DTCT Initial Full Coverage Report

Diatect gets the bugs out, expects strong growth

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With impressive annual sales growth driven by increasing web purchases and an expansion of the wholesale and retail distribution network, Diatect (OTC BB: DTCT) continues to strengthen its niche as a manufacturer and distributor of eco-friendly, effective insect control products. With a healthier balance sheet and a sound operational and marketing strategy, we expect DTCT management to deliver positive cash flow from operations in the next 12 months with the potential for significant profitability growth over the next few years. We are initiating coverage with an ACCUMULATE rating and a target price of $0.21.

Key Points

Distribution, distribution, distribution: Diatect sells its Diatect® and Results branded products through wholesale distributors and over 600 U.S. retailers for use by individual consumers and for use in agricultural, commercial and food production applications. The company is also benefiting from fast growing Internet sales. We estimate these segments represent a current addressable market of $7.0 billion in the U.S. alone.

Barrier to entry: Diatect holds five registrations from the U.S. Environmental Protection Agency that enable the company to sell products under nine labels – a process that has become significantly more expensive and time consuming for new applications for insecticide labels.

‘Green’ and safer: Using naturally occurring compounds that paralyze and dehydrate insects upon contact, DTCT products are safer for humans and pets immediately after application and throughout the decomposition process, during which the products break-down into harmless by-products.

Balance sheet stronger, new marketing to begin: Raising new capital and converting unsecured liabilities into common shares, Diatect in ‘07 improved its balance sheet and is now working to ramp sales through reinvigorated marketing and new leadership.