UNITED
      STATES


SECURITIES
      AND EXCHANGE
      COMMISSION


Washington,
      D.C. 20549








FORM
      10-QSB








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





For
      the
      quarterly period ended September 30, 2007





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





For
      the
      transition period from_____ to _____








Commission
      File Number: 0-10147








Diatect
      International
      Corporation


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








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








875
      South Industrial
      Parkway, Heber City, Utah 84032


(Address
      of principal executive offices)





(435)
      654-4370


(Issuer’s
      telephone number)








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





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




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





Transitional
      Small Business Disclosure Format: Yes oNox














1








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







































































2





DIATECT
      INTERNATIONAL CORPORATION


CONDENSED
      BALANCE SHEETS


(Uuaudited)





September
                30,
            
            
            December
                31,2007
            
            
            2006ASSETSCurrent
                AssetsCash
            
            $
            61,212
            
            
            $
            61,743Trade
                accounts receivable, net of allowance for doubtful accounts of $41,047
                and
                $25,397, respectively
            
            
            157,897
            
            
            
            26,502Inventory
            
            
            386,870
            
            
            
            235,889Prepaid
                expenses and other current assets
            
            
            211,749
            
            
            
            147,219Total
                Current Assets
            
            
            817,728
            
            
            
            471,353Property
                and Equipment,
                net of accumulated depreciation of $137,183 and $268,275,
                respectively
            
            
            229,896
            
            
            
            90,006Intangible
                Assets - EPA Labels
            
            
            1,116,322
            
            
            
            1,116,322Total
                Assets
            
            $
            2,163,946
            
            
            $
            1,677,681LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                LiabilitiesTrade
                accounts payable
            
            $
            133,530
            
            
            $
            267,840Accrued
                liabilities
            
            
            128,426
            
            
            
            289,322Accrued
                interest payable
            
            
            943,125
            
            
            
            723,545Accrued
                settlement obligations
            
            
            108,777
            
            
            
            259,381Deferred
                gain on sale and leaseback of assets
            
            
            95,876
            
            
            
            -Current
                portion of notes payable, net of unamortized discount of $177,861
                and
                $191,094, respectively
            
            
            2,058,622
            
            
            
            1,393,822Current
                portion of capital lease obligations
            
            
            45,579
            
            
            
            -Total
                Current Liabilities
            
            
            3,513,935
            
            
            
            2,933,910Long-Term
                LiabilitiesNotes
                payable, net of current portion
            
            
            1,885,563
            
            
            
            1,785,563Capital
                lease obligations, net of current portion
            
            
            101,262
            
            
            
            -Total
                Long-Term Liabilities
            
            
            1,986,825
            
            
            
            1,785,563Stockholders'
                DeficitCommon
                stock, no par value; 300,000,000 shares authorized;
              160,152,140
                shares and 151,552,140 shares outstanding, respectively
            
            
            23,723,734
            
            
            
            23,120,610Additional
                paid-in capital
            
            
            623,756
            
            
            
            593,162Accumulated
                deficit
            
            
            (27,684,304
            )
            
            
            (26,755,564
            )Total
                Stockholders' Deficit
            
            
            (3,336,814
            )
            
            
            (3,041,792
            )Total
                Liabilities and Stockholders' Deficit
            
            $
            2,163,946
            
            
            $
            1,677,681







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





3





DIATECT
      INTERNATIONAL CORPORATION


CONDENSED
      STATEMENTS OF OPERATIONS


(Unaudited)





Three
                Months Ended September 30,
            
            
            Nine
                Months Ended September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Sales
            
            $
            657,274
            
            
            $
            275,517
            
            
            $
            1,517,615
            
            
            $
            853,637Cost
                of Goods Sold
            
            
            133,427
            
            
            
            64,913
            
            
            
            313,494
            
            
            
            263,781Gross
                Profit
            
            
            523,847
            
            
            
            210,604
            
            
            
            1,204,121
            
            
            
