UNITED
STATES


SECURITIES
AND EXCHANGE
COMMISSION


Washington,
D.C. 20549





FORM
10-Q








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





For the
quarterly period ended March 31, 2008





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





For the
transition period from_____ to _____





Commission
File Number: 0-10147





DIATECT
INTERNATIONAL CORPORATION


(Exact
name of registrant as specified in its charter)










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








875 South Industrial
Parkway, Heber City, Utah 84032


(Address
of principal executive offices)





(435)
654-4370


(Issuer’s
telephone number)








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





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




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




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





As of May
15, 2008 the issuer had 208,502,583 shares of common stock, no par value,
outstanding.














Page
      NumberPART
      I  Financial InformationITEM
      1. Condensed Financial Statements (unaudited)Balance
      Sheets as of March 31, 2008 and December 31, 2007
            
            1Statements
      of Operations for the Three Months Ended March 31, 2008 and
      2007
            
            2Statements
      of Cash Flows for the Three Months Ended March 31, 2008 and
      2007
            
            3Notes
      to Condensed Financial Statements
            
            4ITEM
      2. Management’s Discussion and Analysis or Plan of
    Operation.
            
            18ITEM
      3. Quantitative and Qualitative Disclosures About Market
    Risk
            
            N/AITEM
      4T. Controls and Procedures.
            
            20PART
      II Other InformationITEM
      1. Legal Proceedings
            
            21ITEM
      1A. Risk Factors
            
            N/AITEM
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
            
            22ITEM
      5. Other Information
            
            N/AITEM
      6. Exhibits.
            
            22Signatures
            
            23










DIATECT
INTERNATIONAL CORPORATION
 CONDENSED
BALANCE SHEETS
 (unaudited)


March
      31,
            
            
            December
      31,2008
            
            
            2007ASSETSCurrent
      AssetsCash
            
            $
            7,983
            
            
            $
            9,864Trade
      accounts receivable, net of allowance for doubtfulaccounts of
      $16,000 and $16,000, respectively
            
            
            270,363
            
            
            
            242,406Inventory
            
            
            56,688
            
            
            
            66,688Prepaid
      expenses and other current assets
            
            
            311,152
            
            
            
            306,206Total
      Current Assets
            
            
            646,186
            
            
            
            625,164Property and Equipment,
      net of accumulated depreciation of$120,145 and $140,673,
      respectively
            
            
            250,141
            
            
            
            258,229Intangible
      Assets - EPA Labels
            
            
            1,116,322
            
            
            
            1,116,322Total
      Assets
            
            $
            2,012,649
            
            
            $
            1,999,715LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      LiabilitiesTrade
      accounts payable
            
            $
            403,714
            
            
            $
            224,213Accrued
      liabilities
            
            
            120,528
            
            
            
            155,125Accrued
      interest payable
            
            
            495,879
            
            
            
            456,626Accrued
      settlement obligations
            
            
            82,904
            
            
            
            89,187Deferred
      gain on sale and leaseback of assets
            
            
            77,735
            
            
            
            86,806Notes
      payable, net of unamortizeddiscount of $80,884 and $135,855,
      respectively
            
            
            2,627,174
            
            
            
            2,578,265Current
      portion of capital lease obligations
            
            
            67,407
            
            
            
            60,021Total
      Current Liabilities
            
            
            3,875,341
            
            
            
            3,650,243Long-Term
      LiabilitiesCapital
      lease obligations, net of current portion
            
            
            113,553
            
            
            
            120,212Total
      Long-Term Liabilities
            
            
            113,553
            
            
            
            120,212Stockholders'
      DeficitCommon
      stock, no par value; 300,000,000 shares authorized;206,502,583
      shares and 190,562,583 shares outstanding, respectively
            
            
            25,066,121
            
            
            
            24,587,396Warrants
      outstanding
            
            
            1,627,416
            
            
            
            1,561,367Accumulated
      deficit
            
            
            (28,669,782
            )
            
            
            (27,919,503
            )Total
      Stockholders' Deficit
            
            
            (1,976,245
            )
            
