<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                    FORM 10Q
 
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.
 
For the Quarterly period ended December 31, 1997.
 
                                       or
 
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.
 
For the transition period from                to                    .
 
                         COMMISSION FILE NUMBER 0-14713
 
                                INTERLEAF, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                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)
</TABLE>
 
                                 (781) 290-0710
                        (Registrant's telephone number,
                              including area code)
 
    Indicate by check /X/ 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 last 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 February 10, 1998 was 18,155,309.
 
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                                       1
<PAGE>
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>                                                                                                          <C>
PART I--FINANCIAL INFORMATION
Item 1--Financial Statements
Consolidated balance sheets at December 31, 1997 and March 31, 1997........................................           3
Consolidated statements of operations for the three and nine months ended December 31, 1997 and 1996.......           4
Consolidated statements of cash flows for the three and nine months ended December 31, 1997 and 1996.......           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 a Vote of Security Holders................................................          14
Item 5--Other Information..................................................................................          14
Item 6--Exhibits and Reports on Form 8-K...................................................................          14
Signature..................................................................................................          14
</TABLE>

                                          2
<PAGE>

 
                         PART I--FINANCIAL INFORMATION
 
                          ITEM 1. FINANCIAL STATEMENTS
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS                            DECEMBER 31, 1997  MARCH 31, 1997
                                                                                -----------------  --------------
                                                                                           (UNAUDITED)
<S>                                                                             <C>                <C>
ASSETS
Current Assets
Cash and cash equivalents.....................................................     $    18,671       $   17,349
Accounts receivable, net of reserve for doubtful accounts of $1,381 at
  December 31, 1997 and $1,371 at March 31, 1997..............................          11,894           11,359
Prepaid expenses and other current assets.....................................           2,319            1,504
                                                                                      --------     --------------
Total Current Assets..........................................................          32,884           30,212
Property and equipment, net...................................................           3,922            4,963
Intangible assets, net........................................................           1,060            2,281
Other assets..................................................................             697              444
                                                                                      --------     --------------
Total Assets..................................................................     $    38,563       $   37,900
                                                                                      --------     --------------
                                                                                      --------     --------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable..............................................................     $     2,187       $    1,774
Accrued expenses..............................................................          12,112           14,455
Unearned revenue..............................................................          10,618           15,102
Accrued restructuring.........................................................           2,366            4,386
                                                                                      --------     --------------
Total Current Liabilities.....................................................          27,283           35,717
Long-term restructuring.......................................................           2,276            2,955
                                                                                      --------     --------------
Total Liabilities.............................................................          29,559           38,672
                                                                                      --------     --------------
Shareholders' Equity (Deficit)
Preferred stock, par value $.10 per authorized 5,000,000 shares:
Series A Junior Participating, none issued and outstanding Senior Series B
  convertible, shares issued and outstanding, 861,911 at December 31, 1997 and
  at March 31, 1997...........................................................              86               86
Senior Series C Convertible, shares issued and outstanding, 1,013,928 at
  December 31, 1997 and 1,006,220 at March 31, 1997...........................             101              101
Series 6% Convertible, shares issued and outstanding, 7,625 at December 31,
  1997........................................................................               1           --
Common stock, par value $.01 per share, authorized 50,000,000 shares, issued
  and outstanding, 18,155,309 at December 31, 1997 and 17,459,219 at March 31,
  1997........................................................................             182              175
Additional paid-in capital....................................................          93,870           85,513
Retained earnings(deficit)....................................................         (84,948)         (86,508)
Cumulative translation adjustment.............................................            (288)            (139)
                                                                                      --------     --------------
Total Shareholders' Equity (Deficit)..........................................           9,004             (772)
                                                                                      --------     --------------
Total Liabilities and Shareholders' Equity (Deficit)..........................     $    38,563       $   37,900
                                                                                      --------     --------------
                                                                                      --------     --------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       3
<PAGE>
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED DECEMBER 31      NINE MONTHS ENDED DECEMBER 31
                                            -----------------------------------  --------------------------------
                                                  1997               1996             1997             1996
                                            -----------------  ----------------  ---------------  ---------------
                                                        (UNAUDITED)                         (UNAUDITED)
<S>                                         <C>                <C>               <C>              <C>
In thousands, except for per share amounts
Revenues:
Products..................................      $   3,695         $    4,296        $   9,595       $    15,955
Maintenance...............................          6,400              6,903           19,744            21,785
Services..................................          3,329              4,149           10,029            13,247
                                                   ------            -------           ------     ---------------
Total revenues............................         13,424             15,348           39,368            50,987
Costs of Revenues:
Products..................................          1,177              1,416            2,859             4,569
Maintenance...............................            976              1,159            2,934             3,758
Services..................................          2,831              3,931            8,547            12,493
                                                   ------            -------           ------     ---------------
Total costs of revenues...................          4,984              6,506           14,340            20,820
Gross Margin..............................          8,440              8,842           25,028            30,167
Operating Expenses:
Selling, general and administrative.......          5,762              8,964           16,794            30,868
Research and development..................          2,021              3,227            6,788            11,802
Restructuring expense.....................         --                  3,700           --                 8,500
Write down of intangible assets...........         --                  2,288           --                 2,288
                                                   ------            -------           ------     ---------------
Total operating expenses..................          7,783             18,179           23,582            53,458
                                                   ------            -------           ------     ---------------
Income (loss) from operations.............            657             (9,337)           1,446           (23,291)
Other Income (expense)....................             69               (172)             115              (345)
                                                   ------            -------           ------     ---------------
Income (loss) before income taxes.........            726             (9,509)           1,561           (23,636)
Provision for income taxes................         --                 --               --               --
                                                   ------            -------           ------     ---------------
Net income (loss).........................      $     726         $   (9,509)       $   1,561       $   (23,636)
                                                   ------            -------           ------     ---------------
                                                   ------            -------           ------     ---------------
Income (loss) Per Share:
Basic.....................................      $    0.04         $    (0.54)       $    0.09       $     (1.37)
                                                   ------            -------           ------     ---------------
                                                   ------            -------           ------     ---------------
Diluted...................................      $    0.03         $    (0.54)       $    0.06       $     (1.37)
                                                   ------            -------           ------     ---------------
                                                   ------            -------           ------     ---------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       4
<PAGE>
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                              Nine months ended December 31
                                                           ----------------------------------
In thousands                                                      1997                1996
                                                           -----------------  -----------------
                                                                       (unaudited)
<S>                                                        <C>                <C>
Cash Flows from Operating Activities
Net income (loss)........................................      $   1,561         $ (23,636)
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
    Restructuring expense................................         --                 8,500
    Depreciation and amortization expense................          3,110             5,880
    Write down of intangible assets......................         --                 2,288
Changes in assets and liabilities
    (Increase) decrease in accounts receivable, net......           (900)            2,356
    (Increase) decrease in other assets..................         (1,094)              740
    Increase (decrease) in accounts payable and accrued
      expenses...........................................         (1,677)            1,335
    Decrease in unearned revenue.........................         (4,284)           (1,294)
    Decrease in other liabilities........................         (2,623)           (3,099)
Other, net...............................................            405                70
                                                                 -------      ---------------
    Net cash used in operating activities................         (5,502)           (6,860)
                                                                 -------      ---------------
Cash Flows from Investing Activities
Capital expenditures.....................................           (919)           (1,796)
Capitalized software development costs...................         --                  (887)
                                                                 -------      ---------------
    Net cash used in investing activities................           (919)           (2,683)
                                                                 -------      ---------------
Cash Flows from Financing Activities
Net proceeds from issuance of common stock...............          1,420             1,250
Net proceeds from issuance of convertible preferred
  stock..................................................          6,961             9,382
Repayment of long-term debt and capital leases...........            (20)               (8)
                                                                 -------      ---------------
    Net cash provided by financing activities............          8,361            10,624
                                                                 -------      ---------------
Effect of exchange-rate changes on cash..................           (618)              (68)
                                                                 -------      ---------------
Net increase in cash and cash equivalents................          1,322             1,013
Cash and cash equivalents at beginning of period.........         17,349            12,725
                                                                 -------      ---------------
Cash and cash equivalents at end of period...............      $  18,671         $  13,738
                                                                 -------      ---------------
                                                                 -------      ---------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       5
<PAGE>
                   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."
 
