn, cotton, vegetables, and fruit and nuts---account for 78%
of the U.S. insecticide market.  Japan is the second-largest market for
pesticides in the world, by sales.  Insecticides are the leading product
category in the pesticide market, with 34% of the Japanese market.  Western
European insecticide sales amount to approximately 15% of total world
insecticide sales.  France, Spain and Italy are key markets for insecticides
in Western Europe.  Export demand for insecticide products take 59% of U.S.
insecticide production.  Export demand is expected to remain strong.

A 1996 Gallup poll reported that 92% of farmers want to use safer pesticides
and 66% favored tougher enforcement of pesticide misapplication penalties.

The nature of synthesized chemical pesticides has caused concern among the
public and regulators particularly over the pesticides persisting in the
environment, accumulating in soil and ground water and affecting surrounding
wildlife such as fowl and fish.  These concerns have led the EPA to require
stricter guidelines on new pesticides.  Additionally, the EPA has, in many
instances, ordered new tests for previously approved products which must now

<PAGE> 4

meet the newer, more stringent standards. The additional testing is resulting
in some companies electing to remove existing products from the market rather
than subject the products to the newer standards.

Over the past several years, chemical companies have voluntarily dropped the
registration of approximately 28 active ingredients and 5,000 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.  Insecticide resistance has cost an
estimated $1.4 billion a year in crop losses in the United States alone.

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.  DE is a naturally occurring mineral deposit
resulting from microscopic single-celled plants called diatoms which took the
minerals from the water and created protective shells for themselves.  As they
died and their shells drifted to the bottom of the sea beds, vast deposits
were created.  One of the numerous uses for DE is as a natural insecticide,
since it causes severe mechanical cutting damage to insects akin to the damage
of broken glass swallowed by humans.

DE is mined from the earth and ground into usable particles.  There are many
varieties of diatoms, and the preponderance of the type in any given deposit
gives that deposit certain characteristics.  In the case of nontoxic
insecticides, certain qualities make it possible to kill insects without
harming animals, plants or humans.  These rare deposits furnish a material
that has two very important characteristics (1) when fractured, the particle
edges are very sharp and (2) each tiny particle has the ability to absorb
liquid.  In addition to cutting the covering of an insect's shell to cause
dehydration, DE also absorbs the insect's covering and bodily fluids further
causing dehydration and eventual death.  Moreover, DE causes extensive trauma
to insects, both internally and externally.  In order to be effective as an
insecticide, DE must be free of significant impurities.  Additionally, DE is
generally slow to reduce insect populations and thus has limited
effectiveness, especially against fast-breeding insects.  For this reason, our
products combine DE with pyrethrin.

Pyrethrins are oily liquid esters extracted from the pyrethrum flower, the
"African Daisy."  The extract is a "botanical insecticide" and acts on insects
with phenomenal speed, causing paralysis.  Research has determined that
Pyrethrin is virtually harmless to mammals.  Pyrethrin affects both the
peripheral and central nervous system of the insect.  Initially, it stimulates
nerve cells to produce repetitive discharges, quickly leading to paralysis.

Piperonyl Butoxide ("PBO"), the third ingredient in our insecticides, is an
extract originally discovered in a variety of sassafras, which has since been
synthesized and made available in quantities greater than possible from
plants.  While early studies suggested that PBO is itself a natural
insecticide, it is its use as a synergist that is particularly exciting.  A
synergist is not generally considered toxic or insecticidal, but
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is a material used to enhance the activity of the insecticides.  PBO is the
synergist used in our products.  Basically, PBO binds oxidative enzymes and
prevents them from degrading the pyrethrin.  Combined with small amounts of
pyrethrin, it affords a rapid knockdown, a greater mortality, and a longer
residual action than pyrethrin by itself.   PBO has been found to be safe and
free of any normal hazards of toxicity.  It is well tolerated in large
quantities by warm-blooded animals.  Because PBO is substantially less
expensive than pyrethrin, its use allows us to offer more competitively priced
products.

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 increase's the effectiveness of the pyrethrin by as much as
ten times.

Our products consist of five fully registered EPA Labels:

1.  Diatect D-20 Insecticide, EPA Registration No. 42850-1, Indoor
Insecticide.  Controls roaches, fleas, ants, silverfish, crickets, bedbugs,
box elder bugs, and other insects.  For use under sinks, behind furniture, in
air vents, under tile, stairwells, and basements.

2.  Diatect Multi-Purpose Insecticide, EPA Registration No. 42850-2.
Distributed in the agriculture market, the largest end-user market for
insecticides; commercial; industrial; and government markets as "Diatect
Multi-Purpose Insecticide."  This insecticide is approved by the EPA for use
in a wide variety of areas, e.g., edible growing crops, animal quarters,
livestock, ornamentals, etc., under the least hazardous classification and is
effective on a wide variety of insects.  This insecticide can be applied as a
dust or sprayed in solution with water and can be used on crops and fruits up
to and including the day of harvest.

3.  Diatect Pet Powder, EPA Registration No. 42850-3.  Marketed on a retail
basis under the trade name "Results."

4.  Diatect II Multi-Purpose Insecticide, EPA Registration No. 42850-4.  The
Diatect II product is formulated using a larger measure of pyrethrin (.2%)
which provides a quicker, more positive knockdown.  Designed and approved for
use in the same applications as the No. 42850-2 formulation (which contains
..1% pyrethrin), the user receives a significantly better return on their
insecticide dollar using Diatect II because of its added knockdown strength.
This insecticide can be applied as a dust or sprayed in solution with water
and can be used on crops and fruits up to and including the day of harvest.

The above product is distributed in the retail market for use in the home and
garden markets under the trade name "Results" under the following retail
labels:

 - Results Fire Ant Insecticide.  Applying the insecticide directly to fire
ant mounds 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.

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 - Results Ant and Insect.  Controls ants, aphids, caterpillars, leafhoppers,
lice, mites, mosquitoes, ticks, and other insects.

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

 - Results Rose and Floral.  Protects azaleas, begonias, African violets,
chrysanthemums, dogwood, elm, roses, tulips, and many other plants.  Destroys
insects such as mealybugs, fruit flies, white flies, and caterpillars that
ruin the beauty of garden flowers and plants.

5. Diatect V Insecticide, EPA Registration No. 42850-5.  The Diatect V product
was designed and formulated to meet the needs of the organic food industry
which requires insecticides with no synthetic ingredients.  Using a powerful
bug-killing measure of pyrethrin (.5%) blended with DE, Diatect V becomes what
we believe should be the product of choice for those users requiring an
organic certification.

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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<TABLE>
<CAPTION>

Toxicity Category       Signal Words (required on             Oral LD50          Probable Lethal
                        an insecticide label by EPA)            (mg/kg)           Adult Human Dose (1)
-----------------       ----------------------------           ----------        -------------------------
<S>                    <C>                                  <C>                 <C>
I--Highly Toxic         DANGER or POISON, plus skull             0 to 50         A few drops to 1 teaspoon
                        and crossbones symbol
II--Moderately Toxic    WARNING                                 50 to 500        1 teaspoon to 2 teaspoons
III--Slightly Toxic     CAUTION                                500 to 5,000      1 ounce to 1 pint (1 pound)
IV--Almost non-toxic    CAUTION                               more than 5,000    1 ounce to 1 pint (1 pound)

(1)  Toxicity of Insecticides and Determining the LD50,"  Kenneth J. Stein and F. William Ravlin, Department of
Entomology, Virginia Polytechnic Institute and State University, 1995


</TABLE>

Oral toxicity testing on our Products resulted in an LD50 of more than 5,000
mg/kg.  The oral toxicity for the product is less than that for table salt or
aspirin.  (Because the product was mildly irritating to the eyes of New
Zealand rabbits, the product does carry the Level III Signal Word "Caution"
with the appropriate wording.  However, it is of importance to note that this
wording is because of the irritation to the eyes of the rabbits, not the oral
or dermal toxicity of the product.)

