U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



|x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------
|  |                                                                                        
|  | For the quarterly period ended September 30, 2013.                                     



|£ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------
|  |                                                                                         
|  | For the transition period from to                                                       



Commission File Number

333-173215



CannaVEST Corp.

(Exact name of registrant as specified in
its charter)



|DELAWARE                                                               | 80-0944970                               
|---------------------------------------------------------------------- | -----------------------------------------
|(State or other jurisdiction of
        incorporation or organization) | (IRS Employer Identification
        No.)



2688 South Rainbow Avenue, Suite B

Las Vegas, Nevada 89146

(Address of principal executive offices)



866-290-2157

(Registrant’s telephone number, including
area code)



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), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No £



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes £
No x



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



|Large accelerated filer  £                                             |  | Accelerated filer  £        
|---------------------------------------------------------------------- |  | ----------------------------
|Non-accelerated filer  £ (Do not check if a smaller reporting company) |  | Smaller reporting company  S



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes £
No x



Indicate the number of shares outstanding of
each of the issuer’s classes of common stock, as of the latest practicable date: As of November 14, 2013, the issuer had
11,744,167shares of issued and outstanding common stock, par value $.0001.
















TABLE OF CONTENTS



|                                                                                                                              | Page
|----------------------------------------------------------------------------------------------------------------------------- | ----
|PART I FINANCIAL INFORMATION                                                                                                  |     
|                                                                                                                              |     
|Item 1. Financial Statements                                                                                                  | 3   
|                                                                                                                              |     
|Condensed Consolidated Balance Sheets as of September 30,
2013 (unaudited) and December 31, 2012                              | 4   
|                                                                                                                              |     
|Condensed Consolidated Statements of Operations (unaudited)
for the Three and Nine Months Ended September 30, 2013 and 2012   | 5   
|                                                                                                                              |     
|Condensed Consolidated Statement of Changes in Stockholders’
Deficit (unaudited) from December 31, 2012 to September 30, 2013 | 6   
|                                                                                                                              |     
|Condensed Consolidated Statements of Cash Flows (unaudited)
for the Nine Months Ended September 30, 2013 and 2012             | 7   
|                                                                                                                              |     
|Notes to Condensed Consolidated Financial Statements (unaudited)                                                              | 8   
|                                                                                                                              |     
|Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations                                 | 14  
|                                                                                                                              |     
|Item 3. Quantitative And Qualitative Disclosures About
Market Risk                                                            | 17  
|                                                                                                                              |     
|Item 4. Controls and Procedures                                                                                               | 17  
|                                                                                                                              |     
|PART II OTHER INFORMATION                                                                                                     |     
|                                                                                                                              |     
|Item 1. Legal Proceedings                                                                                                     | 18  
|                                                                                                                              |     
|Item 1A. Risk Factors                                                                                                         | 18  
|                                                                                                                              |     
|Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds                                                           | 18  
|                                                                                                                              |     
|Item 3. Defaults Upon Senior Securities                                                                                       | 19  
|                                                                                                                              |     
|Item 4. Mine Safety Disclosures                                                                                               | 19  
|                                                                                                                              |     
|Item 5. Other Information                                                                                                     | 19  
|                                                                                                                              |     
|Item 6. Exhibits                                                                                                              | 19  
|                                                                                                                              |     
|SIGNATURES                                                                                                                    | 20  







2







PART I. FINANCIAL INFORMATION



Item 1: Financial Statements



CANNAVEST CORP.



CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

AS OF SEPTEMBER 30, 2013 AND FOR THE THREE
AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND 2012





































































3







CANNAVEST CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                     |  | September 30, 2013 |             |   | December 31, 2012 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----------- | - | ----------------- | -
|ASSETS                                                                                                                                                                               |  | (unaudited)        |             |   |                   |  
|Current Assets                                                                                                                                                                       |  |                    |             |   |                   |  
|Cash                                                                                                                                                                                 |  | $                  | 165,907     |   |                   | $
|Accounts Receivable                                                                                                                                                                  |  |                    | 1,661,733   |   |                   |  
|Total Current Assets                                                                                                                                                                 |  |                    | 1,827,640   |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|Other Current Assets                                                                                                                                                                 |  |                    |             |   |                   |  
|Prepaid Inventory                                                                                                                                                                    |  |                    | 1,194,346   |   |                   |  
|Inventory                                                                                                                                                                            |  |                    | 2,394,419   |   |                   |  
|Total Other Current Assets                                                                                                                                                           |  |                    | 3,588,765   |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|Total Current Assets                                                                                                                                                                 |  |                    | 5,416,405   |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|Equipment, Net                                                                                                                                                                       |  |                    | 199,060     |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|Other Assets                                                                                                                                                                         |  |                    |             |   |                   |  
|Intangible assets (net)                                                                                                                                                              |  |                    | 4,466,666   |   |                   |  
|Investment in KannaLife                                                                                                                                                              |  |                    | 650,000     |   |                   |  
|Total Other Assets                                                                                                                                                                   |  |                    | 5,116,666   |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|TOTAL ASSETS                                                                                                                                                                         |  | $                  | 10,732,131  |   |                   | $
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|LIABILITIES & STOCKHOLDERS’ DEFICIT                                                                                                                                                  |  |                    |             |   |                   |  
|Current Liabilities                                                                                                                                                                  |  |                    |             |   |                   |  
|Accounts Payable                                                                                                                                                                     |  | $                  | 123,583     |   |                   | $
|Accrued Interest                                                                                                                                                                     |  |                    | 87,931      |   |                   |  
|Equipment loan payable                                                                                                                                                               |  |                    | 30,000      |   |                   |  
|Amount due to related party                                                                                                                                                          |  |                    | 300         |   |                   |  
|Other Current Liabilities                                                                                                                                                            |  |                    |             |   |                   |  
|PhytoSPHERE Agreement                                                                                                                                                                |  |                    | 6,499,998   |   |                   |  
|Total Current Liabilities                                                                                                                                                            |  |                    | 6,741,812   |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|Long Term Liabilities                                                                                                                                                                |  |                    |             |   |                   |  
|Due to Roen Ventures, LLC                                                                                                                                                            |  |                    | 4,210,195   |   |                   |  
|Total Long Term Liabilities                                                                                                                                                          |  |                    | 4,210,195   |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|TOTAL LIABILITIES                                                                                                                                                                    |  |                    | 10,952,007  |   |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|STOCKHOLDERS’ DEFICIT                                                                                                                                                                |  |                    |             |   |                   |  
|Common stock - par value $0.0001; 190,000,000 shares authorized; 11,741,667 and 7,000,000 shares issued and outstanding as of September 30, 2013 and December 31, 2012, respectively |  |                    | 1,174       |   |                   |  
|Additional Paid in Capital                                                                                                                                                           |  |                    | 28,330,375  |   |                   |  
|Accumulated Deficit                                                                                                                                                                  |  |                    | (28,551,425 | ) |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|TOTAL STOCKHOLDERS’ DEFICIT                                                                                                                                                          |  |                    | (219,876    | ) |                   |  
|                                                                                                                                                                                     |  |                    |             |   |                   |  
|TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT                                                                                                                                            |  | $                  | 10,732,131  |   |                   | $