    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, 1997.
 
2. RECENTLY ISSUED ACCOUNTING STANDARD
 
    In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128).This
statement attempts to simplify current standards used in the United States for
computing earnings per share and make them more comparable with international
standards. SFAS 128 replaces APB Opinion 15 and related interpretations. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where necessary, restated to conform to the SFAS 128 requirements.
 
3. SHAREHOLDER'S EQUITY
 
    On September 30, 1997, the Company sold, in a private placement, 7,625
shares of Series 6% Convertible Preferred Stock ("6% Convertible Preferred
Stock") at a price of $1,000 per share, receiving proceeds of $6.8 million, net
of placement agent fees and transaction costs. In addition, the Company issued
to the placement agent warrants to purchase 763 shares of 6% Convertible
Preferred Stock at an exercise price of $1,000 per share. These warrants are
exercisable for a period of five years commencing September 30, 1997. The 6%
Convertible Preferred Stock is convertible into shares of the Company's Common
Stock; for a discussion of such conversion rights, please refer to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
 
    The Company has registered the Common Stock issuable upon conversion of the
6% Convertible Preferred Stock under the Securities Act of 1933 under a "shelf"
registration statement.
 
                                       6
<PAGE>

    Pursuant to its agreements with the holders of the 6% Convertible Preferred
Stock and with The Nasdaq Stock Market, Inc. ("NASDAQ"), the Company sought and
obtained on December 17, 1997 shareholder approval of the private placement of
the 6% Convertible Preferred Stock.
 
