SECURITIES AND EXCHANGE COMMISSION
                                 Washington, D.C. 20549

                                       FORM 10-K

(Mark One)

      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, 1998 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


The  aggregate   market  value  of  the   Registrant's   voting  stock  held  by
non-affiliates as of, January 22, 1999 was $26,010,945.


The number of shares of the Registrant's  common stock outstanding as of January
22, 1999 was 5,945,359.

DOCUMENTS INCORPORATED BY REFERENCE:   None

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.

<PAGE>

                                                                 
                                      PART I

Item 1.  BUSINESS

(a)    General Development of Business

Hurco Companies, Inc. is an industrial automation company. We design and produce
interactive   computer   numerical   control  (CNC)  systems  and  software  and
computerized  machine systems for sale through our own  distribution  network to
the worldwide  machine tool consuming  market.  Our  proprietary CNC systems and
related  software  products are either sold as an integral  component of our own
computerized  machine  systems or sold  separately to machine tool end users and
other machine tool manufacturers who integrate them with their own products.

We pioneered the  application of  microprocessor  technology and  conversational
programming  software to machine tool controls and, since the company's founding
in 1968, have been a leader in the  introduction of interactive CNC systems that
automate manufacturing processes and improve productivity in certain segments of
the metalworking industry. We have concentrated on designing "user-friendly" CNC
systems  that  can be  operated  by both  skilled  and  unskilled  machine  tool
operators and yet are capable of  instructing a machine tool to perform  complex
tasks. The combination of  microprocessor  technology and patented  interactive,
conversational  programming software in our CNC 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 electronic  design 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;  Farmington Hills, Michigan;  High Wycombe,  England;  Munich, Germany;
Paris, France; and Singapore.  A United States distribution  facility is located
in Long Beach, California.


(b)      Financial Information About Industry Segments

We operate in one business  segment,  which consists of CNC systems and software
and computerized machine systems for metal cutting and metal forming operations.

(c)      Narrative Description of Business


General

The  manufacture of metal parts for industrial and consumer  products  primarily
involves two major processes:  metal cutting and metal forming.  These processes
are performed by machine  tools.  Metal  cutting  machine tools produce parts by
milling,  drilling,  turning and grinding a solid block of metal.  Metal forming
machine tools  fabricate parts by shearing,  punching,  forming and bending flat
sheets of metal.
<PAGE>
Approximately  three-fourths  of the  world's  machine  tools are made for metal
cutting  applications.  The milling  machine is one of the most common  types of
metal  cutting  machines.  Milling  machines  shape a part by moving a  rotating
cutting tool,  such as a drill,  tap or mill,  across a metal block.  Although a
majority of the milling machines in current use are still manually operated,  an
increasing  number are now operated  using CNC systems such as those produced by
our company.  CNC-operated  milling machines  automatically  and precisely shape
parts by  directing  the  movement  of a  cutting  tool  according  to a program
specifically  designed for the desired part. Some CNC-operated milling machines,
referred to as machining centers, are equipped with automatic tool changers that
enable several  different  cutting tools to be used in a programmed  sequence on
the same  part  with as  little  as a few  seconds  interruption  time to change
cutting tools.

Metal forming machines include press brakes,  presses,  shears and punches.  The
press brake is the basic machine tool used to perform simple bending  operations
on a wide variety of sheet metal to create parts such as computer cabinets, door
frames, aircraft components and electrical enclosures. Each press brake uses one
or more manual or automated  gauge systems that determine where the bend will be
made in the sheet metal part. Automated press brakes utilize CNC systems such as
those we produce.

We have pursued a strategy that is focused on developing and distributing to the
worldwide  machine tool market a comprehensive  line of interactive CNC products
that  incorporate   proprietary   technology  designed  to  enhance  the  user's
productivity  through  ease of  operation  and  adaptability  to a wide range of
manufacturing  applications.  As part of this strategy,  we have adopted an open
systems architecture that permits our CNC systems and software to be used with a
variety of hardware platforms and have emphasized an "operator  friendly" design
that employs interactive "conversational" programming software. We outsource all
of our  machine  tool  manufacturing  operations  and a portion of our  computer
control   manufacturing  to  certain  independent  contract   manufacturers  and
concentrate  our  resources  on  product  research,   development,   design  and
engineering, marketing, distribution and customer service.

