<PAGE> 1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 20-F

(Mark One)
   


        [ ]   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE 
              SECURITIES EXCHANGE ACT OF 1934

                                       OR
  

        [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
             EXCHANGE ACT OF 1934

                   For the fiscal year ended January 31, 1998

                                       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: 0-19696

                    MICRO FOCUS GROUP PUBLIC LIMITED COMPANY
             (Exact name of Registrant as specified in its charter)

                                ENGLAND AND WALES
                 (Jurisdiction of incorporation or organization)

       The Lawn, 22-30 Old Bath Road, Newbury, Berkshire RG14 1QN, England
                    (Address of principal executive offices)

Securities  registered or to be registered pursuant to Section 12(b) of the Act:
None.

Securities  registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary Shares of 2p each.

Securities for which there is a reporting  obligation  pursuant to Section 15(d)
of the Act: None.

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital  or common  stock as of the close of the  period  covered  by the Annual
Report: 79,416,935 Ordinary Shares of 2p each.

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 ___
            -----
Indicate by check mark which financial statement item the Registrant has elected
to follow.

         Item 17  __    Item 18  X
                               -----                               

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                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


<S>       <C>                                                                                                  <C>    
                                                                                                               Page

General Introduction..............................................................................................1

PART I

Item 1.   Description of Business.................................................................................3
Item 2.   Description of Property................................................................................15
Item 3.   Legal Proceedings......................................................................................15
Item 4.   Control of Registrant..................................................................................15
Item 5.   Nature of Trading Market...............................................................................16
Item 6.   Exchange Controls and Other Limitations Affecting Security Holders.....................................18
Item 7.   Taxation...............................................................................................18
Item 8.   Selected Financial Data................................................................................22
Item 9.   Management's Discussion and Analysis of Financial Condition and Results of Operations..................23
Item 9A. Quantitative and Qualitative Disclosures About Market Risk .............................................23
Item 10.  Directors and Officers of Registrant...................................................................23
Item 11.  Compensation of Directors and Officers.................................................................25
Item 12.  Options to Purchase Securities from Registrant or Subsidiaries.........................................25
Item 13.  Interest of Management in Certain Transactions.........................................................26

PART II

Item 14.  Description of Securities to be Registered.............................................................27

PART III

Item 15.  Defaults Upon Senior Securities........................................................................37
Item 16.  Changes in Securities and Changes in Security for Registered Securities and Use of Proceeds............37

PART IV

Item 17.  Financial Statements...................................................................................37

Item 18.  Financial Statements...................................................................................37
Item 19.  Financial Statements and Exhibits......................................................................37

Signatures.......................................................................................................41

</TABLE>



                                        

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                              GENERAL INTRODUCTION

         As used herein,  the terms "Micro Focus" and the "Group" refer to Micro
Focus Group Public Limited Company and its subsidiaries,  and the term "Company"
refers to Micro Focus Group Public Limited Company.

         Micro Focus,  COBOL Workbench and Revolve are registered  trademarks of
the  Group,   and  COBOL  Developer  Suite,   Micro  Focus  COBOL,   NetExpress,
Revolve/2000,  SmartFind-Fix/2000  and  SoftFactory/2000  are  trademarks of the
Group.  Certain other  trademarks  belonging to other  companies  appear in this
Annual Report and are the property of their respective owners.

         In this  Annual  Report,  references  to "US  dollars" or "$" are to US
currency and references to "GB pounds," "GBP" or "p" are to UK currency.

         This  Annual  Report  contains  translations  of certain  amounts in GB
pounds to US dollars.  Such translations have been made at the noon buying rates
in New York City for cable  transfers in foreign  currencies  as  announced  for
customs  purposes  by the  Federal  Reserve  Bank of New York (the "Noon  Buying
Rate") on the  relevant  dates.  These  translations  should not be construed as
representations  that the GB pound  amounts  actually  represent  such US dollar
amounts or could be converted  into US dollars at the rates  indicated or at any
other rate.  The exchange  rates used by the Company in the  preparation  of its
consolidated  financial statements are based on month end rates published at the
close of business in London.  Such rates may differ from the Noon Buying  Rates.
For  additional  information on exchange rates between GB pounds and US dollars,
see "Management's Discussion and Analysis of Results of Operations and Financial
Condition  - Exchange  Rate  Fluctuations"  on pages 22 and 50 in the  Company's
Annual Report to  Shareholders  for the year ended January 31, 1998 contained in
the Report of Foreign  Issuer on Form 6-K furnished to the Commission on May 28,
1998 (the "Micro Focus 1998 Annual Report to  Shareholders"),  which sections of
the Micro Focus 1998 Annual Report to Shareholders  are  incorporated  herein by
reference. On April 30, 1998, the Noon Buying Rate was $1.67 per GBP 1.

         The  Company   publishes  annual  reports   containing  annual  audited
consolidated  financial  statements and opinions  thereon by independent  public
accountants.  Such  financial  statements are prepared on the basis of generally
accepted accounting  principles in the United States ("US GAAP") expressed in US
dollars  and on the basis of  accounting  principles  generally  accepted in the
United Kingdom ("UK GAAP") expressed in GB pounds. There are differences between
US GAAP and UK GAAP in the treatment of goodwill and other intangibles  acquired
in connection with the purchase of subsidiaries,  with respect to the methods of
computing earnings per share, which is calculated using different formulae under
US GAAP and UK GAAP, and with respect to certain  disclosures and  presentation.
The Company has published  quarterly updates and semi-annual  reports containing
unaudited  financial  information  prepared  on the same  basis  as its  audited
consolidated  financial  statements.  The  Company  is not  required  to  report
quarterly  financial  information.  Such annual reports,  quarterly  updates and
semi-annual  reports are furnished to The Bank of New York as "Depositary" under
an Amended  and  Restated  Deposit  Agreement  dated as of March 16, 1998 by and
among the Company,  The Bank of New York and all owners and holders from time to
time of American  Depositary  Receipts  ("ADRs")  issued by the Bank of New York
(the "Deposit  Agreement").  Upon receipt thereof, the Depositary generally will
mail all such reports to record holders of ADRs evidencing  American  Depositary
Shares  ("ADSs").  The Company also  furnishes to the  Depositary all notices of
shareholders'  meetings  and  other  reports  and  communications  that are made
generally  available to shareholders of the Company.  The Depositary  makes such
notices,  reports and communications  available for inspection by record holders
of ADRs  and  mails to all  record  holders  of ADRs  notices  of  shareholders'
meetings received by the Depositary.

                                       1

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       As a foreign  private issuer in the United  States,  the Company is not
required to file quarterly  reports with the Securities and Exchange  Commission
(the  "Commission").   However,  beginning  in  June  1997,  the  Company  began
furnishing to the Commission on a voluntary basis quarterly  reports on Form 6-K
which include the results for the applicable  Company fiscal quarter in a format
similar to that of a Form 10-Q.  In  addition,  foreign  private  issuers in the
United  States  are not  currently  required  to file  electronically  with  the
Commision  but  may  choose  to do so.  As of  March  1997,  the  Company  began
voluntarily submitting its filings electronically to the Commission.

         The Financial Statements and other financial information in this Annual
Report do not comprise "statutory accounts" within the meaning of Section 240 of
the Companies Act 1985 of Great Britain.  Statutory accounts for the years ended
January  31,  1998,  1997 and 1996  have  been  delivered  to the  Registrar  of
Companies  for England and Wales.  The  auditor's  reports on such accounts were
unqualified.

         The  Company's  fiscal  year  ends  on  January  31 of each  year.  The
references  in this  Annual  Report and the  financial  statements  incorporated
herein by reference for fiscal years 1998, 1997 and 1996 are for the years ended
January 31, 1998, 1997 and 1996, respectively.

         This  Form  20-F  contains,  and  incorporates  by  reference,  certain
forward-looking  statements  (as such  term is  defined  in  Section  27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are based
on the beliefs of the Company's  management,  as well as assumptions made by and
information   currently   available   to,   the   Company's   management.   Such
forward-looking  statements  are subject to the safe harbor  created by the U.S.
Private Securities Litigation Reform Act of 1995. When used in this document and
in the  documents  incorporated  herein by  reference,  the words  "anticipate,"
"believe,"  "estimate,"  "expect,"  "intends" and similar  expressions,  as they
relate to the Group,  the Company or its  management,  are  intended to identify
such  forward-looking  statements.  Such statements reflect the current views of
the Company or its  management  with respect to future events and are subject to
certain  risks,   uncertainties   and  assumptions.   Additionally,   statements
concerning  future matters such as the features,  benefits and advantages of the
Company's   products,   the   development  of  new  products,   enhancements  or
technologies,  business  and sales  strategies,  developments  in the  Company's
target markets,  matters relating to distribution channels,  proprietary rights,
competition and facilities needs and other statements regarding matters that are
not historical are forward-looking statements. Should one or more of these risks
or uncertainties materialize,  or should underlying assumptions prove incorrect,
the Company's  actual  results,  performance or  achievements in fiscal 1999 and
beyond could differ  materially from those expressed in, or implied by, any such
forward-looking  statements.  Factors  that could  cause or  contribute  to such
material  differences  include, but are not limited to, those discussed below in
"Part I, Item 1- Risk  Factors",  as well as those  discussed  elsewhere in this
Form 20-F and in the documents  incorporated herein by reference.  The inclusion
of such  forward-looking  information should not be regarded as a representation
by the Company or any other person that the future events, plans or expectations
contemplated  by the  Company  will  be  achieved.  The  Company  undertakes  no
obligation   to  release   publicly   any  updates  or  revisions  to  any  such
forward-looking  statements that may reflect events or  circumstances  occurring
after the date of this Form 20-F.

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         Micro  Focus  designs,   develops,  markets  and  supports  application
development tools and services for business application development. The Group's
products focus primarily on markets using the Common Business  Oriented Language
("COBOL"). The Group's products permit users to analyze, create, re-engineer and
deploy software  applications for a complete range of computer  equipment,  from
personal computer workstations to mainframe computers.  In addition, the Group's
products  and   services   enable   enterprise   application   development   and
reengineering  of  applications,  including  the  analysis  and  remediation  of
programs to meet the requirements of the Year 2000.

         Micro  Focus  Limited  was  established  in England in August  1976 and
became a  wholly-owned  subsidiary  of the Company in May 1983.  The Company was
incorporated  in  England in March 1983 as a public  limited  company  under the
Companies  Acts 1948 to 1981 of Great  Britain and is the holding  company for a
number of subsidiary companies. In May 1983, the Company obtained a quotation on
the Unlisted Securities Market of The International Stock Exchange of the United
Kingdom and Republic of Ireland Limited,  which is now the London Stock Exchange
Limited (the "London Stock  Exchange"),  and in June 1984,  the Company became a
fully listed  company on the London  Stock  Exchange.  In May 1992,  the Company
became listed on the Nasdaq National Market.

Industry Background
-------------------

         The  software  industry is divided into many  subcategories:  operating
systems such as UNIX and Windows, end-user software applications for the average
desktop  user such as word  processing  and  spreadsheet  programs,  application
development  tools such as compilers and rapid  application  development  tools,
enterprise-wide  packaged software  applications  which are sold as packages and
then customized for each enterprise based upon the needs of the individual user,
such as accounting  software,  and custom  applications which may address a wide
variety  of needs but are  typically  created  for a single  enterprise  to meet
unique corporate objectives.

         Micro  Focus  provides   application   development  tools  and  related
services.   Application   development  tools  are  used  for  the  creation  and
incremental improvement of enterprise computing applications.

         Micro Focus has focused from the  beginning on  delivering  application
programming  tools  and  services  to meet the needs of  enterprise  application
programmers.  Customers  for such tools and services are providers of enterprise
and custom business applications. In many cases, these providers are departments
within companies which develop, maintain and deploy enterprise applications.  In
some cases, the customers are outside providers of these services, or sellers of
prepackaged applications.

Products
--------

         COBOL is the industry  standard  computer language for writing business
applications  running on mainframe  computers  ("mainframes") and minicomputers.
Many  enterprises  have massive  investments in trained  programmers and working
applications  often  consisting  of many hundreds of thousands of lines of COBOL
code. The Group's product and service  offerings are  concentrated  primarily on
the COBOL language and the delivery of application  development  tools that meet
the needs of these  programmers.  COBOL was  developed  in the late  1950's and,

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since the early 1960's,  has been the subject of national  standards  committees
that have  continually  modified and  modernized  the language to meet  changing
technologies and programmer needs.

         Micro Focus has built a full range of  programming  tools and  provides
services and training to COBOL programmers. These tools primarily operate in the
highly   interactive   environments   of  personal   computer  ("PC")  and  UNIX
workstations.  These tools include a COBOL  compiler,  integrated  debugging and
editing  tools,  program   understanding  tools,  tools  which  emulate  various
mainframe  programming and operating  environments,  and connectivity  software.
Some of these tools have been extended to include other  programming  languages,
such as PL/I and Assembler.

Market
------

         Micro Focus has targeted three enterprise  computing market segments in
which it believes its tools and services offer  significant  value to customers.
Such market segments are Year 2000 Solutions,  Distributed  Computing  Solutions
and Enterprise Solutions.

         Year 2000 Solutions

         In the early years of mainframe  computing,  in order to save on memory
disk storage costs and processing time, years were typically  represented by two
digits,  such as  1998  being  denoted  by  "98."  This  identification  was not
considered a problem until  recently when it became  apparent that  applications
which use this two-digit  year date  convention  will fail to function  properly
when  referring  to years  after  1999.  After  that  date,  applications  using
two-digit  dates  will in many cases  believe  the year to be 1900 or some other
year prior to 2000. As a result,  this  two-digit date  convention  will lead to
malfunctions in a large number of mission-critical  business  applications.  For
example,  banking  applications  may  fail to  compute  principal  and  interest
payments properly, inventory programs may conclude that all inventory is too old
(having  apparently  been  acquired  in the year  1900),  air  traffic and other
traffic  control  systems may malfunction  forcing  airplanes,  trains and other
vehicles to stop  running  and  paralyzing  mass  transit,  telephone  and other
telecommunication  systems may stop working or  inaccurately  record user access
and billing information, vital military and defense systems may fail, government
tax systems may generate inaccurate taxpayer and tax liability information,  and
government  benefit  programs  may  not be  able to  generate  accurate  payment
information for welfare, social security and other benefit recipients.

         A large  number of the  programs  affected by the Year 2000 problem are
mainframe  programs written in COBOL and other popular mainframe  languages such
as PL/I and Assembler.  Micro Focus' long-standing market position as a provider
of business  application  programming tools for this environment and its current
set of available  products and services have  resulted in a leadership  position
for offering customers Year 2000 solutions.

         Micro Focus  currently  offers two  specialized  products for Year 2000
analysis and  remediation.  SmartFind-Fix/2000  is a highly  automated  tool for
finding and fixing  COBOL code that will be  affected by the Year 2000  problem.
Revolve/2000  is a program  understanding  and  analysis  tool that  provides an
effective  means for customers to assess the potential for Year 2000  compliance
problems in their applications,  as well as an effective toolset for finding and
replacing  date  deficient  code. In the area of Year 2000  compliance  testing,
Micro Focus' COBOL Workbench is used by some customers to correct date deficient
code.

         Some industry  analysts have estimated that worldwide  expenditures  to
correct and test the Year 2000 problem could exceed $300 billion.  During fiscal
1998,  Micro Focus  intends to enhance its product  offerings  for the Year 2000

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problem and to offer a greater  level of services  to support  customers  facing
Year 2000 problems. Micro Focus believes that few companies have completed their
Year 2000 compliance projects,  that customer spending for the Year 2000 problem
will significantly  increase in fiscal 1998, and that its Year 2000 analysis and
testing  products and services  will continue to be well received in meeting the
needs of customers.

         Distributed Computing Solutions

         Originally,  computers were  standalone  machines.  Each computer had a
single  input and output  mechanism.  Over time as computers  became  capable of
processing  significant  amounts of data, the need for multiple input and output
capabilities resulted in the creation of terminals which permitted more than one
person to work with the computer at a time.  The  invention of the PC created an
environment  in which  each  user had  powerful  computing  capabilities  at the
desktop, yet it was still a single machine. The creation of networks of PC's and
the  explosive  growth of those  networks  over the past ten years has created a
need for application  development tools and services that allow for the creation
of  applications  that take  advantage  of the  distributed  nature  of  today's
computing  power.  More  recently,  the Internet and intranets have added to the
need for  powerful  tools  to  deliver  enterprise  applications  to  these  new
computing platforms.

