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Portions of Kurzweil AI 10-K filed May 1, 1997

                       KURZWEIL APPLIED INTELLIGENCE, INC.
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
               For the years ended January 31, 1995, 1996 and 1997

                                                                                      Adjustment to
                                                                                        unrealized
                                                                                      gains/(losses)
                                                           Additional      Common     on securities                        Total
                                                 Common     Paid-In      Stock to be    available       Accumulated    Stockholders'
                                                 Stock      Capital        Issued        for sale         Deficit         Equity
                                                -------   -----------    ----------   --------------    -----------    -------------
Balance at January 31, 1994                     $52,433   $55,389,444                                  ($46,113,760)    $9,328,117
Issuance of 3,000 shares of common stock at
     $7.00 per share to existing shareholder
     upon exercise of warrants                       30        20,970                                                       21,000
Issuance of 7,224 shares of common stock
     at $1.50 per share to employees upon
     exercise of options, net of expenses            72        10,702                                                       10,774
Common stock to be issued for settlement
     of stockholders' lawsuit                                            $7,250,000                                      7,250,000
Unrealized gains/(losses)                                                                 ($91,250)                        (91,250)
Net loss                                                                                                (11,192,082)   (11,192,082)
                                                -------   -----------   -----------      ---------     ------------     ----------
Balance at January 31, 1995                      52,535    55,421,116     7,250,000        (91,250)     (57,305,842)     5,326,559
Issuance of 37,104 shares of common stock
   at $ 1.50 per share to employees upon
   exercise of options, net of expenses             371        55,737                                                       56,108
Common stock issued as partial settlement
     of stockholders' lawsuit                     4,428     2,170,572    (2,175,000)
Unrealized gain                                                                             91,250                          91,250
Net loss                                                                                                 (2,585,506)    (2,585,506)
                                                -------   -----------   -----------      ---------     ------------     ----------
Balance at January 31, 1996                      57,334    57,647,425     5,075,000              0      (59,891,348)     2,888,411
Issuance of 47,870 shares of common stock
      at $1.50 per share to employees upon
      exercise of options, net of expenses          479        71,326                                                       71,805
Common stock issued for settlement
      of stockholders' lawsuit                   10,331     5,064,669    (5,075,000)
Issuance of 1,320,050 shares of common stock
      at $2.00 per share in a private sale
      to an investment fund on May 10, 1996,
      net of expenses                            13,200     2,323,130                                                    2,336,330

Issuance of 927,500 shares of common stock
      at $2.00 per share in a private sale
      to accredited investors on July 31,
      1996, net of expenses                       9,275     1,620,464                                                    1,629,739

Net loss                                                                                                 (4,139,612)    (4,139,612)
                                                -------   -----------   -----------      ---------     ------------     ----------
Balance at January 31, 1997                     $90,619   $66,727,014            $0             $0     ($64,030,960)    $2,786,673
                                                =======   ===========   ===========      =========     ============     ==========

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