##### Table of Contents





UNITED STATES

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, 2010

OR



| ̈ | 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: 001-34388





Kensey Nash Corporation

(Exact name of registrant as specified in its charter)







|                                                              |  |                                 
|------------------------------------------------------------- |  | --------------------------------
|Delaware                                                      |  | 36-3316412                      
|(State or other jurisdiction ofincorporation or organization) |  | (IRS EmployerIdentification No.)
|                                                              | 
|735 Pennsylvania Drive Exton, Pennsylvania                    |  | 19341                           
|(Address of Principal Executive Offices)                      |  | (Zip Code)                      

Registrants telephone number, including area code: (484) 713-2100





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 Website, 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   ̈

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 definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



| |  |                         |  |   |  |                           |  |  
| |  | ----------------------- |  | - |  | ------------------------- |  | -
| |  | Large accelerated filer |  |  ̈ |  | Accelerated filer         |  | x
| |  |                         |  |  
| |  | Non-accelerated filer   |  |  ̈ |  | Smaller Reporting Company |  |  ̈

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

As of
October 31, 2010, there were 8,497,891 outstanding shares of Common Stock, par value $.001, of the registrant.









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##### Table of Contents



KENSEY NASH
CORPORATION

QUARTER ENDED SEPTEMBER 30, 2010

INDEX



|                               |  |         |    |                                                                                       |  |  |    | 
|------------------------------ |  | ------- | -- | ------------------------------------------------------------------------------------- |  |  | -- | 
|                               |  |         |    | PAGE                                                                                  | 
|PART I - FINANCIAL INFORMATION |  |         |    |                                                                                      
|                               |  |         |   
|                               |  | Item 1. |    | Condensed Consolidated Financial Statements (Unaudited)                               |  |  |    | 
|                               |  |         |   
|                               |  |         |    | Balance Sheets as of September 30, 2010 and June 30, 2010                             |  |  | 3  | 
|                               |  |         |   
|                               |  |         |    | Statements of Income for the three months ended September 30, 2010 and 2009           |  |  | 4  | 
|                               |  |         |   
|                               |  |         |    | Statement of Stockholders Equity for the three months ended September 30, 2010       |  |  | 5  | 
|                               |  |         |   
|                               |  |         |    | Statements of Cash Flows for the three months ended September 30, 2010 and 2009       |  |  | 6  | 
|                               |  |         |   
|                               |  |         |    | Notes to Condensed Consolidated Financial Statements                                  |  |  | 7  | 
|                               |  |         |   
|                               |  | Item 2. |    | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 20 | 
|                               |  |         |   
|                               |  | Item 3. |    | Quantitative and Qualitative Disclosures about Market Risk                            |  |  | 31 | 
|                               |  |         |   
|                               |  | Item 4. |    | Controls and Procedures                                                               |  |  | 32 | 
|                               | 
|PART II - OTHER INFORMATION    |  |         |    |                                                                                      
|                               |  |         |   
|                               |  | Item 2. |    | Unregistered Sales of Equity Securities and Use of Proceeds                           |  |  | 33 | 
|                               |  |         |   
|                               |  | Item 6. |    | Exhibits                                                                              |  |  | 33 | 
|                               | 
|SIGNATURES                     |  |         | 34 |                                                                                      
|                               | 
|EXHIBITS                       |  |         | 35 |                                                                                      



2



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##### Table of Contents



PART I - FINANCIAL
INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

KENSEY NASH CORPORATION

CONDENSED CONSOLIDATED
BALANCE SHEETS (Unaudited)





|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ------------ | - | ----------- | -
|                                                                                                                                                                                                                                              |  | September 30,2010 |             |   | June 30,2010 |  
|ASSETS:                                                                                                                                                                                                                                       |  |                   |             |   |              |   |             |  
|CURRENT ASSETS:                                                                                                                                                                                                                               |  |                   |             |   |              |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                     |  | $                 | 21,454,383  |   |              | $ | 23,102,362  |  
|Investments                                                                                                                                                                                                                                   |  |                   | 28,095,011  |   |              |   | 42,571,544  |  
|Trade receivables, net of allowances for doubtful accounts of $5,867 and $13,513 as of September 30, 2010 and June 30,
2010 respectively                                                                                                      |  |                   | 3,984,040   |   |              |   | 5,307,563   |  
|Royalties receivable                                                                                                                                                                                                                          |  |                   | 5,638,486   |   |              |   | 5,818,310   |  
|Other receivables (including $16,659 and $2,582 at September 30, 2010 and June 30, 2010, respectively, due from
non-executive employees)                                                                                                      |  |                   | 338,969     |   |              |   | 1,119,703   |  
|Inventory                                                                                                                                                                                                                                     |  |                   | 10,403,102  |   |              |   | 8,885,875   |  
|Deferred tax asset, current portion                                                                                                                                                                                                           |  |                   | 2,668,376   |   |              |   | 2,857,262   |  
|Prepaid expenses and other                                                                                                                                                                                                                    |  |                   | 1,194,532   |   |              |   | 1,091,760   |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|Total current assets                                                                                                                                                                                                                          |  |                   | 73,776,899  |   |              |   | 90,754,379  |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|PROPERTY, PLANT AND EQUIPMENT, AT COST:                                                                                                                                                                                                       |  |                   |             |   |              |   |             |  
|Land                                                                                                                                                                                                                                          |  |                   | 4,883,591   |   |              |   | 4,883,591   |  
|Building                                                                                                                                                                                                                                      |  |                   | 46,632,773  |   |              |   | 46,489,239  |  
|Machinery, furniture and equipment                                                                                                                                                                                                            |  |                   | 32,880,047  |   |              |   | 32,728,301  |  
|Construction in progress                                                                                                                                                                                                                      |  |                   | 167,233     |   |              |   | 63,322      |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|Total property, plant and equipment                                                                                                                                                                                                           |  |                   | 84,563,644  |   |              |   | 84,164,453  |  
|Accumulated depreciation                                                                                                                                                                                                                      |  |                   | (30,302,419 | ) |              |   | (29,179,563 | )
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|Net property, plant and equipment                                                                                                                                                                                                             |  |                   | 54,261,225  |   |              |   | 54,984,890  |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|OTHER ASSETS:                                                                                                                                                                                                                                 |  |                   |             |   |              |   |             |  
|Deferred tax asset, non-current portion                                                                                                                                                                                                       |  |                   | 1,964,601   |   |              |   | 1,872,619   |  
|Acquired patents and other intangibles, net of accumulated amortization of $6,867,867 and $6,628,605 at September 30, 2010
and June 30, 2010 respectively                                                                                     |  |                   | 1,809,332   |   |              |   | 2,048,595   |  
|Goodwill                                                                                                                                                                                                                                      |  |                   | 4,366,273   |   |              |   | 4,366,273   |  
|Other non-current assets                                                                                                                                                                                                                      |  |                   | 73,646      |   |              |   | 93,973      |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|Total other assets                                                                                                                                                                                                                            |  |                   | 8,213,852   |   |              |   | 8,381,460   |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|TOTAL                                                                                                                                                                                                                                         |  | $                 | 136,251,976 |   |              | $ | 154,120,729 |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                          |  |                   |             |   |              |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                          |  |                   |             |   |              |   |             |  
|Accounts payable                                                                                                                                                                                                                              |  | $                 | 3,385,653   |   |              | $ | 2,460,740   |  
|Accrued expenses                                                                                                                                                                                                                              |  |                   | 4,487,307   |   |              |   | 5,494,910   |  
|Other current liabilities                                                                                                                                                                                                                     |  |                   | 300,584     |   |              |   | 131,836     |  
|Current portion of debt                                                                                                                                                                                                                       |  |                   | 1,399,997   |   |              |   | 1,399,997   |  
|Deferred revenue                                                                                                                                                                                                                              |  |                   | 1,008,257   |   |              |   | 947,378     |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|Total current liabilities                                                                                                                                                                                                                     |  |                   | 10,581,798  |   |              |   | 10,434,861  |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|OTHER LIABILITIES:                                                                                                                                                                                                                            |  |                   |             |   |              |   |             |  
|Long term debt                                                                                                                                                                                                                                |  |                   | 29,633,333  |   |              |   | 29,983,333  |  
|Deferred revenue, non-current                                                                                                                                                                                                                 |  |                   | 3,113,011   |   |              |   | 3,336,780   |  
|Other non-current liabilities                                                                                                                                                                                                                 |  |                   | 6,210,119   |   |              |   | 5,542,509   |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|Total liabilities                                                                                                                                                                                                                             |  |                   | 49,538,261  |   |              |   | 49,297,483  |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|COMMITMENTS AND CONTINGENCIES (Note 11)                                                                                                                                                                                                       |  |                   |            |   |              |   |            |  
|STOCKHOLDERS EQUITY:                                                                                                                                                                                                                         |  |                   |             |   |              |   |             |  
|Preferred stock, $.001 par value, 100,000 shares authorized, of which 25,000 shares are designated as Series A junior
participating preferred stock, $.001 par value, no shares issued or outstanding at September 30, 2010 and June 30, 2010 |  |                   |            |   |              |   |            |  
|Common stock, $.001 par value, 25,000,000 shares authorized, 8,625,460 and                                                                                                                                                                    |  |                   |             |   |              |   |             |  
|9,437,236 shares issued and outstanding at September 30, 2010 and June 30, 2010 respectively                                                                                                                                                  |  |                   | 8,572       |   |              |   | 9,403       |  
|Capital in excess of par value                                                                                                                                                                                                                |  |                   | 5,990,948   |   |              |   | 27,528,282  |  
|Retained earnings                                                                                                                                                                                                                             |  |                   | 84,406,720  |   |              |   | 80,561,830  |  
|Accumulated other comprehensive loss                                                                                                                                                                                                          |  |                   | (3,692,525  | ) |              |   | (3,276,269  | )
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|Total stockholders equity                                                                                                                                                                                                                    |  |                   | 86,713,715  |   |              |   | 104,823,246 |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  
|                                                                                                                                                                                                                                              |  |                  
|TOTAL                                                                                                                                                                                                                                         |  | $                 | 136,251,976 |   |              | $ | 154,120,729 |  
|                                                                                                                                                                                                                                              |  |                   |             |   |              |   |             |  

See notes to Condensed Consolidated Financial Statements.



3



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KENSEY NASH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)





|                                                   |  |                                      |            |   |      |   |            |  
|-------------------------------------------------- |  | ------------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                   |  | Three Months EndedSeptember 30, 2010 |           
|                                                   |  | 2010                                 |            |   | 2009 |  
|REVENUES:                                          |  |                                      |            |   |      |   |            |  
|Net sales                                          |  |                                      |            |   |      |   |            |  
|Biomaterial sales                                  |  | $                                    | 10,421,456 |   |      | $ | 12,575,046 |  
|Endovascular sales                                 |  |                                      | 458,499    |   |      |   | 857,656    |  
|                                                   |  |                                      |            |   |      |   |            |  
|Total net sales                                    |  |                                      | 10,879,955 |   |      |   | 13,432,702 |  
|Royalty income                                     |  |                                      | 6,084,644  |   |      |   | 6,309,116  |  
|                                                   |  |                                      |            |   |      |   |            |  
|Total revenues                                     |  |                                      | 16,964,599 |   |      |   | 19,741,818 |  
|                                                   |  |                                      |            |   |      |   |            |  
|                                                   |  |                                     
|OPERATING COSTS AND EXPENSES:                      |  |                                      |            |   |      |   |            |  
|Cost of products sold                              |  |                                      | 4,220,125  |   |      |   | 5,538,400  |  
|Research and development                           |  |                                      | 4,277,383  |   |      |   | 4,275,571  |  
|Selling, general and administrative                |  |                                      | 2,297,875  |   |      |   | 2,179,931  |  
|                                                   |  |                                      |            |   |      |   |            |  
|Total operating costs and expenses                 |  |                                      | 10,795,383 |   |      |   | 11,993,902 |  
|                                                   |  |                                      |            |   |      |   |            |  
|                                                   |  |                                     
|INCOME FROM OPERATIONS                             |  |                                      | 6,169,216  |   |      |   | 7,747,916  |  
|                                                   |  |                                      |            |   |      |   |            |  
|OTHER INCOME (EXPENSE):                            |  |                                      |            |   |      |   |            |  
|Interest income                                    |  |                                      | 154,939    |   |      |   | 174,148    |  
|Interest expense                                   |  |                                      | (514,404   | ) |      |   | (537,268   | )
|Other income (expense)                             |  |                                      | 3,512      |   |      |   | (17,540    | )
|                                                   |  |                                      |            |   |      |   |            |  
|Total other expense - net                          |  |                                      | (355,953   | ) |      |   | (380,660   | )
|                                                   |  |                                      |            |   |      |   |            |  
|                                                   |  |                                     
|INCOME BEFORE INCOME TAX                           |  |                                      | 5,813,263  |   |      |   | 7,367,256  |  
|Income tax expense                                 |  |                                      | (1,968,373 | ) |      |   | (2,486,447 | )
|                                                   |  |                                      |            |   |      |   |            |  
|NET INCOME                                         |  | $                                    | 3,844,890  |   |      | $ | 4,880,809  |  
|                                                   |  |                                      |            |   |      |   |            |  
|                                                   |  |                                     
|BASIC EARNINGS PER SHARE                           |  | $                                    | 0.43       |   |      | $ | 0.44       |  
|                                                   |  |                                      |            |   |      |   |            |  
|DILUTED EARNINGS PER SHARE                         |  | $                                    | 0.41       |   |      | $ | 0.43       |  
|                                                   |  |                                      |            |   |      |   |            |  
|                                                   |  |                                     
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING         |  |                                      | 9,037,623  |   |      |   | 11,121,389 |  
|                                                   |  |                                      |            |   |      |   |            |  
|DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |  |                                      | 9,300,323  |   |      |   | 11,476,756 |  
|                                                   |  |                                      |            |   |      |   |            |  

See notes to consolidated financial statements.