Products

Our  principal  products  consist  primarily  of  computerized  machine  systems
(CNC-operated  milling  machines,  machining  centers  and metal  forming  press
brakes) into which our  proprietary CNC systems have been  fully-integrated.  We
also produce CNC systems and related  software for both metal  cutting and metal
forming  machines that are sold as retrofit  control  systems.  In addition,  we
produce and distribute software options, control upgrades,  hardware accessories
and replacement  parts and provide operator training and support services to our
customers.
<PAGE>
The following table sets forth the  contribution of each of these product groups
to our total sales and service fees during each of the past three fiscal years:

                                               Year Ended October 31     
(Dollars in thousands)                    1998         1997          1996
                                          ----         ----          ----

Computerized Machine Systems......$64,770 (69.3%) $61,679 (64.4%) $65,518(65.9%)
CNC Systems and Software*......... 14,727 (15.8%)  19,296 (20.2%)  18,353(18.5%)
Service Parts.....................  9,424 (10.1%)   9,612 (10.0%)  10,005(10.1%)
Service Fees......................  4,501  (4.8%)   5,142  (5.4%)   5,475 (5.5%)
                                    --------------------------------------------
                                  $93,422(100.0%) $95,729(100.0%)$99,351(100.0%)
                                    ======= ====== ======= ===== ======= ======


* Amounts  shown do not include CNC systems sold as an  integrated  component of
computerized machine systems.


Computerized Machine Systems

Metal Cutting Systems - Ultimax

We design  and  market CNC-operated  milling  machines  and  vertical machining
centers,  each of which is equipped with a fully-integrated  interactive Ultimax
control  system.  All of  these  machines  are  built to our  specifications  by
independent  contract  manufacturers utilizing our CNC systems, which we 
provide.  Our  current  line of machine  tools is a complete family of products
with different  levels of performance  features for different market 
applications ranging in price from $35,000 to $165,000.

In the second  fiscal  quarter of 1998, we  introduced  two new milling  machine
products. These machines replaced earlier models and have an X-axis travel of 30
inches and 40 inches.

From  fiscal 1996  through  fiscal  1998,  our  machining  center  product  line
consisted  primarily of a proprietary  designed 30-inch X-axis travel vertical 
machining center introduced in 1994 and a 40-inch X-axis travel vertical 
machining center introduced in 1996. We also offer a 50-inch  X-axis  travel  
machining  center  that is not our  proprietary design which will be 
discontinued in fiscal 1999.

In the  fourth  fiscal  quarter of 1998,  we  introduced  three new  proprietary
vertical machining  center  products.  The three  machines  have an  X-axis  
travel of 24 inches,  64 inches and 40 inches,  respectively.  The third  
machine is the only machine in our product line that features a vertical 
traveling column.

Metal Cutting Systems - DynaPath(TM)

In fiscal 1998, we expanded our product strategy to include marketing 2-axis and
3-axis milling  machines  featuring  fully-integrated  Delta CNC systems.  These
machine  systems  are  sold  under  the  DynaPath(TM)  name  through  one of our
subsidiaries.  In fiscal 1999, we expect to further  expand this product line to
include turning machines.
<PAGE>
Metal Forming Systems

In the first  quarter of fiscal  1998,  we  introduced  a press  brake  (bending
machine) that incorporates our Autobend CNC system.  This product is sold to the
North American market by our own  distribution  network.  We also began offering
European style precision-ground tooling which is sold either in conjunction with
a press brake or directly to end-users of press brakes.

CNC Systems and Software

Our CNC systems and  software  are  marketed  under the  tradenames  Ultimax(R),
UltiPath(TM),  Delta (TM) and  Autobend(R).  The  Ultimax(R),  UltiPath(TM)  and
Delta(TM)  product  lines  are used to  control  metal  cutting  machine  tools.
Autobend(R) CNC systems are used to control metal forming press brakes.

