SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
  X   Annual report pursuant to section 13 or 15(d) of the Securities Exchange
      Act of 1934 [Fee Required] for the fiscal year ended October 31, 2003 or
      Transition report pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 [No Fee Required] for the transition period
      from _________ to _________.

Commission File No. 0-9143
                              HURCO COMPANIES, INC.
             (Exact name of registrant as specified in its charter)

                               Indiana 35-1150732
     (State or other jurisdiction of (I.R.S. Employer Identification Number)
       incorporation or organization)

       One Technology Way
       Indianapolis, Indiana                                   46268
------------------------------------------         -----------------------------
   (Address of principal executive offices)                  (Zip code)

Registrant's telephone number, including area code              (317) 293-5309
                                                                --------------

Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
                                                             No Par Value
                                                             ------------------
                                                             (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).   Yes      No  X
                                                                     ----    ---

The aggregate market value of the Registrant's voting stock held by
non-affiliates as of April 30, 2003 (the last day of our most recently completed
second quarter) was $8,430,569.

The number of shares of the Registrant's common stock outstanding as of January
2, 2004 was 5,609,360.

DOCUMENTS  INCORPORATED BY REFERENCE:  Portions of the Registrant's  Proxy
Statement for its 2004 Annual Meeting of Shareholders (Part III).
<PAGE>

Disclosure Concerning Forward-looking Statements

Certain statements made in this annual report on form 10-K may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among others, changes in
general economic and business conditions that affect market demand for machine
tools and related computer control systems, software products, and replacement
parts, changes in manufacturing markets, adverse currency movements, innovations
by competitors, performance of our contract manufacturers, governmental actions
and initiatives, including import and export restrictions and tariffs, and
developments in the relations among the U.S., China and Taiwan.
<PAGE>
                                     PART I

Item 1.       BUSINESS

General

Hurco Companies, Inc. is an industrial technology company. We design and produce
interactive, personal computer (PC) based, computer control systems and software
and computerized machine tools for sale to the metal working industry through a
worldwide sales, service and distribution network. Our proprietary computer
control systems and software products are sold primarily as integral components
of our computerized machine tool products.

We pioneered the application of microprocessor technology and conversational
programming software for application on computer controls for machine tools and,
since our founding in 1968, have been a leader in the introduction of
interactive computer control systems that automate manufacturing processes and
improve productivity in the metal parts manufacturing industry. We have
concentrated on designing "user-friendly" computer control systems that can be
operated by both skilled and unskilled machine tool operators and yet are
capable of instructing a machine to perform complex tasks. The combination of
microprocessor technology and patented interactive, conversational programming
software in our computer control systems enables operators on the production
floor to quickly and easily create a program for machining or forming a
particular part from a blueprint or computer-aided design (CAD) and immediately
begin production of that part.

Our executive offices and principal design, engineering, and manufacturing
management operations are headquartered in Indianapolis, Indiana. Sales,
application engineering and service offices are located in Indianapolis,
Indiana; High Wycombe, England; Munich, Germany; Paris, France; Milan, Italy;
Singapore and Taichung, Taiwan. We also have a representative sales office in
Shanghai, China. Distribution facilities are located in Los Angeles, California
and Venlo, the Netherlands; a manufacturing facility is located in Taichung,
Taiwan.

Our strategy is to design, develop, produce and market a comprehensive line of
computerized machine tools for the global metal working market, which
incorporates our proprietary interactive computer control technology. This
technology is designed to enhance the user's productivity through ease of
operation and higher levels of machine performance (speed, accuracy and surface
finish quality). We use an open system software architecture that permits our
computer control systems and software to be used with standard PC hardware and
have emphasized an operator friendly design that employs both interactive
conversational and graphical programming software.
<PAGE>
Products

During fiscal 2002, we discontinued several under-performing product lines and
sold the related assets, to enable us to focus our resources and technology
development on our core products. Our core products consist primarily of general
purpose computerized machine tools for the metal cutting industry (principally
vertical machining centers) into which our proprietary Ultimax(R) software and
computer control systems have been fully integrated. We discontinued and sold
the Delta(TM) series computer control and related Dynapath(TM) milling machine
product line, and related parts and service activities, along with press brake
(metal bending machine) product lines and all tooling products related to press
brake applications. We continue to produce computer control systems and related
software for press brake applications that are sold primarily as retrofit
control systems. In addition, we produce and distribute software options,
control upgrades, hardware accessories and replacement parts related to our
continuing product lines and provide operator training and support services to
our customers.

The following table sets forth the contribution of each of our product groups to
our total sales and service fees during each of the past three fiscal years:
<TABLE>

Net Sales and Service Fees by Product Category
                                                                         Year ended October 31,
                                           ------------------------------------------------------------------------------------
                                                     2003                          2002                         2001
                                           --------------------------    -------------------------    -------------------------
<S>                                           <C>              <C>       <C>                <C>       <C>               <C>
Continuing Products and Services
    Computerized Machine Tools                $60,977          80.7%     $  52,056          73.9%     $   69,631         75.4%
    Computer Control Systems                    3,044           4.0%         3,194           4.5%          4,782          5.2%
         and Software *
     Service Parts                              7,616          10.1%           7,240        10.3%          8,038          8.7%
     Service Fees                               3,460           4.6%           3,240         4.6%          3,749          4.1%
                                           -----------    -----------    ------------   ----------    -----------    ----------
         Total                                $75,097          99.4%     $  65,730          93.3%     $   86,200         93.4%
Discontinued Products and Services                435           0.6%           4,756         6.7%           6,067         6.6%
                                           -----------    -----------    ------------   ----------    -----------    ----------
         Total                                $75,532         100.0%     $  70,486         100.0%     $   92,267        100.0%
                                           ===========    ===========    ============   ==========    ===========    ==========

</TABLE>

*  Amounts shown do not include computer control systems sold as an integrated
   component of computerized machine tools.
<PAGE>
Computerized Machine Tool Products

We design, manufacture and market computerized machine tools which are equipped
with a fully integrated interactive Ultimax(R) computer control system. Our
Ultimax(R) twin screen "conversational" computer control system is sold solely
as a fully integrated feature of Hurco computerized machine tools. This computer
control system enables a machine tool operator to create a complex
two-dimensional machining program directly from a blue print or CAD. An operator
with little or no programming experience can successfully create a program and
begin the machining of a part in a short time with minimal special training.
Since the initial introduction of the Ultimax(R) computer control, we have added
enhancements related to operator programming productivity, CAD compatibility,
data processing throughput and motion control speed and accuracy. Our current
Ultimax(R) 4 programming stations use a Pentium* processor featuring an operator
console with liquid crystal display screens and incorporate personal computer
(PC) platform components. This upgradeable computer control product offers
enhanced performance while ensuring access to cost effective computing hardware
and software.

Our current line of Ultimax(R) metal cutting machine tools is a complete family
of products, which include vertical machining centers with an x-axis travel of
24, 26, 30, 40, 42, 50 and 64 inches. During fiscal 2002 we introduced the first
model in our new VM series, the VM1, a vertical machining center with a 26 inch
x-axis travel, a substantially smaller footprint and significantly lower price
than our previous entry-level vertical machining center. In fiscal 2003, we
introduced the VM2, a vertical machining center with a 40 inch x-axis travel.
The VM2 has a smaller footprint and lower price than our vertical machining
center with an x-axis travel of 42 inches. We also introduced four new
higher-performance machine models in our VMX series vertical machining center
line. These products provide different levels of performance features for
different market applications ranging in price from $36,000 to $165,000.

Computer Control Systems and Software

The following computer control systems and software products are marketed
directly to end-users and or to original equipment manufacturers.

o    Autobend(R)

Autobend(R) computer control systems are applied to metal bending press brake
machines that form parts from sheet metal and steel plate and consist of a
microprocessor-based computer control and back gauge (an automated gauging
system that determines where the bend will be made). We have manufactured and
sold the Autobend(R) product line since 1968. We currently market two models of
our Autobend(R) computer control systems for press brake machines, in
combination with six different back gauges, through distributors to end-users as
retrofit units for installation on existing or new press brake machines, as well
as to original equipment manufacturers and importers of such equipment.

o    CAM and Software Products

In addition to our standard computer control features, we offer software option
products for programming two and three-dimensional parts. These products are
marketed to users of our computerized machine tools equipped with our
Pentium*-based Ultimax(R) computer control systems. Our Advanced Velocity
Control (AVC) and Adaptive Surface Finish (ASF), high performance machining
software options enable a customer to increase machine throughput using higher
cutting feed rates. The ASF software option facilitates optimized surface
finishes on complex parts using faster high resolution part data transfers.
<PAGE>
Other products in this line are WinMax(R), a Windows** based off-line
programming system; DXF, a data file transfer software option; and UltiNet(TM),
a networking software option. The DXF software option eliminates manual data
entry of part features by transferring AutoCAD(TM) drawing files directly into
an Ultimax(R) computer control, or into our off-line programming software,
substantially increasing operator productivity. UltiNet(TM) is a networking
software option used by our customers to transfer part design and manufacturing
information to computerized machine tools at high speeds and to network
computerized machine tools within the customer's manufacturing facility.

We also offer conversational part and tool dimension probing options for
Ultimax(R) based machines. These options permit the computerized dimensional
measurement of machined parts and the associated cutting tools. This
"on-machine" technique significantly improves the throughput of the measurement
process when compared to traditional "off-machine" approaches.

Parts and Service

Our service organization provides installation, warranty, operator training and
customer support for our products on a worldwide basis. In the United States,
our principal distributors have primary responsibility for machine installation
and warranty service and support for new product sales. We also service and
support a substantial installed base of existing customers. Our service
organization also sells software options, computer controls upgrades,
accessories and replacement parts for our products. Our after-sale parts and
service business helps strengthen our customer relationships and provides
continuous information concerning the evolving requirements of end-users.

Marketing and Distribution

We sell our products through approximately 200 independent agents and
distributors in approximately 40 countries throughout North America, Europe and
Asia. We also have our own direct sales personnel in England, France, Germany,
Italy, Singapore and China, which are among the world's principal machine tool
consuming countries. During fiscal 2003, no distributor accounted for more than
5% of our sales and service fees. Approximately 89% of the worldwide demand for
computerized machine tools and computer control systems comes from outside the
U.S. In fiscal 2003, approximately 70% of our revenues were from overseas
customers.

The end-users of our products are precision tool, die and mold manufacturers,
independent metal parts manufacturers and specialized production applications or
prototype shops within large manufacturing corporations. Industries served
include aerospace, defense, medical equipment, energy, transportation and
computer equipment.

Our computerized machine tool software options and accessories are sold
primarily to end-users. We sell our Autobend(R) computer control systems to
original equipment manufacturers of new machine tools who integrate them with
their own products prior to the sale of those products to their own customers,
to retrofitters of used machine tools who integrate them with those machines as
part of the retrofitting operation and to end-users who have an installed base
of machine tools, either with or without related computer control systems.
During fiscal 2003, no single end-user of our products accounted for more than
5% of our total sales and service fees.

We believe that advances in industrial technology and the related demand for
process improvements drive demand for our products.
<PAGE>
Other factors affecting demand include:
o        the need to continuously improve productivity and shorten cycle time,
o        an aging machine tool installed base that will require replacement with
         more advanced and efficient technology created by shorter product life
         cycles,
o        the industrial development of emerging countries in Asia and Eastern
         Europe, and
o        the declining supply of skilled machinists.

However, demand for our products is highly dependent upon economic conditions
and the general level of business confidence, as well as such factors as
production capacity utilization and changes in governmental policies regarding
tariffs, corporate taxation and other investment incentives. By marketing and
distributing our products on a worldwide basis, we reduce the potential impact
on our total sales and service fees by adverse changes in economic conditions in
any particular geographic region.

Competition

We compete with many other companies in the United States and international
markets. Several of these competitors are larger and have greater financial
resources than we do. We strive to compete effectively by incorporating unique,
patented software and other proprietary features into our products that offer
enhanced productivity, greater technological capabilities and ease of use. We
offer our products in a range of prices and capabilities to target a broad
potential market. We also believe that our competitiveness is aided by our
reputation for reliability and quality, our strong international sales and
distribution organization and our extensive customer service organization.

In the United States and European metal cutting markets, major competitors
include Haas Automation, Inc., Cincinnati Machine, Deckel, Maho Gildemeister
Group (DMG), Bridgeport Machines, Ltd. and Fadal Engineering along with a large
number of foreign manufacturers including Okuma Machinery Works Ltd., Mori Seiki
Co., Ltd., Masak and Matsuura Machinery Corporation.

Manufacturing

Our manufacturing strategy is based on global sourcing of components and a
network of contract suppliers and sub-contractors who manufacture our products
in accordance with our proprietary design, quality standards and cost
specifications. This has enabled us to lower product costs, lower working
capital per sales dollar and increase our worldwide manufacturing capacity
without significant incremental investment in capital equipment or increased
personnel.

Our computerized metal cutting machine tools are manufactured to our
specifications, primarily by our wholly owned subsidiary in Taiwan, Hurco
Manufacturing Limited (HML), which we established in fiscal 2000. This
subsidiary has increased our overall capacity and reduced or eliminated our
dependence on other Taiwan contract manufacturers. In addition, we have a 24%
ownership interest in a contract machine manufacturer that produces certain of
our models. HML and our affiliated machine manufacturer conduct final assembly
operations and are supported by a network of sub-contract suppliers of
components and sub-assemblies.
<PAGE>
We also have a contract manufacturing agreement for computer control systems
with a Taiwanese-based affiliate in which we have a 35% ownership interest. This
company is manufacturing our Ultimax(R) and Autobend(R) computer control systems
to our specifications, and is engaged primarily in the sourcing of industry
standard computer components and proprietary parts, final assembly and test
operations. We source one of the proprietary Ultimax(R) computer components
(PCB) from a sole domestic supplier with whom we have had a long-term
relationship.

We work closely with our manufacturing subsidiary and affiliates to increase
their production capacity to meet the demand for our machine tool products and
believe that such capacity is sufficient to meet our current and projected
demand. We also continue to consider additional contract manufacturing resources
that will increase our long-term capacity, and we believe that, except for the
sole-sourced PCB, alternative sources for standard and proprietary components
are available; however, any prolonged interruption of operations or significant
reduction in capacity or performance capability of these principal Taiwan-based
manufacturing facilities or the PCB supplier would have a material adverse
effect on our operations.

Backlog

Backlog consists of firm orders received from customers and distributors but not
shipped. Backlog was $8.2 million, $5.3 million and $9.1 million as of October
31, 2003, 2002, and 2001, respectively.

Intellectual Property

We consider certain features of our products to be proprietary. We own, directly
or through a subsidiary, a number of patents that are significant to our
business.

In fiscal 2002, we acquired the core technology assets of a software development
company for $1.9 million. As part of the acquisition, we obtained ownership of
three existing patents and one pending patent related to computer control
technology, which we expect to incorporate in our proprietary computer control
system.

We own patents for an object-oriented, open architecture methodology for
computer control software. We also hold a non-exclusive license covering
features of the automatic tool changer offered with certain of our computerized
machining centers as well as a patent for a manual tool changing apparatus.

Research and Development

Research and development expenditures for new products and significant product
improvements, included as period operating expenses, were $1.8 million, $2.4
million and $3.5 million in fiscal 2003, 2002, and 2001, respectively. In
addition, we recorded expenditures of $679,000 in 2003, $534,000 in 2002, and
$665,000 in 2001 related to software development projects that were capitalized.

Employees

We had 232 employees at the end of fiscal 2003, none of which are covered by a
collective-bargaining agreement or represented by a union. We have experienced
no employee-generated work stoppages or disruptions and we consider our employee
relations to be satisfactory.
<PAGE>
Geographic Areas

Financial information about geographic areas is set forth in Note 15 to the
Consolidated Financial Statements.