            
            (1,770,740
            )Total
      Liabilities and Stockholders' Deficit
            
            $
            2,012,649
            
            
            $
            1,999,715








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








1






DIATECT
INTERNATIONAL CORPORATION


CONDENSED
STATEMENTS OF OPERATIONS
 (unaudited)


For
      the Three Months EndedMarch
      31,2008
            
            
            2007(Restated)Sales
            
            $
            372,964
            
            
            $
            442,138Cost
      of Goods Sold
            
            
            153,673
            
            
            
            149,325Gross
      Profit
            
            
            219,291
            
            
            
            292,813ExpensesMarketing
      and selling
            
            
            260,551
            
            
            
            180,834General
      and administrative
            
            
            596,188
            
            
            
            342,996Total
      Expenses
            
            
            856,739
            
            
            
            523,830Loss
      from Operations
            
            
            (637,448
            )
            
            
            (231,017
            )Other
      Income (Expense)Interest
      expense
            
            
            (117,114
            )
            
            
            (124,158
            )Gain
      from termination of debt
            
            
            4,283
            
            
            
            -Net
      Other Income
            
            
            (112,831
            )
            
            
            (124,158
            )Net
      Loss
            
            $
            (750,279
            )
            
            $
            (355,175
            )Basic
      and Diluted Loss Per Share
            
            $
            (0.00
            )
            
            $
            (0.00
            )Weighted-Average
      Basic and Diluted Common Shares Outstanding
            
            
            203,066,759
            
            
            
            151,874,405






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




2


DIATECT
INTERNATIONAL CORPORATION
 CONDENSED
STATEMENTS OF CASH FLOWS
 (unaudited)
  For
      the Three Months EndedMarch
      31,2008
                
                
                2007(Restated)Cash
      Flows from Operating ActivitiesNet
      loss
                
                $
                (750,279
                )
                
                $
                (355,175
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                
                
                23,155
                
                
                
                8,007Amortization
      of discount on notes payable
                
                
                54,971
                
                
                
                58,318Amortization
      of loan costs
                
                
                53,754
                
                
                
                15,682Gain
      from debt termination
                
                
                (4,283
                )
                
                
                -Net
      (gain) loss on disposal of property and equipment
                
                
                (9,071
                )
                
                
                -Issuance
      of stock for services
                
                
                48,000
                
                
                
                20,000Issuance
      of warrants for services
                
                
                34,272
                
                
                
                33,973Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (27,956
                )
                
                
                (182,377
                )Inventory
                
                
                10,000
                
                
                
                58,110Prepaid
      expenses and other current assets
                
                
                (58,701
                )
                
                
                316Accounts
      payable
                
                
                179,501
                
                
                
                65,265Accrued
      liabilities
                
                
                (34,595
                )
                
                
                39,936Accrued
      interest payable
                
                
                39,253
                
                
                
                65,001Net
      Cash Used in Operating Activities
                
                
                (441,979
                )
                
                
                (172,944
                )Cash
      Flows from Investing ActivitiesPayments
      for purchases of property and equipment
                
                
                -
                
                
                
                (2,869
                )Net
      Cash Used in Investing Activities
                
                
                -
                
                
                
                (2,869
                )Cash
      Flow from Financing ActivitiesProceeds
      from borrowings under notes payable
                
                
                -
                
                
                
                147,500Proceeds
      from exercise of warrants
                
                
                72,500
                
                
                
                -Proceeds
      from issuance of stock and warrants
                
                
                390,000
                
                
                
                -Principal
      payments on notes payable
                
                
                (6,062
                )
                
                
                -Principal
      payments on lease obligation
                
                
                (14,340
                )
                
                
                -Payments
      for accrued settlement obligations
                
                
                (2,000
                )
                
                
                (25,000
                )Net
      Cash Provided by Financing Activities
                
                
                440,098
                
                
                
                122,500Net
      Increase (Decrease) in Cash
                
                
                (1,881
                )
                
                
                (53,313
                )Cash
      at Beginning of Period
                
                
                9,864
                
                
                
                61,743Cash
      at End of Period
                
                $
                7,983
                
                
                $
                8,430


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








3


DIATECT
INTERNATIONAL CORPORATION
 STATEMENTS
OF CASH FLOWS (continued)
 (unaudited)