         Micro Focus offers a full range of programming  tools and  technologies
to deliver distributed  computing solutions.  These tools include NetExpress,  a
new set of  COBOL  development  tools  designed  to  simplify  the  creation  of
enterprise quality programming for the Internet and intranet  environments;  the
COBOL Developer Suite, an integrated COBOL development environment for all major
UNIX  platforms;  and other tools for  developing  applications  for the popular
Windows 95 and NT platforms.  Micro Focus believes that it is well-positioned to
capitalize on the growing need for application development tools and services to
support distributed computing applications.

         Enterprise Solutions

         "Enterprise  Solutions" are offered to customers  with  mainframe-based
business  software  applications  that  frequently  have  been in place  meeting
customer  needs for many years.  The most obvious  examples of these systems are
the many  business  applications  that  have  been  created  to meet  individual
information  processing  needs of a  business  and  which by  their  nature  are
believed to provide an  enterprise  with  competitive  advantage  in its market.
Examples  include  specialized  insurance rate quote  software,  and statistical
applications  that assist in key business  decisions.  These  applications  were
often  among the first  that were  computerized  in an  enterprise,  and in many
cases,  the  original   applications  have  never  been  abandoned  but  instead
continuously upgraded and improved.  These  mainframe-based  applications can be
among the most valuable intangible assets that a business may own.

         Micro  Focus  offers  its  tools  and  services  to meet  the  needs of
application   developers   who  create,   maintain  and  extend  such   "legacy"
applications. Since most of these applications are written in COBOL, Micro Focus
believes that its core  competency  with the COBOL  language and its  continuing
efforts to develop more efficient and productive development  environments offer
these  customers  a   highly-valued   solution  to  maintain  and  extend  their
mainframe-based business applications.

         Micro  Focus  tools  take  advantage  of  the  highly  productive  user
interface  offered by the PC  environment,  but  emulate  the key aspects of the
mainframe  environment.  These features permit programmers to develop,  maintain
and  extend  their  key  legacy  assets  efficiently  and  cost-effectively.  In
addition,  Micro Focus tools provide the ability to move these program assets to

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platforms other than the mainframe by offering compatible COBOL compilers across
the range of UNIX and PC computing platforms.

Direct Sales, Support, Maintenance and Training Services
--------------------------------------------------------

         Micro Focus  licenses  its  products  directly  to end users  through a
direct sales force.  In addition,  this direct  channel offers  maintenance  and
support  programs  for the full range of Micro  Focus'  products.  Micro  Focus'
standard  maintenance and support program  includes call-in  technical  support,
receipt of interim  product updates and, in the United States for most products,
the right to receive any major  product  upgrade  during the annual  maintenance
term.  In Europe,  maintenance  entitles  customers to a lower price  upgrade in
addition to receiving the services described above.

         Product  support and  maintenance  are  important  components  of Micro
Focus'  business as customers  are  increasingly  dependent  upon the ability to
receive  technical  assistance  regarding  the use and  operation of products in
order to deploy  them  effectively.  Micro  Focus  believes  that its  policy of
providing  a  continuously  improving  product set  strengthens  its support and
maintenance offering.

         In addition to support services,  the direct business provides customer
training in both on-site and public classes.  Such classes are designed to train
customers in the use of Micro Focus' products.

OEM Business Products, Support and Maintenance
----------------------------------------------

         Micro Focus also  licenses its products  through an OEM sales  channel.
The OEM sales channel provides Micro Focus technologies and products to computer
manufacturers  worldwide for distribution with their computer  equipment.  Micro
Focus believes that OEM's distribute Micro Focus  development  tools in order to
attract  customers  to their  hardware  and  operating  system  offerings as the
availability of good development tools is a key OEM selling strength.

         OEM products  that are  licensed to US and European  OEM's are targeted
primarily at the UNIX environment.  Products that are licensed to OEM's in Japan
are predominantly intended for Windows operating systems.

         In  a  typical  arrangement,  Micro  Focus  licenses  its  products  to
equipment  manufacturers  and agrees to enable the products to run on the agreed
platform in exchange  for certain  engineering  and porting  fees in addition to
distribution  license fees. Micro Focus uses a proprietary  Template Native Code
Generator  ("TNCG")  technology  to create  and  implement  a native  code COBOL
compiler for each computer  system to provide high  performance  products to its
OEM customers for use by their end user customers.

         For  the  Japanese  market,  Micro  Focus  localizes  its  products  by
enhancement  to include  double byte  character  support for Japanese  character
processing  and  translations  of  documentation  and  text  into  the  Japanese
language.  Such products are based upon those  products  made  available for the
English language market and therefore typically exhibit similar if not identical
functions.

         Micro Focus offers its OEM customers  maintenance and support  services
for the full range of technologies and products licensed.  Such services include
product  engineering  to permit  operation on the OEMs'  computer  systems,  the
provision of annual maintenance and support services, and technical consultation
services.

                                       6

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Research and Development
------------------------

          Micro  Focus  has a  policy  of  consistently  updating  its  software
products for the various operating systems consistent with customer demand. Each
new release  adds  greater  functionality  and more  features  to the  products.
Research and development  expenditures in the years ended January 31, 1998, 1997
and  1996,   respectively,   were  GBP  17.6  million/$31.6  million,  GBP  19.2
million/$34.1  million,  and GBP 23.4  million/$40.3  million which  represented
approximately 19%, 28% and 30%,  respectively,  of the Group's revenue. Of these
expenditures,  GBP 5.7 million/$9.3 million, GBP 5.3 million/$8.3million and GBP
9.9 million/$15.6  million,  respectively,  were capitalized as software product
assets. For the same years, GBP 7.8 million/$12.7 million, GBP 8.1 million/$12.7
million and GBP 8.8  million/$13.9  million,  respectively,  were  amortized and
included in research  and  development  costs  resulting  in total  research and
development  charges of GBP 19.7  million/$35  million,  GBP 24.3  million/$38.6
million and GBP 26.1 million/$38.6 million, respectively.

         Certain  Micro Focus  products are  developed by third  parties and are
provided to Micro Focus under license and distribution arrangements that require
Micro Focus to pay license fees. These third parties typically have a continuing
obligation to improve and maintain the products supplied to Micro Focus. For the
year  ended  January  31,  1998,   revenue  from  such  products  accounted  for
approximately 3% of Micro Focus' total revenue.

         Products  shipped by Micro  Focus are  comprised  primarily  of printed
material on paper and software  programs  copied onto  diskettes,  tape media or
CD-ROM. These raw materials are widely available.

Sales and Marketing
-------------------

         Micro  Focus has local  sales and  marketing  operations  in the United
Kingdom, the United States,  Canada,  Japan,  Germany,  France, Spain and India.
During the last fiscal year, sales by geographic region have been distributed as
follows: 51%  in  the  United  States,  12%  in  the  United  Kingdom,  19% in
rest of  Europe (excluding the United Kingdom),  4% in  Canada, 4% in Japan  
and 10% in the rest of the world.

         Micro Focus end-user  customers  consist of corporate  data  processing
centers,   independent   software  vendors,   individual  software   developers,
value-added resellers and computer equipment manufacturers. The customer base is
broad, with no individual  customer accounting for more than 3% of total revenue
in the year ended January 31, 1998.

         As  of  January  31,  1998,   the  Group's   sales  and  sales  support
organization  consisted  of 34 people in the United  Kingdom,  112 people in the
United  States and 105 people  located in other  countries,  and Micro Focus had
distributors representing its products throughout the world.

         Micro Focus sponsors an Academic Grant Program which allows Micro Focus
COBOL Workbench and related products to be used in accredited curriculum studies
and for  research.  As of January  31,  1998,  approximately  320  universities,
colleges  and other  educational  institutions  had become  participants  in the
Program.

Employees
---------

         As of January 31, 1998, Micro Focus had 827 employees, of whom 282 were
located in the United  Kingdom,  392 were  located in the United  States and 153
were located in other countries. None of the Group's employees is represented by
a labor union.  Micro Focus has  experienced  no work stoppages and believes its
relations with its employees are good.

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         Micro  Focus has  adopted  policies  with  regard to  issuance of share
options  to its  employees.  Micro  Focus has an ongoing  policy of paying  cash
bonuses based upon the Group's performance relative to its financial plan. These
policies, together with certain of its sales, marketing and financial practices,
are designed to encourage  employee  performance and minimize employee turnover,
although  there can be no assurance  that such  policies and  practices  will be
successful.

Recent Acquisitions or Dispositions
-----------------------------------

         On April 30,  1997,  the  Company  acquired  all the share  capital  of
Millennium (UK) Limited  ("Millennium") for total consideration of approximately
GBP 4 million/$6.5 million,  which consisted of a payment of GBP 2 million/$3.25
million in cash and the issuance of 745,710  Ordinary Shares of the Company with
a value of approximately GBP 2 million/$3.25 million on the date the acquisition
was completed.  Millennium  provided  consulting and project management services
and had specialized expertise in the estimating, planning and management of Year
2000  compliance  projects  for  large  scale  systems,  as  well a  development
expertise in Web-based  applications.  Effective January 31, 1998,  Millennium's
consulting services were integrated with the professional  service operations of
the Company.

         On January 20, 1998, the Company acquired XDB Systems, Inc. ("XDB") for
total  consideration of approximately  GBP 11.54  million/$18.64  million on the
date of the acquisition,  which consisted of the issuance of 2,084,825  Ordinary
Shares of the Company  (including up to 192,850  Ordinary Shares to be issued to
holders of XDB options upon  exercise of such  options).  XDB, a  privately-held
corporation  based  in  Columbia,  Maryland,  is  a  provider  of  DB2  database
development, maintenance and connectivity solutions.

Risk Factors
------------

         Potential Fluctuations in Operating Results

         The  Group's  revenue,  margins  and  operating  results are subject to
quarterly and annual fluctuations due to a variety of factors,  including demand
for the Group's products,  the size and timing of customer orders,  product life
cycles,  the  ability  of the Group to  develop,  introduce  and  market new and
enhanced  versions of the Group's  products on a timely basis,  the introduction
and  acceptance  of new  products and product  enhancements  by the Group or its
competitors,  customer order  deferrals in  anticipation  of enhancements or new
products,  changes in the mix of distribution channels through which the Group's
products are offered,  purchasing  patterns of distributors  and retailers,  the
quality  of  products  sold,  price  and  other  competitive  conditions  in the
industry,  changes in the Group's  level of operating  expenses,  changes in the
Group's  sales  incentive  plans,   budgeting  cycles  of  its  customers,   the
cancellation of licenses during the warranty  period,  nonrenewal of maintenance
agreements,  economic  conditions  generally or in various geographic areas, and
other factors  discussed  elsewhere in these "Risk  Factors." A relatively  high
percentage  of the  Group's  expenses  is fixed  over the short  term and,  as a
result,  if  anticipated  revenue in any  quarter  does not occur or is delayed,
expenditure  levels could be  disproportionately  high as a percentage  of total
revenue and the Group's  operating results for that quarter would be immediately
and adversely affected.  The Group historically has operated with little backlog
because its products are generally shipped as orders are received.  As a result,
revenue in any  quarter  depends on the volume and timing of, and the ability to
fill,  orders  received in that  quarter.  In  addition,  the Group has at times
recognized  a  substantial  portion of its total  revenue  from sales booked and
shipped in the last month of the quarter  such that the  magnitude  of quarterly

                                       8

<PAGE> 11

fluctuations  may not  become  evident  until  late  in,  or at the  end  of,  a
particular  quarter.  Furthermore,  the Group expects that sales derived through
indirect  channels,  which are harder to predict and may have lower margins than
direct sales, will increase as a percentage of total revenue.

         Seasonality of Operating Results

         Although  historically  the Group's  business  has not been  subject to
seasonal  variations,  the  Group's  customers  tend  to make  product  purchase
decisions  in the fourth  quarter of the  Company's  fiscal  year as a result of
purchase cycles related to expiration or renewal of budgetary authorizations. As
a result, the Group typically experiences lower revenue for the first quarter of
a fiscal year than in the fourth quarter of the prior fiscal year. The Group has
typically  recognized a high proportion of its quarterly revenue during the last
month of a fiscal quarter and significant  fluctuations in new order revenue can
occur due to the timing of customers  orders.  Quarterly  results  therefore can
vary to the extent that sales for a quarter are  delayed,  particularly  since a
large portion of the Company's  expenses do not vary with revenue.  In addition,
the Group's  revenue is also affected by seasonal  fluctuations  resulting  from
lower sales that  typically  occur during the summer  months in Europe and other
parts of the world. Due to all of the foregoing factors,  it is possible that in
some  future  quarters  the  Group's   operating   results  will  be  below  the
expectations of stock market analysts and investors. In such event, the price of
the Company's securities would likely be materially adversely affected.

         Product Concentration

         Substantially all of the Group's revenue is currently,  and is expected
to continue in the future to be, derived from products and related  services for
mainframe  applications  development in the COBOL  language and COBOL  compilers
running on workstations  and PC's. As a result,  the Company's  future operating
results depend upon continued  market  acceptance and use of the COBOL language.
The  COBOL  language  was  developed  in the late  1950's  and  there  can be no
assurance  as to how long it will  continue  to be a viable  computer  language,
especially  in view  of the  trends  toward  Windows-based  distributed  network
computing.  Similarly,  there  can  be no  assurance  as to  how  long  existing
mainframe users will continue to use their systems in ways that benefit from use
of the  Group's  application  development  tools.  Any decline in demand for, or
market  acceptance  or use of, the COBOL  language or  mainframes as a result of
competition, technological change or other factors would have a material adverse
effect on the Group's business, financial condition and results of operations.

         Year 2000 Business and Compliance Issues

         The Group markets certain of its products and services to customers for
managing the maintenance and redevelopment of mission-critical computer software
systems.  In  addition,  an  increasing  proportion  of the Group's  business is
devoted to providing  solutions  for the Year 2000  problem,  which  affects the
performance  and  reliability  of many  mission-critical  systems.  The  Group's
agreements with its customers typically contain provisions designed to limit the
Group's  exposure  to  potential  product and service  liability  claims.  It is
possible,  however, that the limitation of liability provisions contained in the
Group's  customer  agreements  may not be  effective  as a result of existing or
future  federal,  state,  local or foreign  laws or  ordinances  or  unfavorable
judicial  decisions.  Although  the Group has not  experienced  any  product  or
service  liability  claims to date,  the sale and  support of its  products  and
services  may  entail  the risk of such  claims,  particularly  in the Year 2000
market,  which  could be  substantial  in light of the use of its  products  and
services  in  mission-critical  applications.  A  successful  product or service
liability claim brought  against the Group could have a material  adverse effect
upon  the  Company's  business,   operating  results  and  financial  condition.
Furthermore,  the Company  anticipates  that demand in the Year 2000 market will

                                       9

<PAGE> 12

decline,  perhaps  rapidly,  following  the  Year  2000 and the  demand  for the
Company's Year 2000 solutions and products may also decline  significantly  as a
result of new  technologies,  competition or other  factors.  If this decline in
demand were to occur, the Group's license revenue and professional services fees
could be materially and adversely affected.

         The Group is in the process of reviewing its major  internal  corporate
systems  for any  potential  Year 2000  compliance  issues  and  intends to take
appropriate  corrective  action based on the results of such  review.  The Group
does not currently  anticipate that it will incur material operating expenses or
be required to invest  heavily in internal  system  improvements  as a result of
Year 2000 compliance  issues.  In addition,  the Group believes that the current
versions of its software products are Year 2000 compliant.  Notwithstanding  the
foregoing, there can be no assurance that the Year 2000 problem will not have an
adverse  effect on the  Group's  business,  financial  condition  or  results of
operations,  which are not  controlled by the Group,  but on which the Group may
rely with respect to its business and operations.

         Lengthy Sales Cycle

         The purchase of the Group's  application  development  tools involves a
significant   commitment  of  capital,  with  the  attendant  delays  frequently
associated with customers' internal procedures to approve such expenditures.  In
addition,   customers  tend  to  be  cautious  in  making  decisions   regarding
acquisition of products that affect mission-critical  operations.  For these and
other  reasons,  the sales  cycle  associated  with the  purchase of the Group's
products is  typically  lengthy and  subject to a number of  significant  risks,
including customers' budgetary constraints and internal acceptance reviews, over
which the Group has little or no control. Because of the lengthy sales cycle, if
revenue  forecasted from a specific  customer for a particular  quarter were not
realized  in that  quarter,  the  Company  likely  would not be able to generate
revenue from alternate  sources in time to compensate  for the  shortfall.  As a
result, and due to the typical size of customers' orders, a lost or delayed sale
would have a material adverse effect on the Group's quarterly  operating results
and cash flow. Moreover, to the extent that significant sales occur earlier than
expected, operating results for subsequent quarters may be adversely affected.