o    Ultimax

Our patented Ultimax twin screen  "conversational"  CNC system, sold solely as a
fully-integrated  feature  of a  Hurco  milling  machine  or  machining  center,
incorporates  an interactive and powerful "data block"  programming  methodology
supported by extensive  geometric and process data  calculation  software tools.
This  CNC  system   enables  a  machine   tool   operator   to  create   complex
two-dimensional  part  programs  directly  from blue print  inspection.  Machine
operators with little or no  programming  experience  can  successfully  program
parts  and  begin  cutting  operations  in a short  time  with  minimum  special
training.  Since the initial  introduction  of the Ultimax CNC in 1984,  we have
added   enhancements   related  to  operator   programming   productivity,   CAD
compatibility, data processing throughput and motion control speed and accuracy.
In 1998, we introduced  the latest  generation of the Ultimax CNC, the Ultimax 4
programming station,  which uses a Pentium* processor featuring a newly-designed
operator console with liquid crystal display screens. By incorporating  Industry
Standard Architecture (ISA) personal computer (PC) platform components, this CNC
product offers improved  performance while ensuring access to the most effective
computing hardware and software technology.

In 1995, we introduced a software option that  interprets part programs  written
for the worldwide  installed base of CNCs manufactured by our competitors.  This
software option,  which provides  industry  standard data format  compatibility,
enables  end-users  to  use  our  Ultimax  CNC to run  part  programs  initially
programmed for a substantial  portion of the large installed base of competitive
CNCs and is intended to increase our access to the contract machining market. In
1995, we developed a lower-cost  "Single  Screen"  version of the Ultimax CNC to
facilitate the  penetration  of the contract  machining  market.  In late fiscal
1996, the Single Screen  Ultimax CNC was made available on our milling  machines
and machining centers.
<PAGE>
o    UltiPath

UltiPath is a simple,  low-cost  interactive  PC-based  CNC system that  permits
conversational programming.  This control product is intended for the 2-axis and
3-axis entry level machining  market and enables  skilled and unskilled  machine
operators  to  convert  manual  machine  operations  to  easy-to-use  CNC  parts
processing.  The  UltiPath  CNC  embodies  our  patented  interactive  machining
technology  and  its   recently-patented   "Object  Oriented"   software  design
methodology.  The control  utilizes the Windows 95**  operating  system as a key
component  of its  executive  software.  The  UltiPath  CNC  was  introduced  in
September 1996 and became available for shipment in the fourth quarter of fiscal
1997. The product is marketed  through our  distributors to end-users and to CNC
control integrators and retrofitters  serving the large installed base of manual
milling machines.


*     Pentium is a registered trademark of Intel Corporation
**  Windows 95 is a registered trademark of Microsoft Corporation


o    Delta Series

Our  Delta  series  CNCs,   which   feature   microprocessor-based   electronics
incorporating ISA computer platform  components to provide enhanced  performance
at lower cost, are designed for the worldwide metalworking industry and are used
on milling machines,  machining centers, turning centers and punching equipment.
The Delta CNC system is based on industry  standard  point-to-point  programming
methodology  but  incorporates  software  features that group industry  standard
commands  into useful  part  features,  such as circles and frames,  to simplify
programming.  The Delta CNCs are  designed  and  configured  as general  purpose
products,  which offer  flexibility,  reliability and ease of integration with a
wide  variety of  machine  designs.  The Delta CNC  System is sold  either as an
integrated  component of our recently introduced  Dynapath(TM) Machine System or
to end  users  of a wide  range  of  machine  tool  systems,  primarily  through
retrofitters.

o    Autobend

Autobend  CNC  systems  are  applied to press  brakes that form parts from sheet
metal  and  consist  of a  microprocessor-based  CNC  and  back  gauge.  We have
manufactured  and sold the Autobend product line since 1968. We currently market
two models of our press brake CNC systems,  in  combination  with six  different
back  gauges,   through   distributors   to  end-users  as  retrofit  units  for
installation on existing or new press brakes,  as well as to original  equipment
manufacturers  and importers of press brakes.  In fiscal 1998,  the Autobend CNC
system was sold as a fully-integrated feature of our press brake system.
<PAGE>
o    CAM and Software Products

In  addition  to our CNC  product  lines,  we offer  metal  cutting  and forming
software products for programming two and three  dimensional  parts. The primary
products in this line are the Ultimax PC and PC+, off-line  programming  systems
and a  computer  aided  design  (CAD)-compatible  DXF  (data  file  translation)
software  option.  The  products  are  marketed  to  users of both  Ultimax  and
competitive CNC systems.  Significant features of the Ultimax PC and PC+ include
a CNC-compatible  user interface,  CAD  compatibility  and the availability of a
configurable  post  processor.  The DXF software option  eliminates  manual data
entry of part features by transferring  AutoCAD(TM)  drawing files directly into
an  Ultimax  CNC or the  off-line  programming  system  software,  substantially
increasing  operator  productivity.  We have augmented our Autobend product line
with a computer-aided manufacturing (CAM) software product, AutoBend PC(R), that
enables the user to create and manipulate CNC compatible  metal forming programs
on a personal  computer.  In fiscal 1996,  our Ultimax CNC was  enhanced  with a
software option that provides industry standard data format compatibility.

