UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-QSB





(Mark One)



[ X ]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the Quarter Ended:

June 30, 2003



[     ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from _____________ to _____________



Commission file number:  0-10147







DIATECT INTERNATIONAL CORPORATION

_______________________________________________________________________________

(Name of Small Business Issuer in its charter)





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







875 S Industrial Parkway, Heber City, Utah 84032

(435) 654-4370

_______________________________________________________________________________

(Address and telephone number of registrants principal executive offices and principal

place of business)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), or (2) has been subject to such filing requirements for the past 90 days.



Yes

[ X ]

No

[     ]





Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|Common stock, No Par Value | 48,558,936                                      
|-------------------------- | ------------------------------------------------
|Title of Class             | Number of Shares Outstanding
as of June 30, 2003





































PART I FINANCIAL INFORMATION



ITEM 1.  FINANCIAL STATEMENTS



DIATECT INTERNATIONAL CORP.

FINANCIAL STATEMENTS

(UNAUDITED)



The accompanying financial statements have been prepared by the Company, without audit, in accordance with the instructions to Form 10-QSB pursuant to the rules and regulations of the Securities and Exchange Commission and, therefore may not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholders equity in conformity with generally accepted accounting principles.  In the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made.  These financial statements should be read in conjunction with the accompanying notes, and with the historical financial information of the Company.







































Diatect International Corp.

Consolidated Balance Sheets



|                                                           | June 30,
2003
(Unaudited) | December 31,
2002
|---------------------------------------------------------- | ------------------------- | -----------------
|                                                           |                           |                  
|ASSETS                                                     |                           |                  
|                                                           |                           |                  
|CURRENT ASSETS                                             |                           |                  
|Cash                                                       | $              2,222      | $           4,509
|Cash in escrow                                             | -                         | 400,000          
|Net accounts receivable                                    | 137,288                   | 352,643          
|Employee receivable                                        | 2,055                     | 1,270            
|Prepaid interest                                           | 18,532                    | 108,048          
|Prepaid expenses                                           | 38,448                    | 56,399           
|Inventories                                                | 1,149,565                 | 1,259,149        
|                                                           |                           |                  
|Total Current Assets                                       | 1,348,110                 | 2,182,018        
|                                                           |                           |                  
|PROPERTY, PLANT AND EQUIPMENT                              |                           |                  
|Mining property                                            | 940                       | 940              
|Land                                                       | 150,000                   | -                
|Building                                                   | 725,500                   | -                
|Equipment                                                  | 436,323                   | 420,839          
|Less accumulated depreciation                              | (144,262)                 | (97,142)         
|                                                           |                           |                  
|Total Property, Plant and Equipment                        | 1,168,501                 | 324,637          
|                                                           |                           |                  
|OTHER ASSETS                                               |                           |                  
|Deposits                                                   | -                         | 28,500           
|Investment in EPA labels                                   | 1,736,322                 | 1,736,322        
|                                                           |                           |                  
|Total Other Assets                                         | 1,736,322                 | 1,764,822        
|                                                           |                           |                  
|TOTAL ASSETS                                               | $        4,252,933        | $     4,271,477  
|                                                           |                           |                  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)             |                           |                  
|                                                           |                           |                  
|CURRENT LIABILITIES                                        |                           |                  
|Accounts payable                                           | $        1,148,340        | $     1,400,610  
|Accounts payable  related party                           | 31,892                    | 37,710           
|Line of credit                                             | 114,299                   | 351,048          
|Lease payable                                              | 12,026                    | 18,067           
|Bank overdraft                                             | 105,681                   | -                
|Interest payable                                           | 433,402                   | 310,434          
|Settlements payable                                        | 136,709                   | 181,357          
|Other accrued liabilities                                  | 233,192                   | 190,951          
|Royalty payable                                            | 113,623                   | 113,623          
|Notes payable                                              | 2,613,020                 | 2,132,181        
|                                                           |                           |                  
|Total Current Liabilities                                  | 4,943,020                 | 4,735,981        
|                                                           |                           |                  
|LONG-TERM DEBT                                             |                           |                  
|Mortgage note payable                                      | 847,000                   | -                
|Lease payable-net of current portion                       | -                         | 3,392            
|                                                           |                           |                  
|                                                           | 847,000                   | 3,392            
|                                                           |                           |                  
|COMMITMENTS AND CONTIGENCIES                               | 130,395                   | 134,739          
|                                                           |                           |                  
|STOCKHOLDERS EQUITY (DEFICIT)                             |                           |                  
|Common stock, no par value; 100,000,000 shares authorized; |                           |                  
|48,558,936 and 45,013,414 shares issued and outstanding    | 15,639,130                | 14,971,327       
|Common stock subscribed                                    | (20,000)                  | (20,000)         
|Stock options                                              | 36,070                    | 36,070           
|Accumulated deficit                                        | (17,322,735)              | (15,590,032)     
|                                                           |                           |                  
|Total Stockholders Equity (Deficit)                       | (1,667,535)               | (602,635)        
|                                                           |                           |                  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       | $        4,252,933        | $     4,271,477  