For
      the Three Months EndedMarch
      31,2008
              
              
              2007Supplemental
      Disclosure of Cash Flow InformationCash
      paid for interest
              
              $
              17,694
              
              
              $
              1,196Supplemental
      Schedule of Noncash Investing and Financing ActivitiesPurchase
      of equipment under capital lease obligations
              
              $
              15,067
              
              
              $
              -








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










4


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-Q have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Item 8-03
of Regulation S-X of the Securities and Exchange Commission. Accordingly,
these financial statements do not include all of the disclosures required by
U.S. generally accepted accounting principles for complete financial
statements.  These unaudited interim financial statements should be
read in conjunction with the audited financial statements for the fiscal year
ended December 31, 2007 in the Company’s annual report on Form
10-KSB.  The financial information furnished herein reflects all
adjustments consisting of normal, recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the Company's financial
position, the results of operations and cash flows for the periods
presented.  Operating results for the period ended March 31, 2008 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2008.




Restatement




Subsequent
to March 31, 2008, the Company realized that the March 31, 2007 financial
statements needed to be revised to correct an overstatement of inventory as of
March 31, 2007 and an understatement of cost of goods sold for the three months
ended March 31, 2007. As a result, the Company corrected the financial
statements for March 31, 2007 and for the three months then ended. The corrected
statement of operations and statement of cash flows are included in these
financial statements.  There is no effect of this adjustment on the
financial statements as of December 31, 2007.The effect of the
restatement was as follows:







5


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS




As
      Reported
              
              
              Restatement
              
              
              As
      RestatedCondensed
      Balance Sheet as of March 31, 2007Inventory
              
              $
              247,598
              
              
              $
              (69,819
              )
              
              $
              177,779Total
      Current Assets
              
              
              562,154
              
              
              
              (69,819
              )
              
              
              492,335TOTAL
      ASSETS
              
              $
              1,763,343
              
              
              $
              (69,819
              )
              
              $
              1,693,524Accumulated
      deficit
              
              $
              (26,669,782
              )
              
              $
              (69,819
              )
              
              $
              (26,739,601
              )Total
      Stockholders' Deficit
              
              
              (3,279,266
              )
              
              
              (69,819
              )
              
              
              (3,349,085
              )Total
      Liabilities and Stockholders' Deficit
              
              $
              1,763,343
              
              
              $
              (69,819
              )
              
              $
              1,693,524Condensed
      Statement of OperationsFor
      the three months ended March 31, 2007Cost
      of Goods Sold
              
              $
              79,506
              
              
              $
              69,819
              
              
              $
              149,325Gross
      profit
              
              
              362,632
              
              
              
              (69,819
              )
              
              
              292,813Loss
      from Operations
              
              
              (161,198
              )
              
              
              (69,819
              )
              
              
              (231,017
              )Net
      Loss
              
              
              (285,356
              )
              
              
              (69,819
              )
              
              
              (355,175
              )Basic
      and Diluted Loss Per Share
              
              
              -
              
              
              
              -
              
              
              
              -Statement
      of Cash FlowsFor
      the three months ended March 31, 2007Net
      loss
              
              $
              (285,356
              )
              
              $
              (69,819
              )
              
              $
              (355,175
              )Inventory
              
              
              (11,709
              )
              
              
              69,819
              
              
              
              58,110Net
      Cash used in Operating Activities
              
              
              (172,944
              )
              
              
              -
              
              
              
              (172,944
              )Net
      Change in Cash
              
              $
              (53,313
              )
              
              $
              -
              
              
              $
              (53,313
              )


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 $372,964 and incurred a net loss of $750,279
during the three months ended March 31, 2008. At March 31, 2008 the Company had
a total stockholders’ deficit of $1,976,245 and its current liabilities exceeded
current assets by $3,229,155.





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.





6


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








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.





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





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





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





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





Revenue
Recognition – The Company manufactures and sells pesticides to retailers,
agricultural concerns and directly to the public through a Company and affiliate
websites. 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.





7


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








Shipping and
Handling Costs – Shipping and handling costs billed to customers 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.