We are subject to the risks of doing business on a global basis, including
foreign currency fluctuation risks, changes in general economic and business
conditions in the countries and markets that we serve and government actions and
initiatives including import and export restrictions and tariffs.

Availability of Reports and Other Information

Our website is www.hurco.com. We make available on this website, free of charge,
access to our annual, quarterly and current reports and other documents filed by
us with the Securities and Exchange Commission as soon as reasonably practical
after the filing date.
<PAGE>

Item 2.       PROPERTIES

The following table sets forth the location, size and principal use of each of
our facilities:

<TABLE>

           Location                      Square Footage                           Principal Uses
<S>                                            <C>              <C>
Indianapolis, Indiana                          165,000  (1)     Corporate headquarters, design and
                                                                engineering, product testing, computer control
                                                                assembly, sales, application engineering and
                                                                customer service

Los Angeles, California                         13,000          Warehouse,    distribution,    sales,   application
                                                                engineering and customer service

High Wycombe, England                           12,000          Sales, application engineering and
                                                                customer service

Paris, France                                    4,800          Sales, application engineering and
                                                                customer service

Munich, Germany                                 19,600          Sales, application engineering and
                                                                customer service

Milan, Italy                                     4,850          Sales, application engineering and
                                                                customer service

Singapore                                        3,000          Sales, application engineering and
                                                                customer service

Shanghai, China                                  1,100          Sales, application engineering and
                                                                customer service

Taichung, Taiwan                                65,333          Manufacturing
-------------------------------------------------------------------------------------------------------------------
   (1) Approximately 45,000 square feet is leased to a third-party under a lease
which expires January 30, 2005.
</TABLE>

We own the Indianapolis facility and lease all other facilities. The leases have
terms expiring at various dates ranging from January 2004 to April 2008. We
believe that all of our facilities are well maintained and are adequate for our
needs now and in the foreseeable future. We do not believe that we would
experience any difficulty in replacing any of the present facilities if any of
our leases were not renewed at expiration.

Item 3.       LEGAL PROCEEDINGS

We are involved in various claims and lawsuits arising in the normal course of
business. We do not expect any of these claims, individually or in the
aggregate, to have a material adverse effect on our consolidated financial
position or results of operations.

Item. 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.
<PAGE>

Executive Officers of the Registrant

Executive officers are elected each year by the Board of Directors at the first
board meeting following the Annual Meeting of Shareholders to serve during the
ensuing year and until their respective successors are elected and qualified.
There are no family relationships between any of our executive officers or
between any of them and any of the members of the Board of Directors.

The following information sets forth as of December 31, 2003, the name of each
executive officer, his age, tenure as an officer, principal occupation and
business experience for the last five years:

Name                             Age       Position(s) with the Company
Michael Doar                      48       Chairman of the Board and Chief
                                           Executive Officer
James D. Fabris                   52       President and Chief Operating Officer
Roger J. Wolf                     63       Senior  Vice  President,  Secretary,
                                           Treasurer  and  Chief  Financial
                                           Officer
David E. Platts                   51       Vice President, Technology
Stephen J. Alesia                 37       Corporate Controller, Assistant
                                           Secretary


Michael Doar was elected  Chairman of the Board and Chief  Executive  Officer on
November  14,  2001.  Mr. Doar had held various  management  positions with
Ingersoll  Milling Machine Company from 1989 until 2001. Mr. Doar has been
a director of Hurco since 2000.

James D. Fabris was elected President and Chief Operating Officer on November
14, 2001. Mr. Fabris served as Executive Vice President - Operations from
November 1997 until his current appointment and previously served as a Vice
President of Hurco since February 1995.

Roger J. Wolf has been Senior Vice President, Secretary, Treasurer and Chief
Financial Officer since January 1993.

David E. Platts has been employed by Hurco since 1982, and was elected Vice
President, Technology in May 2000. Mr. Platts previously served as Vice
President of Research and Development since 1989.

Stephen J. Alesia has been the Corporate Controller since joining Hurco in June
1996 and was elected an executive officer in September 1996. Prior to joining
Hurco, Mr. Alesia was employed for seven years by an international public
accounting firm.

<PAGE>
                                     PART II

Item 5.       MARKET FOR THE REGISTRANT'S EQUITY AND RELATED
              STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
"HURC". The following table sets forth the high and low sales prices of the
shares of our common stock for the periods indicated, as reported by the Nasdaq
National Market.
<TABLE>

                                                                 2003                               2002
                                                        ---------- -- ---------           --------- --- ------------
Fiscal Quarter Ended:                                     High          Low                 High            Low
--------------------
                                                        ----------    ---------           ---------     ------------
     <S>                                                  <C>          <C>                  <C>          <C>
     January 31.................................          $2.030       $1.300               $2.780       $2.050
     April 30...................................           1.670        1.400                3.350        2.030
     July 31....................................           3.150        1.520                2.950        1.500
     October 31.................................           2.740        2.100                2.220        1.450

</TABLE>
We do not currently pay dividends on our common stock and intend to continue to
retain earnings for working capital, capital expenditures and debt reduction.

There were approximately 294 holders of record of our common stock as of January
2, 2004.

During the period covered by this report, we did not sell any equity securities
that were not registered under the Securities Act of 1933, as amended.

The disclosure under the caption "Equity Compensation Plan Information" in Item
12 of this report is incorporated by reference in response to this item.

<PAGE>

Item 6.       SELECTED FINANCIAL DATA

The Selected Financial Data presented below have been derived from our
Consolidated Financial Statements for the years indicated and should be read in
conjunction with the Consolidated Financial Statements and related notes set
forth elsewhere herein.
<TABLE>
                                                                       Year Ended October 31
                                             --------------------------------------------------------------------------
                                                2003            2002              2001          2000           1999
                                             -----------    -------------       ---------    -----------    -----------
Statement of Operations Data:                                 (In thousands, except per share amounts)
   <S>                                          <C>             <C>              <C>            <C>            <C>
   Sales and service fees (1).........          $ 75,532        $ 70,486         $ 92,267       $ 96,204       $ 88,238
   Gross profit.......................            20,822          15,246 (2)       23,262         25,377         24,174
   Selling, general and
      administrative expenses.........            18,749          19,658           24,040         23,538         21,259
   Restructuring expense (credit)
      and other expense, net..........             (124)           2,755              143            300           (103)
   Operating income (loss)............            2,197           (7,167)            (921)         1,539          3,018
   Interest expense...................              658              634              790            939          1,293
   License fee income and
      litigation settlement fees, net.              --               163              723          5,365            304
   Net income (loss)..................              462           (8,263)          (1,597)         5,035          1,802
   Earnings (loss)
      per common share-diluted........            0.08            (1.48)            (.28)            .84            .30
   Weighted average common
      shares outstanding-diluted......           5,582             5,583            5,670          6,020          6,061

(1)      Sales and service fees for discontinued products were $435, $4,756, $6,067, $10,156, and $7,286, for the
         years ended 2003 through 1999, respectively.
(2)      Includes $1,083 of inventory write-down provision.
</TABLE>

<TABLE>

                                                                       As of October 31
                                            ------------------------------------------------------------------------
                                               2003            2002           2001           2000           1999
                                            ------------    -----------    -----------    -----------    -----------
Balance Sheet Data:                                                 (Dollars in thousands)
   <S>                                          <C>         <C>              <C>          <C>               <C>
   Current assets...................            $42,390     $   41,535       $ 49,510     $   49,195        $52,856
   Current liabilities..............             20,154         21,185         18,217        23,124          19,580
   Working capital..................             22,236         20,350         31,293        26,071          33,276
   Current ratio....................                2.1            2.0            2.7           2.1             2.7
   Total assets.....................             57,958         57,152         66,217        65,024          69,632
   Non-current liabilities..........              9,063          7,950         12,532         3,009          13,904
   Total debt.......................              9,222          8,885         12,000         3,736          14,172
   Shareholders' equity.............             28,741         28,017         35,468        38,891          36,148
</TABLE>

<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following table presents, for the fiscal years indicated, selected items
from the Consolidated Statements of Operations expressed as a percentage of
worldwide sales and service fees and the year-to-year percentage changes in the
dollar amounts of those items.
<TABLE>

                                                 Percentage of Revenues                   Year-to-Year % Change
                                       -------------------------------------------    ------------------------------
                                          2003           2002            2001              Increase (Decrease)
                                       -----------    ------------    ------------    ------------------------------
                                                                                       03 vs. 02         02 vs. 01
                                                                                      -------------     ------------
<S>                                      <C>            <C>             <C>                <C>             <C>
Sales and service fees..........         100.0%         100.0%          100.0%             7.2%            (23.6%)
Gross profit....................          27.6%          21.6%           25.2%            36.6%            (34.5%)
Selling, general and
   Administrative expenses......          24.8%          27.9%           26.1%            (4.6%)           (18.2%)
Restructuring expense and
   Other expenses, net..........          (0.2%)          3.9%            0.2%            N/A               N/A
Operating income (loss).........           2.9%         (10.2%)          (1.0%)           N/A               N/A
License fee income, net.........           --             0.2%            0.8%            --               (77.4%)
Interest expense................           0.9%           0.9%            0.9%             3.8%            (19.7%)
Net income (loss)...............           0.6%         (11.7%)          (1.7%)           N/A               N/A

</TABLE>

Fiscal 2003 Compared With Fiscal 2002

Net income for fiscal 2003 was $462,000, or $.08 per share, compared to a net
loss of $8.3 million in the prior year. We attribute our return to profitability
to incremental sales from a new, entry-level machine model (the VM1) introduced
in late fiscal 2002, strengthening European currencies in relation to the U.S.
Dollar and the implementation of restructuring and cost reduction actions over
the past 18 months. Results for fiscal 2002 were adversely impacted by $3.8
million of restructuring expense.

We developed the VM1 to improve our competitiveness in the entry-level machining
center market. The VM1 has been successful in both the domestic and
international markets. In the United States, we have obtained an approximate 20%
market share in the entry-level machining center market. In fiscal 2003, we
shipped 285 VM1 units worldwide, which resulted in approximately $11.0 million
of incremental machine sales.

Our operating results for fiscal 2003 were also favorably impacted by changes in
foreign currency exchange rates, particularly the Euro, in relation to the U.S.
Dollar when translating foreign sales and service fees into U.S. Dollars for
financial reporting purposes. As noted in the following table, approximately
63.9% of our net sales and service fees in fiscal 2003 were derived from
European markets. The weighted average exchange rate for the Euro during fiscal
2003 was $1.10, as compared to $.93 for fiscal 2002, an increase of 18%.

<PAGE>
Net Sales and Service Fees by Geographic Region

The following tables set forth net sales by geographic region for the years
ended October 31, 2003 and 2002 (in thousands):
                                           October 31,
                              -------------------------------------------------
                                    2003                            2002
                              ------------------------   ----------------------
Americas                       $ 24,313      32.2%        $ 24,148       34.3%
Europe                           48,277      63.9%          44,509       63.1%
Asia Pacific                      2,942       3.9%           1,829        2.6%
                              ----------    ----------   ----------     --------
         Total                 $ 75,532     100.0%        $ 70,486      100.0%
                              ==========    ==========   ==========     ========

Total sales and service fees on a worldwide basis were $75.5 million in fiscal
2003, compared to $70.5 million in the prior fiscal year, a $5.0 million, or 7%,
increase. However, on a constant dollar basis, sales and service fees were $68.7
million, a $1.8 million decrease.

In the Americas, sales and service fees from continuing products and services
increased $4.5 million, or 23%, due primarily to the successful introduction of
the VM1, in late fiscal 2002. This increase was offset by a decrease of $4.3
million in sales of discontinued products, the liquidation of which was
substantially completed in fiscal 2002.

In Europe, sales and service fees increased by $3.8 million as a result of the
favorable effect of stronger European currencies. However, when measured at
constant exchange rates, sales and service fees in Europe decreased $3.0
million, or 7%, reflecting the continuing weakness in industrial equipment
spending and reduced consumption of machine tools by many manufacturing
companies, particularly in Germany.

Sales and service fees in Asia Pacific were not significantly affected by
currency rates, but reflect improved activity in Asian markets.

In the fourth quarter of fiscal 2003, sales and service fees improved over the
first three fiscal quarters, reflecting an improvement in worldwide computerized
machine tool demand from the depressed levels of the past three years.
<PAGE>
Net Sales and Service Fees by Product Category

The following table sets forth net sales and service fees by product category
for years ended October 31, 2003 and 2002 (in thousands):
<TABLE>

                                                                                 October 31,
                                                           ---------------------------------------------------------
                                                                     2003                           2002
                                                           --------------------------     --------------------------
Continuing Products and Services
<S>                                                        <C>               <C>          <C>               <C>
     Computerized Machine Tools                            $ 60,977          80.7%        $ 52,056          73.9%
     Computer Control Systems and Software                    3,044           4.0%           3,194           4.5%
     Service Parts                                            7,616          10.1%           7,240          10.3%
     Service Fees                                             3,460           4.6%           3,240           4.6%
                                                           ------------    ----------     ------------    ----------
          Total                                            $ 75,097          99.4%        $ 65,730          93.3%
Discontinued Products and Services*                             435           0.6%           4,756           6.7%
                                                           ------------    ----------     ------------    ----------
         Total                                             $ 75,532         100.0%        $ 70,486         100.0%
                                                           ============    ==========     ============    ==========
</TABLE>

* Discontinued product sales were made solely in the United States.

Sales of continuing machine tool products increased $8.9 million, or 17%, of
which $6.1 million was attributable to the favorable effects of foreign currency
translation. Unit shipments of continuing machine tool models increased 23%, as
sales of the VM1 more than offset a decline in the balance of the product line.
The average net selling price per unit of continuing machine tool models
decreased approximately 5% due to product mix and discounting, the effects of
which were partially offset by the favorable effects of currency translation.
When measured at constant exchange rates, the average net selling price per
continuing unit declined approximately 16%.

New order bookings for fiscal 2003 were $77.9 million, an increase of 16% as
compared to $67.0 million recorded in fiscal 2002. When measured at constant
exchange rates, new order bookings increased $3.5 million, or 5%. New order
bookings for continuing products and services increased $7.8 million, or 12%,
when measured at constant exchange rates. The increase in orders for continuing
products in constant U.S. Dollars was attributable to orders for the VM1 model,
which more than offset the effect of weak order rates in the first nine months
of fiscal 2003 related to the balance of the product line. New order bookings
increased significantly in the fourth quarter of fiscal 2003 and were $13.9
million, $20.6 million, $18.9 million and $24.5 million for each of the four
quarters in fiscal 2003. Backlog was $8.2 million at October 31, 2003 compared
to $5.3 million at October 31, 2002.
Gross profit margin increased in fiscal 2003 to 27.6% from 21.6% (23.2%
excluding a $1.1 million restructuring charge) in fiscal 2002, due in part to
strengthening European currencies as well as previously reported employee cost
reductions and fewer sales of discontinued products, which were liquidated at
discounted prices.
<PAGE>

Selling, general and administrative ("SG&A") expenses for fiscal 2003 of $18.7
million declined $900,000, or 5%, from those of the corresponding 2002 period.
When measured at constant exchange rates, SG&A expenses decreased $2.1 million,
or 11%, from fiscal 2002, as a result of previously reported employee cost
reductions, lower research and development expenses, and reduced sales and
marketing expenditures. The decrease was offset, in part, by the effects of a
weaker U.S. Dollar when translating expenses incurred outside the United States
for financial reporting purposes.

Other expense, net includes $51,000 related to certain stock options which are
subject to variable plan accounting as described in Note 8 to the Consolidated
Financial Statements. Expense for this item in future periods will be directly
impacted by changes in the price of our common stock until the options are
exercised. Other expense, net in fiscal 2003 also includes currency exchange
losses on inter-company receivables and payables denominated in foreign
currencies, net of gains or losses on related forward contracts, and other
non-operating income and expense items.