See condensed notes to interim consolidated financial statements.



































Diatect International Corp.

Consolidated Statements of Operations



|                                                                        | Three Months Ended June 30, | Six Months Ended June 30,
|----------------------------------------------------------------------- | --------------------------- | -------------------------
|                                                                        | 2003
(Unaudited)            | 2002
(Audited)           
|                                                                        |                             |                          
|REVENUES                                                                | $          212,274          | $          116,423       
|                                                                        |                             |                          
|COST OF SALES                                                           | 88,965                      | 45,568                   
|                                                                        |                             |                          
|GROSS PROFIT                                                            | 123,309                     | 70,855                   
|                                                                        |                             |                          
|OPERATING EXPENSES                                                      |                             |                          
|Salaries, wages and benefits                                            | 343,510                     | 136,339                  
|Executive compensation                                                  | 34,422                      | 95,138                   
|Registration fees                                                       | 7,880                       | -                        
|Depreciation and amortization                                           | 23,015                      | 19,168                   
|Legal and professional fees                                             | 17,389                      | 31,496                   
|Contract labour                                                         | 74,151                      | 42,679                   
|Advertising and promotion                                               | 159,014                     | 66,157                   
|Consulting                                                              | 5,000                       | 56,300                   
|Travel and promotion                                                    | 27,458                      | 14,913                   
|Supplies                                                                | 11,439                      | 70,395                   
|Bad debts                                                               | 24,900                      | 90,136                   
|Other operating expense                                                 | 72,604                      | 122,121                  
|Total Operating Expenses                                                | 800,782                     | 744,842                  
|                                                                        |                             |                          
|OPERATING LOSS                                                          | (677,473)                   | (673,987)                
|                                                                        |                             |                          
|OTHER INCOME (EXPENSES)                                                 |                             |                          
|Interest expense                                                        | (152,092)                   | (87,850)                 
|Loss on distribution returns                                            | (141,172)                   | -                        
|Miscellaneous                                                           | -                           | (522)                    
|Total Other Income (Expenses)                                           | (293,264)                   | (88,372)                 
|                                                                        |                             |                          
|LOSS BEFORE INCOME TAXES                                                | (970,737)                   | (762,356)                
|                                                                        |                             |                          
|INCOME TAXES                                                            | -                           | -                        
|                                                                        |                             |                          
|NET LOSS                                                                | $       (970,737)           | $       (762,356)        
|                                                                        |                             |                          
|BASIC AND DILUTED NET LOSS PER SHARE                                    | $             (0.02)        | $             (0.02)     
|                                                                        |                             |                          
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED | 47,570,921                  | 40,628,418               





See condensed notes to interim consolidated financial statements.







































Diatect International Corp.

