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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 JUNE 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)
(612) 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
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APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock, $.01 par value,
as of July 31, 1996 was 17,454,646.
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INTERLEAF, INC.
TABLE OFCONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated balance sheets at June 30, 1996 and March 31, 1996. . . . . . . . . . . . . . . . . . . 3
Consolidated statements of operations for the three months ended June 30, 1996 and 1995. . . . . . . 4
Consolidated statements of cash flows for the three months ended June 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 . . . 8
PART II - OTHER INFORMATION
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
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INTERLEAF, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 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 $ 11,353 $ 12,725
Accounts receivable, net 15,339 19,771
Prepaid expenses and other current assets 2,222 2,112
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TOTAL CURRENT ASSETS 28,914 34,608
Property and equipment, net 8,000 7,800
Intangible assets 8,617 6,164
Other assets 689 344
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TOTAL ASSETS $ 46,220 $ 48,916
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,886 $ 2,908
Accrued expenses 13,002 13,252
Unearned revenue 13,612 15,986
Other current liabilities 989 1,348
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TOTAL CURRENT LIABILITIES 30,489 33,494
Other liabilities 260 3
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TOTAL LIABILITIES 30,749 33,497
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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 June
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 17,453,978 at June 30, 1996
and 16,697,988 at March 31, 1996 175 167
Additional paid-in capital 76,210 72,348
Retained earnings (deficit) (60,758) (56,958)
Cumulative translation adjustment (242) (230)
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TOTAL SHAREHOLDERS' EQUITY 15,471 15,419
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 46,220 $ 48,916
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30
1996 1995
In thousands, except for per share amounts (unaudited)
REVENUES:
Products $ 7,046 $ 9,437
Maintenance 7,472 7,792
Services 4,536 5,898
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TOTAL REVENUES 19,054 23,127
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COSTS OF REVENUES:
Products 1,626 1,660
Maintenance 1,308 1,369
Services 4,200 4,809
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TOTAL COSTS OF REVENUES 7,134 7,838
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Gross margin 11,920 15,289
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OPERATING EXPENSES:
Selling, general and administrative 11,422 10,982
Research and development 4,270 3,926
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TOTAL OPERATING EXPENSES 15,692 14,908
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Income (loss) from operations (3,772) 381
Other income (expense) (28) 91
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Income (loss) before income taxes (3,800) 472
Provision for income taxes - -
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NET INCOME (LOSS) $ (3,800) $ 472
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Net income (loss) per share $ (0.22) $ 0.03
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Shares used in computing net income
(loss) per share 16,998 17,648
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended June 30
1996 1995
In thousands (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,800) $ 472
Adjustments to reconcile net income (loss) to net cash provided bY
(used in) operating activities:
Depreciation and amortization expense 2,009 2,017
Loss from disposal of property and equipment - 22
Changes in assets and liabilities, net of effect of acquisition:
Decrease in accounts receivable, net 4,491 4,927
Decrease in other assets 76 198
Decrease in accounts payable and accrued expenses (911) (1,349)
Decrease in unearned revenue (2,312) (869)
Decrease in other liabilities (354) (1,340)
Other, net 62 (32)
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Net cash provided by (used in) operating activities (739) 4,046
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,201) (196)
Capitalized software development costs (605) (1,066)
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Net cash used in investing activities (1,806) (1,262)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 1,237 1,058
Repayment of long-term debt and capital leases (2) (1,658)
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Net cash provided by (used in) financing activities 1,235 (600)
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Effect of exchange-rate changes on cash (62) (1)
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Net increase (decrease) in cash and cash equivalents (1,372) 2,183
Cash and cash equivalents at beginning of period 12,725 10,441
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Cash and cash equivalents at end of period $ 11,353 $ 12,624
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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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
4. Noncash Financing Activities
Senior Series B Convertible Preferred Stock holders converted 61,393 shares
of preferred stock into 82,496 shares of the Company's common stock during
the three months ended June 30, 1996.
6
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INTERLEAF, INC.