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KENSEY NASH CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (Unaudited)





|                                                          |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   |             |  
|--------------------------------------------------------- |  | ------------ | ---------- | - | --------------------------- | - | ------ | ---------------- |  | - | ------------------------------------------ | - |  | ------------------- | ---------- |  | ----- | - | ---------- | - |  | - | --------- | - |  | - | ----------- | -
|                                                          |  | Common Stock |            |   | Capital inExcess
ofParValue |   |        | RetainedEarnings |  |   | AccumulatedOtherComprehensive(Loss)/Income |   |  | ComprehensiveIncome |            |  | Total |  
|                                                          |  | Shares       |            |   | Amount                      |   |        |                  |  |   |                                           
|BALANCE, JUNE 30, 2010                                    |  |              | 9,402,836  |   |                             | $ | 9,403  |                  |  | $ | 27,528,282                                 |   |  | $                   | 80,561,830 |  |       | $ | (3,276,269 | ) |  |   |           |   |  | $ | 104,823,246 |  
|Exercise of:                                              |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   |             |  
|                                                          |  |              |            |   |                             |   |       
|Stock options                                             |  |              | 223,993    |   |                             |   | 224    |                  |  |   | 3,421,696                                  |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   | 3,421,920   |  
|Stock repurchase                                          |  |              | (1,054,702 | ) |                             |   | (1,055 | )                |  |   | (26,645,181                                | ) |  |                     |            |  |       |   |            |   |  |   |           |   |  |   | (26,646,236 | )
|Tax benefit from exercise of:                             |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   |             |  
|Stock options                                             |  |              |            |   |                             |   |        |                  |  |   | 690,723                                    |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   | 690,723     |  
|Employee share-based compensation:                        |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   |             |  
|Stock options                                             |  |              |            |   |                             |   |        |                  |  |   | 855,991                                    |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   | 855,991     |  
|Nonvested stock awards                                    |  |              |            |   |                             |   |        |                  |  |   | 139,437                                    |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   | 139,437     |  
|Net income                                                |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     | 3,844,890  |  |       |   |            |   |  | $ | 3,844,890 |   |  |   | 3,844,890   |  
|Change in unrealized gain on investments (net of tax)     |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   | 17,690     |   |  |   | 17,690    |   |  |   | 17,690      |  
|Change in interest rate swap unrealized loss (net of tax) |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   | (433,946   | ) |  |   | (433,946  | ) |  |   | (433,946    | )
|                                                          |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   |             |  
|Comprehensive income                                      |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  | $ | 3,428,634 |   |  |   |             |  
|                                                          |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   |             |  
|BALANCE, SEPTEMBER 30, 2010                               |  |              | 8,572,127  |   |                             | $ | 8,572  |                  |  | $ | 5,990,948                                  |   |  | $                   | 84,406,720 |  |       | $ | (3,692,525 | ) |  |   |           |   |  | $ | 86,713,715  |  
|                                                          |  |              |            |   |                             |   |        |                  |  |   |                                            |   |  |                     |            |  |       |   |            |   |  |   |           |   |  |   |             |  

See notes to the Condensed Consolidated Financial Statements.



5



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##### Table of Contents



KENSEY NASH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)





|                                                                                  |  |                                 |             |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                                  |  | Three Months EndedSeptember 30, |            
|                                                                                  |  | 2010                            |             |   | 2009 |  
|OPERATING ACTIVITIES:                                                             |  |                                 |             |   |      |   |            |  
|Net income                                                                        |  | $                               | 3,844,890   |   |      | $ | 4,880,809  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |             |   |      |   |            |  
|Depreciation and amortization                                                     |  |                                 | 1,757,173   |   |      |   | 1,676,022  |  
|Share-based compensation:                                                         |  |                                 |             |   |      |   |            |  
|Stock options                                                                     |  |                                 | 855,991     |   |      |   | 458,446    |  
|Nonvested stock awards                                                            |  |                                 | 139,437     |   |      |   | 124,992    |  
|Cash-settled stock appreciation rights                                            |  |                                 | 168,748     |   |      |   | 100,466    |  
|Tax benefit/(deficiency) from exercise/issuance of:                               |  |                                 |             |   |      |   |            |  
|Stock options                                                                     |  |                                 | 690,723     |   |      |   | 56,599     |  
|Nonvested stock awards                                                            |  |                                 |            |   |      |   | (602       | )
|Excess tax benefits from share-based payment arrangements                         |  |                                 | (295,356    | ) |      |   | (37,105    | )
|Deferred income taxes                                                             |  |                                 | 321,044     |   |      |   | (337,784   | )
|Gain on disposal/retirement of property, plant and equipment                      |  |                                 | (14,646     | ) |      |   |           |  
|Changes in assets and liabilities which provided/(used) cash:                     |  |                                 |             |   |      |   |            |  
|Accounts receivable                                                               |  |                                 | 2,298,643   |   |      |   | 298,592    |  
|Prepaid expenses and other current assets                                         |  |                                 | (85,741     | ) |      |   | (132,914   | )
|Inventory                                                                         |  |                                 | (1,517,227  | ) |      |   | (211,980   | )
|Accounts payable and accrued expenses                                             |  |                                 | (813,564    | ) |      |   | 1,748,070  |  
|Deferred revenue, current                                                         |  |                                 | 60,879      |   |      |   | (20,000    | )
|Deferred revenue, non-current                                                     |  |                                 | (223,769    | ) |      |   | 40,714     |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                                 | 7,187,225   |   |      |   | 8,644,325  |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|                                                                                  |  |                                
|INVESTING ACTIVITIES:                                                             |  |                                 |             |   |      |   |            |  
|Additions to property, plant and equipment                                        |  |                                 | (638,532    | ) |      |   | (435,755   | )
|Purchases of intangible assets                                                    |  |                                 |            |   |      |   | (230,833   | )
|Proceeds from maturity of investments                                             |  |                                 | 14,330,000  |   |      |   | 315,000    |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|Net cash provided by/(used in) investing activities                               |  |                                 | 13,691,468  |   |      |   | (351,588   | )
|                                                                                  |  |                                 |             |   |      |   |            |  
|                                                                                  |  |                                
|FINANCING ACTIVITIES:                                                             |  |                                 |             |   |      |   |            |  
|Repayments of long term debt                                                      |  |                                 | (350,000    | ) |      |   | (350,000   | )
|Stock repurchase                                                                  |  |                                 | (25,879,386 | ) |      |   | (891,007   | )
|Excess tax benefits from share-based payment arrangements                         |  |                                 | 295,356     |   |      |   | 37,105     |  
|Proceeds from exercise of stock options                                           |  |                                 | 3,407,358   |   |      |   | 182,018    |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|Net cash used in financing activities                                             |  |                                 | (22,526,672 | ) |      |   | (1,021,884 | )
|                                                                                  |  |                                 |             |   |      |   |            |  
|                                                                                  |  |                                
|(DECREASE)/INCREASE IN CASH                                                       |  |                                 | (1,647,979  | ) |      |   | 7,270,853  |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                    |  |                                 | 23,102,362  |   |      |   | 49,474,255 |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                          |  | $                               | 21,454,383  |   |      | $ | 56,745,108 |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                 |  |                                 |             |   |      |   |            |  
|Cash paid for interest                                                            |  | $                               | 525,725     |   |      | $ | 537,642    |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|Cash paid for income taxes                                                        |  | $                               | 1,742,500   |   |      | $ | 800,000    |  
|                                                                                  |  |                                 |             |   |      |   |            |  
|Retirement of fully depreciated property, plant and equipment                     |  | $                               | 186,013     |   |      | $ |           |  
|                                                                                  |  |                                 |             |   |      |   |            |  

See notes to the Condensed Consolidated Financial Statements.



6



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##### Table of Contents



KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1  Condensed Consolidated Financial Statements

Principles of Consolidation and Basis of Presentation

The accompanying unaudited
Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) for interim financial information and with the instructions of Form 10-Q and
Article 10 of Regulation S-X and, therefore, do not include all of the information and notes required by U.S. GAAP for complete annual financial statements. The accompanying financial information reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the interim periods. The results of operations for the three months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year. These
Condensed Consolidated Financial Statements should be read in conjunction with the consolidated statements and notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2010 (fiscal 2010).

The Condensed Consolidated Financial Statements include the accounts of Kensey Nash Corporation and its wholly-owned subsidiaries (the
Company). All intercompany transactions and balances have been eliminated.

The preparation of the financial statements in conformity with
U.S. GAAP and the notes to the financial statements requires management to make estimates and assumptions. These estimates and assumptions, which may differ from actual results, will affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues, expenses and cash flows for the periods presented.

Revenue Recognition

Sales Revenue

The Company recognizes revenue in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 605-10-S99, Revenue Recognition (ASC 605-10-S99).In addition, the Company accounts for certain customer arrangements containing multiple revenue elements,
which were entered into, or materially amended, after June 30, 2003, in accordance with FASB ASC Subtopic 605-25, Multiple Element Arrangements (ASC 605-25).

Sales revenue is generally recognized when the products are shipped or the services are completed. Advance payments received for products or services are recorded as deferred revenue and are generally
recognized when the product is shipped or services are performed. The Company reduces sales revenue for estimated customer returns and other allowances. The Company recorded $30,064 and $0 for net sales returns provisions respectively, for the three
months ended September 30, 2010 and 2009.

Royalty Income

The Company generally recognizes its royalty revenue at the end of each month, when the relevant net total end-user product sales dollars are reported by customers to the Company for the month. Royalty
payments are generally received within 45 days after the end of each calendar quarter.

Geographic Information

The Companys total revenues are attributed to a country based on the location of the customer. The Companys business is
not directly dependent on foreign operations, as the Companys sales to customers outside the U.S. are not significant. However, a portion of the Companys total revenues, including sales and royalties, are dependent on U.S. based
customers selling to end-users outside the U.S. No one country where the Company sells its products, other than the U.S., represented more than 10% of the Companys revenues. In addition, all of the Companys long-lived tangible assets are
located in the U.S.



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KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





Earnings Per
Share

Earnings per share are calculated in accordance with FASB ASC Topic 260, Earnings Per Share (ASC 260). Basic and
diluted EPS are computed using the weighted average number of shares of Common Stock outstanding, with common equivalent shares from options and nonvested stock awards included in the diluted computation when their effect is dilutive. There were no
nonvested stock awards included for the three months ended September 30, 2010 and 2009 that were antidilutive. Options to purchase shares of the Companys Common Stock that were outstanding for the three months ended September 30,
2010 and 2009, but were not included in the computation of diluted EPS because the options would have been antidilutive, are shown in the table below:



|                              |  |                                  |                |  |      |   |                | 
|----------------------------- |  | -------------------------------- | -------------- |  | ---- | - | -------------- | 
|                              |  | Three months ended September 30, |               
|                              |  | 2010                             |                |  | 2009 |  
|Number of shares from options |  |                                  | 1,235,292      |  |      |   | 1,001,479      | 
|                              |  |                                  |                |  |      |   |                | 
|Option exercise price range   |  | $                                | 23.45 - $35.71 |  |      | $ | 27.80 - $35.71 | 
|                              |  |                                  |                |  |      |   |                | 

Goodwill

The Company accounts for goodwill under the provisions of FASB ASC Topic 350, Intangibles  Goodwill and Other (ASC 350). Goodwill is not amortized, but is subject to impairment tests on
an annual basis or at an interim date if certain events or circumstances indicate that the asset might be impaired. The most recent annual test as of June 30, 2010 indicated that goodwill was not impaired. There were no indicators of impairment
as of September 30, 2010.

New Accounting Standards

Adopted:

In October
2009, the FASB issued ASU 2009-13, Revenue Recognition for Multiple-Deliverable Revenue Arrangements of FASB ASC Topic 605, which amends ASC Subtopic 605-25, and will be effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, which for the Company was July 1, 2010 (fiscal 2011). Alternatively, adoption may be on a retrospective basis, and early application is permitted. This statement
provides principles for allocation of consideration among its multiple-elements based on an elements estimated selling price if vendor-specific (VSOE) or other third-party evidence (TPE) of value is not available. This statement allows more
flexibility in identifying and accounting for separate deliverables under an arrangement, introduces an estimated selling price method for valuing the elements of a bundled arrangement if VSOE or TPE of selling price is not available, and
significantly expands related disclosure requirements. The Companys prospective adoption of this new accounting update on July 1, 2010 did not have a significant impact on the Companys consolidated financial position, results of
operations or cash flows; however, the Company will continue to assess the impact of any future arrangements entered into or materially modified after the Companys adoption.

In April 2010, the FASB issued ASU 2010-17, Milestone Method of Revenue Recognition of FASB ASC Topic 605, which will be effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010, which for the Company is its fiscal 2011. This statement provides criteria for recognizing the achievement of a milestone in its entirety as revenue in the period in which
the milestone is achieved, only if the milestone meets all criteria considered substantive made at the inception of the arrangement. The Companys prospective adoption of this new accounting update on July 1, 2010 did not have a
significant impact on the Companys consolidated financial position, results of operations or cash flows; however, the Company will continue to assess the impact of any future arrangements entered into or materially modified after the
Companys adoption.



