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 March 31, 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 March 31, 2007 and December 31, 2006
            3Statements
                of Operations for the
                Three Months Ended March 31, 2007 and 2006
            4Statements
                of Cash Flows for the
                Three Months Ended March 31, 2007 and 2006
            5Notes
                to Condensed Financial
                Statements
            7ITEM
                2. Management’s Discussion and Analysis or Plan of
                Operation.
            18ITEM
                3. Controls and Procedures.
            20PART
                IIITEM
                1. Legal Proceedings
            21ITEM
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds.
            22ITEM
                6. Exhibits.
            22Signatures
            23









































2





DIATECT
      INTERNATIONAL CORPORATION


CONDENSED
      BALANCE SHEETS


(Unaudited)





March
                31,
            
            
            December
                31,2007
            
            
            2006ASSETSCurrent
                AssetsCash
            
            $
            8,430
            
            
            $
            61,743Trade
                accounts receivable, net of allowance for doubtful accounts of $41,397
                and
                $25,397, respectively
            
            
            208,878
            
            
            
            26,502Inventory
            
            
            247,598
            
            
            
            235,889Prepaid
                expenses and other current assets
            
            
            97,248
            
            
            
            147,219Total
                Current Assets
            
            
            562,154
            
            
            
            471,353Property
                and Equipment,
                net of accumulated depreciation of $268,151 and $268,275,
                respectively
            
            
            84,867
            
            
            
            90,006Intangible
                Assets - EPA Labels
            
            
            1,116,322
            
            
            
            1,116,322Total
                Assets
            
            $
            1,763,343
            
            
            $
            1,677,681LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                LiabilitiesTrade
                accounts payable
            
            $
            333,105
            
            
            $
            267,840Accrued
                liabilities
            
            
            324,256
            
            
            
            289,322Accrued
                interest payable
            
            
            788,546
            
            
            
            723,545Accrued
                settlement obligations
            
            
            234,381
            
            
            
            259,381Current
                portion of notes payable, net of unamortized discount of $145,658
                and
                $191,094, respectively
            
            
            1,576,758
            
            
            
            1,393,822Total
                Current Liabilities
            
            
            3,257,046
            
            
            
            2,933,910Long-Term
                Notes Payable,net of current portion
            
            
            1,785,563
            
            
            
            1,785,563Stockholders'
                DeficitCommon
                stock, no par value; 300,000,000 shares authorized;
              152,052,140
                shares and 151,552,140 shares outstanding, respectively
            
            
            23,168,492
            
            
            
            23,120,610Additional
                paid-in capital
            
            
            593,162
            
            
            
            593,162Accumulated
                deficit
            
            
            (27,040,920
            )
            
            
            (26,755,564
            )Total
                Stockholders' Deficit
            
            
            (3,279,266
            )
            
            
            (3,041,792
            )Total
                Liabilities and Stockholders' Deficit
            
            $
            1,763,343
            
            
            $
            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 March 31,2007
            
            
            2006Sales
            
            $
            442,138
            
            
            $
            181,634Cost
                of Goods Sold
            
            
            79,506
            
            
            
            62,816Gross
                Profit
            
            
            362,632
            
            
            
            118,818ExpensesMarketing
                and selling
            
            
            180,834
            
            
            
            149,756General
                and administrative
            
            
            342,996
            
            
            
            320,019Total
                Expenses
            
            
            523,830
            
            
            
            469,775Loss
                from Operations
            
            
            (161,198
            )
            
            
            (350,957
            )Other
                Income (Expense)Interest
                expense
            
            
            (124,158
            )
            
            
            (130,966
            )Gain
                from termination of debt
            
            
            -
            
            
            
            41,227Net
                Other Expense
            
            
            (124,158
            )
            
            
            (89,739
            )Net
                Loss
            
            $
            (285,356
            )
            
            $
            (440,696
            )Basic
                and Diluted Loss Per Share
            
            $
            (0.00
            )
            
            $
            (0.00
            )Weighted-Average
                Common Shares Outstanding
            
            
            151,874,405
            
            
            
            101,181,707
























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





4





DIATECT
      INTERNATIONAL CORPORATION


CONDENSED
      STATEMENTS OF CASH FLOWS


(Unaudited)