In fiscal 1997,  we  introduced  UltiPro(TM),  a high-speed  machining  software
product for our Pentium*-based  Ultimax CNC platform.  The UltiPro(TM)  software
enables a customer to increase  machining  productivity  through the purchase of
our computerized machine system or by retrofitting and upgrading an existing 486
PC-based  Ultimax  system with our new  Pentium*  platform  and the  UltiPro(TM)
software.  In fiscal 1998, we introduced  UltiNet(TM),  a networking product for
use by our customers to transfer part design and  manufacturing  information  to
computerized  machine systems at high speeds and to network computerized machine
systems within a customer's manufacturing facility.

Parts and Service

Our in-house service organization provides  installation,  operator training and
customer  support for our products.  During 1996, we began  transferring  to our
principal  distributors in the United States primary  responsibility for machine
installation  and  warranty  service and support  for new  product  sales.  This
program was substantially  completed in fiscal 1998.  Although  installation and
service costs are borne by the distributor, we offer a greater price discount to
those  distributors  providing  such  services.  Our  own  service  organization
continues to service and support the installed base of  discontinued  models and
supports our distributors  with respect to complex service  operations.  We also
provide software  options,  CNC upgrades,  accessories and replacement parts for
our  products.  Among the options  are  software  programs  and  additional  CNC
features  that  allow a customer  to  upgrade  the  performance  of its  milling
machines and machining centers.  Our after-sale parts and service business helps
strengthen  our  customer  relationships  and  provides  continuous  information
concerning the evolving requirements of end-users.
<PAGE>
Marketing and Distribution

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

Our computerized  machine systems  (integrated  CNC-operated  milling  machines,
machining centers and press brakes) along with software options and accessories,
are sold primarily to end-users.  We sell our  computerized  machine systems and
CNC systems (i) 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,  (ii) to  retrofitters  of used machine tools who integrate
them with those machine tools as part of the retrofitting operation and (iii) to
end-users who have an installed  base of machine  tools,  either with or without
related CNC  systems.  During  fiscal 1998,  no single  end-user of our products
accounted for more than 5% of our total sales and service fees.

We sell our products through over 240 independent  agents and distributors in 45
countries throughout North America, Europe and Asia. We also have our own direct
sales personnel in the United States,  England,  France,  Germany and Singapore,
which are  considered  to be among the world's  principal  computerized  machine
system  consuming  countries.  During fiscal 1998, no distributor  accounted for
more than 5% of our sales and service fees. We have  continuing  agreements with
all of our  distributors,  but may terminate those  agreements upon prior notice
ranging from 30 days to 180 days.  Approximately 80% of the worldwide demand for
computerized  machine  systems and CNC systems  comes from  outside the U.S. and
accordingly, we consider our international market presence to be critical to our
operations.

We believe the demand for computerized machine systems and CNC systems is driven
by changing industrial  technology and the related need for process improvements
as well  as  capacity  expansion.  Factors  affecting  demand  include:  (i) the
declining supply of skilled  machinists,  (ii) the need to continuously  improve
productivity  and shorten cycle time, (iii) an aging machine tool installed base
that will require  replacement  with more advanced and efficient  technology and
(iv) the  industrial  development  of  emerging  countries  in Asia and  Eastern
Europe.  However,  the demand  for  computerized  machine  systems  and  related
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 attempt to reduce the potential  impact on our total sales
and service fees by adverse  changes in economic  conditions  in any  particular
geographic region.