8



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KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





Note 2  Investments

Investments as of September 30, 2010 consist of non-taxable high quality municipal obligations and taxable U.S. government
securities. In accordance with FASB ASC Topic 320, Investments  Debt and Equity Securities (ASC 320), the Company has classified its entire investment portfolio as available-for-sale securities with secondary or resale
markets, and, as such, its portfolio is reported at fair value with unrealized gains and losses included in Comprehensive Income in stockholders equity (see Note 9) and realized gains and losses included in Other income/expense. The following
is a summary of available-for-sale securities as of September 30, 2010 and June 30, 2010:



|                           |  |                    |            |  |                  |   |         |                     |  |   |      |   |  |   |            | 
|-------------------------- |  | ------------------ | ---------- |  | ---------------- | - | ------- | ------------------- |  | - | ---- | - |  | - | ---------- | 
|                           |  | September 30, 2010 |           
|Description                |  | AmortizedCost      |            |  | Gross Unrealized |   |         | EstimatedFair
Value | 
|                           |  | Gain               |            |  | Loss             |   |        
|Municipal Obligations      |  | $                  | 23,696,973 |  |                  | $ | 529,418 |                     |  | $ |     |   |  | $ | 24,226,391 | 
|U.S. Government Securities |  |                    | 3,868,727  |  |                  |   | 84      |                     |  |   | (191 | ) |  |   | 3,868,620  | 
|                           |  |                    |            |  |                  |   |         |                     |  |   |      |   |  |   |            | 
|Total Investments          |  | $                  | 27,565,700 |  |                  | $ | 529,502 |                     |  | $ | (191 | ) |  | $ | 28,095,011 | 
|                           |  |                    |            |  |                  |   |         |                     |  |   |      |   |  |   |            | 



|                           |  |               |            |  |                  |   |         |            |  |   |        |   |  |   |            | 
|-------------------------- |  | ------------- | ---------- |  | ---------------- | - | ------- | ---------- |  | - | ------ | - |  | - | ---------- | 
|                           |  | June 30, 2010 |           
|Description                |  | AmortizedCost |            |  | Gross Unrealized |   |         |            | 
|                           |  | Gain          |            |  | Loss             |   |         | Fair Value | 
|Municipal Obligations      |  | $             | 33,693,441 |  |                  | $ | 509,300 |            |  | $ | (9,683 | ) |  | $ | 34,193,058 | 
|U.S. Government Securities |  |               | 8,376,007  |  |                  |   | 2,479   |            |  |   |       |   |  |   | 8,378,486  | 
|                           |  |               |            |  |                  |   |         |            |  |   |        |   |  |   |            | 
|Total Investments          |  | $             | 42,069,448 |  |                  | $ | 511,779 |            |  | $ | (9,683 | ) |  | $ | 42,571,544 | 
|                           |  |               |            |  |                  |   |         |            |  |   |        |   |  |   |            | 

The Companys U.S. government securities are comprised of U.S. government agency debt instruments. As of
September 30, 2010, the Companys investments had maturities ranging from less than one year to approximately three years. The fair values of the Companys municipal obligations and U.S. government agency debt instruments are obtained
from broker quotes using pricing matrices based on inputs that may include quoted prices for identical or similar assets in the municipal and U.S. government bond market and based on other various inputs that are directly or indirectly observable.

Certain investment securities shown below as of September 30, 2010 had fair values less than their amortized costs and, therefore,
contained unrealized losses. The Company has evaluated these investments and has determined that the decline in value was not related to any Company or industry specific event. As of September 30, 2010, there were 2 out of 42 investments with
unrealized losses. The gross unrealized losses related to these investments were due to either changes in interest rates or investments having been obtained at a premium. Given that the Company has no intent to sell any of these investments until a
recovery of its fair value, which may be at maturity, and there is no current requirement to sell any of these investments, the Company did not consider these investments to be other-than-temporarily impaired as of September 30, 2010. The
Company anticipates full recovery of amortized costs with respect to these investments at maturity or sooner in the event of a more favorable market interest rate environment. The duration of time the investments had been in a continuous unrealized
loss position as of September 30, 2010 were as follows:



|                           |  |                  |           |  |                              |   |      |            |  |   |                       |  |  |            |   |  |                       |   |           |  |  |   |      |  
|-------------------------- |  | ---------------- | --------- |  | ---------------------------- | - | ---- | ---------- |  | - | --------------------- |  |  | ---------- | - |  | --------------------- | - | --------- |  |  | - | ---- | -
|Description                |  | Loss < 12 months |           |  | Loss > or equal to 12 months |   |      | Total      | 
|                           |  | Fair Value       |           |  | GrossUnrealizedLosses        |   |      | Fair Value |  |   | GrossUnrealizedLosses |  |  | Fair Value |   |  | GrossUnrealizedLosses |  
|Municipal Obligations      |  | $                |          |  |                              | $ |     |            |  | $ |                      |  |  | $          |  |  |                       | $ |          |  |  | $ |     |  
|U.S. Government Securities |  |                  | 2,616,931 |  |                              |   | (191 | )          |  |   |                      |  |  |            |  |  |                       |   | 2,616,931 |  |  |   | (191 | )
|                           |  |                  |           |  |                              |   |      |            |  |   |                       |  |  |            |   |  |                       |   |           |  |  |   |      |  
|Total Investments          |  | $                | 2,616,931 |  |                              | $ | (191 | )          |  | $ |                      |  |  | $          |  |  |                       | $ | 2,616,931 |  |  | $ | (191 | )
|                           |  |                  |           |  |                              |   |      |            |  |   |                       |  |  |            |   |  |                       |   |           |  |  |   |      |  



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





Note 3  Inventory

Inventory is stated at the lower of cost (determined by the average cost method, which approximates first-in, first-out) or market value.
Inventory primarily includes the cost of material utilized in the processing of the Companys products and was as follows as of September 30, 2010 and June 30, 2010:



|                                     |  |                   |            |   |              |   |            |  
|------------------------------------ |  | ----------------- | ---------- | - | ------------ | - | ---------- | -
|                                     |  | September 30,2010 |            |   | June 30,2010 |  
|Raw materials                        |  | $                 | 7,882,324  |   |              | $ | 7,550,043  |  
|Work in process                      |  |                   | 1,613,087  |   |              |   | 1,425,174  |  
|Finished goods                       |  |                   | 1,852,837  |   |              |   | 2,018,512  |  
|                                     |  |                   |            |   |              |   |            |  
|Gross inventory                      |  |                   | 11,348,249 |   |              |   | 10,993,729 |  
|Provision for inventory obsolescence |  |                   | (945,147   | ) |              |   | (2,107,854 | )
|                                     |  |                   |            |   |              |   |            |  
|Inventory                            |  | $                 | 10,403,102 |   |              | $ | 8,885,875  |  
|                                     |  |                   |            |   |              |   |            |  

The provision for inventory obsolescence decreased approximately $1.2 million during the quarter ended September 30,
2010, primarily due to the disposal of the fully reserved inventory in September 2010. 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, rapid 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 the Companys estimates.

Note 4  Select Customer
Agreements

St. Jude Medical, Inc.

The License Agreements  Under license agreements with St. Jude Medical, St. Jude Medical has exclusive worldwide
rights to manufacture and market the Angio-SealTMVascular
Closure Device (the Angio-Seal), for which the Company receives an approximate 6% royalty on end-user product sales by St. Jude Medical.

Existing Component Supply Contract  Under a supply agreement executed with St. Jude Medical in 2005, the Company is the exclusive
supplier of 100% of the collagen plug and at least 30% of the bioresorbable polymer anchor components for the Angio-Seal over the term of the agreement, which expires in December 2010. As part of the agreement, the Company received a $1.0 million
origination fee upon execution, as consideration for the Companys ongoing investments in collagen research and development. As of September 30, 2010 the Company had recognized $979,230 of this origination fee and the remaining $20,770 had
been recorded as deferred revenue to be recognized over the remaining period of the contract.

New Collagen Supply Agreement
 On June 23, 2010, the Company entered into a new two-year supply agreement with St. Jude Medical, effective for the period from January 1, 2011 to December 31, 2012. Under this new supply agreement, the Company will be
the exclusive outside supplier of collagen plugs to St. Jude Medical. The new supply agreement provides for calendar year 2011 minimum order levels equivalent to approximately 25% of fiscal year 2010 annual collagen plug sales and calendar year 2012
minimum order levels equivalent to approximately 20% of fiscal year 2010 collagen plug sales. The new supply agreement does not call for the Company to supply polymer anchors to St. Jude Medical.

Orthovita, Inc.

The Company has a development, manufacturing and supply agreement with Orthovita under which the Company develops and commercializes products based on Orthovitas proprietary Vitoss Bone Graft
Substitute Material in combination with the Companys proprietary biomaterials (the Orthovita Agreement). Under the Orthovita Agreement, the Company manufactures the products, while Orthovita markets and sells the products worldwide. Under the
Orthovita Agreement, the Company receives royalty payments on co-developed Vitoss, Vitoss Foam and
VitossBioactive Foam products based upon
Orthovitas net total end-user sales of such products.



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





In a separate transaction in
August 2004, the Company entered into an agreement (the Assignment Agreement) whereby the Company acquired the intellectual property rights of a third party having rights in the Vitoss technology, as an inventor of the Vitoss technology
(the Inventor), for $2,600,000. Under the Assignment Agreement, the Company received all intellectual property rights of the Inventor that had not previously been assigned to Orthovita. Also under the Assignment Agreement, the Company generally
receives a royalty on the sale of all Orthovita products containing the Vitoss technology, up to a total to be received of $4,035,782. The entire cost of these proprietary rights is expected to be amortized over an approximate 83 month period.
As of September 30, 2010, the Company had recognized cumulative royalty income of $3,596,235 under the Assignment Agreement and $439,547 was yet to be received. The Company currently anticipates receiving the remaining economic benefit in
relation to these proprietary rights during fiscal 2011.

Note 5  Acquired Patents and Other Intangibles

The costs of internally developed patents are expensed when incurred due to the long development cycle for products and the Companys inability to
measure the recoverability of these costs when incurred. From time to time, the Company has acquired portfolios of patents and other intangibles that it believes are beneficial and complementary to the Companys existing intellectual property
and material processing knowledge platform. These acquisitions have included a portfolio of puncture closure patents acquired in November 1997, patents acquired in the asset purchase of THM Biomedical, Inc. (THM) in 2000, certain intellectual
property and other rights related to the Vitoss product line acquired from a third party inventor in 2004 and certain assets of MacroPore Biosurgery, Inc. (MacroPore) acquired in 2007, as well as other smaller purchases.

The Company amortizes the entire cost of acquired patents and intangible assets over their respective remaining periods of economic benefit, ranging from
approximately 1 to 6 years as of September 30, 2010. The gross carrying amount of such patents and intangible assets as of September 30, 2010 was $8,677,199, with accumulated amortization of $6,867,867.

Amortization expense on these patents and intangible assets was $239,262 and $225,518 for the three months ended September 30, 2010 and 2009,
respectively. The table below details the estimated amortization expense as of September 30, 2010 for the next five fiscal years on the patents and intangible assets previously acquired by the Company:



|                            |  |                     |         | 
|--------------------------- |  | ------------------- | ------- | 
|Fiscal year ending June 30, |  | AmortizationExpense |        
|2011                        |  | $                   | 960,031 | 
|2012                        |  |                     | 629,181 | 
|2013                        |  |                     | 242,444 | 
|2014                        |  |                     | 198,504 | 
|Thereafter                  |  |                     | 18,434  | 

Note 6  Accrued Expenses

As of September 30, 2010 and June 30, 2010, accrued expenses consisted of the following:



|                                         |  |                   |           |  |              |   |           | 
|---------------------------------------- |  | ----------------- | --------- |  | ------------ | - | --------- | 
|                                         |  | September 30,2010 |           |  | June 30,2010 |  
|Accrued payroll and related compensation |  | $                 | 2,930,088 |  |              | $ | 2,987,702 | 
|Income taxes payable                     |  |                   | 886,718   |  |              |   | 1,627,630 | 
|Other                                    |  |                   | 670,501   |  |              |   | 879,578   | 
|                                         |  |                   |           |  |              |   |           | 
|Total                                    |  | $                 | 4,487,307 |  |              | $ | 5,494,910 | 
|                                         |  |                   |           |  |              |   |           | 



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





Note 7  Debt

Secured Commercial Mortgage  On May 25, 2006, the Company entered into an agreement for a $35 million Secured
Commercial Mortgage (the Mortgage) with Citibank, F.S.B. The Mortgage is secured by the Companys facility and land in Exton, Pennsylvania and bears interest at one-month LIBOR plus an 0.82% Loan Credit Spread. At September 30,
2010, the outstanding Mortgage balance, net of principal payments, was $31.0 million.

The Mortgage contains various conditions to borrowing,
including affirmative, restrictive and financial maintenance covenants. Certain of the more significant covenants require the Company to maintain a Minimum Fixed Charge Coverage Ratio of EBITDA (as defined in the Mortgage) to debt service equal to
or greater than 1.50to1.0 and an interest rate hedge of at least 50 percent of the outstanding principal balance of the Mortgage through an interest rate protection product reasonably acceptable to Citibank, F.S.B.

Interest Rate Swap Agreement In order to hedge its interest rate risk under the Mortgage, the Company entered into a $35
million aggregate 10-year fixed interest rate swap agreement (the Swap) with Citibank, N.A. in May 2006. The Swap is secured by the Companys facility and land in Exton, Pennsylvania. The Company is using the Swap as a cash flow hedge of the
Companys interest payments under the Mortgage. The Swap converts the variable LIBOR portion of the Mortgage payments to a fixed rate of 6.44% (5.62% fixed interest rate plus a 0.82% Loan Credit Spread).

The Company follows the provisions of FASB ASC Topic 815, Derivatives and Hedging, to account for the Swap as a cash flow hedge due to the
hedging of forecasted interest rate payments and to record the Swap at its fair value on the Consolidated Balance Sheets. This value represents the estimated amount the Company would receive or pay to terminate the Swap. As such, the Company records
a mark-to-market adjustment at the end of each period. In establishing the fair value, the Company includes and evaluates dealer quotes, the counterpartys ability to settle the asset or liability and the counterpartys creditworthiness.
Additionally, the Company considers current interest rates, collateralization of the Mortgage and the Swap by the land and building and any adverse Company or industry specific events that would impact the fair value measurement.

The Company utilizes the Hypothetical Derivative Method in determining hedge effectiveness each period. Transactions that would cause ineffectiveness
would include the prepayment of the Mortgage or an adverse Company or industry specific event that would impact the fair value measurement, which would result in the Company reclassifying the ineffective portion into current earnings and an impact
to the Condensed Consolidated Statements of Cash Flows. If the conditions underlying the Swap or the hedge item do not change, the Swap will be considered to be highly effective. The effective portion of the Swaps gain or loss, due to a change
in the fair value, is reported as a component of Accumulated other comprehensive loss and has no impact on the Condensed Consolidated Statements of Income or Cash Flows.

