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

                       KURZWEIL APPLIED INTELLIGENCE, INC.
                                 BALANCE SHEETS

                                                                       January 31,
                                                             --------------------------
                                                                 1996            1997
                                                             ------------    ------------

ASSETS
Current assets:
       Cash and cash equivalents                              $2,083,898        $456,886
       Marketable securities available for sale                  500,623         981,875
       Trade accounts receivable, less allowances
               of $287,000 and $325,000
               at January 31, 1996 and 1997, respectively      1,221,469       2,157,730
       Inventory                                                 398,483         354,322
       Other current assets                                      261,800         187,633
                                                             ------------    ------------
               Total current assets                            4,466,273       4,138,446
Property and equipment, net                                      924,061         721,305
Intangible assets                                              1,744,976         678,047
Capitalized software development costs, net                    1,592,850       2,531,605
Other assets                                                     135,770         103,796
                                                             ------------    ------------
                       Total assets                           $8,863,930      $8,173,199
                                                             ============    ============

LIABILITIES
Current liabilities:
       Accounts payable                                         $664,786      $1,114,561
       Accrued expenses                                        2,211,107       2,100,982
       Capital lease obligations                                  28,688              --
       Current portion of other long-term liabilities            901,810       1,019,460
                                                             ------------    ------------
               Total current liabilities                       3,806,391       4,235,003

Other long-term liabilities                                    2,169,128       1,151,523
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 shares
       authorized; 5,733,387 and 9,061,880 shares
       issued and outstanding at January 31, 1996
       and 1997, respectively                                     57,334          90,619
Additional paid-in capital                                    57,647,425      66,727,014
Common stock to be issued                                      5,075,000              --
Accumulated deficit                                          (59,891,348)    (64,030,960)
                                                             ------------    ------------
       Total stockholders' equity                              2,888,411       2,786,673
                                                             ------------    ------------
               Total liabilities and stockholders' equity     $8,863,930      $8,173,199
                                                             ============    ============

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