The provision for income taxes is related to the earnings of two foreign
subsidiaries. In the United States and certain other foreign jurisdictions, we
have net operating loss carryforwards for which we have a 100% valuation reserve
at October 31, 2003. The provision for income tax increased in fiscal 2003
because of increased earnings from our taxable foreign subsidiaries.

Fiscal 2002 Compared With Fiscal 2001

Our net loss for the year ended October 31, 2002, which was more than five times
greater than that reported for fiscal 2001, was due primarily to substantially
lower sales and service fees as result of a continuing decline in machine tool
orders in both the U.S. and Europe. The Association for Manufacturing
Technology, the machine tool industry's trade association, reported that in
2002, the U.S. dollar value of orders for machine tools decreased 25%, and there
was a corresponding deterioration in our European markets.

Also contributing to the loss for fiscal 2002 were restructuring and other
special charges totaling $3.8 million, which consisted primarily of: (a)
non-cash inventory write-downs of $1.1 million, which were recorded as an
increase in the cost of sales, and the write-off of capitalized software
development costs of $1.0 million, which was recorded as a restructuring
expense, (b) severance costs of $1.1 million related to personnel reductions,
and (c) a reserve of $1.1 million (of which $896,000 was recorded in the fourth
fiscal quarter) for potential expenditures that might be required pursuant to a
disputed claim regarding a terminated facility lease in the United Kingdom,
which is more fully discussed below.

During fiscal 2002, we discontinued several under-performing product lines, and
sold the related assets, to enable us to focus our resources and technology
development on our core products. These continuing core products, known as
milling machines and vertical machining centers, consist primarily of general
purpose computerized machine tools for the metal cutting industry into which our
proprietary Ultimax(R) software and computer control systems have been fully
integrated. Discontinued and sold were the Delta(TM) series computer control and
related Dynapath(TM) milling machine product line, and related parts and service
activities, along with press brake product lines and all tooling products
related to press brake applications. These discontinued product lines were
marketed exclusively in the United States.
<PAGE>

During fiscal 2002, we also eliminated 53 domestic employee positions, which we
expect will result in annual cost reductions of approximately $3.8 million, of
which $2.1 million was realized in fiscal 2002. The positions that were
eliminated were those related to the discontinued product lines as well as some
positions associated with our realigned and consolidated domestic sales and
service operations.
We previously occupied a facility located in England under a lease that expired
in April 2002. The lease required that, following expiration of the lease, we
make certain repairs to the facility resulting from deterioration of the
facility during the lease term. The scope and cost of the repairs alleged by the
lessor to be required evolved throughout fiscal 2002 and 2003 as investigations
and negotiations proceeded. On September 30, 2003, we settled this claim with
the lessor for (pound)684,000 (approximately $1.2 million), which we had
previously accrued. The settlement payment was due and paid in the first quarter
of fiscal 2004.

The following tables set forth net sales by geographic region and product
category for the years ended October 31, 2002 and 2001 (in thousands):
<TABLE>

Net Sales and Service Fees by Geographic Region
                                                                                 October 31,
                                                           ---------------------------------------------------------
                                                                     2002                           2001
                                                          ----------------------------    --------------------------
<S>                                                       <C>                   <C>         <C>               <C>
Americas.............................................     $   24,148            34.3%       $ 34,779          37.7%
Europe ..............................................         44,509            63.1%         54,977          59.6%
Asia Pacific.........................................          1,829             2.6%          2,511           2.7%
                                                          -------------    -----------    -----------     ----------
     Total...........................................       $ 70,486           100.0%       $ 92,267         100.0%
                                                          =============    ===========    ===========     ==========
</TABLE>
<TABLE>


Net Sales and Service Fees by Product Category
                                                                                 October 31,
                                                          ----------------------------------------------------------
                                                                     2002                           2001
                                                          ----------------------------    --------------------------
Continuing Products and Services
<S>                                                       <C>                   <C>       <C>                 <C>
     Computerized Machine Tools......................     $   52,056            73.9%     $   69,631          75.4%
     Computer Control Systems and Software...........          3,194             4.5%          4,782           5.2%
     Service Parts...................................          7,240            10.3%          8,038           8.7%
     Service Fees....................................          3,240             4.6%          3,749           4.1%
                                                           -----------    -----------     ----------      ---------
          Total......................................     $   65,730            93.3%     $   86,200          93.4%
Discontinued Products and Services...................          4,756             6.7%          6,067           6.6%
                                                          -------------    -----------    -----------     ----------
         Total.......................................     $   70,486           100.0%     $   92,267         100.0%
                                                          =============    ===========    ===========     ==========
</TABLE>
<PAGE>

Our total sales and service fees were $70.5 million in fiscal 2002, a $21.8
million, or 24%, decline compared to fiscal 2001. Sales of computerized machine
tools (other than discontinued products) declined $17.6 million, or 25%,
compared to fiscal 2001, reflecting the continuing global weakness in industrial
equipment spending and reduced consumption of machine tools by many
manufacturing companies, with the decline comprising $6.8 million, $10.1 million
and $671,000 in the United States, Europe and Southeast Asia, respectively.
Non-machine tool revenues also declined due to reduced activity levels in our
market sectors, with the decline being most pronounced in the U.S.

The following table sets forth machine unit volume and average net selling price
for computerized machine tools by continuing and discontinued products:

Computerized Machine Tools - Units Sold            2002               2001
                                              ----------------  ----------------
   Continuing Products                         697       88.9%    942     92.4%
   Discontinued Products                        87       11.1%     77      7.6%
                                              ------   -------  ------   -------
   Total                                       784      100.0%  1,019    100.0%


Average Net Selling Price - Per Unit (in thousands)    2002             2001
                                                     -----------    -----------
   Continuing Products                             $    74.7         $   73.9
   Discontinued Products                           $    39.6         $   47.5
   Total                                           $    70.8         $  71.9

The average net selling price per machine unit of continuing products increased
due to the effect of stronger European currencies when translating foreign sales
for financial reporting purposes which more than offset the effect of increased
discounting due to weak market conditions.

New order bookings for continuing products in fiscal 2002 were $62.2 million
compared to $83.3 million in fiscal 2001, a 25% decline. New orders for
computerized machine tools (other than discontinued products) declined 27% in
U.S. dollars worldwide. The decline, which was experienced in all of our
geographic markets, reflected a sharp decrease in orders for vertical machining
centers, our primary product line. Backlog was $5.3 million at October 31, 2002,
compared to $9.1 million at October 31, 2001.

Gross margin for fiscal 2002, exclusive of inventory write-downs recorded in
cost of sales, declined to 23.2% from 25.2% in fiscal 2001, due to the decline
in our sales of vertical machining centers and our sale of approximately $4.8
million in discontinued products at discounted prices. Gross margin did improve
in the last three quarters of fiscal 2002 compared to the immediately preceding
quarter, although the improvement was due primarily to the cost reductions
implemented over the preceding eighteen months.

Selling, general and administrative expenses for fiscal 2002 of $19.7 million
were $4.4 million, or 18%, lower than those for fiscal 2001, due to our cost
reduction programs. We expect operating expenses to be lower in 2003 as we
experience a full year's benefit of cost reductions initiated in fiscal 2002.
<PAGE>
Non-operating items consisted of interest expense of $634,000 in fiscal 2002,
which was $156,000, or 20%, lower than in fiscal 2001, primarily due to reduced
borrowings. License fee income and litigation settlement fees in fiscal 2002 and
2001 consisted of several licenses that were granted during the year. The
licensing program that resulted in these fees was effectively completed in the
first quarter of fiscal 2002 and we do not expect additional license fee income
in the foreseeable future. Earnings from equity investments are from our two
affiliates which are accounted for using the equity method. Other expense in
fiscal 2002 was not significant and in fiscal 2001, consisted primarily of the
costs of typhoon-related flood damage at our manufacturing facility in Taiwan.

The provision for income taxes is related to the earnings of two foreign
subsidiaries.

Liquidity and Capital Resources

At October 31, 2003, we had cash and cash equivalents of $5.3 million, exclusive
of $622,000 restricted cash related to derivative instruments, compared to $4.4
million at October 31, 2002. Cash generated from operations totaled $2.3 and
$6.2 million at October 31, 2003 and 2002, respectively.

The weakening of the U.S. dollar in relation to European currencies subsequent
to October 31, 2003, will result in a temporary increase in restricted cash
related to derivative instruments, pending the liquidation of forward contracts
in the normal course during fiscal 2004. Anticipated cash losses on these
forward contracts will be funded by the increased U.S. dollar value of the
related inter-company sales which are being hedged and; as a result, we do not
expect cash flow from operations to be adversely affected.

Working capital, excluding short-term debt, was $21.6 million at October 31,
2003, approximately the same as at October 31, 2002. Cash flow from operations
benefited $1.3 million in fiscal 2003 from accelerated collections of accounts
receivable and $1.5 million from planned reductions of finished machines in
inventory. These amounts were substantially offset by reductions in accounts
payable and accrued expenses due principally to timing of payments related to
prior year foreign taxes and other operating items. We expect our operating
working capital requirements to increase in fiscal 2004, commensurate with any
increase in sales and service fees. Any such increase will be funded by cash
flow from operation and borrowings under our bank credit facilities.

Capital investments during the year consisted of normal expenditures for
software development projects and purchases of equipment. We funded these
expenditures with cash flow from operations. On October 24, 2002, we issued a
secured promissory note for $1.3 million to the seller of certain patent rights
as partial payment for the purchase of those rights. The note had an interest
rate of 2.75% per annum and was payable in four quarterly installments of
$337,500, the last of which was paid on December 31, 2003.

Effective December 1, 2003, we amended and restated our credit agreement with
our domestic bank, which extended the maturity date to December 1, 2006 and
increased the maximum amount of the facility from $7.0 million to $8.0 million.
The credit agreement provides the lender with a security interest in
substantially all domestic assets, exclusive of the assets subject to the first
mortgage, and 66% of the common stock of our U.S. holding companies, which own
our foreign subsidiaries. Borrowings may be made in U.S. Dollars, Euros or
Pounds Sterling. Interest on all outstanding borrowings is payable at LIBOR for
the respective currency plus an applicable margin, or, at our option, prime rate
plus a specified margin based on funded debt to EBITDA (earnings before
interest, taxes, depreciation and amortization) ratio, as follows:
<PAGE>
<TABLE>

Total Funded Debt/EBITDA ratio                                      LIBOR Margin          Prime Margin
-------------------------------------------------------------    -------------------    ------------------
-------------------------------------------------------------    -------------------    ------------------
<S>                                                                    <C>                     <C>
Greater than 3.0                                                       2.75%                   0%
Greater than 2.5 and less than or equal to 3.0                          2.0%                 (.25%)
Greater than 2.0 and less than or equal to 2.5                          1.5%                 (.50%)
Less than or equal to 2.0                                               1.0%                 (.75%)
</TABLE>

Prior to March 1, 2004, the applicable margin is determined based on the total
funded debt/EBITDA ratio being greater than 2.5 and less than or equal to 3.0.
Thereafter, the applicable margin will be adjusted on the first day of the month
following the month after each quarter end.

Availability under the facility is limited to the greater of the commitment or a
borrowing base, as defined in the agreement, which measured as of October 31,
2003, aggregated $7.5 million. The agreement requires that we maintain
Consolidated Net Worth of $32.0 million plus an amount equal to 75% of positive
consolidated net income for the fiscal year ended October 31, 2004, and for each
fiscal year thereafter. Consolidated Net Worth is defined as total Shareholders'
Equity excluding Accumulated Other Comprehensive Income. Our consolidated total
debt as compared to consolidated total debt plus Consolidated Net Worth ratio
cannot be greater than 0.35 to 1.0 and our fixed charge coverage ratio cannot be
less than 1.10 to 1.0. The fixed charge coverage ratio is the ratio of
consolidated EBITDA minus taxes, unfunded capital expenditures and redemptions
of capital stock to principal payments of indebtedness plus consolidated
interest expense.

Effective January 15, 2004, we entered into an agreement with our principal
domestic bank which provides our U.K. subsidiary with a revolving credit and
overdraft facility. The facility includes a maximum commitment aggregating
(pound)1.0 million (approximately $1.7 million) and matures January 31, 2007.
Borrowings will be secured by liens on substantially all of the assets of our
U.K. subsidiary. Interest on outstanding borrowings will be based on LIBOR for
fixed rate loans and a base rate for overdrafts, in each case, plus a margin
based on consolidated funded debt to EBITDA equivalent to that of our domestic
bank facility.

We have a 3.0 million Euro credit facility with a European bank. On December 1,
2003, the maturity date of the facility was extended until November 30, 2004.
Interest on the facility is payable at 7.16% per annum or, at our option, 1.75%
above EURIBOR for fixed rate borrowings. Although the facility is
uncollateralized, the bank reserves the right to require collateral in the event
of increased risk evaluation. Borrowings outstanding under this facility at
October 31, 2003 were $1.3 million.

During the fourth quarter of fiscal 2003, we settled a disputed claim in the
United Kingdom regarding a terminated facility lease for $1.2 million, which had
been previously accrued. The settlement payment was due in two equal
installments, which where paid in the first quarter of fiscal 2004. The
settlement payments were funded through cash flow from operations and borrowings
available from bank credit facilities.
<PAGE>

Total debt at October 31, 2003 was $9.2 million representing 24% of total
capitalization, compared to $8.9 million, or 24% of total capitalization, at
October 31, 2002. We were in compliance with all loan covenants and had unused
credit availability of $6.4 million at October 31, 2003. We believe that cash
flow from operations and borrowings available to us under our credit facilities
will be sufficient to meet our anticipated cash requirements in fiscal 2004.

Contractual Obligations and Commitments

The following is a table of contractual obligations and commitments as of
October 31, 2003 (all amounts in thousands):
<TABLE>

                                                                 Payments Due by Period
                                                          Less than          1-3            3-5         More than 5
                                             Total          1 Year          Years          Years           Years
                                           -----------    ------------    ----------     ----------     ------------
<S>                                        <C>            <C>             <C>            <C>            <C>
Long-Term Debt........................     $    9,222     $       645     $   4,703      $     145      $     3,729
Operating Leases......................          2,770           1,185         1,371            199               15
Deferred Credits and Other............            486              --            --             --              486
                                           -----------    ------------    ----------     ----------     ------------
                                           -----------    ------------    ----------     ----------     ------------
    Total.............................     $  12,478      $    1,830      $   6,074      $     344           $4,230
                                           ===========    ============    ==========     ==========     ============
</TABLE>

In addition to the contractual obligations and commitments disclosed above, we
also have a variety of other contractual agreements related to the procurement
of materials and services and other commitments. With respect to these
agreements, we are not subject to any contracts which commit us to material
non-cancelable commitments. While some of these contractual agreements are
long-term supply agreements, we are not committed under these agreements to
accept or pay for requirements which are not needed to meet production needs. We
have no material minimum purchase commitments or "take-or-pay" type agreements
or arrangements.

With respect to capital expenditures, we expect capital spending in fiscal 2004,
exclusive of capitalized software development costs, to approximate $1.5
million, which includes discretionary items.

Off Balance Sheet Arrangements

From time to time, our German subsidiary guarantees third party lease financing
residuals in connection with the sale of certain machines in Europe. At October
31, 2003 there were 26 third party guarantees totaling approximately $1.4
million. A retention of title clause allows our Germany subsidiary to obtain the
machine if the customer defaults on its lease. We believe that the proceeds
obtained from liquidation of the machine would cover any payments required under
the guarantee.
<PAGE>

Critical Accounting Policies

Our accounting policies, including those described below, require management to
make significant estimates and assumptions using information available at the
time the estimates are made. Such estimates and assumptions significantly affect
various reported amounts of assets, liabilities, revenues and expenses. If our
future experience differs materially from these estimates and assumptions, our
results of operations and financial condition could be affected.