         Dependence on New Products and Technological Change

         The Group must continually  change and improve its products in response
to changes in operating  systems,  application  software,  computer hardware and
software,  programming tools and computer language technology.  The introduction
of  products  embodying  new  technologies  and the  emergence  of new  industry
standards can render existing products  obsolete and  unmarketable.  The Group's
growth and future financial performance will depend upon its ability on a timely
and  cost-effective  basis to develop  and  introduce  enhancements  of existing
products and new products that accommodate the latest technological advances and
standards, customer requirements and market conditions.

         There  can be no  assurance  that  the  Group  will  be  successful  in
developing  and  marketing,  on a timely basis or at all,  fully  functional and
integrated product enhancements or new products which respond to changing market
conditions, that its enhanced or new products will achieve market acceptance, or
that other  software  vendors  will not  develop and market  products  which are
superior to the Group's products. Furthermore,  customers may delay purchases in
anticipation of  technological  changes.  In the past, the Group has experienced
delays and  increased  expenses  in  developing  its new  products.  The Group's
ability to develop and market new  products  depends upon its ability to attract
and  retain  qualified  employees.  Any  failure by the Group to  anticipate  or
respond adequately to changes in technology and market  conditions,  to complete
product  development  and  introduce  new products on a timely basis and with an

                                       10

<PAGE> 13

adequate  level of  performance  and  functionality,  or to  attract  and retain
qualified  employees,  could materially  adversely affect the Group's  business,
results of operations and financial condition.

         Risk of Product Defects

         Software  products as complex as those offered by the Group may contain
undetected  errors or failures  when first  introduced  or as new  versions  are
released.  There can be no  assurance  that,  despite  testing  by the Group and
testing and use by current and potential customers,  errors will not be found in
new products after commencement of commercial shipments.  The occurrence of such
errors  could  result in loss of or delay in market  acceptance  of the  Group's
products,  which could have a material  adverse effect on the Group's  business,
financial condition and results of operations.

         Dependence on Proprietary Technology

         The Group's success is heavily dependent upon its proprietary  software
technology. The Group relies on a combination of copyright,  trademark and trade
secret laws,  confidentiality  procedures and contractual  rights to protect its
proprietary  rights.  The Group has also  filed for  patents  on  certain of its
technology,  but there can be no assurance  that such filings will be successful
or that  patents  will be granted to the Group.  As part of its  confidentiality
procedures,  the Group generally enters into non-disclosure  agreements with its
employees,  consultants,  distributors and corporate partners, and limits access
to and  distribution  of  its  software,  documentation  and  other  proprietary
information.  Despite these precautions, it may be possible for a third party to
copy or otherwise to obtain and use the Group's  products or technology  without
authorization,  or to develop  similar  technology  independently.  In addition,
effective  protection of  intellectual  property  rights may be  unavailable  or
limited in certain countries.

         Infringement of Intellectual Property Rights

         There are  currently  no  notices or pending  claims  that the  Group's
products, trademarks or other proprietary rights infringe the proprietary rights
of third  parties.  However,  there can be no assurance  that the Group will not
receive  communications  in the future  from third  parties  asserting  that the
Group's products infringe,  or may infringe,  on their proprietary rights. If it
is necessary or desirable,  the Group may seek licenses under such  intellectual
property  rights.  However,  there can be no assurance that licenses to disputed
third-party  technology would be available on reasonable commercial terms, if at
all. The failure to obtain a license from a third party for  technology  used by
the Group could cause the Group to incur substantial  liabilities and to suspend
the production and sale of certain of its products.  In addition,  the Group may
initiate  claims or litigation  against third  parties for  infringement  of the
Group's  proprietary  rights  or  to  establish  the  validity  of  the  Group's
proprietary  rights.  Litigation  to determine  the validity of any claims could
result in significant expense to the Group and divert the efforts of the Group's
technical and management  personnel from  operating  activities,  whether or not
such  litigation is determined in favor of the Group. In the event of an adverse
ruling in any such  litigation,  the Group may be  required  to pay  substantial
damages, discontinue the use and sale of infringing products, expend significant
resources  to  develop  non-infringing  technology  or  obtain  licenses  to the
infringed  technology.  In the event of a successful claim against the Group and
the  failure of the Group to develop or  license a  substitute  technology,  the
Group's  business,  financial  condition  and  results  of  operations  would be
adversely affected. As the number of software products in the industry increases
and the  functionality  of these products further  overlaps,  the Group believes
that software developers may become increasingly subject to infringement claims.
Any such claims  against  the Group,  with or without  merit,  as well as claims
initiated  by the  Group  against  third  parties,  can be  time  consuming  and
expensive to defend or prosecute and to resolve.

                                       11

<PAGE> 14
  
         Highly Competitive Markets

         The  markets in which the Group  competes  are  characterized  by rapid
technological change and aggressive  competition.  The Group competes with other
COBOL  vendors that offer  compilers  and  application  development  tools.  The
following  companies  distribute  COBOL  compilers  for  operation  on  personal
computers and  workstations:  Computer  Associates  International,  Inc.,  Liant
Software  Corporation,   Acucobol,  Inc.  and  International  Business  Machines
Corporation.  In addition,  Micro Focus  competes  with  non-COBOL  language and
application development vendors, including vendors of fourth generation language
products, database vendors with application development tools, vendors of object
oriented  programming tools, some CASE tool companies and mainframe compiler and
tool  vendors.  The Group also competes with many vendors of Year 2000 tools and
services.

         The Group expects  competition  to increase in the future from existing
competitors  and from other  companies  that may enter the  Group's  existing or
future  markets with similar or substitute  solutions that may be less costly or
provide better  performance or  functionality.  Some of the Group's  competitors
have greater  financial,  marketing or technical  resources than Micro Focus and
may be able to adapt more  quickly to new or  emerging  technologies,  or devote
greater  resources to the  promotion  and sale of their  products than can Micro
Focus. There can be no assurance that other companies with substantially greater
resources than the Group, will not develop  competitive  products in the future.
In addition, the software industry is characterized generally by low barriers to
entry, as a result of which new competitors possessing technological,  marketing
or other competitive advantages may emerge and rapidly acquire market share.

          The Group  believes  that the  principal  competitive  factors  in the
Group's  markets  are  product   performance  and  reliability,   functionality,
integration,  product quality,  application  portability,  product  enhancement,
price,  training and support;  the success and timing of new product development
efforts;  changes affecting the hardware,  operating systems or database systems
which the Group supports;  the level of demonstrable economic benefits for users
relative to cost; ease of installation;  and vendor  reputation,  experience and
financial stability.  The Group believes that it competes favorably with respect
to all of these factors. To be successful in the future, the Group must continue
to respond  promptly and  effectively  to the  challenges  of changing  customer
requirements, technological change and competitors' innovations. There can be no
assurance that the Group will be able to compete  successfully  with existing or
new competitors.

         The Group also  encounters  competition  from a broad range of firms in
the  market  for  professional  services.   Many  of  the  Group's  current  and
prospective  competitors in the professional  services market have significantly
greater  financial,  technical,  recruiting and marketing  resources  devoted to
professional  services than the Group.  The  competitive  factors  affecting the
market for the Group's professional services include  responsiveness to customer
needs,  productivity  and the  ability to  demonstrate  achievement  of results,
breadth and depth of services offered,  the ability to hire and retain qualified
technical  personnel,  price and reputation.  There can be no assurance that the
Group will be able to  compete  effectively  in the  future in the  professional
services  market,  and in  particular  in the Year  2000  professional  services
market,  nor that future  competition for professional  services will not have a
material  adverse  effect on the Group's  business,  results of  operations  and
financial condition.

         Susceptibility to General Economic Conditions

         The  Group's  revenue  and  results  of  operations  will be subject to
fluctuations in general  economic  conditions.  If there were a general economic
downturn or a recession in the United States or certain other markets, the Group
believes that certain of its customers  might reduce or delay their purchases of

                                       12

<PAGE> 15

the Group's products or services, leading to a reduction in the Group's revenue.
The factors that might  influence  current and  prospective  customers to reduce
their information  technology  budgets under these  circumstances are beyond the
Group's control.  In the event of an economic  downturn,  the Group's  business,
results of operations  and  financial  condition  could be materially  adversely
affected.

         Risks Associated with Global Operations

         For the fiscal years ended  January 31, 1998,  1997 and 1996,  sales to
customers outside of the United States  represented  approximately  49%, 46% and
43%,  respectively,  of Micro  Focus' total net  revenue.  The Group  intends to
continue  to expand  its  operations  outside  of the  United  States  and enter
additional  international  markets.  The Group has  committed  and  continues to
commit  significant  time and  resources to developing  international  sales and
support  channels.  There  can  be  no  assurance  that  such  efforts  will  be
successful.  The failure of such efforts could have a material adverse effect on
the Group's business,  financial condition and results of operations.  The risks
inherent in conducting  international  business  generally  include  exposure to
exchange rate  fluctuations,  longer payment  cycles,  greater  difficulties  in
accounts  receivable  collection  and  enforcing  agreements,  tariffs and other
restrictions on foreign trade, U.S. export requirements,  economic and political
instability,   withholding   and  other  tax   consequences,   restrictions   on
repatriation  of earnings  and the burdens of  complying  with a wide variety of
foreign laws.  In addition,  the laws of certain  foreign  counties in which the
Group's  products  may be marketed  may not  protect  the  Group's  intellectual
property  rights to the same  extent  as do the laws of the  United  States  and
Europe. There can be no assurance that the factors described above will not have
an adverse effect on the Group's future international revenue and, consequently,
on the Group's business, results of operations and financial condition.

         Reliance on Operations in the United Kingdom; English Corporation

        The Group's primary engineering and research and development  operations
are located in the United Kingdom.  The geographic  distance between the Group's
engineering  personnel  in the United  Kingdom  on the one hand and the  Group's
primary  markets in the United  States on the other hand has in the past led and
could in the future lead to logistical and communication difficulties. There can
be no assurance that the geographic and cultural differences between the Group's
United States and United  Kingdom  personnel and  operations  will not result in
problems that  materially  adversely  affect the Company's  business,  financial
condition  and  results  of  operations.  Furthermore,  given  that the  Group's
research  and  development  operations  are located in the United  Kingdom,  its
operations  and the market  price of its  securities  are  directly  affected by
economic and political conditions in the United Kingdom.

         In addition,  the right of holders of Ordinary  Shares and,  therefore,
certain of the rights of holder of ADRs, are governed by English law,  including
the  Companies  Act  1985,  and by the  Company's  Memorandum  and  Articles  of
Association.  These  rights  differ  in  certain  respects  from the  rights  of
shareholders in typical United States corporations.

         Enforcement of Civil Liabilities

         The Company is a public  limited  company  organized  under the laws of
England and Wales. A significant portion of the assets of the Company is located
outside of the United States.  As a result, it may not be possible for investors
to effect  service of process  within the United  States  upon the Company or to
enforce against the Company, in United States courts, judgments obtained in such
courts predicated upon the civil liability  provision of the federal  securities
laws of the United States.  There is doubt as to the  enforceability in England,
in original  actions or in actions for enforcement of judgments of United States
court, of civil liabilities predicated solely upon such securities laws.

                                       13

<PAGE> 16

         Volatility of Market Price

         The  market  price  of  the  Company's   securities   has   experienced
significant  price  volatility  and such  volatility  may  occur in the  future.
Factors such as actual or anticipated  fluctuations  in the Company's  operating
results,  announcements  of  technological  innovations,  new  products  or  new
contracts by the Group or its competitors, developments with respect to patents,
copyrights  or  proprietary  rights,  conditions  and trends in the software and
other technology industries,  adoption of new accounting standards affecting the
software  industry,  general  market  conditions  and other  factors  may have a
significant impact on the market price of the Company's securities. Further, the
stock market has experienced  extreme volatility that has particularly  affected
the market  prices of equity  securities of many high  technology  companies and
that often has been unrelated or disproportionate  to the operating  performance
of such  companies.  These  market  fluctuations,  as well as general  economic,
political and market  conditions  such as recessions or  international  currency
fluctuations, may adversely affect the market price of the Company's securities.

         Dependence on Key Personnel

         Competition  for  qualified  personnel  in  the  software  industry  is
intense,  and there can be no  assurance  that the Group will be able to attract
and retain a sufficient number of qualified personnel to conduct its business in
the  future.  The  Group's  success  depends to a  significant  degree  upon the
continued contributions of its key management,  marketing,  product development,
professional  services and  operational  personnel  including  key  personnel of
acquired companies.  The Group does not have employment  agreements with most of
its key  personnel,  nor does it maintain key man life insurance on any of these
persons. Several senior management personnel are relatively new to the Group and
the Group's  success  will  depend in part on the  successful  assimilation  and
performance  of these  individuals.  As the business of the Group grows,  it may
become increasingly difficult for it to hire, train and assimilate the number of
new employees required. In addition, it is possible that the business changes or
uncertainty  brought about by acquisitions  may cause key employees to leave the
Group,  and certain key members of the management of acquired  companies may not
continue  with the  Group.  Any  difficulty  in  attracting  and  retaining  key
personnel could have a material adverse effect on the Group's business,  results
of operations and financial condition.

         Acquisitions

         The Group completed two significant business combinations during fiscal
1998. See "Recent Acquisitions or Dispositions".  The Group is in the process of
integrating the operations  acquired in these  transactions  with its own. There
can be no assurance that the anticipated benefits of recently concluded business
combinations will be realized.  In addition,  these  acquisitions  could require
significant  additional  management  attention.  The Group  expects to  continue
growing its  business  through  acquisitions.  If the Group is  unsuccessful  in
integrating and managing the recently acquired businesses or other businesses it
may  acquire in the future,  the Group's  business,  results of  operations  and
financial condition could be adversely affected in future periods.

Forward-Looking Statements
--------------------------

         This  Form  20-F  contains,  and  incorporates  by  reference,  certain
forward-looking  statements  (as such  term is  defined  in  Section  27A of the
Securities Act and Section 21E of the Exchange Act that are based on the beliefs
of the Company's  management,  as well as  assumptions  made by and  information
currently  available  to,  the  Company's   management.   Such   forward-looking
statements are subject to the safe harbor created by the U.S. Private Securities
Litigation  Reform Act of 1995.  When used in this document and in the documents
incorporated herein by reference, the words "anticipate," "believe," "estimate,"

                                       14

<PAGE> 17

"expect,"  "intends" and similar  expressions,  as they relate to the Group, the
Company  or its  management,  are  intended  to  identify  such  forward-looking
statements.  Such  statements  reflect the  current  views of the Company or its
management  with  respect  to future  events and are  subject to certain  risks,
uncertainties  and  assumptions.   Additionally,  statements  concerning  future
matters such as the features, benefits and advantages of the Company's products,
the  development of new products,  enhancements  or  technologies,  business and
sales strategies, developments in the Company's target markets, matters relating
to distribution channels,  proprietary rights,  competition and facilities needs
and  other   statements   regarding   matters  that  are  not   historical   are
forward-looking  statements.  Should one or more of these risks or uncertainties
materialize,  or should underlying  assumptions  prove incorrect,  the Company's
actual  results,  performance  or  achievements  in fiscal 1999 and beyond could
differ   materially   from  those   expressed   in,  or  implied  by,  any  such
forward-looking  statements.  Factors  that could  cause or  contribute  to such
material  differences  include, but are not limited to, those discussed above in
"Risk Factors",  as well as those  discussed  elsewhere in this Form 20-F and in
the  documents   incorporated  herein  by  reference.   The  inclusion  of  such
forward-looking  information  should not be regarded as a representation  by the
Company  or any other  person  that the  future  events,  plans or  expectations
contemplated  by the  Company  will  be  achieved.  The  Company  undertakes  no
obligation   to  release   publicly   any  updates  or  revisions  to  any  such
forward-looking  statements that may reflect events or  circumstances  occurring
after the date of this Form 20-F.

ITEM 2.   DESCRIPTION OF PROPERTY

         The Group's  worldwide  headquarters  consist of  approximately  80,000
square feet of office space located on an 8-acre site in Newbury, England, which
is owned by the Group. Micro Focus also leases  approximately  4,690 square feet
at a nearby  production  facility,  and the lease for this  facility  expires in
2009.

         Micro Focus maintains a U.S. headquarters in Mountain View, California,
where it leases office space of approximately  56,000 square feet located at 701
East Middlefield Road,  Mountain View,  California 94043, and this lease for its
U.S.  headquarters  expires in 2007. Micro Focus also leases a nearby production
facility in Santa Clara, California that covers approximately 9,000 square feet,
and this lease for the production facility expires in 2002.