4. EARNINGS PER SHARE
 
    The following table sets forth the computation of basic and diluted earnings
per share:
 
<TABLE>
<CAPTION>
                                                                           
                                                                           THREE MONTHS ENDED     NINE MONTHS ENDED
                                                                              DECEMBER 31            DECEMBER 31
                                                                          --------------------  ---------------------
                                                                            1997       1996       1997        1996
                                                                          ---------  ---------  ---------  ----------
<S>                                                                       <C>        <C>        <C>        <C>
In thousands, except for per share amounts
Numerator:
    Net income (loss) for basic earnings per share and dilutive earnings
    per share...........................................................  $     726  ($  9,509) $   1,561  ($  23,636)
                                                                          ---------  ---------  ---------  ----------
                                                                          ---------  ---------  ---------  ----------
Denominator:
    Denominator for basic earnings per share weighted average shares....     17,892     17,459     17,759      17,306
Effect of dilutive securities:
    Convertible preferred stock (Series B & C)..........................      5,197     --          5,184      --
    Stock options.......................................................      2,374     --          1,488      --
    Stock purchase plan rights..........................................        169     --             89      --
    Warrants............................................................         16     --              6      --
                                                                          ---------  ---------  ---------  ----------
Dilutive potential common shares........................................      7,756     --          6,767      --
Denominator for diluted earnings per share adjusted weighted average
  shares and assumed conversions........................................     25,648     17,459     24,526      17,306
                                                                          ---------  ---------  ---------  ----------
                                                                          ---------  ---------  ---------  ----------
Basic earnings per share................................................  $    0.04  ($   0.54) $    0.09  ($    1.37)
                                                                          ---------  ---------  ---------  ----------
                                                                          ---------  ---------  ---------  ----------
Diluted earnings per share..............................................  $    0.03  ($   0.54) $    0.06  ($    1.37)
                                                                          ---------  ---------  ---------  ----------
                                                                          ---------  ---------  ---------  ----------
</TABLE>
 
    Options to purchase 248,000 shares of Common Stock between $8.25--$5.50 per
share were outstanding but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the Common Shares, and, therefore, the effect would be
anti-dilutive.
 
    The Company on September 30, 1997 completed a private placement of 6% 
Convertible Preferred Stock, described in the Company's Quarterly Report on 
Form 10-Q covering the period ended September 30, 1997. The 6% Convertible 
Preferred Stock is convertible into Common Stock at a conversion price which 
depends on the price of the Common Stock, and therefore is variable. In 
addition, the conversion price is subject to (1) a low and high price cap; 
and (2) a "Green Floor Price" at which the Company may, at its option, choose 
to satisfy a conversion request in cash rather than stock. There are also 
limitations on the number of shares which may be converted, which depend on 
the price of the Company's stock over a brief time period prior to the time 
of conversion. In addition, there are limitations on the number of shares of 
converted Common Stock which may be sold in any one day. At December 31, 
1997, a certain percentage of the 6% Convertible Preferred Stock outstanding 
(including such shares as were issuable upon exercise of the placement agent 
warrants) was convertible at a price of $5.50, into a total of 140,776 shares 
of Common Stock. Since the Company's stock closed at a price of $3.44 on that 
day, the conversion would have been anti-dilutive. At some point in the 
future, this conversion may become dilutive. If there were no restrictions on 
the number of shares which may be converted, and if 100% of the 6% 
Convertible Preferred Stock outstanding (including such shares as were 
issuable upon exercise of the placement agent warrants) were converted into 
Common Stock at a conversion price of $5.50 per share, a total of 1,407,762 
shares of Common Stock could be issued. Please refer to the Company's 
Quarterly Report on Form 10-Q for the period ended September 30, 1997 for a 
complete description of the 6% Convertible Preferred Stock.

5. CREDIT AGREEMENTS
 
    In August 1997, the Company's revolving line of credit with a major
commercial lender expired. Although this credit facility was not utilized in
either fiscal 1997 or 1998, available credit would have been secured by
substantially all domestic assets of the Company. At December 31, 1997, the
Company has a letter of credit for $0.6 million, which is secured by the same
amount of cash, from another major commercial lender which expires on July 31,
1998.
 
                                       7
<PAGE>

6. RESTRUCTURING
 
    For the nine months ended December 31, 1997, the Company paid 
approximately $2.7 million, net of sublease receipts, related to the fiscal 
1997 and 1995 restructurings. For the nine months ended December 31, 1996, 
the Company paid approximately $3.2 million, net of sublease receipts, 
related to the fiscal 1997 and 1995 restructurings. Expenditures for facility 
closures, primarily lease payments, net of sublease receipts, are expected to 
continue through December 2001. The Company continues to monitor its cost 
structure in light of current and future revenue levels. As such, additional 
cost reductions may be effected during the quarter ending March 31, 1998. The 
Company does not expect any such actions, were they to occur, to have a 
material impact on its operating results for the quarter or year ending 
March 31, 1998.
 