Revenue Recognition - We recognize product revenue upon delivery to the
customer, which is normally at the time of shipment, because ownership and risk
of loss passes to the customer at that time and payment terms are fixed. Our
computerized machine tools are general-purpose computer controlled machine tools
that are typically used in stand-alone operations. Transfer of ownership and
risk of loss are not contingent upon contractual customer acceptance. Prior to
shipment, we test each machine to ensure the machine's compliance with standard
operating specifications as listed in our sales literature.

Depending upon geographic location, the machine installation at the end user may
be completed by a distributor, independent contractor or Hurco service
technician. In most instances where a machine is sold through a distributor, we
have no installation involvement. If sales are direct or through sales agents,
we will typically complete the machine installation. The machine installation
consists of the reassembly of certain parts that were removed for shipping and
the re-testing of the machine to ensure that it is performing with the standard
specifications. We consider the machine installation process inconsequential and
perfunctory. Service fees from maintenance contracts are deferred and recognized
in earnings on a pro rata basis over the term of the contract. Sales related to
software products are recognized when shipped in conformity with American
Institute of Certified Public Accountants' Statement of Position 97-2 Software
Revenue Recognition.

Inventories - We must determine at each balance sheet date how much, if any, of
our inventory may ultimately prove to be unsaleable or unsaleable at its
carrying cost. Reserves are established to effectively adjust any such inventory
to net realizable value. To determine the appropriate level of valuation
reserves, we evaluate current stock levels in relation to historical and
expected patterns of demand for all of our products. Management evaluates the
need for changes to valuation reserves based on market conditions, competitive
offerings and other factors on a regular basis.

Deferred Tax Asset Valuation - As of October 31, 2003, we have deferred tax
assets of $5.6 million for which we have recorded a full valuation allowance,
resulting in zero net deferred tax asset on our balance sheet. These future tax
benefits relate primarily to net operating loss carryforwards in the United
States and certain foreign jurisdictions, as well as Federal business tax
credits carried forward in the United States. Some of these carryforward
benefits expire at certain dates and utilization of certain others is limited to
specific amounts each year. Realization of those benefits is entirely dependent
upon generating sufficient future taxable earnings in the specific tax
jurisdictions before they expire. Due to the recent losses in the United States
and the applicable foreign tax jurisdictions, there is uncertainty whether these
tax benefits can be utilized before they expire. Therefore, we have established
a full valuation allowance. The need for this allowance is reviewed
periodically, and if reduced in future periods, the associated tax benefits will
be recorded in future operations as a reduction of income tax expense.
<PAGE>

Capitalized Software Development Costs - Costs incurred to develop new computer
software products and significant enhancements to software features of existing
products are capitalized as required by SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed", and amortized
over the estimated product life of the related software. The determination as to
when in the product development cycle technological feasibility has been
established, and the expected product life, require judgments and estimates by
management and can be affected by technological developments, innovations by
competitors and changes in market conditions affecting demand. We capitalized
$679,000 in fiscal 2003, $534,000 in fiscal 2002, and $665,000 in fiscal 2001
related to software development projects. Also in fiscal 2002, we wrote off $1.0
million of previously capitalized costs related to a discontinued product line.
At October 31, 2003 we have an asset of $1.9 million for capitalized software
development projects, a significant portion of which relates to projects
currently in process and subject to development risk and market acceptance. We
periodically review the carrying values of these assets and make judgments as to
ultimate realization considering the above mentioned risk factors.

Derivative Financial Instruments - Critical aspects of our accounting policy for
derivative financial instruments include conditions which require that critical
terms of a hedging instrument are essentially the same as a hedged forecasted
transaction. Another important element of the policy demands that formal
documentation be maintained as required by the Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Failure to comply with these conditions would result in a
requirement to recognize changes in market value of hedge instruments in
earnings. We routinely monitor significant estimates, assumptions, and judgments
associated with derivative instruments, and compliance with formal documentation
requirements.

Stock Compensation - We apply the provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for stock-based compensation;
therefore, no compensation expense has been recognized for stock options, except
for certain shares subject to variable plan accounting, as options are granted
at fair market value. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" provides an alternative method of
accounting for stock options based on an option-pricing model, such as
Black-Scholes. We have adopted the disclosure requirements of SFAS No. 123.
Information and assumptions regarding compensation expense under the alternative
method is provided in Note 8 to the Consolidated Financial Statements.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Risk

Our earnings are affected by changes in interest expense on our outstanding
debt, all of which is subject to floating rates, either LIBOR or Prime. If
market interest rates on our outstanding variable rate borrowings were to have
increased by one percentage point (1%) (or 100 basis points) over the actual
rates paid in that year, interest expense would have increased by $62,000 in
fiscal 2003 and $90,000 in fiscal 2002. This sensitivity analysis assumes no
changes in other factors affecting our financial statements that might result
from changes in the economic environment which impact interest rates. Note 4 of
the Consolidated Financial Statements has a discussion of the interest rates
related to our current credit facilities. At October 31, 2003, outstanding
borrowings under our bank credit facilities were $4.1 million and our total
indebtedness was $9.2 million.
<PAGE>

Foreign Currency Exchange Risk

In fiscal 2003, approximately 70% of our sales and service fees, including
export sales, were derived from foreign markets. All of our computerized machine
tools and computer control systems, as well as certain proprietary service
parts, are sourced by our U.S.-based engineering and manufacturing division and
re-invoiced to our foreign sales and service subsidiaries, primarily in their
functional currencies.

Our products are sourced from foreign suppliers or built to our specifications
by either our wholly-owned subsidiary in Taiwan, or overseas contract
manufacturers. These purchases are predominantly in foreign currencies and in
some cases our arrangements with these suppliers include foreign currency risk
sharing agreements, which reduce (but do not eliminate) the effects of currency
fluctuations on product costs. The predominant portion of our exchange rate risk
associated with product purchases relates to the New Taiwan Dollar.

We enter into foreign currency forward exchange contracts from time to time to
hedge the cash flow risk related to forecast inter-company sales, and forecast
inter-company and third party purchases denominated in, or based on, foreign
currencies (primarily the Euro, Pound Sterling and New Taiwan Dollar). We also
enter into foreign currency forward exchange contracts to protect against the
effects of foreign currency fluctuations on receivables and payables denominated
in foreign currencies. We do not speculate in the financial markets and,
therefore, do not enter into these contracts for trading purposes.

Forward contracts for the sale or purchase of foreign currencies as of October
31, 2003 which are designated as cash flow hedges under SFAS No. 133 were as
follows:
<PAGE>

<TABLE>
                                                             Contract Amount at Forward
                                              Weighted                Rates in
                           Notional Amount      Avg.                U.S. Dollars
        Forward               in Foreign       Forward        Contract       October 31,          Maturity
       Contracts              Currency          Rate            Date            2003                Dates
---------------------     ----------------    ---------      ----------      ----------        ---------------
Sale Contracts:
<S>                            <C>          <C>           <C>              <C>                     <C>      <C>
Euro                           14,800,000   $     1.1057  $  16,364,360    $  17,047,507       Nov 2003-Oct 2004
Sterling                        1,960,000   $     1.6241  $   3,183,236    $   3,278,948      Nov 2003-Sept 2004


Forward contracts for the sale of foreign currencies as of October 31, 2003
which were entered into to protect against the effects of foreign currency
fluctuations on receivables and payables denominated in foreign currencies were
as follows:
                                                              Contract Amount at Forward
                                              Weighted                Rates in
                           Notional Amount      Avg.                U.S. Dollars
        Forward               in Foreign       Forward        Contract       October 31,          Maturity
       Contracts              Currency          Rate            Date            2003                Dates
---------------------     ----------------    ---------      ----------      ----------        ---------------

Sale Contracts:
Euro                             4,671,837  $     1.1650       $5,442,690       $5,399,671     Nov 2003-Dec 2003
Singapore Dollar                 2,601,353  $      .5733       $1,491,356       $1,496,295    Nov 2003 -Jan 2004
Sterling                           522,374  $     1.6723         $873,566         $882,615     Nov 2003-Dec 2003
Purchase Contracts:
New Taiwan Dollar               36,800,000        33.66*       $1,093,286       $1,085,478     Nov 2003-Dec 2003
*  NT Dollars per U.S. dollars

</TABLE>

<PAGE>

Item 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         Report of Independent Auditors



To the Shareholders and
Board of Directors
of Hurco Companies, Inc.:



In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Hurco Companies, Inc. and its subsidiaries at October 31,
2003 and 2002, and the results of their operations and their cash flows for each
of the two years in the period ended October 31, 2003 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the index
appearing under Item 15(a) (2) present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. The financial statements and
financial statement schedule of Hurco Companies, Inc. for the year ended October
31, 2001 were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated January 15, 2002.



/s/PricewaterhouseCoopers LLP

Indianapolis, Indiana
December 9, 2003

<PAGE>

                    Report of Independent Public Accountants


The following report is a copy of a report previously issued by Arthur Andersen
LLP and has not been reissued by Arthur Andersen LLP.

To the Shareholders and
Board of Directors of
Hurco Companies, Inc.:


We have audited the accompanying consolidated balance sheets of Hurco Companies,
Inc. (an Indiana corporation) and subsidiaries as of October 31, 2001* and
2000*, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended October 31, 2001. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 principles 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 respects, the consolidated financial position of Hurco Companies,
Inc. and subsidiaries as of October 31, 2001 and 2000*, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 2001, in conformity with accounting principles
generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a) 2** is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.


 /s/ARTHUR ANDERSEN LLP

Indianapolis, Indiana,
January 15, 2002.

*The 2001 and 2000 consolidated balance sheets are not required to be presented
in the 2003 annual report.

** The schedule to which this paragraph refers has not been included in this
Form 10-K as these disclosures of 2001 and 2000 information are not required to
be presented in the 2003 annual report.

<PAGE>
                              HURCO COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>

                                                                                   Year Ended October 31
                                                                        --------------------------------------------
                                                                           2003           2002             2001
                                                                        -----------    ------------    -------------
                                                                          (Dollars in thousands, except per share amounts)

<S>                                                                     <C>            <C>             <C>
Sales and service fees.........................................         $  75,532      $  70,486      $   92,267

Cost of sales and service......................................            54,710         54,157          69,005

Cost of sales - restructuring..................................                --          1,083              --
                                                                        -----------    ------------    -------------
   Gross profit................................................            20,822         15,246          23,262

Selling, general and administrative expenses...................            18,749         19,658          24,040

Restructuring expense (credit) and other expense, net (Note 16)              (124)         2,755             143
                                                                        -----------    ------------    -------------
   Operating income (loss).....................................             2,197         (7,167)           (921)

Interest expense...............................................               658            634             790

License fee income and litigation settlement fees, net
   (Note 10 and 13)............................................                --            163             723

Earnings from equity investments...............................               202             25             383

Other expense, net.............................................               321             61             215
                                                                        -----------    ------------    -------------
   Income (loss) before income taxes...........................             1,420         (7,674)           (820)

Provision for income taxes (Note 6)............................               958            589             777
                                                                        -----------    ------------    -------------
Net income (loss)..............................................         $     462      $  (8,263)     $   (1,597)
                                                                        ===========    ============    =============


Earnings (loss) per common share - basic.......................         $    0.08      $   (1.48)      $     (.28)
                                                                        ===========    ============    =============

Weighted average common shares outstanding - basic.............             5,582           5,583           5,670
                                                                        ===========    ============    =============

Earnings (loss) per common share - diluted.....................         $    0.08      $   (1.48)      $     (.28)
                                                                        ===========    ============    =============

Weighted average common shares outstanding - diluted...........             5,582           5,583           5,670
                                                                        ===========    ============    =============

The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<PAGE>
                              HURCO COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
<TABLE>
                                                                                       As of October 31
                                                                           ----------------------------------------
                                                                                   2003                 2002
                                                                              ---------------    ------------------
Current assets:                                                             (Dollars in thousands, except per share amounts)
<S>                                                                           <C>                <C>
   Cash and cash equivalents..........................................        $      5,289       $      4,358
   Cash - restricted..................................................                 622                 --
   Accounts receivable, less allowance for doubtful accounts
      of $630 in 2003 $689 in 2002....................................              12,823             13,425
   Inventories........................................................              22,247             22,548
   Other..............................................................               1,409              1,204
                                                                              ---------------    ------------------
      Total current assets............................................              42,390             41,535
                                                                              ---------------    ------------------
Property and equipment:
   Land...............................................................                 761                761
   Building...........................................................               7,239              7,203
   Machinery and equipment............................................              10,568             10,144
   Leasehold improvements.............................................                 544                396
                                                                              ---------------    ------------------
                                                                                    19,112             18,504
   Less accumulated depreciation and amortization.....................             (10,730)            (9,696)
                                                                              ---------------    ------------------
                                                                                     8,382              8,808
                                                                              ---------------    ------------------
Software development costs, less accumulated amortization.............               1,922              1,604
Investments and other assets..........................................               5,264              5,205
                                                                              ---------------    ------------------
                                                                              $     57,958       $     57,152
                                                                              ===============    ==================
<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable...................................................        $      9,249       $      8,752
   Accounts payable-related parties...................................                 212              1,104
   Accrued expenses and other.........................................               9,032              9,013
   Accrued warranty expenses..........................................               1,016              1,003
   Current portion of long-term debt..................................                 645              1,313
                                                                              ---------------    ------------------
      Total current liabilities.......................................              20,154             21,185
                                                                              ---------------    ------------------

Non-current liabilities:
   Long-term debt.....................................................               8,577              7,572
   Deferred credits and other.........................................                 486                378
                                                                              ---------------    ------------------
                                                                                     9,063              7,950
                                                                              ---------------    ------------------
Commitments and contingencies (Notes 10 and 11)
Shareholders' equity:
   Preferred stock: no par value per share, 1,000,000 shares
      authorized, no shares issued....................................                  --                 --
   Common stock: no par value, $.10 stated value per share, 12,500,000
      shares authorized, 5,575,987 and 5,583,158 shares issued and
      outstanding in 2003 and 2002, respectively......................                 557                558
   Additional paid-in capital.........................................              44,695             44,717
   Accumulated deficit................................................              (9,711)           (10,173)
   Accumulated other comprehensive income (loss)......................              (6,800)            (7,085)
                                                                              ---------------    ------------------
      Total shareholders' equity......................................              28,741             28,017
                                                                              ---------------    ------------------
                                                                              $     57,958       $     57,152
                                                                              ===============    ==================

The accompanying notes are an integral part of the Consolidated Financial Statements.