Three
                Months Ended March 31,2007
            
            
            2006Cash
                Flows from Operating ActivitiesNet
                loss
            
            $
            (285,356
            )
            
            $
            (440,696
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            8,007
            
            
            
            14,268Amortization
                of loan discount
            
            
            58,318
            
            
            
            -Amortization
                of loan costs
            
            
            15,682
            
            
            
            -Gain
                from debt termination
            
            
            -
            
            
            
            (41,227
            )Net
                loss (gain) on disposal of property and equipment
            
            
            -
            
            
            
            372Issuance
                of stock for services
            
            
            20,000
            
            
            
            45,000Issuance
                of warrants for services
            
            
            33,973
            
            
            
            213,522Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (182,377
            )
            
            
            (34,983
            )Inventory
            
            
            (11,709
            )
            
            
            17,300Prepaid
                expenses and other current assets
            
            
            316
            
            
            
            2,766Accounts
                payable
            
            
            65,265
            
            
            
            403,106Accrued
                liabilities
            
            
            39,936
            
            
            
            (331,189
            )Accrued
                interest payable
            
            
            65,001
            
            
            
            48,876Net
                Cash Used in Operating Activities
            
            
            (172,944
            )
            
            
            (102,885
            )Cash
                Flows from Investing ActivitiesPurchase
                of property and equipment
            
            
            (2,869
            )
            
            
            -Net
                Cash Used in Investing Activities
            
            
            (2,869
            )
            
            
            -Cash
                Flow from Financing ActivitiesProceeds
                from borrowings under notes payable
            
            
            147,500
            
            
            
            117,114Principal
                payments on notes payable
            
            
            -
            
            
            
            -Accrued
                settlement obligations
            
            
            (25,000
            )
            
            
            3,837Payments
                on checks drawn in excess of cash in bank
            
            
            
            
            
            
            (10,481
            )Net
                Cash Provided by Financing Activities
            
            
            122,500
            
            
            
            110,470Net
                Increase (Decrease) in Cash
            
            
            (53,313
            )
            
            
            7,585Cash
                at Beginning of Year
            
            
            61,743
            
            
            
            61,743Cash
                at End of Year
            
            $
            8,430
            
            
            $
            69,328









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





5





DIATECT
      INTERNATIONAL CORPORATION


CONDENSED
      STATEMENTS OF CASH FLOWS (continued)


(Unaudited)





Three
                Months Ended March 31,2007
            
            
            2006Supplemental
                Disclosure of Cash Flow InformationCash
                paid for interest
            
            $
            1,196
            
            
            $
            -Supplemental
                Schedule of Noncash Investing and Financing ActivitiesSettlement
                of accrued liabilities with and conversion of notes payable into
                common
                stock
            
            $
            -
            
            
            $
            75,000








































































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 March 31, 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 $442,138 and incurred a net loss from operations
      of $161,198 during the three months ended March 31, 2007. At March 31, 2007
      the
      Company had a total stockholders’ deficit of $3,279,266 and its current
      liabilities exceeded current assets by $2,694,892.





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 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.





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 March 31, 2007 there were
      potentially dilutive common shares outstanding related to convertible promissory
      notes payable which are convertible into 18,850,000 shares of common stock
      and
      warrants to purchase 18,850,000 shares of common stock. At March 31, 2007 and
      2006, there were potentially dilutive common shares outstanding relating to
      outstanding warrants to purchase 32,150,000 and 32,150,000 shares of common
      stock, respectively that were not included in the computation of diluted net
      loss per share as their effect would have been anti-dilutive.





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
      March
      31, 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
      March 31, 2007 and December 31, 2006, the Company has no unvested options and
      did not grant any options to employees during the three months ended March
      31,
      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).


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.