As of September 30, 2010 and June 30, 2010, the fair value of the Swap was in an unrealized loss position of $6,210,118 ($4,036,577, net of tax) and $5,542,509 ($3,602,631, net of tax),
respectively, with the gross unrealized loss position included in Other non-current liabilities and the net of tax position included in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets. Interest expense under the
Swap is recorded in earnings at the fixed rate set forth in the Swap.

For the three months ended September 30, 2010 and 2009, no amounts
were recognized in current earnings due to ineffectiveness or amounts excluded from the assessment of hedge effectiveness. The Company does not currently anticipate any material unrealized losses to be recognized within the subsequent 12 months as
the anticipated transactions under the Mortgage and Swap occur, unless the Mortgage, or a portion thereof, is prepaid.



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





The following table summarizes the
fair value of the Swap as of September 30, 2010 and June 30, 2010 on the Condensed Consolidated Balance Sheet:



|                                           |  |                                                     |                               |  |                                    |   |           |                               |  |   |           | 
|------------------------------------------ |  | --------------------------------------------------- | ----------------------------- |  | ---------------------------------- | - | --------- | ----------------------------- |  | - | --------- | 
|Derivative Designed as aHedging Instrument |  | Location in the CondensedConsolidated Balance Sheet |                               |  | Fair Value as ofSeptember 30, 2010 |   |           | Fair Value as ofJune 30, 2010 | 
|Interest Rate Swap Contract                |  |                                                     | Other non-current liabilities |  |                                    | $ | 6,210,118 |                               |  | $ | 5,542,509 | 
|                                           |  |                                                     |                               |  |                                    |   |           |                               |  |   |           | 
|Total Derivative                           |  |                                                     |                               |  |                                    | $ | 6,210,118 |                               |  | $ | 5,542,509 | 
|                                           |  |                                                     |                               |  |                                    |   |           |                               |  |   |           | 

The following table summarizes the Swaps impact on Accumulated other comprehensive loss and earnings for the three
months ended September 30, 2010:



|                                                                                |      |                                                                                                          |            |      |                    |   |          |  
|------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------- | ---------- | ---- | ------------------ | - | -------- | -
|                                                                                |      | Amount of Gain/(Loss)Recognized in Other Comprehensive Loss
onDerivative(Effective Portion)              |           
|Derivative in Cash Flow Hedging Relationship                                    |      | For the Three Months Ended September,                                                                    |           
|                                                                                | 2010 |                                                                                                          |            | 2009 |                   
|Interest Rate Swap Contract                                                     |      | $                                                                                                        | (1,100,914 | )    |                    | $ | (897,209 | )
|                                                                                |      |                                                                                                          |            |      |                    |   |          |  
|Total                                                                           |      | $                                                                                                        | (1,100,914 | )    |                    | $ | (897,209 | )
|                                                                                |      |                                                                                                          |            |      |                    |   |          |  
|                                                                                |     
|                                                                                |      | Amount of Gain/(Loss) Reclassed FromAccumulated Other Comprehensive 
Loss Into Income(Effective Portion) |           
|                                                                                |      | For the Three Months Ended                                                                               |           
|Location of Loss Reclassed From AccumulatedOther Comprehensive Loss Into Income |      | September 30, 2010                                                                                       |            |      | September 30, 2009 |  
|Interest expense                                                                |      | $                                                                                                        | (433,305   | )    |                    | $ | (445,096 | )
|                                                                                |      |                                                                                                          |            |      |                    |   |          |  
|Total                                                                           |      | $                                                                                                        | (433,305   | )    |                    | $ | (445,096 | )
|                                                                                |      |                                                                                                          |            |      |                    |   |          |  
|                                                                                |     
|                                                                                |      | Amount of Gain / (Loss) Recognized in Income onDerivative(Ineffective Portion)                           |           
|                                                                                |      | For the Three Months Ended                                                                               |           
|Location of Loss Reclassed From AccumulatedOther Comprehensive Loss Into Income |      | September 30, 2010                                                                                       |            |      | September 30, 2009 |  
|Interest expense                                                                |      | $                                                                                                        |           |      |                    | $ |         |  
|                                                                                |      |                                                                                                          |            |      |                    |   |          |  
|Total                                                                           |      | $                                                                                                        |           |      |                    | $ |         |  
|                                                                                |      |                                                                                                          |            |      |                    |   |          |  



13



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





Note 8  Fair Value of
Financial Instruments

The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, for
fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures certain financial assets and liabilities at fair
value on a recurring basis, including cash equivalents, available-for-sale securities and the Swap. The Companys 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. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows



| |  |  | Level 1 - Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2 - Inputs that are other than quoted prices in active markets for identical assets and liabilities, inputs that are quoted prices for identical
or similar assets or liabilities in inactive markets, or other inputs that are either directly or indirectly observable; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3 - Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

The following table presents the Companys financial assets and liabilities measured at fair value on a recurring
basis as of September 30, 2010 and June 30, 2010:



|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|----------------------------------------- |  | ----------------------------------------------- | ---------- |  | ------- | - | ---------- | ------- |  | - | - | 
|                                          |  | Fair Value Measurements as ofSeptember 30, 2010 |           
|                                          |  | Level 1                                         |            |  | Level 2 |   |            | Level 3 | 
|Assets                                    |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Money market funds (a)                    |  | $                                               | 20,409,450 |  |         | $ |           |         |  | $ |  | 
|Available-for-sale securities:            |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Municipal Obligations and U.S. Government |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Securities (See Note 2)                   |  |                                                 |           |  |         |   | 28,095,011 |         |  |   |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Total Assets Measured at Fair Value       |  | $                                               | 20,409,450 |  |         | $ | 28,095,011 |         |  | $ |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|                                          |  |                                                 |           
|Liabilities                               |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Interest rate swap (See Note 7)           |  | $                                               |           |  |         | $ | 6,210,118  |         |  | $ |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Total Liabilities Measured at Fair Value  |  | $                                               |           |  |         | $ | 6,210,118  |         |  | $ |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|                                          | 
|                                          |  | Fair Value Measurements as ofJune 30, 2010      |           
|                                          |  | Level 1                                         |            |  | Level 2 |   |            | Level 3 | 
|Assets                                    |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Money market funds (a)                    |  | $                                               | 21,813,659 |  |         | $ |           |         |  | $ |  | 
|Available-for-sale marketable securities: |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Municipal Obligations and                 |  |                                                 |            |  |         |   |            |         |  |   |   | 
|U.S. Government Securities (See Note 2)   |  |                                                 |           |  |         |   | 42,571,544 |         |  |   |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Total Assets                              |  | $                                               | 21,813,659 |  |         | $ | 42,571,544 |         |  | $ |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|                                          |  |                                                 |           
|Liabilities                               |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Interest rate swap (See Note 7)           |  | $                                               |           |  |         | $ | 5,542,509  |         |  | $ |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 
|Total Liabilities                         |  | $                                               |           |  |         | $ | 5,542,509  |         |  | $ |  | 
|                                          |  |                                                 |            |  |         |   |            |         |  |   |   | 



|a) | The Companys money market funds are classified along with the Companys cash balances as Cash and cash equivalents within the Consolidated Balance Sheets.
Money market funds are valued at quoted prices in active markets.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





The Company follows the disclosure
provisions of FASB ASC Topic 825, Financial Instruments (ASC 825), for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of September 30, 2010, the financial assets and
liabilities recorded on the Consolidated Balance Sheets that are not measured at fair value on a recurring basis include accounts receivable, net; accounts payable and debt obligations. The carrying values of accounts receivable, net; accounts
payable and current debt obligations approximate fair value due to the short-term nature of these instruments. The fair value of long-term debt, where a quoted market price was not available, is evaluated based on, among other factors, interest
rates currently available to the Company for debt with similar terms, remaining payments and considerations of the Companys creditworthiness. The Company determined that the recorded book value of long-term debt approximates fair value at
September 30, 2010 due to the variable LIBOR portion of the Mortgage payments.

Note 9  Comprehensive Income

The Companys comprehensive income is shown on the Condensed Consolidated Statement of Stockholders Equity as of September 30, 2010 and
June 30, 2010, and is comprised of net unrealized gains and losses on the Companys available-for-sale securities and the Swap. The net tax benefit for the three months ended September 30, 2010 and for the fiscal year ended
June 30, 2010 of other comprehensive loss was $224,138 and $218,826, respectively.

Note 10  Stockholders Equity

Stock Repurchase Program

From time to time, the Company has made repurchases of its stock, as authorized by the various stock repurchase programs established by the Companys Board of Directors, and through equity incentive
plan transactions. On June 16, 2010, the Company announced that its Board of Directors approved a stock repurchase program allowing the Company to repurchase up to a total of $30 million of its issued and outstanding shares of Common Stock. As
of September 30, 2010, there was approximately $4.2 million remaining to repurchase shares of Common Stock under the current stock repurchase program.

The Company repurchased and retired 1,035,769 shares of its Common Stock, at an average price per share of $24.96, during the three months ended September 30, 2010. These shares were settled at a
total cost of $25,848,312, using available cash. Included in these totals were 34,400 shares that were repurchased in June 2010, but settled in July 2010, at a cost of $811,054, or an average price per share of $23.58. An additional 53,333 shares
were repurchased in September 2010, but settled in October 2010, at a cost of $1,577,336, or an average price per share of $29.58. During the quarter ended September 30, 2009, the Company repurchased and retired a total of 35,642 shares of
Common Stock that were settled at a cost of $889,582, or an average price per share of $24.96, using available cash. Included in these totals were 3,500 shares that were repurchased in June 2009, but settled in July 2009, at a cost of $87,279, or an
average price per share of $24.94.

Share-Based Compensation

The Company accounts for its share-based compensation plans in accordance with FASB ASC Topic 718, Compensation  Stock Compensation (ASC
718). Compensation expense related to share-based awards is classified on the Consolidated Statements of Income within the same line items as salary or consulting expense with respect to the award recipients, and is recorded over the awards
relevant vesting periods. Compensation expense related to share-based awards granted to the members of the Board of Directors is recorded as a component of Selling, general and administrative expense on the Consolidated Statements of Income.



15



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





The following table provides
additional information related to the Companys share-based compensation:



|                               |  |                                 |           |  |                                                                    |   |         |                                                                                   |  |   |           |  |  |  |      | 
|------------------------------ |  | ------------------------------- | --------- |  | ------------------------------------------------------------------ | - | ------- | --------------------------------------------------------------------------------- |  | - | --------- |  |  |  | ---- | 
|                               |  | Three Months EndedSeptember 30, |           |  | EstimatedUnrecognizedShare-basedCompensationas
ofSeptember 30,2010 |   |         | Weighted AveragePeriod Remainingof Share-basedCompensation asof
September 30,2010 | 
|                               |  | 2010                            |           |  | 2009                                                               |   |         |                                                                                  
|Stock options                  |  | $                               | 855,991   |  |                                                                    | $ | 458,446 |                                                                                   |  | $ | 7,583,910 |  |  |  | 2.20 | 
|Non-vested stock awards        |  |                                 | 139,437   |  |                                                                    |   | 124,992 |                                                                                   |  |   | 755,000   |  |  |  | 1.73 | 
|SARs                           |  |                                 | 168,748   |  |                                                                    |   | 100,466 |                                                                                   |  |   |          |  |  |  | 1.04 | 
|                               |  |                                 |           |  |                                                                    |   |         |                                                                                   |  |   |           |  |  |  |      | 
|Total share-based compensation |  | $                               | 1,164,176 |  |                                                                    | $ | 683,904 |                                                                                   |  | $ | 8,338,910 |  |  |  |      | 
|                               |  |                                 |           |  |                                                                    |   |         |                                                                                   |  |   |           |  |  |  |      | 

Stock Options

Stock options have been granted to officers and other employees and members of the Board of Directors of the Company, as well as non-employee outside consultants, under the Companys Seventh Amended
and Restated Kensey Nash Corporation Employee Incentive Compensation Plan and prior versions of this incentive compensation plan (collectively, the Employee Plan). The Company also has a Non-employee Directors Stock Option Plan (the
Directors Plan). No shares are available for new awards under this plan and any awards of the type granted previously under the Directors Plan are now granted under the Employee Plan. The fair value of each option grant was estimated on
the date of grant using the Black-Scholes option-pricing model.

The Board of Directors has approved and proposes that the Companys
stockholders approve, at the Annual Meeting to be held on December 1, 2010, amending and restating the Employee Plan as the Eighth Amended and Restated Employee Incentive Compensation Plan (the Amended Plan). The Amended Plan, if approved,
would provide for among other things an increase in the number of shares of Common Stock authorized for issuance by 300,000 shares (raising the total number provided under the plan to 5,700,000), only 40,000 shares of which may be issued as
nonvested stock, bonus stock or stock-based awards other than stock options or SARs.

During the three months ended September 30, 2010,
the Company granted options to employees of the Company under the Employee Plan, with exercise prices equal to the fair market values of the Companys Common Stock on the respective grant date, to purchase an aggregate of 383,625 shares of the
Companys Common Stock. The total options granted were valued at a weighted average value of $11.25 per share on the grant date under the Black-Scholes option-pricing model, using the fair value assumptions noted in the table below and will be
expensed over the three-year vesting period applicable to all of these options.

During the three months ended September 30, 2009, the
Company granted options to employees of the Company under the Employee Plan, with exercise prices equal to the fair market value of the Companys Common Stock on the respective grant date, to purchase 335,240 shares of the Companys Common
Stock. These options were valued at a weighted average value of $11.88 per share on the grant date under the Black-Scholes option-pricing model using the fair value assumptions noted in the following table and will be expensed over a three-year
vesting period.