         Micro  Focus  also  maintains   facilities  in  the  following   areas:
Philadelphia,  Pennsylvania;  Chicago,  Illinois; New York, New York; Cedarberg,
Wisconsin; Boston,  Massachusetts;  Raleigh, North Carolina; Columbia, Maryland;
Toronto and Montreal,  Canada;  Paris, France;  Munich,  Germany;  Barcelona and
Madrid, Spain; Tokyo, Japan; and Bangalore, India.

         Micro Focus  believes  that its  premises  are  generally  suitable and
adequate for the purposes for which they are used.

ITEM 3.  LEGAL PROCEEDINGS

         There are no material legal proceedings pending to which the Company or
any of its  subsidiaries  is a party or of which  any of their  property  is the
subject.

ITEM 4.  CONTROL OF REGISTRANT

         As far as is known to the  Company,  it is not  directly or  indirectly
owned or controlled by one or more corporations or a foreign government.

                                       15

<PAGE> 18

         The  following  table sets forth  certain  information  as of April 30,
1998, with respect to the Company's outstanding Ordinary Shares held by: (i) any
person  who is  known by the  Company  to be the  owner of more  than 10% of the
Company's Ordinary Shares; and (ii) all directors and officers of the Company as
a group.

Identity of Person or Group         Amount Owned               Percent of Class
---------------------------         ------------               ----------------
Bank of New York (1)                    11,101,620                     13.92%

All directors and officers
as a group (13 persons)                 734,730                         0.92%

--------------------
(1) Held  beneficially  as the  depositary of the Company's  ADSs for which ADRs
    have  been  issued.  Each one ADS  represents  five  Ordinary  Shares of the
    Company.

         The Company  knows of no  arrangements  the operation of which may at a
subsequent date result in a change of control of the Company.

ITEM 5.  NATURE OF TRADING MARKET

         The Company's  Ordinary  Shares are listed on the London Stock Exchange
and ADSs,  each  representing  five  Ordinary  Shares,  are traded in the United
States. The ADSs are evidenced by ADRs issued by the Depositary  pursuant to the
terms and conditions of the Deposit Agreement.

         In 1992,  the  Company  listed its ADSs on the Nasdaq  National  Market
where they trade under the symbol MIFGY.  In connection  with such listing,  the
Company has sought and received a waiver of the Nasdaq National Market corporate
governance  requirements  that  were not then  commonly  observed  by  companies
organized in the United  Kingdom (which  include  requirements  for at least two
external directors and an audit committee).

         Effective  as of the close of business on March 13,  1998,  the Company
undertook a subdivision  (or stock split) of its ordinary  shares (the "Ordinary
Shares") on a 5-for-1  basis.  The  Company's  ADSs have been adjusted such that
each ADS represents 5 Ordinary Shares.  Unless provided otherwise herein,  share
and per share  references  included in this Annual  Report have been adjusted to
reflect the impact of the above-mentioned stock split of the Ordinary Shares.

         The following  table sets forth for the periods  indicated (i) the high
and low middle market  quotations for the Ordinary  Shares,  as derived from the
Daily  Official  List of the London Stock  Exchange and (ii) the  equivalent  US
dollar  prices  translated  at the Noon Buying Rate on the date of such high and
low quotations.

                                       16

<PAGE> 19

                                 Ordinary Shares
                                 ---------------
Fiscal Years Ended
January 31,                           High     Low               High      Low
----------------------                -------------              --------------
                                     (in GB Pounds)             (in US Dollars)
1997

  First Quarter                     2.67        1.12            4.06       1.70
  Second Quarter                    2.02        1.29            3.01       1.98
  Third Quarter                     2.08        1.40            3.33       2.17
  Fourth Quarter                    2.28        1.58            3.72       2.63

1998

  First Quarter                     2.75        2.04           4.46        3.29
  Second Quarter                    3.85        2.65           6.45        4.30
  Third Quarter                     4.66        3.27           7.55        5.35
  Fourth Quarter                    5.66        3.88           9.44        6.52

         The table below shows the highest and lowest bid prices for the ADSs in
US Dollars as reported by the Nasdaq National Market for the periods indicated.

                           American Depositary Shares
                           --------------------------

Fiscal Years Ended
    January 31,                              High             Low
---------------------                        ---------------------
                                                (in US Dollars)
1997

First Quarter                                21.25             8.38
Second Quarter                               15.88             9.75
Third Quarter                                16.50            10.50
Fourth Quarter                               19.63            12.75

1998

First Quarter                                 22.50           16.38
Second Quarter                                33.38           21.25
Third Quarter                                 39.13           26.25
Fourth Quarter                                47.50           32.88


         As of April 30, 1998,  2,122,569  Ordinary  Shares and  2,220,324  ADSs
(each  representing  five  Ordinary  Shares)  were held of record in the  United
States.  These  Ordinary  Shares  and ADSs were held by 75  record  holders  and
approximately  1,600 record holders,  respectively,  and  represented  2.66% and
13.92%, respectively, of the total number of Ordinary Shares outstanding.  Since
certain  of  these  Ordinary  Shares  and ADSs  were  held by  brokers  or other
nominees,   the  number  of  record   holders  in  the  United   States  is  not
representative  of the number of beneficial  holders or of where the  beneficial
holders are resident.

                                       17

<PAGE> 20

ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

         Although there are currently no UK laws,  decrees or  regulations  that
restrict the export or import of capital,  including foreign exchange  controls,
or that affect the remittance of dividends, interest or other payments to non-UK
resident  holders of Ordinary  Shares or ADSs,  dividends  may not be paid under
current English law to the  governments of Iraq or Libya (or persons  exercising
public  functions  in such  countries)  or to any resident of Iraq or any person
treated as so  resident  (each of the  foregoing,  a  "Prohibited  Person").  No
dividends  have ever been paid by the Company.  See "Item  8-Selected  Financial
Data - Dividends."

         There are no  limitations  under English law or in the  Memorandum  and
Articles  of  Association  of the  Company  that are  applicable  only to non-UK
shareholders  relating to the right to hold or exercise voting rights  attaching
to the Ordinary Shares or ADSs.  However,  under current  English law,  Ordinary
Shares or ADSs may not be owned by a Prohibited Person.

ITEM 7.  TAXATION

         The  following  summary does not address  United  States state or local
taxes nor does it address  foreign law other than that of the United  Kingdom as
it would  affect US  holders  (persons  resident  in the  United  States and not
resident in the United  Kingdom,  under the current double  taxation  convention
between the United States and the United Kingdom). Non US holders may experience
significantly  different  tax  consequences  and  should  consult  their own tax
advisors.

         In addition,  the following is a general  summary that does not address
all  material tax  consequences  of the  ownership  of Ordinary  Shares or ADSs.
Holders of Ordinary  Shares or ADS should  consult  their own tax advisors as to
the particular tax  consequences  to them of ownership of the Ordinary Shares or
ADSs.   The   following   summary  does  not  take  into  account  the  specific
circumstances  of any  particular  shareholders  (such as  tax-exempt  entities,
certain insurance companies, broker dealers, shareholders liable for alternative
minimum tax, shareholders that actually or constructively own 10% or more of the
voting shares of the Company,  shareholders that hold Ordinary Shares or ADSs as
part of a straddle or a hedging or conversion transaction, or shareholders whose
functional  currency  is not the US  dollar),  some of which may be  subject  to
special rules.

UK Income Taxation of Dividends
-------------------------------

         No dividends have ever been paid by the Company.  However, in the event
dividends  were to be paid in cash and  denominated  in dollars,  the  following
would apply.

         The  Company is  required  when  paying a dividend to account to the UK
Inland Revenue for an advance  payment of corporation  tax ("ACT").  The rate of
ACT is currently 1/4 of any dividend paid to  shareholders,  which is equivalent
to 20% of the combined dividend paid and related ACT.

         An  individual  shareholder  resident  in the United  Kingdom is for UK
income tax  purposes  treated as having  taxable  income equal to the sum of the
dividend  paid to him plus a tax credit,  which equals the ACT in respect of his
dividend.  The tax credit is  available to be set against the  individual's  tax
liability on the dividend and may in appropriate cases be refunded to him.

                                       18

<PAGE> 21

         Under the current double income taxation  convention between the United
Kingdom and the United States, subject to certain exceptions,  a shareholder who
is a US resident individual, including an ADR holder, will be entitled under the
convention  and current UK law to receive,  in addition to any dividend  paid by
the  Company,  the tax credit in respect of such  dividend,  but reduced by a UK
withholding tax equal to 15% of the sum of the dividend paid and the tax credit.
US corporate  shareholders are generally treated in the same way as individuals,
provided,  however,  that in the case of a corporate  shareholder that controls,
directly or indirectly, 10% of the voting shares of the Company a reduced credit
and a lower rate of withholding apply.

         No credit is available and no withholding  tax applies to a shareholder
whose holdings are effectively  connected with either a permanent  establishment
in the United  Kingdom from which the  shareholder  carries on a business in the
United Kingdom or a fixed base in the United Kingdom from which the  shareholder
performs  independent  personal services.  In such a case, special provisions of
the convention on business  profits and on independent  personal  services would
apply. Special rules apply in the case of shareholders that are US corporations,
and are either:  (a) residents in the United Kingdom;  or (b) US corporations at
least 25% of the capital of which is held,  directly or  indirectly,  by persons
that are not  individual  residents or  nationals of the United  States and that
satisfy  certain  other  conditions.  Further  special  rules  may  apply if the
shareholder:  (i) is a  partnership,  an estate or a trust that is a resident of
the  United  States;  (ii) is  exempt  from  taxation  in the  United  States on
dividends paid by the Company;  or (iii) owns 10% or more of the class of shares
of the Company paying the dividend.

         In the event of a dividend,  the Bank of New York can arrange,  subject
to certain  exceptions,  for the tax credit (net of the  withholding  tax) to be
refunded,  at the same time as and together with any dividend being paid to a US
ADR holder  otherwise  entitled  to a refund,  if the ADR holder  completes  the
declaration  on the reverse of the  dividend  check and  presents  the check for
payment within three months from the date of issue of the check. ADR holders who
do not satisfy these  requirements  must, in order to obtain a refund of the tax
credit  (net  of the  withholding  tax),  file  in the  manner  and at the  time
described  in Revenue  Procedure  80-18,  1980-1  C.B.623 and Revenue  Procedure
81-58,  1981-2  C.B.678,  a claim for refund of the tax credit  identifying  the
dividends with respect to which the tax credit was paid.  These  arrangements do
not apply to certain  shareholders or ADR holders,  including certain investment
or holding  companies and bodies  exempt from US tax on the dividends  received,
who must make a direct claim, as summarized  below. An ADR holder should consult
its own tax advisor to determine  whether UK authorities  have taken any actions
which would deny an ACT refund.

         Claims for refund of tax credit (less UK withholding  tax) must be made
within six years of the UK year of  assessment  (generally  the 12-month  period
ending  April 5 in each  year)  in which  the  related  dividend  was  paid,  in
accordance with the procedures set out below.

         The first claim by a shareholder  for a refund of tax credit is made by
sending the  appropriate  UK form in  duplicate  to the Director of the Internal
Revenue  Service  Center with which the  shareholder's  last federal  income tax
return was filed.  Forms may be  obtained  from the IRS  Assistant  Commissioner
(International),  950 L'Enfant Plaza South S.W. Washington,  DC 20024. Because a
refund claim is not  considered  made until the UK tax  authorities  receive the
appropriate form from the Internal Revenue Service,  forms should be sent to the
Internal  Revenue  Service  well  before the end of the  application  limitation
period.  Any claim for refund of tax credit by a US shareholder  after the first
claim should be filed  directly  with the  Financial  Intermediaries  and Claims
Office  (International),  Fitz  Roy  House,  P.O.  Box 46,  Nottingham  NG2 1BD,
England.

                                       19

<PAGE> 22

         Legislation has recently been enacted (the UK Finance Act (No.2 ) 1997)
which will reduce the rate of tax credits  available  to UK resident  individual
shareholders  on dividends paid by the Company to 10% of the gross dividend from
April 1999.  Accordingly with effect from April 1999, an eligible US holder will
no longer be entitled to receive a treaty payment as the 15% UK withholding  tax
will exceed the tax credit amount. The amount of the excess will not be deducted
from the cash dividend entitlement of the eligible US holder which will continue
to be paid  free of UK  withholding  tax.  US  holders  and  other  shareholders
resident  outside the United  Kingdom who are in any doubt about their  position
should  consult  an  appropriate  professional  adviser  on the  effect of these
changes for them.

         In his U.K. "Green" Budget  announcement made on November 25, 1997, the
UK Chancellor  of the Exchequer  announced the abolition of ACT from April 1999,
which was  confirmed in his budget on March 17, 1998.  Even if this  proposal is
enacted, dividends will continue to be paid free of withholding tax.

US Federal Income Taxation of Dividends
---------------------------------------

         For US income tax purposes,  a US holder of ADRs will realize  dividend
income in an amount equal to the sum of any cash  dividend  paid and the related
tax credit,  without reduction for any UK withholding tax thereon. Such dividend
income will  generally  not be eligible  for the  dividends  received  deduction
allowed to corporations.  Subject to certain limitations, the UK withholding tax
will be treated as a foreign  income tax that may be claimed as a credit against
US federal  income tax  liability.  The dividend  income  will,  for purposes of
computing  the foreign tax credit  limitation,  constitute  income from a source
outside the United  States but,  with certain  exceptions,  will also be treated
together with other items of "passive" or "financial  service"  income.  Special
rules,  not discussed  here,  apply for purposes of determining  the foreign tax
credit  available to a US  corporation  that  controls 10% or more of the voting
shares of the Company.

Taxation on Capital Gains
-------------------------

         Under the current double income taxation  convention between the United
Kingdom and the United States,  each country  generally may tax capital gains in
accordance  with the  provisions  of its  domestic  law.  Under  present UK law,
residents of the United  States who are not resident or  ordinarily  resident in
the United  Kingdom will not be liable for UK capital gains tax on capital gains
made on the  disposal of their  Ordinary  Shares  unless such shares are held in
connection  with a trade  carried on in the United  Kingdom  through a permanent
establishment. US citizens or corporations who are also liable for UK tax may be
liable  for both UK and US tax in  respect  of a gain on the  disposal  of ADSs.
However,  subject to the  limitations  set out in the Code,  such persons may be
entitled to a tax credit  against  their federal tax liability for the amount of
the UK tax paid in respect of such gain. A US resident  holder of an ADR will be
liable  for US federal  income  tax on such  gains to the same  extent as on any
other gains from sales of stock.

UK Inheritance Tax
------------------

         Under the current double estates and gift taxation  convention  between
the United States and the United Kingdom,  Ordinary Shares held by an individual
shareholder  who is domiciled  for the purpose of the  convention  in the United
States and is not for the  purposes of the  convention  a national of the United
Kingdom will not,  provided any tax  chargeable in the United States is paid, be
subject to UK  inheritance  tax on the disposal of shares by way of gift or upon
the individual's  death unless the shares are part of the business property of a
permanent  establishment of the individual in the United Kingdom or, in the case
of a shareholder who performs independent personal services,  pertain to a fixed
base situated in the United Kingdom.  In the  exceptional  case where the shares
are subject both to UK inheritance tax and to US federal gift or estate tax, the
convention  generally  provides  for double  taxation to be relieved by means of
credit relief.

                                       20

<PAGE> 23

US Estate Tax
-------------

         US  residents  and US citizens  will be subject to an estate tax on the
fair market value of the shares at the date of death.  The estate tax is imposed
on the value of all  assets,  subject to a specific  dollar  credit and  certain
deductions.  If the  assets are passed in a tax  deductible  way to a  surviving
spouse, the estate tax is deferred. If the surviving spouse is not a US citizen,
the tax is  only  deferred  if a  specialized  trust  is  established  with a US
trustee.

UK Stamp Duty and Stamp Duty Reserve Tax
----------------------------------------

         Charges to UK stamp duty and/or  stamp duty reserve tax ("SDRT") may be
imposed in respect of, inter alia, the following transactions:

         (a)      the transfer of an ADS;

         (b)      the transfer of an Ordinary Share;

         (c)      the deposit of an Ordinary Share with the Custodian  under the
                  Deposit Agreement and the subsequent issue of an ADR; and

         (d)      the transfer of an Ordinary Share on surrender of an ADS.

         This section discusses in turn each such possible charge.

         No UK stamp  duty will be payable on any  transfer  of an ADS  provided
that the instrument or transfer is executed and remains outside the UK, nor will
there be any  liability to SDRT in respect of any  agreement for the transfer of
ADSs.