9





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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:





March
                31
            
            
            December
                31,2007
            
            
            2006Raw
                materials
            
            $
            214,261
            
            
            $
            202,291Finished
                goods
            
            
            33,337
            
            
            
            33,598Total
                Inventory
            
            $
            247,598
            
            
            $
            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 three months ended March 31, 2007 and 2006 was $8,007 and $14,268,
      respectively. The components of property and equipment are as
      follows:




EstimatedUseful
                Life
            
            March
                31,
            
            
            December
                31,in
                Years
            
            2007
            
            
            2006Computer
                equipment
            
            3
                to 5
            
            $
            75,976
            
            
            $
            81,329Office
                furniture and equipment
            
            5
            
            
            31,432
            
            
            
            31,432Manufacturing
                equipment
            
            5
                to 10
            
            
            245,610
            
            
            
            245,610Total
                Property and Equipment
            
            
            
            
            353,018
            
            
            
            358,371Less:
                Accumulated depreciation
            
            
            
            
            (268,151
            )
            
            
            (268,275
            )Net
                Property and Equipment
            
            
            
            $
            84,867
            
            
            $
            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 but may do so when it is deemed economically
      feasible. The mining claims are carried at no cost.











10





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS




NOTE
      4 – NOTES PAYABLE




Notes
      payable is comprised of the following:




March
                31,
            
            
            December
                31,2007
            
            
            2006Revolving
                line of credit with financial institution
            
            $
            49,436
            
            
            $
            49,436Cash
                advances from shareholder, unsecured
            
            
            97,000
            
            
            
            97,000Unsecured
                10% notes payable to investors, in default
            
            
            306,980
            
            
            
            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
                $145,648 and $191,094, respectively
            
            
            796,842
            
            
            
            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
            
            
            3,362,321
            
            
            
            3,179,385Less:
                Current portion
            
            
            1,576,758
            
            
            
            1,393,822Long-Term
                Notes Payable
            
            $
            1,785,563
            
            
            $
            1,785,563





Revolving
      Lines
      of Credit – The Company currently has unsecured, revolving credit
      notes with a financial institution totaling $49,436. 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.




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 three months ended March
      31, 2007, the Company issued an additional $147,500 of convertible promissory
      notes.  Based upon the market price of the Company’s common stock on
      the dates the notes were issued during the three months ended March 31, 2007,
      the investors received a beneficial conversion option of $27,882. 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
      $58,318 and $0 was recognized as interest expense during the three months ended
      March 31, 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 18,850,000 shares of common stock and warrants to purchase
      an
      additional 18,850,000 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 $15,682 and $0 of amortization was
      recorded for the three months ended March 31, 2007 and 2006,
      respectively.








11




DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS




Subsequent
      to March 31, 2007, the Company issued an additional $386,000 of convertible
      promissory notes on the same terms. The notes are convertible into an aggregate
      of 7,720,000 shares of common stock and warrants to purchase an additional
      7,720,000 shares of common stock. The related beneficial conversion option
      was
      valued at $36,539. During the second quarter of 2007, a total of $107,500 of
      the
      above notes was repaid in cash.




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.





The
      accrued settlement obligations include the following:





March
                31,
            
            
            December
                31,2007
            
            
            2006Complete
                Packaging, LLC d.b.a. Compax
            
            $
            44,622
            
            
            $
            69,622Litho-Flexo
                Graphics, Inc.
            
            
            63,283
            
            
            
            63,283Williams
                & Webster
            
            
            54,564
            
            
            
            54,564Xerox
            
            
            17,590
            
            
            
            17,590National
                Bulk
            
            
            20,418
            
            
            
            20,418Downs
                and Parkinson
            
            
            33,904
            
            
            
            33,904Total
            
            $
            234,381
            
            
            $
            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 $25,000 during the three months ended March 31, 2007.  The
      remaining amount was paid at prescribed intervals with the final payment made
      on
      September 1, 2007, which resulted in the Company being released from the
      judgment.








12





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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 March 31, 2007 and December 31, 2006. No resolution has been reached under
      the claims, which continue to be in litigation.





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
      will be recorded in the second quarter of 2007 as general and administrative
      expense and was computed using the Black-Scholes method with the following
      assumptions.








13





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





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,
      2007, the Company issued 500,000 shares valued at $20,000 or $0.04 per
      share to an employee as compensation. The value represents the market price
      of
      the Company’s common stock on the date 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.





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 March 31, 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 2 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.





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.