16



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





|                            |  |                                  |  |                
|--------------------------- |  | -------------------------------- |  | ---------------
|                            |  | Three Months Ended September 30,
|                            |  | 2010                             |  | 2009           
|Dividend yield              |  | 0%                               |  | 0%             
|Expected volatility         |  | 37% - 39%                        |  | 38% - 41%      
|Weighted average volatility |  | 37.61%                           |  | 39.02%         
|Risk-free interest rate     |  | 1.514% - 2.255%                  |  | 2.504% - 3.160%
|Expected term (years)       |  | 5.25 - 7.75                      |  | 5.17 - 7.57    

Options are exercisable over a
maximum term of 10 years from the date of grant and typically vest over periods of zero to four years from the grant date. Expected volatilities are based on historical volatility of the Companys Common Stock, and other factors. The Company
uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected terms of
options are derived from historical exercise behavior and represent the periods of time that options granted are expected to be outstanding.

A summary of the stock option activity under the Employee Plan for the three months ended September 30, 2010 is as follows:



|                                 |  |               |           |   |                          |   |       |                           |  |   |           |  |  |                          |         |   |                           |   |       |  |  |   |         | 
|-------------------------------- |  | ------------- | --------- | - | ------------------------ | - | ----- | ------------------------- |  | - | --------- |  |  | ------------------------ | ------- | - | ------------------------- | - | ----- |  |  | - | ------- | 
|                                 |  | Employee Plan |           |   | Directors Plan          |  
|                                 |  | Shares        |           |   | WeightedAvgExercisePrice |   |       | AggregateIntrinsic 
Value |  |   | Shares    |  |  | WeightedAvgExercisePrice |         |   | AggregateIntrinsic 
Value |  
|Balance at June 30, 2010         |  |               | 1,840,484 |   |                          | $ | 24.46 |                           |  | $ | 5,966,212 |  |  |                          | 210,500 |   |                           | $ | 21.98 |  |  | $ | 736,218 | 
|Granted                          |  |               | 383,625   |   |                          | $ | 28.98 |                           |  |   |           |  |  |                          |        |   |                           | $ |      |  |  |   |         | 
|Cancelled                        |  |               | (17,975   | ) |                          | $ | 29.47 |                           |  |   |           |  |  |                          |        |   |                           | $ |      |  |  |   |         | 
|Exercised                        |  |               | (172,493  | ) |                          | $ | 15.33 |                           |  |   |           |  |  |                          | (51,500 | ) |                           | $ | 15.11 |  |  |   |         | 
|                                 |  |               |           |   |                          |   |       |                           |  |   |           |  |  |                          |         |   |                           |   |       |  |  |   |         | 
|Balance at September 30, 2010    |  |               | 2,033,641 |   |                          | $ | 26.04 |                           |  | $ | 7,657,227 |  |  |                          | 159,000 |   |                           | $ | 24.21 |  |  | $ | 883,680 | 
|                                 |  |               |           |   |                          |   |       |                           |  |   |           |  |  |                          |         |   |                           |   |       |  |  |   |         | 
|Shares vested + expected to vest |  |               | 1,998,676 |   |                          | $ | 25.99 |                           |  | $ | 7,641,216 |  |  |                          | 159,000 |   |                           | $ | 24.21 |  |  | $ | 883,680 | 
|                                 |  |               |           |   |                          |   |       |                           |  |   |           |  |  |                          |         |   |                           |   |       |  |  |   |         | 
|Exercisable portion              |  |               | 1,262,116 |   |                          | $ | 24.37 |                           |  | $ | 7,226,039 |  |  |                          | 159,000 |   |                           | $ | 24.21 |  |  | $ | 883,680 | 
|                                 |  |               |           |   |                          |   |       |                           |  |   |           |  |  |                          |         |   |                           |   |       |  |  |   |         | 
|Available for future grant       |  |               | 196,476   |   |                          |   |       |                           |  |   |           |  |  |                          |        |   |                           |   |       |  |  |   |         | 
|                                 |  |               |           |   |                          |   |       |                           |  |   |           |  |  |                          |         |   |                           |   |       |  |  |   |         | 

Nonvested Stock Awards

Nonvested stock awards have been granted to the non-employee members of the Board of Directors, executive officers, certain other management of the Company and a non-employee outside consultant, pursuant
to the Employee Plan, and generally vest in three equal annual installments based solely on continued employment or service, as applicable, with the Company. Nonvested stock awards granted to executive officers, management, non-employee members of
the Board of Directors and non-employee consultants usually are referred to as restricted stock, but ASC 718 reserves that term for fully vested and outstanding shares, the sale of which is contractually or governmentally prohibited for a
specified period of time. Fair value is based upon the closing price of the Companys Common Stock on the date of grant. The following table outlines the nonvested stock awards activity for the three months ended September 30, 2010.



17



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





|                                |  |                                                |        |  |                                |   |       | 
|------------------------------- |  | ---------------------------------------------- | ------ |  | ------------------------------ | - | ----- | 
|                                |  | Nonvested Stock Awarded Underthe Employee Plan |       
|                                |  | Shares                                         |        |  | WeightedAverage PricePer Share |  
|Balance at June 30, 2010        |  |                                                | 56,434 |  |                                | $ | 21.05 | 
|Granted:                        |  |                                                |        |  |                                |   |       | 
|Non-employee Directors          |  |                                                |       |  |                                |   |      | 
|Issued:                         |  |                                                |        |  |                                |   |       | 
|Executive officers & management |  |                                                |       |  |                                |   |      | 
|Non-employee Directors          |  |                                                |       |  |                                |   |      | 
|Forfeited:                      |  |                                                |        |  |                                |   |       | 
|Non-employee Directors          |  |                                                |       |  |                                |   |      | 
|                                |  |                                                |        |  |                                |   |       | 
|Balance at September 30, 2010   |  |                                                | 56,434 |  |                                | $ | 21.05 | 
|                                |  |                                                |        |  |                                |   |       | 

Cash-Settled Stock Appreciation Rights (SARs)

Cash-settled stock appreciation rights (SARs) awards were granted to eligible employees during the fiscal year ended June 30, 2007, and provided each
participant with the right to receive payment in cash, upon exercise, for the appreciation in market value of a specified number of shares of the Companys Common Stock over the awards exercise price. No SARs awards were granted during
the three months ended September 30, 2010. The per-share exercise price of a SAR is equal to the closing market price of a share of the Companys Common Stock on the date of grant.

As of September 30, 2010, the average fair market value of each of the remaining SARs was $3.17 and the related liability for all remaining SARs was $300,584. These SARs will continue to be
remeasured at each reporting period until all awards are settled and are classified as liability awards as a component of Other current liabilities on the Condensed Consolidated Balance Sheets, with fluctuations in the fair market value recorded as
increases or decreases in compensation cost.

The fair value of each SAR award is remeasured at each reporting period using the Black-Scholes
option-pricing model that uses the assumptions noted in the following table.



|                        |  |                                  |  |               
|----------------------- |  | -------------------------------- |  | --------------
|                        |  | Three Months 
EndedSeptember 30,
|                        |  | 2010                             |  | 2009          
|Dividend yield          |  | 0%                               |  | 0%            
|Expected volatility     |  | 35%                              |  | 35%           
|Risk-free interest rate |  | 0.269% - 0.333%                  |  | 0.702% - .820%
|Expected term (years)   |  | 1.04 - 1.13                      |  | 1.54 - 1.63   

SARs are exercisable
over a maximum term of five years from the date of grant and originally were to vest over a period of three years from the grant date. All SARs automatically became fully vested and exercisable on August 30, 2007 as a result of the acquisition
by Ramius Capital Group, L.L.C. and its affiliates, of more than 20 percent of the Companys then outstanding Common Stock, which constituted a Change in Control as defined under the Employee Plan as it then existed. Expected
volatilities are based on historical volatility of the Companys Common Stock and other factors. The Company uses historical data to estimate SAR employee termination behavior within the valuation model; separate groups of employees that have
similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate for periods within the contractual life of the SAR is based on U.S. treasuries with constant maturities in effect at the time of grant.



18



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##### Table of Contents

KENSEY NASH CORPORATION

Notes to Condensed Consolidated Financial Statements(Continued)

(Unaudited)





Note 11  Commitment and
Contingencies

Certain Compensation and Employment Agreements

The Company has entered into employment agreements with certain of its named executive officers. As of September 30, 2010, these employment
agreements provided for, among other things, annual base salaries in an aggregate amount of not less than $1,354,565, from that date through fiscal 2012. This amount does not reflect the extensions to January 1, 2012 of the terms of employment
agreements for two of these named executive officers, to be effective January 1, 2011, each pursuant to a Mutual Consent to Extend Employment Terms between the Company and such named executive officers, as disclosed by the Company in a Form 8-K
filed with the Securities and Exchange Commission on October 21, 2010.

Purchase Commitments

As of September 30, 2010, the Company had outstanding non-cancelable and cancelable purchase commitments in the amount of $1,946,688 related to
inventory, capital expenditures and other goods and services.

Research and Development Contractual Obligations

Under the Development and Regulatory Services Agreement with Spectranetics, as amended, the Companys contributions are limited
to a maximum amount of $2,750,000 toward the expenses associated with clinical studies to obtain approval from the FDA for certain next-generation endovascular products, which is reduced by the total cumulative expenses incurred through
September 30, 2010 of approximately $30,000.

Note 12  Income Taxes

The Company accounts for taxes under the provisions of ASC Subtopic 740, Income Taxes. The amount of unrecognized tax benefits at September 30, 2010 was $107,139, of which $105,281 would
impact the Companys tax rate, if recognized.

Interest and penalties are included in Interest expense and Other income/expense
respectively on the Condensed Consolidated Statements of Income. No material interest and penalty changes were recorded for the three months ended September 30, 2010.

Changes in the Companys uncertain tax positions for the three months ended September 30, 2010 were as follows:



|                                                 |  |   |         |  
|------------------------------------------------ |  | - | ------- | -
|Balance at June 30, 2010                         |  | $ | 117,216 |  
|Increases related to prior year tax positions    |  |   |        |  
|Reduction due to lapse in statute of limitations |  |   | (10,077 | )
|                                                 |  |   |         |  
|Balance at September 30, 2010                    |  | $ | 107,139 |  
|                                                 |  |   |         |  

The Company and its subsidiaries file U.S. federal and various state income tax returns. The Company is no longer
subject to U.S. federal income tax examination for years prior to fiscal 2005 due to the expiration of applicable statutes of limitation. The Company does not expect the total amount of unrecognized tax benefits to change significantly in the next
12 months.

For the period ended September 30, 2010, the Companys estimated effective tax rate was approximately 34%. In the course
of estimating the Companys annual effective tax rate and recording its quarterly income tax provision, the Company considers many factors, including its expected earnings, state income tax apportionment, estimated manufacturing deduction,
non-taxable interest income and other estimates. Material changes in, or differences from, these estimates, including an extension of the research and development tax credit, could have a significant impact on the Companys effective tax rate.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included in this report and our audited consolidated
financial statements and the related notes contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010 (fiscal 2010), as filed with the Securities and Exchange Commission. As used herein, the terms the
Company, we, us and our refer to Kensey Nash Corporation and its consolidated subsidiaries, collectively.

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 factors set forth under the heading CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS at the end of this Item 2 in this Quarterly Report on Form 10-Q.

OVERVIEW

Kensey
Nash Corporation is a medical device company primarily focused in the field of regenerative medicine, which is the application of devices, materials and other therapies to help repair damaged or diseased tissues. We are recognized as a leader for
innovative product development, as well as for our broad portfolio of resorbable biomaterials products. We have an extensive range of products, which are sold through strategic partners in multiple large medical markets: cardiovascular, general
surgery, dental, wound care, endovascular and orthopaedic devices, including those used in sports medicine, spine, trauma, cranial-maxillofacial and other procedures. We also have an ongoing development and manufacturing program for products in the
endovascular market. We sell our products through strategic partners and do not sell direct to the end-user. Our revenues consist of two components: net sales, which include biomaterials sales and endovascular sales, and royalty income.

Net Sales

Biomaterials Sales

During the past 25 years, we have established ourselves as a
leader in designing, developing, manufacturing and processing proprietary medical devices, which include resorbable biomaterials products such as synthetic polymers and collagen. We have expanded our base of technology, which has enabled us to
develop multiple resorbable product platforms that can be used in a wide variety of applications. We have developed extensive expertise in tissue regeneration and tissue repair, and the ability to commercialize and produce products with these
capabilities. We sell our biomaterials products to over 30 companies that sell them into the end-user marketplace. Our largest biomaterials customers include St. Jude Medical, to which we supply Angio-Seal Vascular Closure Device (Angio-Seal
device) components; Arthrex, Inc., to which we supply a broad range of sports medicine and trauma products; and Orthovita, Inc., to which we supply products for use in repair of the spine and orthopaedic trauma injuries. Our other key customers
include Johnson & Johnson, Inc. and its subsidiaries (Johnson & Johnson), Medtronic, Inc. (Medtronic), Stryker, Inc. (Stryker), Synthes, Inc. (Synthes) and Zimmer, Inc. (Zimmer). We continue to seek to expand relationships with
companies, targeting new markets, including general, pelvic and urological surgery.

Our customer relationships are generally long-term and
contractual in nature, with contracts specifying development and regulatory responsibilities, the specifications of the product to be supplied and pricing. We often work with existing and potential customers at very early stages of feasibility and
provide significant input into product development programs. Once a product is approved for sale, we generally provide our customers fully packaged and sterilized products ready for their further distribution or, as in the case with Angio-Seal
components, provide a bioresorbable product that is ready to be incorporated into a finished device. Our products often represent a key strategic source for these customers and partners. In many cases, our proprietary technology is incorporated into
the product and cannot be replicated by other companies.