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





4







CANNAVEST CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)





|                                                    |  | For the three months ended |             |   | For the nine months ended |  
|--------------------------------------------------- |  | -------------------------- | ----------- | - | ------------------------- | -
|                                                    |  | September 30,              |             |   | September 30,             |  
|                                                    |  | 2013                       |             |   | 2012                      |  
|Revenue                                             |  | $                          | 163,662     |   |                           | $
|                                                    |  |                            |             |   |                           |  
|Cost of Goods Sold                                  |  |                            | 48,551      |   |                           |  
|                                                    |  |                            |             |   |                           |  
|Gross Profit                                        |  |                            | 115,111     |   |                           |  
|                                                    |  |                            |             |   |                           |  
|Operating Expenses:                                 |  |                            |             |   |                           |  
|Impairment of goodwill                              |  |                            | 26,998,125  |   |                           |  
|General & administrative                            |  |                            | 1,115,098   |   |                           |  
|                                                    |  |                            |             |   |                           |  
|Operating loss                                      |  |                            | (27,998,112 | ) |                           |  
|                                                    |  |                            |             |   |                           |  
|Interest expense                                    |  |                            | (134,504    | ) |                           |  
|                                                    |  |                            |             |   |                           |  
|Loss before taxes                                   |  |                            | (28,132,616 | ) |                           |  
|                                                    |  |                            |             |   |                           |  
|Provision for income taxes                          |  |                            | –           |   |                           |  
|                                                    |  |                            |             |   |                           |  
|NET LOSS                                            |  | $                          | (28,132,616 | ) |                           | $
|                                                    |  |                            |             |   |                           |  
|Loss per Share                                      |  | $                          | (2.81       | ) |                           | $
|                                                    |  |                            |             |   |                           |  
|Weighted Average Number of Shares – Basic & Diluted |  |                            | 10,010,055  |   |                           |  



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





5







CANNAVEST CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS’ DEFICIT

For the period from December 31, 2012 to September
30, 2013



|                                                                     |  | Common Stock |            |  | AdditionalPaid In |   |       | Accumulated |  |   |            | 
|-------------------------------------------------------------------- |  | ------------ | ---------- |  | ----------------- | - | ----- | ----------- |  | - | ---------- | 
|                                                                     |  | Shares       |            |  | Amount            |   |       | Capital     |  |   | (Deficit)  | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|Balance, December 31, 2012 (audited)                                 |  |              | 7,000,000  |  |                   | $ | 700   |             |  | $ | 143,447    | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|Shares issued for first installment of PhytoSPHERE Agreement         |  |              | 900,000    |  |                   |   | 90    |             |  |   | 4,499,910  | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|Shares issued for second installment of PhytoSPHERE Agreement        |  |              | 1,000,000  |  |                   |   | 100   |             |  |   | 5,999,900  | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|Shares issued for third installment of PhytoSPHERE Agreement         |  |              | 1,208,334  |  |                   |   | 121   |             |  |   | 7,249,883  | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|Shares issued for fourth installment of PhytoSPHERE Agreement        |  |              | 1,633,333  |  |                   |   | 163   |             |  |   | 9,799,835  | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|To record the value of the beneficial conversion feature of new debt |  |              |            |  |                   |   |       |             |  |   | 637,400    | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|Net loss                                                             |  |              | –          |  |                   |   | –     |             |  |   | –          | 
|                                                                     |  |              |            |  |                   |   |       |             |  |   |            | 
|Balance September 30, 2013 (unaudited)                               |  |              | 11,741,667 |  |                   | $ | 1,174 |             |  | $ | 28,330,375 | 



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





6







CANNAVEST CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  | For the nine months ended, |            
|--------------------------------------------------------------------------------- |  | -------------------------- | -----------
|                                                                                  |  | September 30, 2013         |            
|                                                                                  |  | (unaudited)                |            
|OPERATING ACTIVITIES                                                              |  |                            |            
|Net loss                                                                          |  | $                          | (28,407,209
|Adjustments to reconcile net loss to net cash flows used in operating activities: |  |                            |            
|Depreciation and amortization                                                     |  |                            | 1,484,148  
|Impairment of goodwill                                                            |  |                            | 26,998,125 
|Amortization of debt discount                                                     |  |                            | 67,095     
|Change in operating assets and liabilities:                                       |  |                            |            
|Prepaid expense                                                                   |  |                            | –          
|Prepaid inventory                                                                 |  |                            | 66,164     
|Inventory                                                                         |  |                            | (2,048,942 
|Accounts receivable                                                               |  |                            | (1,265,295 
|Accounts payable and accrued expenses                                             |  |                            | 211,514    
|Net cash used in operating activities                                             |  |                            | (2,894,400 
|                                                                                  |  |                            |            
|INVESTING ACTIVITIES                                                              |  |                            |            
|Cash received on acquisition                                                      |  |                            | 50,775     
|Purchase of equipment                                                             |  |                            | (201,199   
|Cash paid on PhytoSPHERE Agreement                                                |  |                            | (950,000   
|Investment in KannaLife Sciences                                                  |  |                            | (650,000   
|Net cash flows from investing activities                                          |  |                            | (1,750,424 
|                                                                                  |  |                            |            
|FINANCING ACTIVITIES                                                              |  |                            |            
|Proceeds from related party loans                                                 |  |                            | –          
|Proceeds from loan from Roen Ventures                                             |  |                            | 4,780,500  
|Proceeds from equipment loan, net of repayment                                    |  |                            | 30,000     
|Repayment of loan from related party                                              |  |                            | (200       
|Net cash flows from financing activities                                          |  |                            | 4,810,300  
|                                                                                  |  |                            |            
|Net increase (decrease) in cash                                                   |  |                            | 165,476    
|Cash, beginning of period                                                         |  |                            | 431        
|Cash, end of period                                                               |  | $                          | 165,907    
|                                                                                  |  |                            |            
|NON CASH TRANSACTION                                                              |  |                            |            
|                                                                                  |  |                            |            
|Accounts receivable assumed from acquisitions                                     |  |                            | 396,438    
|Inventory assumed from acquisitions                                               |  |                            | 345,477    
|Prepaid inventory assumed from acquisition                                        |  |                            | 1,260,510  
|Property and equipment assumed from acquisitions                                  |  |                            | 1,288      
|Intangible assets                                                                 |  |                            | 5,947,387  
|Goodwill                                                                          |  |                            | 26,998,125 
|Amount due to PhytoSPHERE Agreement                                               |  |                            | (6,499,998 
|Common Shares issued for PhytoSPHERE transaction                                  |  |                            | (27,550,002