            589,856ExpensesMarketing
                and selling
            
            
            303,234
            
            
            
            107,586
            
            
            
            696,011
            
            
            
            312,606General
                and administrative
            
            
            458,379
            
            
            
            1,148,877
            
            
            
            1,223,903
            
            
            
            1,880,859Total
                Expenses
            
            
            761,613
            
            
            
            1,256,463
            
            
            
            1,919,914
            
            
            
            2,193,465Loss
                from Operations
            
            
            (237,766
            )
            
            
            (1,045,859
            )
            
            
            (715,793
            )
            
            
            (1,603,609
            )Other
                Income (Expense)Interest
                expense
            
            
            (184,759
            )
            
            
            (58,999
            )
            
            
            (472,799
            )
            
            
            (236,330
            )Gain
                from termination of debt
            
            
            96,132
            
            
            
            138,500
            
            
            
            259,852
            
            
            
            616,970Net
                Other Income (Expense)
            
            
            (88,627
            )
            
            
            79,501
            
            
            
            (212,947
            )
            
            
            380,640Net
                Loss
            
            $
            (326,393
            )
            
            $
            (966,358
            )
            
            $
            (928,740
            )
            
            $
            (1,222,969
            )Basic
                and Diluted Loss Per Share
            
            $
            (0.00
            )
            
            $
            0.00
            
            
            $
            (0.01
            )
            
            $
            (0.01
            )Weighted-Average
                Basic and Diluted Common Shares Outstanding
            
            
            159,841,857
            
            
            
            148,913,259
            
            
            
            156,028,923
            
            
            
            122,448,336

























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





4





DIATECT
      INTERNATIONAL CORPORATION


CONDENSED
      STATEMENTS OF CASH FLOWS


(Unaudited)





Nine
                Months Ended September 30,2007
            
            
            2006Cash
                Flows from Operating ActivitiesNet
                loss
            
            $
            (928,740
            )
            
            $
            (1,222,969
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            40,279
            
            
            
            41,317Amortization
                of discount on notes payable
            
            
            232,050
            
            
            
            9,830Amortization
                of loan costs
            
            
            45,039
            
            
            
            4,815Gain
                from debt termination
            
            
            (259,852
            )
            
            
            (616,970
            )Net
                (gain) loss on disposal of property and equipment
            
            
            (12,483
            )
            
            
            6,728Issuance
                of stock for services
            
            
            43,250
            
            
            
            898,660Issuance
                of warrants for services
            
            
            192,716
            
            
            
            307,682Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (131,396
            )
            
            
            (43,094
            )Inventory
            
            
            (150,981
            )
            
            
            55,371Prepaid
                expenses and other current assets
            
            
            (5,634
            )
            
            
            (4,076
            )Accounts
                payable
            
            
            (30,572
            )
            
            
            357,161Accrued
                liabilities
            
            
            (69,386
            )
            
            
            (246,022
            )Accrued
                interest payable
            
            
            219,580
            
            
            
            139,909Net
                Cash Used in Operating Activities
            
            
            (816,130
            )
            
            
            (311,658
            )Cash
                Flows from Investing ActivitiesPayments
                for purchases of property and equipment
            
            
            (71,811
            )
            
            
            (5,170
            )Proceeds
                from sale of property and equipment
            
            
            160,000
            
            
            
            -Net
                Cash Used in Investing Activities
            
            
            88,189
            
            
            
            (5,170
            )Cash
                Flow from Financing ActivitiesProceeds
                from borrowings under notes payable
            
            
            883,535
            
            
            
            655,628Proceeds
                from exercise of warrants
            
            
            75,000
            
            
            
            -Cash
                paid for loan costs
            
            
            -
            
            
            
            (58,500
            )Principal
                payments on notes payable
            
            
            (121,968
            )
            
            
            (162,000
            )Principal
                payments on lease obligation
            
            
            (13,157
            )
            
