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                       KURZWEIL APPLIED INTELLIGENCE, INC.
                            STATEMENTS OF CASH FLOWS
                                    Unaudited
                                 (in thousands)
 
                                                 Six Months Ended July 31,
                                               ----------------------------
                                                   1996            1995
                                               -----------      -----------
Cash flows from operating activities:
     Net loss                                     ($2,032)           ($535)
     Adjustments to reconcile net loss to net cash
      ( used ) by operating activities:
     Depreciation                                     260              256
     Amortization                                     904              953
     Provision on doubtful accounts                                                                 5
     Change in operating assets and liabilities:
        (Increase) in accounts receivable            (903)             (94)
        (Increase) decrease in inventory              (75)             320
        (Increase) in other assets                    (68)            (106)
        Increase (decrease)  in accounts payable      486              (56)
        Increase (decrease) in accrued expenses
           and other liabilities                       55             (858)
                                                ----------      -----------
     Net cash  (used) by operating activities      (1,373)            (115)
                                                ----------      -----------
Cash flows from investing activities:
     Sale of marketable securities available for sale 501
     Payments for property and equipment, net        (157)            (326)
     Capitalized software development costs        (1,000)            (611)
                                                ----------      -----------
     Net cash (used) in investing activities         (656)            (937)
                                                ----------      -----------
Cash flows from financing activities:
     Payments on capital lease obligations            (12)             (47)
     Payments on licensing agreement                 (902)            (798)
     Proceeds from issuance of capital stock, net   4,038               56
                                                ----------      -----------
     Net cash provided by (used) in financial 
         activities                                 3,124             (789)
                                                ----------      -----------
Net increase (decrease) in cash                     1,095           (1,841)
Cash and cash equivalents, beginning of period      2,084            4,307
                                                ----------      -----------
Cash and cash equivalents, end of period           $3,179           $2,466
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