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the reason you need a sprocket with one flat and one shouldered side is not for chain alignment...it is because a sprocket with both sides shouldered is overall too thick for the retaining bolt to tighten up on the shaft correctly.
Wilbur, you are correct: the flat side faces out. I checked my original K7 sprocket and it's also stamped on the flat side. I measured both ways and compared to my K1 to verify. Perhaps the shoulder side faces out when installed on a 650?