            
            -Payments
                for accrued settlement obligations
            
            
            (96,000
            )
            
            
            (73,125
            )Payments
                on checks drawn in excess of cash in bank
            
            
            -
            
            
            
            (10,481
            )Net
                Cash Provided by Financing Activities
            
            
            727,410
            
            
            
            351,522Net
                Increase (Decrease) in Cash
            
            
            (531
            )
            
            
            34,694Cash
                at Beginning of Period
            
            
            61,743
            
            
            
            6,382Cash
                at End of Period
            
            $
            61,212
            
            
            $
            41,076










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





5





DIATECT
      INTERNATIONAL CORPORATION


CONDENSED
      STATEMENTS OF CASH FLOWS (continued)


(Unaudited)





Nine
                Months Ended September 30,2007
            
            
            2006Supplemental
                Disclosure of Cash Flow InformationCash
                paid for interest
            
            $
            16,099
            
            
            $
            9,113Supplemental
                Schedule of Noncash Investing and Financing ActivitiesConversion
                of notes payable into common stock
            
            $
            -
            
            
            $
            150,000






























































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








6





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





NOTE
      1 – BUSINESS AND ORGANIZATION, BASIS OF PRESENTATION





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




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




NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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





Business
      Condition–
The Company
      generated sales of $1,517,615 and incurred a net loss of $928,740
      during the nine months ended September 30, 2007. At September 30, 2007 the
      Company had a total stockholders’ deficit of $3,336,814 and its current
      liabilities exceeded current assets by $2,696,207.





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





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





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





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





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








7





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





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





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





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





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





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





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




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








8





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





September
                30
            
            
            September
                302007
            
            
            2006Outstanding
                warrants
            
            
            29,000,000
            
            
            
            32,150,000Convertible
                promissory notes convertible into:Common
                stock
            
            
            29,420,000
            
            
            
            8,200,000Warrants
            
            
            29,420,000
            
            
            
            8,200,000Total
                potentially dilutive common shares
            
            
            87,840,000
            
            
            
            48,550,000





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





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





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





9





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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




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





NOTE
      2 – INVENTORY





Inventory
      is comprised of the following:





September
                30
            
            
            December
                31,2007
            
            
            2006Raw
                materials
            
            $
            349,913
            
            
            $
            202,291Finished
                goods
            
            
            36,957
            
            
            
            33,598Total
                Inventory
            
            $
            386,870
            
            
            $
            235,889





NOTE
      3 – PROPERTY AND EQUIPMENT





Property
      and equipment are stated at cost. Expenditures for normal repairs and
      maintenance are charged to operations as incurred. The cost of an asset and
      related accumulated depreciation are also charged to operations when retired
      or
      otherwise disposed. Depreciation is computed based on the estimated useful
      life
      of the assets using straight-line and accelerated methods. Depreciation expense
      for the nine months ended September 30, 2007 and 2006 was $40,279 and $41,317,
      respectively. The components of property and equipment are as
      follows:








10





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





EstimatedUseful
                Life
            
            September
                30
            
            
            December
                31,in
                Years
            
            2007
            
            
            2006Computer
                equipment
            
            3
                to 5
            
            $
            86,117
            
            
            $
            81,329Office
                furniture and equipment
            
            5
            
            
            51,054
            
            
            
            31,432Manufacturing
                equipment
            
            3
                to 10
            
            
            229,908
            
            
            
            245,610Total
                Property and Equipment
            
            
            
            
            367,079
            
            
            
            358,371Less:
                Accumulated depreciation
            
            
            
            
            (137,183
            )
            
            
            (268,275
            )Net
                Property and Equipment
            
            
            
            $
            229,896
            
            
            $
            90,096





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








NOTE
      4 – NOTES PAYABLE





Notes
      payable is comprised of the following:





September
                30
            
            
            December
                31,2007
            
            
            2006Revolving
                line of credit with financial institution
            
            $
            49,471
            
            
            $
            49,436Accounts
                receivable line of credit
            
            
            100,000
            
            
            