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, including, but
not limited to, suspended product sales and fines.  Our products comply with
FIFRA restrictions and are registered with the EPA.

The pesticide regulatory program instituted by Congress and implemented by the
EPA is having a profound effect on the availability of old as well as new
synthetic chemical pesticides.  Many of the old pesticides were registered
before their long-term health and environmental effects were fully understood.
In 1972, Congress decreed that the EPA should reexamine the risks of all
active ingredients in pesticides registered before modern testing methods
became available.  In 1988, impatient with the slow pace of the registration
program, Congress imposed timetables on the EPA and levied fees on chemical
companies wishing to re-register their products.

Although the EPA has banned many unsafe pesticides in recent years, we believe
the impact of Congress' action has been significant.  As stated above,
chemical companies have voluntarily dropped registration of 68 active
ingredients and 12,000 pesticide products that were in use at the time of
cancellation over the past few years.  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.  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.

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Competition in the Insecticide Industry
---------------------------------------
The principal players in the U.S. plant care industry, particularly the
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 and loyalty. We believe, however,
that by focusing on the non-synthetic 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.  The EPA approval is important due to the time and cost associated
with receiving such approval which can take years and be extremely costly.

Management Changes
------------------
In May 2001, Douglas K. Goff resigned from the Board of Directors.  In July,
2001, David Andrus was appointed to the Board of Directors.  In September
2001, George H. Henderson, Lamar N. Jensen, Sherman B. Jensen, and Jeff Bates
resigned from the Board as Directors.  In December 2001, John H. Zenger and
Nelson A. Carter were appointed to the Board of Directors.


We have the following operating subsidiaries:

Diatect International, Inc., a Kansas corporation, is a wholly-owned
subsidiary through which our production operations were conducted through
October 2001. No operations are currently being conducted in this subsidiary.

Magic International, Inc., a wholly-owned subsidiary, was acquired by us for
the purposes of conducting our marketing operations. Its executive offices are
located at 875 South Industrial Parkway, Heber City, Utah 84032.  As of this
filing, Magic International, Inc. has no employees.
<PAGE>
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                            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.  We are currently negotiating the purchase of
our new facilities at a cost of $825,000.  Under terms of the agreement, we
may continue occupying the facilities with no charge until closing occurs but
not longer than July 2002.  Other terms of the agreement call 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.  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, which is considered
restricted and will be used for closing on the building.  We occupied the
facilities on October 10, 2001 and closing is scheduled to occur in July 2002.

Diatect International, Inc., Lebanon Production Plant, 108 E. Schoolhouse Rd.,
Lebanon, Kansas.  25,000 sq. ft. - Brick.  We own this facility outright and
since November 2001 we have been seeking a buyer.

                      ITEM 3.  LEGAL PROCEEDINGS

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.  During
fiscal 2001, we reclassified this amount to a settlement payable in the amount
of $40,166, which settlement remains outstanding and unpaid.

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. During fiscal 2001, we
reclassified this amount to a settlement payable, which settlement remains
outstanding and unpaid. 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.

L. Craig Hunt
-------------
L. Craig Hunt obtained a judgment against us on February 1, 1999 in the sum of
$61,543.  During fiscal 2001, we reclassified this amount to a settlement
payable, which settlement remains outstanding and unpaid.  To date, plaintiffs
have made no attempt to collect on this judgment.

Mid-America Venture Capital Fund, Inc.
--------------------------------------
Mid-America Venture Capital Funds, Inc. obtained a judgment against us on
August 4, 1997 for a total of $39,336 including principal, interest, and
attorney's fees and costs.  During fiscal 2001, we reclassified this amount to
a settlement payable.  At December 31, 2001, we have paid a total of $6,000
and are currently in arrears on the payment schedule.

Mike Glazer
-----------
A consultant rendered services to a subsidiary during 1996 in the amount of
$17,230 and has brought action for this amount.  We chose not to contest this
case, and the full amount was paid during the year ended December 31, 2001.

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Danny Wirken
------------
We are considering litigation against Danny Wirkin, (one of the brokers
involved in the selling of our stock (which gave rise to the previously
reported litigation with Gruntal & Co.), with the objective of obtaining a
judgment for damages and foreclosing on our obligation under our note to Mr.
Wirkin.  In June 2001, we declared this note and the interest accrued thereon
as invalid and void based on advice from our main legal counsel. Our main
legal counsel further asserted that our obligation has passed the statute of
limitations for Mr. Wirkin to bring an action for collection thereon.

George Brink
------------
George Brink filed suit against us in the year 2000 to collect on a promissory
note in the amount of $37,500.  We chose not to contest this case. During
fiscal 2001, we reclassified this amount to a settlement payable, which
settlement remains outstanding and unpaid.  To date, plaintiffs have made no
attempt to collect on this judgment.

Terrance Dunne
--------------
Terrance Dunne, a former auditor, initiated action against us for payment of
unpaid fees.  In response to the allegations, we have countersued for
reimbursement of fees paid for work not performed.  The outcome of this action
is uncertain.

Creditors' Judgments
--------------------
During 1994 and 1995, we were sued by a number of creditors, which actions we
allowed to go to judgment.  These actions and the consequential judgments
arose as a direct result of our inability to fund our operations and make
payments to our creditors.  The collection judgments, which are substantially
unpaid at December 31, 2001, total approximately $90,000, and are included in
our accounts payable and other obligations.  A settlement has been approved
under which we are scheduled to pay this liability on or before March 31,
2002.

Environmental Protection Agency
-------------------------------
During October 2000, we joined other plaintiffs represented by a public
interest law firm in filing action against the Environmental Protection Agency
(EPA).  The action seeks relief from EPA's practice of using certain
guidelines as a basis for hazard classification and risk assessments pursuant
to the Federal Insecticide, Fungicide and Rodenticide Act.  Plaintiffs claim
that the EPA must use final guidelines promulgated for such reviews.  The
outcome of the case is uncertain as of the date of these financial statements.

Former Officers and Consultant
------------------------------
In September 2000, we received notice from two former officers and a former
consultant that they intend to bring action for nonpayment of back wages.
During May 2001, we issued 188,000 shares of its common stock to one former
officer valued at $47,000 ($0.25 per share) in full settlement.  During August
2001, we paid $5,000 in settlement to another former officer in settlement of
$38,500 claimed as back wages.  The remaining amount in dispute totals $25,745
and we plan to contest the claims.

We are not aware of any other threatened litigation against us or our
subsidiaries.  However, there remains a possibility of litigation against us
and/or our subsidiaries by creditors.

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        ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

We did not submit any matters to a vote of our securities holders in the
fourth quarter ended December 30, 2001.


                                 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 26, 2002, our common stock was quoted under the symbol
"DTCT" and had a high of $0.34 and a low of $0.29.  All bid prices below have
been rounded to the nearest whole cent.

                                                         Bid Prices
                                                       ---------------
     Fiscal Year Ended December 31, 2001               HIGH      LOW
     -----------------------------------              ------    ------
     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

     Fiscal Year Ended December 31, 1999
     -----------------------------------
     Fourth Quarter                                   $ 0.10    $ 0.06
     Third Quarter                                    $ 0.12    $ 0.08
     Second Quarter                                   $ 0.15    $ 0.10
     First Quarter                                    $ 0.15    $ 0.07


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 26, 2001, we had approximately 1,037 shareholders of record based on
information provided by our transfer agent.



