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                       KURZWEIL APPLIED INTELLIGENCE, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                    Unaudited
                                 (in thousands)

                                                    Three Months Ended April 30,
                                                   ------------------------------
                                                       1997           1996
                                                   ------------    ----------
Cash flows from operating activities:
     Net loss                                            ($553)      ($1,294)
     Adjustments to reconcile net loss to net cash
      (used in) operating activities:
     Depreciation                                          121           141
     Amortization                                          601           428
     Change in operating assets and liabilities:
        (Increase) in accounts receivable                 (161)         (173)
        Decrease  (increase) in inventory                   29            (4)
        (Increase) in other assets                         (56)         (124)
        Increase in accounts payable                       172           306
        (Decrease) increase in accrued expenses
           and other liabilities                          (217)          144
                                                   ------------    ----------
     Net cash  (used in) operating activities              (64)         (576)
                                                   ------------    ----------
Cash flows from investing activities:
     Sale of marketable securities available for
      sale                                                 982           501
     Payments for property and equipment, net              (67)          (78)
     Capitalized software development costs               (531)         (515)
                                                   ------------    ----------
     Net cash provided by (used in) investing              384           (92)
      activities                                   ------------    ----------

Cash flows from financing activities:
     Payments on capital lease
      obligations                                                        (12)
     Proceeds from issuance of capital stock, net           47            37
                                                   ------------    ----------
     Net cash provided by financing activities              47            25
                                                   ------------    ----------
Net increase (decrease) in cash                            367          (643)
Cash and cash equivalents, beginning of period             457         2,084
                                                   ------------    ----------
Cash and cash equivalents, end of period                  $824        $1,441
                                                   ============    ==========

The accompaying notes are an integral part of the condensed financial statements