A.	Description of Business and Basis of Presentation

Organization

KemPharm, Inc. (the “Company”) is a specialty pharmaceutical company focused on the discovery and development of proprietary prodrugs to treat serious medical conditions through its proprietary Ligand Activated Therapy ("LAT™") technology. The Company utilizes its proprietary LAT technology to generate improved prodrug versions of U.S. Food and Drug Administration (the "FDA") approved drugs as well as to generate prodrug versions of existing compounds that

may

have applications for new disease indications. The Company's product candidate pipeline is focused on the high need areas of attention deficit hyperactivity disorder ("ADHD") and stimulant use disorder ("SUD"). The Company's clinical product candidates for the treatment of ADHD include

KP415

and

KP484,

and the Company's preclinical product candidate for the treatment of SUD includes

KP879.

The Company was formed and incorporated in Iowa in

October 2006

and reorganized in Delaware in

May 2014.

Going Concern

The financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has experienced recurring negative operating cash flows and has a stockholders' deficit, and its existing cash and cash equivalents and restricted cash are

not

sufficient to fund the Company’s operating expenses and capital expenditure requirements for at least

one

year from date these financial statements are issued. Various internal and external factors will affect whether and when product candidates become approved drugs and how significant the market share of those approved products will be. The length of time and cost of developing and commercializing these product and product candidates and/or failure of them at any stage of the drug approval or commercialization process will materially affect the Company’s financial condition and future operations. The Company's ability to continue as a going concern will likely need additional financing to fund its operations. The perception of the Company's inability to continue as a going concern

may

make it more difficult to obtain financing for the continuation of operations and could result in the loss of confidence by investors, suppliers and employees. Adequate additional financing

may

not

be available to the Company on acceptable terms, or at all.

Management believes these conditions raise substantial doubt about the Company’s ability to continue as a going concern within the

twelve

months after the date these financial statements are issued. Based upon the Company's current operating plan and projected revenue, the Company believes its cash resources will be sufficient to fund operating expense and capital investment requirements into, but

not

through, the

first

quarter of

2021.

A significant portion of the Company's projected revenue is based upon the achievement of milestones in the

KP415

and APADAZ license agreements. Certain of the milestones are associated with regulatory matters that are outside the control of the Company an the Company does

not

have a history of achieving milestones in their license agreements. If revenues are

not

as the Company projects, the Company believes its existing resources are sufficient to fund its current operations into but

not

through the

third

quarter of

2020.

The ability to continue as a going concern is dependent upon profitable future operations, positive cash flows, the forebearance of the Company's lenders and additional financing. These financial statements do

not

include any adjustments that might result from the outcome of this uncertainty.

Management intends to finance operating costs over the next

twelve

months with existing cash and cash equivalents and restricted cash, as well as anticipated payments arising from the Company's license agreements and additional financing through the Company's active registration statement on Form S-

covering the sale of up to

$150.0

million of the Company's common stock, preferred stock, and debt and/or warrants, if available (the “Current Registration Statement”). In

October 2019,

the Company filed a registration on Form S-

covering the sale of up to

$80.0

million of the Company's common stock, preferred stock, and debt and/or warrants (the “Replacement Registration Statement”). Once the Replacement Registration Statement is declared effective by the SEC, the Company will

longer make any sales under the Current Registration Statement.

After the Company files this Annual Report on Form

-K for the fiscal year ended

December 31, 2019 (

the "Annual Report"), in order to issue securities under the Current Registration Statement or the Replacement Registration Statement, once effective, it must rely on Instruction

I.B.6.

of Form S-

which imposes a limitation on the maximum amount of securities that the Company

may

sell pursuant to the registration statements during any

twelve

-month period. At the time it sells securities pursuant to the applicable registration statement, the amount of securities to be sold plus the amount of any securities it has sold during the prior

twelve

months in reliance on Instruction

I.B.6.

may

not

exceed

one

third

of the aggregate market value of its outstanding common stock held by non-affiliates as of a day during the

days immediately preceding such sale, as computed in accordance with Instruction

I.B.6.

As of filing this Annual Report, based on this calculation, the amount of securities the Company is able to sell under a registration statement on Form S-

is approximately

$10.9

million, of which the Company (i) has filed a prospectus supplement to register approximately

$4.0

million for sales under the Purchase Agreement (as defined below); and (ii) has previously sold an aggregate of

5.7

million of shares of common stock in prior offering on Form S-

in the previous

months. Based on this calculation, the Company expects it will be unable to sell additional securities beyond those amounts pursuant to the Current Registration Statement or the Replacement Registration Statement, once effective, in the near term, unless and until the market value of its outstanding common stock held by non-affiliates increases significantly. In addition, under the terms of the Purchase Agreement, stockholder approval

may

be required to access a portion of the amounts available under the Purchase Agreement. As of

December 31, 2019,

the Company has sold

3,401,271

shares of common stock registered under the Current Registration Statement for approximately

$5.4

million in gross proceeds under the Prior Purchase Agreement.

