<PAGE>


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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                              --------------------

                                   FORM 10-Q
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                         COMMISSION FILE NUMBER 0-14713


                                     [LOGO]

                                INTERLEAF, INC.
             (exact name of registrant as specified in its charter)


         MASSACHUSETTS                                 04-2729042
  (State or other jurisdiction           (I.R.S. employer identification number)
of incorporation or organization)

      62 FOURTH AVENUE, WALTHAM, MA                      02154
(Address of principal executive offices)               (Zip Code)

                                 (617) 290-0710
              (Registrant's telephone number, including area code)

  Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                                Yes _X_   No ___

                      APPLICABLE ONLY TO CORPORATE ISSUERS

  The number of shares outstanding of the issuer's Common Stock, $.01 par 
value, as of October 31,1996 was 17,459,219.

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<PAGE>

                                INTERLEAF, INC.
                               TABLE OF CONTENTS



                                                                           Page
                                                                           ----
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated balance sheets at September 30, 1996 and March 31, 1996 . . . . 3

Consolidated statements of operations for the three and six months 
ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . 4

Consolidated statements of cash flows for the six months ended 
September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . 5

Notes to consolidated financial statements . . . . . . . . . . . . . . . . . 6

Item 2 - Management's Discussion and Analysis of Financial Condition 
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 9

PART II - OTHER INFORMATION

Item 4 - Submission of Matters to Vote of Security Holders . . . . . . . . .15

Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . .15

Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .15

SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15


                                      2

<PAGE>

                                INTERLEAF, INC.
                        PART I - FINANCIAL INFORMATION
                         ITEM 1. FINANCIAL STATEMENTS

                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  September 30, 1996  March 31, 1996
In thousands, except for share and per share amounts                  (unaudited)
<S>                                                               <C>                 <C>
                                               ASSETS
CURRENT ASSETS
Cash and cash equivalents                                             $  4,942          $ 12,725
Accounts receivable, net                                                15,890            19,771
Prepaid expenses and other current assets                                2,013             2,112
                                                                      --------          --------
TOTAL CURRENT ASSETS                                                    22,845            34,608
Property and equipment, net                                              7,521             7,800
Intangible assets                                                        7,864             6,164
Other assets                                                               628               344
                                                                      --------          --------
TOTAL ASSETS                                                          $ 38,858          $ 48,916
                                                                      --------          --------
                                                                      --------          --------

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings                                                 $    374          $      -
Accounts payable                                                         2,982             2,908
Accrued expenses                                                        13,804            13,252
Unearned revenue                                                        11,444            15,986
Other current liabilities                                                4,830             1,348
                                                                      --------          --------
TOTAL CURRENT LIABILITIES                                               33,434            33,494
Other liabilities                                                          225                 3
                                                                      --------          --------
TOTAL LIABILITIES                                                       33,659            33,497
                                                                      --------          --------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.10 per share, authorized 5,000,000 shares:
  Series A Junior Participating, none issued and outstanding
  Senior Series B Convertible, issued and outstanding 861,911
  at September 30, 1996 and 923,304 at March 31, 1996                       86                92
Common stock, par value $.01 per share, authorized
  30,000,000 shares, issued and outstanding 17,459,219 at September
  30, 1996 and 16,697,988 at March 31, 1996                                175               167
Additional paid-in capital                                              76,224            72,348
Retained earnings (deficit)                                            (71,085)          (56,958)
Cumulative translation adjustment                                         (201)             (230)
                                                                      --------          --------
TOTAL SHAREHOLDERS' EQUITY                                               5,199            15,419
                                                                      --------          --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $  38,858         $  48,916
                                                                      --------          --------
                                                                      --------          --------
</TABLE>

                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      3

<PAGE>

                                INTERLEAF, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                          Three months ended September 30    Six months ended September 30
                                               1996              1995            1996              1995

In thousands, except for per share
amounts                                              (unaudited)                       (unaudited)

<S>                                          <C>               <C>             <C>               <C>
REVENUES:

Products                                     $  4,614          $ 9,273         $ 11,660          $18,710

Maintenance                                     7,410            8,399           14,882           16,191

Services                                        4,561            5,639            9,097           11,537
                                             --------          -------         --------          -------

TOTAL REVENUES                                 16,585           23,311           35,639           46,438
                                             --------          -------         --------          -------

COSTS OF REVENUES:

Products                                        1,527            1,564            3,153            3,224

Maintenance                                     1,291            1,314            2,599            2,683

Services                                        4,362            4,767            8,562            9,576
                                             --------          -------         --------          -------