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





7







CANNAVEST CORP.

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)



| | 1. | ORGANIZATION AND BUSINESS
| | -- | -------------------------



CannaVEST Corp. (formerly Foreclosure
Solutions, Inc.) (the “Company”, “we” or “us”) was incorporated on December 9, 2010, in the
state of Texas, to provide information on pre-foreclosure and foreclosed residential properties to homebuyers and real estate professionals
on its website. However, the Company wasnot able to secure financing
for this business plan and on November 16, 2012 the shareholders owning 6,979,900 of the outstanding shares sold their shares in
private transactions to four buyers. Commensurate with this transaction the former officer and director resigned and control of
the Company changed. In addition, the Company’s business offices moved from Dallas, Texas to Las Vegas, Nevada. On January
29, 2013, the Company amended its Certificate of Formation to change its name to CannaVEST Corp. and on March 14, 2013, the Company
increased the size of its board of directors and elected three independent directors. On July 26, 2013 the Company reincorporated
in the state of Delaware.



On December 15, 2012, the Company
entered into an Agreement for Purchase and Sale of Assets (the “PhytoSPHERE Agreement”) with PhytoSPHERE Systems, LLC
(“PhytoSPHERE”) whereby upon the closing of the transaction the Company acquired certain assets of PhytoSPHERE in exchange
for an aggregate payment of $35,000,000 to be paid in five installments of either cash or shares of the Company’s common
stock, as determined in the Company’s sole discretion. The closing occurred on January 29, 2013, at which time the Company
took delivery of the acquired assets and made its first installment payment in the amount of $4,500,000 by issuing 900,000 shares
of common stock with a quoted market price on that date of $5.00. On April 4, 2013, the Company made its second installment payment
in the amount of $6,000,000 by issuing 1,000,000 shares of common stock at a per share price of $6.00, determined by the maximum
price set forth in the PhytoSPHERE Agreement. During the fiscal quarter ended June 30, 2013, the Company paid $750,000 in cash
and on July 23, 2013, issued 1,208,334 shares at a per share price of $6.00, determined by the maximum price set forth in the PhytoSPHERE
Agreement, completing its third installment in the aggregate amount of $8,000,004. During the fiscal quarter ended September 30,
2013 the Company paid $200,000 in cash and on September 20, 2013, issued 1,633,333 shares at a per share price of $6.00, determined
by the maximum price set forth in the PhytoSPHERE Agreement, completing its fourth installment in the aggregate amount of $9,999,998.
The final installment is due on or before December 31, 2013 in the amount of $6,499,998.



The Company’s business is that
of developing, producing, marketing and selling end consumer products to the nutriceutical industry containing hemp plant extract,
Cannabidoil (CBD) and reselling to third parties raw product acquired by the Company pursuant to its supply relationships in Europe.



| | 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | -- | ------------------------------------------



Basis of Presentation



The accompanying unaudited condensed
interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America (“GAAP”). All references to GAAP are in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.



The unaudited condensed interim financial
statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission
(the “SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods.
Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with GAAP have
been omitted pursuant to such rules and regulations. These unaudited condensed financial statements should be read in conjunction
with the audited financial statements and notes for the year ended December 31, 2012, filed with the SEC on the Company’s
Annual Report on Form 10-K filed on April 16, 2013. The results for the three and nine months ended September 30, 2013, are not
necessarily indicative of the results to be expected for the full year ending December 31, 2013.





8







Use of Estimates



The Company’s condensed consolidated
financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements
requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses
and related disclosures of contingent assets and liabilities. We evaluate our estimates, including those related to contingencies,
on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.



Cash and Cash Equivalents



For purposes of the statements of
cash flows, the Company considers amounts held by financial institutions and short-term investments with an original maturity of
three months or less when purchased to be cash and cash equivalents. At each of September 30, 2013 and December 31, 2012, the Company
had no cash equivalents.



Concentration of credit risk



As of September 30, 2013, the Federal
Deposit Insurance Corporation (FDIC) provided insurance coverage of up to $250,000 per depositor per bank. The Company has not
experienced any losses in such accounts and does not believe that the Company is exposed to significant risks from excess deposits.



Accounts Receivable



Accounts receivable consists of trade
accounts arising in the normal course of business, and accounts receivable purchased by the Company from PhytoSPHERE under the
PhytoSPHERE Agreement. No interest is charged on past due accounts. Accounts for which no payments have been received after 30
days are considered delinquent and customary collection efforts are initiated. Accounts receivable are carried at original invoice
amount less a reserve made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.



Management determines the allowance
for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition
and credit history, and current economic conditions. There was no allowance for doubtful accounts at either September 30, 2013
or December 31, 2012.



Revenue Recognition



The Company will recognize revenue
in accordance with the ASC Topic 605, Revenue Recognition, which requires persuasive evidence of an arrangement, delivery
of a product or service, a fixed or determinable price and assurance of collection within a reasonable period of time.



