The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and our financial statements and the related notes included in this report.

This discussion and analysis below contains forward-looking statements relating to future events or our future financial performance. These statements are only predictions and actual events or results may differ materially. In evaluating such statements, you should carefully consider the various factors identified in this report which could cause actual results to differ materially from those expressed in, or implied by, any forward-looking statements, including those set forth in "Risk Factors" in this Annual Report on Form 10-K. See "-Cautionary Note Regarding Forward-Looking Statements."

OVERVIEW

Kensey Nash Corporation is a medical device company known for innovative product development and unique technology in the fields of resorbable biomaterials and endovascular devices used in a wide variety of medical procedures. We provide an extensive range of products into multiple medical markets, primarily in the cardiology, orthopaedic, sports medicine, spine, endovascular and general surgery markets. Most of the products are based on our significant expertise in the design, development, manufacturing and processing of resorbable biomaterials. We sell our products through strategic partners and do not sell direct to the end-user. We have also developed and commercialized a series of innovative endovascular products and completed the sale of these product lines to Spectranetics in May 2008. Although we sold this portfolio of products to Spectranetics, we still participate in this market through a Manufacturing and Licensing Agreement and a Development and Regulatory Services Agreement, which were entered into in connection with the sale transaction (see below for additional discussion). Our revenues consist of two components: net sales, which include biomaterials sales and endovascular sales, and royalty income.

Net Sales

Biomaterials Sales

Sales of biomaterial orthopaedic products, including products with applications
primarily in the sports medicine and spine markets, and the sale of Angio-Seal
components to St. Jude Medical continue to be our primary source of sales. The
table below shows the five-year trend in our orthopaedic product sales and
Angio-Seal component sales:



                                                       Fiscal Year Ended                          % change
(in thousands)                      6/30/05     6/30/06     6/30/07     6/30/08     6/30/09     FY09 vs FY08
Sales of
Orthopaedic Products                $ 21,896    $ 20,592    $ 21,804    $ 29,403    $ 29,790               1 %
Angio-Seal Components                 16,349      14,825      17,380      15,488      18,262              18 %
Other Products                         1,614       1,282       1,932       2,648       2,994              13 %

Total Net Sales-Biomaterials        $ 39,859    $ 36,699    $ 41,116    $ 47,539    $ 51,046               7 %

Our orthopaedic product sales increased 1% in fiscal 2009 from fiscal 2008. This was due to an increase in sales of our current product lines, specifically in our spine product portfolio, in part due to an increase in our customer base and new product lines for our current customers. We expect sales of our orthopaedic products to increase at a modest growth rate in fiscal 2010 as compared to fiscal 2009 due to our application of resources and focus on new business development, new technologies, and innovation for our current customers, specific to continued success with new product launches.

Our net sales in the orthopaedic portion of our business are dependent on several factors, including (1) the success of our current partners in the orthopaedic markets of sports medicine, spine and extremities, (2) the continued acceptance of biomaterials-based products in these markets, as well as expanded future acceptance of such products, and (3) our ability to offer new products and technologies and to attract new partners in these markets. Due to these dependencies, and/or other factors, sales to our orthopaedic customers can vary significantly from quarter to quarter.

We manufacture two of the key resorbable components of the Angio-Seal device for St. Jude Medical, 100% of their supply requirements for the collagen plug and at least 30% of their requirements for the polymer anchors, under a supply contract that expires in December 2010. Sales to St. Jude Medical are highly dependent on ordering patterns of components used in the manufacturing of the Angio-Seal device by St. Jude Medical and can vary significantly from quarter to quarter. This variation in ordering patterns is evidenced by our component sales growth of 18% in our fiscal year ended June 30, 2009 over the comparable prior fiscal year, compared to the decline in St. Jude Medical's end-user sales, including the impact of foreign currency exchange, of 1% during the same period.

Endovascular Sales

Over the last several years, we have devoted significant resources to developing and bringing proprietary endovascular products to market in the U.S. and Europe. These products are focused in the emerging market segments of thrombus (blood clot) management and chronic total occlusions (CTOs) (a complete vessel blockage occurring in both coronary and peripheral vessels), and are sold primarily to interventional cardiologists, but may also be used by interventional radiologists and vascular surgeons.

Net sales of endovascular products decreased to 7% of our total net sales in fiscal 2009 compared to 12% of our total net sales in fiscal 2008. Fiscal 2009 represented the first fiscal year of endovascular product sales to Spectranetics following our completion of the sale of our Endovascular business in May 2008. Spectranetics is exclusively responsible for worldwide sales and marketing of the entire endovascular product line. These sales to Spectranetics are at a reduced transfer price compared to the direct to market price reflected in our historical sales figures. The decrease in net endovascular sales in fiscal 2009 compared to fiscal 2008 is a direct result of this reduced transfer price to Spectranetics, compared to the direct-to-market price reflected in fiscal 2008 figures, as our overall net unit sales to Spectranetics increased compared to our end-user unit sales for the same period of the prior fiscal year. We expect that our related net endovascular sales will be declining over the next two years. See "Item 1. Business-Overview-Our Endovascular Business".