<PAGE>
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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. We have emerged from legal battles and management changes
and have worked through many of our financial problems.

In the past year we reorganized management, relocated administration and
production in Heber City, Utah, expanded production capability and hired a
marketing team. While all this has been going on we have narrowed our initial
marketing effort to focus our sales of our FireAnt product to retail outlets.
We intend to pursue penetration into the commercial agriculture and grain
storage markets, but current we have determined that we could penetrate the
FireAnt retail market quickly and meet the Spring 2002 demand for product.

Results of Operations
---------------------
Year ended December 31, 2001 compared to year ended December 31, 2000
---------------------------------------------------------------------
Revenues.  We had revenues of $570,904 and cost of sales of $249,782 with a
gross profit of $321,122 for the year ended December 31, 2001, compared to
revenues of $161,364 and cost of sales of $91,938 with a gross profit of
$69,426 for the prior year period.  The substantial 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.  Our cost of sales
decreased from approximately 57% of revenues in 2000 to approximately 44% of
revenues in 2001.  We anticipate that our cost of sales as a percentage of
revenues will continue to 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, 2001, we had total
operating expenses of $1,427,578 compared to $1,138,196 for prior year, an
overall increase of $289,382. We believe the overall increase in operating
expenses is primarily attributable to increases in executive compensation of
$294,817, distributor expenses of $190,918, other operating expenses of
$112,643, and salaries, wages and benefits of $26,141.  These increases were
offset by decreases of $176,410 in consulting fees and $137,814 in legal and
professional fees.  The increase in executive compensation is a result of our
decision to entering into employment agreements with our officers.  The
increase in distributor expenses is due to our decision to restructure our
distribution strategy.  The increases in other operating expenses and
salaries, wages and benefits are related to increased sales and production
staffing requirements.  The decreases in consulting fees is due to the fact
that certain expenses booked as consulting expenses in the prior year were
booked as executive compensation in fiscal 2001 and outside consulting
services were therefore minimized. The decrease in legal and professional fees
was due to our efforts to bring consolidate certain professional functions,
such as accounting, and bring them in house, as well as maintain tighter
control and scrutiny on legal fees.  We anticipate that our overall operating
expenses may increase 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 Expense.  Other expense for the year ended December 31, 2001
totaled $380,042, consisting primarily of interest and finance fees of
$278,501, loan incentive and guarantee fees of $77,175, and litigation
settlement expense of $20,000.  Other expense for the year ended December 31,
2000 totaled $321,697, consisting primarily of interest expense of $234,284,
loan incentive and guarantee fees of $80,625, and litigation settlement
expense of $8,750. Because we have a substantial 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
accuracy project what these expenses will be.

We experienced a net loss before extraordinary items of $1,486,498 for the
year ended December 31, 2001, compared to $1,390,467 for the year ended
December 31, 2000.  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, reflected in the
financial statements as an extraordinary item as $611,252 gain from debt
forgiveness.  Offsetting this gain, in 2001 we also experienced product
returns due to changes we made in our distribution system which resulted in
loss of $176,176 as an extraordinary item.  There were no extraordinary items
in fiscal 2000.  For purposes of comparison, our losses in fiscal 2001 before
the extraordinary items are comparable with prior periods.  The basic loss per
share before extraordinary items in 2001 was $0.05 per share based on the
weighted average of 30,824,930 shares outstanding.  The basic loss per share
for the year ended December 31, 2000 was $0.06, based on the weighted average
number of shares outstanding of 22,950,545 shares. We cannot predict at this
time whether or not we will experience any gains or losses due to settlement
of debt or other matters, nor do not expect to take any write offs or write
downs during the upcoming fiscal year.

<PAGE>
<PAGE> 14

Liquidity and Capital Resources
-------------------------------
During the year ended December 31, 2001, our liquidity was substantially
derived from the issuance of notes payable and the issuance of common stock
for cash.  Although revenues increased substantially, 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, 2001, we had current assets of $893,703, consisting of cash of
$888, cash in escrow of $400,000 restricted for closing on our new facility in
Heber City, Utah, accounts receivable of $202,660, prepaid interest of
$154,019, prepaid royalties of $26,804, and inventories of $109,332, and
current liabilities of $2,602,313 for a working capital deficit of $1,706,610.
At December 31, 2001, we had property, plant and equipment assets totaling
$170,883, net of depreciation, and other assets of $1,791,322, consisting
primarily of our investment in EPA labels, net of amortization of $1,736,322,
plus deposits of $28,500 and goodwill of $27,050.

Cash used in our operations for the year ended December 31, 2001 was $934,394
compared to $292,243 for the prior year.  In 2001 and 2000, 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,
2001, 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.  In the prior year, cash flows used by investing activities was
$2,444 for the purchase of property, plant and equipment.

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.  Our cash
flows from financing activities during the year ended December 31, 2000 was
$292,911, consisting of $97,000 from a line of credit and $195,911 from the
issuance of notes payable.

During fiscal year 2002, we may seek working capital from several sources,
including the equity markets and private investors.  In February 2002, we
engaged Wood Roberts, LLC to assist us in formulating and developing a
strategic financing plan and to advise and assist us in implementing the plan
with respect to institutional and other sources of equity and/or debt
financing.  The agreement calls for the initial payment of 100,000 shares of
our restricted common stock, with additional fees including cash and issuance
of warrants for the purchase of common stock to be paid upon completion of
certain transactions. We issued the 100,000 shares of our stock to Wood
Roberts in March 2002.  There is no assurance, however, that any fund raising
efforts will be successful.

We believe that in 2002, 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.

<PAGE>
<PAGE> 15

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.


<PAGE>
<PAGE> 16

                               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 26, 2001, 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              54      Director                      March 1999
                                  President                     September 2001
                                  Chairman of the Board         September 2001
John L. Runft             64      Director                      February 1995
                                  Secretary                     August 1997
Robert B. Crouch          77      Director                      October 1993
M. Stewart Hyndman        46      Director                      December 1997
David H. Andrus           37      Director                      July 2001
                                  Vice-President                September 2001
John H. Zenger            67      Director                      December 2001
Nelson A. Carter          56      Director                      December 2001

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> 17

Robert B. Crouch been an Officer and Director for eight years.  Bob received
his BSCE degree from the University of Idaho in 1949 and his LL.B. degree from
George Washington University in 1953.  He has extensive experience in patent
law with the U.S. Naval Bureau of Aeronautics, General Electric, IBM
Corporation and Information Storage Systems. He now maintains a private law
practice in the state of Utah.

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
August 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.

Nelson A. Carter, B.S. Economics & Ag Finance BYU 1969. Nelson has spent time
in Israel and speaks Hebrew. He has over 30 years experience in banking with
First Security, Utah Farm Credit Services and Zions Bank where he is a V.P.
and Commercial Loan Officer.

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


Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Other than those disclosed below, we know of no person, who at any time during
the subsequent fiscal years, was a director, officer, beneficial owner of more
than 10 percent of any class of our equity securities registered pursuant to
Section 12 ("Reporting Person"), that failed to file on a timely basis any
reports required to be furnished pursuant to Section 16(a).

None.