TOTAL COSTS OF REVENUES                         7,180            7,645           14,314           15,483
                                             --------          -------         --------          -------

Gross Margin                                    9,405           15,666           21,325           30,955
                                             --------          -------         --------          -------

OPERATING EXPENSES:

Selling, general and administrative            10,481           10,871           21,903           21,853

Research and development                        4,306            3,931            8,576            7,857

Restructuring expense                           4,800                -            4,800                -
                                             --------          -------         --------          -------

TOTAL OPERATING EXPENSES                       19,587           14,802           35,279           29,710
                                             --------          -------         --------          -------

Income (loss) from operations                 (10,182)             864          (13,954)           1,245

Other income (expense)                           (145)              58             (173)             149
                                             --------          -------         --------          -------

Income (loss) before income taxes             (10,327)             922          (14,127)           1,394

Provision for income taxes                          -                -                -                -
                                             --------          -------         --------          -------

NET INCOME (LOSS)                            $(10,327)         $   922         $(14,127)         $ 1,394
                                             --------          -------         --------          -------
                                             --------          -------         --------          -------

Net income (loss) per share                  $  (0.59)         $   .05         $  (0.82)         $   .08
                                             --------          -------         --------          -------
                                             --------          -------         --------          -------

Shares used in computing net 
     income (loss) per share                   17,457           18,618           17,229           18,134
                                             --------          -------         --------          -------
                                             --------          -------         --------          -------
</TABLE>

                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     4

<PAGE>

                                INTERLEAF, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Six months ended September 30
                                                                           1996            1995

In thousands                                                            (unaudited)    (unaudited)
<S>                                                                      <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)                                                        $(14,127)       $ 1,394
Adjustments to reconcile net income (loss) to net cash provided by
  (used in) operating activities:
Restructuring expense                                                       4,800              -
Depreciation and amortization expense                                       3,901          3,863
Loss from disposal of property and equipment                                    -             20
Changes in assets and liabilities:
  Decrease in accounts receivable, net                                      3,942          2,573
  Decrease in other assets                                                    341            293
  Decrease in accounts payable and accrued expenses                           (49)        (1,286)
  Decrease in unearned revenue                                             (4,493)        (2,399)
  Decrease in other liabilities                                            (1,305)        (1,662)
Other, net                                                                    113            (83)
                                                                         --------        -------
  Net cash provided by (used in) operating activities                      (6,877)         2,713
                                                                         --------        -------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                       (1,736)          (441)
Capitalized software development costs                                       (737)        (2,352)
                                                                         --------        -------
  Net cash used in investing activities                                    (2,473)        (2,793)
                                                                         --------        -------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net                                                    374              -
Net proceeds from issuance of common stock                                  1,250          2,009
Repayment of long-term debt and capital leases                                 (4)        (1,674)
                                                                         --------        -------
  Net cash provided by financing activities                                 1,620            335
                                                                         --------        -------

Effect of exchange-rate changes on cash                                       (53)           (50)
                                                                         --------        -------
Net increase (decrease) in cash and cash equivalents                       (7,783)           205

Cash and cash equivalents at beginning of period                           12,725         10,441
                                                                         --------        -------
Cash and cash equivalents at end of period                               $  4,942        $10,646
                                                                         --------        -------
                                                                         --------        -------
</TABLE>


                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                     5

<PAGE>

                                INTERLEAF, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)

1.   Basis of Presentation

     The consolidated financial statements include the accounts of Interleaf,
     Inc. and its subsidiaries. All significant intercompany balances and
     transactions have been eliminated in consolidation. Interleaf, Inc. and its
     subsidiaries are collectively referred to as the "Company." Certain 1995
     amounts have been reclassified to conform to the 1996 method of
     presentation.

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally accepted accounting principles for
     interim financial information and with the instructions to Form 10-Q and
     Rule 10-01 of Regulation S-X. Accordingly, they do not include all
     financial information and disclosures required by generally accepted
     accounting principles for complete financial statements. In the opinion of
     management, these financial statements include all adjustments (consisting
     only of normal recurring accruals) necessary for a fair presentation of the
     results of operations for the interim periods reported and of the financial
     condition of the Company as of the date of the interim balance sheet. The
     results of operations for interim periods are not necessarily indicative of
     the results to be expected for the full year.

     These financial statements should be read in conjunction with the Company's
     audited consolidated financial statements and related notes included in the
     Company's Annual Report on Form 10-K for the year ended March 31, 1996.