Inventory



Inventory is stated at lower of cost
or market, with cost being determined on average cost basis. There was no reserve for inventory as of September 30, 2013 and December
31, 2012.



Equipment



Equipment is stated at cost less
accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its
existing use. Depreciation is provided on a straight-line basis over the assets’ estimated useful lives. Maintenance or repairs
are charged to expense as incurred. Upon sale or disposition, the historically-recorded asset cost and accumulated depreciation
are removed from the accounts and the net amount less proceeds from disposal is charged or credited to other income / expense.





9







Fair Value of Financial Instruments



In accordance with ASC Topic 825,
Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments
and includes this additional information in the notes to its financial
statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of
the Company’s current assets and current liabilities approximates their carrying amount due to their readily available nature
and short maturity.



Fair Value Measurements



ASC Topic 820, Fair Value Measurements
and Disclosures, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation
hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three
levels are defined as follows:



Level 1 - Inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.



Level 2 - Inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.



Level 3 - Inputs to the valuation
methodology are unobservable and significant to the fair value measurement.



The Company’s adoption of fair
value measurements and disclosures did not have a material impact on the financial statements and financial statement disclosures.



Goodwill and Intangible Assets



The
Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events
occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.
Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate,
(2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired,
the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying
amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted
cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting
unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by
comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting
unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based
on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities
is the implied fair value of goodwill. The Company has recorded the impairment loss of goodwill
under operating expense of $26,998,125 for the nine months ended September 30, 2013.



We make critical assumptions and
estimates in completing impairment assessments of goodwill and other intangible assets. Our cash flow projections look several
years into the future and include assumptions on variables such as future sales and operating margin growth rates, economic conditions,
market competition, inflation and discount rates. A 10% decrease in the estimated discounted cash flows for the reporting units
tested would result in an impairment that is not material to our results of operations. A 1.0 percentage point increase in the
discount rate used would also result in an impairment that is not material to our results of operations.





10







We amortize the cost of other intangible
assets over their estimated useful lives, which range up to ten years, unless such lives are deemed indefinite. Intangible assets
with indefinite lives are tested in the third quarter of each fiscal year for impairment, or more often if indicators warrant.



Loss per Share



The Company calculates earning or
loss per share (EPS) in accordance with ASC Topic 260, Earnings per Share, which requires the computation and disclosure
of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted average number of shares of common stock outstanding
during the period. Diluted EPS is computed based on the weighted average number of shares of common stock outstanding plus all
potentially dilutive shares of common stock outstanding during the period.



Income Taxes



Income taxes are accounted for under
the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
the related temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized when the rate change is enacted. Valuation allowances are recorded to reduce deferred tax assets
to the amount that will more likely than not be realized. In accordance with ASC Topic 740, Income Taxes, the Company recognizes
the effect of uncertain income tax positions only if the positions are more likely than not of being sustained in an audit, based
on the technical merits of the position. Recognized uncertain income tax positions are measured at the largest amount that is greater
than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which those changes in
judgment occur. The Company recognizes both interest and penalties related to uncertain tax positions as part of the income tax
provision.



Recent Issued and Newly Adopted
Accounting Pronouncements



Adopted



Effective January 2013, we adopted
FASB Accounting Standards Update (“ASU”) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets
and Liabilities (“ASU 2011-11”). The amendments in ASU 2011-11 require the disclosure of information on offsetting
and related arrangements for financial and derivative instruments to enable users of a company’s financial statements to
understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 will be applied retrospectively
for fiscal years, and interim periods within those years, beginning after January 1, 2013. The adoption of this update did not
have a material impact on the Company’s condensed consolidated financial statements.



Effective January 2013, we adopted
FASB ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (“ASU 2013-02”).
This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other
comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other
comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component,
on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety
to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively
for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update did not have a material
impact on the Company’scondensed consolidated financial statements.
The Company currently records its investment in Kannalife Sciences, Inc. (“KannaLife”) at cost since it cannot exert
significant influence or control.



Not Adopted



In February 2013, the FASB issued
ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the
Total Amount of the Obligation Is Fixed at the Reporting Date(“ASU No.2013-04”).
The amendments in ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint
and several liability arrangements for which the total amount of the obligation within the scope of ASU No. 2013-04 is fixed at
the reporting date, except for obligations addressed within existing guidance in GAAP. The guidance requires an entity to measure
those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors
and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in ASU No. 2013-04 also
requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The
amendment in this standard is effective retrospectively for fiscal years, and interim periods within those years, beginning after
December 15, 2013. We are evaluating the effect, if any, adoption of ASU No. 2013-04 will have on our condensed consolidated financial
statements.



Other recent accounting pronouncements
issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the
SEC did not, or are not believed by management to have a material impact on the Company’s present or future financial statements.





11







| | 3. | ACQUISITION OF ASSETS OF PHYTOSPHERE SYSTEMS, LLC
| | -- | -------------------------------------------------



On December 15, 2012, we entered
into the PhytoSPHERE Agreement with PhytoSPHERE whereby the Company acquired certain assets of PhytoSPHERE in exchange for an aggregate
payment of $35,000,000, payable in five (5) installments of either cash or common stock of the Company, in the sole discretion
of the Company. The closing of the transactions contemplated by the PhytoSPHERE Agreement occurred on January 29, 2013. At the
closing, the Company issued to PhytoSPHERE 900,000 shares of common stock in satisfaction of its first payment obligation due under
the PhytoSPHERE Agreement. On April 4, 2013, the Company made its second installment payment in the amount of $6,000,000 by issuing
1,000,000 shares of common stock to PhytoSPHERE with a per share price of $6.00, determined by the maximum price set forth in the
PhytoSPHERE Agreement. During the fiscal quarter ended June 30, 2013, the Company paid $750,000 in cash and on July 23, 2013, issued
1,208,334 shares of common stock at a per share price of $6.00, determined by the maximum price set forth in the PhytoSPHERE Agreement,
completing its third installment in the aggregate amount of $8,000,004. During the fiscal quarter ended September 30, 2013, the
Company paid $200,000 in cash and on September 20, 2013, issued 1,633,333 shares of common stock at a per share price of $6.00,
determined by the maximum price set forth in the PhytoSPHERE Agreement, completing its fourth installment in the aggregate amount
of $9,999,998. The final installment is due on or before December 31, 2013, in the amount of $6,499,998. The Company has recorded
the impairment loss of goodwill under operating expense of $26,998,125 for the nine months ended September 30, 2013.