<PAGE>
<PAGE> 18
                  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 $100,000 during such period (as determined
at December 31, 2001, the end of our last completed fiscal year):
<TABLE>
<CAPTION>
                                                         Long Term Compensation
                                                        ----------------------
                     Annual Compensation               Awards       Payouts
                                            Other      Restricted
Name and                                    Annual      Stock     Options  LTIP     All other
Principal Position Year  Salary   Bonus($) Compensation Awards   /SARs    Payout  Compensation
------------------ ----  ------   -------- ------------ -------  -------  ------  ------------
<S>              <C>     <C>     <C>      <C>          <C>      <C>      <C>     <C>

Jay W. Downs       2001  $120,000  -0-       -0-         60,000   -0-      -0-        -0-
C.E.O.(1)


George H Henderson 2001  $ 90,000  -0-       -0-         40,000   -0-      -0-      50,000
C.E.O.(2)          2000  $ -0-     -0-       -0-         -0-      -0-      -0-      19,000
                   1999  $ -0-     -0-       -0-         -0-      -0-      -0-      14,400


David Andrus       2001  $ 90,000  -0-       -0-         40,000   -0-      -0-        -0-
Vice President


</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.

(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.

(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.

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. No bonuses have been authorized
or paid to date.

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 bonuses based on a
proposed employee bonus program.

<PAGE>
<PAGE> 19

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
------------------
There is no current plan for compensating our board members for their
services, however, we have discussed such a plan and may adopt one in the near
future.  As of the date of this report, our Board members are not compensated
for services performed in connection with their duties as Board members.

<PAGE>
<PAGE> 20

    ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth as of March 26, 2002, 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 37,229,082 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
--------     -------------------           --------------------     --------
Common       George H. Henderson              2,135,146                5.74
             1134 North Orchard, Suite 206
             Boise, Idaho 83706

Common       John L. Runft                    1,858,703                5.00
             1134 North Orchard, Suite 206
             Boise, Idaho 83706

Common       Jay W. Downs                     2,154,136                5.79
             875 S. Industrial Parkway
             Heber City, Utah 84032

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                              -see above-
             Director/President
             Chairman of the Board

Common       John L. Runft, Director/Secretary         -see above-

Common       David Andrus, Director             674,000                1.81
                Vice-president

Common       Robert B. Crouch, Director         787,161                2.11

Common       M. Stewart Hyndman, Director       300,800                0.81

Common       John H. Zenger, Director                 -                   -

Common       Nelson A. Carter, Director               -                   -
                                              ----------------
All Officers/Directors as a Group (7 persons) 5,774,800               15.51
                                              ================        ======

<PAGE>
<PAGE> 21

           ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management
----------------------------
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 has notes payable to twenty-four shareholders and one officer totaling
$1,528,714 and $1,086,624 as of December 31, 2001 and 2000, respectively.  See
Note 5.

Our secretary performs services as our main legal counsel.  Legal services
performed by this officer totaled $45,226 and $42,640 for the years ended
December 31, 2001 and 2000, respectively, of which $28,167 are included in
accounts payable - related party at December 31, 2000.

Our former president performed consulting services for us during the first
quarter of 2000.  Consulting services preformed by this former officer totaled
$20,560 for the year ending December 31, 2000.  Included in accounts payable -
related party is $2,628 at December 31, 2000.  No consulting services were
preformed by our former president during the year ending December 31, 2001.

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.  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.  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.

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.

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> 22



                                 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                                             24
Consolidated Balance Sheets as of
 December 31, 2001 and 2000                                              25
Consolidated Statement of Operations for the years ended
 December 31, 2001 and 2000                                              27
Consolidated Statement of Stockholders' Equity
 for the years ended December 31, 2001 and 2000                          28
Consolidated Statement of Cash Flows for the years ended
 December 31, 2001 and 2000                                              30
Notes to Financial Statements                                            32

(a)(2) Financial Statement Schedules.

     Not applicable

(a)(3)Financial Statements.  The following exhibits are included in this
report:

     None.

(b) Reports on Form 8-K. The following reports on Form 8-K were filed with the
Commission during the quarter ended December 31, 2001.

     None.




<PAGE>
<PAGE> 23

                                 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 29, 2002

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

/s/ John L. Runft, 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 29, 2002

/s/ Jay W. Downs, Director

/s/ John L. Runft, Director

/s/ Robert B. Crouch, Director

/s/ David Andrus, Director

/s/ M. Stewart Hyndman, Director

/s/ John H. Zenger, Director

/s/ Nelson A. Carter, Director



<PAGE>
<PAGE> 24

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, 2001 and 2000, 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 audits.

We conducted our audits 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
audits provide 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, 2001 and 2000, 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 14, 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 14.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

As discussed in Note 19 to the financial statements, certain errors resulting
in understatement of previously reported notes payable as of December 31,
2000, were discovered by management of the Company during the current year.
Accordingly, an adjustment has been made to retained earnings as of December
31, 2000, to correct the error.


/S/ Williams & Webster, P.S.

Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
March 22, 2002

<PAGE>
<PAGE> 25
DIATECT INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000

                                                          2001        2000
                                                      ----------   ----------
Assets

CURRENT ASSETS

 Cash                                                $       888  $     3,384
 Cash in escrow                                          400,000            -
 Accounts receivable                                     202,660       58,014
 Prepaid interest                                        154,019       42,550
 Prepaid royalties                                        26,804       37,500
 Inventories                                             109,332      123,975
                                                      ----------   ----------
   Total Current Assets                                  893,703      265,423
                                                      ----------   ----------

PROPERTY, PLANT AND EQUIPMENT
 Mining property                                             540            -
 Building                                                 23,501       23,501
 Furniture & equipment                                   185,180       49,195
 Less accumulated depreciation                           (38,338)     (25,573)
                                                      ----------   ----------
   Total Property, Plant and Equipment                   170,883       47,123
                                                      ----------   ----------
OTHER ASSETS
 Deposits                                                 28,500      150,000
 Goodwill                                                 27,050       27,050
 Investment in EPA labels, net of amortization         1,736,322    2,019,534
                                                      ----------   ----------
   Total Other Assets                                  1,791,872    2,196,584
                                                      ----------   ----------
TOTAL ASSETS                                         $ 2,856,458  $ 2,509,130
                                                      ==========   ==========





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

<PAGE>
<PAGE> 26
DIATECT INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2001 and 2000

                                                          2001        2000
                                                      ----------   ----------
Liabilities and Stockholders' Equity (Deficit)

CURRENT LIABILITIES
 Accounts payable                                    $   259,459  $   234,871
 Accounts payable - related parties                            -       30,795
 Bank overdraft                                           22,268            -
 Deposit payable                                               -       20,000
 Line of credit                                           97,000       97,000
 Interest payable                                        288,928      725,465
 Other accrued liabilities                                16,051        1,021
 Settlements payable                                     214,693            -
 Notes payable                                         1,703,914    1,413,568
                                                      ----------   ----------
   Total Current Liabilities                           2,602,313    2,522,720
                                                      ----------   ----------
COMMITMENTS AND CONTINGENCIES                            461,605      236,923
                                                      ----------   ----------
STOCKHOLDERS' EQUITY (DEFICIT)
 Common stock, no par value; 50,000,000 shares
  authorized; 36,928,161 and 28,716,073 shares
  issued and outstanding, respectively.               13,391,574   12,260,630
 Common stock subscribed                                 (70,000)           -
 Stock options                                            84,901       51,370
 Accumulated deficit                                 (13,613,935) (12,562,513)
                                                      ----------   ----------
   Total Stockholders' Equity (Deficit)                 (207,460)    (250,513)
                                                      ----------   ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)                                     $ 2,856,458  $ 2,509,130
                                                      ==========   ==========






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

<PAGE>
<PAGE> 27
DIATECT INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001 and 2000

                                                          2001        2000
                                                      ----------   ----------
REVENUES                                             $   570,904  $   161,364