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. There were potentially dilutive common
shares outstanding as presented in the following table that were not included in
the computation of diluted loss per share as their effect would have been
anti-dilutive.




March
      31,
              
              
              March 31,2008
              
              
              2007Outstanding
      warrants
              
              
              75,460,444
              
              
              
              32,150,000Convertible
      promissory notes convertible into:Common
      stock
              
              
              6,500,000
              
              
              
              18,849,800Warrants
              
              
              1,500,000
              
              
              
              18,849,800Total
      potentially dilutive common shares
              
              
              83,460,444
              
              
              
              69,849,600





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 123(R). Under SFAS
123(R), stock-based compensation expense reflects the fair value of stock-based
awards measured at the grant date, is recognized over the relevant service
period, and is adjusted each period for anticipated forfeitures. The Company
estimates the fair value of each stock-based award on the date of grant using
the Black-Scholes option valuation model. The Black-Scholes option valuation
model incorporates assumptions as to stock price volatility, the expected life
of options, a risk-free interest rate and dividend yield.  The Company
has no stock options issued or outstanding for any of the periods
presented.





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





8


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








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





On
January 1, 2008, we elected not to adopt SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities – Including an Amendment
of FASB Statement No. 115” (“FAS159”).FAS159
permits entities to choose to measure many financial instruments and certain
other items at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date. The
fair value option may be elected on an instrument-by-instrument basis, with few
exceptions.FAS159 also
establishes presentation and disclosure requirements to facilitate comparisons
between companies that choose different measurement attributes for similar
assets and liabilities.We did not elect this fair value
option, nor is it expected to have a material impact on future periods as the
election of this option for our financial instruments is expected to be
limited.





NOTE
2 – INVENTORY





Inventory
is comprised of the following:




March
      31,
              
              
              December
      31,2008
              
              
              2007Raw
      materials
              
              $
              27,905
              
              
              $
              32,836Finished
      goods
              
              
              28,783
              
              
              
              33,852Total
      Inventory
              
              $
              56,688
              
              
              $
              66,688





9


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








NOTE
3 – PROPERTY AND EQUIPMENT





The
components of property and equipment are as follows:




EstimatedUseful
      Life
              
              
              March
      31,
              
              
              December
      31,in
      Years
              
              
              2008
              
              
              2007Computer
      equipment
              
              3
      to 5
              
              
              $
              78,738
              
              
              $
              89,774Office
      furniture and equipment
              
              5
              
              
              
              44,765
              
              
              
              48,024Manufacturing
      equipment
              
              3
      to 10
              
              
              
              241,848
              
              
              
              256,169Leasehold
      improvements
              
              15
              
              
              
              4,935
              
              
              
              4,935Total
      Property and Equipment
              
              
              
              
              
              
              370,286
              
              
              
              398,902Less:
      Accumulated depreciation
              
              
              
              
              
              
              (120,145
              )
              
              
              (140,673
              )Net
      Property and Equipment
              
              
              
              
              
              $
              250,141
              
              
              $
              258,229





Depreciation
expense for the three months ended March 31, 2008 and 2007 was $23,155 and
$8,007, respectively.




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





NOTE
4 – NOTES PAYABLE





Notes
payable are comprised of the following:


March
      31,
              
              
              December
      31,2008
              
              
              2007Revolving
      line of credit with financial institution
              
              $
              49,745
              
              
              $
              49,807Accounts
      receivable line of credit
              
              
              185,000
              
              
              
              185,000Unsecured
      10% notes payable to investors, in default
              
              
              292,250
              
              
              
              292,250Unsecured
      12% notes payable to investors, in default
              
              
              40,000
              
              
              
              40,000Unsecured
      15% notes payable to investors, in default
              
              
              35,500
              
              
              
              36,500Unsecured
      12% convertible promissory notes payable, netof unamortized
      discount of $80,884 and $135,855, respectively
              
              
              244,116
              
              
              
              189,145Unsecured
      5% notes payable to shareholders, due in 2008
              
              
              1,215,937
              
              
              
              1,220,937Unsecured
      5% notes payable to vendors, due in 2008
              
              
              564,626
              
              
              
              564,626Total
      Notes Payable
              
              $
              2,627,174
              
              
              $
              2,578,265





Revolving Lines
of Credit – The Company currently has unsecured, revolving credit
notes with a financial institution totaling $49,745. The line of credit bears
interest at 7.0% per annum, is due on demand and requires monthly interest only
payments. The line is unsecured and is personally guaranteed by a former
director of the Company.