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 June 30, 1996, there
were no loans 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
July 31, 1996, approximately $1.0 million of standby letters of credit were
outstanding and the amount available for borrowings was approximately $0.7
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 to reduce
employment by approximately 75 people, close or reduce space in seven
sales offices, and reduce and relocate part of corporate headquarters to
less expensive space. The employee terminations affected all groups
throughout the organization. During the second quarter of fiscal
1997, the Company will record a one-time charge of approximately $4.8
million to cover costs associated with this restructuring. Of this amount,
approximately $1.3 million is for employee termination benefits and $3.5
million for other exit costs, primarily related to facility leases. Cash
outlays are anticipated to be approximately $4.1 million and will require
lease payments through December 2000.
During the first quarter ended June 30, 1996, the Company paid
approximately $0.4 million, net of sublease receipts, related to the fiscal
1995 restructuring. Expenditures for facility closures, primarily lease
payments, are expected to continue through December 2000.
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 June 30, 1996 has been reserved 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.
7
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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 $3.8 million, on total revenues
of approximately $19.1 million, for its first quarter ended June 30, 1996,
compared with net income of approximately $0.5 million, on total revenues of
approximately $23.1 million, for the same period a year ago. As a result of the
losses during its last two quarters and continued review of the Company's
business strategy and outlook, the Company announced a restructuring plan in
July 1996 to reduce employment and facility costs. A one-time charge to
operations of approximately $4.8 million will be incurred during the second
quarter of fiscal 1997 to reduce employment by approximately 75 people, close
or reduce space in seven sales offices, and reduce and relocate part of
corporate headquarters to less expensive space. Savings from the
restructuring and other expense reductions are anticipated to be over $2
million per quarter by the third quarter of fiscal 1997.
In light of the continued revenue decline from its stand-alone software
products, the Company is accelerating its strategy of developing and
marketing integrated document management ("IDM") offerings for specific
markets, such as sales force automation and integration, quality and health
and safety compliance in manufacturing, and customer reporting in the
financial services industry. These offerings, which utilize the Company's
core software products, will be designed to solve specific business
requirements in such markets.
REVENUES
Total revenues decreased approximately $4.1 million (18%) for the first
quarter ended June 30, 1996, when compared with the same period a year ago,
primarily due to declines in product license and services revenue. Revenue
declined in all geographic regions. Product license revenue decreased
approximately $2.4 million (25%) primarily due to lower licensing of the
Company's stand-alone authoring and distribution products. This decrease was
a result of the continued decline in demand for UNIX-based high-end authoring
software, due to the popularity and power of PC-based authoring software, and
the increased usage of internet technology for viewing simple documents in
the United States. The Company believes that this increase in commercial
usage of the internet and intranets will lead to higher demand for IDM
solutions in the future.
8
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Maintenance revenue, resulting from contracts to provide telephone support
and upgrades to the Company's software products, remained relatively stable
as compared to a year ago. This stability, during a time of decreasing
product licensing, was largely attributable to renewals from the Company's
very large, long-term customers primarily in the aerospace / defense
industry. Future maintenance revenue is dependent on the Company's ability
to maintain its existing customer base, as the aerospace/defense industry
continues to consolidate, and to increase maintenance contract volume related
to the new IDM solution sales.
Services revenue, consisting of consulting and customer training revenue,
decreased approximately $1.4 million (23%) for the first quarter ended June
30, 1996, when compared with the same period 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.
Revenues from the Company's international operations were approximately $6.1
million (32%) and $8.3 million (36%) of total revenues for the first quarter
ended June 30, 1996 and 1995, respectively. The decrease from prior year was
primarily related to a significant decline in product license revenue in Europe
and decreased demand from resellers in Japan.
Future revenue will be largely dependent on the Company's ability to replace
the declining revenue related to stand-alone product licensing with revenue
from IDM solution sales. This will be contingent on the effectiveness of the
Company's increased investment in marketing and lead generation programs, and
the Company's ability to successfully develop IDM-based product offerings
that solve the specific business problems of organizations.
COSTS OF REVENUES
9
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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. Cost of maintenance
revenues remained relatively stable from the prior year. Cost of services
revenue decreased approximately $0.6 million (13%) primarily related to a
decline in services personnel.