Sales of biomaterial orthopaedic products, including products with applications
primarily in sports medicine and spine, and cardiovascular products, consisting primarily of Angio-Seal components sold to St. Jude Medical, continue to be our primary source of revenue. The table below shows our orthopaedic product, cardiovascular



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product and general surgery product sales for the three months ended September 30, 2010 and September 30, 2009, including as a percentage of our total biomaterials sales:



|                               |  |                          |            |  |                       |  |     |                          |  |   |                       |  |  |                                       |     |   |  |  |     |   
|------------------------------ |  | ------------------------ | ---------- |  | --------------------- |  | --- | ------------------------ |  | - | --------------------- |  |  | ------------------------------------- | --- | - |  |  | --- | --
|Net Sales of                   |  | Three monthsended9/30/10 |            |  | % ofBiomaterialsSales |  |     | Three monthsended9/30/09 |  |   | % ofBiomaterialsSales |  |  | % Change PriorPeriod toCurrent Period |    
|Orthopaedic Products           |  | $                        | 5,283,591  |  |                       |  | 51  | %                        |  | $ | 6,421,454             |  |  |                                       | 51  | % |  |  | (18 | %)
|Cardiovascular Products        |  |                          | 4,258,053  |  |                       |  | 41  | %                        |  |   | 4,930,668             |  |  |                                       | 39  | % |  |  | (14 | %)
|General Surgery Products       |  |                          | 605,390    |  |                       |  | 6   | %                        |  |   | 1,166,392             |  |  |                                       | 9   | % |  |  | (48 | %)
|Other Products                 |  |                          | 274,422    |  |                       |  | 2   | %                        |  |   | 56,532                |  |  |                                       | 1   | % |  |  | 385 | % 
|                               |  |                          |            |  |                       |  |     |                          |  |   |                       |  |  |                                       |     |   |  |  |     |   
|Total Net Sales - Biomaterials |  | $                        | 10,421,456 |  |                       |  | 100 | %                        |  | $ | 12,575,046            |  |  |                                       | 100 | % |  |  | (17 | %)
|                               |  |                          |            |  |                       |  |     |                          |  |   |                       |  |  |                                       |     |   |  |  |     |   

Our orthopaedic product sales decreased 18% in the first three months of fiscal 2011 over the comparable prior fiscal year
three month period. The ongoing negative economic climate has continued to impact the medical device industry. High unemployment and a challenging health insurance environment appear to have reduced procedures in our markets. The current quarter was
soft and our outlook for the second quarter is for continued weakness in our sales, primarily in sales of spine and sports medicine products, which are often used in elective procedures.

In addition to the macroeconomic and health insurance environment factors discussed above, our net sales in the orthopaedic portion of our business are dependent on our partners management of their
inventory levels, as well as risk factors disclosed in our Annual Report on Form 10-K under Item 1A Risk Factors. Due to these dependencies and other factors, sales to our orthopaedic customers can vary significantly from quarter to
quarter.

Our cardiovascular sales consist primarily of Angio-Seal components sold to St. Jude Medical. Specifically, we currently supply 100%
of their requirements for the collagen plug and at least 30% of their requirements for the polymer anchors under a supply agreement 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. In June 2010, we entered into a new two-year supply agreement with St. Jude Medical effective for the period from January 1,
2011 to December 31, 2012. Under the new supply agreement, we will be the exclusive outside supplier to St. Jude Medical of collagen plugs, and does not call for us to supply any polymer anchors to St. Jude Medical. The new supply agreement
provides for calendar year 2011 minimum order levels equivalent to approximately 25% of our fiscal 2010 collagen plug sales, and calendar year 2012 minimum order levels equivalent to approximately 20% of our fiscal 2010 collagen plug sales. As a
result, if St. Jude Medicals purchase levels are at the minimum levels under this new supply agreement, our related product sales in fiscal 2011 will be substantially lower than in fiscal 2010. Royalties under our license agreement with St.
Jude Medical for the Angio-Seal device are not affected by this new supply agreement.

We also have developed and
manufactured products used in the general surgery markets. These products primarily include products from our extracellular matrix (ECM) program, as well as a resorbable collagen product for use in breast biopsies. In our fiscal 2010, we announced
two strategic agreements involving our Medeor Matrix porcine dermis ECM, one with Synthes, and the other with Arthrex. Synthes launched the XCM Biologic Tissue Matrix, the first commercial Medeor Matrix product, initially focused
on ventral hernia repair and breast reconstruction, in the U.S. in May 2010. European launch is expected in our fiscal year ending June 30, 2011 (fiscal 2011). Arthrex is expected to launch our rotator cuff repair product, Medeor Matrix,
later in fiscal 2011. We are currently evaluating partnering opportunities for the Meso BioMatrix products, as
well as other fields of use for the Medeor Matrix products. We plan to continue to expand our relationships with our current customers and build relationships with new customers, by targeting new markets, including general, pelvic and
urological surgery.

The other key product in our development pipeline, not currently contributing to sales, is our cartilage repair device,
which consists of a proprietary bi-phasic, resorbable biomaterials implant designed to repair focal (primary) defects of articular cartilage in joints. The device received CE Mark approval in February 2010. We have engaged in discussions with
potential European distributors and we believe that European commercialization will begin in fiscal 2011. We recently received FDA approval to initiate our U.S. pilot trial for the cartilage repair device and expect trial enrollment to begin in
fiscal 2011. Commercialization of our cartilage repair device in the U.S. is at least several years away.



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While not currently a large part of
our business, we also develop, manufacture and sell a variety of biomaterials-based products designed for other market applications. These products include dental barrier membranes and resorbable materials used in ophthalmology and oncology
applications.

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-SealTMRoyalty Income.We are 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. We receive an approximate 6% royalty on end-user product sales by St. Jude Medical. Royalty income under the Angio-Seal device license agreement is not affected by our new supply agreement with St. Jude Medical. We believe the
vascular closure device market is a mature market and anticipate that sales of the Angio-Seal device by St. Jude Medical are expected to be relatively flat or decline slightly in upcoming years.

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
VitossTMFoam, the first of which was launched in March
2004, and the most recent, VitossTMBioactive Foam, which
was launched during the fourth quarter of fiscal 2008. We receive a royalty on Orthovitas end-user sales of
VitossTMFoam and VitossTMBioactive Foam products. In addition, in August 2004, we entered
into an agreement to acquire the proprietary rights of a third party inventor of the VitossTMtechnology 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
VitossTMtechnology, up to a total royalty to be received
of $4.0 million, with approximately $144,000 received in the first quarter of fiscal 2011 and $440,000 remaining to be received as of September 30, 2010. We expect to earn the balance of the royalty income under the Assignment Agreement during
fiscal 2011. We believe the unique technology associated with the VitossTMFoam and VitossTMBioactive Foam products, including product extensions, will result in the Orthovita component of our royalty income continuing to grow 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.

Share-Based
Compensation

The following table summarizes share-based compensation expense within each operating expense category of our Condensed
Consolidated Statements of Income for the three months ended September 30, 2010 and 2009:



|                                       |  |                                 |           |  |      |   |         | 
|-------------------------------------- |  | ------------------------------- | --------- |  | ---- | - | ------- | 
|                                       |  | Three Months EndedSeptember 30, |          
|                                       |  | 2010                            |           |  | 2009 |  
|Cost of products sold                  |  | $                               | 236,653   |  |      | $ | 149,211 | 
|Research and development               |  |                                 | 454,875   |  |      |   | 316,065 | 
|Selling, general and administrative    |  |                                 | 472,648   |  |      |   | 218,628 | 
|                                       |  |                                 |           |  |      |   |         | 
|Total share-based compensation expense |  | $                               | 1,164,176 |  |      | $ | 683,904 | 
|                                       |  |                                 |           |  |      |   |         | 

Share-based compensation expense consists of (a) stock options granted to employees and executive officers,
(b) nonvested stock awards (i.e., restricted stock) granted to non-employee members of our Board of Directors and an executive officer 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



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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, which are classified as liability awards, 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 vesting status of the award.

Total share-based compensation expense for the three months ended
September 30, 2010 increased in relation to the corresponding period of the prior year, primarily due to the amortized expense related to three years of equity grants versus two years in the prior year period (as a result of the acceleration of
stock awards in fiscal 2008), as well as adjustments in the fair value of our cash-settled SARs, which were remeasured based on, among other factors, our closing stock price on September 30, 2010.

The following table summarizes our share-based compensation expense by each fiscal year grant for the three month periods ended September, 2010 and 2009.



|                                       |  |                                 |           |  |      |   |         |  
|-------------------------------------- |  | ------------------------------- | --------- |  | ---- | - | ------- | -
|                                       |  | Three Months EndedSeptember 30, |          
|                                       |  | 2010                            |           |  | 2009 |  
|SARS                                   |  | $                               | 168,748   |  |      | $ | 100,466 |  
|                                       |  |                                 |           |  |      |   |         |  
|                                       |  |                                
|Stock Options                          |  |                                 |           |  |      |   |         |  
|Fiscal Year 2008 Grant                 |  | $                               | 216,063   |  |      | $ | 144,955 |  
|Fiscal Year 2009 Grant                 |  |                                 | 301,198   |  |      |   | 308,082 |  
|Fiscal Year 2010 Grant                 |  |                                 | 300,486   |  |      |   | 28,223  |  
|Fiscal Year 2011 Grant                 |  |                                 | 38,244    |  |      |   |        |  
|Share-Based Compensation Adjustment    |  |                                 |          |  |      |   | (22,814 | )
|                                       |  |                                 |           |  |      |   |         |  
|                                       |  | $                               | 855,991   |  |      | $ | 458,446 |  
|                                       |  |                                 |           |  |      |   |         |  
|                                       |  |                                
|Nonvested Stock Awards                 |  |                                 |           |  |      |   |         |  
|Fiscal Year 2008 Grant                 |  | $                               | 40,420    |  |      | $ | 64,367  |  
|Fiscal Year 2009 Grant                 |  |                                 | 51,041    |  |      |   | 60,625  |  
|Fiscal Year 2010 Grant                 |  |                                 | 47,976    |  |      |   |        |  
|                                       |  |                                 |           |  |      |   |         |  
|                                       |  | $                               | 139,437   |  |      | $ | 124,992 |  
|                                       |  |                                 |           |  |      |   |         |  
|Total share-based compensation expense |  | $                               | 1,164,176 |  |      | $ | 683,904 |  
|                                       |  |                                 |           |  |      |   |         |  

In fiscal 2011, we expect an increase of approximately $1.0 million in share-based compensation expense over the $3.4
million recorded in fiscal 2010. This expected increase will be primarily a result of our fiscal 2011 stock option expense reflecting amortized expense related to 36 months of equity grants, whereas fiscal 2010 amortized expense related to 33 months
of equity grants as a result of the acceleration of stock awards in fiscal 2008 triggered by a third partys significant open market purchase of our Common Stock. We also expect additional expense relating to unfavorable mark-to-market
adjustments on cash-settled SARs. Our share-based compensation expense is derived using the Black-Scholes option-pricing valuation model, which is dependent on several factors, such as weighted average assumptions, stock volatilities, employee
termination behavior and other factors that differ each fiscal year. The expense may vary significantly if there is a change in any one of these valuation assumptions.

See Note 10 to the Condensed Consolidated Financial Statements included in this Form 10-Q for additional information concerning our share-based compensation.



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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 share-based compensation, accounting for investments in debt and equity securities, valuation of financial instruments, inventory valuation and income taxes.

Revenue Recognition. We recognize revenue in accordance with FASB ASC Topic 605, Revenue Recognition (ASC 605-10-S99). We also follow FASB ASC Subtopic 605-25, Multiple Element
Arrangements (ASC 605-25) for customer 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 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-Q for additional information concerning our royalty revenue recognition.

Accounting for Share-Based Compensation. We use various forms of equity compensation, including stock options and nonvested stock awards as a major part of our compensation programs to retain and
provide incentives to our top management team members and other employees. In the past, we have also issued cash-settled SARs to employees. We account for equity compensation in accordance with FASB ASC Topic 718, Compensation  Stock
Compensation. Revisions to any of our estimates or methodologies could have a material impact on our financial statements.



| |  |  | 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. We separate groups of employees that
have similar historical exercise behavior and consider them separately for valuation purposes. The expected terms of options are derived from historical exercise behavior and represent the periods of time that options granted are expected to be
outstanding. The risk-free rate for periods within the contractual life of an 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 and executive officers are accounted for using
the fair value method. Fair value for nonvested stock awards is based upon the closing price of our Common Stock on the date of the grant.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash-settled SARs awarded in share-based payment transactions are classified as liability awards; 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 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
method in accordance with ASC 718-10-S99.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Accounting for Investments in Debt
Securities.We account for our investment portfolio in accordance with FASB ASC Topic 320, Investments  Debt and Equity Securities. We have classified our entire investment portfolio as available-for-sale 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 various investment securities with fair
values that are less than their amortized costs and, therefore, contain unrealized losses. The unrealized losses related to these investments were due to either changes in interest rates or investments obtained at a premium. 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 no intent to sell any of these investments until there is a recovery of the fair value, and there is no current requirement
that we 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.

Valuation of Financial Instruments. We adopted the provisions of FASB ASC Topic 820, Fair Value
Measurements and Disclosures, (ASC 820) 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. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in
measuring fair value. 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 8 to the Consolidated Financial Statements included in this Form 10-Q 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 manufacturing deduction,
non-taxable interest income and other estimates. Material changes in, or differences from, these estimates, including an extension of the research and development tax credit, could have a significant impact on our effective tax rate.

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 2010 and 2009

Total Revenues.
Total revenues of $17.0 million for the three months ended September 30, 2010 decreased 14% from total revenues of $19.7 million for the three months ended September 30, 2009.

Total Net Sales. Net sales of products decreased 19% to $10.9 million in the three months ended September 30, 2010,
compared to net sales of $13.4 million in the three months ended September 30, 2009. We had a $2.2 million, or a 17%, decrease in our biomaterials sales, and a $400,000, or a 47%, decrease in our endovascular sales.

Biomaterials Sales.Biomaterials sales were $10.4 million in the three months ended September 30, 2010, a 17% decrease
compared to $12.6 million in the same period of the prior fiscal year. Biomaterials sales include revenue recognized from products shipped, as well as revenue generated from product development programs with, and milestone revenue earned from,
biomaterials customers. Biomaterials sales for the three months ended September 30, 2010 were primarily composed of sales of orthopaedic products, consisting primarily of sports medicine and spine products, of $5.3 million, a decrease of $1.1
million, or 18%, from $6.4 million for the three months ended September 30, 2009. Sales of sports medicine product sales decreased $929,000, or 26%, to $2.7 million in the three months ended September 30, 2010 from $3.6 million in the same
period of the prior fiscal year due primarily to variations in customer ordering patterns



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in the quarter as well as the ongoing negative economic climate causing reduced procedures in these markets. Sales of spine products decreased $212,000, or 8%, to $2.5 million in the three months
ended September 30, 2010 from $2.7 million in the same period of the prior fiscal year, reflecting a continued overall weakness in the spine market.