         Ad valorem  stamp duty will be charged on  conveyances  or transfers of
Ordinary  Shares  at the  rate  of 1/2% of the  consideration,  if any,  for the
transfer.

         SDRT  will be  imposed,  at the rate of 1/2% of the  consideration  for
transaction,  if an agreement is made for the sale of Ordinary Shares, unless an
instrument  of transfer of the Ordinary  Shares in favor of the purchaser or its
nominee  is  executed  and  duly  stamped.  SDRT is in  general  payable  by the
purchaser of Ordinary  Shares,  but regulations have been made which provide for
collection from other persons in certain circumstances.

         Ad valorem  stamp duty will be imposed on any  instrument  transferring
Ordinary  Shares  to a nominee  or agent  for a  depositary  which  then  issues
depositary  receipts (such as the ADRs). Where the instrument is liable to stamp
duty as a "conveyance on sale"  (because it completes a sale of Ordinary  Shares
or ADSs), then the rate of duty will be 1 1/2% of the consideration for the sale
implemented by the instrument. Where the instrument of transfer is not stampable
as a  conveyance  on sale,  then the rate of duty  will be 1 1/2% of the  market
value of the security transferred by the instrument.

         There  is also a  potential  charge  to SDRT  which  will  apply  where
Ordinary Shares are  transferred to a nominee or agent for the Depositary  under
an  arrangement  under which the  Depositary  issues ADRs.  SDRT,  which will be
payable  by  the  Depositary,  will  be  charged  at a  rate  of 1  1/2%  of the

                                       21

<PAGE> 24

consideration for the transfer.  Where there is no such consideration,  the rate
of the SDRT will be 1 1/2% of the market  value of the  securities  transferred.
The  charge to SDRT will,  however,  be reduced  by the  amount,  if any,  of ad
valorem stamp duty paid on the instrument transferring the Ordinary Shares.

         A transfer  of  Ordinary  Shares  from the  Depositary  or its agent or
nominee to an ADR holder, or a person designated by such holder, on cancellation
of an ADS which is liable to duty as a "conveyance of sale" because it completes
a sale of such Ordinary Shares, will be liable to ad valorem stamp duty, payable
by the  purchaser,  at the rate of 1/2% of the  consideration,  if any,  for the
transfer.  A transfer of Ordinary  Shares  from the  Depositary  or its agent or
nominee to an ADR holder on  cancellation  of an ADS which is not liable to duty
as a "conveyance on sale" will be liable to a fixed stamp duty of 50p.

Other US Issues
---------------

         As of May 22, 1998, the Company is not a controlled foreign corporation
("CFC"), a passive foreign  investment  company ("PFIC"),  or a foreign personal
holding company  ("FPHC"),  and the Company does not anticipate  becoming a CFC,
PFIC or FPHC. Neither the Company nor its advisers have a duty or will undertake
to inform US  shareholders  of changes in  circumstances  which  would cause the
Company to become a CFC, PFIC or a FPHC. US  shareholders  should  consult their
own tax advisers concerning the status of the Company as a CFC, PFIC or FPHC.

ITEM 8.  SELECTED FINANCIAL DATA

Selected Consolidated Financial Data
------------------------------------

         The Selected Consolidated Financial Data in US Format set forth on page
16 and the Selected  Consolidated  Financial Data in UK Format set forth on page
44 of the Micro Focus 1998 Annual Report to Shareholders are incorporated herein
by reference.

Exchange Rates
--------------

         The  following  table  sets  forth,  for the  periods  and as of  dates
indicated,  the  average,  high,  low and end of period Noon Buying Rates for GB
pounds in US dollars per GBP 1.

Fiscal Year Ended January 31,       Average*    High      Low    Period End
----------------------------        --------    ----      ----   -----------

1994.................................  1.50     1.59      1.42    1.49
1995.................................  1.55     1.64      1.46    1.58
1996.................................  1.57     1.61      1.51    1.51
1997.................................  1.58     1.71      1.49    1.60
1998.................................  1.64     1.70      1.58    1.63

* The  average  of the  exchange  rates on the last day of each  calendar  month
during the period.

         On April 30, 1998, the Noon Buying Rate was $1.67 per GBP 1.

         Fluctuations  in the  exchange  rate  between  the GB pound  and the US
dollar  will affect the US dollar  amounts  received by holders of the ADSs upon
conversion by the Depositary of cash dividends paid in GB pounds on the Ordinary
Shares  represented by the ADSs and may affect the relative market prices of the
ADSs in the United States and the Ordinary Shares in the United Kingdom.

                                       22

<PAGE> 25

         With respect to the effect of exchange rate fluctuations on the Group's
results of operations,  see "Management's  Discussion and Analysis of Results of
Operations and Financial Condition - Exchange Rate Fluctuations" on pages 22 and
50 of the Micro  Focus 1998 Annual  Report to  Shareholders,  which  sections on
exchange rate fluctuations are incorporated herein by reference.

Dividends
---------

         The Company has never paid cash dividends on its Ordinary  Shares.  The
Company has  investigated  the  possibility of paying  dividends and reviews the
issue from time to time.

         If dividends  were paid,  they would  probably be paid in GB pounds and
exchange rate  fluctuations  would affect the US dollar  amounts that holders of
Ordinary  Shares  would  receive on  conversion  by them,  or in the case of ADR
holders the Depositary,  of such cash dividends.  Moreover,  fluctuations in the
exchange  rate  between  the GB  pound  and  the US  dollar  affect  the  dollar
equivalent  of the  sterling  price  of  Ordinary  Shares  on the  London  Stock
Exchange.

ITEM 9.   MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

         Management's  Discussion and Analysis of Results of Financial Condition
and Results of Operations for the fiscal years ended January 31, 1998,  1997 and
1996,  which is  contained on pages 17 through 22 and pages 45 through 50 of the
Micro  Focus 1998  Annual  Report to  Shareholders,  is  incorporated  herein by
reference.

ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT

         The Memorandum and Articles of Association of the Company provide that,
unless otherwise determined by ordinary resolution of the Company, the number of
directors  shall be not  less  than  two in  number.  There  are  currently  six
directors.  At each annual general  meeting,  one-third of the directors who are
subject  to  retirement  by  rotation  (or,  if their  number  is not three or a
multiple of three,  the number  nearest to but not  exceeding  one-third)  shall
retire from office. A director appointed by the directors to an executive office
is  not  subject  to  retirement  by  rotation.  However,  notwithstanding  such
provision,  the  directors  have since the  formation of the Company  retired by
rotation.

         Executive  officers of the Company serve at the discretion of the Board
of Directors.

         The directors and executive officers of the Company,  effective May 22,
1998, are as follows:

Board of Directors
------------------
                                                     
Name                    Position                      Date Elected or Appointed
----                    ---------                     --------------------------

Paul A. Adams           Director and  Vice President,            November 1986
                        International Sales


                                       23

<PAGE> 26


J. Michael Gullard      Director and Chairman                    May 1995

Harold Hughes           Director                                 December 1993

Martin Waters           Director, President and                  July 1997
                        Chief Executive Officer

J. Sidney Webb          Director                                 December 1997


Executive Officers
------------------

Name                    Position                                Date Appointed
----                    --------                               ---------------- 

Stanley Blaustein       Vice President and                       November 1996
                        Chief Information Officer

Richard Butts           Vice President, Human Resources          June 1996

Michael Mahoney         Senior Vice President,                   May 1998
                        North American Sales Operations

Buff Jones              Senior Vice President,                   March 1998
                        Business Development

Christopher Sanders     Senior Vice President,                   September 1997
                        Product Operations

Richard Van Hoesen      Senior Vice President,                   March 1998
                        Chief Financial Officer and
                        Secretary

         Biographical  information with respect to the directors and officers is
shown below.

     Mr.  Adams has been a director  for the Company  since 1986,  has served in
various  executive  capacities with the Company since 1978 and is currently Vice
President, International Sales of the Company.

     Mr.  Gullard has been a  non-executive  director  of the Company  since May
1995.  He is  General  Partner  of  the  venture  capital  firm  of  Cornerstone
Management.

     Mr.  Waters  joined the Company as a director and its  President  and Chief
Executive Officer in July 1997.

     Mr. Hughes has been a non-executive  director of the Company since December
1993. He is Chief Executive Officer of Pandesic LLC.

     Mr. Webb has been a  non-executive  director of the Company since  December
1997. He is Chairman of Titan Corporation.

                                       24

<PAGE> 27

     Mr. Blaustein joined the Company in November 1996 as its Vice President and
Chief Information Officer.

     Mr. Butts has served in various  capacities with the Company since 1983 and
is currently Vice President,
Human Resources.

     Mr.  Mahoney  joined the Company in May 1998 as its Senior Vice  President,
North American Sales Operations.

     Ms.  Jones  joined the Company in March 1998 as its Senior Vice  President,
Business Development.

     Mr.  Sanders  joined the  Company  in  September  1997 as its  Senior  Vice
President,   Strategic  Planning  and  became  Senior  Vice  President,  Product
Operations of the Company in January 1998.

     Mr.  Van  Hoesen  joined  the  Company  in March  1998 as its  Senior  Vice
President,  and Chief Financial Officer. In May 1998, Mr. Van Hoesen also became
the Secretary of the Company.

         There are no family  relationships  between any  director or  executive
officer  and  any  other  director  or  executive   officer  and  there  are  no
arrangements or understandings between any executive officer or director and any
other person pursuant to which an executive  officer or director was or is to be
selected to such position.

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS

         For the fiscal year ended  January 31, 1998,  the  aggregate  amount of
compensation  paid by Micro Focus to all  directors  and officers as a group (15
persons) for services in all capacities  totaled GBP  1,964,000/$3,222,000.  For
the same  period,  the  compensation  of the  chairman  of Micro  Focus  was GBP
50,000/$82,000. The aggregate amount set aside or accrued by Micro Focus for the
fiscal year ended  January 31, 1998 to provide  pension,  retirement  or similar
benefits for  directors  and  officers of Micro Focus,  pursuant to any existing
plan provided or contributed to by Micro Focus, totaled GBP 47,000/$77,000.

         The  amounts  paid to the  directors  and  officers  as a group  may be
divided  as   follows:   GBP   932,000/$1,514,000   was  paid  as  salary,   GBP
73,000/$120,000   was  paid  as   director's   fees,   other   benefits  of  GBP
211,000/$345,000,  consulting  fees of GBP  120,000/$200,00  paid to one  former
director,  compensation  payments for loss of office of GBP  137,000/$225,000 to
one former  director,  and the remainder was payable under three  different cash
bonus programs.  Each cash bonus program sets certain operating plans, and bonus
amounts are paid based upon the Group's  performance against the operating plan.
Further  compensation  information  is provided  under  "Executive  Remuneration
Committee's  Report -  Directors  Remuneration  Policy"  on page 41 of the Micro
Focus 1998 Annual Report to  Shareholders,  which  compensation  information  is
incorporated herein by reference.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

         The Company has four share option plans (the "Micro Focus Plans"),  the
Micro Focus Share Option Plan 1983-1984, the Micro Focus Share Option Plan 1991,
the Micro  Focus Group  Employee  Benefit  Trust 1994 (the "1994  Plan") and the
Micro Focus Share  Option Plan 1996 (the "1996  Plan").  The share  option plans
provide for the granting of options to purchase  Ordinary  Shares in the Company

                                       25

<PAGE> 28

to  Micro  Focus  employees  and  consultants.  The  Company  currently  has the
authority to grant stock options under the 1994 Plan and the 1996 Plan.

         In  connection  with the  Company's  acquisition  of XDB,  the  Company
assumed the XDB Systems,  Inc. 1992 Stock Option Plan and the XDB Systems,  Inc.
1996 Stock Option Plan (the "XDB  Plans"),  and the  outstanding  stock  options
under  the  XDB  Plans  as of  January  20,  1998,  the  effective  date  of the
acquisition,  were converted into stock options to purchase  Ordinary  Shares of
the Company. No further stock options have been or will be granted under the XDB
Plans.

         At April 30, 1998, there were outstanding stock options under the Micro
Focus Plans and XDB Plans to purchase an aggregate of 11,216,336 Ordinary Shares
with  exercise  prices  ranging from GBP 1.08 to GBP 7.08 and  expiration  dates
ranging  from 1998 to 2008.  At the same  date,  the  following  directors  (and
directors and officers as a group) held options to purchase the number of shares
set forth opposite their respective names:


<TABLE>
<CAPTION>


                       Number of Shares            Option Price                Expiration Date
                       ----------------            ------------                ---------------
<S>                          <C>                       <C>                            <C>    
Paul A. Adams                8,000                   GBP 1.084                  August 8, 1998
                           286,500                   GBP 1.37                   April 9, 2003
                            50,000                   GBP 2.118                  March 5, 2007

Ronald H. Forbes           256,500                   GBP 1.37                   April 9, 2003

Harold Hughes              50,000                    GBP 2.996                  August 19, 2002
                           10,000                    GBP 2.396                  June 16, 2004

J. Michael Gullard         50,000                    GBP 2.134                  June 2, 2004
                          250,000                    GBP 1.67                   June 21, 2006

Martin Waters           1,187,500                    GBP 4.202                  September 16, 2004
                        1,812,500                    GBP 4.202                  September 16, 2007

Directors and Officers
  as a group
 (13 persons)              10,000                    GBP   1.084                August 8, 1998
                          667,950                    GBP   1.37                 April 10, 2003
                          525,000                    GBP   1.466                September 11, 2006
                          250,000                    GBP   1.67                 June 21, 2006
                          120,000                    GBP   1.81                 December 3, 2006
                           50,000                    GBP   2.118                March 5, 2007
                           50,000                    GBP   2.134                June 2, 2004
                           10,000                    GBP   2.396                June 16, 2004
                           50,000                    GBP   2.996                August 19, 2002
                        1,187,500                    GBP   4.202                September 16, 2004
                        2,062,500                    GBP   4.202                September 16, 2007
                          175,000                    GBP   6.25                 March 4, 2008

</TABLE>


                                       26

<PAGE> 29


ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

         The  information  required  by this  Item  is  incorporated  herein  by
reference   from   "Executive   Remuneration    Committee's    Report-Directors'
Remuneration" on page 42 of the Micro Focus 1998 Annual Report to Shareholders.


                                     PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED

The Registrant has elected to respond to this Item.

Description of Ordinary Shares
------------------------------

         The  following  summarizes  certain  rights of holders of the Company's
Ordinary  Shares based on the Company's  Memorandum  and Articles of Association
("Articles  of  Association")  and  English  law in force as of the date of this
Annual  Report.  The summary does not purport to be complete and is qualified in
its entirety by reference to the Articles of Association, which are incorporated
by reference in this Annual Report.

         The  authorised  share capital of the Company is GBP 2,250,000  divided
into 112,500,000 Ordinary Shares of 2p each, of which 79,416,935 Ordinary Shares
were outstanding on January 31, 1998. Each of the issued Ordinary Share is fully
paid and not subject to any further calls or assessments  by the Company.  There
are no  conversion  rights,  redemption  provisions  or sinking fund  provisions
related to the Ordinary  Shares.  The Ordinary  Shares are issued in  registered
form.  See Item 16 for a  description  of the  five-for-one  stock  split of the
Ordinary Shares effective as of the close of business on March 13, 1998.

         In the following description,  a "shareholder" is the person registered
in the Company's  register of members as the holder of the relevant  share.  The
Depositary  for the Company's  ADSs will be the  shareholder in respect of those
Ordinary Shares represented by ADS against which ADRs are issued pursuant to the
Deposit Agreement.

         Dividends

         All  dividends  on the  Ordinary  Shares  shall  be  declared  and paid
according  to the  amount  paid up on the  Ordinary  Shares  (otherwise  than in
advance  of calls) but no  dividend  shall be  declared  in excess of the amount
recommended  by the  directors.  The  directors may from time to time pay to the
members of the Company such interim  dividends as appear to the  directors to be
justified  by the  profits of the  Company  available  for  distribution.  Final
dividends may be declared by resolution of the members on the  recommendation of
the Board.  There are no fixed dates on which entitlement to dividends arises on
the Ordinary Shares.

         Any dividend unclaimed after a period of 12 years from the date when it
became due for payment  shall,  if the  directors so resolve,  be forfeited  and
shall cease to remain owing by the Company.