2.   Net Income (Loss) Per Share

     Per share amounts are calculated using the weighted average number of
     common shares and common share equivalents outstanding during periods of
     net income. Common share equivalents are attributable to stock options,
     common stock warrants and convertible preferred stock. Per share amounts
     are calculated using only the weighted average number of common shares
     outstanding during periods of net loss. Fully diluted earnings per share is
     not materially different from reported primary earnings per share.

3.   Acquisition

     On May 1, 1996, the Company purchased all of the outstanding equity
     securities of The Learning Alliance, Inc. ("TLA") for $2,690,000. The
     Company issued 341,500 shares of common stock to the selling shareholders
     of TLA for the entire purchase amount. TLA provides sales training services
     and develops and markets related software for the sales force automation
     and integration marketplace.

     The acquisition was accounted for using the purchase method of accounting,
     whereby the purchase price was allocated to the assets acquired and
     liabilities assumed based on their respective fair market values. The
     acquisition resulted in goodwill of approximately $2.6 million which is
     being amortized over five years and is included in Intangible Assets.

     The operating results of TLA have been included in the consolidated
     financial statements since the date of the acquisition. Pro forma
     presentations have not been included as the acquisition was not material to
     the results of operations of the Company.

                                     6

<PAGE>

                                INTERLEAF, INC.

4.   Noncash Financing Activities

     Senior Series B Convertible Preferred Stock holders converted 61,393 and
     496,429 shares of preferred stock into 82,496 and 667,077 shares of the
     Company's common stock during the six months ended September 30, 1996 and
     1995, respectively. The Company issued 171,635 shares of common stock,
     during the six months ended September 30, 1995, in connection with the
     exercise of a warrant. The Company received no proceeds upon the conversion
     of the warrant into common stock.

5.   Credit Agreement

     The Company has a revolving line of credit of up to $10 million from a
     major commercial lender. The credit agreement also provides for the
     issuance of letters of credit of up to $2 million. Borrowings from the line
     of credit bear interest at the higher of 9% or prime rate plus 2% and are
     secured by substantially all tangible and intangible domestic assets of the
     Company. Outstanding letters of credit bear interest at 2%. The credit
     agreement expires in May 1997, but may be extended annually for successive
     one year periods with the consent of the lender. At September 30, 1996,
     there was approximately $0.4 million outstanding under this line of credit.
     Borrowings under the credit agreement are based on the level of eligible
     North American accounts receivable, modified by cash collections during the
     previous 90 days. As of September 30, 1996, approximately $1.0 million of
     standby letters of credit were outstanding and the amount available for
     additional borrowings was approximately $1.4 million. The agreement
     contains certain financial covenants relating to the Company's current
     ratio, tangible net worth, and working capital, as well as restrictions on
     certain additional indebtedness, acquisitions, capital expenditures, and
     dividend payments.

6.   Restructuring

     In July 1996, the Company announced a restructuring plan and recorded a
     charge of $4.8 million to reduce employment by approximately 75 people, to
     close or reduce space in seven sales offices, and to implement the second
     and final stage of relocating corporate headquarters to smaller and less
     expensive space. The employee terminations affected all groups throughout
     the organization. Cash outlays are anticipated to be approximately $4.1
     million of the total $4.8 million restructuring charge and will require
     lease payments through December 2000.  Approximately $1.3 million of the
     restructuring charge was for employee termination benefits and $3.5 million
     for other exit costs, primarily related to facility leases.

     In October 1996, the Company announced a restructuring plan to further
     reduce employment by approximately 100 people and to close or reduce space
     in six sales offices. The employee terminations affected all groups
     throughout the organization.  During the third quarter of fiscal 1997, the
     Company will record a charge of approximately $3.0 million to $4.0 million
     to cover costs associated with the restructuring. 

     During the six months ended September 30, 1996, the Company paid
     approximately $0.9 million for employee termination benefits and
     approximately $0.4  million, net of sublease receipts, related to the July
     1996 and fiscal 1995 restructurings.

                                     7

<PAGE>

                                INTERLEAF, INC.