            -Cash
                advances from shareholder, unsecured
            
            
            97,000
            
            
            
            97,000Unsecured
                10% notes payable to investors, in default
            
            
            292,512
            
            
            
            306,980Unsecured
                12% notes payable to investors, in default
            
            
            40,000
            
            
            
            50,000Unsecured
                15% notes payable to investors, in default
            
            
            286,500
            
            
            
            286,500Unsecured
                12% convertible promissory notes payable, net of unamortized discount
                of
                $177,861 and $191,094, respectively
            
            
            1,293,139
            
            
            
            603,906Unsecured
                5% notes payable to shareholders, due in 2008
            
            
            1,220,937
            
            
            
            1,220,937Unsecured
                5% notes payable to vendors, due in 2008
            
            
            564,626
            
            
            
            564,626Total
                Notes Payable
            
            
            3,944,185
            
            
            
            3,179,385Less:
                Current portion
            
            
            2,058,622
            
            
            
            1,393,822Long-Term
                Notes Payable
            
            $
            1,885,563
            
            
            $
            1,785,563





Revolving
      Lines
      of Credit – The Company currently has unsecured, revolving credit
      notes with a financial institution totaling $49,471. The line of credit bears
      interest at 9.75% per annum, is due on demand and requires monthly interest
      only
      payments. The line is unsecured and is personally guaranteed by a former
      director of the Company.





Accounts
      Receivable Line of Credit – On September 20, 2007 the Company
      entered into an accounts receivable loan agreement with Aspen Opportunity Fund,
      L.P. for advances up to $500,000 in $5,000 increments, subject to maintaining
      a
      borrowing base of 80% of eligible accounts receivable as defined in the
      agreement. The Note bears interest at a rate of 12.0%, is secured by eligible
      accounts receivable as defined in the agreement, requires monthly interest
      payments and is due on September 30, 2009.  Mandatory prepayments of
      principal are required in the event that the eligible borrowing base falls
      below
      amounts advanced under the agreement.  In conjunction with the loan
      agreement, the Company issued a five year warrant to purchase 4,000,000 shares
      of the Company’s common stock at an exercise price of $0.075 per share. The
      warrant was valued at $169,294 and was recorded as prepaid expenses and other
      assets and amortized over the life of the loan.  A total of $2,285 was
      amortized for the nine months ended September 30, 2007.








11





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





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





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





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





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





Convertible
      Promissory Notes Payable–In
      June 2006, the Company commenced a private placement offering of convertible
      promissory notes. From June through December 31, 2006, the Company issued
      $795,000 of convertible promissory notes. During the nine months ended September
      30, 2007, the Company issued an additional $533,500 of convertible promissory
      notes.  Based upon the market price of the Company’s common stock on
      the dates the notes were issued during the nine months ended September 30,
      2007,
      the investors received a beneficial conversion option of $64,421. The beneficial
      conversion option was computed as the difference between the fair value and
      the
      allocated proceeds of the common stock issuable upon conversion of the
      promissory notes. The recognition of the beneficial conversion option resulted
      in a discount to the notes payable that is being amortized over the term of
      the
      convertible notes using the effective interest method.  A total of
      $206,756 and $9,830 was recognized as interest expense during the nine months
      ended September 30, 2007 and 2006 for all notes issued pursuant to the private
      placement.





The
      convertible promissory notes bear interest at 12% per annum, are unsecured
      and
      are due one year from the date of issuance. The effective interest rates of
      the
      notes issued range from 12% to 39%. The notes are convertible into units at
      $0.05 per unit, each unit consisting of one share of common stock and one
      warrant to purchase one share of common stock at $0.075 per share for a period
      of three years from the date of issuance. Thus, the notes are convertible into
      an aggregate of 24,420,000 shares of common stock and warrants to purchase
      an
      additional 24,420,000 shares of common stock. The Company has the option to
      redeem the notes at their face value plus accrued interest if the average market
      price of the Company’s common stock is $0.10 per share for a period of twenty
      consecutive days. In conjunction with this offering, the Company paid Pointe
      loan fees of $63,600 in 2006 that were capitalized and included in prepaid
      expenses and other assets. The loan costs are being amortized over the terms
      of
      the respective notes.  A total of $42,754 and $4,815 of amortization
      was recorded for the nine months ended September 30, 2007 and 2006,
      respectively.