         Rights in a Winding Up

         In the event of a  winding-up  or  reduction  of capital of the Company
involving repayment,  the assets of the Company available for distribution among
the  members  shall be  divided  between  the  holders  of the  Ordinary  Shares
according to the respective number of shares held by them and in accordance with

                                       27

<PAGE> 30

the  provisions  of The  Companies  Act 1985 of Great  Britain,  as amended (the
"Companies  Act").  The  liquidator  may, with the sanction of an  extraordinary
resolution  of the Company and subject to the  Companies  Act,  divide among the
members in specie the whole or any part of the assets of the Company.

         Voting

         Voting at any  general  meeting of  shareholders  is by a show of hands
unless a poll is duly  demanded.  A poll may be demanded by (i) the  chairman of
the  meeting,  (ii) at least two  shareholders  entitled to vote at the meeting,
(iii) any  shareholder or  shareholders  representing  in the aggregate not less
than one-tenth of the total voting rights of all  shareholders  entitled to vote
at  the  meeting,  or  (iv)  any  shareholder  or  shareholders  holding  shares
conferring  a right to vote at the meeting on which there have been paid up sums
in the  aggregate  equal to not less than  one-tenth of the total sum paid up on
all the  shares  conferring  that  right.  On a show of hands,  every  holder of
Ordinary  Shares who is present  in person at a general  meeting of the  Company
will have one  vote,  and on a poll,  every  holder of  Ordinary  Shares  who is
present in person or by proxy will have one vote per share. The necessary quorum
for a shareholder  meeting shall be a minimum of two persons entitled to vote on
the business to be transacted,  each being a member or a proxy for a member or a
duly authorised  representative of a corporation.  Unless otherwise  required by
law or the Company's Articles of Association,  voting in a general meeting is by
ordinary  resolution  (e.g.,  resolutions  for the  election of  directors,  the
approval of  financial  statements,  the  declaration  of final  dividends,  the
appointment of auditors,  the increase of authorized  share capital or the grant
of authority to allot shares).  An ordinary  resolution requires the affirmative
vote of a majority of the votes cast at a meeting at which there is a quorum.  A
special  resolution (e.g.,  relating to certain matters concerning an alteration
of the Company's  Articles of  Association or a winding-up of the Company) or an
extraordinary resolution (e.g., modifying the rights of any class of shares at a
meeting of the holders of such class) requires the affirmative  vote of not less
than  three-fourths  of the votes cast.  Meetings are  generally  convened  upon
advance  notice of 21 or 14 clear days (not  including  the days of  delivery or
receipt of the notice) depending on the nature of the business to be transacted.

         Pre-Emptive Rights

         Under Part III of the Companies Act, no equity securities which are, or
are to be, paid for wholly in cash (except shares held under an employees' share
scheme) may be  allotted by the Company  unless the Company has made an offer to
the holders of its Ordinary Shares to allot the equity securities to them on the
same or more favourable terms and in proportion to their shareholdings.  In this
context, equity securities generally means, in relation to the Company, Ordinary
Shares,  i.e.,  shares  with no  restrictions  on the  amounts  receivable  in a
distribution  of dividends or capital and all rights to subscribe for or convert
into such shares.

         This statutory  pre-emption  right does not,  however,  apply where the
right has been  disapplied  by a special  resolution  of the  shareholders  of a
company.  In the case of the  Company,  by a  special  resolution  passed at the
annual general meeting of the Company on June 4, 1997, the statutory pre-emption
right was  disapplied in respect of the allotment of equity  securities for cash
in connection  with (i) a rights issue in favor of ordinary  shareholders  where
the equity securities respectively attributable to the interests of all ordinary
shareholders are proportionate  (as nearly as may be) to the respective  numbers
of Ordinary  Shares held by them but subject to such exclusions as the directors
may consider  appropriate  to deal with  fractional  entitlements  or holders of
shares outside the United Kingdom or (ii) the allotment of equity  securities up
to an aggregate nominal value of GBP 76,709.  This  disapplication  will, unless
extended or  renewed,  expire on the date of the annual  general  meeting of the
Company in 1998, or, if earlier, on September 4, 1998.

                                       28

<PAGE> 31

         Variation of Rights and Share Capital

         The Company  may by ordinary  resolution  increase  its share  capital,
consolidate  and divide all or any of its shares into  shares of larger  amounts
and,  subject to the provisions of the Companies Act,  subdivide its shares into
shares of smaller amount or cancel shares which have not been taken or agreed to
be taken by any person.  Subject to the  provisions  of the  Companies  Act, the
Company may by special  resolution reduce its share capital,  capital redemption
reserve and any share  premium  account.  The Company may also,  subject to such
approvals as are required by the Companies Act, purchase its own shares.

         Subject to the provisions of the Companies Act, the rights  attached to
any class of shares may be varied  with the consent in writing of the holders of
three-fourths  in nominal value of the issued shares of that class,  or with the
sanction  of an  extraordinary  resolution  passed at a separate  meeting of the
holders  of the shares of that  class.  At any  separate  general  meeting,  the
necessary  quorum is one or more persons  holding or  representing  by proxy not
less than  one-third  in  nominal  amount of the  issued  shares of the class in
question (but at any adjourned  meeting,  any person holding shares of the class
or his proxy shall be a quorum).

         Disclosure of Interests

         The  Companies  Act gives the Company  power to require  persons who it
knows are, or has reasonable  cause to believe to be, or to have been within the
previous  three  years,  interested  in its relevant  share  capital to disclose
prescribed  particulars of those  interests.  For this purpose  "relevant  share
capital" means the Company's  issued share capital carrying the right to vote in
all  circumstances at a general meeting of the Company.  Failure to provide in a
timely  manner  the  information  requested  may  result  in the  imposition  of
sanctions against the holder of the relevant shares as provided in the Companies
Act. The Articles of  Association of the Company impose the withdrawal of voting
rights of such shares and restrictions on the rights to receive dividends on and
to transfer such shares. In this context,  the term "interest is broadly defined
and will  generally  include an  interest of any kind in shares,  including  the
interest of a holder of an ADS. In addition, under the Companies Act, any person
who  acquires  (alone or, in  certain  circumstances,  with  others) a direct or
indirect  interest in the relevant share capital of the Company in excess of the
"notifiable  percentage"  (currently  3%, or 10% for certain  types of interest)
comes under an obligation to disclose  prescribed  information to the Company in
respect of those shares  within a period of two business  days. An obligation of
disclosure  also arises where such  person's  notifiable  interest  subsequently
falls below the notifiable percentage or where, above that level, the percentage
of the Company's relevant capital in which such person is interested  (expressed
in whole numbers) increases or decreases.

         Miscellaneous

         There are currently no United Kingdom foreign exchange  controls on the
payment of  dividends  on the  Ordinary  Shares or the conduct of the  Company's
operations. There are no restrictions under the Articles of Association or under
English law that limit the right of  non-resident  or foreign  owners to hold or
vote the Company's Ordinary Shares.

Description of American Depositary Receipts
-------------------------------------------

         The  following  is a summary of certain  provisions  of the Amended and
Restated Deposit Agreement (the "Deposit Agreement") dated as of March 16, 1998,
entered  into  by  the  Company,  The  Bank  of New  York,  as  depositary  (the
"Depositary," such term to include any successor Depositary), and all Owners and
holders  from time to time of ADRs,  pursuant to which the ADRs are issued.  The
Deposit Agreement will be governed by the laws of the State of New York.

                                       29

<PAGE> 32

         This  summary  does not  purport to be  complete  and is subject to and
qualified in its entirety by reference to the Deposit  Agreement,  including the
form of ADRs. Terms used herein and not otherwise defined will have the meanings
set forth in the  Deposit  Agreement.  Copies of the Deposit  Agreement  and the
Memorandum  and  Articles  of  Association  of the  Company  are  available  for
inspection at the Corporate Trust Office of the Depositary, currently located at
101 Barclay  Street,  New York, New York 10286,  and at the London office of the
Depositary (the  "Custodian"),  currently located at 46 Berkeley Street,  London
W1X 6AA, England.  The Depositary's  principal executive office is located at 48
Wall Street, New York, New York 10286.

         American Depositary Receipts

         ADRs representing  ADSs are issuable by the Depositary  pursuant to the
Deposit  Agreement.  Each ADS represents five Ordinary Shares (together with any
additional  Ordinary Shares at any time deposited or deemed  deposited under the
Deposit Agreement and any and all other  securities,  property and cash received
by the  Depositary  or the  Custodian  in respect  thereof and at such time held
under the Deposit  Agreement,  "Deposited  Securities").  Only  persons in whose
names ADRs are registered on the books of the Depositary  will be treated by the
Depositary and the Company as owners (the "Owners").

         Deposit, Transfer and Withdrawal

         The Depositary  has agreed,  subject to the terms and conditions of the
Deposit  Agreement,  that upon delivery to the Custodian of Ordinary  Shares (or
evidence of rights to receive Ordinary  Shares),  accompanied by any appropriate
instruments of transfer or endorsement in a form  satisfactory to the Custodian,
and  any  other  documents  required  by  the  Depositary  or the  Custodian  in
accordance with the Deposit Agreement,  the Depositary will, upon payment of the
fee of the  Depositary  and of all  taxes  and  governmental  charges  and fees,
execute and deliver at its Corporate  Trust Office to, or upon the order of, the
person  or  persons  named  in the  notice  of the  Custodian  delivered  to the
Depositary or requested by the person  depositing  such Ordinary Shares with the
Depositary,  an ADR or ADRs,  registered  in the name or names of such person or
persons, and representing any authorized number of ADSs requested by such person
or persons.

         The Depositary has no obligation to accept  Ordinary Shares for deposit
from any  person or entity  identified  by the  Company  as  holding  Restricted
Securities (as defined below) except upon  compliance with the provisions of the
Deposit  Agreement.  The term "Restricted  Securities" means Ordinary Shares, or
ADRs  representing  such  Ordinary  Shares,   which  are  acquired  directly  or
indirectly  from the  Company or its  affiliates,  as defined in Rule 144 to the
Securities Act of 1933, as amended (the  "Securities  Act"), in a transaction or
chain of transactions  not involving any public offering or which are subject to
resale limitations under Regulation D under the Securities Act or both, or which
are held by an officer, director or other affiliate of the Company, or which are
subject to other  restrictions  on sale or deposit  under the laws of the United
States or  England,  or under a  shareholder  agreement  or the  Memorandum  and
Articles of Association of the Company.

         Upon  surrender at the Corporate  Trust Office of the  Depositary of an
ADR for the purpose of  withdrawal of the Deposited  Securities  represented  by
such ADR, and upon  payment of the fee of the  Depositary  for the  surrender of
ADRs and payment of all taxes and governmental  charges and fees, and subject to
the terms and conditions of the Deposit Agreement, the Owner of such ADR will be
entitled  to  delivery,  to him or upon his order,  of the  amount of  Deposited
Securities  at the  time  represented  by such  ADR.  The  forwarding  of  share
certificates  and other proper  documents of title for such  delivery will be at
the risk and expense of the Owner.

                                       30
<PAGE> 33

         Subject to the terms and  conditions  of the Deposit  Agreement and any
limitations established by the Depositary, the Depositary may deliver ADRs prior
to the receipt of Ordinary Shares (a "Pre-Release")  and deliver Ordinary Shares
upon the receipt and cancellation of ADRs which have been Pre-Released,  whether
or not such  cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such ADR has been Pre-Released. The Depositary may receive
ADRs  in  lieu  of  Ordinary  Shares  in  satisfaction  of a  Pre-Release.  Each
Pre-Release must be (i) preceded or accompanied by a written representation from
the  person  to whom the ADRs  are to be  delivered  that  such  person,  or its
customer,  owns the Ordinary Shares or ADRs to be remitted,  as the case may be,
(ii) at all times fully collateralized with cash or such other collateral as the
Depositary  deems  appropriate,  (iii)  terminable by the Depositary on not more
than five business days' notice and (iv) subject to such further indemnities and
credit regulations as the Depositary deems appropriate.

         Dividends, Other Distributions and Rights

         Subject to any  restrictions  imposed by English  law,  regulations  or
applicable  permits,  the  Depositary  is  required  to  convert  or cause to be
converted into United States dollars,  to the extent that in its judgment it can
do so on a reasonable basis and can transfer the resulting dollars to the United
States,  all cash  dividends  and  other  cash  distributions  denominated  in a
currency other than dollars,  including  pounds sterling  ("Foreign  Currency"),
that it receives in respect of the deposited  Ordinary Shares, and to distribute
the resulting dollar amount (net of reasonable and customary  expenses  incurred
by the Depositary in converting  such Foreign  Currency) to the Owners  entitled
thereto,  in  proportion  to the  number  of ADSs  representing  such  Deposited
Securities held by them,  respectively.  The amount distributed to the Owners of
ADRs will be reduced by any  amount on  account of taxes to be  withheld  by the
Company  or the  Depositary.  See  "Liability  of  Owner  for  Taxes."  If  such
conversion or distribution  can be effected only with the approval or license of
any government or agency thereof,  the Depositary will file such application for
approval or license, if any, as it deems desirable.

         If the Depositary  determines that in its judgment any Foreign Currency
received  by the  Depositary  cannot be  converted  on a  reasonable  basis into
dollars  transferable  to the  United  States,  any  approval  or license of any
government or agency  thereof that is required for such  conversion is denied or
in the opinion of the  Depositary  is not  obtainable or if any such approval or
license  is not  obtained  within  a  reasonable  period  as  determined  by the
Depositary,  the Depositary may distribute the Foreign Currency  received by the
Depositary  to, or in its  discretion  may hold such  Foreign  Currency  for the
respective  accounts  of, the Owners  entitled to receive the same.  If any such
conversion  of Foreign  Currency,  in whole or in part,  cannot be effected  for
distribution to some of the Owners entitled  thereto,  the Depositary may in its
discretion  make such  conversion  and  distribution  in  dollars  to the extent
permissible to the Owners  entitled  thereto,  and may distribute the balance of
the Foreign  Currency  received by the  Depositary to, or hold such balance for,
the respective accounts of the Owners entitled thereto.

         If the  Company  declares  a  dividend  in,  or free  distribution  of,
Ordinary  Shares,  the  Depositary  may,  and will if the  Company so  requests,
distribute to the Owners,  in proportion to the number of ADSs representing such
Deposited  Securities  held  by  them,  respectively,  additional  ADRs  for  an
aggregate number of ADSs  representing the amount of Ordinary Shares received as
such dividend or free  distribution,  subject to the terms and conditions of the
Deposit  Agreement  with  respect  to the  deposit  of  Ordinary  Shares and the
issuance of ADRs,  including the  withholding  of any tax or other  governmental
charges  or fees  and the  payment  of the  fees of the  Depositary.  In lieu of
delivering  ADRs for  fractional  ADSs in the event of any such dividend or free
distribution, the Depositary will sell the amount of Ordinary Shares represented
by the aggregate of such fractions and distribute the net proceeds in accordance
with the Deposit Agreement. If additional ADRs are not so distributed,  each ADS

                                       31

<PAGE> 34

will thenceforth also represent the additional  Ordinary Shares distributed upon
the Deposited Securities represented thereby.

         If the  Company  offers or causes to be offered  to the  holders of any
Deposited  Securities any rights to subscribe for additional  Ordinary Shares or
any rights of any other nature,  the Depositary  will have  discretion as to the
procedure  to be followed in making  such rights  available  to any Owners or in
disposing  of such  rights on behalf of any Owners  and making the net  proceeds
available  in United  States  Dollars to such Owners or, if by the terms of such
rights offering or for any other reason, the Depositary may not either make such
rights  available  to any  Owners or  dispose  of such  rights  and make the net
proceeds available to such Owners, then the Depositary shall allow the rights to
lapse.  If at the time of the offering of any rights the  Depositary  reasonably
determines  that it is lawful and feasible to make such rights  available to all
Owners  or to  certain  Owners  but not to other  Owners,  the  Depositary  must
distribute to any Owner to whom it determines the  distribution to be lawful and
feasible,  in proportion  to the number of ADSs held by such Owner,  warrants or
other  instruments  therefor  in  such  form  as it  deems  appropriate.  If the
Depositary reasonably determines that it is not lawful and feasible to make such
rights available to certain Owners or if the rights represented by such warrants
or other  instruments  are not exercised and appear about to lapse,  it may sell
the rights,  warrants or other  instruments  in proportion to the number of ADSs
held by the Owners to whom it has  determined  it may not  lawfully  or feasibly
make such rights available,  and allocate the net proceeds of such sales for the
account of such  Owners  otherwise  entitled to such  rights,  warrants or other
instruments,  upon an averaged or other  practical  basis without  regard to any
distinctions  among such Owners because of exchange  restrictions or the date of
delivery of any ADR or ADRs, or otherwise.