7.   Shareholders' Equity

     On October 15, 1996, the Company issued 1,004,904 shares of newly
     authorized Series C Convertible Preferred Stock ("Series C") at a price of
     $9.9512 per share. The Company received net proceeds of approximately $9.4
     million which will be used for working capital and general corporate
     purposes. Each Series C share is initially convertible into 4 shares of
     common stock, which rate is adjustable upon certain issuances of common
     stock by the Company. Dividends of $0.24878 per share are payable on April
     15, 1998 and October 15, 1998, and $0.49756 per share on each April 15 and
     October 15 thereafter. Holders of outstanding shares of Series C Preferred
     Stock are entitled to the number of votes equal to one-half the number of
     shares of common stock into which the Series C shares are convertible.
     Series C shareholders are entitled to receive upon liquidation an amount
     equal to $9.9512 per share plus any declared or accrued but unpaid
     dividends, which amount is payable prior to any payments to holders of the
     Series B Preferred Stock and common stock. Series C shareholders must
     convert their shares into common stock upon the consolidation, merger or
     sale of substantially all assets of the Company or, subject to certain
     conditions, if the Company's common stock trades for twenty consecutive
     days above $3.7317. The Company may, at its option, redeem the Series C
     shares on or after October 16, 1999. The initial redemption premium is 25%,
     which decreases 5% annually until October 16, 2004.

     On September 12, 1996, the Board of Directors authorized a repricing
     program which allows employees to elect to reprice all or some of their
     outstanding options, ranging in exercise price from $2.75 to $10.75 per
     share, to the September 12, 1996 closing price of $2.5625. Any options
     repriced may not be exercised until March 12, 1997. Options for
     approximately 2.3 million shares are eligible to be repriced.

8.   Contingencies

     Interleaf's German subsidiary, Interleaf GmbH, has been notified that it is
     liable for certain German withholding taxes related to payments remitted to
     the United States from Germany. The Company is appealing this assessment,
     however, approximately $1.1 million of the cash and cash equivalents
     balance at September 30, 1996 is restricted for potential payment of the
     German withholding taxes. The Company believes the final outcome will not
     have a material adverse effect on results of operations of the Company.

                                     8

<PAGE>

                                INTERLEAF, INC.

                                    ITEM 2.

    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS

RESULTS OF OPERATIONS

Overview

The Company recorded a net loss of approximately $10.3 million, on total 
revenues of $16.6 million, for the second quarter and a net loss of 
approximately $14.1 million, on total revenues of $35.6 million, for the six 
months ended September 30, 1996.  This compares with net income of 
approximately $0.9 million, on total revenues of $23.3 million, for the 
second quarter and net income of approximately $1.4 million, on total 
revenues of $46.4 million, for the six months ended September 30, 1995.  As a 
result of the significant decline in revenues the Company has initiated two 
restructuring plans, in July 1996 and October 1996, to reduce worldwide 
employment and facility costs.  A $4.8 million restructuring charge was 
recorded in July 1996 and a restructuring charge of approximately $3.0 to 
$4.0 million will be recorded during the third quarter. Combined, these 
restructurings reduced employment by approximately 175 people, 
approximately one-third of the Company's worldwide workforce prior to the 
July restructuring.  In addition, the Company has or will close or reduce 
space in 12 sales offices and implement the second and final stage of 
relocating corporate headquarters to smaller and less expensive space.  See 
Note 6 to the Consolidated Financial Statements.

REVENUES

Total revenues decreased approximately $6.7 million (29%) and $10.8 million 
(23%) for the second quarter and six months ended September 30, 1996, when 
compared with the same periods a year ago.  Revenue has declined in all 
geographic regions.  Product revenue declined significantly during these 
periods as sales of the Company's stand-alone products continue to decrease.  
The Company has been refocusing its business strategy on providing document 
management applications targeted toward specific vertical and horizontal 
markets.  While the Company has built well-accepted integrated document 
management ("IDM") based solutions for individual customers, it has not yet 
demonstrated the ability to develop, market and sell IDM applications.  There 
is no assurance that the Company will be successful in implementing its

                                      9

<PAGE>

strategy, and therefore the Company is unable to predict if or when product 
revenues will stabilize or grow.  Additionally, since the Company's services 
and maintenance revenue is largely dependent on new product licenses, these 
revenue components have also experienced downward pressure.  This trend will 
continue unless product revenue stabilizes.

Maintenance revenue, resulting from contracts to provide telephone support 
and upgrades to the Company's software products, declined approximately 12% 
and 8% during the second quarter and six months ended September 30, 1996, 
respectively, when compared with the same periods a year ago, primarily due 
to significant renewal contract volume in the second quarter of the prior 
year which was not duplicated this year.  Services revenue, consisting of 
consulting and customer training revenue, decreased approximately 19% and 21% 
for the second quarter and six months ended September 30, 1996, respectively, 
when compared with the same periods a year ago.  The Company leverages 
software product licensing with services to provide IDM solutions to its 
customers.  In fiscal 1996,  the Company had several large consulting 
projects, which were completed during early fiscal 1996, that have not been 
replaced with similar sized projects.  This was primarily attributable to the 
decline in product licensing over the past few quarters.