12





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





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





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





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




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





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





NOTE
      5 – SETTLEMENT OBLIGATIONS AND LITIGATION CLAIMS





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

















13





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





The
      accrued settlement obligations include the following:





September
                30
            
            
            December
                31,2007
            
            
            2006Complete
                Packaging, LLC d.b.a. Compax
            
            $
            -
            
            
            $
            69,622Litho-Flexo
                Graphics, Inc.
            
            
            63,283
            
            
            
            63,283Williams
                & Webster
            
            
            -
            
            
            
            54,564Xerox
            
            
            17,590
            
            
            
            17,590National
                Bulk
            
            
            -
            
            
            
            20,418Downs
                and Parkinson
            
            
            27,904
            
            
            
            33,904Total
            
            $
            108,777
            
            
            $
            259,381





Complete
      Packaging, LLC d.b.a. Compax– On October 17, 2003, Complete Packaging,
      LLC, doing business as Compax, filed a complaint in the Third  
District   Court   of   Salt   Lake   County, State of
      Utah, naming the Company as the defendant. Compax contended that the Company
      failed to make payment of a trade payable that, with interest and costs amounted
      to $323,892, which   amount continued to accrue interest from November 30,
      2004. The complaint concluded in Compax obtaining a judgment against the
      Company. During 2005, the Company entered into a settlement agreement with
      Compax that required the Company to make three monthly payments of $25,000
      through May 2005 and a lump sum payment of $145,000 in June 2005. As a result,
      the Company accrued a $220,000 settlement obligation liability at December
      31,
      2004. The Company made two of the monthly payments but failed to make the
      remaining payments due under the terms of the settlement agreement. In July
      2006, the Company and Compax reached a further agreement dated June 6, 2006
      under which Compax agreed to accept payment of $150,000 in total satisfaction
      of
      the Company’s obligation. The Company paid $75,000 of this obligation during
      2006 and $69,622 during the nine months ended September 30, 2007, which resulted
      in the Company being released from the judgment.





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





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





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











14





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





NOTE
      6 – COMMITMENTS AND CONTINGENCIES





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





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





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





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





On
      May
      22, 2007 the Company entered into a Master Lease Line with Gulf Pointe Capital,
      LLC.  The terms of the lease line provide a credit limit of $500,000
      that can be used for various new and used tier one production, material
      handling, computer, technology and fixture related equipment. Upon entering
      into the lease agreement, the Company sold certain manufacturing, computer
      and
      office furniture and equipment to Pointe for $160,000 and leased the assets
      back
      from Pointe under the terms of a three-year lease agreement. The assets sold
      had
      a net book value of $51,152.  The resultant gain on sale of $108,848
      was deferred and is being recognized over the three-year term of the capital
      lease obligation. During the nine months ended September 30, 2007, the Company
      recognized $12,972 of this gain. In connection with entering into the lease
      for
      the equipment, the Company recognized a $160,000 capital lease obligation which
      bears interest at a rate of 21.5% and requires payments of principal and
      interest of $6,069 per month over the 36-month term of the lease. The $160,000
      of assets acquired under the capital lease obligation are being depreciated
      over
      the three-year term of the lease. The following is a schedule by years of future
      minimum lease payments under the capital leases together with the present value
      of the net minimum lease payments as of September 30, 2007:








15





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





Years
                ending December 31:2007
            
            $
            18,2062008
            
            
            72,8262009
            
            
            72,8262010
            
            
            30,344Total
                minimum lease payments
            
            
            194,202Less:  Amount
                representing interest
            
            
            (47,361
            )Present
                value of minimum lease payments
            
            
            146,841Less:
                Current portion
            
            
            (45,579
            )Capital
                lease obligations, long-term
            
            $
            101,262





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





NOTE
      7 - COMMON STOCK





During
      the nine months ended September
      30, 2007, the Company issued 500,000 shares valued at $20,000 or $0.04
      per share, 250,000 shares of common stock valued at $7,500 or $0.03 per share
      as
      compensation to employees, 100,000 shares of common stock as compensation to
      an
      employee valued at $4,500 or $0.045 per share and 250,000 shares to a vendor
      for
      services valued at $11,250 or $0.045 per share. The value represents the market
      price of the Company’s common stock on the dates of issuance.





NOTE
      8 - STOCK WARRANTS





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





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








16





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





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





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





Weighted-AverageExercise
            
            Warrants
            
            Remaining
                Contractual
            
            NumberPrice
            
            Outstanding
            
            Life
                (Years)
            
            Exercisable$0.01
            
            20,000,000
            
            2.1
            
            20,000,000$0.05
            
            9,000,000
            
            4.7
            
            9,000,00029,000,000
            
            
            
            29,000,000





NOTE
      9 – SUBSEQUENT EVENTS





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





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





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





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





Administrative
      Proceeding – U.S. Securities and Exchange Commission





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








17





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





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




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



























































18





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




Forward
      Looking Statements




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




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





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





Overview





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





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





Results
      of Operations





Comparison
      results for the three months ended September 30, 2007





Revenues
      for the three months ended September 30, 2007 were $657,274 as compared to
      $275,517 for the three months ended September 30, 2006, an increase of $381,757.
      The increase is due to an increase in sales to the agriculture supply market
      and
      increases in internet based sales.





Cost
      of
      revenues for the three months ended September 30, 2007 were $133,427 as compared
      to $64,913 for the three months ended September 30, 2006, an increase of
      $68,514. The increase is due to higher sales volumes partially offset by lower
      pricing. The Company was able to negotiate reduced pricing with a vendor for
      certain key materials used in the production of their products and as a result
      their cost to manufacture the product has decreased.





Marketing
      and selling expenses were $303,234 for the three months ended September 30,
      2007
      as compared to $107,586 for the three months ended September 30, 2006, an
      increase of $195,648. The increase is primarily due increases in salaries paid
      and an increase in internet marketing in the three months ended September 30,
      2007.





19





General
      and administrative expenses were $458,379 for the three months ended September
      30, 2007 as compared to $1,148,877 for the three months ended September 30,
      2006, a decrease of $690,498. Included in the amount for the three months ended
      September 30, 2006 are the value of stock issuances to our Chief Executive
      officer of $189,207 and issuances of common stock for professional fees in
      the
      aggregate amount of $550,306 for which no current period amount
      exists.





Other
      income and expense is comprised of interest expense and gain from termination
      of
      debt. Interest expense was $184,759 for the three months ended September 30,
      2007 as compared to $58,999 for the three months ended September 30, 2006,
      an
      increase of $125,760.  Included in interest expense is the
      amortization of discount related to the convertible promissory notes in the
      amount of $90,148 and $9,830 for the three months ended September 30, 2007
      and
      2006, respectively.  The remaining increase is due to higher levels of
      debt during the three months ended September 30, 2007.  Gain from
      termination of debt was $96,132 for the three months ended September 30, 2007
      as
      compared to $138,500 for the three months ended September 30, 2006, a decrease
      of $42,368.  The gain for the three months ended September 30, 2006
      pertains primarily to the settlement of certain tax liabilities at less than
      the
      recorded value.  The gain for the three months ended September 30,
      2006 pertains to the settlement of a note payable for less than its recorded
      value.