Accounts
Receivable Line of Credit – On September 20, 2007 the Company
entered into an accounts receivable loan agreement with Aspen Opportunity Fund,
L.P. for advances up to $500,000 in $5,000 increments, subject to maintaining a
borrowing base of 80% of eligible accounts receivable as defined in the
agreement. The Note bears interest at a rate of 12.0%, is secured by eligible
accounts receivable as defined in the agreement, requires monthly interest
payments and is due on September 30, 2009.  Mandatory prepayments of
principal are required in the event that the eligible borrowing base falls below
amounts advanced under the agreement.  In conjunction with the loan
agreement, the Company issued a five year warrant to purchase 4,000,000 shares
of the Company’s common stock at an exercise price of $0.075 per share. The
warrant was valued at $169,294 and was recorded as prepaid expenses and other
assets and is being amortized over the life of the loan.  A total of
$20,790 was amortized for the three months ended March 31, 2008.





10


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








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





Convertible
Promissory Notes Payable–The
Company has convertible promissory notes with a face amount of $75,000 which
were issued in conjunction with a private placement in 2007 and bear interest at
12% per annum, are unsecured and are due one year from the date of issuance. One
of these notes for $25,000 is in default. The effective interest rates of the
notes issued range from 24% to 27%. 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 1,500,000 shares of common stock and warrants to purchase an
additional 1,500,000 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. Based upon the market price of the Company’s common stock on
the dates the notes were issued, the investors received a beneficial conversion
option. The beneficial conversion option was computed as the difference between
the fair value and the allocated proceeds of the common stock issuable upon
conversion of the promissory notes. The recognition of the beneficial conversion
option resulted in a discount to the notes payable that is being amortized over
the term of the convertible notes using the effective interest
method.  The remaining discount at March 31, 2008 was $1,555. A total
of $1,968 and $58,318 was recognized as interest expense during the three months
ended March 31, 2008 and 2007 for the notes issued pursuant to the private
placement.





In July
2007, the Company issued a 12% convertible promissory note for $250,000 and
five-year warrants to purchase 5,000,000 shares of common stock at an exercise
price of $0.075 to Aspen Opportunity Fund LP in exchange for proceeds of
$250,000. The note is convertible at a rate of $0.05 per share for 5,000,000
shares of common stock. The investor received a beneficial conversion option
resulting in a discount of which $79,329 remains as of March 31,
2008.  A total of $53,003 of the discount was recognized as interest
expense for the three months ended March 31, 2008.





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





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.





11


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








The
accrued settlement obligations include the following:




March
      31,
              
              
              December
      31,2008
              
              
              2007Litho-Flexo
      Grafics, Inc.
              
              $
              60,000
              
              
              $
              63,283Other
              
              
              22,904
              
              
              
              25,904Total
              
              $
              82,904
              
              
              $
              89,187




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





NOTE
6 – COMMITMENTS AND CONTINGENCIES





Administrative
Proceeding – U.S. Securities and Exchange Commission





One
September 27, 2007, the Commission entered an order instituting a proceeding
under Section 12(j) of the Securities Exchange Act of 1934 (“1934 Act”) naming
the Company as a respondent.  This administrative proceeding has file
no. 3-12843.The administrative
proceeding sought to revoke the Company’s registration under the Securities
Exchange Act of 1934 (“Exchange Act”) under which the Company files quarterly
and annual financial reports.  The Company had not filed nine
quarterly and annual financial reports.  All of these reports have
been filed as of January 2, 2008.