| | 4. | INVESTMENT IN KANNALIFE SCIENCES, INC.
| | -- | --------------------------------------



On March 4, 2013, April 11, 2013,
August 29, 2013, and October 30, 2013, pursuant to a Stock and Warrant Purchase Agreement (the “Purchase Agreement”),
the Company acquired a total of 3,059,439 shares of the Series A Preferred Stock of KannaLife, 15,615,000 shares of KannaLife’s
common stock and warrants to purchase additional shares of common stock in KannaLife. KannaLife is a Delaware corporation and phyto-medical
company specializing in the research and development of pharmacological products derived from plants. These share holdings constituted
a 24.98% share of the issued and outstanding Series A Preferred Stock and issued and outstanding common stock of KannaLife as of
November 14, 2013. The shares were acquired through two payments of $250,000 each, one payment of $150,000 and one  payment
of $100,000. These payments included the exercise of a portion of the Company’s common stock warrant. The Purchase Agreement
also contemplates one additional closing of $250,000 which was due on October 1, 2013, but is still outstanding pending discussion
with KannaLife’s management on the progress of their programs. Upon consummating the final closing, the Company would own
32.9% of the issued and outstanding Series A Preferred Stock and issued and outstanding common stock of KannaLife.



| | 5. | LINE OF CREDIT – ROEN VENTURES
| | -- | ------------------------------



Shareholders



On March 1, 2013, the Company issued
a Promissory Note (the “Note”) to Roen Ventures, LLC, a Nevada limited liability company (“Roen Ventures”),
in exchange for loans provided and to be provided in the future in an amount of up to $2,000,000, which was subsequently increased
to $4,000,000, then further increased to $6,000,000. As of September 30, 2013, the balance on the Note was $4,780,500. The Note
is an unsecured obligation of the Company accruing interest at 5% that is due and payable in two (2) years, on March 1, 2015. The
Company’s President and member of the Board of Directors, Michael Mona, Jr., holds a 50% interest in Roen Ventures. As previously
disclosed in our Current Report on Form 8-K filed with the SEC on July 31, 2013, the disinterested members of our Board of Directors
(the “Board”) approved an amendment to the terms of the Note to increase the credit line to $6,000,000 and provide
for the ability of Roen Ventures to convert, in its sole discretion, the outstanding balance of the Note into shares of the common
stock of the Company at a conversion price determined following the conclusion of an independent valuation of the Company’s
common stock. The independent valuation determined pursuant to an Internal Revenue Code Section 409A and Financial Accounting Standards
Board Accounting Standards Codification 718 valuation of the Company’s common stock, prepared by an independent valuation
firm (the “Valuation”) determined that the fair market value of our restricted common stock is $0.68 per share. On
November 7, 2013, disinterested members of the Board approved an amendment to the Note to allow for conversion of the Note at a
conversion price equal to $0.60 per share, which represents a discount of approximately 12% off the fair market value of our restricted
common stock as determined pursuant to the Valuation. As of the date of this report, the balance of the Note is $6,000,000. Roen
has informed the Board it intends to convert the outstanding balance of the Note into shares of common stock of the Company. Upon
conversion of the Note, a total of 10,000,000 shares of the Company’s common stock will be issued to Roen Ventures.





The Company has determined that the
conversion feature is considered a beneficial conversion feature and determined its value on July 25, 2013, the date of the amendment
for increasing the line of credit for $6,000,000, to be $637,400. The Company calculated the beneficial conversion feature at its
intrinsic value. Accordingly, the beneficial conversion feature has been accounted for as a valuation discount to the Notes and
will be amortized via effective interest method as an expense over the remaining life of the Notes. The amortization of debt discounts
for the nine months ended September 30, 2013 is $67,095.





12









| | 6. | STOCKHOLDERS’ EQUITY (DEFICIT)
| | -- | ------------------------------



Common Stock



The Company is authorized to issue up to 190,000,000 shares of common stock (par value $0.0001). As of September 30, 2013 and December 31, 2012, the Company had 11,741,667 and 7,000,000 shares of common stock issued and outstanding, respectively. On January 29, 2013, the Company issued 900,000 shares of common stock to PhytoSPHERE in connection with the Company’s acquisition of assets from PhytoSPHERE and in satisfaction of the first payment obligation to PhytoSPHERE (Note 3). On April 4, 2013, the Company issued 1,000,000 shares of common stock to PhytoSPHERE in satisfaction of its second payment obligation (Note 3).  During the fiscal quarter ended June 30, 2013, the Company paid $750,000 in cash and on July 23, 2013, the Company issued 1,208,334 shares of common stock to PhytoSPHERE completing its third installment in the aggregate amount of $8,000,004 (Note 3). During the fiscal quarter ended September 30, 2013 the Company paid $200,000 in cash and on September 20, 2013, the Company issued 1,633,333 shares of common stock to PhytoSPHERE to complete its fourth payment obligation in the aggregate amount of $9,999,998 (Note 3).  The final installment is due on or before December 31, 2013, in the amount of $6,499,998.



Preferred Stock



The Company is authorized to issue up to 10,000,000 shares of $.0001 par value preferred stock with designations, rights and preferences to be determined from time to time by the board of directors of the Company (the “Board”). Accordingly, the Board is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company’s common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. If the Company issues preferred stock shares and the Company is subsequently liquidated or dissolved, the preferred shareholders may have preferential rights to receive a liquidating distribution for their shares prior to any distribution to the holders of the Company’s common stock.



Options/Warrants



As
of September 30, 2013 and December 31, 2012, there were no outstanding options or warrants for the purchase of the Company’s
common stock.  On July 25, 2013, the shareholders approved the Company’s 2013 Equity Incentive Plan (the “Plan”)
which reserves 1,000,000 shares of the Company’s common stock for issuance under the Plan.



| | 7. | COMMITMENTS
| | -- | -----------



The Company leases its office space
pursuant to a month-to-month lease agreement dated April 1, 2013, which provides for a monthly rent of $1,500. The landlord is
a limited liability company of which a former director of the Company is the sole member.