Consolidated Cash Flow Statements



|                                                                            | Six Months Ended June 30,
|--------------------------------------------------------------------------- | -------------------------
|                                                                            | 2003
(Unaudited)         
|                                                                            |                          
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |                          
|Net loss                                                                    | $       (1,732,703)      
|Adjustments to reconcile net loss to net cash used by operating activities: |                          
|Depreciation and amortization                                               | 47,120                   
|Issuance of stock for services                                              | 89,550                   
|Issuance of stock for finance charges                                       | 54,190                   
|Bad debts                                                                   | 69,900                   
|Prepaid finance charges paid by issuance of stock                           | -                        
|Stock issued for payment of accrued expenses                                | -                        
|Changes in assets and liabilities:                                          |                          
|Cash in escrow                                                              | 400,000                  
|Accounts receivable                                                         | 145,455                  
|Employee receivable                                                         | (785)                    
|Prepaid interest                                                            | 89,516                   
|Prepaid royalties                                                           | -                        
|Prepaid expenses                                                            | 17,951                   
|Inventories                                                                 | 109,584                  
|Deposits                                                                    | 28,500                   
|Accounts payable                                                            | 20,084                   
|Accounts payable  related parties                                          | 5,818                    
|Interest payable                                                            | 147,186                  
|Other accrued liabilities                                                   | 42,241                   
|                                                                            |                          
|NET CASH FLOWS USED BY OPERATING ACTIVITIES                                 | (478,029)                
|                                                                            |                          
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |                          
|Purchase of property, plant and equipment                                   | (43,984)                 
|                                                                            |                          
|NET CASH FLOWS FROM FINANCING ACTIVITIES                                    |                          
|Proceeds from stock subscriptions                                           | -                        
|Payment of settlements                                                      | -                        
|Proceeds from lines of credit                                               | -                        
|Net payment of bank overdraft                                               | 105,681                  
|Proceeds from sale of stock                                                 | 58,000                   
|Payment of commitments and contingencies                                    | (4,344)                  
|Payment of lease payable                                                    | (9,433)                  
|Payments of line of credit                                                  | (236,749)                
|Payments of notes payable                                                   | (400,516)                
|Proceeds from notes payable                                                 | 1,007,087                
|                                                                            |                          
|NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                             | 519,726                  
|                                                                            |                          
|NET INCREASE (DECREASE) IN CASH                                             | (2,287)                  
|                                                                            |                          
|CASH AT BEGINNING OF YEAR                                                   | 4,509                    
|                                                                            |                          
|CASH AT END OF PERIOD                                                       | $               2,222    
|                                                                            |                          
|SUPPLEMENTAL CASH FLOW DISCLOSURES:                                         |                          
|Interest expense paid                                                       | $               6,484    
|Income taxes paid                                                           | $                       -
|                                                                            |                          
|NON-CASH FINANCING ACTIVITIES:                                              |                          
|Issuance of common stock for notes payable and interest                     | $           409,266      
|Issuance of common stock for services                                       | $             89,550     
|Issuance of common stock for prepaid finance charges                        | $                       -
|Issuance of common stock for settlement and interest                        | $             56,797     
|Issuance of debt for account payable                                        | $           272,354      
|Issuance of common stock for finance charges                                | $             54,190     
|Property acquired by mortgage                                               | $           847,000      
|Accounts receivable allowance for bad debt                                  | $             69,900     





See condensed notes to interim consolidated financial statements.





































Diatect International Corp.

Notes to Condensed Interim Financial Statements

June 30, 2003





NOTE 1  BASIS AND PRESENTATION



The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B as promulgated by the Securities and Exchange Commission.  Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles.  The unaudited interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2002.  In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.



The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period.  Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company's financial position and results of operations.



Operating results for the six-month period ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.



GOING CONCERN UNCERTAINTY

These financial statements have been prepared on a going concern basis, which contemplated the realization of assets and the satisfaction of liabilities in the normal course of business.  For the six months ended June 30, 2003, the Company sustained a net loss of $1,732,703.  As of June 30, 2003 the Companys accumulated deficit was $17,322,735.  These factors, among others indicate that the Company may be unable to continue as a going concern for a reasonable period of time.  These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.  The Companys continuation as a going concern is contingent upon its ability to obtain additional financing, and to generate revenue and cash flow to meet its obligations on a timely basis.