         In circumstances in which rights would not otherwise be distributed, if
an Owner of ADRs requests the  distribution of warrants or other  instruments in
order to exercise the rights allocable to the ADSs of such Owner, the Depositary
will make such  rights  available  to such Owner upon  written  notice  from the
Company  to the  Depositary  that  (i)  the  Company  has  elected  in its  sole
discretion  to permit  such  rights  to be  exercised  and (ii)  such  Owner has
executed such documents as the Company has determined in its sole discretion are
reasonably  required under  applicable  law. Upon  instruction  pursuant to such
warrants or other instruments to the Depositary from such Owner to exercise such
rights,  upon  payment by such Owner to the  Depositary  for the account of such
Owner of an amount  equal to the  purchase  price of the  Ordinary  Shares to be
received  upon  exercise  of the  rights  and  upon  payment  of the fees of the
Depositary as set forth in such warrants or other  instruments,  the  Depositary
will,  on behalf of such Owner,  exercise  the rights and  purchase the Ordinary
Shares,  and the Company  shall cause the  Ordinary  Shares so  purchased  to be
delivered to the  Depositary  on behalf of such Owner.  As agent for such Owner,
the Depositary will cause the Ordinary Shares so purchased to be deposited,  and
will execute and deliver  restricted  ADRs to such Owner pursuant to the Deposit
Agreement.

         If registration under the Securities Act of the securities to which any
rights  relate is  required  in order for the  Company to offer  such  rights to
Owners and sell the securities  represented  by such rights,  the Company or the
Depositary  are not  required  to offer such rights to Owners of ADRs unless and
until such a  registration  statement  is in effect,  or unless the offering and
sale of such securities to the Owners of such ADRs are exempt from  registration
under the  provisions  of the  Securities  Act. The Deposit  Agreement  does not
create  any  obligation  on the  part  of the  Company  to  file a  registration
statement with respect to such rights or underlying securities or to endeavor to
have such a registration statement declared effective.

         Whenever the Depositary  receives any  distribution  other than cash or
Ordinary  Shares upon any Deposited  Securities,  the Depositary  will cause the
securities or property  received by it to be distributed to the Owners  entitled
thereto,  after  deduction or upon payment of any fees of the  Depositary or any
taxes or other governmental charges or fees, in proportion to the number of ADSs
representing such Deposited Securities held by them respectively,  in any manner
that the Depositary may deem equitable and  practicable for  accomplishing  such
distribution;  provided,  however, that if in the opinion of the Depositary such
distribution cannot be made  proportionately  among the Owners entitled thereto,

                                       32

<PAGE> 35

or if for any other reason  (including any  requirement  that the Company or the
Depositary  withhold  an amount on account of taxes) the  Depositary  deems such
distribution not to be feasible,  the Depositary may adopt such method as it may
deem equitable and practicable  for the purpose of effecting such  distribution,
including  the  public  or  private  sale of the  securities  or  property  thus
received,  or any part  thereof,  and the  Depositary  will  distribute  the net
proceeds of any such sale to the Owners entitled thereto.

         If  the  Depositary   determines  that  any  distribution  in  property
(including  Ordinary Shares and rights to subscribe  therefor) is subject to any
tax which the Depositary is obligated to withhold, the Depositary may, by public
or private  sale,  dispose of all or a portion of such  property in such amounts
and in such manner as the Depositary deems necessary and practicable to pay such
taxes and the Depositary will distribute the net proceeds of any such sale after
deduction  of such taxes to the Owners  entitled  thereto in  proportion  to the
number of ADSs held by them, respectively.

         Upon any change in nominal or par value, split-up, consolidation or any
other  reclassification of Deposited  Securities,  or upon any recapitalization,
reorganization,  merger or consolidation or sale of assets affecting the Company
or to which it is a party, any securities that are received by the Depositary or
Custodian  in  exchange  for,  in  conversion  of, or in  respect  of  Deposited
Securities  will be  treated  as new  Deposited  Securities  under  the  Deposit
Agreement,  and the ADSs will thenceforth represent the new Deposited Securities
so received  in exchange or  conversion  unless  additional  ADRs are  delivered
pursuant to the following  sentence.  In any such case, the Depositary may, upon
consultation with the Company, and must if the Company so requests,  execute and
deliver additional ADRs as in the case of a dividend on Ordinary Shares, or call
for the surrender of outstanding ADRs to be exchanged for new ADRs  specifically
describing such new Deposited Securities.

         Record Dates

         Whenever the Depositary  receives notice of the fixing of a record date
by the Company for the  determination  of the  holders of  Deposited  Securities
entitled  to  receive  any  cash  dividend  or  other  cash  distribution,   any
distribution  other than cash,  or any rights to be issued  with  respect to the
Deposited Securities,  or whenever for any reason the Depositary causes a change
in the number of Ordinary  Shares that are  represented by each ADS, or whenever
the Depositary receives notice of the fixing of a record date by the Company for
the determination of the holders of Deposited Securities entitled to vote at any
meeting  of  holders  of  Ordinary  Shares or other  Deposited  Securities,  the
Depositary,  in  consultation  with the Company,  will fix a record date for the
determination  of the  Owners  of ADRs  who will be  entitled  to  receive  such
dividend,  distribution or rights, or the net proceeds of the sale thereof or to
give instructions for the exercise of voting rights at any such meeting,  or for
fixing the date on or after which each ADS will  represent the changed number of
Ordinary Shares, all subject to the provisions of the Deposit Agreement.

         Voting of Deposited Securities

         Upon  receipt of notice of any meeting or  solicitation  of consents or
proxies  of  holders  of  Ordinary  Shares or other  Deposited  Securities,  the
Depositary will, as soon as practicable thereafter,  mail to all Owners a notice
containing (i) the  information  included in such notice of meeting  received by
the  Depositary,  (ii) a statement that each Owner at the close of business on a
specified  record  date will be  entitled,  subject  to  applicable  law and the
provisions of the  Memorandum and the Articles of Association of the Company and
the provisions of or governing Deposited Securities,  to instruct the Depositary
in writing as to the exercise of the voting  rights,  if any,  pertaining to the
Deposited Securities  represented by the ADSs evidenced by such Owner's ADRs and
(iii) a statement as to the manner in which such instructions may be given. Upon
the written  request of an Owner on such record date,  received on or before the
date  established  by the  Depositary  for such  purpose,  the  Depositary  will

                                       33

<PAGE> 36

endeavor,  insofar as  practicable,  to vote or cause to be voted the  Deposited
Securities  represented by the ADSs evidenced by such Owner's ADRs in accordance
with any  nondiscretionary  proxy.  The Depositary  will not exercise any voting
discretion over any Deposited Securities.

         If after complying with the procedures set forth above,  the Depositary
does not  receive  instructions  from the Owner of an ADR on or before  the date
established by the Depositary  for such purpose,  the Depositary  will deliver a
discretionary  proxy for the ADSs  evidenced by such ADR in the form provided by
the Company;  provided that the Depositary will not give such proxy with respect
to any matter as to which the Company  informs the  Depositary  that the Company
does not wish such proxy  given,  substantial  opposition  exists or such matter
materially and adversely affects the rights of holders of Ordinary Shares.

         There  can be no  assurance  that  Owners  generally  or any  Owner  in
particular will receive notice  sufficiently in advance of the date  established
by the Depositary for the receipt of  instructions to ensure that the Depositary
will vote the Ordinary Shares or Deposited Securities.

         Reports and Other Communications

         The  Depositary  will make  available  for  inspection by Owners at its
Corporate  Trust  Office any reports  and  communications,  including  any proxy
soliciting material,  received from the Company,  which are both (i) received by
the Depositary as the holder of the Deposited Securities and (ii) made generally
available  to the  holders of such  Deposited  Securities  by the  Company.  The
Depositary will also send to the Owners copies of such reports when furnished by
the Company pursuant to the Deposit Agreement.

         Amendment and Termination of the Deposit Agreement

         The form of ADRs and any provisions of the Deposit Agreement may at any
time and from time to time be amended by written  agreement  between the Company
and the  Depositary in any respect  which they may deem  necessary or desirable.
Any amendment  that imposes or increases  any fees or charges  (other than taxes
and other  governmental  charges,  registration  fees, cable, telex or facsimile
transmission  costs,  delivery costs or other such expenses),  or that otherwise
prejudices any substantial  existing right of Owners of ADRs, will, however, not
take effect as to  outstanding  ADRs until the  expiration of three months after
notice of such amendment has been given to the Owners of outstanding ADRs. Every
Owner,  at the  time  any  amendment  becomes  effective,  will  be  deemed,  by
continuing  to hold such ADR, to consent and agree to such  amendment  and to be
bound  by the  Deposit  Agreement  as  amended  thereby.  In no  event  will any
amendment  impair  the right of the Owner of any ADR to  surrender  such ADR and
receive therefor the Deposited Securities  represented thereby. In the event the
Depositary  resigns or is removed and a successor  depositary  is  appointed  in
accordance with the provisions of the Deposit  Agreement,  Owners of outstanding
ADRs will be notified of such appointment by the successor depositary.

         Upon the  resignation  or removal  of the  Depositary  pursuant  to the
Deposit  Agreement,  or at  any  time  at the  direction  of  the  Company,  the
Depositary  will  terminate  the  Deposit  Agreement  by mailing  notice of such
termination to the Owners of the ADRs then outstanding at least 30 days prior to
the date  fixed in such  notice for such  termination.  On and after the date of
termination,  the Owner of an ADR will,  upon (i)  surrender  of such ADR at the
Corporate  Trust  Office,  (ii)  payment  of the fee of the  Depositary  for the
surrender of ADRs as provided in the Deposit  Agreement and (iii) payment of any
applicable taxes or governmental  charges, be entitled to delivery to such Owner
or upon such Owner's order, of the amount of Deposited Securities represented by
such ADR. If any ADRs remain  outstanding  after the date of  termination of the
Deposit Agreement,  the Depositary  thereafter will discontinue the registration
of transfers of ADRs,  will suspend the  distribution of dividends to the Owners
thereof and will not give any further  notices or perform any further acts under
the  Deposit   Agreement,   except  the   collection   of  dividends  and  other

                                       34

<PAGE> 37

distributions pertaining to the Deposited Securities, the sale of rights and the
delivery  of  Deposited  Securities,   together  with  any  dividends  or  other
distributions  received with respect thereto and the net proceeds of the sale of
any rights or other property, in exchange for surrendered ADRs (after deducting,
in each case,  the fee of the Depositary for the surrender of ADRs, any expenses
set forth in the Deposit  Agreement  and any  applicable  taxes or  governmental
charges).  At any  time  after  the  expiration  of one  year  from  the date of
termination,  the Depositary may sell the Deposited  Securities  then held under
the  Deposit  Agreement  and hold  uninvested  the net  proceeds  of such  sale,
together with any other cash,  unsegregated and without  liability for interest,
for the pro rata  benefit of the Owners  that have not  surrendered  their ADRs,
such Owners thereupon  becoming general creditors of the Depositary with respect
to such net proceeds.  After making such sale, the Depositary will be discharged
from all  obligations  under the  Deposit  Agreement,  except to account for net
proceeds  and  other  cash  (after  deducting,  in  each  case,  the  fee of the
Depositary  for the  surrender  of ADRs,  any  expenses set forth in the Deposit
Agreement and any applicable taxes or governmental charges).

         Charges of Depositary

         The Company will pay the fees and reasonable expenses of the Depositary
and those of any  Registrar.  The Company  will not pay or be liable for (i) the
fees of the  Depositary for the execution and delivery of ADRs,  transfers,  the
surrender  of ADRs and the  making  of any  distribution,  all  pursuant  to the
Deposit  Agreement;  (ii)  taxes  and other  governmental  charges;  (iii)  such
registration  fees as may from time to time be in effect for the registration of
transfers of Ordinary  Shares  generally on the share register of the Company or
its appointed  agent and applicable to transfers of Ordinary  Shares to the name
of the  Depositary  or its nominee or the Custodian or its nominee on the making
of deposits or withdrawals under the Deposit  Agreement;  (iv) such cable, telex
and facsimile  transmission  expenses as are  expressly  provided in the Deposit
Agreement to be at the expense of persons depositing  Ordinary Shares or Owners;
and (v) such  expenses as are incurred by the  Depositary  in the  conversion of
Foreign Currency pursuant to the Deposit  Agreement.  The Depositary will charge
to any party to whom ADRs are issued (including,  without  limitation,  issuance
pursuant  to a stock  dividend  or stock  split  declared  by the  Company or an
exchange of stock  regarding the ADRs or Deposited  Securities or a distribution
of ADRs pursuant to the Deposit Agreement) or who surrenders ADRs a fee of $5.00
or less  per 100  ADSs (or  portion  thereof)  for the  issuance  or  surrender,
respectively,  of ADRs  pursuant  to the Deposit  Agreement.  In  addition,  the
Depositary will charge the Owners and holders of ADRs a fee for, and deduct such
fee from, the distribution of proceeds pursuant to the Deposit  Agreement,  such
fee being in an amount  equal to the fee for the  issuance  of ADSs  referred to
above  that  would  have been  charged  as a result of the  deposit by Owners of
Ordinary Shares  received in exercise of rights  distributed to them pursuant to
the Deposit Agreement, but which rights are instead sold by the Depositary,  and
the net proceeds distributed.

         The  Depositary  may own and  deal in any  class of  securities  of the
Company and its affiliates and in ADRs.

         Liability of Owner for Taxes

         If any tax or other governmental charge becomes payable with respect to
any ADR or any Deposited  Securities  represented  by any ADR, such tax or other
governmental  charge will be payable by the Owner of such ADR to the Depositary.
The  Depositary  may refuse to effect any transfer of such ADR or any withdrawal
of Deposited Securities  represented thereby until such payment is made, and may
withhold any  dividends or other  distributions,  or may sell for the account of
the Owner thereof any part or all of the  Deposited  Securities  represented  by
such ADR and may apply such dividends or other  distributions or the proceeds of
any such sale to pay any such tax or other governmental  charge and the Owner of
such ADR will remain liable for any deficiency.

                                       35

<PAGE> 38

         General

         Neither the  Depositary  nor the Company will be liable to any Owner of
any ADR,  if by reason of any  provision  of any  present  or future  law of the
United States or any other country, or of any other governmental  authority,  or
by reason of any provision, present or future, of the Memorandum and Articles of
Association  of the  Company,  or by  reason  of any act of God or war or  other
circumstances  beyond  its  control,  the  Depositary  or the  Company  shall be
prevented or forbidden from, or be subjected to any civil or criminal penalty on
account  of,  doing or  performing  any act or thing  which by the  terms of the
Deposit Agreement is provided will be done or performed; nor will the Depositary
or the  Company  incur  any  liability  to any Owner of any ADR by reason of any
nonperformance or delay,  caused as aforesaid,  in the performance of any act or
thing which by the terms of the  Deposit  Agreement  is provided  will or may be
done or performed,  or by reason of any exercise of, or failure to exercise, any
discretion  provided  for in the  Deposit  Agreement.  Where,  by the terms of a
distribution  pursuant to the Deposit Agreement,  or an offering or distribution
pursuant to the Deposit Agreement, or for any other reason, such distribution or
offering may not be made available to Owners, and the Depositary may not dispose
of such  distribution  or  offering  on behalf of such  Owners  and make the net
proceeds  available  to such  Owners,  then the  Depositary  will not make  such
distribution or offering, and will allow any rights, if applicable, to lapse.

         The Company and the  Depositary  assume no obligation  nor will they be
subject to any  liability  under the Deposit  Agreement  to Owners or holders of
ADRs,  except that they agree to perform their respective  obligations set forth
in the Deposit Agreement without negligence or bad faith.

         The ADRs are transferable on the books of the Depositary, provided that
the  Depositary  may close the  transfer  books at any time or from time to time
when deemed expedient by it in connection with the performance of its duties. As
a condition  precedent to the execution and delivery,  registration of transfer,
split-up,  combination  or surrender of any ADR or  withdrawal  of any Deposited
Securities,  the  Depositary  or the  Custodian  may  require  payment  from the
depositor of the Ordinary Shares or the presentor of the ADR of a sum sufficient
to reimburse it for any tax or other governmental  charge and any stock transfer
or registration  fee with respect thereto  (including any such tax or charge and
fee with respect to Ordinary Shares being deposited or withdrawn) and payment of
any applicable  fees as provided in the Deposit  Agreement.  The Depositary may,
and if requested by the Company  must,  refuse to deliver  ADRs, to register the
transfer of any ADR, to make any distribution on, or related to, Ordinary Shares
or to deliver  any  Deposited  Securities  until it has  received  such proof of
citizenship  or  residence,  exchange  control  approval  or other  information,
certificates, representations and warranties as it may reasonably deem necessary
or proper.  The delivery,  transfer or  registration  of transfer of outstanding
ADRs generally may be suspended during any period when the transfer books of the
Depositary are closed or if any such action is deemed  necessary or advisable by
the  Depositary or the Company,  at any time or from time to time. The surrender
of  outstanding  ADRs and the  withdrawal  of  Deposited  Securities  may not be
suspended,  subject only to (i) temporary  delays caused by closing the transfer
books of the  Depositary  or the Company or the  deposit of  Ordinary  Shares in
connection with voting at a  shareholders'  meeting or the payment of dividends,
(ii) the payment of fees,  taxes and similar  charges and (iii)  compliance with
any United States or other laws or governmental regulations relating to the ADRs
or to the withdrawal of the Deposited Securities.