Additionally, cardiovascular product sales, consisting principally of sales of vascular closure product components to St. Jude Medical, decreased approximately $673,000, or 14%, to $4.3 million in the
three months ended September 30, 2010 from $4.9 million in the same period of the prior fiscal year. The decrease in sales of Angio-Seal components to St. Jude Medical was primarily attributable to variations in ordering patterns of components
used in the manufacture of the Angio-Seal device by St. Jude Medical. The fluctuation in Angio-Seal component sales in any given period is not always indicative of the change in end-user sales of the Angio-Seal device by St. Jude Medical in the same
period, due to variations in ordering patterns of the components used in the manufacturing of the Angio-Seal device by St. Jude Medical, inventory stocking and supplements to St. Jude Medicals production, as well as the impact of foreign
currency exchange on end-user sales.

General surgery product sales were approximately $605,000 for the
three months ended September 30, 2010, a decrease of approximately $561,000, or 48%, from $1.2 million in the same period of the prior fiscal year. First quarter fiscal 2011 general surgery sales consisted primarily of initial shipments to
Synthes related to the US launch of our new ECM product, XCM BiologicTMTissue Matrix, however, these product sales were more than offset by unfavorable variations in ordering patterns from another customer.

Endovascular Sales.Endovascular sales were $458,000 in the three months ended September 30, 2010, a 47% decrease
compared to sales of $858,000 in the same period of the prior fiscal year. Endovascular sales include revenue recognized from products shipped, as well as milestone revenue recognized from product development programs with Spectranetics. The
endovascular sales decrease was primarily due to a decrease in Safe-Cross and QuickCat product sales. In the quarters ended September 30, 2010 and 2009, we recognized revenue of $144,000 for two milestones achieved in the fiscal year ended
June 30, 2009 under our Development and Regulatory Service Agreement with Spectranetics.

Royalty Income.
Royalty income of $6.1 million in the three months ended September 30, 2010 decreased 4% from $6.3 million in the three months ended September 30, 2009.

Royalty income of $4.6 million from St. Jude Medicals Angio-Seal net end-user sales in the quarter ended September 30, 2010 decreased 5% from $4.9 million in the same period of the prior fiscal
year. Royalty income of $1.4 million from Orthovitas net end-user sales of Vitoss, Vitoss Foam and Vitoss Bioactive Foam products was relatively flat in the quarter ended September 30, 2010, compared to the same period
of the prior fiscal year.

Cost of Products Sold.



|                          |  |                         |           |   |                         |   |           |                                      |  |  |     |   
|------------------------- |  | ----------------------- | --------- | - | ----------------------- | - | --------- | ------------------------------------ |  |  | --- | --
|                          |  | ThreeMonthsEnded9/30/10 |           |   | ThreeMonthsEnded9/30/09 |   |           | % ChangePrior Period toCurrentPeriod | 
|Cost of products sold     |  | $                       | 4,220,125 |   |                         | $ | 5,538,400 |                                      |  |  | (24 | %)
|Gross Margin on Net Sales |  |                         | 61        | % |                         |   | 59        | %                                    |  |  |     |   

Cost of products sold was $4.2 million in the three months ended September 30, 2010, a $1.3 million, or 24%,
decrease from $5.5 million in the three months ended September 30, 2009. Gross margin on net sales was 61% for the three months ended September 30, 2010 and 59% for the same period of the prior fiscal year. Contributing to the reduction of
cost of products sold was the $2.6 million decrease in net sales, excluding net milestone revenue recognized of $245,000 in the three months ended September 30, 2010 and $185,000 in the three months ended September 30, 2009. The increase
in gross margin over the comparable quarter was primarily due to favorable changes in product mix to more higher margin products compared to the prior year period. In particular, a lower percentage of sales consisted of our sports medicine products,
which typically are lower margin products.



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Research and
Development Expense.



|                                         |  |                         |           |   |                         |   |           |                                       |  |  |   |  
|---------------------------------------- |  | ----------------------- | --------- | - | ----------------------- | - | --------- | ------------------------------------- |  |  | - | -
|                                         |  | ThreeMonthsEnded9/30/10 |           |   | ThreeMonthsEnded9/30/09 |   |           | % ChangePrior Period toCurrent Period | 
|Research & Development                   |  | $                       | 4,277,383 |   |                         | $ | 4,275,571 |                                       |  |  | 0 | %
|Research & Development as a % of Revenue |  |                         | 25        | % |                         |   | 22        | %                                     |  |  |   |  

Research and development expense was $4.3 million in the three months ended September 30, 2010 consistent
with research and development expense in the three months ended September 30, 2009. Research and development expense in the three months ended September 30, 2010 compared to the prior year period reflects an increase in clinical trial
expense related to the start-up of our U.S. pilot cartilage clinical study of approximately $159,000, largely offset by a decrease of $138,000 in personnel expenses primarily due to reduced headcount in the current quarter compared to the prior year
comparable quarter. Research and development expense was 25% of our total revenue for the three month periods ended September 30, 2010 and 22% of revenue in the three months ended September 30, 2009.

Selling, General and Administrative Expense.



|                                                      |  |                         |           |   |                         |   |           |                                       |  |  |   |  
|----------------------------------------------------- |  | ----------------------- | --------- | - | ----------------------- | - | --------- | ------------------------------------- |  |  | - | -
|                                                      |  | ThreeMonthsEnded9/30/10 |           |   | ThreeMonthsEnded9/30/09 |   |           | % ChangePrior Period toCurrent Period | 
|Selling, General and Administrative                   |  | $                       | 2,297,875 |   |                         | $ | 2,179,931 |                                       |  |  | 5 | %
|Selling, General and Administrative as a % of Revenue |  |                         | 14        | % |                         |   | 11        | %                                     |  |  |   |  

Selling, general and administrative expense was $2.3 million in the three months ended September 30, 2010, a
$118,000, or 5%, increase from $2.2 million in the three months ended September 30, 2009. The increase in selling, general and administrative expense over the prior comparable period was primarily due to an increase is share-based compensation
expense of approximately $268,000, partially offset by a decrease in professional services fees of approximately $106,000.

Interest
Income.Interest income decreased by 11% to $155,000 in the three months ended September 30, 2010 from $174,000 in the same period of the prior fiscal year. This decrease was due to a decrease in our average cash and investment
balances over the same period of the prior fiscal year due to our stock repurchases of $25.9 million, principally under our stock repurchase programs. See Stock Repurchase Programs below.

Interest Expense.Interest expense in the three months ended September 30, 2010 was $514,000, a decrease of 4% from $537,000 in the
same period of the prior fiscal year. We have borrowed $35.0 million under our Secured Commercial Mortgage (the Mortgage) with Citibank, F.S.B. The Mortgage is hedged by a fixed interest rate swap agreement (the Swap) bearing interest of 6.44%. The
Mortgage balance was $31.0 million as of September 30, 2010. See Note 7 to the Condensed Consolidated Financial Statements included in this Form 10-Q for additional information concerning the Mortgage and the Swap.

Income Tax Expense. Our income tax expense for the three months ended September 30, 2010 was approximately $2.0 million, resulting in
an effective tax rate of approximately 34%. Our income tax expense for the three months ended September 30, 2009 was approximately $2.5 million, also resulting in an effective tax rate of approximately 34%. See Note 12 to the Condensed
Consolidated Financial Statements included in this Form 10-Q for additional information concerning our effective tax rate.



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LIQUIDITY AND
CAPITAL RESOURCES

Our cash, cash equivalents and investments were $49.5 million as of September 30, 2010, a decrease of $16.1
million from our balance of $65.7 million at June 30, 2010, the end of our prior fiscal year. Our working capital was $63.2 million as of September 30, 2010, a decrease of $17.1 million from our working capital of $80.3 million at
June 30, 2010. The decrease in cash and working capital was primarily due to our stock repurchases of $25.9 million, principally under our stock repurchase programs. See Stock Repurchase Programs below.

Operating Activities

Net cash provided by our operating activities was $7.2 million in the three months ended September 30, 2010. For the three months ended
September 30, 2010, we had net income of $3.8 million, non-cash depreciation and amortization of $1.8 million, a net effect of non-cash employee share-based compensation and related tax events of $1.2 million and a change in deferred income
taxes of $321,000, which was primarily the result of the change in our non-current deferred tax assets.

Cash used in operations as a result
of changes in asset and liability balances was $281,000. This use of cash was primarily a result of an increase in our inventory balance of $1.5 million, a decrease in accounts payable and accrued expenses of $814,000, primarily due a decrease in
our federal income tax liability as a result of estimated federal tax payments made during the period, a decrease in our deferred revenue balance of $163,000, and an increase in our prepaid expenses balance of $86,000. Offsetting these uses of cash
was cash provided by a decrease in our receivable balances of $2.3 million, primarily due to the decrease in sales.

Investing Activities

Cash provided by investing activities was $13.7 million for the three months ended September 30, 2010. This increase in cash was primarily the result
of $14.3 million of maturities within our investment portfolio offset by cash used for capital expenditures of $639,000 to continue to expand our research and development and manufacturing capabilities and improve our information technology systems.

Financing Activities

Cash used in financing activities was $22.5 million for the three months ended September 30, 2010. This amount was primarily the result of $25.9 million in Common Stock repurchases and $350,000 in
repayments of long-term debt, offset by $3.7 million in cash proceeds from the net effect of the exercise of stock options.

Stock Repurchase Programs

From time to time, we have made repurchases of our Common Stock, executed under various stock repurchase programs established by our Board of Directors,
as well as equity incentive plan transactions.

On December 10, 2009, we announced that our Board of Directors approved a stock
repurchase program which allowed us to repurchase up to a total of 400,000 of our issued and outstanding shares of Common Stock. On February 9, 2010, we announced that our Board of Directors approved a new stock repurchase program allowing us
to repurchase up to an additional total of $30 million of our issued and outstanding shares of Common Stock. On June 16, 2010, we announced that our Board of Directors approved another new stock repurchase program allowing us to repurchase up
to an additional $30 million of our issued and outstanding shares of Common Stock.

During the three months ended September 30, 2010, we
repurchased and retired a total of 1,035,769 shares of Common Stock that were settled at a total cost of $25.8 million, or an average price per share of $24.96, using available cash. Commissions and other related costs associated with these stock
repurchases totaled $31,073. An additional 53,333 shares were repurchased in September 2010, but settled in October 2010 at a cost of $1,577,336, or an average price per share of $29.58. We financed these repurchases using available cash, liquid
investments and cash from operations. See Note 10 to the Condensed Consolidated Financial Statements included in this Form 10-Q for additional information on our stock repurchase programs. See Part II. Item 2 (Unregistered Sales of Equity
Securities and Use of Proceeds) in this Form 10-Q.



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General

We plan to continue to increase our research and development spending for our biomaterials products as we expand our clinical activities
relating to our ECM and cartilage technologies both in the U.S. and Europe.

We believe our current cash and investment balances and expected
future cash generated from operations will be sufficient to meet our operating, financing, and capital requirements for the next 12 months. Although we believe our cash and investment balances will also be sufficient on a longer term basis, that
will depend on numerous factors, including the following: continuation of our existing customer relationships and royalty streams; market acceptance of our existing and future products; the successful commercialization of products in development;
the costs associated with that commercialization; progress in our product development efforts; the magnitude and scope of such efforts; progress with pre-clinical studies, future clinical trials and product clearance by the FDA and other agencies;
the cost and timing of our efforts to expand our manufacturing, sales, and marketing capabilities; the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; competing technological and market
developments; and the development of strategic alliances for the marketing of certain of our products.

The terms of any future equity
financing we undertake may be dilutive to our stockholders and the terms of any debt financing may contain restrictive covenants that limit our ability to pursue desired courses of action. Our ability to obtain financing is dependent on the status
of our future business prospects, as well as conditions prevailing in the relevant capital markets. No assurance can be given that any additional financing will be available to us, or will be available to us on acceptable terms, should such a need
arise.