7. 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 in 1990. The Company is appealing this 
assessment; however, approximately $1.1 million of the cash and cash 
equivalents balance at December 31, 1997 has been restricted for potential 
payment of the German withholding taxes. The Company believes the final 
outcome will not have a material adverse effect on the financial position or 
results of operations of the Company.
 
    Under its agreement with the holders of the 6% Convertible Preferred 
Stock, the Company has the right to pay such holders cash in lieu of their 
conversion rights under circumstances where the Company's stock price is 
below $3.00 per share. Under its agreements with the holders of the 6% 
Convertible Preferred Stock and with NASDAQ, the Company has 
reserved $1 million of cash to fund its exercise of this right as necessary 
to prevent dilution beyond a certain limit.
 
    Pursuant to its agreement with a subtenant of space previously occupied by
the Company, the Company has placed $325,000 in escrow, to be paid over to the
subtenant upon completion of certain construction. This amount is included in
the restructuring expenses previously reported by the Company.
 
                                       8
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
    This Form 10-Q contains forward-looking statements within the meaning of 
Section 27A of the Securities Act of 1933 and Section 21E of the Securities 
Exchange Act of 1934. The Company's actual results could differ materially 
from those set forth in the forward-looking statements. Factors that might 
cause such a difference are discussed in the section entitled "Risk Factors" 
below. The following information should be read in conjunction with the 
financial statements and notes thereto and risk factors contained in the 
section entitled "Risk Factors" on page 15 of the Company's Annual Report to 
Shareholders, as incorporated by reference into Item 7 of the Company's 
Annual Report on Form 10-K dated June 30, 1997.
 
RESULTS OF OPERATIONS
 
OVERVIEW
 
    The Company reported net income of $0.7 million on total revenues of $13.4
million for the third quarter, and net income of $1.6 million on total revenues
of $39.4 million, for the nine months ended December 31, 1997. This compares
with the prior year's net loss of $9.5 million on total revenues of $15.3
million for the third quarter and a net loss of $23.6 million, on total revenues
of $51.0 million, for the nine months ended December 31, 1996. Much of the
decline in revenue is due to a decrease in product revenue, and the related
impact on maintenance and service revenue caused by the ongoing maturation of
the market for complex authoring products and the increasing popularity of
low-end versions of Windows-based authoring software. The Company has continued
its efforts to focus on developing and supporting a new integrated web
publishing product family, targeted toward its customers' extended enterprise,
and identifying specific vertical market(s) where the Company may exploit a
competitive advantage, and marketing software products together with services in
a solutions based approach to sales. The initial product in the Company's web
publishing product family, Interleaf Xtreme 1.0, was released during the
quarter, but it is too early in the product lifecycle for results of this effort
to have a material impact on the Company's financial performance. The Company
has also increased its focus on improving and adding functionality to its
traditional complex authoring products, to be included in future releases of
those products. The Company has also undertaken a systematic effort to address
concerns raised by the Year 2000; see "Risk Factors", below. The Company's net
income for the third quarter ended December 31, 1997 compared to the loss for
the same period a year ago was primarily due to the impact of significant
reductions to the cost structure of the Company recognized during the second and
third quarters of fiscal 1997. During the first three quarters of fiscal 1997,
headcount was reduced, facilities were closed or downsized, and various cost
control measures were implemented. The Company continues to monitor its cost
structure in light of current and future revenue levels. As such, additional
cost reductions may be effected during the quarter ending March 31, 1998. The
Company does not expect any such actions, were they to occur, to have a material
impact on its operating results for the quarter or year ending March 31, 1998.
 
REVENUES
 
    Total product revenue decreased by $0.6 million (14%) and $6.4 million (40%)
for the third quarter and the nine months ended December 31, 1997, respectively,
compared to the same periods in fiscal 1997. Revenue increased in the Americas,
and declined in Europe and Japan. The continuing reduction in product license
revenue is due to two factors. The first is the decline in licensing of the
Company's
 
                                       9
<PAGE>

UNIX-based high-end authoring products which is primarily attributable to the
increasing popularity of Windows-based authoring software, for which the Company
did not have any product offerings until January of 1996. The Company's
Windows-based authoring products have, in turn, faced increased competition as
third party low-end Windows-based authoring products have added additional
functionality, and become more competitive with the Company's high-end product.
A second factor is the saturation of UNIX-based high-end authoring software in
the aerospace/defense industry, where the Company had historically derived most
of its authoring product license revenue.
 
    The Company has refocused its business strategy on providing a new family of
integrated web publishing products, with the intent to target specific vertical
market(s). While the Company has built well-accepted integrated document
publishing based solutions for individual customers, it has not yet demonstrated
the ability to develop, market and sell web based publishing products. While the
early product in this line, Interleaf Xtreme 1.0, was released during the
quarter, it is too early in the product lifecycle for results of this effort to
have a material impact on the Company's financial performance and 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 declined.
This trend will continue unless product revenue stabilizes.
 