Entry into First ATM Agreement

October 2016,

the Company entered into a Common Stock Sales Agreement (the “First ATM Agreement”) with Cowen and Company, LLC (“Cowen”). The First ATM Agreement was terminated in

September

2018.

Prior to termination of the First ATM Agreement, the Company sold an aggregate of

762,338

shares of common stock under the First ATM Agreement resulting in gross proceeds to the Company of

$4.9

million. The Company paid Cowen a commission of up to

three

percent (

3.0%

) of the gross sales proceeds for such sales of common stock. Pursuant to the terms of the First ATM Agreement, specified obligations of the parties, including the Company’s indemnification obligations to Cowen, survive the termination of the First ATM Agreement.

Entry into Second ATM Agreement

September 2018,

the Company entered into a Common Stock Sales Agreement (the “Second ATM Agreement”) with RBC Capital Markets, LLC (“RBCCM”) under which the Company

may

offer and sell, from time to time, in its sole discretion, shares of common stock having an aggregate offering price of up to

$50,000,000

through RBCCM as its sales agent. The Company’s registration statement on Form S-

contemplated under the Second ATM Agreement was declared effective by the SEC on

October 17, 2016.

The registration statement on Form S-

includes a prospectus supplement covering the offering of up to

$50,000,000

of shares of common stock in accordance with the Second ATM Agreement. In

March 2019,

the Company filed an updated prospectus supplement regarding the Second ATM Agreement covering the offering of up to

$3.2

million of shares of common stock in order to be in compliance with Instruction

I.B.6

of Form S-

February 2020,

the Company terminated this offering. As of

December 31, 2019,

the Company has

not

sold any shares of common stock under the Second ATM Agreement.

Underwritten Public Offering

October 2018,

the Company entered into an underwriting agreement (the “Underwriting Agreement”) with RBCCM, pursuant to which, on

October 10, 2018,

the Company sold

8,333,334

shares of common stock of the Company in an underwritten public offering pursuant to the Company's registration statement on Form S-

filed with the SEC on

October 17, 2016,

and a related prospectus and prospectus supplement, filed with the SEC on

October 17, 2016

and

October 5, 2018,

respectively. The offering price to the public was

$3.00

per share. The Company’s net proceeds from the offering were approximately

$23.1

million, after deducting underwriting discounts and commissions and estimated offering expenses.

Entry into Prior Purchase Agreement

February 2019,

the Company entered into a purchase agreement (the “Prior Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company previously could sell to Lincoln Park up to

$15.0

million of shares of common stock from time to time over the

-month term of the Prior Purchase Agreement, and upon execution of the Prior Purchase Agreement the Company issued an additional

120,200

shares of common stock to Lincoln Park as commitment shares in accordance with the closing conditions within the Prior Purchase Agreement. Concurrently with entering into the Prior Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park pursuant to which the Company agreed to register the sale of the shares of common stock that have been and

may

be issued to Lincoln Park under the Prior Purchase Agreement pursuant to the Company’s existing shelf registration statement on Form S-

or a new registration statement. As of

December 31, 2019,

the Company has sold

3,401,271

shares of common stock to Lincoln Park under the Prior Purchase Agreement for approximately

$5.4

million in gross proceeds. In

February 2020,

and in connection with entering into the Purchase Agreement (see discussion below), the Company terminated the Prior Purchase Agreement.

Entry into APADAZ License Agreement

October 2018,

the Company entered into a Collaboration and License Agreement (the "APADAZ License Agreement") with KVK Tech, Inc. ("KVK") pursuant to which we have granted an exclusive license to KVK to conduct regulatory activities for, manufacture and commercialize APADAZ in the United States.

Pursuant to the APADAZ License Agreement, KVK agreed to pay the Company certain payments and cost reimbursements of an estimated

$3.4

million, which includes a payment of

$2.0

million within

days of the achievement of a specified milestone related to the initial formulary adoption of APADAZ (the "Initial Adoption Milestone"). In addition, KVK has agreed to make additional payments to the Company upon the achievement of specified sales milestones of up to

$53.0

million in the aggregate. Further, the Company and KVK will share the quarterly net profits of APADAZ by KVK in the United States at specified tiered percentages, ranging from the Company receiving

30%

50%

of net profits, based on the amount of net sales on a rolling

four

quarter basis. The Company is responsible for a portion of commercialization and regulatory expenses for APADAZ until the Initial Adoption Milestone is achieved, after which KVK will be responsible for all expenses incurred in connection with commercialization and maintaining regulatory approval in the United States.