NOTE 2 - ORGANIZATION AND DESCRIPTION OF BUSINESS



Diatect International Corp was incorporated in the state of California in 1979 as a bank holding corporation.  During 1986, the Company liquidated its subsidiaries and became a dormant shell corporation.



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



The Companys wholly owned subsidiaries consist of Enviro-Guard Corporation, Diatect International, Inc. and D.S.D., Inc.  Apart from Diatect International, Inc. the Companys other subsidiaries are inactive.





NOTE 3  INVENTORIES



Inventories at June 30, 2003 and December 31, 2002 consist of the following:



|                    | June 30,
2003        | December 31,
2002 
|------------------- | -------------------- | ------------------
|                    |                      |                   
|Raw Materials       | $             57,960 | $           78,169
|Packaging Materials | 15,212               | 12,874            
|Finished Goods      | 1,076,393            | 1,168,106         
|                    |                      |                   
|Total               | $        1,149,565   | $      1,259,149  



Finished goods consist of different forms of application of pesticide products.





NOTE 4  NOTES PAYABLE



All of the Companys notes payable are considered short-term.  At June 30, 2003 notes payable consisted of the following:



|Creditor and Conditions                                                                                                                                                                                                                                                                               | June 30, 2003    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------
|                                                                                                                                                                                                                                                                                                      |                  
|Balance, December 31, 2002                                                                                                                                                                                                                                                                            | $       2,132,181
|                                                                                                                                                                                                                                                                                                      |                  
|RCK, LLC, (a shareholder of the Company) unsecured, interest at 12%, dated September 28, 2001, due on demand, paid by return of funds and issuance of stock.                                                                                                                                          | (600,000)        
|                                                                                                                                                                                                                                                                                                      |                  
|Kyle Baird, (a shareholder of the Company), unsecured, interest at 10%, dated July 10, 2002, due on September 30, 2002, paid by issuance of stock.                                                                                                                                                    | (74,000)         
|                                                                                                                                                                                                                                                                                                      |                  
|Ronald Davis, (a shareholder of the Company), unsecured, interest at 10%, dated July 10, 2002, due on December 31, 2002, paid by issuance of stock.                                                                                                                                                   | (79,250)         
|                                                                                                                                                                                                                                                                                                      |                  
|Hyrum L. & Helen Mae Andrus, (shareholders of the Company), interest at 8%, dated April 24, 2002, due on June 24, 2002, delinquent, partial payment issuance of stock.                                                                                                                                | (516)            
|                                                                                                                                                                                                                                                                                                      |                  
|George Ann Pope Charitable Trust, (a shareholder of the Company), secured by inventory security agreement whereby $0.25 of each dollar of gross proceeds from the sale of inventory is allocated and set aside until the note is paid, interest at 10%, dated January 15, 2003, due on July 15, 2003. | 750,000          
|                                                                                                                                                                                                                                                                                                      |                  
|Stonefield, Inc., secured by deed of trust, interest at 13% with monthly payments of interest only commencing February 17, 2003, dated January 15, 2003, due on January 17, 2005.                                                                                                                     | 847,000          
|                                                                                                                                                                                                                                                                                                      |                  
|LaJolla Cove Investors, Inc., (a shareholder of the Company), unsecured, 8% convertible debenture to common stock, dated March 18, 2003, due on demand.                                                                                                                                               | 100,000          
|                                                                                                                                                                                                                                                                                                      |                  
|Dave Russell, (a shareholder of the Company), unsecured, interest at 10$, dated May 20, 2003, due November 20, 2003.                                                                                                                                                                                  | 100,000          
|                                                                                                                                                                                                                                                                                                      |                  
|Keven Jensen (a shareholder of the Company), unsecured, interest at 10% dated April 25, 2003 due July 24, 2003.                                                                                                                                                                                       | 25,000           
|                                                                                                                                                                                                                                                                                                      |                  
|Orion & Sue Bishop, (a shareholder of the Company), unsecured, interest at 10%, dated September 30, 2002, due on April 15, 2003, paid by issuance of stock.                                                                                                                                           | (12,500)         
|                                                                                                                                                                                                                                                                                                      |                  
|Orion & Sue Bishop, (a shareholder of the Company), unsecured, interest at 10%, dated September 30, 2002, due on April 15, 2003, paid by issuance of stock.                                                                                                                                           | (12,500)         
|                                                                                                                                                                                                                                                                                                      |                  
|Compax/Flexpak a vendor of the Company, has converted the account payable to a note with interest at 12% per annum, until paid.                                                                                                                                                                       | 272,354          
|                                                                                                                                                                                                                                                                                                      |                  
|Brian & Roxanne Clarke, (shareholders of the Company), unsecured, interest at 10%, dated June 25, 2003, due on demand.                                                                                                                                                                                | 1,555            
|                                                                                                                                                                                                                                                                                                      |                  
|Jay Downs, (a shareholder of the Company), interest at 10%, dated June 5, 2003, due on demand.                                                                                                                                                                                                        | 5,000            
|                                                                                                                                                                                                                                                                                                      |                  
|Total                                                                                                                                                                                                                                                                                                 | 3,460,856        
|Less current portion                                                                                                                                                                                                                                                                                  | 1,616,856        
|                                                                                                                                                                                                                                                                                                      |                  
|Total long term notes payable                                                                                                                                                                                                                                                                         | $         847,000