</TABLE>
<PAGE>
                              HURCO COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                                                  Year Ended October 31
                                                                       -------------------------------------------
                                                                          2003            2002            2001
                                                                       -----------    ------------     -----------
Cash flows from operating activities:                                            (Dollars in thousands)
<S>                                                                    <C>            <C>              <C>
   Net income (loss)...........................................        $      462     $  (8,263)       $   (1,597)
   Adjustments to reconcile net income (loss) to
   Net cash provided by (used for) operating activities:
      Provision for doubtful accounts..........................              421            133               547
      Equity in income of affiliates...........................             (202)           (25)             (383)
      Depreciation and amortization............................            1,429          1,929             2,196
      Restructuring charge (credit)............................               --          2,250              (195)
      Change in assets/liabilities
        (Increase) decrease in accounts receivable.............            1,348          1,615             3,113
        (Increase) decrease in inventories.....................            1,465          7,720            (4,018)
        Increase (decrease) in accounts payable................             (687)          (141)           (3,521)
        Increase (decrease) in accrued expenses................            (1,760)        1,228               558
        Other..................................................             (200)          (245)             (182)
                                                                       -----------    ------------     -----------
          Net cash provided by (used for) operating activities.            2,276          6,201            (3,482)
                                                                       -----------    ------------     -----------
Cash flows from investing activities:
   Proceeds from sale of property and equipment................               14            154                38
   Purchase of property and equipment..........................             (536)        (1,184)           (1,253)
   Software development costs..................................             (679)          (534)             (665)
   Purchase of intellectual property...........................               --           (500)                --
   Change in restricted cash...................................              (622)           --                 --
   Other proceeds (investments)................................                (25)       1,037              (829)
                                                                       -----------    ------------     -----------
      Net cash used for investing activities...................           (1,848)        (1,027)           (2,709)
                                                                       -----------    ------------     -----------
Cash flows from financing activities:
   Advances on bank credit facilities..........................           55,731         28,369             44,300
   Repayments on bank credit facilities........................          (54,418)       (37,251)          (34,050)
   Repayments of term debt.....................................           (1,211)          (200)           (1,986)
   Proceeds from first mortgage................................               --          4,500                 --
   Repayment of first mortgage.................................             (108)           (39)                --
   Proceeds from exercise of common stock options..............               --              4                35
   Purchase of common stock....................................              (23)            --            (1,706)
                                                                       -----------    ------------     -----------
      Net cash provided by (used for) financing activities.....              (29)        (4,617)            6,593
                                                                       -----------    ------------     -----------

Effect of exchange rate changes on cash........................              532            278              (263)
                                                                       -----------    ------------     -----------
      Net increase (decrease) in cash..........................              931            835               139

Cash and cash equivalents at beginning of year.................            4,358          3,523             3,384
                                                                       -----------    ------------     -----------

Cash and cash equivalents at end of year.......................        $   5,289      $   4,358        $    3,523
                                                                       ===========    ============     ===========
<PAGE>

Supplemental disclosures:......................................
   Cash paid for:
      Interest.................................................        $     595      $     519        $      682
      Income taxes.............................................        $     468      $     442        $      501

Supplemental schedule of noncash investing and financial activities:

In fiscal 2002, we purchased patented technology for $1.85 million. In
connection therewith we issued a secured promissory note for $1.35 million.
   Fair value of asset acquired................................                       $   1,850
   Cash paid...................................................                             500
                                                                                      ------------
                                                                                      ------------
   Promissory note issued......................................                       $   1,350
                                                                                      ============
               The accompanying notes are an integral part of the Consolidated
Financial Statements.

</TABLE>

<PAGE>
                              HURCO COMPANIES, INC.
                CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>

                                                                                                            Accumulated
                                                    Common Stock                                               Other
                                             --------------------------    Additional                       Comprehensive
                                             Shares Issued                   Paid-In       Accumulated         Income
                                             & Outstanding     Amount        Capital         Deficit           (Loss)        Total
                                             --------------   ---------    ------------    ------------    -------------   ---------
                                                                                                (Dollars in thousands)
<S>                                            <C>             <C>          <C>             <C>             <C>               <C>
Balances, October 31, 2000.................    5,955,359       $   596      $   46,347      $     (313)     $    (7,739)    $38,891
                                             --------------   ---------    ------------    ------------    --------------  ---------
Net loss...................................           --            --              --          (1,597)              --      (1,597)

Translation of foreign currency financial             --            --              --              --              315         315
statements.................................

Unrealized loss of derivative instruments..           --            --              --              --             (470)       (470)
                                                                                                                           ---------
Comprehensive loss.........................                                                                                  (1,752)

Exercise of common stock options...........       16,400             1              34              --               --          35
Repurchase of common stock.................     (391,101)          (39)         (1,667)             --               --      (1,706)
                                              --------------   ---------    ------------    ------------    --------------  --------
Balances, October 31,2001                      5,580,658       $   558      $   44,714      $   (1,910)     $    (7,894)    $35,468
                                              ==============   =========    ============    ============    ==============  ========
Net income loss............................           --            --              --          (8,263)              --      (8,263)

Translation of foreign currency financial             --            --              --              --              981         981
statements.................................

Unrealized loss of derivative instruments..           --            --              --              --             (172)       (172)
                                                                                                                            --------
Comprehensive loss.........................                                                                                  (7,454)

Exercise of common stock options...........        2,500            --               3              --               --           3
                                              --------------     ---------    ------------    ------------    ------------  --------
Balances, October 31, 2002.................    5,583,158       $   558        $  4,717      $  (10,173)     $    (7,085)    $28,017
                                              ==============     =========    ============    ============    ============  ========
Net income loss............................           --            --              --             462               --         462

Translation of foreign currency financial
statements.................................           --            --              --              --            1,454       1,454

Unrealized loss of derivative instruments..           --            --              --              --           (1,169)     (1,169)
                                                                                                                            --------
Comprehensive income.......................                                                                                     747

Repurchase of common stock.................       (7,171)           (1)            (22)             --               --         (23)

                                             --------------     ---------    ------------    ------------    --------------  -------
Balances, October 31, 2003.................    5,575,987        $  557       $   44,695      $   (9,711)     $    (6,800)    $28,741
                                             ==============     =========    ============    ============    ==============  =======

The accompanying notes are an integral part of the Consolidated Financial Statements.

</TABLE>
<PAGE>

                           HURCO COMPANIES, INC.
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation. The consolidated financial statements include the accounts of
Hurco Companies, Inc. (an Indiana corporation) and our wholly owned and
controlled subsidiaries. We have a 35% and 24% ownership interest in two
affiliates accounted for using the equity method. Our combined investments in
affiliates are approximately $1.8 million and are included in Investments and
Other Assets on the accompanying Consolidated Balance Sheets. Intercompany
accounts and transactions have been eliminated.

Statements of Cash Flows. We consider all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. Cash flows from
hedges are classified consistent with the items being hedged.

Restricted Cash. Restricted cash results from hedging arrangements that require
cash to be on deposit with an institution based on open positions.

Translation of Foreign Currencies. All balance sheet accounts of non-U.S.
subsidiaries are translated at the exchange rate as of the end of the year.
Income and expenses are translated at the average exchange rates during the
year. Cumulative foreign currency translation adjustments of $5.0 million are
included in Accumulated Other Comprehensive Income in shareholders' equity.
Foreign currency transaction gains and losses are recorded as income or expense
as incurred.

Hedging. On November 1, 2001, we adopted Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). In accordance with the provisions of SFAS No. 133, we recorded a
transition adjustment upon the adoption of the standard to recognize the
difference between the fair value of the derivative instruments recorded on the
balance sheet and the previous carrying amount of those derivatives. The effect
of this transition adjustment was insignificant and is reflected in the Other
Expense, Net in the Consolidated Statement of Operations. We also recorded a
transition adjustment of approximately $129,000 in Accumulated Other
Comprehensive Income to recognize previously deferred net losses on derivatives
designated as cash flow hedges.

We enter into foreign currency forward exchange contracts periodically to hedge
certain forecast inter-company sales and forecast inter-company and third-party
purchases of product denominated in foreign currencies (primarily Pound
Sterling, Euro and New Taiwan Dollar). The purpose of these instruments is to
mitigate the risk that the U.S. Dollar net cash inflows and outflows resulting
from the sales and purchases denominated in foreign currencies will be adversely
affected by changes in exchange rates. These forward contracts have been
designated as cash flow hedge instruments, and are recorded in the Consolidated
Balance Sheet at fair value in Other Current Assets and Accrued Expenses. Gains
and losses resulting from changes in the fair value of these hedge contracts are
deferred in Accumulated Other Comprehensive Income and recognized as an
adjustment to cost of sales in the period that the sale of the related hedged
item is recognized, thereby providing an offsetting economic impact against the
corresponding change in the U.S. dollar value of the inter-company sale or
purchase item being hedged.
<PAGE>

At October 31, 2003, we had $1,814,000 of losses related to cash flow hedges
deferred in Accumulated Other Comprehensive Income. Of this amount, $778,000
represents unrealized losses related to future cash flow hedge instruments that
remain subject to currency fluctuation risk. These deferred losses will be
recorded as an adjustment to cost of sales in the periods through October 31,
2004, in which the sale of the related hedged item is recognized, as described
above. At October 31, 2002, we had $645,000 of losses related to cash flow
hedges deferred in Accumulated Other Comprehensive Income. Net losses on cash
flow hedge contracts which we reclassified from Other Comprehensive Income to
Cost of Sales

<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

in the years ended October 31, 2003, 2002 and 2001 were $1,430,000, $617,000,
and $261,000, respectively.

We also enter into foreign currency forward exchange contracts to protect
against the effects of foreign currency fluctuations on receivables and payables
denominated in foreign currencies. These derivative instruments are not
designated as hedges under SFAS 133, "Accounting Standards for Derivative
Instruments and Hedging Activities" (SFAS 133), and, as a result, changes in
fair value are reported currently as Other Expense, Net in the Consolidated
Statement of Operations consistent with the transaction gain or loss on the
related foreign denominated receivable or payable. Such net transaction losses
were $(154,000), $(209,000) and $(50,000) for the years ended October 31, 2003,
2002 and 2001, respectively.

Inventories. Inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out method.

Property and Equipment. Property and equipment are carried at cost. Depreciation
and amortization of assets are provided primarily under the straight-line method
over the shorter of the estimated useful lives or the lease terms as follows:
                                                            Number of Years
                  Building                                        40
                  Machines                                        10
                  Shop and office equipment                        5
                  Leasehold improvements                           5

Total depreciation expense for the years ended October 31, 2003, 2002 and 2001
was $1.0 million, $1.1 million and $1.3 million, respectively. Any impairment
would be recognized based on an assessment of future operations (including cash
flows) to insure that assets are appropriately valued.

Revenue Recognition. We recognize product revenue upon delivery to the customer,
which is normally at the time of shipment because ownership and risk of loss
passes to the customer at that time and payment terms are fixed. Our
computerized machine tools are general-purpose computer controlled machine tools
that are typically used in stand-alone operations. Transfer of ownership and
risk of loss are not contingent upon contractual customer acceptance. Prior to
shipment, we test each machine to ensure the machine's compliance with standard
operating specifications as listed in our sales literature.

Depending upon geographic location, the machine installation at the end user may
be completed by a distributor, independent contractor or Hurco service
technician. In most instances where a machine is sold through a distributor, we
have no installation involvement. If sales are direct or through sales agents,
we will typically complete the machine installation. The machine installation
consists of the reassembly of certain parts that were removed for shipping and
the re-testing of the machine to ensure that it is performing with the standard
specifications. We consider the machine installation process inconsequential and
perfunctory.

Service fees from maintenance contracts are deferred and recognized in earnings
on a pro rata basis over the term of the agreement. Sales related to software
products are recognized when shipped in conformity with American Institute of
Certified Public Accountants' Statement of Position 97-2 Software Revenue
Recognition.
<PAGE>

License Fee Income, Net. From time to time, our wholly owned subsidiary, IMS
Technology, Inc. (IMS) entered into agreements for the licensing of its
interactive computer control patents. License fees received under a fully
paid-up license, for which there are no future performance requirement or
<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

contingency, and litigation settlement fees were recognized in income, net of
legal fees and expenses, if any, at the time the related agreement was executed.
License fees received in periodic installments that were contingent upon the
continuing validity of a licensed patent were recognized in income, net of legal
fees and expenses, if any, over the life of the licensed patent, which expired
in October 2001. We have no deferred license fee income at October 31, 2003 and
do not expect any significant license fee income in the foreseeable future.

Product Warranty.  Expected future product warranty expense is recorded when the
product is sold.

Research and Development Costs. The costs associated with research and
development programs for new products and significant product improvements are
expensed as incurred and are included in Selling, General and Administrative
expenses. Research and development expenses totaled $1.8 million, $2.4 million,
and $3.5 million in fiscal 2003, 2002, and 2001, respectively.

Costs incurred to develop computer software products and significant
enhancements to software features of existing products to be sold or otherwise
marketed are capitalized, after technological feasibility is established.
Software development costs are amortized to Cost of Sales on a straight-line
basis over the estimated product life of the related software, which ranges from
three to five years. We capitalized $679,000 in 2003, $534,000 in 2002, and
$665,000 in 2001 related to software development projects. Amortization expense
was $361,000, $719,000, and $925,000, for the years ended October 31, 2003,
2002, and 2001, respectively. Accumulated amortization at October 31, 2003 and
2002 was $8.8 million and $8.4 million, respectively. Any impairment of the
carrying value of the capitalized software development costs could be recognized
based on an assessment of future operations (including cash flows) to insure
that assets are appropriately valued.

Estimated amortization expense for the existing amortizable intangible assets
for the years ended October 31, is as follows:
                                                        Amortization Expense
                                     Fiscal Year
                                         2004                   $372
                                         2005                    380
                                         2006                    367
                                         2007                    367
                                         2008                    367

Earnings Per Share. Basic and diluted earnings per common share are based on the
weighted average number of our shares of common stock outstanding. Diluted
earnings per common share give effect to outstanding stock options using the
treasury method. The impact of potentially issuable shares for the years ended
October 31, 2002 and 2001 was excluded from the computation of diluted earnings
per share because their effect would be anti-dilutive.

Income Taxes. We record income taxes under SFAS 109 "Accounting for Income
Taxes". SFAS 109 utilizes the liability method for computing deferred income
taxes. It also requires that the benefit of certain loss carryforwards be
recorded as an asset and that a valuation allowance be established against the
asset when it is "more likely than not" the benefit will not be realized
<PAGE>

Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting period. Actual
results could differ from those estimates.
<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

2.       BUSINESS OPERATIONS

Nature of Business. We design and produce computer control systems and software
and computerized machine tools for sale through our own distribution system to
the worldwide machine tool industry.

The end market for our products consists primarily of precision tool, die and
mold manufacturers, independent job shops and specialized short-run production
applications within large manufacturing operations. Industries served include:
aerospace, defense, medical equipment, energy, transportation and computer
industries. Our products are sold through independent agents and distributors in
countries throughout North America, Europe and Asia. We also maintain direct
sales operations in England, France, Germany, Italy, Singapore and China.

Credit Risk. We sell products to customers located throughout the world. We
perform ongoing credit evaluations of customers and generally do not require
collateral. Allowances are maintained for potential credit losses. Concentration
of credit risk with respect to trade accounts receivable is limited due to the
large number of customers and their dispersion across many geographic areas.
Although a significant amount of trade receivables are with distributors
primarily located in the United States, no single distributor or region
represents a significant concentration of credit risk.

Manufacturing Risk. Our computerized machine tools and integrated computer
controls are manufactured primarily in Taiwan by our wholly-owned subsidiary and
our affiliated contract manufacturers. We also source one of the proprietary
Ultimax(R) computer components from a sole domestic supplier. Any interruption
from these sources would restrict the availability of our computerized machine
tool systems and would affect operating results adversely.

3.       INVENTORIES

Inventories as of October 31, 2003 and 2002 are summarized below (in thousands):

                                                      2003            2002
                                                  ------------    ------------
      Purchased parts and sub assemblies.......   $    5,729      $    6,677
      Work-in-process..........................        2,029           2,251
      Finished goods...........................       14,489          13,620
                                                  ------------    ------------
                                                  $   22,247      $   22,548
                                                  ============    ============

<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

4.       DEBT AGREEMENTS

Long-term debt as of October 31, 2003 and 2002, consisted of (in thousands):
<TABLE>

                                                                     2003             2002
                                                                 ------------     ------------
<S>                                                              <C>              <C>
      Domestic bank revolving credit facility....................$    2,850       $       --
      European bank credit facility..............................     1,274            2,475
      First Mortgage.............................................     4,360            4,460
      Installment Promissory Note................................       338            1,350
      Economic Development Revenue Bonds, Series 1990............       400              600
                                                                  -----------     ------------
                                                                      9,222            8,885
      Less current portion.......................................       645            1,313
                                                                  ------------     ------------
                                                                 $    8,577       $    7,572
                                                                  ============     ============
</TABLE>

As of October 31, 2003, long-term debt was payable as follows (in thousands):

      Fiscal 2004...........................................          645
      Fiscal 2005...........................................        1,591
      Fiscal 2006...........................................          126
      Fiscal 2007...........................................        2,986
      Fiscal 2008...........................................          145
      Thereafter............................................        3,729
                                                                 ------------
                                                                    9,222
                                                                 ============

As of October 31, 2003 and 2002, we had $0 and $1.1 million, respectively, of
outstanding letters of credit issued to non-U.S. suppliers for inventory
purchase commitments. As of October 31, 2003, we had unutilized credit
facilities of $6.4 million available for either direct borrowings or commercial
letters of credit. We were in compliance with all loan covenants at October 31,
2003.