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





12


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








U.S. Securities
and Exchange Commission ,  The U.S. Securities and Exchange
Commission in the U.S. District Court, District of Utah, Central Division having
Case No.: 2:07cv00709.  The caption on the Complaint is Securities and Exchange Commission
v. Diatect International Corporation et al. The four
defendants are the acting president who is also a director, a former officer and
director, a former director, and the Company.   The allegations
of the Complaint claim that the Defendants engaged in a transaction in 2003
involving the sale of mining claims located in the State of Oregon which
transaction was improperly recorded on the Company’s financial statements
causing the overstatement of revenues and assets.   The
allegations of the Complaint also claim that certain revenues were improperly
recorded in the Company’s 2002 financial statements because the sales were
consignment sales and not actual sales.   The Complaint alleges
various violations of the federal securities laws and regulations promulgated
thereunder including violations of the anti-fraud provisions and violations of
regulations pertaining to periodic reports filed by the Company with the SEC in
2003 and 2004.   On May 17, 2004 the Company issued restated
financial statements as of December 31, 2003.  On April 14, 2005, the
Company issued restated financial statements as of December 31,
2004.  These filings restated the sale of the mining claims and
revenues for those years. The Complaint seeks injunctive action against the
defendants including the Company and seeks fines from the three individual
defendants, and from two individual defendant’s disgorgement of stock sale
proceeds and bars as an officer and director. In February, 2008 a
scheduling conference was held and a tentative trial date has been set for
January, 2010. The Company intends to vigorously defend the allegations of
the Complaint.





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





In
February 2006, the Company entered into a renewable two-year non-exclusive
engagement letter ( the “Engagement Letter”) with Aspen Capital Partners, LLC,
an entity that employs a person that was on the board of directors of the
Company at that time for consulting services in a variety of areas relating to
financial, strategic and developmental growth of the Company. The ongoing
financial terms of the Engagement Letter require payments of $15,000 per month
for a two-year period.




On May
22, 2007 the Company entered into a Master Lease Line with Gulf Pointe Capital,
LLC.  The terms of the lease line provide a credit limit of $500,000
that can be used for various new and used tier one production, material
handling, computer, technology and fixture related equipment. Upon entering
into the lease agreement, the Company sold certain manufacturing, computer and
office furniture and equipment to Pointe for $160,000 and leased the assets back
from Pointe under the terms of a three-year lease agreement. The assets sold had
a net book value of $51,152.  The resultant gain on sale of $108,848
was deferred and is being recognized over the three-year term of the capital
lease obligation. During the three months ended March 31, 2008, the Company
recognized $9,071 of this gain.







13


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS







Years
      Ending December 31:2008
              
              $
              76,7472009
              
              
              102,3302010
              
              
              56,1522011
              
              
              611Total
      minimum lease payments
              
              
              235,840Less:  Amount
      representing interest
              
              
              (54,880
              )Present
      value of minimum lease payments
              
              
              180,960Less:
      Current portion
              
              
              (67,407
              )Capital
      lease obligations, long-term
              
              $
              113,553


In
conjunction with the Master Lease Line, the Company issued a five-year warrant
to purchase 10,000,000 shares of common stock at an exercise price of $0.05 per
share.  A total of 2,500,000 of these warrants vested upon the
execution of the Master Lease Line.  The remaining 7,500,000 warrants
vest pro-rata upon the funding of the credit limit of $500,000.  Based
upon the estimated total funding that will take place under the Master Lease
Line, the Company has estimated that it is probable that 5,809,984 of the
warrants will vest and have been valued at $212,994. That amount has been
recorded as deferred loan costs, which is included in prepaid expenses and other
current assets, and is being amortized to interest expense over the term of
the respective capital lease obligations. A total of $33,026 was recorded as
amortization expense during the three months ended March 31, 2008.





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 has been achieved and no warrants have been issued pursuant to these
agreements.





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





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





NOTE
7 - COMMON STOCK





During
the three months ended March 31, 2008, the Company issued 640,000 shares valued
at $48,000 or $0.075 per share, as compensation to employees and a vendor. The
value represents the market price of the Company’s common stock on the dates of
issuance. The Company also issued 7,500,000 shares of common stock upon the
exercise of warrants for proceeds of $72,500.