Contractual Obligations and Other Contingent Commitments

Presented below is a summary of our approximate aggregate contractual obligations and other contingent commitments at September 30, 2010, for future
payments under contracts and other contingent commitments, for fiscal 2011 and beyond:



|                                  |  |                        |            |  |                 |   |           |           |  |   |           |  |  |                  |           |  |  |   |            | 
|--------------------------------- |  | ---------------------- | ---------- |  | --------------- | - | --------- | --------- |  | - | --------- |  |  | ---------------- | --------- |  |  | - | ---------- | 
|                                  |  | Payments Due by Period |           
|Contractual Obligations           |  | Total                  |            |  | Less than1 year |   |           | 1-3 years |  |   | 3-5 years |  |  | More than5 years |          
|Long-Term Debt Obligations (1):   |  |                        |            |  |                 |   |           |           |  |   |           |  |  |                  |           |  |  |   |            | 
|Secured Commercial Mortgage       |  | $                      | 31,033,330 |  |                 | $ | 1,399,997 |           |  | $ | 2,800,000 |  |  | $                | 2,800,000 |  |  | $ | 24,033,333 | 
|Interest on mortgage              |  |                        | 22,548,201 |  |                 |   | 1,978,615 |           |  |   | 3,694,515 |  |  |                  | 3,328,991 |  |  |   | 13,546,080 | 
|Purchase Obligations (2):         |  |                        | 1,946,688  |  |                 |   | 1,946,688 |           |  |   |          |  |  |                  |          |  |  |   |           | 
|Other Obligations:                |  |                        |            |  |                 |   |           |           |  |   |           |  |  |                  |           |  |  |   |            | 
|Research and Development          |  |                        |            |  |                 |   |           |           |  |   |           |  |  |                  |           |  |  |   |            | 
|Contractual Obligations (3)       |  |                        | 2,720,157  |  |                 |   |          |           |  |   |          |  |  |                  |          |  |  |   |           | 
|Employment Agreements (4)         |  |                        | 1,354,565  |  |                 |   | 868,508   |           |  |   | 486,057   |  |  |                  |          |  |  |   |           | 
|FIN 48 Tax Obligations (5)        |  |                        |           |  |                 |   |          |           |  |   |          |  |  |                  |          |  |  |   |           | 
|Other Long-Term Liabilities       |  |                        |            |  |                 |   |           |           |  |   |           |  |  |                  |           |  |  |   |            | 
|Deferred Revenue Non-Current (6)  |  |                        | 3,113,011  |  |                 |   |          |           |  |   | 1,213,235 |  |  |                  | 636,312   |  |  |   | 1,263,464  | 
|Other Non-Current Liabilities (7) |  |                        | 6,210,118  |  |                 |   |          |           |  |   |          |  |  |                  |          |  |  |   |           | 
|                                  |  |                        |            |  |                 |   |           |           |  |   |           |  |  |                  |           |  |  |   |            | 
|Total Contractual Obligations     |  | $                      | 68,926,070 |  |                 | $ | 6,193,808 |           |  | $ | 8,193,807 |  |  | $                | 6,765,303 |  |  | $ | 38,842,877 | 
|                                  |  |                        |            |  |                 |   |           |           |  |   |           |  |  |                  |           |  |  |   |            | 

These obligations are related to the Mortgage and other agreements that are legally binding and enforceable against us.



|(1) | The long-term debt obligations consist of principal and interest on the Mortgage outstanding principal balance of $31.0 million as of September 30, 2010. In
accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), the future interest obligations are not recorded on our Condensed Consolidated Balance Sheet. See Note 7 to the Condensed Consolidated Financial
Statements included in this Form 10-Q.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | These obligations consist of cancelable and non-cancelable purchase commitments related to inventory, capital expenditures and other goods or services. In accordance
with U.S. GAAP, these obligations are not recorded on our Condensed Consolidated Balance Sheets. See Note 11 to the Condensed Consolidated Financial Statements included in this Form 10-Q.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Under the Development and Regulatory Services Agreement with Spectranetics, as amended, our contributions are capped at a maximum amount of $2,750,000
toward the expenses associated with clinical studies to obtain approval from the FDA for certain next-generation endovascular products, which is reduced by the total cumulative expenses incurred through September 30, 2010 of approximately
$30,000. We are unable to reliably estimate the amount and timing of these contributions because they are dependent on the type and complexity of the clinical studies and intended uses of the products,
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | which have not been established. In accordance with U.S. GAAP, these obligations are not recorded on our Condensed Consolidated Balance Sheets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We have entered into employment agreements with certain of our named executive officers. As of September 30, 2010, these employment agreements provided for, among
other things, annual base salaries in an aggregate amount of not less than $1,354,565, from that date through fiscal 2012. In accordance with U.S. GAAP, these obligations are not recorded on our Condensed Consolidated Balance Sheets. This amount
does not reflect the extensions of the terms to January 1, 2012 of employment agreements for two of these named executive officers, to be effective January 1, 2011, each pursuant to a Mutual Consent to Extend Employment Terms between the
Company and such named executive officers, as disclosed by the Company in a Form 8-K filed with the Securities and Exchange Commission on October 21, 2010. See Note 11 to the Condensed Consolidated Financial Statements included in this Form
10-Q.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Liabilities for uncertain tax positions in the aggregate amount of $109,036 have been omitted from the table above due to an inability to reliably estimate the period
of cash settlement of these liabilities. See Note 12 to the Condensed Consolidated Financial Statements included in this Form 10-Q.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Non-current deferred revenue includes milestone payments received by us pursuant to customer agreements, as well as advance payments from customers for future services.
Several of these deferred milestone revenues are non-refundable and may not require future performance from our Company. These liabilities are recorded in accordance with U.S. GAAP, and are recorded on our Condensed Consolidated Balance Sheets.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | This value represents the estimated amount we would pay to terminate the Swap if we were to prepay the Mortgage. We currently do not intend to prepay the Mortgage and,
therefore, are unable to reliably estimate the period of cash settlement of the Swap, if any. In accordance with U.S. GAAP, this liability is recorded on our Condensed Consolidated Balance Sheets. See Note 7 to the Condensed Consolidated Financial
Statements included in this Form 10-Q.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. We have based these forward-looking statements largely on our current expectations and projections about future events and trends affecting our business. In this report, the words believe,
may, will, should, estimate, continue, anticipate, intend, expect, project, plan and similar expressions, as they relate to us,
our business or our management, are intended to identify forward-looking statements, but they are not the exclusive means of identifying them.

A number of risks, uncertainties and other factors could cause our actual results, performance, financial condition, cash flows, prospects and
opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors, most of which have been described in greater detail in Item 1A. Risk Factors of
our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, include but are not limited to the following:



| |  |  | our reliance on revenues, including both royalty income and product sales, from the Angio-Seal product line;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | our reliance on three customers (St. Jude Medical, Arthrex, Inc. and Orthovita, Inc.) for a majority of our revenues;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | the performance of St. Jude Medical as the manufacturer, marketer and distributor of the Angio-Seal product;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the risk that St. Jude Medical changes the source of its collagen supply from us to its internal manufacturing and the uncertainty of the future
performance of the Angio-Seal device in the marketplace;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the performance of Spectranetics as the marketer and distributor and, in the future, the manufacturer of the ThromCat products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | future success of our research and development efforts with respect to the endovascular products, including the risk that those efforts will not be
successful and that some of the associated milestone payments will not be received from Spectranetics;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our dependence on the continued growth and success of our biomaterials products and customers;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | future success of our research and development efforts with respect to biomaterials products, including our cartilage repair and extracellular matrix
technologies, Synthes success in selling our extracellular matrix products, and future market acceptance of our biomaterials products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the competitive markets for our products and our ability to respond more quickly than our competitors to new or emerging technologies and changes in
customer requirements;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acceptance of our products by the medical community or new technology introduced replacing our products;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the loss of, or interruption of supply from, key vendors;
| | - |  | ---------------------------------------------------------



| |  |  | the successful initiation and completion of clinical trials in both the U.S. and Europe to support regulatory approval of future generations of our
products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | our ability to scale up the manufacturing of our products to accommodate sales volumes;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | our dependence on our customers for planning their inventories, marketing and obtaining regulatory approval for their products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | our dependence on key vendors and personnel;
| | - |  | --------------------------------------------



| |  |  | our use of hazardous materials, which could expose us to future environmental liabilities;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | international market risks that could harm future international sales of our products and our customers;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the unpredictability of our future operating results and trading price of our stock from quarter to quarter;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | risks related to product recalls of, and other manufacturing issues relating to, our partners biomaterials or endovascular products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks related to our intellectual property, including patent and proprietary rights and trademarks;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | risks related to our industry, including potential for litigation, product liability claims, ability to obtain reimbursement for our products, changes
in applicable laws or regulations (including in particular, healthcare and tax laws and regulations), and our products exposure to extensive government regulation;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks related to reform of the U.S. healthcare system;
| | - |  | ------------------------------------------------------



| |  |  | adherence and compliance with corporate governance laws, regulations and other obligations affecting our business; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | general economic and business conditions, nationally, internationally and within our markets.
| | - |  | ---------------------------------------------------------------------------------------------

Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise after the date of this report. Our results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in
operating results may also result in fluctuations in the price of our Common Stock.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our interest income and expense are sensitive to changes in the general level of interest rates. In this regard, changes in interest rates affect the interest earned on our cash, cash equivalents and
investments, as well as the fair value of the Swap.

Investment Portfolio

Our investment portfolio consists of high quality municipal securities and U.S. Government securities. The majority of these investments have maturities
ranging from less than one year to approximately three years. We mitigate default risk by investing in what we believe are safe and high credit quality securities and by monitoring the credit rating of investment issuers. Our portfolio includes only
securities with secondary or resale markets. We have an audit committee-approved investment strategy, which currently limits the duration and types of our investments. These available-for-sale securities are subject to interest rate risk and
decreases in market value if interest rates increase. As of September 30, 2010, our total investment portfolio consisted of approximately $28.1 million of investments. While our investments generally may be sold at any time because the
portfolio includes available-for-sale securities with secondary or resale markets, we generally hold securities until the earlier of their call date or their maturity. We do not expect our results of operations or cash flows to be materially
impacted due to a sudden change in interest rates. We review our investments to identify and evaluate investments that have an indication of possible impairment. We have no intent to sell any of these investments until a recovery of their respective
fair values, which may be at maturity, and we have no current requirement to sell any of these investments. Additional information regarding our investments is located in Note 2 to the Condensed Consolidated Financial Statements included herein in
this Form 10-Q.

Debt

On May 25, 2006, we entered into a $35.0 million aggregate ten-year fixed interest rate Swap, with Citibank, N.A., to manage the market risk from changes in interest rates under the Mortgage. On
May 25, 2006 and November 23, 2007, the Company took $8 million and $27 million advances, respectively, under the Mortgage (see Note 7 to the Condensed Consolidated Financial Statements included in this Form 10-Q). Our objective and
strategy for undertaking the Swap was to hedge our exposure to variability in cash flows and interest expense associated with the future interest rate payments under the Mortgage and to reduce our interest rate risk in the event of an unfavorable
interest rate environment. We currently utilize the Hypothetical Derivative Method in determining the hedge effectiveness of the hedged item each period. We do not expect our results of operations or cash flows to be materially impacted due to a
sudden change in interest rates. If the conditions underlying the Swap or the hedge item change, there is a risk that our hedged item would be deemed an ineffective hedge, and therefore, we would



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record changes in the fair value of the Swap within our Condensed Consolidated Statements of Income, as well as our Condensed Consolidated Statements of Cash Flows. Additional information
regarding the Swap is located in Note 7  under the heading Interest Rate Swap Agreement to the Condensed Consolidated Financial Statements included in this Form 10-Q.

Foreign Currency Exchange Rate Risk

The Companys business is not directly dependent on foreign operations as the Companys sales to customers outside the U.S. are not significant. However, a portion of the Companys total
revenues, including sales and royalties, are dependent on U.S. based customers selling to end-users outside the U.S. There is a risk related to the changes in foreign currency exchange rates as it relates to royalties paid to us in U.S. dollars for
which royalties are received on end-user sales within foreign countries. We are currently not taking any affirmative steps to hedge the risk of fluctuations in foreign currency exchange rates. We do not expect our financial position, results of
operations or cash flows to be materially impacted due to a sudden change in foreign currency exchange rates fluctuations relative to the U.S. Dollar.



|Item 4. | Controls and Procedures
|------- | -----------------------

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Our disclosure controls and procedures
are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time frames specified
in the SECs rules and forms and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as
of September 30, 2010 at the reasonable assurance level.

Changes In Internal Control Over Financial Reporting

There were not any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no controls can provide absolute assurance that misstatements due to error or fraud will not occur, and no evaluation of any such controls
can provide absolute assurance that control issues and instances of fraud, if any, within our company have been detected.

These inherent
limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of
compliance with policies and procedures.



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Part II  OTHER INFORMATION



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

The following table contains information about our purchases of our equity securities during July, August and September 2010:



|                     |  |                                  |           |  |                                 |   |       |                                                                                                                |  |   |            | 
|-------------------- |  | -------------------------------- | --------- |  | ------------------------------- | - | ----- | -------------------------------------------------------------------------------------------------------------- |  | - | ---------- | 
|Period               |  | Total number ofshares purchased* |           |  | Average pricepaid per share (1) |   |       | Maximum number(or approximate dollar value)of shares that may yet
berepurchased underthe plans or programs (2) | 
|July 1-31, 2010      |  |                                  | 393,800   |  |                                 | $ | 23.26 |                                                                                                                |  | $ | 20,839,809 | 
|August 1-31, 2010    |  |                                  | 319,888   |  |                                 |   | 23.65 |                                                                                                                |  | $ | 13,273,084 | 
|September 1-30, 2010 |  |                                  | 322,081   |  |                                 |   | 28.32 |                                                                                                                |  | $ | 4,151,688  | 
|                     |  |                                  |           |  |                                 |   |       |                                                                                                                |  |   |            | 
|Total                |  |                                  | 1,035,769 |  |                                 | $ | 24.96 |                                                                                                                |  |   |            | 
|                     |  |                                  |           |  |                                 |   |       |                                                                                                                |  |   |            | 



|* | All shares purchased under a publicly announced plan on the purchase date (i.e., settlement date).
|- | --------------------------------------------------------------------------------------------------

|(1) | Average price paid per share is calculated on the purchase date and excludes commissions paid to brokers.
|--- | ---------------------------------------------------------------------------------------------------------

|(2) | Represents the remaining approximate dollar amount of our issued and outstanding Common Stock that may yet be repurchased under the $30,000,000 repurchase program,
which was announced on June 16, 2010, and has no scheduled expiration date. This table includes the repurchase of 34,400 shares, at a cost of approximately $811,000, of our Common Stock for which the trade date was on or prior to June 30,
2010, but for which the settlement date was after June 30, 2010. This table excludes the repurchase of 53,333 shares, at a cost of approximately $1.6 million, of our Common Stock for which the trade date was on or prior to September 30,
2010, but for which the settlement date was after September 30, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 6. | Exhibits.
|------- | ---------



|        |  |                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                            
|        | 
|31.1    |  | Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).                  
|        | 
|31.2    |  | Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).                  
|        | 
|32.1    |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
|        | 
|32.2    |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.



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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.



|                       |  |                         |  |                                             
|---------------------- |  | ----------------------- |  | --------------------------------------------
|                       |  | KENSEY NASH CORPORATION
|                       |  |                        
|Date: November 9, 2010 |  | By:                     |  | /s/    MICHAEL
CELANO                       
|                       |  |                         |  | Michael Celano                              
|                       |  |                         |  | Chief Financial Officer                     
|                       |  |                         |  | (Principal Financial and Accounting Officer)



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