<PAGE>

Competition

Numerous  companies compete with our product lines in both the United States and
international  markets.  Many of these  competitors  are larger and have greater
financial  resources  than we do. We strive to compete  effectively by designing
into our products  critical  proprietary  features in our products  that offer a
distinct value differential from comparably-priced competitive products in terms
of  enhanced  productivity,  technological  capabilities  and  ease of  use.  In
addition,  by offering  our products in a range of prices and  capabilities,  we
seek to meet the needs of 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 world-wide  industrial  market, we are a leader in providing  interactive
CNC  machine  tools  incorporating  user-friendly,   conversational  programming
systems. Our principal  competitors in the CNC metal cutting machine tool market
include Bridgeport Machines Inc., Cincinnati Machine (a division of Unova, Inc.,
formerly  Cincinnati Milacron Inc.), Fadal Engineering (a subsidiary of Giddings
&  Lewis  Inc.),  Haas  Automation,   Inc.,   Milltronics   Manufacturing   Co.,
Republic-Lagun Machine Tool Co. and Tree Machine Tool Co. Inc. A large number of
foreign builders including Matsuura Machinery Corporation, Mori Seiki Co., Ltd.,
Okuma Machinery Works Ltd. and Yamazaki Mazak Corporation also compete with us.

In  the  worldwide  CNC  systems  market,  we are a  leader  in  providing  
user-friendly,  "conversational"  programming  systems  for computerized  
machine systems,  although our principal  competitors,  such as Fanuc Ltd.,  
Mitsubishi Machine Tools,  Heidenhain Corp., Siemens  Industrial  Automation,   
Inc.  Southwestern  Industries,   Bridgeport  Machines,  Inc.  and  
Allen-Bradley  Co.,  also  offer "user-friendly" programming features. Fanuc 
Ltd. is the world's largest supplier of CNC systems.

We believe  we are one of the  largest  domestic  manufacturers  of CNC  gauging
systems for press brakes.  Automec Inc., a CNC gauge  manufacturer,  and Cybelec
SA, a control manufacturer,  are our major competitors for these products in the
United States. We also compete with Cybelec in Europe.

Manufacturing

We have established a manufacturing strategy which includes the development of a
global  network of  contract  manufacturers  who  manufacture  our  products  in
accordance with our design, quality 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  machine  systems are  manufactured to our  specifications  in
Taiwan by three  manufacturing  contractors.  We have  worked  closely  with our
Taiwan-based  contract  manufacturers to increase their  production  capacity to
meet the rising  demand for our machine  tool  products  and  believe  that such
capacity is sufficient to meet our current and  projected  demand.  We have also
entered into contract  manufacturing  agreements with two European  machine tool
builders. Although we are exploring additional manufacturing sources for certain
of our  computerized  machine  systems,  alternative  sources  are  not  readily
obtainable and any significant  reduction in capacity or performance  capability
of our existing  manufacturing  contractors would have a material adverse effect
on our operations.
<PAGE>
In October  1996,  we entered  into a contract  manufacturing  agreement  with a
Taiwanese-based  affiliate that is owned by our Company and a group of Taiwanese
investors.   This   company  is   manufacturing   certain  CNC  systems  to  our
specifications and supplies certain  proprietary and standard components for use
in our  domestic  production.  We  believe  that  alternative  sources  for  the
proprietary components are readily available.

We assemble  and test our CNC  systems at our own  facilities  in  Indianapolis,
Indiana using readily available,  industry-standard personal computer components
(such as hard disk drives,  VGA cards and  motherboards)  as well as proprietary
system  components that are produced to our  specifications  by several domestic
suppliers.  We expect  substantially all remaining  domestic CNC system assembly
will be transferred to our Taiwan affiliate in fiscal 1999.

Backlog

Backlog  consists of firm orders  received from  customers and  distributors  
but not shipped.  Backlog was $7.5 million,  $7.4 million
and  $9.0 million as of October 31, 1998, 1997, and 1996, respectively.

Intellectual Property

We consider  certain  features of our  products  to be  proprietary  and we own,
directly or through a subsidiary,  a number of patents that are  significant  to
our business.  IMS  Technology,  Inc.  (IMS), a  wholly-owned  subsidiary of our
company,  owns  domestic  and foreign  patents  covering  the  machining  method
practiced  when a machine  tool is  integrated  with an  interactive  CNC (these
patents are collectively referred to as the "Interactive Machining Patents"). We
also hold a  non-exclusive  license  covering  features  of the  automatic  tool
changer offered with certain of our CNC machining centers. In September 1995, we
were awarded a new patent on an object-oriented,  open architecture  methodology
for CNC software.