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expenses increased approximately
$0.4 million (4%) from the prior year due to the Company's increased
investment in marketing programs and advertising campaigns. SG&A expenses
are expected to decrease as a result of the fiscal 1997 restructuring plan
announced in July and other anticipated expense reductions.
Research and development ("R&D") expenses increased approximately $0.3
million (9%) from the prior year primarily due to a reduction in capitalized
software development costs partially offset by lower personnel expenses. For
the first quarter ended June 30, 1996 and 1995, R&D expenses were
approximately 22% and 17%, respectively, of total revenues. R&D spending,
which excludes the offset for capitalized software development costs,
represented approximately 26% and 22% of total revenues for the first quarter
ended June 30, 1996 and 1995, respectively. 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 plan announced in July and other
anticipated expense reductions.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $11.4 million of cash and cash equivalents at
June 30, 1996, a decrease of approximately $1.4 million from March 31, 1996.
The decrease was primarily attributable to the Company's operating loss
during the first quarter of fiscal 1997. Capital expenditures of
approximately $1.2 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.
Capital expenditures for improvements to the Company's information systems
infrastructure will decline from the first quarter level until operating
results improve. Interleaf's German subsidiary, Interleaf GmbH, has been
notified that it is liable for German withholding taxes related to payments
10
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remitted to the United States from Germany in 1990. The Company is appealing
this assessment. At June 30, 1996, the Company had approximately $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).
Accrued restructuring charges associated with the fiscal 1995 restructuring plan
were approximately $1.0 million at June 30,1996. This reserve should be
sufficient to cover remaining operating lease payments, net of sub-lease
receipts, for closed facilities. These expenditures are expected to continue
until December 2000. As previously discussed, the Company announced a new
restructuring plan in July (see Note 6 to the Consolidated Financial Statements
for additional information). Cash payments related to this fiscal 1997
restructuring are anticipated to be approximately $1 million during the second
quarter ending September 30, 1996.
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 June 30, 1996, there were
no loans outstanding under this line of credit. As of July 31, 1996,
approximately $1.0 million of standby letters of credit were outstanding and
the amount available for borrowings was approximately $0.7 million. See Note
5 to the Consolidated Financial Statements regarding borrowing limits and
restrictive covenants associated with the credit agreement.
11
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The Company expects that cash and cash equivalents will decline significantly
during the next two quarters principally due to its operating performance.
Also contributing to the expected decline will be expenditures associated
with the restructuring plan announced in July. To meet its liquidity needs
the Company is seeking additional financing from financial institutions and/
or the capital markets. While the Company believes that it can secure the
necessary financing it is seeking, there can be no assurances that such
financing will be obtained, or that it can be obtained without dilution to
existing shareholders. The Company will continue to closely monitor its
operating results and cost structure.
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
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 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.
12
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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.
13
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INTERLEAF, INC.
PART II - OTHER INFORMATION
Item 5. Other Information
On May 3, 1996, the Board of Directors elected G. Gordon M.
Large, the Company's Executive Vice President and Chief Financial
Officer, a Class I Director.
Effective August 6, 1996, Rory Cowan, private investor and
former chief executive officer of Stream International, was
elected a Class II Director by the Board of Directors.
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 June 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.
August 12, 1996
/s/ G. Gordon M. Large
-------------------------------------
G. Gordon M. Large
Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
14
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INTERLEAF, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
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<S> <C> <C>
10(a) Company's 1983 Stock Option Plan, as amended [v]
10(a1) 1994 Employee Stock Option Plan [vi]
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 amended [v]
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, dated October 21, 1988. [ii]
10(e) Exclusive Marketing and Licensing Agreement, between Interleaf South
America, Ltd. and the Company, and related Option Agreement, dated
March 31, 1989. [i]
10(f) Distribution and License Agreement between Interleaf Italia, S.r.l. and the
Company, and related Joint Venture Agreement, dated October 31, 1988. [i]
10(g) Preferred Stock Purchase Agreements, for the issuance of 2,142,857 shares
of the Company's Senior Series B Convertible Preferred Stock, dated
September 29, 1989. [ii]
10(h) Notification to Preferred Shareholder of increase in conversion ratio, dated
May 18, 1992. [iii]
10(i) Lease of Prospect Place, Waltham, MA, between Prospect Place Limited
Partnership and Interleaf, Inc., and related Agreements, dated March 30, 1990. [iv]
10(k) Letter Agreement between the Company and Richard P. 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. [v]
10(l) Letter of Separation and Management Consulting 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. [vi]
10(m) Letter Agreement between the Company and Richard P. 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. [vi]
10(n) Letter of Separation and Management Consulting 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. [vi]
10(o) Executive Compensation Arrangement for David A. Boucher, the Company's
Chairman of the Board, dated July 20, 1994. [vi]
10(p) Letter of Separation and Management Consulting 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. [vi]
</TABLE>
15
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INTERLEAF, INC.