On March 18, 2013, the Company entered
into a purchasing contract with a third party supplier of CBD to provide up to a maximum of 1,000 kg of product. In addition the
Company entered into a consulting agreement with the third party supplier to provide consulting oversight for the growth and production
of the product from the period beginning March 1, 2013 through August 30, 2014.



On August 13, 2013, the Company entered
into a lease for approximately 2,400 square feet laboratory space in San Diego, California. The monthly base rent was approximately
$4,200 per month for a term of 12 months.



| | 8. | SUBSEQUENT EVENTS
| | -- | -----------------



On October 31, 2013, Edward Wilson resigned as a director
of the Company. The resignation was not a result of any disagreement with management.



On November 7, 2013, the Board by unanimous written consent
approved the following:



| | 1. | A private placement to allow investment of up to $10,000,000 at $1.00 per share to accredited investors; and
| | -- | ------------------------------------------------------------------------------------------------------------

| | 2. | Amendment to the Roen Ventures line of credit as more particularly described above, under “Line of Credit – Roen
Ventures”.
| | -- | ---------------------------------------------------------------------------------------------------------------------------







13







Item 2: MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Forward-Looking Statements



The following information
specifies certain forward-looking statements of the management of CannaVEST Corp. (the “Company”, “we”
or “us”). Forward-looking statements are statements that estimate the likelihood of occurrence of future events and
are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such
as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”,
“predict”, “probable”, “possible”, “should”, “continue”, or similar
terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information
have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable.
Our future operating results, however, are impossible to predict, and no representation, guaranty, or warranty is to be inferred
from those forward-looking statements.



Forward-looking statements
include, but are not limited to, the following:





| | · | Statements relating to our future business and financial performance;
| | - | ---------------------------------------------------------------------

| | · | The anticipated launch of our products; and
| | - | -------------------------------------------

| | · | Other material future developments that you may take into consideration.
| | - | ------------------------------------------------------------------------



You are cautioned not
to place undue reliance on these forward-looking statements. The assumptions used for purposes of the forward-looking statements
represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use
in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly,
no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions
relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to
update any such forward-looking statement.

The following information should be read in conjunction with the information contained in the unaudited Consolidated Financial
Statements included within this Quarterly Report on Form 10-Q for the period ended September 30, 2013 (this “Report”),
and the Notes thereto, which form an integral part of this Report.



Executive Summary of Our Business



We are in the business of developing, producing,
marketing and selling end consumer products to the nutriceutical industry containing the hemp plant extract, Cannabidoil (“CBD”),
and reselling to third parties raw product acquired by us pursuant to our supply relationships in Europe. We seek to take advantage
of an emerging worldwide trend to re-energize the production of industrial hemp and to foster its many uses for consumers. CBD
is derived from hemp stalk and seed.





14







To date, our operations initially consisted
of supplying our raw product to third parties, however in the third quarter of 2013 we launched our first consumer products which
are available to consumers through our distributor, HempMeds PX. We sell raw CBD which we have branded Real Scientific Hemp Oil
(RSHO). In addition we sell tinctures under our Cibadex brand, and beauty products under our Cibaderm brand. We expect to continue
to add new products to our portfolio going forward to enhance our line of CBD and hemp-related consumer products.



In order to accomplish our business plan, we
will continue to make refinements to our current products and continue the development of additonal products. We have implemented
a marketing and sales program designed to establish brand awareness and consumer acceptance of our products and will continue to
increase our efforts in this area. To date, the primary source of our working capital has been a line of credit of up to $6,000,000
from Roen Ventures, LLC (“Roen Ventures”) with a contribution of $163,851 in cash collected on sales through September
30, 2013. As previously disclosed in our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the
“SEC”) on July 31, 2013, on July 25, 2013, the disinterested members of our Board of Directors (the “Board”)
approved an amendment to the terms of the Note to increase the credit line to $6,000,000 and provide for the ability of Roen Ventures
to convert, in its sole discretion, the outstanding balance of the Note into shares of the common stock of the Company at a conversion
price determined following the conclusion of an independent valuation of the Company’s common stock. The independent valuation
determined pursuant to an Internal Revenue Code Section 409A and Financial Accounting Standards Board Accounting Standards Codification
718 valuation of the Company’s common stock, prepared by an independent valuation firm (the “Valuation”) determined
that the fair market value of our restricted common stock is $0.68 per share. On November 7, 2013, disinterested members of the
Board approved an amendment to the Note to allow for conversion of the Note at a conversion price equal to $0.60 per share, which
represents a discount of approximately 12% off the fair market value of our restricted common stock as determined pursuant to the
Valuation. As of the date of this report, the balance of the Note is $6,000,000. Roen has informed the Board it intends to convert
the outstanding balance of the Note into shares of common stock of the Company. Upon conversion of the Note, a total of 10,000,000
shares of the Company’s common stock will be issued to Roen Ventures.



In addition, we expect to realize revenue to
fund our working capital needs through the sale of raw product to third parties. However, we cannot be assured that our working
capital needs to develop, launch, market and sell our products will be met through the sale of raw product to third parties and
the Roen Ventures line of credit. If not, we may never be able to achieve profitable operations. In that event, our ability to
continue as a going concern would be in jeopardy and investors could lose all of their investment in the Company. On November 7,
2013, the Board by unanimous written consent approved a private placement offering of up to 10,000,000 shares at a share price
of $1.00 per share.



The Company was originally incorporated as
Foreclosure Solutions, Inc. on December 9, 2010, in the State of Texas, to provide information on pre-foreclosure and foreclosed
residential properties to homebuyers and real estate professionals on its website. However, the Company was not able to secure
financing for this business plan and on November 16, 2012, the shareholders owning 6,979,900 of the outstanding shares sold their
shares in private transactions to four buyers. Commensurate with this transaction, the former sole officer and director of the
Company resigned and control of the Company changed, all as further described in the Amendment to our Current Report on Form 8-K
filed with the SEC on February 13, 2013.