COST OF SALES                                            249,782       91,938
                                                      ----------   ----------
GROSS PROFIT                                             321,122       69,426
                                                      ----------   ----------
OPERATING EXPENSES
 Salaries, wages and benefits                             72,155       46,014
 Executive compensation                                  409,937      115,120
 Consulting                                               85,146      261,556
 Depreciation and amortization                           295,977      316,890
 Legal and professional fees                             156,469      294,283
 Distributor expenses                                    190,918            -
 Other operating expense                                 216,976      104,333
                                                      ----------   ----------
   Total Operating Expenses                            1,427,578    1,138,196
                                                      ----------   ----------
OPERATING LOSS                                       $(1,106,456) $(1,068,770)
                                                      ----------   ----------
OTHER INCOME (EXPENSES)
 Interest and finance fees                              (278,501)    (234,284)
 Loan incentive and guarantee fees                       (77,175)     (80,625)
 Litigation settlement                                   (20,000)      (8,750)
 Miscellaneous                                            (4,366)       1,962
                                                      ----------   ----------
   Total Other Income (Expenses)                        (380,042)    (321,697)
                                                      ----------   ----------
LOSS BEFORE EXTRAORDINARY ITEMS                       (1,486,498)  (1,390,467)
                                                      ----------   ----------
EXTRAORDINARY ITEMS
 Product returns distribution system changed            (176,176)           -
 Gain from termination of debt                           611,252            -
                                                      ----------   ----------
   Total Extraordinary Items                             435,076            -
                                                      ----------   ----------
LOSS BEFORE INCOME TAXES                              (1,051,422)  (1,390,467)

INCOME TAXES                                                   -            -
                                                      ----------   ----------
NET LOSS                                             $(1,051,422) $(1,390,467)
                                                      ==========   ==========
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED
 Loss before extraordinary items                     $     (0.05) $     (0.06)
 Net gain from extraordinary itmes                          0.02            -
                                                      ----------   ----------
NET LOSS PER COMMON SHARE                            $     (0.03) $     (0.06)
                                                      ==========   ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING, BASIC AND DILUTED                        30,824,930   22,950,545
                                                      ==========   ==========
The accompanying notes are an integral part of these financial statements.

<PAGE>
<PAGE> 28
DIATECT INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001 and 2000
<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,
 1999 as originally stated    19,535,231  $ 10,366,608  $          -  $    186,238  $(11,134,589) $    (581,743)

Restatement for notes
 payable                               -             -             -             -       (37,457)       (37,457)

Balances as of December 31,
 1999                         19,535,231    10,366,608             -       186,238   (11,172,046)      (619,200)

Issuance of shares for
 guarantee of line of
 credit at $0.10 per share       500,000        50,000             -             -             -         50,000

Issuance of shares to
 contractors, directors
 and others for services
 at $0.25 per share            1,399,591       342,398             -             -             -        342,398

Issuance of shares for
 purchase of investment
 at $0.20 per share              600,000        60,000             -             -             -         60,000

Issuance of shares for
 purchase of rights to
 EPA labels at $0.10
 per share                       110,000        11,000             -             -             -         11,000

Issuance of shares for
 forbearance of notes
 payable at $0.25
 per share                       122,500        30,625             -             -             -         30,625

Issuance of shares to
 officers for exercise
 of options at $0.06
 per share                     1,517,667        91,049             -             -             -         91,049

Issuance of shares
 subscribed                      290,000       186,238             -      (186,238)            -              -

Issuance of shares for
 debt at $0.25 per share       4,291,084     1,072,712             -             -             -      1,072,712

Issuance of shares for
 loan incentive at
 prices ranging from
 $0.10 to $0.25 per share        350,000        50,000             -             -             -         50,000

Options granted to
 officers as bonus for
 new contracts                         -             -        51,370             -             -         51,370

Net loss for the year
 ended, December 31,
 2000                                  -             -             -             -    (1,390,467)    (1,390,467)
                             -----------   -----------   -----------   -----------   -----------   ------------
Balances as of December 31,
 2000                         28,716,073    12,260,630        51,370             -   (12,562,513)      (250,513)
                             -----------   -----------   -----------   -----------   -----------   ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.

<PAGE>
<PAGE> 29
DIATECT INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001 and 2000
<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 (brought forward)       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 shares 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> 30
DIATECT INTERNATIONAL CORP.
CONSOLIDATED CASH FLOW STATEMENTS
December 31, 2001 and 2000

                                                          2001        2000
                                                      ----------   ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                             $(1,051,422) $(1,390,467)
Adjustments to reconcile net loss to net cash
 used by operating activities:
 Gain from debt termination                             (611,252)           -
 Depreciation and amortization                           295,977      316,890
 Issuance of stock for services                          182,000      316,058
 Issuance of stock options for services                   18,890       51,370
 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       76,175      400,096
 Issuance of stock for distributor expense                37,500            -
 Issuance of note payable for distributor expense         50,000            -
 Stock issued for payment of accrued expenses                  -      170,527
 Litigation settlement                                    20,000       20,000
 Accrued settlements and commitments                           -        7,148
 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                                    (144,646)     (53,014)
 Prepaid interest                                          8,906        7,450
 Prepaid royalties                                        10,696            -
 Inventories                                              14,643       57,308
 Accounts payable                                         24,588       38,474
 Accounts payable - related parties                      (30,795)    (202,070)
 Bank overdraft                                           22,268            -
 Advances from officers                                        -       (5,168)
 Deposit payable                                         (20,000)      20,000
 Interest payable                                       (436,537)     (26,225)
 Other accrued liabilities                                15,030         (620)
                                                      ----------   ----------
NET CASH FLOWS USED BY OPERATING ACTIVITIES             (934,394)    (272,243)
                                                      ----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Deposits paid                                            (28,500)           -
Purchase of property, plant and equipment               (106,205)      (2,444)
                                                      ----------   ----------
NET CASH FLOWS USED BY INVESTING ACTIVITIES             (134,705)      (2,444)
                                                      ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit                                   -       97,000
Issuance of common stock for cash                        144,000            -
Payments on settlements                                  (20,730)           -
Payment of notes payable                                (130,667)           -
Proceeds from notes payable                            1,074,000      195,911
                                                      ----------   ----------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES        1,066,603      292,911
                                                      ----------   ----------
NET INCREASE (DECREASE) IN CASH                           (2,496)      (1,776)

CASH AT BEGINNING OF YEAR                                  3,384        5,160
                                                       ---------   ----------
CASH AT END OF YEAR                                   $      888  $     3,384
                                                       =========   ==========
The accompanying notes are an integral part of these financial statements.

<PAGE>
<PAGE> 31
DIATECT INTERNATIONAL CORP.
CONSOLIDATED CASH FLOW STATEMENTS(Continued)
December 31, 2001 and 2000

                                                          2001        2000
                                                      ----------   ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:

Interest expense paid                                $    32,177  $         -

Income taxes paid                                    $         -  $         -

NON-CASH FINANCING ACTIVITIES:
Issuance of common stock for prepaid finance charges $   120,375  $    50,000
Issuance of common stock for services                $   182,000  $   316,058
Issuance of common stock for investment$             $         -  $    60,000
Issuance of common stock for rights to EPA labels    $         -  $    11,000
Issuance of common stock for payment of accrued
expenses                                             $         -  $   170,527
Issuance of common stock for forbearance of
notes payable, finance charges and interest          $    76,175  $   400,096
Issuance of stock options for services               $    18,890  $    51,370
Issuance of common stock for debt                    $   445,540  $   724,971
Issuance of note payable for investment deposit      $         -  $   110,000
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 furniture and equipment $    30,320  $         -
Extension of stock options for services              $     3,984  $         -





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

<PAGE>
<PAGE> 32
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Diatect International Corp. (formerly Applied Earth Technologies, Inc.)
(formerly San Diego Bancorp) (SDBC) 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. on June 5, 1998.