Domestic Bank Credit Facility. Interest on the domestic bank credit facility was
payable at rates ranging from 5.12% to 6.25% at October 31, 2003 and from 4.28%
to 5.25% at October 31, 2002.

Effective December 1, 2003, we amended and restated our bank credit agreement
with our domestic bank, which extended the maturity date to December 1, 2006 and
increased the maximum amount of the facility from $7.0 million to $8.0 million.
The credit agreement provides the lender with a security interest in
substantially all domestic assets, exclusive of the assets subject to a first
mortgage, and 66% of the common stock of our U.S. holding companies, which own
our foreign subsidiaries. Borrowings may be made in U.S. Dollars, Euro or Pounds
Sterling. Interest on all outstanding borrowings is payable at LIBOR for the
respective currency plus an applicable margin, or, at our option, prime rate
plus a specified margin based on funded debt to EBITDA (earnings before
interest, taxes, depreciation and amortization) ratio, as follows:
<PAGE>
<TABLE>

Total Funded Debt/EBITDA ratio                          LIBOR Margin          Prime Margin
-------------------------------------------------    -------------------    ------------------
-------------------------------------------------    -------------------    ------------------
<S>                                                         <C>                  <C>
Greater than 3.0                                            2.75%                   0%
Greater than 2.5 and less than or equal to 3.0              2.0%                 (.25%)
Greater than 2.0 and less than or equal to 2.5              1.5%                 (.50%)
Less than or equal to 2.0                                   1.0%                 (.75%)
</TABLE>

Prior to March 1, 2004, the applicable margin is determined based on the total
funded debt/EBITDA ratio being greater than 2.5 and less than or equal to 3.0.
Thereafter, the applicable margin will be adjusted on the first day of the month
following the month after each quarter end.

Availability  under the facility is limited to the greater of the  commitment
or a borrowing  base,  as defined in the agreement, which measured as of
October 31, 2003 aggregated $7.5 million.  The
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

agreement requires that we maintain Consolidated Net Worth of $32.0 million plus
an amount equal to 75% of positive consolidated net income for the fiscal year
ended October 31, 2004, and for each fiscal year thereafter. Consolidated Net
Worth is defined as total Shareholders' Equity excluding Accumulated Other
Comprehensive Income. Our consolidated total debt compared to consolidated total
debt plus Consolidated Net Worth ratio cannot be greater than 0.35 to 1.0 and
our fixed charge coverage ratio cannot be less than 1.10 to 1.0. The fixed
charge coverage ratio is the ratio of consolidated EBITDA minus taxes, unfunded
capital expenditures and redemptions of capital stock to principal payments of
indebtedness plus consolidated interest expense.

Promissory Note. On October 24, 2002, we issued a secured promissory note for
$1,350,000 to the seller of patented technology that we purchased. The note
bears interest at 2.75% per annum and at October 31, 2003 the balance of the
note is $337,500, due at December 31, 2003.

First Mortgage. On April 30, 2002, we obtained a $4.5 million first mortgage
loan on our Indianapolis corporate headquarters. The loan bears interest at a
rate of 7?% and matures in April 2009. We are required to make principal
payments over the seven-year term of the loan, based on a twenty-year
amortization schedule. The proceeds from the first mortgage loan, together with
other available cash, were used to repay bank debt.

European Bank Credit Facilities. Effective January 15, 2004, we entered into a
letter agreement with our principal domestic bank which provides our U.K.
subsidiary with a revolving credit and overdraft facility. The facility includes
a maximum commitment aggregating (pound)1.0 million (approximately $1.7 million)
and matures January 31, 2007. Borrowings will be secured by liens on
substantially all of the assets of our U.K. subsidiary. Interest on outstanding
borrowings will be based on LIBOR for fixed rate loans and a base rate for
overdrafts, in each case, plus a margin based on consolidated funded debt to
EBITDA equivalent to that of our domestic bank facility.

We have a 3.0 million Euro credit facility with a European bank. On December 1,
2003, the maturity date of the facility was extended until November 30, 2004.
Interest on the facility is payable at 7.16% per annum or, at our option, 1.75%
above EURIBOR for fixed rate borrowings. Although the facility is
uncollateralized, the bank reserves the right to require collateral in the event
of increased risk evaluation. Borrowings outstanding under this facility at
October 31, 2003 were $1.3 million.

Economic Development Revenue Bonds. The Economic Development Revenue Bonds are
payable in two remaining equal annual installments due on September 1, 2004 and
2005 and are secured by a letter of credit issued by our domestic bank. Interest
rates on the bonds adjust weekly and, as of October 31, 2003 and 2002, interest
was accruing at a rate of 1.12% and 2.10%, respectively.
<PAGE>

5.       FINANCIAL INSTRUMENTS

The carrying amounts for trade receivables and payables approximate their fair
values. At October 31, 2003, the carrying amounts and fair values of our
financial instruments, which include bank revolving credit facilities, senior
notes and Economic Development Revenue Bonds, are not materially different. The
fair value of long-term debt, including the current portion, is estimated based
on quoted market prices for similar issues or on current rates offered to us for
debt of the similar terms and maturities.


We also have financial instruments in the form of foreign currency forward
exchange contracts as described in Note 1 to the Consolidated Financial
Statements. The U.S. Dollar equivalent notional amount of these contracts was
$28.4 million at October 31, 2003. The net fair value of these derivative
instruments recorded in Accrued Expenses at October 31, 2003 was $758,000.
Current market prices were used to estimate the fair value of the foreign
currency forward exchange contracts.
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The future value of the foreign currency forward exchange contracts and the
related currency positions are subject to offsetting market risk resulting from
foreign currency exchange rate volatility. The counterparties to these contracts
are substantial and creditworthy financial institutions. We do not consider
either the risk of counterparty non-performance or the economic consequences of
counterparty non-performance as material risks.

6.       INCOME TAXES

Deferred income taxes reflect the effect of temporary differences between the
tax basis of assets and liabilities and the reported amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net operating losses and an offsetting valuation allowance. Our
total deferred tax assets and corresponding valuation allowance at October 31,
2003 and 2002, consisted of the following (in thousands):
<TABLE>
                                                                                               October 31
                                                                                           2003            2002
                                                                                       -------------    ------------
Tax effects of future tax deductible items related to:
<S>                                                                                    <C>              <C>
   Accrued inventory reserves...................................................       $      630       $      623
   Accrued warranty expenses....................................................              107              121
   Deferred compensation........................................................              224              213
   Other accrued expenses.......................................................              389              521
                                                                                       -------------    ------------
     Total deferred tax assets..................................................            1,350            1,478
                                                                                       -------------    ------------
Tax effects of future taxable differences related to:
   Accelerated tax deduction and other tax over book
     deductions related to property, equipment and software.....................             (990)            (968)
   Other........................................................................             (632)            (698)
                                                                                       -------------    ------------
     Total deferred tax liabilities.............................................           (1,622)          (1,666)
                                                                                       -------------    ------------
     Net tax effects of temporary differences...................................             (272)            (188)
                                                                                       -------------    ------------
Tax effects of carryforward benefits:
   U.S. federal net operating loss carryforwards, expiring 2023.................            2,868            2,745
   Foreign tax benefit carryforwards, expiring 2004-2008........................              568              326
   Foreign tax benefit carryforwards, with no expiration........................            1,398            1,435
   U.S. federal general business tax credits, expiring 2004-2023................            1,036            1,017
                                                                                       -------------    ------------
     Tax effects of carryforwards...............................................            5,870            5,523
                                                                                       -------------    ------------
     Tax effects of temporary differences and carryforwards, net................            5,598            5,335
     Less valuation allowance...................................................           (5,598)          (5,335)
                                                                                       -------------    ------------
     Net deferred tax asset.....................................................       $       --       $       --
                                                                                       =============    ============
</TABLE>
Except as indicated above, our carryforwards expire at specific future dates and
utilization of certain carryforwards is limited to specific amounts each year
and further limitations may be imposed if an "ownership change" would occur.
Realization is entirely dependent upon generating sufficient future earnings in
specific tax jurisdictions prior to the expiration of the loss carryforwards.
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Due to the uncertain nature of their ultimate realization based upon past
performance and expiration dates, we have established a full valuation allowance
against carryforward benefits. While the need for this valuation allowance is
subject to periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of our income
tax expense.
<TABLE>

Income (loss) before income taxes (in thousands):                                 Year Ended October 31
                                                                      ----------------------------------------------
                                                                         2003            2002             2001
                                                                      ------------    ------------    --------------
<S>                                                                   <C>             <C>             <C>
     Domestic................................................         $    (875)      $  (7,238)      $  (2,980)
     Foreign.................................................             2,295            (436)          2,160
                                                                      ------------    ------------    --------------
                                                                      ------------    ------------    --------------
                                                                      $  1,420        $  (7,674)      $    (820)

Differences between the effective tax rate and
     U.S. federal income tax rate were (in thousands):
Tax at U.S. statutory rate....................................        $     497       $  (2,686)      $     (287)
Federal tax...................................................                --            (95)              95
Effect of tax rates of international jurisdictions
   In excess (less than) of U.S. statutory rates..............             (130)             97              155
State income taxes............................................                --             (6)              --
Effect of losses without current year benefit.................               591          3,279            1,043
Utilization of net operating loss carryforwards                               --              --            (229)
                                                                      ------------    ------------    --------------
                                                                      ------------    ------------    --------------
Provision for income taxes....................................        $     958       $     589       $      777
</TABLE>

Our provision for income taxes in fiscal 2003, 2002 and 2001 represents taxes
currently payable.

We have not provided any U.S. income taxes on the undistributed earnings of our
foreign subsidiaries or equity method investments based upon our determination
that such earnings will be indefinitely reinvested.

7.       EMPLOYEE BENEFITS

We have defined contribution plans that include a majority of our employees,
under which our contributions are discretionary. The purpose of these plans is
generally to provide additional financial security during retirement by
providing employees with an incentive to save throughout their employment. Our
contributions to the plans are based on employee contributions or compensation.
Our contributions totaled $228,076, $263,640, and $344,811, for the years ended
October 31, 2003, 2002 and 2001, respectively.

We also have split-dollar life insurance agreements with our executive officers.
In fiscal 2003, the premiums were borrowed from the cash value of the policies
and will be repaid from the policies' cash surrender values when the policies
are terminated in accordance with the provisions of the agreements. In fiscal
years prior to 2003, the premiums were paid by the Company.
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

8.       STOCK OPTIONS

In March 1997, we adopted the 1997 Stock Option and Incentive Plan (the 1997
Plan) which allows us to grant awards of options to purchase shares of our
common stock, stock appreciation rights, restricted shares and performance
shares. Under the provision of the 1997 Plan, 750,000 shares of common stock may
be issued and the maximum number of shares of common stock that may be granted
to any individual is 200,000 shares. Options granted under the 1997 Plan are
exercisable for a period up to ten years after date of grant and vest in equal
annual installments as specified by the Compensation Committee of our Board of
Directors at the time of grant. The option price of options intended to qualify
as incentive stock options may not be less than 100% of the fair market value of
a share of common stock on the date of grant. As of October 31, 2003, options to
purchase 657,000 shares had been granted and remained outstanding under the 1997
Plan.

In 1990, we adopted the 1990 Stock Option Plan (the 1990 Plan), which allowed us
to grant options to purchase shares of our common stock and related stock
appreciation rights and limited rights to officers and our key employees. Under
the provisions of the 1990 Plan, the maximum number of shares of common stock,
which could be issued under options and related rights, was 500,000. There was
no annual limit on the number of such shares with respect to which options and
rights could be granted. Options granted under the 1990 Plan are exercisable for
a period up to ten years after date of grant and vested in equal installments
over a period of three to five years from the date of grant. The option price
could not be less than 100% of the fair market value of a share of common stock
on the date of grant and no options or rights could be granted under the 1990
Plan after April 30, 2000.
<PAGE>

A summary of the status of the options under the 1990 and 1997 Plans as of
October 31, 2003, 2002 and 2001 and the related activity for the year is as
follows:
<TABLE>
                                                              Shares Under      Weighted Average Exercise
                                                                 Option              Price Per Share
      ------------------------------------------------------ ---------------- -------------------------------
      ------------------------------------------------------ ---------------- -------------------------------

      <S>                                                           <C>                    <C>
      Balance October 31, 2000                                       826,660                $4.77
        Granted........................................               57,000                 3.67
        Cancelled......................................             (82,000)                 5.23
        Expired........................................             (20,000)                 7.15
        Exercised......................................             (16,400)                 2.14

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

      Balance October 31, 2001                                       765,260                $4.63
        Granted........................................              342,000                 2.14
        Cancelled......................................            (266,900)                 4.18
        Expired........................................              (7,700)                 2.13
        Exercised......................................              (2,500)                 2.13

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

      Balance October 31, 2002                                       830,160                $3.78
        Granted........................................                   --                 --
        Cancelled......................................               (8,000)                4.14
        Expired........................................             (33,500)                 5.85
        Exercised......................................                   --                --
      ------------------------------------------------------ ---------------- -------------------------------
      ------------------------------------------------------ ---------------- -------------------------------
      Balance October 31, 2003                                      788,660                 $3.69
      ====================================================== ================ ===============================

</TABLE>
<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Stock options outstanding and exercisable on October 31, 2003 are as follows:

<TABLE>

                                                           Weighted Average      Weighted Average Remaining
  Range of Exercise Prices Per     Shares Under Option    Exercise Price Per      Contractual Life in Years
              Share                                             Share
---------------------------------- -------------------- ----------------------- ------------------------------
---------------------------------- -------------------- ----------------------- ------------------------------
Outstanding
<S>      <C>                               <C>                     <C>                      <C>
$        2.125 - 5.125                     580,160                 $2.84                    5.9
         5.813 - 8.250                     208,500                  6.05                    5.0
---------------------------------- -------------------- ----------------------- ------------------------------
---------------------------------- -------------------- ----------------------- ------------------------------
$        2.125 - 8.250                     788,660                 $3.69                    5.5
================================== ==================== ======================= ==============================
================================== ==================== ======================= ==============================
Exercisable
$        2.125 - 5.125                     414,787                 $3.04                         --
         5.813 - 8.250                     170,800                  6.10                         --
---------------------------------- -------------------- ----------------------- ------------------------------
---------------------------------- -------------------- ----------------------- ------------------------------
$        2.125 - 8.250                     585,587                 $3.93                         --
================================== ==================== ======================= ==============================
================================== ==================== ======================= ==============================
</TABLE>

We apply  Accounting  Principles  Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB No. 25), and related  interpretations  in accounting
for the plans,  and,  except for certain  shares  subject to variable plan
accounting,  no compensation  expense has been  recognized for stock options
issued under the plans.  For companies electing to continue the use of APB
No. 25, SFAS No. 123 "Accounting for  Stock-Based  Compensation",  requires pro
forma disclosures  determined  through the use of an option-pricing  model as
if the provisions of SFAS No. 123 had been adopted.