Royalty Income

We also derive a significant portion of our revenue and profitability from royalty income from proprietary products that we have developed or co-developed.

Angio-Seal™ Royalty Income. Our Company was the inventor and original developer of the Angio-Seal™ device, a vascular closure device that reduces recovery time and enhances patient comfort following both diagnostic and therapeutic cardiovascular catheterizations. St. Jude Medical has the exclusive worldwide rights for the development, manufacturing and sales and marketing of the Angio-Seal device, pursuant to an agreement, which provides us with an approximate 6% royalty on all end-user product sales. We anticipate that sales of the Angio-Seal device by St. Jude Medical will continue to grow at a modest growth rate, based on forecasted continued procedure growth, St. Jude Medical's continued expansion in international markets and marketing new generations of the product, including most recently, the introduction of the Evolution™ Device. Royalty income earned from St. Jude Medical in fiscal 2009 was adversely impacted by foreign currency exchange, as compared to foreign currency exchange in the comparable prior year period.

Vitoss™ Foam, Vitoss™, and Vitoss ™ Bioactive Foam Royalty Income. Since 2003, we have partnered with Orthovita to co-develop and commercialize a series of unique and proprietary bone void filler products, branded Vitoss Foam, the first of which was launched in March 2004, and the most recent, Vitoss™ Bioactive Foam technology, which was launched during the fourth quarter of fiscal 2008. We receive a fixed royalty on Orthovita's end-user sales of Vitoss Foam and Vitoss Bioactive Foam products, which are targeted for use in the orthopaedic market. In addition, in August 2004, we entered into an agreement to acquire the proprietary rights of a third party inventor of the Vitoss technology for $2.6 million (the Assignment Agreement). Under the Assignment Agreement, we receive an additional royalty from Orthovita on the end-user sales of all Orthovita products containing the Vitoss technology, up to a total royalty to be received of $4.0 million, with approximately $640,000 received in fiscal 2009 and $1.2 million remaining to be received as of June 30, 2009. We believe the unique technology associated with the Vitoss Foam and Vitoss Bioactive Foam products and the growing orthopaedic market will result in the Orthovita component of our royalty income becoming more significant over the next fiscal year.

We have other royalty generating relationships, none of which materially contributes to revenue at this time, but which we expect to provide increased revenue as the related products gain market acceptance and additional products are commercialized.

Stock-Based Compensation

The following table summarizes total stock-based compensation expense, as
determined pursuant to SFAS No. 123(R) Share-Based Payment (SFAS 123(R)), within
each operating expense category of our Consolidated Statements of Income for the
fiscal years presented:



                                                                 Stock-Based Compensation
                                                                Fiscal Year Ended June 30,
                                    2009                                   2008                                    2007
                                                                        Acceleration of
                                   Total          Pre-Acceleration        Stock-Based           Total             Total
                                Stock-Based         Stock-Based          Compensation        Stock-Based       Stock-Based
                                Compensation        Compensation          Charge (1)         Compensation      Compensation
Cost of products sold          $      504,552    $          353,599    $         251,732    $      605,331    $      263,151
Research and development              741,357               831,556              834,682         1,666,238         1,050,984
Selling, general and
administrative                        816,548             1,163,967            1,887,619         3,051,586         1,581,329

Total stock-based
compensation expense           $    2,062,457    $        2,349,122    $       2,974,033    $    5,323,155    $    2,895,464

(1) See "Acceleration of Stock Awards" below.

Stock-based compensation expense consists of (a) stock options granted to employees, non-employee members of our Board of Directors, executive officers and non-employee outside consultants, (b) nonvested stock awards (i.e., restricted stock) granted to non-employee members of our Board of Directors, an executive officer and a non-employee outside consultant, and (c) cash-settled stock appreciation rights (SARs) granted to executive officers and other non-executive employees of our Company. We cannot predict the market value of our Common Stock at the time of exercise for these grants, nor the magnitude of exercises at any particular time over the terms of these grants. Our cash-settled SARs have been, and will continue to be, remeasured at each reporting period until all awards are settled. Fluctuations in the fair value of a liability award are recorded as increases or decreases in compensation cost, either immediately or over the remaining service period, depending on the vested status of the award.

Total stock-based compensation expense for fiscal 2009 was impacted primarily by the amortized expense related to two years of equity grants, as well as expense resulting from unfavorable adjustments in the fair value of our cash-settled SARs, which were remeasured based on, among other factors, our closing stock price on June 30, 2009. See Note 17 to the Consolidated Financial Statements included in this Form 10-K for additional information concerning our stock-based compensation.