COSTS OF REVENUES

Cost of product revenues remained relatively stable as increased amortization 
of capitalized software development costs was offset by lower direct product 
costs associated with the decrease in product license revenue.  Because of 
the decline in product revenues, however, cost of product revenues increased 
as a percentage of product revenues to 33% and 27% for the second quarter and 
six months ended September 30, 1996, respectively, compared with 
approximately 17% and 17% for the corresponding periods in the prior year.  
Cost of maintenance revenues remained relatively stable in both amount and as 
a percentage of maintenance revenues relative to the prior year.  Cost of 
services revenue decreased primarily as a result of a decline in services 
personnel.  However, cost of services revenue increased as a percentage of 
services revenue to approximately 96% and 94% for the second quarter and six 
months ended September 30, 1996, respectively, compared with approximately 
85% and 83% for the corresponding periods in the prior year, as the decline 
in services revenue discussed above was only partially offset by the decline 
in services personnel.

                                      10

<PAGE>

OPERATING EXPENSES

Selling, general and administrative ("SG&A") expenses remained relatively 
stable as a decline in selling costs were offset by increased investment in 
marketing programs and advertising campaigns.  Because of the decrease in 
total revenues, SG&A expenses increased as a percentage of total revenues to 
approximately 63% and 61% for the second quarter and six months ended 
September 30, 1996, respectively, compared with approximately 47% and 47% for 
the corresponding periods in the prior year.  SG&A expenses are expected to 
decrease as a result of the fiscal 1997 restructuring plans.

Research and development ("R&D") expenses increased approximately 10% from 
the prior year primarily due to a reduction in capitalized software 
development costs partially offset by lower personnel expenses.  For the 
second quarters ended September 30, 1996 and 1995, R&D expenses were 
approximately 26% and 17%, respectively, of total revenues.  R&D spending, 
which excludes the offset for capitalized software development costs, 
represented approximately 27% and 22% of total revenues for the second 
quarters ended September 30, 1996 and 1995, respectively.  For the six months 
ended September 30, 1996 and 1995, R&D expenses were approximately 24% and 
17%, respectively, and R&D spending was approximately 26% and 22%, 
respectively, of total revenues.  The Company's product development plans are 
to focus on IDM-based product offerings as well as enhancements to existing 
products.  R&D spending is expected to decline as a result of the fiscal 1997 
restructuring plans.

LIQUIDITY AND CAPITAL RESOURCES

The Company had approximately $4.9 million of cash and cash equivalents at 
September 30, 1996, a decrease of approximately $7.8 million from March 31, 
1996.  The decrease was primarily attributable to the Company's operations 
during the first six months of fiscal 1997 and payments associated with the 
July 1996 restructuring.  Capital expenditures of approximately $1.7 million 
were principally for improvements to the Company's information systems 
infrastructure.  These cash outflows were partially offset by common stock 
issuances related to the Company's incentive stock option plans and employee 
stock purchase plan of approximately $1.2 million.  Interleaf's German 
subsidiary, Interleaf GmbH, has been notified that it is liable for German 
withholding taxes related to payments remitted to the United States from 
Germany in 1990.  The Company is appealing this assessment.  At September 30, 
1996, the Company had approximately


                                      11
<PAGE>

$1.1 million of cash restricted for potential payment of German withholding 
taxes, and approximately $0.3 million as collateral for various lease 
commitments.

As part of the Company's strategy to develop sales force automation and 
integration applications, the Company acquired The Learning Alliance, Inc. 
("TLA") in May 1996 for $2,690,000.  The Company issued 341,500 shares of 
common stock to the selling shareholders of TLA for the entire purchase 
amount (see Note 3 to the Consolidated Financial Statements for further 
discussion).

Total accrued restructuring charges associated with both the fiscal 1995 and 
July 1996 restructuring plans were approximately $4.8 million at September 
30,1996.  Cash payments related to these restructurings are anticipated to 
continue until December 2000.  As previously discussed, the Company announced 
a further restructuring plan in October (see Note 6 to the Consolidated 
Financial Statements for further discussion).