    Maintenance revenue decreased by $0.5 million (7%) and $2.0 million (9%) for
the third quarter and the nine months ended December 31, 1997, respectively,
compared to the same periods in fiscal 1997. Revenue declined in all geographic
regions. Future maintenance revenue is dependent on the Company's ability to
maintain its existing customer base and to increase maintenance contract volume
related to the new web publishing products. This will be necessary to offset the
general downward pricing pressure on maintenance in the software industry and a
reduction in customers' perceived value of maintenance services for the
Company's traditional complex authoring products.
 
    Services revenue, consisting of consulting and customer training revenue
decreased by $0.8 million (20%) and $3.2 million (24%) for the third quarter and
the nine months ended December 31, 1997, respectively, compared to the same
periods in fiscal 1997. Revenue declined in all geographic regions. Future
services revenue is dependent on the Company's ability to maintain its existing
customer base and to increase consulting and training contracts based on the
introduction and success of new products.
 
    During the remainder of fiscal 1998 and through the first two quarters of
fiscal 1999, the Company plans to develop additional product offerings in the
Interleaf Xtreme product line, which will solve complex publishing problems in
specific vertical market(s). Growth in revenues during fiscal 1998 and fiscal
1999 will be largely dependent on improving sales force productivity, the
effectiveness of the Company's increased investment in marketing and lead
generation programs, customer acceptance of the new and enhanced software
products planned to be released in fiscal 1998 and the following year, and the
Company's success in leveraging software products with services to provide web
publishing solutions to its customers. If the Company is unable to grow or
stabilize its revenues in fiscal 1998, further expense reductions will be
necessary in order to sustain operations.
 
COSTS OF REVENUES
 
    Cost of product revenues includes amortization of capitalized software
development costs, product media, documentation materials, packaging and
shipping costs, and royalties paid for licensed technology. Cost of product
revenues decreased by $0.2 million (17%) and $1.7 million (37%) for the third
quarter and the nine months ended December 31, 1997 compared to the same periods
in fiscal 1997. Cost of product revenues as a percentage of product revenues
were 32% and 30% for the third quarter
 
                                       10
<PAGE>

and the nine months ended December 31, 1997, respectively, compared to 33% and
29% for the same periods in fiscal 1997. The cost of maintenance revenue
declined by $0.2 million (16%) and $0.8 million (22%) for the third quarter and
the nine months ended December 31, 1997, respectively, compared to the same
periods in fiscal 1997. Cost of maintenance revenues as a percentage of
maintenance revenues were 15% for the third quarter and the nine months ended
December 31, 1997, compared to 17% for the same periods in fiscal 1997. The cost
of service revenue declined by $1.1 million (28%) and $3.9 million (32%) for the
third quarter and the nine months ended December 31, 1997, respectively,
compared to the same periods in fiscal 1997. Cost of service revenues as a
percentage of service revenues were 85% for the third quarter and the nine
months ended December 31, 1997, respectively, compared to 95% and 94% for the
same periods in fiscal 1997. The overall decline in the costs of revenues was
due to the year-to-year lower revenue, and the reduced expenses implemented as
part of the fiscal 1997 restructuring.
 
OPERATING EXPENSES
 
    Selling, general and administrative ("SG&A") expenses decreased by 36% and
46% for the third quarter and nine months ended December 31, 1997, respectively,
compared to the same periods in fiscal 1997. SG&A expenses as a percentage of
total revenue were 43% for the third quarter and nine months ended December 31,
1997, compared to 58% and 61% respectively for the same periods in fiscal 1997.
The decline was primarily due to significant personnel and facilities expense
reductions related to the Company's fiscal 1997 restructurings.
 
    Research and Development ("R&D") expenses consist primarily of personnel
expenses to support product development. R&D expenses decreased 37% and 42% for
the third quarter and nine months ended December 31, 997, respectively, compared
to the same periods in fiscal 1997. R&D as a percentage of total revenue were
15% and 17% for the third quarter and nine months ended December 31, 1997,
respectively, compared to 21% and 23%, respectively, for the same periods in
fiscal 1997. The decline was primarily due to significant personnel and
facilities expense reductions related to the Company's fiscal 1997
restructurings.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company had approximately $18.7 million of cash and cash equivalents at
December 31, 1997, an increase of approximately $1.3 million from March 31,
1997. The net increase was the result of funds received from the Private
Placement described in Note 3 to the financial statements ($6.8 million, net),
offset by cash used for operations ($5.5 million). The Company's consolidated
cash balances include amounts held in foreign subsidiaries, in foreign
currencies. During the six months ended December 31, 1997, fluctuations in
foreign exchange rates resulted in a $.6 million decrease in the Company's
consolidated cash balances (US dollars).
 
    The Company, on September 30, 1997, completed a private placement resulting
in net proceeds to the Company of $6.8 million from the issuance of 7,625 shares
of 6% Convertible Preferred Stock and placement agent warrants to purchase
additional shares of 6% Convertible Preferred Stock.
 