Plan of Operations



Our Planned Operating Segments



We plan to diversify our business primarily
into three operating segments:





| | · | Securing and supplying raw hemp product for sale to third parties;
| | - | ------------------------------------------------------------------

| | · | Developing, producing, marketing and selling consumer products to
the nutriceutical industry containing hemp plant extract, CBD; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | · | Investing in companies in our industry.
| | - | ---------------------------------------



Investment Selection



We are committed to a value-oriented investment
philosophy that seeks to minimize the risk of capital loss without foregoing potential capital appreciation. We are developing
criteria that we believe are important in identifying and investing in prospective acquisition or financing targets. These criteria
provide general guidelines for our investment and acquisition decisions.





15







Results of Operations



The following discussion of our results of
operations should be read in conjunction with our financial statements included herewith.  This discussion should not
be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached
herein will necessarily be indicative of actual operating results in the future.  Such discussion represents only the
best present assessment of our management.



Results for the three months ended September
30, 2013 and 2012



Revenues and Cost of Goods Sold



For the three-month period ended September
30, 2013, the Company realized revenues of $163,662 and resulting gross profit of $115,111 related to the sale of consumer products
through our distributor HempMeds PX. The Company realized no revenues for the same period ended September 30, 2012. The increase
in revenues is due to the revised business plan of the Company, enacted in 2013 to sell hemp oil and related products. During 2012,
the Company had not begun operations under the prior business model as it was unable to secure financing for that business model.



General and Administrative Expenses



For the three-month period ended September
30, 2013 the Company incurred General and Administrative costs in the amount of $1,115,098 compared with $8,875 for the period
ended September 30, 2012. This increase is related to the cost of ramping up the operations of the Company and implementation of
its revised business strategy related to the development, production, marketing and selling products containing hemp plant extract,
CBDand reselling raw product acquired by the Company to third parties. This amount also includes
amortization of the right to purchase inventory and non-compete agreements acquired pursuant to the Agreement for Purchase and
Sale of Assets (the “PhytoSPHERE Agreement”), dated December 15, 2012, by and between the Company and PhytoSPHERE Systems,
LLC (“PhytoSPHERE”). Also, the Company recorded an impairment of goodwill for $26,998,125 for the three months ended
September 30, 2013 (Note 3).



Results for the nine months ended September
30, 2013 and 2012



Revenues and Cost of Goods Sold



For the ninemonth
period ended September 30, 2013, the Company realized revenues of $1,353,720 and resulting gross profit of $1,083,427 related to
the sale of raw materials to third parties and sales of consumer products through our distributor HempMeds PX. The Company realized
no revenues for the same period ended September 30, 2012. The increase in revenues is due to the revised business plan of the Company,
enacted in 2013 to sell hemp oil and related products. During 2012, the Company had not begun operations under the prior business
model as it was unable to secure financing for that business model.



General and Administrative Expenses



For the nine month period ended September 30,
2013, the Company incurred General and Administrative costs in the amount of $2,337,484 compared with $36,271 for the same period
ended September 30, 2012. This increase is related to the cost of ramping up the operations of the Company and implementation of
its revised business strategy related to the development, production, marketing and selling products containing hemp plant extract,CBDand reselling raw product acquired by the Company to third parties. This amount also
included the amortization of the right to purchase inventory and value of the non-compete agreement acquired as part of the PhytoSPHERE
Agreement. Also, the Company recorded an impairment of goodwill for $26,998,125 for the nine months ended September 30, 2013 (Note
3).



Liquidity and Capital Resources



As of September 30, 2013, the Company had a
cash balance of $165,907. In addition, as of September 30, 2013, the Company had $1,219,500 available pursuant to the terms of
the Roen Ventures line of credit, which has been our primary source of liquidity. This amount was entirely drawn subsequent to
the close of the third quarter. We are in the process of raising additional funds through the sale of our securities through a
private placement in order to continue to grow the business under our revised business model.



The Company is a party to contracts for the
growth and processing of hemp oil product to be delivered over the period August 1, 2013 through August 31, 2014. The total amount
left to be paid under the contract is approximately 2.74 millilon Euro or approximately $3.56 million through May 31, 2014. We
are currently in the process of negotiating the contracts for the growth and processing of hemp oil for delivery over the period
September 1, 2014 through August 31, 2015. We anticipate the cost of those contracts will remain consistent with current year prices.



Our common stock currently trades on the OTCBB
under the symbol “CANV.”





16







Liquidity and Going Concern



The accompanying unaudited financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and
satisfaction of liabilities and commitments in the normal course of business. At September 30, 2013, the Company had a working
capital deficit of $(1,325,407) and an accumulated deficit of $(28,551,425). The working capital deficit is primarily a result
of an amount of $6,499,998 due as a result of the acquisition of a license and certain assets of PhytoSPHERE. Through September
30, 2013, the Company borrowed $4,780,500 under the Roen Ventures line of credit. These funds were used in ongoing operations,
to fund the Company’s payment obligations pursuant to the investment in KannaLife Sciences, Inc., to purchase raw product
for resale and explore investment opportunities. The Company recognized the need to raise additional capital from external sources
in order to sustain operations while executing its business plan and, on November 7, 2013, the Board approved the sale of up to
$10,000,000 in equity through a private placement. The terms of the private placement are more particularly described in our Current
Report on Form 8-K filed with the SEC on November 13, 2013. Efforts are currently underway to close that financing. However, he
Company cannot provide any assurance that it will be able to raise additional capital. If the Company is unable to secure additional
capital, it may be required to reduce its current operating expenses, modify its existing business plan and take additional measures
to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations.



We have generated minimal revenues since our
inception, although we have sold and shipped raw product to third parties for which we have only received payments totaling approximately
$164,000. Our revenues alone are currently insufficient to pay our operating expenses and our ability to continue as a going concern
is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our current and future liabilities
when they become due until such time, if ever, that we are able to generate sufficient revenues to attain profitable operations.
We have experienced losses and negative cash flows from operations since inception. The report of our independent registered public
accounting firm on our financial statements for fiscal year end 2012 contained an explanatory paragraph regarding our ability to
continue as a going concern. There can be no assurance that acceptable financing to fund our ongoing operations can be obtained
on suitable terms, if at all. If we are unable to obtain the financing necessary to support our operations, we may be unable to
continue as a going concern. In that event, we may be forced to cease operations and our shareholders could lose their entire investment
in the Company.



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK



Not applicable to a “smaller reporting
company” as defined in Item 10(f)(1) of Regulation S-K.