Beginning  in October  1995,  IMS  initiated  a number of  infringement  actions
against  enterprises  that it believed were  employing or  practicing  machining
methods covered by one of the Interactive  Machining Patents.  These enterprises
included  end  users  of  interactive  CNCs,  machine  tool  builders  employing
interactive  CNCs within their  products  and CNC  manufacturers  whose  control
designs  permit use of  interactive  methods when coupled to machine  tools (CNC
Users).  At the  present  date,  all but one  action  has been  settled  through
licensing arrangements or litigation settlements. See Item 3. Legal Proceedings.

IMS has  actively  pursued  a  program  to  license  the use of the  Interactive
Machining  Patents.  During  the past  three  fiscal  years,  IMS  entered  into
agreements  with  approximately  40 CNC  Users  under  which  IMS has  granted a
non-exclusive  license to practice methods covered by the Interactive  Machining
Patents in exchange for lump-sum payments or fixed payments through fiscal 2001.
We recorded license fee income of $6.3 million,  $9.1 million and $590,000,  net
of legal fees and expenses, in fiscal 1998, 1997 and 1996, respectively. Subject
to the continuing validity of the U.S. Interactive Machining Patent,  certain of
the existing  license  agreements  at October 31, 1998 are expected to result in
additional license fee income, net of legal fees and expenses,  of approximately
$797,000  through  fiscal  2001.  Under a  license  agreement  with a  principal
supplier,  approximately  $534,000  is  expected  to be  realized in the form of
discounts  on future  purchases.  In addition,  IMS has received a  royalty-free
non-exclusive license under six patents owned by two of the licensees.



<PAGE>


Research and Development

Research and development  expenditures for new products and significant  product
improvements  were $2.0  million,  $1.9 million and $1.7 million in fiscal 1998,
1997 and 1996,  respectively.  In  addition,  we recorded  expenditures  of $1.3
million  in 1998,  $1.6  million  in 1997 and $1.3  million  in 1996  related to
software development projects which were capitalized.

Employees

We had  approximately  300 employees at the end of fiscal 1998, none of whom 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.

(d) Financial Information About Foreign and Domestic Operations and Export Sales

The  following  represents  a  breakdown  of our sales and  service  fees to the
indicated geographic regions for the past three fiscal years (in thousands):
                                     1998              1997             1996
                                   -------           -------          -------

         North America........  $   43,867           $46,915          $50,398
         Europe...............      46,515            45,725           44,014
         Asia and other*......       3,040             3,089            4,939
                                  --------             -----            -----
           Total................$   93,422           $95,729          $99,351
                                ==========           =======          =======

         * Sales to Asia, including exports in fiscal 1998 constituted only $2.4
million, or 2.5% of total sales.

Export  sales from the United  States  were $4.5  million in fiscal  1998,  $5.3
million in fiscal 1997 and $5.8 million in fiscal 1996.

Information  regarding  Total  Sales and  Service  Fees,  Operating  Income  and
Identifiable Assets by geographical area is shown in Note 15 to the Consolidated
Financial Statements.



<PAGE>


Item 2.  PROPERTIES

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

          Location         Square Footage                Principal Uses

Indianapolis, Indiana         165,000(1)      Corporate headquarters, design and
                                              engineering, product testing, CNC
                                              assembly, sales, application 
                                              engineering and customer service.

Long Beach, California          3,000             United  States Distribution.

Farmington Hills, Michigan     37,500(2)      Design and engineering, product
                                              testing, CNC assembly, sales,
                                              application engineering and
                                              customer service.

High Wycombe, England          45,000(3)      Sales, application engineering,
                                              customer service.

Paris,France                    2,800         Sales, application engineering,
                                              customer service.

Munich, Germany                10,700         Sales, application engineering,
                                              customer service.

Singapore                       1,200         Sales, application engineering
                                              customer service
---------------------

 (1)    Approximately 65,000 square feet is available for lease in fiscal 1999.
 (2)    Approximately 24,000 square feet is available for lease in fiscal 1999.
 (3)    Approximately 24,000 square feet have been sublet to a subtenant since 
        November 1995.

We own the Indianapolis facility and lease the other facilities. The leases have
terms  expiring at various  dates  ranging from March 1999 to February  2004. 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.