    Under its agreement with the holders of the 6% Convertible Preferred Stock
the Company has the right to pay such holders cash in lieu of their conversion 
rights under circumstances where the Company's stock price is below $3.00 per 
share. Under its agreements with the holders of the 6% Convertible Preferred 
Stock and with NASDAQ, the Company has reserved $1 million of cash to fund its
exercise of this right as necessary to prevent dilution beyond a certain limit.
 
                                       11
<PAGE>

    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
December 31, 1997 and March 31, 1997, the Company had approximately $1.1 million
of cash restricted for potential payment of German withholding taxes.
 
    Pursuant to its agreement with a subtenant of space previously occupied by
the Company, the Company has placed $325,000 in escrow, to be paid over to the
subtenant upon completion of certain construction. This amount is included in
the restructuring expenses previously reported by the Company.
 
    For the nine months ended December 31, 1997, the Company paid approximately
$2.7 million, net of sublease receipts, related to the fiscal 1997 and 1995
restructurings, compared to $3.2 million paid during the same period in fiscal
1997. Cash payments related to these restructurings, the majority of which are
related to operating lease payments, net of subleases, are anticipated to
continue until December 2001. All significant non-operating vacant space under
lease has been subleased.
 
    In August 1997, the Company's revolving line of credit and $0.7 million
letter of credit with a major commercial lender expired. This revolving line of
credit was not utilized in either fiscal 1997 or 1998, but any borrowed amounts
would have been secured by substantially all domestic assets of the Company. At
December 31, 1997, the Company has obtained a new letter of credit for $0.6
million, which is secured by the equivalent amount of cash, from another major
commercial lender.
 
    While the Company showed a modest profit in the first nine months of fiscal
1998, during fiscal year 1997 the Company experienced a substantial decline in
revenues and a substantial loss from operations which resulted in a
shareholders' deficit at March 31, 1997. Due to the downward trend in the
Company's revenues, the Company developed detailed plans relating to its fiscal
1998 operations which restored the Company to profitable operations through the
first nine months of fiscal 1998. However, no assurances can be given that these
profitable operations can be sustained. Management is committed to continue
taking all appropriate and necessary actions to effect timely cost reductions in
the event that anticipated revenue levels are not achieved. The Company can only
fund any long-term growth through increasing revenues, combined with tightly
managed cost controls.
 
    The Company believes its current cash balances, proceeds from the private
placement and cash generated from operations will be sufficient to meet the
Company's liquidity needs for fiscal 1998 and the foreseeable future. However,
if the Company is unable to sustain profitable operations, additional financing
may be necessary to support ongoing operations, and there can be no assurance
that such financing will be available, or available on commercially reasonable
terms.
 
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 and may fluctuate between operating periods.
Certain factors that might cause such differences and fluctuations include the
factors discussed below.
 
    The Company's future operating results are dependent on its ability to
develop and market integrated document publishing ("IDP") software products and
services that meet the changing needs of organizations with complex document
publishing requirements. There are numerous risks associated with this process,
including rapid technological change in the information technology industry and
the
 
                                       12
<PAGE>

requirement to bring to market IDP and web-based applications that solve 
complicated business needs in a timely manner. To the extent that the 
Company's traditional complex authoring products have not adopted or fail to 
adopt to changes in technology, sales of these products may continue to 
decline.
 
    The Company has undertaken a systematic review and planning process
concerning the requirements and abilities of its standard products (including
embedded third party products) to handle date information and to function
appropriately from and after January 1, 2000. The Company intends to discontinue
its support of certain products which it considers obsolete without regard to
Year 2000 concerns. Although the Company believes that the effort required to
adapt its supported standard products to the Year 2000 will not have a
materially adverse impact on the Company's financial performance, currently
unforeseen difficulties, delays or requirements could cause this assessment to
change. Many of the Company's customers have implemented custom applications
which rely on the Company's standard products to operate, and the Company does
not believe that it has the obligation to modify such applications for the Year
2000. It is possible that unforeseen liabilities may arise with respect to
discontinued products or custom applications. To the extent that the Company's
traditional complex authoring products are not adapted to address customers'
Year 2000 concerns, sales of these products may continue to decline.
 
    The Company has also undertaken a comprehensive evaluation of its internal
information systems in order to evaluate any improvements or replacements that
may be required in order to address Year 2000 functionality and other
operational deficiencies. This review is not complete, and the Company cannot
estimate the cost or risk which may be associated with its Year 2000 or other
operational issues. The Company expects to have the evaluation and planning
process completed, and to begin any necessary corrective action, by the end of
the current fiscal year.
 
    In addition, the existing document publishing, electronic distribution, and
document management markets are highly competitive. Many of these competitors
are larger and better funded than the Company. The Company competes for sales of
its software products on both an individual product basis, and as integrated
with consulting services in large IDP solution sales.
 