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
- ------- ----------- -----------------
<S> <C> <C>
10(q) Employment and severance agreement between the Company and Edward
Koepfler, the Company's President, dated October 3, 1994. [vii]
10(r) Loan and Security Agreement between the Company and Foothill
Capital Corporation, dated May 2, 1995. [ix]
10(s) Employment and severance agreement between the Company and G.
Gordon M. Large, the Company's Executive Vice President and Chief
Financial Officer, dated June 5, 1995 [ix]
10(t) Net Lease, dated August 14, 1995, between Principal Mutual Insurance
Company and the Company. [x]
10(u) Sublease, dated September 15, 1995, between Parametric Technology
Corporation and the Company. [x]
10(v) Employment and severance agreement between the Company and Mark
Cieplik, the Company's Vice President, Americas, dated March 17, 1995. [xi]
10(w) Agreement between PruTech Research and Development Partnership III
and the Company, dated November 14, 1995. [xii]
11 Computation of Earnings Per Share Included
27 Financial Data Schedule Included
</TABLE>
________________________
[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.
16
<PAGE>
INTERLEAF, INC.
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE
Three months ended
June 30
1996 1995
-------- --------
In thousands, except for per share amounts (unaudited)
PRIMARY
Weighted average shares outstanding of Common Stock 16,998 14,362
Dilutive Senior Series B Convertible Preferred Stock - 2,323
Dilutive stock options - 875
Dilutive stock purchase warrants - 78
Dilutive stock purchase plan rights - 10
-------- --------
TOTAL 16,998 17,648
-------- --------
-------- --------
Net income (loss) $ (3,800) $ 472
-------- --------
-------- --------
Net income (loss) per share $ (0.22) $ 0.03
-------- --------
-------- --------
FULLY DILUTED
Weighted average shares outstanding of Common Stock 16,998 14,362
Dilutive Senior Series B Convertible Preferred Stock - 2,323
Dilutive stock options - 1,133
Dilutive stock purchase warrants - 203
Dilutive stock purchase plan rights - 14
-------- --------
TOTAL 16,998 18,035
-------- --------
-------- --------
Net income (loss) $ (3,800) $ 472
-------- --------
-------- --------
Net income (loss) per share $ (0.22) $ 0.03
-------- --------
-------- --------
The dilutive effect of stock options, stock purchase warrants, and stock
purchase plan rights are calculated using the treasury stock method. Under this
method, these common stock equivalents are assumed to be exercised and proceeds
from the exercise are assumed to be used to repurchase common stock at the
average market price for primary income (loss) per share and the higher of the
end of the period or average market price for fully diluted income (loss) per
share. The dilutive effect of Convertible Preferred Stock is calculated using
the if-converted method.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 11,353
<SECURITIES> 0
<RECEIVABLES> 17,058
<ALLOWANCES> 1,719
<INVENTORY> 285
<CURRENT-ASSETS> 28,914
<PP&E> 49,508
<DEPRECIATION> 41,508
<TOTAL-ASSETS> 46,220
<CURRENT-LIABILITIES> 30,489
<BONDS> 0
0
86
<COMMON> 175
<OTHER-SE> 15,210
<TOTAL-LIABILITY-AND-EQUITY> 46,220
<SALES> 7,046
<TOTAL-REVENUES> 19,054
<CGS> 1,626
<TOTAL-COSTS> 7,134
<OTHER-EXPENSES> 15,605
<LOSS-PROVISION> 87
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (3,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,800)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