The
Company also issued 7,800,000 shares of common stock and two year warrants to
purchase 7,800,000 shares of common stock at an exercise price of $0.075 per
share for gross proceeds of $390,000.  The proceeds were allocated
based on the relative fair values of the common stock and the warrants on the
dates of issuance.  The allocated fair value of the warrants was
$152,782 and the balance of the proceeds of $237,218 was allocated to the common
stock. The fair value of the warrants, determined using the Black-Scholes Option
Pricing Model, was calculated using the following weighted average assumptions:
risk free interest rate of 2.48%, expected dividend yield of 0%, expected
volatility of 131% and an expected life of 2 years.








14


DIATECT
INTERNATIONAL CORPORATION


NOTES
TO CONDENSED FINANCIAL STATEMENTS








NOTE
8 - STOCK WARRANTS





In
January, 2008, the Company issued a three-year warrant to purchase 500,000
shares of common stock at an exercise price of $0.05 per share to a vendor for
services.  The value of the warrant of $26,000 was charged to General
and Administrative expenses on the issuance date. The fair value of the
warrants, determined using the Black-Scholes Option Pricing Model, was
calculated using the following assumptions: risk free interest rate of 2.89%,
expected dividend yield of 0%, expected volatility of 136% and an expected life
of 3 years.





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.  This
warrant was recorded as prepaid expense on the issuance date.  The
remaining value of $9,315 was amortized General and administrative expenses in
the accompanying statement of operations during the three months ended March 31,
2008.




The
following summarizes the outstanding warrants as of March 31, 2008:




Exercise
              
              
              Warrants
              
              
              Weighted-AverageRemaining Contractual
              
              
              NumberPrice
              
              
              Outstanding
              
              
              Life
      (Years)
              
              
              Exercisable$
              0.01
              
              
              
              12,750,000
              
              
              1.6
              
              
              
              12,750,000$
              0.05
              
              
              
              15,500,000
              
              
              4.1
              
              
              
              11,309,984$
              0.075
              
              
              
              47,210,444
              
              
              2.6
              
              
              
              47,210,44475,460,444
              
              
              
              
              
              
              
              71,270,428





NOTE
9 – SUBSEQUENT EVENTS





Subsequent
to March 31, 2008 the Company issued 2,000,000 shares of common stock and
two-year warrants to purchase 2,000,000 shares of common stock for proceeds of
$100,000.





15


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




Forward
Looking Statements




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




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





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





Overview





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





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 March 31, 2008 and 2007





Revenues
for the three months ended March 31, 2008 were $372,964 as compared to $443,138
for the three months ended March 31, 2007, a decrease of $69,174. The decrease
is due to a decrease in sales to the agriculture supply market partially offset
by increases in internet based sales.  Management believes that this
is not indicative of our anticipated year end results.





Cost of
revenues for the three months ended March 31, 2008 were $153,673 as compared to
$149,325 for the three months ended March 31, 2007, a decrease of $4,348. The
decrease is due to decreased sales volumes and increases in shipping costs not
recovered from customers.





Marketing
and selling expenses were $260,551 for the three months ended March 31, 2008 as
compared to $180,834 for the three months ended March 31, 2007, an increase of
$79,717. The increase is primarily due increases in internet marketing in the
three months ended March 31, 2008.





16


General
and administrative expenses were $598,188 for the three months ended March 31,
2008 as compared to $342,996 for the three months ended March 31, 2007, an
increase of $253,192.  The increase is primarily due to increases in
professional, investor relations and accounting related fees and increases in
amortization of loan costs.





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 March 31, 2008 as
compared to $58,999 for the three months ended March 31, 2007, 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 March 31, 2008 and 2006,
respectively.  The remaining increase is due to higher levels of debt
during the three months ended March 31, 2008.  Gain from termination
of debt was $96,132 for the three months ended March 31, 2008 as compared to
$138,500 for the three months ended March 31, 2007, a decrease of
$42,368.  The gain for the three months ended March 31, 2007 pertains
primarily to the settlement of certain tax liabilities at less than the recorded
value.  The gain for the three months ended March 31, 2007 pertains to
the settlement of a note payable for less than its recorded value.





Liquidity
and Capital Resources





Our cash
and cash equivalents of $7,983 as of March 31, 2008 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 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 $220,666 of the available credit.