<PAGE>
Item 3.  LEGAL PROCEEDINGS

As  previously  reported,  Hurco  and IMS,  have  been  parties  to a number  of
proceedings  which  involved  alleged  infringement  of one  of the  Interactive
Machining  Patents.  At the present  date,  all but one action has been  settled
through  licensing  arrangements or litigation  settlements.  The only remaining
action is described below.

On July 3, 1997, IMS commenced an action in the United States  District Court of
Virginia against Haas Automation,  Inc. and its owner  (collectively,  Haas) and
certain other end users and manufacturers of computerized  machine tool systems.
The  action  sought   monetary   damages  and  an  injunction   against   future
infringement.  IMS  subsequently  entered into  settlements  with all defendants
other than Haas and dismissed  claims against them. As previously  reported,  on
October 2, 1998 the trial court  granted  summary  judgment in favor of Haas and
dismissed the action,  finding that there was no  infringement  by Haas based on
the court's claim  interpretation  and its finding that a floppy disk is not the
equal of a cassette tape. Haas' affirmative defenses challenging the validity of
the IMS patent  were also  dismissed.  IMS  subsequently  filed an appeal to the
United States Court of Appeals for the Federal Circuit.  The appeal seeks relief
from the trial court's order regarding claim  interpretation  of the IMS patent,
the  order  granting  defendants'  motion  for  summary  judgment  and the final
judgment in favor of Haas.  Haas has filed a cross-appeal to the same court from
the trial court's order  regarding  claim  construction  of the IMS patent.  The
appeal and cross-appeal are currently pending.  Although management continues to
believe that the IMS claims of patent infringement have substantial merit, it is
unable to predict the outcome of this matter.

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

None.



<PAGE>


                                                                PART II



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

Our Common Stock is traded on the Nasdaq  Stock Market under the symbol  "HURC".
The  following  table sets forth the high and low sales  prices of the shares of
Common Stock for the periods indicated, as reported by the Nasdaq Stock Market.

                                         1998                    1997        
                                 --------------------- ---------------------
         Fiscal Quarter Ended:     High          Low      High          Low
         --------------------     -------------------   --------------------
         January 31..............$8-31/32      $ 6-1/4  $ 6-1/4      $ 4-1/2
         April 30................   9-1/4        6-1/4    6-1/4        4-3/4
         July 31.................   9            6-7/8    6-3/16       5-1/4
         October 31..............   7-1/8        6-1/4    9-7/16       5-3/4


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 504 holders of record of our Common Stock as of January
5, 1999.

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.


<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.


                                             Year Ended October 31,
                                   1998      1997      1996      1995     1994
                                -----------------------------------------------
Statement of Operations Data:       (In thousands, except per share amounts)

Sales and service fees......... $93,422   $95,729   $99,351   $89,632   $72,628

Gross profit................... $27,939   $27,773   $28,421   $23,470   $15,565

Selling, general and adminis-
 tration expenses.............. $21,786   $21,047   $21,343   $19,002   $18,129

Restructuring charge........... $ 1,162   $    --   $    --   $    --   $    --

Operating income (loss)........ $ 4,991   $ 6,726   $ 7,078   $ 4,468   $(2,564)

Interest expense............... $   876   $ 1,938   $ 3,211   $ 4,250   $ 3,301

License fee income and 
 litigation settlement 
 fees, net..................... $ 6,974   $10,095   $   590   $    --   $    --

Net income (loss).............. $ 9,254   $13,804   $ 4,264   $   204   $(5,791)

Earnings (loss)
 per common share-diluted...... $  1.39   $  2.06   $   .72   $   .04   $ (1.07)

Weighted average common
 shares outstanding-diluted....   6,670     6,704     5,907     5,536     5,407


                                                As of October 31,
                                  1998      1997       1996     1995      1994  
                                 ----------------------------------------------
Balance Sheet Data:                          (Dollars in thousands)

   Current assets............. $55,143    $42,222    $44,108   $46,356   $43,096

   Current liabilities........ $25,794    $19,370    $23,336   $26,479   $16,985

   Working capital ........... $29,349    $22,852    $20,772   $19,877   $26,111

   Current ratio..............     2.1        2.2        1.9       1.8       2.5

   Total assets............... $71,696    $58,748    $59,750   $61,421   $59,558

   Long-term obligations...... $ 8,162    $ 9,602    $20,273   $27,459   $35,245

   Total debt................. $ 8,358    $10,043    $22,110   $33,599   $34,813

   Shareholders' equity....... $37,740    $29,776    $16,141   $ 7,483   $ 7,328
<PAGE>


