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

                       KURZWEIL APPLIED INTELLIGENCE, INC.
                            STATEMENTS OF OPERATIONS

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

Revenues:
       Product and license revenue           $11,174,125     $7,680,006       $6,686,249
       Maintenance revenue                     1,188,000      1,680,000        1,861,115
                                            -------------   ------------    -------------
Total revenues                                12,362,125      9,360,006        8,547,364
                                            -------------   ------------    -------------
Operating costs and expenses:
       Cost of product, license and
          maintenance revenue                  5,688,685      4,776,578        3,937,106
       Sales and marketing                     5,881,827      3,581,677        4,056,802
       Research and development                2,587,421      2,340,519        3,066,031
       General and administrative              2,316,351      1,502,927        1,751,736
                                            -------------   ------------    -------------
Total operating costs and expenses            16,474,284     12,201,701       12,811,675
                                            -------------   ------------    -------------
Operating loss                                (4,112,159)    (2,841,695)      (4,264,311)
Interest expense                                  19,095         12,197            3,632
Interest income                                  219,293        196,637          114,885
Other (expense) income, net                      (30,121)        71,749           13,446
Settlement of stockholders' lawsuit            7,250,000        ----              ----
                                            -------------   ------------    -------------
Net loss                                    ($11,192,082)   ($2,585,506)     ($4,139,612)
                                            =============   ============    =============
       Net loss per common share                  ($2.13)        ($0.38)          ($0.50)
                                            =============   ============    =============
       Weighted average number of common
               shares outstanding              5,247,895      6,755,779        8,342,157
                                            =============   ============    =============

10-K Table of Contents