         The Depositary will keep books, at its Corporate Trust Office,  for the
registration  and transfer of ADRs,  which at all reasonable  times will be open
for inspection by the Owners,  provided that such inspection will not be for the
purpose of  communicating  with  Owners in the  interest of a business or object
other  than the  business  of the  Company or a matter  related  to the  Deposit
Agreement or the ADRs.

                                       36

<PAGE> 39

         The  Depositary  may  appoint  one or more  co-transfer  agents for the
purpose of effecting transfers, combinations and split-ups of ADRs at designated
transfer offices on behalf of the Depositary.  In carrying out its functions,  a
co-transfer  agent  may  require  evidence  of  authority  and  compliance  with
applicable laws and other  requirements by holders or Owners or persons entitled
to ADRs and will be entitled to  protection  and indemnity to the same extent as
the Depositary.

         Listing

         The ADRs are quoted on the Nasdaq  National  Market  under the  trading
symbol MIFGY.


                                    PART III

ITEM 15. DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
         AND USE OF PROCEEDS

         Effective  as of the close of business on March 13,  1998,  the Company
undertook a  subdivision  (or stock split) of its  Ordinary  Shares on a 5-for-1
basis.  The Company's  ADSs have been  adjusted such that each ADS  represents 5
Ordinary  Shares.  All share and per share  references  included  in this Annual
Report have been  adjusted to reflect  the impact of the  above-mentioned  stock
split of the Ordinary Shares.


                                     PART IV

ITEM 17. FINANCIAL STATEMENTS

         See Item 18.

ITEM 18. FINANCIAL STATEMENTS

         Reference  is made to Item 19 for a list of all  financial  statements
filed as part of this Annual Report.

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

     (a)  Financial Statements.
          --------------------

                  1. The following audited  consolidated  financial  statements,
together with the related reports of Ernst & Young, are  incorporated  herein by
reference from the Micro Focus 1998 Annual Report to Shareholders:

                  US Format
                  ---------

                  Audited Financial Statements
                        Consolidated Statements of Income for the years ended
                           January 31, 1998, 1997 and 1996 


                                       37

<PAGE> 40
                        Consolidated Balance Sheets at January 31, 1998 and 1997
                        Consolidated Statements of Cash Flow for the years ended
                           January 31, 1998,  1997 and 1996  
                        Consolidated  Statements of Shareholders'Equity for the 
                           years ended January 31, 1998, 1997 and 1996
                        Notes to Consolidated Financial Statements

                  Report of the Independent Auditors

                  UK Format
                  ---------

                  Audited Financial Statements
                        Consolidated Profit and Loss Account for the years 
                            ended January 31, 1998, 1997 and 1996
                        Consolidated Balance Sheet at January 31, 1998 and 1997
                        Consolidated  Cash Flow Statement for the years ended
                           January 31, 1998, 1997 and 1996 
                        Notes to Consolidated Cash Flow  Statement for the years
                           ended January 31, 1998, 1997 and 1996
                        Company Balance Sheet at January 31, 1998 and 1997
                        Statement of Total Recognized Gains and Losses for the 
                           years ended January 31, 1998, 1997 and 1996
                        Movement in  Shareholders'  Funds for the years ended
                           January  31,  1998,   1997  and  1996  
                        Notes  to  the Financial Statements

         2. The following  financial  statement schedules and reports of Ernst &
Young have been filed as part of this Annual Report:

                  US Format
                  ---------

                  Report of the Independent Auditors on the Schedule

                  Schedule for the years ended  January 31, 1998,  1997 and 1996
                           Schedule II - Valuation and Qualifying Accounts

                  UK Format
                  ---------  
                    
                  Report of the Independent Auditors

                  Schedule for the years ended  January 31, 1998,  1997 and 1996
                           Schedule II - Valuation and Qualifying Accounts

                  All other  schedules  have been  omitted  because the required
         information is not significant or is not applicable.


                                       38

<PAGE> 41



     (b) Exhibits.
         --------

         Exhibit 2.01(1)       Memorandum of Association of the Company dated as
                               of  March  28,  1983,  as  amended  and restated 
                               to date.

         Exhibit 2.02(1)       Articles of Association of the Company adopted as
                               of June 19, 1996,as amended and restated to date.

         Exhibit 2.03*         Form of Specimen Certificate for the Company's 
                               Ordinary Shares at GBP 0.02 each.

         Exhibit 2.04*         Amended  and  Restated  Deposit  Agreement dated 
                               as of March 16, 1998 among the Company, the Bank
                               of New York and all owners and holders  from time
                               to time of American Depositary Receipts.

         Exhibit 2.05(2)+      The Company's 1983-1984 Share Option Plan, as 
                               amended, and related documents.

         Exhibit 2.06(2)+      The Company's 1991 Share Option Plan, as amended,
                               and related documents.

         Exhibit 2.07(2)+      The Company's 1994 Employee Benefit Trust and 
                               related documents.

         Exhibit 2.08(2)+      The Company's 1996 Share Option Plan and related 
                               documents.

         Exhibit 2.09(1)       Form of Indemnification Agreement entered into by
                               the  Company  with each of its  directors and 
                               certain executive officers.

         Exhibit 2.10(1)       Form of Indemnity  Agreement entered into by 
                               Micro Focus Incorporated,  a subsidiary of the
                               Company ("Micro Focus  Incorporated"),  with each
                               of its directors and certain  executive  officers
                               of the Company and Micro Focus Incorporated.

         Exhibit 2.11(3)       Master Lease Agreement dated as of March 24, 1992
                               between Micro Focus Incorporated  and Mayfair 
                               Investments, Inc.

         Exhibit 2.12(1)       Lease  Agreement  dated  as of  January 8,  1997 
                               between   Micro  Focus   Incorporated   and
                               Passantino-Vidovich Limited Partnership.

         Exhibit 2.13*         Agreement and Plan of Reorganization dated as of 
                               December 23, 1997 between the Company and XDB 
                               Systems, Inc. and its shareholders

         Exhibit 2.14*         Amendment No. 1 to the Agreement and Plan of 
                               Reorganization dated as of January 20, 1998 
                               between the Company, XDB Systems, Inc. and its 
                               shareholders.

         Exhibit 2.15(4)+      XDB Systems, Inc. 1992 Stock Option Plan and
                               related documents.

         Exhibit 2.16(4)+      XDB Systems, Inc. 1996 Stock Option Plan and 
                               related documents.

         Exhibit 13.01*        The portions of the Micro Focus 1998 Annual 
                               Report to Shareholders incorporated herein by 
                               reference.

                                       39

<PAGE> 42



         Exhibit 23.01*        Consent of Ernst & Young, Independent Auditors, 
                               dated May 27, 1998.

         Exhibit 23.02*        Consent of Ernst & Young, Independent Auditors, 
                               dated May 27, 1998

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

(1)  Filed on May 2, 1997 as an exhibit to the  Company's  Annual Report on Form
     20-F, as amended, and incorporated herein by reference.

(2)  Filed  on  April  9,  1997  as an  exhibit  to the  Company's  Registration
     Statement  on Form S-8 (File No.  333-24867),  and  incorporated  herein by
     reference.

(3)  Filed on March 15, 1993 as an exhibit to the Company's Annual Report on 
     Form 20-F, and incorporated herein by reference.

(4)  Filed on  February  5, 1998 as an  exhibit  to the  Company's  Registration
     Statement  on Form S-8 (File No.  333-45701),  and  incorporated  herein by
     reference.

+    Indicates a management contract or compensatory plan or arrangement

*    Filed herewith


                                       40

<PAGE> 43



                                   SIGNATURES

Pursuant to the  requirements  of Section 12 of the  Securities  Exchange Act of
1934, the Registrant  certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused  this Annual  Report to be signed on its behalf
by the undersigned, thereunto duly authorized.


Date: May 29, 1998                           MICRO FOCUS GROUP PLC


                                         By: /s/  Richard Van Hoesen
                                               -----------------------
                                               Richard Van Hoesen
                                               Senior Vice President, Chief
                                               Financial Officer and Secretary


                                       41

<PAGE> 44


REPORT OF THE INDEPENDENT AUDITORS    US FORMAT
--------------------------------------------------------------------------------
MICRO FOCUS GROUP PLC


To the Board of Directors and Shareholders
of Micro Focus Group Plc


We have audited the consolidated  financial  statements of Micro Focus Group Plc
and  subsidiaries as of January 31 1998 and 1997 and for each of the three years
in the  period  ended  January 31 1998 set forth on pages 23 to 36 of the Annual
Report to Shareholders for 1998. Our audit also included the financial statement
schedule set forth on page S-2 herein.  This schedule is the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion based on
our audits.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.



/s/ Ernst & Young

Ernst & Young
Chartered Accountants
Registered Auditor
Reading, England
May 1, 1998



<PAGE> 45


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS   US FORMAT
--------------------------------------------------------------------------------
MICRO FOCUS GROUP PLC

<TABLE>
<CAPTION>

In thousands of US dollars
-------------------------- ---------------- ------------------- ------------------------ ----------------- -----------
                                Balance at             Charged                Charged        Deductions       Balance
                              beginning of        to costs and        to/credited from                      at end of
Description                         period            expenses        otheraccounts (*)                        period
     
-------------------------- ---------------- ------------------- ------------------------ ----------------- -----------
 <S>                                  <C>                  <C>                <C>             <C>             <C>  
Provision for bad and doubtful debts

Years ended January 31:

                     1996            1,401                 457                 (3)           (423)            1,423
                     1997            1,423                 724                (21)           (395)            1,731
                     1998            1,731                 585                 806           (623)            2,499

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

(*) Includes exchange rate adjustments

</TABLE>



<PAGE> 46


REPORT OF THE INDEPENDENT AUDITORS   UK FORMAT
--------------------------------------------------------------------------------
MICRO FOCUS GROUP PLC


To the Board of Directors and Shareholders
of Micro Focus Group Plc


We have audited the balance sheets of Micro Focus Group Plc and the consolidated
balance sheets of Micro Focus Group Plc and  subsidiaries  as of January 31 1997
and 1998 and the related  consolidated  profit and loss accounts,  statements of
total recognised gains and losses and cash flow statements for each of the three
years in the  period  ended  January  31 1998 set forth on pages 51 to 67 of the
Annual Report to  Shareholders  for 1998.  Our audit also included the financial
statement schedule set forth on page S-4 herein.  These financial statements and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on those financial statements and schedule based on our
audits.

We conducted our audits in accordance with United Kingdom auditing standards and
United States generally  accepted  auditing  standards.  Those standards require
that we plan and perform the audit to obtain reasonable  assurance about whether
the financial  statements are free of material  misstatement.  An audit includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principals  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  aspects,  the financial  position of Micro Focus Group Plc and the
consolidated  financial  position of Micro Focus Group Plc and  subsidiaries  at
January 31 1998 and 1997 and the  consolidated  results of their  operations and
their cash flows for each of the three years in the period ended January 31 1998
in  conformity  with  accounting  principles  generally  accepted  in the United
Kingdom.  Also, in our opinion the related financial  statement  schedule,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.



/s/ Ernst & Young

Ernst & Young
Chartered Accountants
Registered Auditor
Reading, England
May 1 1998



<PAGE> 47


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS   UK FORMAT
--------------------------------------------------------------------------------
MICRO FOCUS GROUP PLC

<TABLE>
<CAPTION>

-------------------------- ---------------- ------------------ ------------------------ ---------------- ---------------
                                Balance at            Charged                  Charged       Deductions         Balance
                              beginning of       to costs and   to/credited from other         GBP '000       at end of
Description                         period           expenses             accounts (*)                           period
                                  GBP '000           GBP '000                 GBP '000                         GBP '000
-------------------------- ---------------- ------------------ ------------------------ ---------------- ---------------
<S>                                   <C>                 <C>                <C>            <C>                    <C>    

Provision for bad and doubtful debts

Years ended January 31:

                     1996              879                288                 20            (272)                   942
                     1997              942                458               (41)            (251)                 1,081
                     1998            1,081                358                475            (381)                 1,524

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

(*) Includes exchange rate adjustments

</TABLE>


<PAGE> 48



                                 EXHIBIT INDEX

         Exhibit No.           Document
         -----------           --------

         Exhibit 2.01(1)       Memorandum of Association of the Company dated as
                               of  March  28,  1983,  as  amended  and restated 
                               to date.

         Exhibit 2.02(1)       Articles of  Association  of the Company adopted 
                               as of June  19,  1996,  as  amended  and restated
                               to date.

         Exhibit 2.03*         Form of Specimen Certificate for the Company's 
                               Ordinary Shares at GBP 0.02 each.

         Exhibit 2.04*         Amended  and  Restated  Deposit  Agreement dated 
                               as of March 16, 1998 among the Company, the Bank 
                               of New York and all owners and holders from time 
                               to time of American Depositary Receipts.

         Exhibit 2.05(2)+      The Company's  1983-1984  Share  Option Plan, as 
                               amended, and related documents.

         Exhibit 2.06(2)+      The Company's 1991 Share Option Plan, as amended,
                               and related documents.

         Exhibit 2.07(2)+      The Company's 1994 Employee Benefit Trust and 
                               related documents.

         Exhibit 2.08(2)+      The Company's 1996 Share Option Plan and related 
                               documents.

         Exhibit 2.09(1)       Form of Indemnification Agreement entered into by
                               the  Company  with each of its  directors and 
                               certain executive officers.

         Exhibit 2.10(1)       Form of Indemnity  Agreement  entered  into  by
                               Micro Focus Incorporated,  a subsidiary of the
                               Company ("Micro Focus  Incorporated"),  with each
                               of its directors and certain  executive  officers
                               of the Company and Micro Focus Incorporated.

         Exhibit 2.11(3)       Master Lease Agreement dated as of March 24, 1992
                               between  Micro Focus  Incorporated  and  Mayfair 
                               Investments, Inc.
<PAGE> 49


         Exhibit 2.12(1)       Lease  Agreement  dated  as  of  January 8, 1997
                               between   Micro  Focus   Incorporated   and
                               Passantino-Vidovich Limited Partnership.

         Exhibit 2.13*         Agreement and Plan of Reorganization dated as of 
                               December 23, 1997 between the Company and XDB 
                               Systems, Inc. and its shareholders

         Exhibit 2.14*         Amendment No. 1 to the Agreement and Plan of 
                               Reorganization dated as of January 20, 1998 
                               between the Company, XDB Systems, Inc. and its
                               shareholders.

         Exhibit 2.15(4)+      XDB Systems, Inc. 1992 Stock Option Plan and 
                               related documents.

         Exhibit 2.16(4)+      XDB Systems, Inc. 1996 Stock Option Plan and 
                               related documents.

         Exhibit 13.01*        The  portions  of the  Micro  Focus  1998 Annual 
                               Report to Shareholders incorporated herein by
                               reference.

         Exhibit 23.01*        Consent of Ernst & Young, Independent Auditors, 
                               dated  May 27, 1998.

         Exhibit 23.02*        Consent of Ernst & Young, Independent Auditors, 
                               dated May 27, 1998

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

(1)  Filed on May 2, 1997 as an exhibit to the  Company's  Annual Report on Form
     20-F, as amended, and incorporated herein by reference.

(2)  Filed  on  April  9,  1997  as an  exhibit  to the  Company's  Registration
     Statement  on Form S-8 (File No.  333-24867),  and  incorporated  herein by
     reference.

(3)  Filed on March 15,  1993 as an exhibit to the  Company's  Annual  Report on
     Form 20-F, and incorporated herein by reference.

(4)  Filed on  February  5, 1998 as an  exhibit  to the  Company's  Registration
     Statement  on Form S-8 (File No.  333-45701),  and  incorporated  herein by
     reference.

+    Indicates a management contract or compensatory plan or arrangement

*    Filed herewith