The Company has a revolving line of credit from a major commercial lender. 
Borrowings from the line of credit are secured by substantially all tangible 
and intangible domestic assets of the Company.  At September 30, 1996, there 
was approximately $0.4 million outstanding under this line of credit and the 
amount available for additional borrowings was approximately $1.4 million. At 
November 8, 1996, there were no loans outstanding under this line of credit 
and the amount available for borrowings was approximately $1.2 million.  See 
Note 5 to the Consolidated Financial Statements regarding borrowing limits 
and restrictive covenants associated with the credit agreement.

In October 1996, the Company sold Series C Convertible Preferred Stock in a 
private placement resulting in net proceeds of approximately $9.4 million 
(see Note 7 to the Consolidated Financial Statements for further discussion). 
The Company had approximately $13.8 million in cash and cash equivalents at 
October 31, 1996, which included restricted cash of approximately $1.4 
million, and approximately $0.7 million oustanding under the line of credit.

The objectives of the Company's two restructurings in the last four months 
and the Series C private placement were to enable the Company to return to a 
sustainable profitable condition. However, due to the uncertainty among the 
Company's customers and employees created by the Company's two 
restructurings, along with the downward trend in the Company's revenue, the 
Company is unable to predict with

                                     12
<PAGE>

certainty its future revenue. The Company will continue to closely monitor 
revenue and manage its expenses and cost structure accordingly.  While the 
Company believes its current cash position will meet the Company's liquidity 
needs for the remainder of fiscal 1997, there can be no assurance in this 
regard, and there can be no assurance that the Company can fund its longer 
term ongoing business operations.  If the Company's cash resources are 
insufficient to fund its operations at any time, there can be no assurance 
that the Company will be able to obtain additional capital or, if it does so, 
that such capital can be obtained at commercially reasonable terms or without 
incurring substantial dilution to existing shareholders. 

The Company has retained the investment banking firm Hambrecht & Quist LLC to 
assist it in exploring long-term strategic alternatives.

RISK FACTORS

From time to time, information provided by the Company or statements made by 
its employees may contain forward-looking information.  The Company's actual 
future results may differ materially from those projections or suggestions 
made in such forward-looking information as a result of various potential 
risks and uncertainties including, but not limited to, the factors discussed 
below.

The Company's future operating results are dependent on its ability to 
develop and market integrated document management software products and 
services that meet the changing needs of organizations with complex document 
management requirements.  There are numerous risks associated with this 
process, including the uncertainty among customers and employees created by 
the Company's recent financial difficulties, rapid technological change in 
the information technology industry and the requirement to bring to market 
IDM solutions that solve complex business needs in a timely manner.  In 
addition, the existing document publishing, electronic distribution, and 
document management markets are highly competitive.  The Company competes 
against a number of companies for sales of its software products on both an 
individual product basis and integrated with services in large IDM solution 
sales.

Sales cycles associated with IDM solution sales are long as organizations 
frequently require the Company to solve complex business problems which 
typically involve reengineering of their business processes.  In addition, a 
high


                                     13
<PAGE>

percentage of the Company's product license revenues are generally realized 
in the last month of a fiscal quarter and can be difficult to predict until 
the end of a fiscal quarter.  Accordingly, given the Company's relatively 
fixed cost structure, a shortfall or increase in product license revenue will 
have a significant impact on the Company's operating results.

The Company markets its software products and services worldwide.  Global 
and/or regional economic factors, currency exchange rate fluctuations, and 
potential changes in laws and regulations affecting the Company's business 
could impact the Company's financial condition or future operating results.

The market price of the Company's common stock may be volatile at times in 
response to fluctuations in the Company's quarterly operating results, 
changes in analysts' earnings estimates, market conditions in the computer 
software industry, as well as general economic conditions and other factors 
external to the Company.