NOTE 5  LINES OF CREDIT



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





NOTE 6  LITIGATION



From time to time the Company is subject to various legal proceedings that arise in the ordinary course of business.  Although the Company cannot predict the outcome of these proceedings with certainty, the Company does not believe that the disposition of these matters will have a material adverse affect on its financial position, results of operations or cash flows.



The status of legal proceedings against the Company is detailed in Part II Item 1, Legal Proceedings, later in the report.





NOTE 7  COMMON STOCK



During the six months ended June 30, 2003, the Company issued 3,545,522 shares of its common stock.  For debt and interest valued at $520,253, the company issued 2,352,445 shares.  The Company also issued 55,000 shares of its common stock to directors for services valued at $8,550.  There were 673,077 shares issued to employees, consultants and others for services valued at $81,000.  The stock was valued at it fair market value on the date of issuance.  The Company also sold 465,000 shares of its common stock for $58,000 during the same fiscal period.





NOTE 8  STOCK OPTIONS



There were no options exercised or issued during the six months ended June 30, 2003.





NOTE 9  COMMITMENTS AND CONTINGENCIES



Purchase of Facilities

During October 2001, the Company relocated both its office and operating facilities to Heber City, Utah.  During January 2003, the Company completed negotiations for the purchase of its new facilities at a total cost of $875,500.  Terms of the financing agreement call for approximately $9,200 in interest only payments at 13% annual interest rate.  (See Note 4.)  Under terms of the original agreement, the Company occupied the facilities with no charge until closing.  Other terms of the agreement called for a down payment of $28,500, escrow deposit in the amount of $384,000 and a letter of credit in the amount of $412,500.  The Company paid the down payment of $28,500 during the fourth quarter of the year ended December 31, 2001 and this amount is reflected in the attached financial statements as deposits at December 31, 2002.  During the same period, the Company also secured cash in the amount of $400,000, which was considered restricted for an escrow deposit.  These funds were returned to the lender in January 2003.  The Company has occupied the facilities since October 10, 2001.



G.A. Pope Charitable Trust Note Payable

In the first quarter of 2003, the Company borrowed $750,000 from a privately held trust.  One of the underlying loan covenants with the trust provides that the Company shall set aside a portion of its gross sales proceeds until the note is paid.  At June 30, 2003, the Company had not complied with aforementioned loan covenant.  In the third quarter of 2003, the Company is renegotiating the loan covenant and loan maturity with the trust.





