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


                                                       Nine Months Ended October 31,
                                                       -----------------------------
                                                         1996               1995
                                                       ----------         ---------
Cash flows from operating activities:
  Net loss                                             ($2,715)            ($1,304)
  Adjustments to reconcile net loss to net cash
   (used in) provided by operating activities:
  Depreciation                                             381                 398
  Amortization                                           1,455               1,368
  Provision for doubtful accounts                                                5
  Change in operating assets and liabilities:
    (Increase) in accounts receivable                   (1,107)                (16)
    Decrease in inventory                                   28                 365
    (Increase) in other assets                             (96)               (236)
    Increase in accounts payable                           233                 261
    Increase (decrease) in accrued expenses
       and other liabilities                               113                (598)
                                                      ---------            --------
  Net cash (used in) provided by operating activities   (1,708)                243
                                                      ---------            --------
Cash flows from investing activities:
  Sale of marketable securities available for sale         501
  Payments for property and equipment, net                (242)               (578)
  Capitalized software development costs                (1,392)               (973)
                                                      ---------           --------
  Net cash (used in) investing activities               (1,133)             (1,551)
                                                      ---------           --------
Cash flows from financing activities:
  Payments on capital lease obligations                    (29)                (80)
  Payments on licensing agreement                         (902)               (798)
  Proceeds from issuance of capital stock, net           4,038                  56
                                                      ---------            --------
  Net cash provided by (used in) in financing activities 3,107                 (822)
                                                      ---------            --------
Net increase (decrease) in cash                            266               (2,130)
Cash and cash equivalents, beginning of period           2,084                4,307
                                                      ---------            --------
Cash and cash equivalents, end of period                $2,350               $2,177