                                     14
<PAGE>

                                INTERLEAF, INC.
                          PART II - OTHER INFORMATION

Item 4. Submission of Matters to Vote of Security Holders

At the Annual Meeting of Shareholders held on August 8, 1996 ("Annual 
Meeting") the shareholders of the Company elected the following three 
nominees as Class III directors of the Company whose terms shall expire at 
the Company's 1999 shareholder meeting: David A. Boucher, by a vote of 
15,477,533 in favor to 1,287,369 against, Frederick B. Bamber, by a vote of 
15,539,983 in favor to 1,224,919 against, and Ed Koepfler, by a vote of 
15,567,271 in favor to 1,197,631 against. The Company also has two Class I 
directors Clinton P. Harris (as a Preferred Class I director elected by the 
Senior Series B Preferred Shareholders) and G. Gordon M. Large, whose terms 
are set to expire at the annual shareholders' meeting in 1997, and one Class 
III director George D. Potter, Jr., whose term is set to expire at the annual 
shareholders' meeting in 1998. At the Annual Meeting, the shareholders 
ratified and approved the amendment to the Company's 1987 Employee Stock 
Purchase Plan to increase the number of shares of the Company's Common Stock 
available for issuance from 1,750,000 to 2,500,000 under the plan, by a vote 
of 14,799,328 in favor, 1,619,490 against, 86,577 abstentions, and 292,507 no 
votes. The shareholders also ratified and approved the selection of Ernst & 
Young LLP as the Company's independent auditors for fiscal 1997, by a vote of 
16,591,663 in favor, 98,237 against, and 75,002 abstentions. A more complete 
description of these matters appears in the Company's 1996 Proxy Statement, 
dated June 28, 1996.

Item 5. Other Information

Effective as of November 12, 1996, G. Gordon M. Large has resigned as the 
Company's Executive Vice President, Chief Financial Officer, Treasurer, and 
as a Company Director. Effective as of the same date, the Board of Directors 
has elected Robert M. Stoddard as the Company's Vice President of Finance and 
Administration, Chief Financial Officer, and Treasurer. Effective November 4,
1996, Frederick J. Egan resigned as the Company's Vice President for 
Asia/Pacific/Japan, and as an executive officer.

Item 6. Exhibits and Reports on Form 8-K

     (a)  The exhibits listed in the accompanying Exhibit Index are filed as
          part of this Quarterly Report on Form 10-Q.

     (b)  No reports were filed on Form 8-K by the Company during the quarter
          ended September 30, 1996.



                                   SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                            INTERLEAF, INC.

November 11, 1996

                            /s/ G. Gordon M. Large
                            -----------------------------------
                            G. Gordon M. Large
                            Executive Vice President and Chief Financial Officer
                            (Principal Financial and Accounting Officer)


                                      15


<PAGE>

                                INTERLEAF, INC.
                                 EXHIBIT INDEX

 EXHIBIT
 NUMBER                       DESCRIPTION                      METHOD OF FILING

3(a)     Restated Articles of Organization of the Company, as         [v]
         amended
3(b)     By-Laws of the Company, as amended                           [v]
4(a)     Specimen Certificate for Shares of the Company's             [xiii]
         Common Stock
4(b)     Rights Agreement, dated July 15, 1988, between the           [xiv]
         Company and the First National Bank of Boston
10(a)    Company's 1983 Stock Option Plan, as amended                 [v]
10(a1)   1994 Employee Stock Option Plan, as amended                Included
10(a2)   1993 Incentive Stock Option Plan, as amended                 [viii]
10(b)    Company's 1989 Director Stock Option Plan                    [i]
10(b2)   Company's 1987 Employee Stock Purchase Plan, as            Included
         amended
10(c)    Company's 1989 Officer and Employee Severance                [i]
         Benefit Plans
10(cc)   Company's 1993 Director Stock Option Plan                    [v]
10(d)    Agreements between PruTech Research and Development          [ii]
         Partnership III and the Company, dated October 21,
         1988.
10(e)    Exclusive Marketing and Licensing Agreement, between         [i]
         Interleaf South America, Ltd. and the Company, and
         related Option Agreement, dated 
         March 31, 1989.
10(f)    Distribution and License Agreement between Interleaf         [i]
         Italia, S.r.l. and the Company, and related Joint
         Venture Agreement, dated October 31, 1988.
10(g)    Preferred Stock Purchase Agreements, for the                 [ii]
         issuance of 2,142,857 shares 
         of the Company's Senior Series B Convertible
         Preferred Stock, dated 
         September 29, 1989.
10(h)    Notification to Preferred Shareholder of increase in         [iii]
         conversion ratio, dated May 18, 1992.
10(i)    Lease of Prospect Place, Waltham, MA, between                [iv]
         Prospect Place Limited 
         Partnership and Interleaf, Inc., and related
         Agreements, dated March 30, 1990.
10(k)    Letter Agreement between the Company and Richard P.          [v]
         Delio, the Company's former Sr. Vice President of
         Finance and Administration and Chief Financial
         Officer, dated March 30, 1994, concerning his
         employment and severance with the Company.
10(l)    Letter of Separation and Management Consulting               [vi]
         Agreement between the Company and Mark K. Ruport,
         the Company's former President, Chief Executive
         Officer and Director, dated July 25, 1994,
         concerning his separation and consulting obligations
         to the Company.
10(m)    Letter Agreement between the Company and Richard P.          [vi]
         Delio, the Company's former Sr. Vice President of
         Finance and Administration and Chief Financial
         Officer and Acting President, dated August 3, 1994,
         concerning his employment and severance with the
         Company.
10(n)    Letter of Separation and Management Consulting                [vi]
         Agreement between the Company and Peter Cittadini,
         the Company's former Sr. Vice President Worldwide
         Operations, dated July 27, 1994, concerning his
         separation and consulting obligations to the
         Company.
10(o)    Executive Compensation Arrangement for David A.               [vi]
         Boucher, the Company's Chairman of the Board, dated
         July 20, 1994.