On November 11, 2001, our former CEO was granted 110,000 options at $2.11 and
all of his previous option grants were cancelled. These options are subject to
variable plan accounting, which resulted in a charge to expense in fiscal 2003
of $51,000 for the amount of the benefit that could have been realized based on
the stock price at October 31, 2003.
<PAGE>

The weighted average fair value at date of grant for options granted during
fiscal 2002 and 2001, was $1.43 and $2.07, per share, respectively. No options
were granted in 2003. The fair value of each option grant was estimated on the
date of the grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>

                                                              2003            2002              2001
--------------------------------------------------------- ------------- -- ------------ --- --------------
--------------------------------------------------------- ------------- -- ------------ --- --------------
<S>                                                           <C>              <C>              <C>
Expected dividend yield.............................           NA               0.00%            0.00%
Expected volatility.................................           NA              53.71%           56.00%
Risk-free interest rate.............................           NA               4.99%            5.18%
Expected term in years..............................           NA               9.05            10
--------------------------------------------------------- ------------- -- ------------ --- --------------

If we had adopted the provisions of SFAS No. 123, net income (loss) and earnings
(loss) per share would have been as follows:

                                                              2003            2002              2001
--------------------------------------------------------- ------------- -- ------------ --- --------------
--------------------------------------------------------- ------------- -- ------------ --- --------------
Net income (loss) (in thousands)....................      $       265      $   (8,628)      $  (1,928)
Earnings (loss) per share:..........................
  Basic.............................................      $      0.05      $    (1.55)      $    (.34)
  Diluted...........................................      $      0.05      $    (1.55)      $    (.34)
--------------------------------------------------------- ------------- -- ------------ --- --------------
</TABLE>

As of October 31, 2003, there were outstanding non-qualified options that had
been granted outside of the 1990 and 1997 plans to current and former outside
members of the Board of Directors to purchase 50,000 and 75,000 shares at $5.13
and $5.81 per share, respectively. These shares are exercisable as of October
31, 2003. The options expire at various dates between 2002 and 2008.
<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

9.       RELATED PARTY TRANSACTIONS

We own approximately 24% of one of our Taiwanese-based contract manufacturers.
This investment of $565,000 is accounted for using the equity method and is
included in Investments and Other Assets on the Consolidated Balance Sheet.
Purchases of product from this contract manufacturer totaled $3.7 million, $5.9
million, and $12.2 million for the years ended October 31, 2003, 2002 and 2001,
respectively. Trade payables to this contract manufacturer were $111,000 at
October 31, 2003, and $1.0 million at October 31, 2002. Trade receivables were
$108,000 at October 31, 2003 and $43,000 at October 31, 2002.

As of October 31, 2003, we owned 35% of Hurco Automation, Ltd. (HAL), a Taiwan
based company. HAL's scope of activities includes the design, manufacture, sales
and distribution of industrial automation products, software systems and related
components, including control systems and components manufactured under contract
for sale exclusively to us. We are accounting for this investment using the
equity method. The investment of $1.3 million at October 31, 2003 is included in
Investments and Other Assets on the Consolidated Balance Sheet. Purchases of
product from this supplier amounted to $4.8 million, $4.1 million and $4.1
million in 2003, 2002 and 2001, respectively. Trade payables to HAL were $1.2
million and $879,000 at October 31, 2003 and 2002, respectively. Trade
receivables from HAL were $278,000 and $311,000 at October 31, 2003 and 2002,
respectively.

Summary financial information for the two affiliates accounted for using the
equity method of accounting are as follows:
<TABLE>

(000's)                                                   2003              2002              2001
                                                     ---------------    -------------     -------------
                                                     ---------------    -------------     -------------
<S>                                                  <C>                <C>               <C>
Net Sales.......................................     $     26,284       $     25,013      $    42,691
Gross Profit....................................            4,409              4,173            7,305
Operating Income................................              564                127            2,047
Net Income......................................              261                425            1,609

Current Assets..................................     $     17,162       $     12,842      $    14,345
Non-current Assets..............................            2,015              1,756            1,535
Current Liabilities.............................           13,549              9,460           11,335
</TABLE>

10.      CONTINGENCIES AND LITIGATION

We previously occupied a facility located in England under a lease that expired
in April 2002. The lease required that, following expiration of the lease, we
make certain repairs to the facility resulting from deterioration of the
facility during the lease term. The scope and cost of the repairs alleged by the
lessor to be required evolved throughout fiscal 2002 and 2003 as investigations
and negotiations proceeded. On September 30, 2003, we settled this claim with
the lessor for (pound)684,000 (approximately $1.2 million), which we had
previously accrued. The settlement payment is due in two equal installments in
November 2003 and January 2004.
<PAGE>

We are involved in various claims and lawsuits arising in the normal course of
business. We do not expect any of these claims, individually or in the
aggregate, to have a material adverse effect on our consolidated financial
position or results of operations.

11.      GUARANTEES

During  fiscal 2003, we adopted  Financial  Accounting  Standards  Board (FASB)
Interpretation  No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees,  Including Indirect Guarantees of Indebtedness
of Others, an interpretation of FASB Statements No. 5, 57 and 107 and

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Rescission of FASB  Interpretation  No. 34." FIN 45 clarifies the  requirements
of FASB Statement No. 5, Accounting for  Contingencies,  relating to the
guarantor's  accounting for, and disclosures of, the issuance of certain types
of guarantees.

From time to time, our German subsidiary guarantees third party lease financing
residuals in connection with the sale of certain machines in Europe. At October
31, 2003 there were 26 third party guarantees totaling approximately $1.4
million. A retention of title clause allows our Germany subsidiary to obtain the
machine if the customer defaults on its lease. We believe that the proceeds
obtained from liquidation of the machine would cover any payments required under
the guarantee.

We provide warranties on our products with respect to defects in material and
workmanship. The terms of these warranties are generally one year for machines
and shorter periods for service parts. We recognize a reserve with respect to
this obligation at the time of product sale, with subsequent warranty claims
recorded against the reserve. The amount of the warranty reserve is determined
based on historical trend experience and any known warranty issues that could
cause future warranty costs to differ from historical experience. A
reconciliation of the changes in our warranty reserve is as follows (in
thousands):
                                                         Warranty Reserve
                                                      ----------------------
                                                      ----------------------
       Balance at October 31, 2002                    $       1,003
       Provision for warranties during the period             1,058
       Charges to the accrual                                (1,135)
       Impact of foreign currency translation                    90
                                                      ----------------------
                                                      ----------------------
       Balance at October 31, 2003                    $       1,016
                                                      ======================

12.      OPERATING LEASES

We lease facilities, certain equipment and vehicles under operating leases that
expire at various dates through 2008. Future payments required under operating
leases as of October 31, 2003, are summarized as follows (in thousands):

      2004...........................................                  1,185
      2005...........................................                    750
      2006...........................................                    337
      2007...........................................                    284
      2008...........................................                    199
      Thereafter.....................................                     15
                                                               -----------------
      Total..........................................                  2,770
                                                               =================

Lease expense for the years ended October 31, 2003, 2002, and 2001 was $1.5
million, $1.8 million, and $1.6 million, respectively.

We recorded $118,000 of lease income from subletting 45,000 square feet of our
Indianapolis facility. The sublease expires on January 31, 2005.
<PAGE>

13.      LICENSE FEE INCOME AND LITIGATION SETTLEMENT FEES, NET

License fee income and litigation settlement fees, net for fiscal 2002 and 2001
were attributable to agreements entered into by our wholly owned subsidiary, IMS
Technology, pursuant to which IMS granted fully paid-up licenses of its
interactive patents in exchange for cash and other consideration. License fee
payments received that were contingent upon the continued validity of the patent
were deferred and recognized over the life of the patent, which expired in
October 2001. We have no deferred license fee income at October 31, 2003 and do
not expect any significant license fee income in the foreseeable future.

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

14.   QUARTERLY HIGHLIGHTS (Unaudited)
<TABLE>
                                                      First         Second           Third           Fourth
                                                     Quarter       Quarter          Quarter         Quarter
                                                    ----------    -----------      -----------    -------------
2003 (In thousands, except per share data)
<S>                                                 <C>           <C>              <C>            <C>
Sales and service fees......................        $  15,953     $   17,453       $   18,354     $    23,772

Gross profit................................            3,994          5,128            5,074           6,626

Gross profit margin.........................            25.0%          29.4%            27.6%           27.9%
Restructuring expense (credit) and other
expense, net (Note 16).....................                --             --               --            (124)

Selling, general and administrative expenses            4,428          4,563            4,332           5,426   (b)

Operating income (loss).....................            (434)           565               742            1,324

Net income (loss)...........................            (582)            139              331              574

Loss per common share - basic...............        $   (.10)     $      .02       $      .06     $        .10

Loss per common share - diluted.............        $   (.10)     $      .02       $      .06     $        .10

                                                      First         Second           Third           Fourth
                                                    Quarter        Quarter          Quarter         Quarter
                                                    ----------    -----------      -----------    -------------
2002 (In thousands, except per share data)

Sales and service fees......................        $  18,520     $   14,995       $   18,204     $    18,767

Gross profit................................            4,003          1,883  (a)       4,381           4,979

Gross profit margin.........................            21.6%          12.6%  (a)       24.1%           26.5%
Restructuring expense and other expense, net
(Note 16)..................................               356          1,395               --           1,004

Selling, general and administrative expenses            5,214          4,535            4,672           5,237

Operating loss..............................          (1,567)        (4,047)            (291)          (1,262)

Net loss....................................          (1,614)        (4,211)            (651)          (1,760)

Loss per common share - basic...............        $   (.29)     $    (.75)       $    (.12)     $      (.32)

Loss per common share - diluted.............        $   (.29)     $    (.75)       $    (.12)     $      (.32)

a.       Includes $1.1 million restructuring charge for inventory write-downs
         related to under-performing product lines that were discontinued. Gross
         profit margin exclusive of the inventory charge was 19.1%.

b.       Includes $400,000 of incentive compensation expense.
</TABLE>
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

15.      SEGMENT INFORMATION

We operate in a single segment: industrial automation equipment. We design and
produce interactive computer control systems and software and computerized
machine tools for sale through our own distribution network to the worldwide
metal working market. We also provide software options, control upgrades,
accessories and replacement parts for our products, as well as customer service
and training support.

Our computerized metal cutting machine tools are manufactured to our
specifications by manufacturing contractors in Taiwan including our wholly owned
subsidiary, Hurco Manufacturing Limited (HML). Our executive offices and
principal design, engineering, and manufacturing management operations are
headquartered in Indianapolis, Indiana. We sell our products through
approximately 200 independent agents and distributors in approximately 40
countries throughout North America, Europe and Asia. We also have our own direct
sales and service organizations in England, France, Germany, Italy, Singapore
and China. During fiscal 2003, no customer accounted for more than 5% of our
sales and service fees.

The following table sets forth the contribution of each of our product groups to
our total sales and service fees during each of the past three fiscal years (in
thousands):
<TABLE>

Net Sales and Service Fees by Product Category                               Year ended October 31,
                                                                 ------------------------------------------------
                                                                     2003             2002              2001
                                                                 -------------    -------------     -------------
<S>                                                                 <C>              <C>               <C>
    Computerized Machine Tools.............................         $ 61,385         $ 55,503          $ 73,286
    Computer Control Systems and Software *................            3,044            3,632             5,716
    Service Parts..........................................            7,643            8,111             9,516
    Service Fees...........................................            3,460            3,240             3,749
                                                                 -------------    -------------     -------------
          Total............................................      $    75,532      $    70,486       $    92,267
                                                                 =============    =============     =============
</TABLE>
*Amounts shown do not include CNC systems sold as an integrated component of
computerized machine systems.
<PAGE>

The following table sets forth revenues by geographic area, based on customer
location, for each of the past three fiscal years were (in thousands):
<TABLE>
Revenues by Geographic Area                                                  Year Ended October 31
                                                                ------------------------------------------------
                                                                    2003              2002             2001
                                                                --------------    -------------    -------------
<S>                                                             <C>               <C>              <C>
United States..............................................     $     22,829      $     22,782     $     32,935
                                                                --------------    -------------    -------------
Germany....................................................           22,111            22,863           28,452
United Kingdom.............................................            8,381             7,387            8,814
Other Europe...............................................           17,735            14,142           17,847
                                                                --------------    -------------    -------------
   Total Europe............................................           48,227            44,392           55,113

Asia and Other.............................................            4,476             3,312            4,219
                                                                --------------    -------------    -------------
   Total Foreign...........................................           52,703            47,704           59,332
                                                                --------------    -------------    -------------
                                                                $     75,532      $     70,486     $     92,267
                                                                ==============    =============    =============
</TABLE>
<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Long-lived assets by geographic area were (in thousands):

                                                         October 31
                                               ---------------------------------
                                               ------------- -- ----------------
                                                     2003              2002
                                               -------------    ----------------
United States..................................  $  13,847        $    13,824
Foreign countries..............................      1,721              1,793
                                               -------------    ----------------
                                               -------------    ----------------
                                                 $  15,568        $    15,617
                                               =============    ================


16.      RESTRUCTURING EXPENSE AND OTHER EXPENSE, NET

In fiscal 2001, a provision of $471,000 was recorded for severance costs related
to a domestic cost reduction program in which 59 positions were eliminated.
Fiscal 2001 also included a reversal of a $328,000 previously established
reserve.

During fiscal 2002, we discontinued several under-performing product lines, sold
the related assets and discontinued a software development project to enable us
to focus our resources and technology development on our core products, which
consist primarily of general purpose computerized machine tools for the metal
cutting industry (vertical machining centers) into which our proprietary
Ultimax(R) software and computer control systems have been fully integrated. As
a result of these actions, we recorded restructuring charges totaling $3.1
million consisting primarily of: (a) non-cash write downs of inventories of $1.1
million recorded in cost of sales and capitalized software development costs of
$1.0 million recorded as restructuring expense, and (b) severance costs of
$934,000, related to personnel reductions.

Also included in restructuring expense and other expense, net in fiscal 2002 is
a $1.1 million provision for potential expenditures related to a disputed claim
in the United Kingdom, regarding a terminated facility lease (Note 10) and a
$277,000 credit due to a refund of software development fees resulting from the
termination of a software development agreement during the second fiscal quarter
(Note 18).

The severance accrual of $264,000 at October 31, 2002 represented costs related
to employees to be paid in future periods. The severance provision represented
53 positions that have been eliminated or were to be eliminated in fiscal 2003.
At October 31, 2002, 38 employees had been paid the full amount of their
severance while the remaining 15 employees were paid at various times through
the second quarter of fiscal 2003.

In fiscal 2003, we paid the remaining severance and adjusted the foreign lease
liability balance to the actual settlement amount.

<PAGE>
                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
<TABLE>

                                                 Balance        Provision        Charges to         Balance
Description                                     10/31/00         (Credit)         Accrual          10/31/01
                                               ------------    -------------    -------------    --------------
                                               ------------    -------------    -------------    --------------
<S>                                            <C>             <C>              <C>
Excess building capacity.....................  $       286     $     (286)      $       --        $         --

Equipment leases.............................           54            (42)             (12)                 --

Severance costs..............................          300            471             (638)                133
                                               ------------    -------------    -------------    --------------
                                               ------------    -------------    -------------    --------------
                                               $       640     $      143      $      (650)       $        133
                                               ============    =============    =============    ==============
                                               ============    =============    =============    ==============

                                                 Balance        Provision        Charges to         Balance
Description                                     10/31/01         (Credit)         Accrual          10/31/02
                                               ------------    -------------    -------------    --------------
Cost of sales - restructuring:
Inventory write-down....................       $       --         $ 1,083      $     1,083     $         --
Restructuring expense:
Capitalized software development cost
write-off..............................                --           1,036            1,036               --
Severance costs..............................         133             934              803              264
Other expense (credit):
Foreign lease termination liability (Note10)           51           1,062               --            1,113
Termination of software development
agreement (Note 18).....................               --            (277)            (277)              --
                                               ------------    -------------    -------------    --------------
                                               ------------    -------------    -------------    --------------
Total restructuring and other expense, net...         184            2,755           1,562            1,377
                                               ------------    -------------    -------------    --------------
                                               ------------    -------------    -------------    --------------
     Total...................................  $      184      $     3,838      $    2,645       $    1,377
                                               ============    =============    =============    ==============
                                               ============     ============    =============    ==============

                                                 Balance         Provision       Charges to       Balance
Description                                     10/31/02         (Credit)         Accrual         10/31/03
                                               ------------     ------------    ------------- -----------------
Severance costs..............................          264             (43)              221          --

Foreign lease termination liability..........        1,113             (81)            (157)       1,189
                                               ------------     ------------    ------------- -----------------
                                               ------------     ------------    ------------- -----------------
                                               $     1,377      $     (124)     $         64  $    1,189
                                               ============     ============    ============= =================
</TABLE>
<PAGE>

17.      STOCK REPURCHASES

Pursuant to our odd-lot tender offer in fiscal 2003, we repurchased 7,171 shares
of common stock for approximately $23,000. The repurchases of shares is
reflected as a reduction in common stock.