Item 4. CONTROLS AND PROCEDURES



DISCLOSURE CONTROLS AND PROCEDURES



Our management, which is comprised of one person
holding the offices of principal executive officer and principal financial officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report
(the “Evaluation Date”). Based on such evaluation, our management concluded that our disclosure controls and procedures
were not effective, at a reasonable assurance level, as of the Evaluation Date, to ensure that information required to be disclosed
in reports that we file or submit under that Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the U.S. Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed
in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management in a manner that
allows timely decisions regarding required disclosures.



An evaluation was performed under the supervision
and with the participation of the Company’s management of the effectiveness of the design and operation of the Company’s
procedures and internal control over financial reporting as of September 30, 2013. In making this assessment, the Company used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on that evaluation, the Company’s management concluded that the Company’s internal controls over financial
reporting were not effective in that there was a material weakness as of September 30, 2013.





17







A material weakness is a deficiency or combination
of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal
controls.



The Company’s management has identified
a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the
accounting department required to assure appropriate segregation of duties with employees having appropriate accounting qualifications
related to the Company’s unique industry accounting and disclosure rules.



CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING



There was no change in our internal control
over financial reporting identified in connection with our evaluation that occurred during our the fiscal quarter ended September
30, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION



Item 1: LEGAL PROCEEDINGS



On August 30, 2013, the Company filed a lawsuit
in the Superior Court of the State of California, County of San Diego, against Dixie Holdings, LLC, and Left Bank, LLC. After the
Complaint was filed, Red Dice Holdings, LLC, was added to the case as a defendant. The lawsuit seeks recovery of not less than
$736,495.98, plus interest, which represents monies owed to the Company by the defendants for shipments of cannabidiol. The shipments
were requested by the defendants and delivery of the merchandise was accepted. The case is currently pending and the Company is
pursuing it based on claims for breach of contract, goods sold and delivered, open book account and account stated.



Item 1A: RISK FACTORS



Not required for “smaller reporting companies.”



Item 2: UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS



Stock Issuances



On July 23, 2013, we issued 1,208,334 shares
of restricted common stock to PhytoSPHERE pursuant to the terms the PhytoSPHERE Agreement in satisfaction of our third payment
obligation due under the PhytoSPHERE Agreement. The shares represent 10.29% of the issued and outstanding shares of our common
stock as of November 14, 2013, and were calculated based on a price per share of our common stock of $6.00 pursuant to the terms
of the PhytoSPHERE Agreement for an aggregate total value of $7,250,004. The remainder of our third payment obligation was paid
in $750,000 in cash.



On September 20, 2013, we issued 1,633,333
shares of restricted common stock to PhytoSPHERE pursuant to the terms the PhytoSPHERE Agreement in satisfaction of our fourth
payment obligation due under the PhytoSPHERE Agreement. The shares represent 13.91% of the issued and outstanding shares of our
common stock as of November 14, 2013, and were calculated based on a price per share of our common stock of $6.00 pursuant to the
terms of the PhytoSPHERE Agreement for an aggregate total value of $9,799,998. The remainder of our third payment obligation was
paid in $200,000 in cash.



The shares of common stock referenced herein
were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities
Act of 1933, as amended, (“Securities Act”), and/or Regulation D, as promulgated by the SEC under the Securities Act,
based upon the following: (a) each of the persons to whom the shares of common stock were issued (each such person, an “Investor”)
confirmed to the Company that it is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under
the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate
the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect
to the offering of such shares, (c) each investor was provided with certain disclosure materials and all other information requested
with respect to the Company, (d) each investor acknowledged that all securities being purchased were being purchased for investment
intent and were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities
only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend
has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only
be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under
the Securities Act.



There were no repurchases of equity securities
by the Company during the fiscal quarter ended September 30, 2013.





18







Item 3: DEFAULTS UPON SENIOR SECURITIES



None.



Item 4: MINE SAFETY DISCLOSURES



Not applicable.



Item 5: OTHER INFORMATION



None.



Item 6: EXHIBITS:



|Exhibit No. |  | Description of Exhibit                                                                                                                                                            
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1(1)      |  | Agreement and Plan of Merger, dated as of July 25, 2013, by and between CannaVEST Corp., a Texas corporation, and CannaVEST Corp., a Delaware corporation.                        
|3.1(1)      |  | Certificate of Incorporation of CannaVEST Corp., as filed on January 26, 2013.                                                                                                    
|3.2(1)      |  | Bylaws of CannaVEST Corp., dated as of January 26, 2013.                                                                                                                          
|4.1(2)      |  | CannaVEST Corp. Specimen Stock Certificate.                                                                                                                                       
|10.1(2)     |  | CannaVEST Corp. 2013 Equity Incentive Plan.                                                                                                                                       
|10.2***     |  | Non-Exclusive License and Distribution Agreement by and between the Company and HempMedsPX, LLC, dated August 9, 2013 and effective as of July 1, 2013.                           
|31.1*       |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                            
|32.1*       |  | Certification of Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.1*       |  | Temporary Hardship Exemption Provided by Rule 201                                                                                                                                 
|            |  |                                                                                                                                                                                   
|101 INS**   |  | XBRL Instance Document                                                                                                                                                            
|101 SCH**   |  | XBRL Schema Document                                                                                                                                                              
|101 CAL**   |  | XBRL Calculation Linkbase Document                                                                                                                                                
|101 LAB**   |  | XBRL Labels Linkbase Document                                                                                                                                                     
|101 PRE**   |  | XBRL Presentation Linkbase Document                                                                                                                                               
|101 DEF**   |  | XBRL Definition Linkbase Document                                                                                                                                                 



* Filed herewith.



**To be
filed by amendment per Rule 201 of Regulation S-T.



***Portions of this exhibit have been omitted
pursuant to a request for confidential treatment and the non-public information will be filed separately with the Commission.



|(1) | Incorporated by reference from an exhibit to our Current Report on Form 10-Q filed on August 13, 2013.
|--- | ------------------------------------------------------------------------------------------------------
|(2) | Incorporated by reference from an exhibit to our Current Report on Form 8-K filed on July 31, 2013.   





19







SIGNATURES



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                  | CANNAVEST CORP.
|----------------- | ---------------
|                  |                
|November 14, 2013 | By:            
|                  |                
|                  |                







































20