                                      16

<PAGE>

                                INTERLEAF, INC.

 EXHIBIT
 NUMBER                       DESCRIPTION                      METHOD OF FILING

10(p)    Letter of Separation and Management Consulting                [vi]
         Agreement between the Company and Lawrence S. Bohn,
         the Company's former Sr. Vice President, Marketing
         and Business Development, dated September 20, 1994,
         concerning his separation and consulting obligations
         to the Company.
10(q)    Employment and severance agreement between the                [vii]
         Company and Edward Koepfler, the Company's
         President, dated October 3, 1994.
10(r)    Loan and Security Agreement between the Company and           [ix]
         Foothill Capital Corporation, dated May 2, 1995.
10(s)    Employment and severance agreement between the                [ix]
         Company and G. Gordon M. Large, the Company's
         Executive Vice President and Chief Financial
         Officer, dated June 5, 1995
10(t)    Net Lease, dated August 14, 1995, between Principal           [x]
         Mutual Insurance Company and the Company.
10(u)    Sublease, dated September 15, 1995, between                   [x]
         Parametric Technology Corporation and the Company.
10(v)    Employment and severance agreement between the                [xi]
         Company and Mark Cieplik, the Company's Vice
         President, Americas, dated March 17, 1995.
10(w)    Agreement between PruTech Research and Development            [xii]
         Partnership III and the Company, dated November 14,
         1995.
10(x)    Series C Preferred Stock Agreement between                   Included
         Interleaf, Inc. and Lindner Investments, dated
         October 14, 1996
11       Computation of Earnings Per Share                            Included
27       Financial Data Schedule                                      Included
 ________________________

[i] Incorporated herein by reference is the applicable Exhibit to Company's 
Annual Report on Form 10-K for the year ended March 31, 1989, File Number 
0-14713.

[ii] Incorporated herein by reference is the applicable Exhibit to Company's 
Annual Report on Form 10-K for the year ended March 31, 1990, File Number 
0-14713.

[iii] Incorporated herein by reference is the applicable Exhibit to Company's 
Annual Report on Form 10-K for the year ended March 31, 1992, File Number 
0-14713.

[iv] Incorporated herein by reference is the applicable Exhibit to Company's 
Report on Form 8-K filed April 13, 1990, File Number 0-14713.

[v] Incorporated herein by reference is the applicable Exhibit to Company's 
Annual Report on Form 10-K for the year ended March 31, 1994, File Number 
0-14713.

[vi] Incorporated herein by reference is the applicable Exhibit to Company's 
Report on Form 10-Q for the quarter ended September 30, 1994, File Number 
0-14713.

[vii] Incorporated herein by reference is the applicable Exhibit to Company's 
Report on Form 10-Q for the quarter ended December 31, 1994, File Number 
0-14713.

[viii] Incorporated herein by reference is the applicable Exhibit to 
Company's Annual Report on Form 10-K for the year ended March 31, 1995, File 
Number 0-14713.

[ix] Incorporated herein by reference is the applicable Exhibit to Company's 
Report on Form 10-Q for the quarter ended June 30, 1995, File Number 0-14713.

                                      17

<PAGE>

                                INTERLEAF, INC.

[x] Incorporated herein by reference is the applicable Exhibit to Company's 
Registration Statement on Form S-2, File Number 33-63785.

[xi] Incorporated herein by reference is the applicable Exhibit to Company's 
Report on Form 10-Q for the quarter ended September 30, 1995, File Number 
0-14713.

[xii] Incorporated herein by reference is the applicable Exhibit to Company's 
Report on Form 10-Q for the quarter ended December 31, 1995, File Number 
0-14713.

[xiii] Incorporated herein by reference is the applicable Exhibit to 
Company's Registration Statement on Form S-1, File Number 33-5743.

[xiv] Incorporated herein by reference is Exhibit 1 to Company's Registration 
Statement on Form 8-A, filed July 27, 1988.













                                      18