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 prodrug product candidate pipeline is focused on the high need areas of attention deficit hyperactivity disorder ("ADHD") and stimulant use disorder ("SUD"). The Company's co-lead clinical development candidates for the treatment of ADHD,

KP415

and

KP484,

are both based on a prodrug of d-methylphenidate, but have differing duration/effect profiles. In addition, the Company has received FDA approval for APADAZ

, an immediate-release combination product containing benzhydrocodone, a prodrug of hydrocodone, and acetaminophen.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for inter

im financial information and with the instructions to Form

-Q and Rule

of Regulation S-

Accordingly, they do

not

include all of the information and related notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying financial statements. Operating results for the

three

and

nine

months ended

September 30, 2020

are

not

necessarily indicative of the results that

may

be expected for the full year ending

December 31,

2020

This interim information should be read in conjunction with the audited financial statements included in the Company

's Annual Report on Form

-K for the fiscal year ended

December 31, 2019

filed with the Securities and Exchange Commission (“SEC”) on

February 28, 2020, as amended on April 8, 2020 (the "Annual Report").

Going Concern

The unaudited condensed 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 net working capital (current assets less current liabilities) 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 the date these unaudited condensed 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. In order to continue as a going concern, the Company will 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 unaudited condensed financial statements are issued. Based upon the Company's current operating plan and projected revenues, the Company believes its cash resources, including the funds received through the Payroll Protection Program ("PPP") (discussed below) will be sufficient to fund operating expense and capital investment requirements past the potential

March 2, 2021

Prescription Drug User Fee Act ("PDUFA") date for the

KP415

New Drug Application ("NDA") and up to the debt maturity date of

March 31, 2021.

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 revenues received through consulting fee arrangements.

March 2020,

the World Health Organization declared the outbreak of COVID-

19,

a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. The Company cannot predict what the long-term effects of this pandemic and the resulting economic disruptions

may

have on the Company's liquidity and results of operations. The extent of the effect of the COVID-

pandemic on the Company's liquidity and results of operations will depend on a number future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. The COVID-

pandemic

may

make it more difficult for the Company to enroll patients in any future clinical trials or cause delays in the regulatory approval of the Company's product candidates, including causing potential delay of the FDA's review of the Company's

KP415

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

KP415

License Agreement (as defined below) associated with regulatory matters that

may

be impacted by the COVID-

pandemic. As a result, the Company cannot predict what, if any, impact that the COVID-

pandemic

may

have on the Company's ability to achieve these milestones. The economic uncertainty surrounding the COVID-

pandemic

may

also dramatically reduce the Company's ability to secure debt or equity financing necessary to support the Company's operations. The Company is unable to currently estimate the financial effect of the pandemic. If the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on the Company's business, results of operations, financial condition, and cash flows. The financial statements do

not

reflect any adjustments as a result of the COVID-

pandemic.

April 23, 2020

the Company received proceeds of

$0.8

million from a loan (the "PPP Loan") under the PPP of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), a portion of which

may

be forgiven, which the Company used to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures on

April 23, 2022

and bears annual interest at a rate of

1.0%.

Payments of principal and interest on the PPP Loan were originally deferred for the

first

six

months of the PPP Loan term. Thereafter, the Company would have been required to pay the lender equal monthly payments of principal and interest. Refer to Note C for a further discussion of the PPP Loan.

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 (the “Prior Registration Rights Agreement”) 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. The Prior Purchase Agreement was terminated in

February 2020

in connection with entering into the Current Purchase Agreement (discussed below). Prior to the termination of the Prior Purchase Agreement, the Company sold

3,401,271

shares of common stock to Lincoln Park (exclusive of the

120,200

commitment shares) under the Prior Purchase Agreement for approximately

$5.4

million in gross proceeds.

Entry into Current Purchase Agreement

February 2020,

the Company entered into a purchase agreement (the “Current Purchase Agreement”) with Lincoln Park which provides 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 common stock from time to time over the

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

308,637

shares of common stock to Lincoln Park as commitment shares in accordance with the closing conditions within the Current Purchase Agreement. Concurrently with entering into the Current Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park (the “Current Registration Rights Agreement”) 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 Current Purchase Agreement pursuant to the Company's existing shelf registration statement on Form S-

or a new registration statement. In

May 2020,

the Company reached the maximum allowable shares to be issued under the Current Registration Statement of

9,268,182

shares (inclusive of the

308,637

commitment shares) as defined in Section

(f)(i) of the Current Purchase Agreement and therefore cannot issue additional shares under the Current Purchase Agreement. As of

September 30, 2020,

the Company has sold

8,959,545

shares of common stock to Lincoln Park (exclusive of the

308,637

commitment shares) under the Current Purchase Agreement for approximately

$2.3

million in gross proceeds.

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) if 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.

May 2020,

the FDA accepted the Company's NDA for

KP415.

Per the

KP415

License Agreement, the Company received a regulatory milestone payment of

$5.0

million following the FDA's acceptance of the

KP415

NDA.

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.