    Given the reduction in the Company's revenues and employee base over 
recent periods, and given the current extremely competitive labor conditions, 
the Company will face difficulties in managing and implementing its plans for 
growth, including without limitation difficulties in attracting and retaining 
key technical, sales and executive personnel, and difficulties in managing 
relationships with distributors, vendors, customers and other third parties.
 
    Sales cycles associated with IDP solution sales are long because
organizations frequently require the Company to solve complex business problems
that typically involve reengineering of their business processes. In addition, a
high 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 can have a
significant impact on the Company's operating results and liquidity.
 
    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.
 
                                       13
<PAGE>

    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>
                           PART II--OTHER INFORMATION
 
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
 
    At the Special Meeting of Shareholders held on December 17, 1997 ("Special
Meeting") the shareholders of the Company approved and reserved for issuance the
shares of Common Stock issuable (i) upon the conversion of shares of the
Company's 6% Convertible Preferred Stock issued in a September 1997 private
placement, (ii) as dividends on the 6% Convertible Preferred Stock and (iii) in
respect of related placement agent warrants, pursuant to the terms of the 6%
Convertible Preferred Stock Investment Agreement dated as of September 30, 1997,
as described in the Company's Proxy Statement dated November 17, 1997, by a vote
of 10,994,539 in favor to 172,689 against, with 109,805 abstentions and 0
broker non-votes.
 
ITEM 5. OTHER INFORMATION
 
    On October 14, 1997, the Company hired Craig Newfield as Vice President and
General Counsel.
 
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.
 
                                   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.
 
    February 13, 1998
 
<TABLE>
<S>                                           <C>
                                              /s/ Robert R. Langer
                                              ------------------------------------
                                              Robert R. Langer,
                                              Vice President of Finance and Administration
                                              and Chief Financial Officer
                                              (Principal Financial and Accounting Officer)
</TABLE>
 
                                       15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                      DESCRIPTION                                            METHOD OF FILING
--------                    ----------------------------------------------                         ----------------
<S>        <C>                                                                                           <C>
3(a)       Restated Articles of Organization of the Company, as amended                                  [xviii]

3(b)       By--Laws of the Company, as amended                                                               [v]

4(a)       Specimen Certificate for Shares of the Company's Common Stock                                   [xiv]

4(b)       Rights Agreement, dated July 15, 1988, between the Company and the First National Bank           [xv]
           of Boston

10(a)      Company's 1983 Stock Option Plan, as amended                                                      [v]

10(a1)     1994 Employee Stock Option Plan, as amended                                                    [xiii]

10(a2)     1993 Incentive Stock Option Plan, as amended                                                  [xviii]

10(b)      Company's 1989 Director Stock Option Plan                                                         [i]

10(b2)     Company's 1987 Employee Stock Purchase Plan, as amended                                        [xiii]

10(c)      Company's 1989 Officer and Employee Severance Benefit Plans                                       [i]

10(cc)     Company's 1993 Director Stock Option Plan                                                         [v]

10(d)      Agreements between PruTech Research and Development Partnership III and the Company,             [ii]
           dated October 21, 1988.

10(e)      Exclusive Marketing and Licensing Agreement, between Interleaf South America, Ltd. and            [i]
           the Company, and related Option Agreement, dated March 31, 1989.

10(f)      Distribution and License Agreement between Interleaf Italia, S.r.l. and the Company,              [i]
           and related Joint Venture Agreement, dated October 31, 1988.

10(g)      Preferred Stock Purchase Agreements, for the issuance of 2,142,857 shares of the                 [ii]
           Company's Senior Series B Convertible Preferred Stock, dated September 29, 1989.

10(h)      Notification to Preferred Shareholder of increase in conversion ratio, dated May 18,            [iii]
           1992.

10(i)      Lease of Prospect Place, Waltham, MA, between Prospect Place Limited Partnership and             [iv]
           Interleaf, Inc., and related Agreements, dated March 30, 1990.

10(j)      Employment and severance agreement between the Company and Edward Koepfler, the                 [vii]
           Company's President, dated October 3, 1994.

10(k)      Loan and Security Agreement between the Company and Foothill Capital Corporation,                [ix]
           dated May 2, 1995.

10(l)      Employment and severance agreement between the Company and G. Gordon M. Large, the               [ix]
           Company's Executive Vice President and Chief Financial Officer, dated June 5, 1995.

10(m)      Net Lease, dated August 14, 1995, between Principal Mutual Insurance Company and the              [x]
           Company.

10(n)      Sublease, dated September 15, 1995, between Parametric Technology Corporation and the             [x]
           Company.

10(o)      Employment and severance agreement between the Company and Mark Cieplik, the Company's           [xi]
           Vice President, Americas, dated March 17, 1995.

10(p)      Agreement between PruTech Research and Development Partnership III and the Company,             [xii]
           dated November 14, 1995.

10(q)      Series C Preferred Stock Agreement between Interleaf, Inc. and Lindner Investments,            [xiii]
           dated October 14, 1996.
</TABLE>
 
                                       16
<PAGE>
<TABLE>
<S>                                           <C>                                             <C>  <C>
10(r)      Letter Agreement between the Company and Robert M. Stoddard, as the Company's then              [xvi]
           Vice President of Finance and Administration, and Chief Financial Officer, dated
           November 11, 1996.

