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

                       KURZWEIL APPLIED INTELLIGENCE, INC.
                            STATEMENTS OF CASH FLOWS





                                                                                   Year Ended January 31,
                                                                   ----------------------------------------------------
                                                                       1995                1996                1997
                                                                   ------------        ------------         -----------

Cash flows from operating activities:
     Net loss                                                      ($11,192,082)        ($2,585,506)        ($4,139,612)
     Adjustments to reconcile net loss to net cash
     (used) in operating activities:
     Depreciation                                                       519,081             565,074             506,423
     Amortization                                                     1,909,783           1,804,633           2,037,044
     Provision for doubtful accounts                                    231,756             105,000              75,000
     Settlement of stockholders' lawsuit                              7,250,000
     Change in operating assets and liabilities:
        (Increase) decrease in accounts receivable                     (637,774)            101,929          (1,011,261)
        Decrease in inventory                                           633,736             638,446              44,161
        Decrease (increase) in other assets                             265,375            (179,038)             45,056
        (Decrease) increase in accounts payable                        (147,759)             (1,356)            449,775
        (Decrease) in accrued expenses
           and other liabilities                                     (1,237,461)           (825,555)           (108,269)
                                                                     ----------          ----------           ---------
     Net cash (used) in operating activities                         (2,405,345)           (376,373)         (2,101,683)
                                                                     ----------          ----------           ---------
Cash flows from investing activities:
     Purchase of marketable securities available for sale                                                      (481,252)
     Sale of marketable securities available for sale                 6,003,596           1,000,627
     Payments for property and equipment, net                          (509,248)           (829,410)           (303,667)
     Capitalized software development costs                            (725,993)         (1,162,273)         (1,847,785)
                                                                     ----------          ----------           ---------
     Net cash provided by (used) in investing activities              4,768,355            (991,056)         (2,632,704)
                                                                     ----------          ----------           ---------
Cash flows from financing activities:
     Payments on capital lease obligations                             (187,975)           (113,479)            (28,688)
     Payments on licensing agreement                                                       (798,062)           (901,810)
     Proceeds from issuance of capital stock, net                        31,774              56,108           4,037,873
                                                                        -------             -------           ---------
     Net cash provided by (used) in financial activities               (156,201)           (855,433)          3,107,375
                                                                     ----------          ----------           ---------
Net increase (decrease) in cash                                       2,206,809          (2,222,862)
                                                                                                             (1,627,012)
Cash and cash equivalents, beginning of period                        2,099,951           4,306,760           2,083,898
                                                                     ----------          ----------           ---------
Cash and cash equivalents, end of period                             $4,306,760          $2,083,898            $456,886
                                                                     ==========          ==========            ========
Supplementary disclosure of cash flow information:
     Cash paid during year for:
     Interest                                                           $19,095             $12,197              $3,632

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