The following table summarizes our stock-based compensation expense, by fiscal year grant, for our fiscal years ended June 30, 2009 and 2008.

                                                         Fiscal Year Ended June 30,
                                                            2009              2008
 CASH-SETTLED SARs

 Fiscal Year 2007 Grant                                $     (390,503 )    $   940,993


 STOCK OPTIONS
 Fiscal Year 2005 Grant                                $           -       $     2,422
 Fiscal Year 2006 Grant                                            -           103,835
 Fiscal Year 2007 Grant                                            -             9,347
 Fiscal Year 2008 Grant                                       940,746          865,775
 Fiscal Year 2009 Grant                                       998,584               -

                                                       $    1,939,330      $   981,379


 NONVESTED STOCK AWARDS
 Fiscal Year 2005 Grant                                $           -       $    36,328
 Fiscal Year 2006 Grant                                            -           160,873
 Fiscal Year 2007 Grant                                            -            34,569
 Fiscal Year 2008 Grant                                       336,963          194,980
 Fiscal Year 2009 Grant                                       176,667               -

                                                       $      513,630      $   426,750

 Total Acceleration Charge of Stock-Based Awards (a)   $           -       $ 2,974,033

 Total Equity Compensation Expense                     $    2,062,457      $ 5,323,155

(a) See "Acceleration of Stock Awards" below.

Acceleration of Stock Awards

As we publicly announced on September 26, 2007, there was a "Change in Control" as defined in our Fifth Amended and Restated Kensey Nash Corporation Employee Incentive Compensation Plan (the Kensey Nash Corporation Employee Incentive Compensation Plan, as amended through the relevant date, the "Employee Plan"), due to the purchase in the open market by an institutional investor of more than 20% of our shares of outstanding stock. As a result, all outstanding unvested stock options, stock appreciation rights and nonvested stock held by officers, employees, directors and others under this plan automatically became vested (and, in the case of options and stock appreciation rights, exercisable) in full. The accelerated vesting resulted in a non-cash charge of approximately $3.0 million primarily during the quarter ended September 30, 2007 of fiscal 2008. The charge represented a significant portion of our operating expenses in fiscal 2008, and, therefore, we have disclosed in the table above under "Stock Based Compensation" the amount related to the acceleration of stock-based compensation charges included within each operating expense category of our income statement for the fiscal year ended June 30, 2008. The acceleration removed all future equity compensation expense related to the then outstanding stock options and nonvested shares under the plan as of the date of acceleration. However, all cash-settled SARs, including the rights in which the vesting was accelerated, continue to be marked to market on a quarterly basis and equity compensation expense is incurred with respect to all new stock compensation awards granted after this event.

Discontinuance of Embolic Protection Platform

As announced on July 10, 2007, we made a strategic decision to cease all activities related to our embolic protection platform and recorded certain charges during fiscal 2007 and 2008 related to this discontinuance.

CRITICAL ACCOUNTING POLICIES

Our "critical accounting policies" are those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain and may change in future periods. We have identified the following as our critical accounting policies: revenue recognition, accounting for stock-based compensation, accounting for investments in debt and equity securities, valuation of financial instruments, inventory valuation and income taxes.

Revenue Recognition. We recognize revenue under the provisions of Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition (SAB 104), which superseded SAB No. 101, Revenue Recognition in Financial Statements (SAB 101). We also follow the provisions of Emerging Issues Task Force Issue 00-21, Revenue Arrangements with Multiple Deliverables, (EITF 00-21), for collaborative arrangements containing multiple revenue elements that were entered into, or materially amended, after June 30, 2003.

Sales Revenue. Sales revenue is generally recognized when the related product is shipped or the service is completed. Advance payments received for products or services are generally recorded as deferred revenue and are recognized when the product is shipped or services are performed; the timing of the performance of such services could be subjective. We reduce sales for estimated customer returns, discounts and other allowances, if applicable. Our products are primarily manufactured according to our customers' specifications and are subject to return only for failure to meet those specifications.

Royalty Revenue. Royalty revenue is recognized as the related product is sold by our customers to end-users. We recognize substantially all of our royalty revenue at the end of each month, in accordance with our customer agreements. See Note 1 to the Consolidated Financial Statements included in this Form 10-K for additional information concerning our royalty revenue recognition.

Accounting for Stock-Based Compensation. We use various forms of equity compensation, including stock options, nonvested stock grants, and cash-settled SARs, as a major part of our compensation programs to retain and provide incentives to our top management team members and other employees.

• Fair value of option grants is estimated on the date of grant using the Black-Scholes option-pricing model, which uses weighted average assumptions. Expected volatilities are based on historical volatility of our Common Stock, and other factors. We use historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options is derived from historical exercise behavior and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on U.S. treasuries with constant maturities in effect at the time of grant.

