Diatect International Corporation (fka DTCT)

[RIGATONI]

Diatect International Shareholder Update from Chairman and CEO Patrick Carr
Dec 30, 2008 5:00:00 PM
Copyright Business Wire 2008


HEBER CITY, Utah--(BUSINESS WIRE)-- Diatect International Corporation (OTCBB:DTCT), a provider of eco-friendly organic insect control products, issued this letter today to its shareholders and stakeholders to provide an update on significant business activities at the company.

To Our Shareholders and Stakeholders:

As 2008 draws to a close, I want to update you on the formidable progress at Diatect International. This past year has been a period of profound change. We have completed a major restructuring and have transformed Diatect from a struggling concern into a viable niche-focused enterprise.

Here's a snapshot of where we are.

Retail Sales

Diatect's products are now available in over 1,200 retail outlets in almost all 50 states, with same-day shipment and product availability via the web nationally and internationally. Over 150 of these retail locations are in Florida and we now market through approximately 250 stores in Texas. Diatect products are available in approximately 75 Wal-Mart stores. We currently have 13 wholesale distributors throughout the U.S. and an expanding network of commercial users.

International Sales

We have undertaken considerable efforts in establishing international sales channels, particularly in Central America. Marketing efforts also are ongoing in both Europe and the Middle East where our first product approval is expected in 2009. Diatect's strategic positioning is unique. Regulatory hurdles and a proprietary manufacturing process appear to position the company moderately well against larger incumbents attempting to enter the emerging green and organic insecticide markets. The company's scalability and distribution channels are immediate differentiators among others competing in the space.

Internet Sales

During the third quarter of 2008, steps were taken to immediately improve profitability in Diatect's largest market segment, Internet sales. By November, these actions had increased the contribution margin of this market to 40% compared to a negative 6% in 2007. We also were able to increase our prices in addition to growing the average order size. Our marketing strategy has enabled us to cut our advertising expense in half while maintaining strong Internet sales, thus dramatically decreasing the cost of attracting new customers.

Call Center

We have doubled the size of our retail call center and more than doubled its quality and capability. Call center agents receive weekly training on improving the effectiveness of their calls to generate new business. In 2008, the call center typically added two to three new stores a day during peak months and one to two during the off-season. With the doubling of agents plus the improvements in training and incentives, we expect to double the number of retail outlets carrying Diatect products. This represents a major improvement and a significant opportunity to grow sales.

Marketing

This past fall, we retained a key marketing consultant, Bob Jacobson, a retired Home Depot executive who built Home Depot's Lawn and Garden division into a $2 billion worldwide business. With Bob's assistance, we are planning for a much wider distribution in big-box stores and retail chains by adding groups of stores at a time. These efforts, complemented by the call center, have set the stage for multi-fold growth in the retail segment. To support and reinforce these initiatives, we will launch a major product recognition promotion program at both the consumer and distributor level. The scope of this program is unlike any marketing effort Diatect has ever launched.

Commercial Markets

In addition to these retail-marketing efforts, Diatect is pursuing new opportunities in the commercial market through private labeling and company distribution. We expect these market segments, which have been almost nonexistent to date, to grow into a significant share of our total sales.

Agriculture Market

While agricultural sales were disappointing in 2008, much of this performance can be attributed to a reduced pest load in California and diffused efforts on Diatect's part. Our 2009 strategy will focus on the decision-makers for insecticide use in California. We are expanding our distributor network from two to 12 outlets covering agricultural areas in California from Napa to Los Angeles. This will present our products to a far wider audience of farmers and will vastly increase our sales opportunities. While our agricultural growth expectations are modest for 2009, we are building a sales network that will give us multi-fold expansion in the coming years.

Balance Sheet

We are currently working on raising new capital and converting unsecured liabilities into common shares. This follows our efforts to improve our balance sheet. With a healthier balance sheet and a sound operational and marketing strategy, we expect to deliver positive cash flow from operations in 2009 with the potential for significant profitability growth over the next few years.

EPA Labels

It's important to point out that the cost of obtaining a new pesticide approved by the federal government is now prohibitive for all but the largest players. Industry trade group CropLife America estimates that a single EPA label for a new insecticide can take up to between eight to ten years of pesticide development and testing at a total cost to the manufacturers of $35 to $50 million. Even with the green insecticide space growing rapidly, we believe larger competitors perceive it as a niche market and are therefore unlikely to commit necessary capital to enter the space, although they might consider entering the market via acquisition. Diatect has nine EPA fully registered product labels, an enormously valuable asset not reflected on our balance sheet.

Potential Acquisition Candidate

Though it is premature to consider Diatect a viable acquisition candidate, there is a precedent in the market for the buyout of more developed companies specializing in similar insecticides. In August 2007, Agriliance, an agronomy products and services company with distribution throughout the US, Canada and Mexico, acquired Dryacide USA. This acquisition may be relevant to Diatect because the primary ingredient of Dryacide is DE, or diatomaceous earth, used in this case for long-lasting protection of stored grain. A month later, in September of 2007, the crop protection business of Agriliance was acquired by Land O' Lakes. This suggests there is enormous underlying value in Diatect assets yet to be realized.

Widespread Need

A few final thoughts. Diatect's markets and the solutions it provides are cost effective cures for the bug problems of homeowners, farmers and gardeners. These groups are not inclined to allow bugs to overrun their farms, gardens and homes when there are modestly priced and cost effective green solutions available from Diatect. Although consumers may postpone the purchase of major items during economic downturns, they are not likely to tolerate being overrun by insects.

Cost Savings

In 2008 we reduced our headcount by 25%. Every cost of goods sold and every operating expense has been scrutinized and reduced if possible. Diatect remains in a unique position to scale up to meet future demand with minimal increases in labor and overhead costs. The result is that as we grow, we fully expect to become more efficient and more profitable.

Confidence in our Future

I am confident we will grow Diatect into a successful company. Our market strategy is in place and the timing could not be better. We are at the start of the green century. There is a global ground swell of interest and opportunity in green, eco-friendly products. We anticipate this trend will result in a growing market for Diatect's products. While many industries are reeling from the impact of the current economic slowdown, Diatect is extremely well positioned.

More Information

For a more expanded review of our operations, please go to http://www.hawkassociates.com. I also invite you to review the analyst report from AMI Stock Reports that can be found at www.amistockreports.com.

Thank you for your support in 2008. Rest assured we are doing everything we can to make your investment in Diatect a rewarding one in 2009.

Patrick Carr

Chief Executive Officer

Safe Harbor Statement

The information contained herein contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our annual report on Form 10-K and other reports we file with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this press release to conform these statements to actual results or to changes in our expectations, except as required by law.



Source: Diatect International Corporation


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Diatect International Corporation
Robert Rudman
Chief Financial Officer
813-387-3309
[e-mail]
or
Hawk Associates
Frank Hawkins or Julie Marshall
305-451-1888
[e-mail]