10(s)      Letter Agreement between the Company and Rory J. Cowan, the Company's President and             [xvi]
           Chief Executive Officer, dated November 15, 1996, concerning his employment and
           compensation with the Company.

10(t)      Letter Agreement between the Company and Mark H. Cieplik, the Company's Vice President          [xvi]
           of Sales, dated November 15, 1996, concerning his employment and compensation with the
           Company.

10(u)      Letter Agreement between the Company and Michael L. Shanker, the Company's Vice                 [xvi]
           President of Professional Services, dated November 15, 1996, concerning his employment
           and compensation with the Company.

10(v)      Letter Agreement between the Company and Stephen J. Hill, the Company's Vice President          [xvi]
           of Europe, dated November 15, 1996, concerning his employment and compensation with
           the Company.

10(w)      Resignation Agreement and Release and Employment Agreement between Ed Koepfler, the             [xvi]
           Company's former President and Chief Executive Officer, and the Company, dated
           November 15, 1996, concerning his employment and severance with the Company.

10(w1)     Resignation Agreement and Release and Employment Agreement between G. Gordon M. Large,          [xvi]
           the Company's former Executive Vice President of Finance and Administration and Chief
           Financial Officer, and the Company, dated November 12, 1996, concerning his employment
           and severance with the Company.

10(x)      Resignation Agreement and Release and Employment Agreement between Stan Douglas, the            [xvi]
           Company's former Vice President of Engineering Operations, and the Company, dated
           November 15, 1996, concerning his employment and severance with the Company.

10(y)      Terms of Engagement between the Company and Robert R. Langer, Vice President of                 [xvi]
           Finance and Administration and Chief Financial Officer, dated December 30, 1996,
           concerning his employment with the Company.

10(z)      Offer Letter and Acceptance between Jaime W. Ellertson, the Company's President and             [xvi]
           Chief Executive Officer, and the Company, dated January 9, 1997.

10(z1)     Offer Letter and Acceptance between Michael L. Torto, the Company's Vice President,            [xvii]
           Marketing, and the Company, dated March 28, 1997.

10(z2)     Offer Letter and Acceptance between Robert A. Fisher, the Company's Vice President,            [xvii]
           Customer Support, and the Company, dated April 17, 1997.

10(z3)     Offer Letter and Acceptance between Christopher McKee, the Company's Vice President,           [xvii]
           Europe, Middle East, Africa, and the Company, dated May 13, 1997.

10(z4)     Offer Letter and Acceptance between Gary R. Phillips, the Company's Vice President,            [xvii]
           North American Sales, and the Company, dated May 22, 1997.

10(z5)     Resignation Agreement between Mark H. Cieplik, the Company's former Vice President,            [xvii]
           Americas, and the Company, dated May 29, 1997, concerning his employment and severance
           with the Company.

10(z6)     Resignation Agreement between Stephen J. Hill, the Company's former Vice President,            [xvii]
           Europe, and the Company, dated June 5, 1997, concerning his employment and severance
           with the Company.

10(z7)     Offer Letter and Acceptance between Craig Newfield, the Company's Vice President,             [xviii]
           General Counsel & Clerk, and the Company, dated October 3,
</TABLE>
 
                                       17
<PAGE>
<TABLE>
<S>                                           <C>                                             <C>  <C>
           1997.

10(aa)     Preferred Stock Investment Agreement among the Company and certain investors dated as         [xviii]
           of September 30, 1997, with exhibits.

10(bb)     Stock Purchase Warrant and signature pages between the Company and certain family             [xviii]
           members of the principals of Capello Capital Corp. date as of September 30, 1997.

27         Financial Data Schedule                                                                      Included
</TABLE>
 
------------------------
 
<TABLE>
<S>        <C>
[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.
 
[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 Report on
           Form 10-Q for the quarter ended September 30, 1996, File Number 0-14713.
 
[xiv]      Incorporated herein by reference is the applicable Exhibit to Company's Registration
           Statement on Form S-1, File Number 33-5743.
 
[xv]       Incorporated herein by reference is Exhibit 1 to Company's Registration Statement on
           Form 8-A, filed July 27, 1988.
</TABLE>
 
                                       18
<PAGE>
<TABLE>
<S>        <C>
[xvi]      Incorporated herein by reference is the applicable Exhibit to Company's Report on
           Form 10-Q for the quarter ended December 31, 1996, File Number 0-14713.
 
[xvii]     Incorporated herein by reference is the applicable Exhibit to Company's Report on
           Form 10-Q for the quarter ended June 30, 1997, File Number 0-14713.
 
[xviii]    Incorporated herein by reference is the applicable Exhibit to Company's Report on
           Form 10-Q for the quarter ended September 30, File Number 0-14713.
</TABLE>
 
                                       19