• Nonvested stock awards (i.e. restricted stock) granted to non-employee members of our Board of Directors, executive officers and a non-employee consultant are accounted for using the fair value method under SFAS
123(R). Fair value for nonvested stock grants is based upon the closing price of our Common Stock on the date of the grant.

• Cash-settled SARs awarded in stock-based payment transactions are accounted for under SFAS 123(R), which classifies these awards as liabilities. Accordingly, we record these awards as a component of Other current liabilities on our Consolidated Balance Sheets. The fair value of each SAR is estimated on the date of grant using the Black-Scholes option-pricing model, which uses weighted average assumptions. Expected volatilities are based on the historical volatility of our Common Stock, as well as other factors. For liability awards, the fair value of the award, which determines the measurement of the liability on our Consolidated Balance Sheet, is remeasured at each reporting period until the award is settled. Fluctuations in the fair value of the liability award are recorded as increases or decreases in compensation cost, either immediately or over the remaining service period, depending on the vested status of the award. We use historical data to estimate employee termination within the valuation model; employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of cash-settled SARs has been determined using the simplified

Revisions to any of our estimates or methodologies could cause a material impact to our financial statements.

Accounting for Investments in Debt and Equity Securities. We account for our investment portfolio in accordance with the Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), and related interpretations and staff positions, FASB Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2). We have classified our entire investment portfolio as available-for-sale marketable securities with secondary or resale markets and report the portfolio at fair value with unrealized gains and losses included in Stockholders' equity and realized gains and losses in Other income. We currently have investment securities with fair values that are less than their amortized cost and therefore contain unrealized losses. We have evaluated these securities and have determined that the decline in value is not related to any company or industry specific event. We have the intent and the ability to hold each of these investments until a recovery of the fair value. There is no current requirement to sell any of these investments. We anticipate full recovery of amortized costs with respect to these securities at maturity or sooner in the event of a more favorable market interest rate environment. Revisions to our classification of these investments and/or a determination other than the anticipation of a full recovery of the amortized costs at maturity or sooner could result in our realizing gains and losses on these investments and, therefore, have a material impact on our financial statements. As of June 30, 2009, we were in compliance with all of our affirmative, restrictive and financial maintenance covenants.

Valuation of Financial Instruments. Effective July 1, 2008, we adopted the provisions of SFAS No. 157, Fair Value Measurements (SFAS 157), and related interpretations and staff positions, FASB Staff Position No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4) and FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active(FSP 157-3), for financial assets and liabilities, which provides guidance for using fair value to measure financial assets and liabilities by defining fair value as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. SFAS 157 establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. See Note 14 to the Consolidated Financial Statements included in this Form 10-K for further discussion regarding the fair value of financial assets and liabilities.

Inventory Valuation. Our inventory is stated at the lower of cost or market. Adjustments to inventory are made at the individual part level for estimated excess, obsolescence or impaired balances, to reflect inventory at the lower of cost or market. Factors influencing these adjustments include changes in demand, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality concerns. Revisions to these adjustments would be required if any of these factors differ from our estimates.

Income Taxes. In the course of estimating our estimated annual effective tax rate and recording our quarterly income tax provisions, we consider many factors, including our expected earnings, state income tax apportionment, estimated research and development tax credits, non-taxable interest income and other estimates. Material changes in, or differences from, these estimates could have a significant impact on our effective tax rate.

RESULTS OF OPERATIONS

Comparison of Fiscal Years 2009 and 2008

Total Revenues. Total revenues increased 3% to $82.1 million in fiscal 2009 from $79.8 million in fiscal 2008.

Total Net Sales. Net sales of products increased 2% to $54.9 million for fiscal 2009 compared to net sales of $53.8 million for fiscal 2008. We had a $3.5 million, or 7%, increase in our biomaterials sales, offset by a $2.4 million, or 38%, decrease in our endovascular sales.

Biomaterials Sales. Biomaterials sales were $51.0 million in fiscal 2009, a 7% increase compared to $47.5 million in fiscal 2008. Biomaterials sales includes revenue recognized from products shipped as well as revenue generated from product development programs with biomaterials customers. The increase in biomaterials sales was primarily the result of strong sales in both the cardiovascular and orthopaedic product lines. Sales of Angio-Seal components to St. Jude Medical of $18.3 million increased $2.8 million, or 18%, compared to $15.5 million in fiscal 2008.

Orthopaedic sales were $29.8 million in fiscal 2009, a 1% increase compared to $29.4 million in fiscal 2008. The orthopaedic product sales increase was primarily the result of spine products sales, which increased 6% to $13.7 million in fiscal 2009, from $12.9 million in fiscal 2008. The increase in sales of spine products was primarily attributable to strong sales of current and new product lines to Orthovita, and cancellation fees charged to a customer for research and development work performed, offset, in part by weaker sales of our . . .