The APADAZ License Agreement will terminate on the later of the date that all of the patent rights for APADAZ have expired in the United States or KVK’s cessation of commercialization of APADAZ in the United States. KVK

may

terminate the APADAZ License Agreement upon

days written notice if a regulatory authority in the United States orders KVK to stop sales of APADAZ due to a safety concern. In addition, after the

third

anniversary of the APADAZ License Agreement, KVK

may

terminate the APADAZ License Agreement without cause upon

months prior written notice. The Company

may

terminate the APADAZ License Agreement if KVK stops conducting regulatory activities for or commercializing APADAZ in the United States for a period of

six

months, subject to specified exceptions, or if KVK or its affiliates challenge the validity, enforceability or scope of any licensed patent under the APADAZ License Agreement. Both parties

may

terminate the APADAZ License Agreement (i) upon a material breach of the APADAZ License Agreement, subject to a

-day cure period, (ii) the other party encounters bankruptcy or insolvency or (iii) if the Initial Adoption Milestone is

not

achieved. Upon termination, all licenses and other rights granted by the Company to KVK pursuant to the APADAZ License Agreement would revert to the Company.

The APADAZ License Agreement also established a joint steering committee, which monitors progress of the commercialization of APADAZ.

Entry into

KP415

License Agreement

September 2019,

the Company entered into a Collaboration and License Agreement (the

“KP415

License Agreement”) with Commave Therapeutics SA, an affiliate of Gurnet Point Capital (“Commave”). Under the

KP415

License Agreement, the Company granted to Commave an exclusive, worldwide license to develop, manufacture and commercialize the Company’s product candidates containing serdexmethylphenidate ("SDX") and d-methylphenidate ("d-MPH"), including

KP415,

KP484,

and, at the option of Commave,

KP879,

KP922

or any other product candidate developed by the Company containing SDX and developed to treat ADHD or any other central nervous system disorder (the “Additional Product Candidates” and,

collectively with

KP415

and

KP484,

the “Licensed Product Candidates”). Pursuant to the

KP415

License Agreement, Commave (i) paid the Company an upfront payment of

$10.0

million; (ii) agreed to pay milestone payments of up to

$63.0

million upon the occurrence of specified regulatory milestones related to the

KP415

and

KP484;

(iii) agreed to pay additional payments of up to

$420.0

million upon the achievement of specified U.S. sales milestones; and (iv) has agreed to pay the Company quarterly, tiered royalty payments ranging from a percentage in the high single digits to the mid-twenties of Net Sales (as defined in the

KP415

License Agreement) in the United States and a percentage in the low to mid-single digits of Net Sales in each country outside the United States, in each case subject to specified reductions under certain conditions as described in the

KP415

License Agreement. Commave is obligated to make such royalty payments on a product-by-product basis until expiration of the Royalty Term (as defined in the

KP415

License Agreement) for the applicable product.

Commave has also agreed to be responsible and reimburse the Company for all of development, commercialization and regulatory expenses for the Licensed Product Candidates, subject to certain limitations as set forth in the

KP415

License Agreement.

The

KP415

License Agreement also established a joint steering committee, which monitors progress of the development of both

KP415

and

KP484.

Subject to the oversight of the joint steering committee, the Company otherwise retains all responsibility for the conduct of all regulatory activities required to obtain new drug application approval of

KP415

and

KP484;

provided that Commave shall be the sponsor of any clinical trials conducted by the Company on behalf of Commave.

In accordance with the terms of the Company’s

March

20,

2012

Termination Agreement with Aquestive Therapeutics (formerly known as MonoSol Rx, LLC), Aquestive Therapeutics has the right to receive an amount equal to

10%

of any royalty or milestone payments made to the Company related to

KP415,

KP484

KP879

under the

KP415

License Agreement.

Entry into Purchase Agreement

February 2020,

the Company entered into a purchase agreement with Lincoln Park (the “Purchase Agreement”), which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company

may

sell to Lincoln Park up to

$4.0

million of shares of its common stock, from time to time over the

-month term of the Purchase Agreement, and upon execution of the Purchase Agreement the Company issued an additional

308,637

shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Purchase Agreement. Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park, pursuant to which the Company agreed to register the sale of the shares of its common stock that have been and

may

be issued to Lincoln Park under the Purchase Agreement pursuant to the Company’s existing shelf registration statement on Form S-

or a new registration statement.