14





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





The
      following summarizes the outstanding warrants as of March 31, 2007:





Weighted-AverageExercise
            
            Warrants
            
            Remaining
                Contractual
            
            NumberPrice
            
            Outstanding
            
            Life
                (Years)
            
            Exercisable$0.01
            
            27,500,000
            
            2.85
            
            27,500,000$0.20
            
            2,912,500
            
            0.25
            
            2,912,500$0.50
            
            281,250
            
            0.25
            
            281,250$0.35
            
            1,456,250
            
            0.25
            
            1,456,25032,150,000
            
            
            
            32,150,000








NOTE
      9 – SUBSEQUENT EVENTS





Subsequent
      to March 31, 2007, the Company issued 250,000 shares of common stock as
      compensation to an employee valued at $7,500 or $0.03 per shares, 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.  All prices represent the closing market price on the date
      of issuance.





During
      the second quarter of 2007, Aspen Capital Management, LLC exercised certain
      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.





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
      May
      2007, the Company 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.





In
      July
      2007, the Company 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 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.  Based upon the market price of the
      Company’s common stock on the dates the note was issued, the investor received a
      beneficial conversion option of $154,396. The beneficial conversion option
      was
      computed as the difference between the fair value of the shares issuable upon
      conversion and the allocated proceeds of the common stock issuable upon
      conversion of the promissory notes plus the allocated fair value of the warrant
      issued. 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
      estimated fair value of the warrant of $102,398 was calculated using the Black
      Scholes method and the following assumptions.








15





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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





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.





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
      will be recorded during the third quarter as prepaid expenses and other assets
      and amortized over the life of the loan.





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.





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
            
            -








16





DIATECT
      INTERNATIONAL CORPORATION


NOTES
      TO CONDENSED FINANCIAL STATEMENTS





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.





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.


























17





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 March 31, 2007





Revenues
      for the three months ended March 31, 2007 were $442,138 as compared to $181,634
      for the three months ended March 31, 2006, an increase of $260,504. The increase
      is primarily due to increases in internet based sales and additional sales
      in
      the agricultural market.





Cost
      of
      revenues for the three months ended March 31, 2007 were $79,506 as compared
      to
      $62,816 for the three months ended March 31, 2006, a decrease of
      $16,690.  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 $180,834 for the three months ended March 31, 2007
      as
      compared to $149,756 for the three months ended March 31, 2006, an increase
      of
      $31,078. The increase is primarily due to increased salaries and web based
      marketing expenses for the three months ended March 31, 2006 partially offset
      by
      the value of the warrant issued during the three months ended March 31, 2006
      to
      a consultant in the amount of $116,935 for which no current period comparable
      amount exists.






18




General
      and administrative expenses were $342,996 for the three months ended March
      31,
      2007 as compared to $320,019 for the three months ended March 31, 2006, a
      decrease of $22,977.  The decrease is primarily due to decreases in
      professional fees.





Other
      income and expense is comprised of interest expense and gain from termination
      of
      debt.  Interest expense was $124,158 for the three months ended March
      31, 2007 as compared to $130,966 for the three months ended March 31, 2006,
      a
      decrease of $6,808.  Included in interest expense for the three months
      ended March 31, 2007 is the amortization of debt discount in the amount of
      $58,318.  Included in interest expense for the three months ended
      March 31, 2006 is the value of the warrant issued in conjunction with the
      offering in the amount of $76,410.  The remaining increase in the
      three months ended March 31, 2007 is due to higher levels of debt due to the
      private placement.  The gain from termination of debt in the three
      months ended March 31, 2006 was $41,227.  There is no comparable
      amount in the current period.





Liquidity
      and Capital Resources





Our
      cash
      and cash equivalents of $8,430 as of March 31, 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
      February 2006 the Company entered into a one year Financial Advisory and
      Investment Banking Agreement with Pointe Capital L.L.C. (“Pointe”), and pursuant
      thereto, received $150,000. In addition, in June 2006 the Company, through
      Pointe, commenced a Convertible Promissory Note (“Convertible Note”)
      offering.





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.








19





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.





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.








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 March 31, 2007.





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
      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.


























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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.





21





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
      500,000 share of common stock at a price of $0.04 per share valued at $20,000
      as
      compensation to a vendor.








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






































22





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



























































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