Comparison
      results for the nine months ended September 30, 2007





Revenues
      for the nine months ended September 30, 2007 were $1,517,615 as compared to
      $853,637 for the nine months ended September 30, 2006, an increase of $663,978.
      The increase is due to an increase in sales to the agriculture supply market
      and
      increases in internet based sales.





Cost
      of
      revenues for the nine months ended September 30, 2007 were $313,494 as compared
      to $263,781 for the nine months ended September 30, 2006, an increase of
      $49,713. The increase is due to higher sales volumes partially offset by lower
      pricing. The Company was able to negotiate reduced pricing with a vendor for
      certain key materials used in the production of their products and as a result
      their cost to manufacture the product has decreased.





Marketing
      and selling expenses were $696,011 for the nine months ended September 30,
      2007
      as compared to $312,606 for the nine months ended September 30, 2006, an
      increase of $383,405. The increase is primarily due increases in salaries paid
      and an increase in internet marketing in the nine months ended September 30,
      2007. Included in the nine months ended September 30, 2006 is the value of
      the
      warrant issued to a consultant in the amount of $116,935 for which no current
      year amount exists.





General
      and administrative expenses were $1,223,903 for the nine months ended September
      30, 2007 as compared to $1,880,859 for the nine months ended September 30,
      2006,
      a decrease of $656,956.  Included in professional fees during the nine
      months ended September 30, 2007 is the value of warrants valued at $127,657
      issued to Aspen Capital Management for which no amount exists for the nine
      months ended September 30, 2006.  Included in the nine months ended
      September 30, 2006 is the value of shares of common stock issued to certain
      vendors for services in the amount of $77,500 for which no amount exists for
      the
      nine months ended September 30, 2007. Included in the amount for the nine months
      ended September 30, 2006 are the value of stock issuances to our Chief Executive
      officer of $189,207 and issuances of common stock for professional fees in
      the
      aggregate amount of $550,306 for which no current period amount
      exists.





Other
      income and expense is comprised of interest expense and gain from termination
      of
      debt. Interest expense was $472,799 for the nine months ended September 30,
      2007
      as compared to $236,330 for the nine months ended September 30, 2006, an
      increase of $236,469. Included in interest expense is the amortization of
      discount related to the convertible promissory notes in the amount of $232,050
      and $9,830 for the nine months ended September 30, 2007 and 2006, respectively.
      Included in interest expense for the nine months ended September 30, 2006 is
      the
      value of the warrant issued in conjunction with the bridge financing in the
      amount of $76,410. Gain from termination of debt was $259,852 for the nine
      months ended September 30, 2007 as compared to $616,970 for the nine months
      ended September 30, 2006, a decrease of $357,118.  The decrease is
      primarily due to the gain recognized during the nine months ended September
      30,
      2006 for the settlement of notes related to the attempted Chapter 7 receivership
      action.








20





Liquidity
      and Capital Resources





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





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





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





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





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





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





In
      September 2007, we entered into an accounts receivable line of credit agreement
      with Aspen Opportunity Fund LP, with a credit line of $500,000.  The
      company can draw advances against accounts receivable, in $5,000 increments
      as
      needed.  A total of $100,000 has been drawn as of the date of this
      report on Form 10-QSB.





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











21





Off-Balance
      Sheet Arrangements




We
      have
      no off-balance sheet arrangements.








ITEM
      3. CONTROLS AND PROCEDURES




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





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




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
























































22





PART
      II - OTHER INFORMATION




ITEM
      1. LEGAL PROCEEDINGS.





Administrative
      Proceeding – U.S. Securities and Exchange Commission





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





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





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




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




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





23





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








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





We
      issued
      350,000 shares of common stock valued at $15,750 or $0.045 per share based
      on
      the closing market price on the date of issuance to a vendor and an employee
      for
      services rendered.








ITEM
      5. OTHER INFORMATION.





None.








ITEM
      6.




(a)
      Exhibits




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




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












































24





SIGNATURES





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











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


























































25