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 eligible accounts receivable as defined in the
agreement in $5,000 increments.  A total of $185,000 has been drawn as
of the date of this report on Form 10-Q.





Subsequent
to March 31, 2008, we issued 2,000,000 shares of common stock and two-year
warrants to purchase 2,000,000 shares of common stock for proceeds of $100,000
in a private placement.





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





Off-Balance
Sheet Arrangements




We have
no off-balance sheet arrangements.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
Applicable








17


ITEM
4T. CONTROLS AND PROCEDURES





As
required by Rule 13a-15 under the Exchange Act, as of the end of the fiscal
period covered by this report, we have carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures.  This evaluation was carried out under the supervision and
with the participation of management, including our chief executive officer and
chief financial officer.  Based upon that evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective at March 31, 2008.





There
have been no changes in our internal controls over financial reporting in
connection with this evaluation that occurred during the first quarter of fiscal
2008 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.





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




18


PART
II - OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS.




Administrative
Proceeding – U.S. Securities and Exchange Commission





One
September 27, 2007, the Commission entered an order instituting a proceeding
under Section 12(j) of the Securities Exchange Act of 1934 (“1934 Act”) naming
the Company as a respondent.  This administrative proceeding has file
no. 3-12843.The administrative
proceeding sought to revoke the Company’s registration under the Securities
Exchange Act of 1934 (“Exchange Act”) under which the Company files quarterly
and annual financial reports.  The Company had not filed nine
quarterly and annual financial reports.  All of these reports have
been filed as of January 2, 2008.





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





U.S. Securities
and Exchange Commission ,  The U.S. Securities and Exchange
Commission in the U.S. District Court, District of Utah, Central Division having
Case No.: 2:07cv00709.  The caption on the Complaint is Securities and Exchange Commission
v. Diatect International Corporation et al. The four
defendants are the acting president who is also a director, a former officer and
director, a former director, and the Company.   The allegations
of the Complaint claim that the Defendants engaged in a transaction in 2003
involving the sale of mining claims located in the State of Oregon which
transaction was improperly recorded on the Company’s financial statements
causing the overstatement of revenues and assets.   The
allegations of the Complaint also claim that certain revenues were improperly
recorded in the Company’s 2002 financial statements because the sales were
consignment sales and not actual sales.   The Complaint alleges
various violations of the federal securities laws and regulations promulgated
thereunder including violations of the anti-fraud provisions and violations of
regulations pertaining to periodic reports filed by the Company with the SEC in
2003 and 2004.   On May 17, 2004 the Company issued restated
financial statements as of December 31, 2003.  On April 14, 2005, the
Company issued restated financial statements as of December 31,
2004.  These filings restated the sale of the mining claims and
revenues for those years. The Complaint seeks injunctive action against the
defendants including the Company and seeks fines from the three individual
defendants, and from two individual defendant’s disgorgement of stock sale
proceeds and bars as an officer and director. In February, 2008 a
scheduling conference was held and a tentative trial date has been set for
January, 2010. The Company intends to vigorously defend the allegations of
the Complaint.




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





19


ITEM
1A. RISK FACTORS





Not
Applicable





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





We issued
640,000 shares valued at $48,000 or $0.075 per share, as compensation to
employees and a vendor. The value represents the market price of our common
stock on the dates of issuance.





We issued
7,800,000 shares of common stock and two year warrants to purchase 7,800,000
shares of common stock at an exercise price of $0.075 per share for gross
proceeds of $390,000 in a private placement.





We issued
7,500,000 shares of common stock upon the exercise of warrants for proceeds of
$72,500.





We issued
a three-year warrant to purchase 500,000 shares of common stock at an exercise
price of $0.05 per share to a vendor for services.





ITEM
5. OTHER INFORMATION.





Not
Applicable





ITEM 6. EXHIBITS




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




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




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







20


SIGNATURES





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











Diatect
      International Corporation(Registrant)Dated:
      May 15, 2008By:
            /s/ David
      AndrusDavid
      S. AndrusPrincipal
      Executive OfficerBy:
            /s/ Robert
      RudmanRobert
      RudmanPrincipal
      Accounting Officer















21