NOTE 10  DISTRIBUTION RETURNS



Loss on distribution returns

In the second quarter of 2003, the Company requested the return of product from a class of customers, (Future Farmers of America chapters in the State of Texas), because the Company had some concerns regarding inappropriate product storage conditions by customers and the related expected impact on product efficiency.  Therefore, upon receipt of this product, the Company recorded a loss on distribution and product returns of $174,150.  This amount consists of the write-off of the related customer receivables, offset by the recording of reusable inventory materials of $32,978.





NOTE 11  SUBSEQUENT EVENTS



On August 12th 2003, the Company entered in to a letter of intent with Diatomaceous Earth Deposits of Virginia to purchase 90% of Diatect Internationals diatomaceous earth mining site in Oregon for $31.1 million.  At the current time, Diatect expects to finalize the transaction on or before September 15, 2003.  Diatomaceous Earth Deposits of Virginia is a corporation co-owned by Michael P. McQuade (an outside director of Diatect).  Initial terms of the agreement call for Diatect to receive annual payments of approximately $1.9 million per year beginning in September 2005 and continuing for a period of fifteen years thereafter.  Other terms will be negotiated prior to the scheduled closing.







































ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



Cautionary Statement Regarding Forward-looking Statements



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



Six Months ended June 30, 2003 compared to June 30, 2002



During the six months ended June 30, 2003 and 2002, our revenues were $342,727 and $162,683, respectively, with costs of sales of $156,604 and $66,385 with gross profits of $186,123 and $96,298.  The increase in our revenues in the six months ended June 30, 2003 compared to 2002 can be attributable to market awareness and increased sales staff.  Brand awareness has been very promising for future growth of Diatects Results Brands.



We feel the 211 percent increase in revenues for the six months period ended June 30, 2003 compared to the same period in the preceding year is indicative of our future prospects for the balance of the fiscal year.



Operating Expenses.  For the six months ended June 30, 2003 and 2002, total operating expenses were $1,430,035 and $1,130,841, respectively, for total operating losses of $1,243,912 and $1,034,543.



The operating expenses for the six months ended June 30, 2003 were slightly higher than the prior year period for a number of reasons.  We continue to market and advertise our products heavily in the southern region and in doing so, we had a large increase in salaries, wages and benefits of $318,754, which is attributed to increased sales and administrative staffing needed to meet current demands.  The majority of this increase is related to the increased frequency of shipping, promotions and advertising (especially due to increased marketing efforts), as well as additional consulting and travel expenses related to those marketing efforts.  The Company has also taken a conservative stance to account for related bad debts.



Other Income and Expenses.  Other income/expenses showed a loss of $488,792 and $151,981, respectively, for the six months ended June 30, 2003 and 2002.  Interest expense was the primary component of other expenses for the respective periods and was higher in 2003 due to increased borrowing and debt service.



In the second quarter of 2003, we requested the return of product from a class of customers, (Future Farmers of America chapters in the State of Texas) because we had some concerns regarding inappropriate product storage conditions by customers and the related expected impact on product efficiency.  Therefore, upon receipt of this product, the Company recorded a loss on distribution and product returns of $141,172



For the six months ended June 30, 2003 and 2002, we had net losses of $1,732,703 and $1,186,524 and loss per share was $0.04 and $0.03, respectively.



Liquidity and Capital Resources



In the six months ended June 30, 2003, our liquidity was substantially derived from the issuance of notes payable and the issuance of common stock for cash.  Cash used in operations far exceeded revenues.  We hope that the remainder of the fiscal year will demonstrate the effectiveness of our marketing and distribution efforts and we continue to anticipate increases in market development and sales, which will bring us closer to profitability.



