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                       KURZWEIL APPLIED INTELLIGENCE, INC.
                                 BALANCE SHEETS
                                    Unaudited
                                 (in thousands)

Item 1. Financial Statements
                                                      July 31,       January 31,
                                                        1996            1996
                                                    --------------   ------------
ASSETS
Current assets:
       Cash and cash equivalents                           $3,179         $2,084
       Marketable securities available for sale                              501
       Trade accounts receivable, less allowances of $258,000 and
       $287,000 at July 31, 1996 and January 31, 1996,
       respectively                                         2,124          1,221
       Inventory                                              473            398
       Other  current assets                                  343            262
                                                    --------------   ------------
               Total current assets                         6,119          4,466
Property and equipment, net                                   821            924
Intangible assets                                           1,192          1,745
Capitalized software development costs, net                 2,252          1,593
Other assets                                                  115            136
                                                    --------------   ------------
                       Total assets                       $10,499         $8,864
                                                    ==============   ============

LIABILITIES
Current liabilities:
       Accounts payable                                    $1,151           $665
       Accrued expenses                                     2,266          2,211
       Capital lease obligations                               17             29
       Current portion of other long-term liabilities       1,019            902
                                                    --------------   ------------
               Total current liabilities                    4,453          3,807
Other long-term liabilities                                 1,152          2,169
Commitments and contingencies

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued 
    and outstanding
Common stock, $.01 par value; 15,000,000 and 10,000,000 shares authorized 
    at July 31, 1996 and January 31, 1996, respectively; 9,056,916 and 
    5,733,387 shares issued and outstanding at July 31, 1996 and January 31, 
    1996, respectively                                         91             57
Additional paid-in capital                                 66,726         57,647
Common stock to be issued                                                  5,075
Accumulated deficit                                       (61,923)       (59,891)
                                                    --------------   ------------
       Total stockholders' equity                           4,894         2,888
                                                    --------------   ------------
       Total liabilities and stockholders' equity          10,499        $8,864
                                                    ==============   ============