The Company's wholly owned subsidiaries consist of Magic international, Inc.,
Enviro-Guard Corporation, Diatect International, Inc. and D.S.D., Inc.  Apart
from Diatect International, Inc. and Magic International, 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.

National Diatect, Inc.
----------------------
In July 2000, the Company signed a letter of intent to purchase 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 as of the
date of these financial statements.  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 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.

<PAGE>
<PAGE> 33
DIATECT INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Allowance for Doubtful Accounts
-------------------------------
Provision for losses on trade accounts receivable is made in amounts required
to maintain an adequate allowance to cover anticipated bad debts.  Accounts
receivable are charged against the allowance when it is determined by the
Company that payment will not be received.

Inventories
-----------
Inventories consist primarily of 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.

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.  Depletion
is computed using the unit-of-production method, for any mining property
placed in production.  Depreciation expense for the nine months ended December
31, 2001 and 2000 was $12,765 and $10,103, respectively.

Intangible Assets
-----------------
Most intangible assets are amortized over the remaining useful life on a
straight-line basis, which ranges from 15 to 17 years.  EPA labels are
amortized on a straight-line basis over a 15-year life, commencing with the
beginning of product sales.  Amortization expense for the years ended December
31, 2001 and 2000 was $283,212 and $306,787, respectively.

<PAGE>
<PAGE> 34
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.
Goodwill is amortized on a straight-line basis over 15 years.  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.

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, 2001, the Company had net deferred tax assets of approximately
$2,005,000, principally arising from net operating loss carryforwards for
income tax purposes.  As management of the Company cannot determine that it is
more likely than not that the Company will realize the benefit of the net
deferred tax asset, a valuation allowance equal to the net deferred tax asset
has been established at December 31, 2001.

At December 31, 2001, the Company has net operating loss carryforwards of
approximately $13,000,000, which expire in the years 2011 through 2021.

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.

Revenue Recognition Policy
--------------------------
Revenues from sales of product are recognized when the product is shipped.

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 $25,543 and $3,740 in fiscal 2001 and 2000
respectively.  All amounts in the accompanying Consolidated Statements of
Operations and Comprehensive Loss have been reclassified to reflect this
adoption.

<PAGE>
<PAGE> 35
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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, 2001.  The Company has no investment in securities
available-for-sale at December 31, 2001.

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.  This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.  It
requires that an entity recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those instruments at
fair value.

<PAGE>
<PAGE> 36
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Derivative Instruments (Continued)
----------------------------------
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, 2001, 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 the 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.

Accounting Pronouncements
-------------------------
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 does not believe
that the adoption will have a material impact on the financial statements of
the Company at December 31, 2001.

<PAGE>
<PAGE> 37
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounting Pronouncements (Continued)
-------------------------------------
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 and does not believe
that the adoption will have a material impact on the financial statements of
the Company at December 31, 2001.

In June 2001, the FASB 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 is expected to result in an increase in net income
of approximately $283,000 in fiscal 2002. The Company is currently evaluating
the impact of the transitional provisions of the statement.

In September 2000, the FASB 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 Company believes that the adoption of this standard
will not have a material effect on the Company's results of operations or
financial position.

NOTE 3 - INVENTORIES

Inventories at December 31, 2001 and 2000 consist of the following:

<PAGE>
<PAGE> 38
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 3 - INVENTORIES (Continued)

                            December 31,            December 31,
                                2001                   2000
                            ------------            ------------
   Raw Materials           $      32,813           $      26,171
   Finished Goods                 76,519                  97,804
                            ------------            ------------
     Total                 $     109,332           $     123,975
                            ============            ============

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,
2001 and 2000, notes payable consisted of the following:

Creditor and Conditions                                 2001         2000
-----------------------                              ----------   ----------
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       15,000

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

Danny Wirken (a shareholder of the Company),
unsecured, interest at 8%, dated December 31, 1993
due on demand. (See Notes 7 and 17.)                          -      386,581

Subtotal (carried forward)                          $    47,500  $   434,081
                                                     ----------   ----------


<PAGE>
<PAGE> 39
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions (Continued)                     2001         2000
-----------------------                              ----------   ----------
Subtotal (carried forward)                          $    47,500  $   434,081

Max Burdick, unsecured, interest at 18%, dated
November 6, 1996, due February 15, 1997,
delinquent.                                                   -       40,000

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

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, delinquent.                             10,000       25,000

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, delinquent.                           50,000       50,000
                                                     ----------   ----------
Subtotal (carried forward)                          $   399,039  $   840,620
                                                     ----------   ----------

<PAGE>
<PAGE> 40
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions (Continued)                     2001         2000
-----------------------                              ----------   ----------
Subtotal (brought forward)                          $   399,039  $   840,620

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

George H. Henderson, (a shareholder
of the Company), unsecured, interest
at 10%, dated April 14, 2000, due on
December 31, 2000, delinquent.                           50,000       72,957

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.                                              62,445      110,000

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

Futura Title Corporation dba Alliance Title
& Escrow, former shareholders of White
Mountain Mining and Manufacturing, Inc.,
monthly payments of $18,000, 18% interest
with a one-time compounding of interest
effective June 21, 1995, secured by mining
property, (later foreclosed) due September
1994.  Delinquent. (See Note 7).                             -       209,444

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        50,000
                                                     ----------   ----------
Subtotal (carried forward)                          $   591,984  $ 1,305,521
                                                     ----------   ----------

<PAGE>
<PAGE> 41
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions (Continued)                     2001         2000
-----------------------                              ----------   ----------
Subtotal (brought forward)                          $   591,984  $ 1,305,521

Joseph E. Pigg, Jr., unsecured, interest at
10%, dated September 8, 2000, due on
September 8, 2001.                                            -       10,000

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, (shareholder of the
Company), unsecured, interest at 12%,
dated November 7, 2000, due on demand.                        -        1,000

Robert B. Crouch, (officer and shareholder
of the Company), unsecured, interest at 12%,
dated November 16, 2000, due on demand.                   2,610        4,000

John Runft (an officer and shareholder of
the Company) unsecured, interest at 10%,
Dated April 12, 2000, due on demand.                          -       37,457

George H. Henderson, (shareholder of the
Company), unsecured, interest at 12%,
dated October 1, 2000, due on
October 1, 2001.                                              -       42,590

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            -

Gary Hanson (shareholder of the Company),
unsecured, interest at 12%, dated July 24, 2001,
due on October 24, 2001, delinquent.                     20,000            -
                                                     ----------   ----------
Subtotal (carried forward)                          $   677,594  $ 1,413,568
                                                     ----------   ----------

<PAGE>
<PAGE> 42
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 5 - NOTES PAYABLE (Continued)

Creditor and Conditions (Continued)                     2001         2000
-----------------------                              ----------   ----------
Subtotal (brought forward)                          $   677,594  $ 1,413,568

RCK, LLC, (a shareholder of the Company)
unsecured, interest at 12%, dated September
28, 2001, due on demand                                 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.                                         200,000            -

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

Ronald Davis, (a shareholder of the
Company), unsecured, interest at 12%, dated
December 28, 2001, due on June 28, 2002.                 25,000            -

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            -

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            -

Richard Humphries, (a shareholder of the
(Company), unsecured, interest at 12%, dated
October 1, 2001, due on April 1, 2002                    10,000            -
                                                     ----------   ----------
Totals                                              $ 1,703,914  $ 1,413,568
                                                     ==========   ==========

<PAGE>
<PAGE> 43
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 6 - LINE OF CREDIT

At December 31, 2001 and 2000, the Company had $97,000 borrowed on an
outstanding line of credit.  The line of credit was extended to the Company by
a director utilizing his personal line of credit.  This credit facility is
unsecured, has no stated maturity, and bears interest at 12%.