In fiscal 2001, we repurchased 391,101 shares of our common stock for
approximately $1.7 million of which 278,001 were purchased from a related party
for $1.2 million. The repurchase of shares is reflected as a reduction in common
stock.

18.      SOFTWARE DEVELOPMENT AGREEMENTS AND LOAN AGREEMENT

During fiscal 2001, we entered into agreements with a private software company
to fund development costs related to the integration of patented, open
architecture technology into our computer control products. We agreed to fund an
aggregate of $405,000, over a fifteen-month period ending in July 2002 of which
$180,000 was paid and recorded as a research and development expense in fiscal
2001. We also agreed to fund a secured term loan payable in installments through
February 2002, of $1.0 million which is due April 1, 2003. In addition, the
company granted us warrants to purchase an equity interest, which were
exercisable on or before December 31, 2002, and 2003.

<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

During fiscal 2002, we terminated these agreements. In connection therewith, we
received repayment of our investment in a secured loan and warrants. We were
also reimbursed for software development fees previously paid and expensed,
resulting in a credit of $277,000 which is reflected in Restructuring Expense
and Other Expense. Net. Neither party has any future obligations to the other
under the termination agreement.

We had an agreement with another private software company to fund $683,000 of
development costs, which was recorded as a research and development expense in
fiscal 2002 and fiscal 2001. In October 2002, we exercised an option to purchase
the core technology owned by the software company for $1.9 million which is
recorded in Investments and Other Assets at October 31, 2003. The core
technology consists of patented software-based computer control technology that
will be incorporated in our proprietary computer control system.

19.      NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement No. 141, "Business Combinations" (SFAS
141) and Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for under the purchase method of accounting. Under SFAS 142,
amortization of goodwill ceased and the goodwill carrying values are tested
periodically for impairment. We adopted SFAS 142, effective November 1, 2002 for
goodwill and intangible assets acquired prior to July 1, 2001. Goodwill and
intangible assets acquired after June 30, 2001 were subject immediately to the
goodwill non-amortization and intangible provisions of this statement. The
adoption of this standard did not have a material effect on the Consolidated
Financial Statements.

In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144), which was effective for
the fiscal year beginning November 1, 2002. SFAS 144 established a single model
to account for impairment of assets to be held or disposed of, incorporating
guidelines for accounting and disclosure of discontinued operations. The
adoption of this standard did not have a material effect on the Consolidated
Financial Statements.

In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This Standard, which was effective
for disposal activities initiated after December 31, 2002, addressed significant
issues regarding the recognition, measurement and reporting of costs associated
with exit and disposal activities. The adoption of this standard did not have a
material impact on the Consolidated Financial Statements.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure - An Amendment to FASB Statement No.
123" (SFAS 148) for fiscal years ending after December 15, 2002. SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The adoption of this standard did
not have a material effect on the Consolidated Financial Statements.
<PAGE>

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
Consolidation of Variable Interest Entities. This Interpretation requires
existing unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risks among
parties involved and is effective for the first fiscal year or interim period
beginning after June 15, 2003 for variable interest entities in which an
enterprise holds a variable interest that it acquired before
<PAGE>

                              HURCO COMPANIES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

February 1, 2003. We do not expect that the adoption of this standard will have
a material effect on the Consolidated Financial Statements.

In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity" (SFAS
150). This Standard is effective for financial instruments entered into or
modified after May 31, 2003, and for all other instruments for interim periods
beginning after June 15, 2003. SFAS 150 requires certain liabilities previously
classified as equity to be reclassified to a liability. The adoption of this
standard did not have a material effect on the Consolidated Financial
Statements.

Item 9.       Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosures

Not Applicable.

Item 9A.      CONTROLS AND PROCEDURES

We carried out an evaluation under the supervision and with participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of October 31, 2003 pursuant to Rule 13a-15(b) under the
Securities Exchange Act of 1934, as amended. Based upon that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective as of the
evaluation date.

There have been no changes in our internal controls over financial reporting
that occurred during the year ended October 31, 2003 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.


<PAGE>

PART III

Item 10.      DIRECTORS AND EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

The information required by this item is hereby incorporated by reference from
our definitive proxy statement for our 2004 annual meeting of shareholders
except that the information required by Item 10 regarding Executive Officers is
included herein under a separate caption at the end of Part I.

Item 11.      EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2004 annual meeting of shareholders.

Item 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
              RELATED STOCKHOLDER MATTERS

Except for the information concerning equity compensation plans, the information
required by this item is hereby incorporated by reference from the definitive
proxy statement for our 2004 annual meeting of shareholders.

Equity Compensation Plan Information

The following table gives information about our common stock that may be issued
upon the exercise of options, warrants and rights under all of our existing
equity compensation plans as of October 31, 2003, including the 1997 Stock
Option and Incentive Plan and the 1990 Stock Option Plan.
<TABLE>

                                                                                              Number of securities
                                          Number of securities                                remaining available for
                                            to be issued upon       Weighted-average           future issuance under
                                               exercise of          exercise price of       equity compensation plans
                                          outstanding options,         outstanding            (excluding securities
                                           warrants and rights      options, warrants        reflected in column (a))
           Plan Category                         (a) (#)            and rights (b) ($)               (c) (#)
--------------------------------------    ----------------------    -------------------    -----------------------------
--------------------------------------    ----------------------    -------------------    -----------------------------
<S>                                              <C>                      <C>                         <C>
Equity compensation plans approved
by security holders                              788,660                   $3.69                       89,500

Equity compensation plans not
approved by security holders1                    125,000                    5.54                        --
                                          ----------------------    -------------------    -----------------------------
                                          ----------------------    -------------------    -----------------------------
     Total                                       913,660                  $3.90                        89,500
                                          ======================    ===================    =============================

1 Represents non-qualified options granted to the Board of Directors in 1996 and 1998.
</TABLE>

As of October 31, 2003, there were outstanding non-qualified options that had
been granted outside of the 1990 and 1997 plans to current and former outside
members of the Board of Directors to purchase 50,000 and 75,000 shares at $5.13
and $5.81 per share, respectively. These shares are exercisable as of October
31, 2003. The options expire at various dates between 2002 and 2008.
<PAGE>

Item 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2004 annual meeting of shareholders.



Item 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is hereby incorporated by reference from
the definitive proxy statement for our 2004 annual meeting of shareholders.


<PAGE>


PART IV

Item 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  1. Financial Statements. The following consolidated financial
        statements of Registrant are included herein under Item 8 of Part II:

                                                                           Page
        Reports of Independent Accountants...............................22 - 23
        Consolidated Statements of Operations - years ended
         October 31, 2003, 2002 and 2001.................................     24
        Consolidated Balance Sheets - as of October 31, 2003 and 2002....     25
        Consolidated Statements of Cash Flows - years
         ended October 31, 2003, 2002 and 2001...........................     26
        Consolidated Statements of Changes in Shareholders' Equity -
         years ended October 31, 2003, 2002 and 2001.....................     27
        Notes to Consolidated Financial Statements.......................     28


     2. Financial Statement Schedule.  The following financial statement
        schedule is included in this Item.

         Schedule II - Valuation and Qualifying
           Accounts and Reserves..............................                49

     All other financial statement schedules are omitted because they are not
     applicable or the required information is included in the consolidated
     financial statements or notes thereto.

(b)  Reports on Form 8-K

     Report furnished on August 20, 2003 under Item 12, Results of Operation and
Financial Condition.

(c)  Exhibits

     Exhibits are filed with this Form 10-K or incorporated herein by reference
as listed on pages 50 and 51.




<PAGE>


            Schedule II - Valuation and Qualifying Accounts and Reserves
              for the years ended October 31, 2003, 2002, and 2001
                             (Dollars in thousands)
<TABLE>

                                      Balance at       Charged to        Charged                            Balance
                                       Beginning       Costs and        To Other                            At End
Description                            of Period        Expenses        Accounts        Deductions         Of Period
                                      ------------    -------------     ----------     -------------      ------------
                                      ------------    -------------     ----------     -------------      ------------
Allowance for doubtful Accounts for the year ended:

<S>                                   <C>             <C>               <C>            <C>                <C>
October 31, 2003.............         $       689     $       421       $      --      $        480  (1)  $      630
                                      ============    =============     ==========     =============      ============
                                      ============    =============     ==========     =============      ============

October 31, 2002.............         $      907      $       133       $       --     $        351  (2)  $     689
                                      ============    =============     ==========     =============      ============
                                      ============    =============     ==========     =============      ============

October 31, 2001.............         $      741      $       547       $       --     $        381  (3)  $     907
                                      ============    =============     ==========     =============      ============
                                      ============    =============     ==========     =============      ============

Accrued warranty expenses For the year ended:

October 31, 2003.............         $     1,003     $      1,148      $              $                  $   1,016
                                                                        --             1,135
                                      ============    =============     ==========     =============      ============
                                      ============    =============     ==========     =============      ============

October 31, 2002.............         $      792      $     1,089       $       --     $        878       $   1,003
                                      ============    =============     ==========     =============      ============
                                      ============    =============     ==========     =============      ============

October 31, 2001.............         $      831      $       661       $       --     $        700       $     792
                                      ============    =============     ==========     =============      ============


(1)   Receivable write-offs of $493,000, net of cash recoveries on accounts previously written off of $12,000.
(2)   Receivable write-offs of $359,000, net of cash recoveries on accounts previously written off of $9,000.
(3)   Receivable write-offs of $384,000, net of cash recoveries on accounts previously written off of $4,000.

</TABLE>

<PAGE>


EXHIBITS INDEX

Exhibits Filed.  The following exhibits are filed with this report:
--------------

10.1       Third Amended and Restated Credit Agreement and Amendment to
           Reimbursement Agreement dated as of December 1, 2003 between the
           Registrant and Bank One, NA.

10.2      Revolving Credit Facility and Overdraft Facility between Hurco Europe
           Limited and Bank One, NA dated January 15, 2004.

11       Statement re: computation of per share earnings.

21       Subsidiaries of the Registrant.

23.2     Consent of PricewaterhouseCoopers LLP.

31.1       Certification by the Chief Executive Officer, pursuant to Rule
           13a-15(b) under the Securities and Exchange Act of 1934, as amended.
31.2       Certification by the Chief Financial Officer, pursuant to Rule
           13a-15(b) under the Securities and Exchange Act of 1934, as amended.
32.1     Certification by the Chief Financial Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002.
32.2     Certification by the Chief Financial Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002.

Exhibits Incorporated by Reference.  The following exhibits are incorporated
                                     into this report:

3.1        Amended and Restated Articles of Incorporation of the Registrant,
           incorporated by reference to Exhibit 3.1 to the Registrant's Report
           on Form 10-Q for the quarter ended July 31, 2000.

3.2        Amended and Restated By-Laws of the Registrant dated November 14,
           2001, incorporated by reference to Exhibit 3.2 to the Registrant's
           Report on Form 10-K for the year ended October 31, 2001.

10.3*      Non-qualified Stock Option Agreement between the Registrant and O.
           Curtis Noel effective, March 3, 1993, incorporated by reference to
           Exhibit 10.44 to the Registrant's Report on Form 10-K for the year
           ended October 31, 1993.

10.4*      Employment Agreement between the Registrant and Roger J. Wolf dated
           January 8, 1993, incorporated by reference to Exhibit 10.45 to the
           Registrant's Report on Form 10-K for the year ended October 31, 1993.

10.5*      Form of Director  Non-qualified  Stock Option Agreement  between the
           Registrant and Richard T. Niner, O. Curtis Noel and  Charles E.
           Mitchell  Rentschler,  incorporated  by  reference  as Exhibit  10.4
           to the Registrant's Form 10-K for the year ended October 31, 1999.

10.6*      Non-qualified Stock Option Agreement between the Registrant and
           Richard T. Niner, effective July 8, 1996 incorporated by reference to
           Exhibit 10.49 to the Registrant's Report on Form 10-K for the year
           ended October 31, 1996.
<PAGE>

10.7*      Non-qualified Stock Option Agreement between the Registrant and O.
           Curtis Noel, effective July 8, 1996 incorporated by reference to
           Exhibit 10.50 to the Registrant's Report on Form 10-K for the year
           ended October 31, 1996.

10.8*      Non-qualified Stock Option Agreement between the Registrant and
           Charles E. Mitchell Rentschler, effective July 8, 1996 incorporated
           by reference to Exhibit 10.51 to the Registrant's Report on Form 10-K
           for the year ended October 31, 1996.

10.9*      Amended  1997 Stock  Option  and  Incentive  Plan,  incorporated  by
           reference  as Exhibit  10.1 to the Registrant's Report on Form 10-Q
           for the quarter ended July 31, 2000.

10.10*     Employment Agreement between the Registrant and James D. Fabris dated
           November 18, 1997, incorporated by reference as Exhibit 10.15 to the
           Registrant's Report on Form 10-Q for the quarter ended January 31,
           1998.

10.11      Mortgage dated April 30, 2002 between the Registrant and American
           Equity Investment Life Insurance Company incorporated by reference as
           Exhibit 10.2 to the Registrant's Report on Form 10-Q for the quarter
           ended April 30, 2002.

10.12*     Employment Agreement between the Registrant and Michael Doar dated
           November 13, 2001 incorporated by reference as Exhibit 10.2 to the
           Registrant's Report on Form 10-Q dated January 31, 2002

10.13      Promissory Note dated October 24, 2002 between the Registrant and
           CIMplus, Inc. (incorporated by reference to Exhibit 10.2 to the
           Registrants Report on Form 10-K for the year ended October 31, 2002.

---------------
*        The indicated exhibit is a management contract, compensatory plan or
         arrangement required to be listed by Item 601 of Regulation S-K.

<PAGE>


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 23rd day of January
23, 2004.

                                    HURCO COMPANIES, INC.


                                    By: /s/ Roger J. Wolf
                                        -------------------------------
                                        Roger J. Wolf
                                        Senior Vice-President,
                                        Secretary, Treasurer and
                                        Chief Financial Officer




Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:


Signature and Title(s)                                             Date


/s/ Michael Doar                                              January 23, 2004
------------------------------------
Michael Doar, Chairman of the Board,
Chief Executive Officer and Director
of Hurco Companies, Inc.
(Principal Executive Officer)


/s/ Roger J. Wolf                                             January 23, 2004
------------------------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer)


/s/ Stephen J. Alesia                                         January 23, 2004
--------------------------------------------
Stephen J. Alesia
Corporate Controller
of Hurco Companies, Inc.
(Principal Accounting Officer)



<PAGE>





/s/ Robert W. Cruickshank                                     January 23, 2004
------------------------------------
Robert W. Cruickshank, Director


/s/ Richard T. Niner                                          January 23, 2004
--------------------------------------------
Richard T. Niner, Director


/s/ O. Curtis Noel                                            January 23, 2004
--------------------------------------------
O. Curtis Noel, Director


/s/ Charles E. M. Rentschler                                  January 23, 2004
--------------------------------------------
Charles E. M. Rentschler, Director


/s/ Gerald V. Roch                                            January 23, 2004
--------------------------------------------
Gerald V. Roch, Director