At June 30, 2003, we had current assets of $1,348,110, consisting primarily of accounts receivable of $137,288, prepaid interest of $18,532, and $1,149,565 in inventory.  We had current liabilities of $4,943,020, consisting primarily of accounts payable of $1,148,340, a line of credit of $114,299, interest payable of $433,402, and current notes payable of $2,613,856, plus other accrued liabilities of $233,192.  Accordingly, we have a working capital deficit of $1,667,535.  At June 30, 2003, we had property, plant and equipment totaling $1,168,501, net of depreciation, and other assets of $1,736,322, consisting primarily of our investment in EPA labels. At June 30, 2003, the Company had long term debt of $847,000, consisting of the mortgage note payable for the purchase of our facilities.



Cash used in operations for the six months ended June 30, 2003 was $478,029.  In 2003, our operations have been funded primarily by proceeds from notes payable.



Cash used by investing activities for the six months ended June 30, 2003 totaled $43,984 for the purchase of property plant, and equipment.



Cash flows from financing activities for the six months ended June 30, 2003 totaled $519,726, consisting of cash received from the sale of common stock, proceeds from newly issued notes payable, offset by payments on previously issued notes payable and line of credit.  Non-cash financing activities included the issuance of common stock for notes payable, interest, issuance of debt for accounts payable and securing a mortgage of $897,000 for our facilities and issuance of common stock for services totaling $89,550.



On December 27, 2002 Diatect International entered into a negotiation for a 8% convertible debenture to raise operating capital for the ongoing operations of the Company.  The principal sum of the debenture is $150,000 of which $100,000 was advanced to the Company, $50,000 was placed into escrow for the legal and registration fees associated with the potential registration. This registration will include convertible debenture, exercisable warrants.  On April 22, 2003, Diatect International received a draft of the registration statement. On August 4, 2003 the board of directors ratified the filing of the registration statement with revisions.  At the current time the Companys legal council is preparing the registration statement



As a result of our past production increase and delays in scheduled shipments, we currently have over 677,556 finished product units with a potential wholesale value of over $3.9 million. We are continuing to market our products into the wholesale, retail and commercial outlets which are expected to continue to absorb the excess inventory.



During the balance of fiscal year 2003, we may seek working capital from several sources, including the equity markets and private investors.



We believe that in the remainder of fiscal 2003, we will increase revenues from operations as we continue to move from the development stage of our products to a full marketing and sales program.  We have initiated an aggressive marketing campaign to the thousands of small retail stores within Southern region.  With our current inventory and our ability to manufacture 60,000 + units per day, we believe we can rapidly meet the potential demand for large quantities of our products.



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



Impact of Inflation



We do not anticipate that inflation will have a material impact on our current or proposed operations.



Seasonality



We have not experienced significant variations in sales of products attributable to seasonal factors.







ITEM 3. CONTROLS AND PROCEDURES



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



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





































PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



The Company is not aware of any other threatened litigation against it or its subsidiaries.





ITEM 2. CHANGES IN SECURITIES



During the six months ended June 30, 2003, we issued 2,352,445 shares of our common stock valued at $520,253 in payment of notes payable and accrued interest.  We have sold 465,000 shares of our common stock for cash proceeds of $58,000.  We issued 55,000 shares of our common stock to directors and others for services valued at $8,550, we issued 673,077 shares of our common stock valued at $81,000 in payment consultants and employees for services rendered.  The above securities have been issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.  (See Consolidated Statements of Stockholders Equity in the interim financial statements and the notes thereto.)





ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.





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



None.





ITEM 5. OTHER INFORMATION



None





ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits.



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



(b) Reports on Form 8-K.

None.







































SIGNATURES



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





DIATECT INTERNATIONAL CORPORATION



Date: August 11, 2003



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

/s/ Margie Humphries, Secretary



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



Date: August 11, 2003



/s/ Jay W. Downs, Director

/s/ David Andrus, Director

/s/ Michael McQuade, Director

/s/ M. Stewart Hyndman, Director

/s/ Frank S. Priestley, Director

/s/ Robert E. Crouch, Director