NOTE 7 - 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 commitments and contingencies at
December 31, 2000.  During the period ended December 31, 2001, the Company
reclassified this amount to settlement payable 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 commitments and contingencies at
December 31, 2000.  During the year ended December 31, 2001, the Company
reclassified this amount to settlements payable.  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.

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, 2000,
$60,543 is included in commitments and contingencies in these financial
statements.  During the year ended December 31, 2001, the Company reclassified
this amount to settlements payable.  To date, plaintiffs have made no attempt
to collect on this judgment.

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.  Since that
time, Diatect has paid a total of $6,000 and is currently in arrears on the
payment schedule.  The balance owing is included in commitments and
contingencies in these financial statements at December 31, 2000.  During the
year ended December 31, 2001, the Company reclassified this amount to
settlements payable.

<PAGE>
<PAGE> 44
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 7 - LITIGATION (Continued)

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.  The amount of
$17,230 is included in commitments and contingencies in these financial
statements at December 31, 2000 and was paid in full during the year ended
December 31, 2001.

Danny Wirken
------------
The Company is considering litigation against Danny Wirkin, (one of the
brokers involved in the selling of Diatect stock, which gave rise to certain
litigation for stock manipulation) with the objective of obtaining a judgment
for damages and foreclosing on the Company's obligation under its note to Mr.
Wirkin.  This note is reflected at December 31, 2000 in the principal amount
of $386,581, with accrued interest included in interest payable for the amount
of  $216,570.  During June 2001, the Company declared this note 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
is reflected in the financial statements at December 31, 2001 as an
extraordinary item.  (See Notes 5, and 17.)

Toxikon, Inc.
-------------
Toxikon, Inc. filed suit in 1999 to collect on an unpaid trade account in the
amount of $21,260 plus accrued interest. The debt was paid in full in March
2000 and the case was dismissed.

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 has countersued for reimbursement of fees paid for work not performed.
The outcome of this action is uncertain and, accordingly, no amounts have been
accrued in these financial statements.

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 commitments and contingencies at December 31, 2000.
During the year ended December 31, 2001, the Company reclassified this amount
to settlements payable.

<PAGE>
<PAGE> 45
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 7 - LITIGATION (Continued)

Creditors' Judgments
--------------------
During 1994 and 1995, the Company was sued by a number of creditors, whose
lawsuits were allowed to go to judgment.  These judgments were a result of the
inability of the Company to fund operations and payments to the Company's
creditors.  The collection judgments, which are substantially unpaid at
December 31, 2001 and 2000, total approximately $90,000 and $52,000, and are
included in the Company's accounts payable and other obligations.  A
settlement has been approved whereby this liability is scheduled to be paid in
full on or before March 31, 2002.

Environmental Protection Agency
-------------------------------
During October 2000, the Company joined other plaintiffs represented by a
public interest law firm in filing action against the Environmental Protection
Agency (EPA).  The action seeks relief from the EPA's practice of using
certain guidelines as a basis for hazard classification and risk assessments
pursuant to the Federal Insecticide, Fungicide and Rodenticide Act.
Plaintiffs and the EPA worked out a stipulation for the dismissal of the case
whereby the EPA must use final guidelines promulgated for such reviews.  The
case was dismissed during March 2002 pursuant to this stipulation.

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
to one former officer valued at $47,000 ($0.25 per share) in full settlement.
This amount is included in executive compensation in the attached financial
statement.  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.  The remaining amount in dispute totals
$25,745.  Because the Company plans to contest the related claim which it does
not expect to pay, the amount disputed is not recorded in the accompanying
financial statements.

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

NOTE 8 - COMMON STOCK

In February 2000, the Company increased its authorized capital to 50,000,000
shares of common stock. During the year ended December 31, 2000, the Company
issued 500,000 shares of its common stock valued at $50,000 for the guarantee
of a line of credit, 472,500 shares of its common stock valued at $80,625 for
forbearance on notes payable, 200,000 shares of its common stock valued at
$20,000 for purchase of all outstanding stock of Magic International, Inc.
400,000 shares of its common stock valued at $40,000 for partial purchase of
National Diatect, Inc. and 110,000 shares of its common stock valued at
$11,000 for rights to EPA labels at $0.10 per share.  The Company also issued

<PAGE>
<PAGE> 46
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 8 - COMMON STOCK (Continued)

1,399,591 shares of its common stock valued at $342,398 for services and
4,291,084 shares of its common stock valued at $1,072,712 for debt at $0.25
per share.  The stock was valued at its market value on the date of issuance.
Two officers also exercised options to purchase 1,517,667 shares of the
Company's common stock valued at $91,049 at $0.06 per share for partial
payment of accrued consulting and legal fees.

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 fair market value 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.

NOTE 9 - COMMON STOCK SUBSCRIBED

In 1996, the Company agreed to convert outstanding debts to certain
individuals into common stock.  This common stock was not issued until August
2000 and was treated as common stock subscribed but not issued.  The following
individuals were owed common stock to satisfy the amount of these debts:

   Ross S. Wolfley     $    22,500
   G. Reeve                163,738
                        ----------
     Total             $   186,238
                        ==========

During August 2000, the Company issued 200,000 shares of its common stock to
G. Reeve and 90,000 shares of its common stock to Ross S. Wolfley, in full
payment of the above subscriptions.

During the year ended December 31, 2001, the Company sold stock valued at
$170,000 and received $100,000.  The remaining $70,000 is reflected in the
attached financial statements as stock subscription receivable.  See Note 8.



<PAGE>
<PAGE> 47
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 10 - STOCK OPTIONS

The Company has a 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 may be
subject to, or issued pursuant to the terms of the plan.

Following is a summary of the status of these performance-based options during
the years ended December 31, 2001 and 2000:

                                                        Weighted Average
                                     Number of Shares   Price per Share
                                     ----------------   ----------------
 Outstanding at December 31, 1999          894,636            $0.06
 Granted                                 1,122,335             0.06
 Exercised                              (1,517,667)            0.06
 Expired or forfeited                            -                -
                                     ----------------   ----------------
 Outstanding at December 31, 2000          499,304            $0.06
                                     ================   ================
 Options exercisable at
  December 31, 2000                        499,304            $0.06
                                     ================   ================
 Weighted average fair value of
  options granted during 2000                $0.05
                                     ================



 Outstanding at December 31, 2000          499,304            $0.06
 Granted                                 1,100,000             0.18
 Exercised                                (499,304)            0.06
 Expired or forfeited                            -                -
                                     ----------------   ----------------
 Outstanding at December 31, 2001        1,100,000            $0.18
                                     ================   ================
 Options exercisable at
  December 31, 2001                      1,100,000            $0.18
                                     ================   ================
 Weighted average fair value of
  options granted during 2001                $0.08
                                     ================



                                                        Weighted Average
 Exercise Date                       Number of Shares   Price per Share
                                     ----------------   ----------------
 On or before February 1, 2002             600,000            $0.25
 On or before December 31, 2004            500,000            $0.10


<PAGE>
<PAGE> 48
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 10 - STOCK OPTIONS (Continued)

SFAS No. 123 requires the Company to provide pro forma information regarding
net loss and loss per share as if compensation cost for the Company's stock
option plan had been determined in accordance with the fair value based method
prescribed by SFAS No. 123.  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: 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, 2001 and 2000 was $0.08 and $0.05 per option, respectively.
Compensation cost charged to operations was $18,890 and $51,370 during the
years ended December 31, 2001 and December 31, 2000, 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.

NOTE 11 - 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 12 - COMMITMENTS AND CONTINGENCIES

The Company is obligated to pay certain notes and settlements under judgments
awarded to outside parties.  (Note 7.)  These amounts, included in commitments
and contingencies as December 31, 2000, are as follows:

                                            December 31,
                                        2001         2000
                                     ----------   ----------
 Futura Title Corporation dba
  Alliance Title & Escrow           $   461,605  $         -
 L. Craig Hunt                                -       61,543
 Mid-America Venture
  Capital Fund, Inc.                          -       37,336
 Sloan, Listrom, Eisenbarth,
  Sloan & Glassman, LLC                       -       40,166
 Ogilvy, Adams & Rinehart                     -       36,000
 Mike Glazer                                  -       17,230
 George Brink                                 -       44,648
                                     ----------   ----------
                                    $   461,605  $   236,923
                                     ==========   ==========

In the year ending December 31, 2001, the Company reclassified $214,693 in
commitments as outstanding settlements payable.  The $17,230 owed to Mike
Glazer was paid in full during the year ended December 31, 2001.
<PAGE>
<PAGE> 49
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)

Futura Title Corporation
------------------------
During the year ended December 31, 2001, the Company reclassified a note
payable to Futura Title Corporation dba Alliance Title & Escrow plus interest
accrued thereon to commitments and contingencies in the total amount of
$461,605.  The Company is currently negotiating a settlement agreement on this
liability.  Although the outcome is uncertain, the Company expects to settle
for considerably less.

National Diatect, Inc.
----------------------
In July 2000, the Company signed a letter of intent to purchase National
Diatect, Inc. The agreement is subject to ratification by the board of
directors and has not been finalized as of the date of these financial
statements.  See Note 1.

Lease Commitments
-----------------
The Company leased office facilities in Boise, Idaho from an individual
through March 2000.  The lease was a month-to-month handshake agreement, with
payments of $550.  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.

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.

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.  The transaction, if
consummated, would be a related party event because IXG's president and
principal shareholder is also a shareholder of Diatect.  At December 31, 2001,
Magic had no assets or liabilities.


<PAGE>
<PAGE> 50
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 13 - RELATED PARTY TRANSACTIONS

Diatect International Corp. has notes payable to twenty-four shareholders and
one officer totaling $1,528,714 and $1,086,624 as of December 31, 2001 and
2000, respectively.  See Note 5.

The Company's secretary performs services as the Company's main legal counsel.
Legal services performed by this officer totaled $45,226 and $42,640 for the
years ended December 31, 2001 and 2000, respectively, of which $28,167 are
included in accounts payable - related party at December 31, 2000.

The Company's former president performed consulting services for the Company
during the first quarter of 2000.  Consulting services preformed by this
former officer totaled $20,560 for the year ending December 31, 2000.
Included in accounts payable - related party is $2,628 at December 31, 2000.
No consulting services were preformed by the Company's former president during
the year ending December 31, 2001.

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 January 2001, the Company's president
received a signing bonus of 350,000 options for the purchase of shares of
common stock.  The Company also had an employment contract to pay the
Company's former president annual compensation of $120,000.  See Note 10.
Executive compensation totaled $409,937 for the year ended December 31, 2001.

The Company's 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 stock.  See Note 18.

NOTE 14 - GOING CONCERN

As shown in the financial statements, the Company incurred a net loss before
extraordinary item of $1,486,498 for the year ended December 31, 2001 and has
an accumulated deficit of $13,613,935 at December 31, 2001.  The Company has
negative equity, negative working capital, unsatisfied collection judgments,
and is delinquent in repaying its debt obligations.

These factors indicate that 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 as follows:

Management's plans are increased product placement and sales and the sale of
new stock issuances, which are expected to raise the capital needed to satisfy
collection judgments and repay debt obligations.  Through the acquisition of
Magic International, Inc., management has taken measures to increase product
markets.

<PAGE>
<PAGE> 51
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 15 - MINING PROPERTY

The Company formerly owned a majority interest (89.125%) in White Mountain,
which had unpatented mining claims located in Malheur County, Oregon. During
1998, the Company lost its controlling interest in White Mountain stock,
including the mining claims, which had been pledged as collateral and was
foreclosed on by note holders.  (Note 7.)  During September 2001, the Company
was able to reacquire title to these unpatented mining claims by paying the
filing fees, which had become delinquent.


NOTE 16 - BUSINESS SEGMENT AND GEOGRAPHICAL AREA DATA

The Company's operations are classified into two principal reporting segments
based upon geographical location.  Separate accounting for each segment is
required due to varying strategies used by the Company in each location.

The table below presents information about the Company's reportable segments:

                                     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> 52
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 16 - BUSINESS SEGMENT AND GEOGRAPHICAL AREA DATA (Continued)

                                       Year Ended December 31, 2000
                          Kansas        Idaho     Eliminations   Consolidated
                        ----------   ----------   ------------   ------------
External revenue       $   158,770  $   120,772  $    (118,178) $     161,364
                        ==========   ==========   ============   ============
Operating income (loss)$    (6,563) $(1,185,397) $     118,178  $  (1,073,782)
                        ==========   ==========   ============
Corporate Expenses                                                   (316,685)
                                                                 ------------
 Total net income (Loss)                                        $  (1,390,467)
                                                                 ============
Depreciation and
 Amortization          $       903  $   315,987  $           -  $     316,890
                        ==========   ==========   ============   ============
Interest expense
 and finance charges   $     1,209  $   308,688  $           -  $     309,897
                        ==========   ==========   ============   ============
Identifiable assets    $   307,295  $ 2,377,645  $    (175,810) $   2,509,130
                        ==========   ==========   ============
General corporate assets                                                    -
                                                                 ------------
 Total assets                                                   $   2,509,130
                                                                 ============

Kansas operations, the first reportable segment, performed services including
mixing and distribution of pesticide products during 2000. Idaho/Utah
operations, the second reportable segment, manufactures product and generates
sales revenues.


NOTE 17 - EXTRAORDINARY ITEMS

In June 2001, a former supplier agreed to write off a balance owed in the
amount of $8,100.  This is reflected in the financial statement as gain from
debt forgiveness. During June 2001, the Company also declared a note payable
to Danny Wirken 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 is reflected in the financial statements at
December 31, 2001 as an extraordinary item in the amount of $603,152.  (See
Notes 5, and 12.)

During the fourth quarter of the year ended December 31, 2001, the Company
experienced extraordinary product returns in the amount of $214,355.  The
inventory cost of the returned products was $38,179, which resulted in a net
loss of $176,176 for the change of distributor relationships.  The returns
resulted from the Company's efforts to restructure its distribution markets.

<PAGE>
<PAGE> 53
DIATECT INTERNATIONAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001

NOTE 18 - SUBSEQUENT EVENTS

Purchase of Facilities
----------------------
During October 2001, the Company relocated both its office and operating
facilities to Heber City, Utah.  The Company is currently negotiating the
purchase of its new facilities at a cost of $825,000.  Under terms of the
agreement, the Company may continue occupying the facilities with no charge
until closing occurs but not longer than July 2002.  Other terms of the
agreement call 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 and will be used for
closing on the building.  The Company occupied the facilities on October 10,
2001 and closing is scheduled to occur in July 2002.

Note Payable Conversion
-----------------------
Subsequent to the date of these financial statements, the Company's president
exercised rights to convert his note payable to 86,629 shares of the Company's
common stock at $0.35 per share.  See Note 5.

NOTE 19 - CORRECTION OF AN ERROR

The accompanying financial statements for December 31, 2000 have been restated
to correct an error made in understating a related party note payable by
$37,457 in the year ended December 31, 2000 and prior years.  The restatement
had no effect on the net loss for the year ended December 31, 2000.
Accumulated deficit has been adjusted for the effects of the restatement on
prior years.  The Company realized no tax effect from this transaction.  See
Note 2.