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

The  following  discussion  should  be read in  conjunction  with  the  Selected
Financial  Data and the  Consolidated  Financial  Statements  and Notes  thereto
appearing  elsewhere  herein.   Certain  statements  made  in  this  report  may
constitute  "forward-looking  statements"  within  the  meaning  of the  Private
Securities  Litigation  Reform  Act of  1995.  Such  forward-looking  statements
involve known and unknown risks, uncertainties and other factors which may cause
our actual results,  performance or achievements or the machine tool industry to
be materially  different from any future  results,  performance or  achievements
expressed or implied by such forward-looking  statements.  Such factors include,
among  others,  (i) changes in general  economic  and business  conditions  that
affect  demand for Computer  Numeric  Control (CNC)  systems,  machine tools and
software products,  (ii) changes in manufacturing  markets, (iii) innovations by
competitors, (iv) quality and delivery performance by our contract manufacturers
and (v)  governmental  actions  and  initiatives  including  import  and  export
restrictions and tariffs.

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.

                                  Percentage of Revenues  Year-to-Year % Change
                                                            Increase (Decrease)
                               1998       1997      1996    98 vs. 97  97 vs. 96
                               ----      -----     -----    ---------  ---------

   Sales and service fees.... 100.0%     100.0%    100.0%     (2.4%)     (3.6%)
   Gross profit..............  29.9%      29.0%     28.6%      0.6%      (2.3%)
   Selling, general and
     administrative expenses.  23.3%      22.0%     21.5%      3.5%      (1.4%)
   Restructuring charge......   1.2%        --        --        --         --
   Operating income..........   5.3%       7.0%      7.1%    (25.8%)     (5.0%)
   Interest expense..........   0.9%       2.0%      3.2%    (54.8%)    (39.6%)
   Net income................   9.9%      14.4%      4.3%    (33.0%)    223.7%


Fiscal 1998 Compared With Fiscal 1997

Net income for the fiscal year ending  October  31,  1998 was $9.3  million,  or
$1.39 per share,  on a diluted basis,  compared to $13.8  million,  or $2.06 per
share,  for the  preceding  year.  Included in 1998  results was a $1.2  million
restructuring  charge (which is more fully discussed below and in Note 16 to the
Consolidated  Financial  Statements).  Net  income in fiscal  1998 and 1997 also
included  $6.3  million  and $9.1  million,  respectively,  of license  fees and
litigation  settlements net of expenses and foreign withholding taxes. Excluding
the  restructuring  charge and net license fee and litigation  settlements,  net
income in fiscal  1998 would  have been $4.1  million,  or $.61 per share,  on a
diluted basis,  compared to $4.7 million,  or $.70 per share, in fiscal 1997. In
addition,  the provision for income taxes in fiscal 1998  increased by $906,000,
or 88%,  primarily the result of the earnings of a foreign  subsidiary  which no
longer has the benefit of net operating  loss  carryforwards  to offset  taxable
income.
<PAGE>
Sales and service  fees were $93.4  million for fiscal  1998, a decrease of 2.4%
from the $95.7  million  reported in fiscal 1997.  The decrease in sales for the
fiscal year was due in part to the  negative  impact of a stronger  U.S.  dollar
during the first three fiscal  quarters,  when converting  foreign sales to U.S.
dollars for financial reporting purposes.  At constant exchange rates, net sales
and service fees for the fiscal year would have been $95.0 million.

Sales of  computerized  machine  systems,  before foreign  currency  translation
effects,  increased $4.6 million, or 7.5%, for the fiscal year and accounted for
69.3% of our annual  sales and  service  fees.  Domestic  sales of  computerized
machine  systems in fiscal  1998  approximated  the fiscal 1997 level while  
sales in the United Kingdom,  which experienced unfavorable  economic  
conditions,  declined $2.6 million, or 24.1%. Sales of computerized  machine 
systems in continental Europe, primarily Germany and France,  increased $6.6 
million, or 26.2%, in fiscal 1998. Also  contributing  to the  increase  in  
computerized  machine  systems was our offering of a new milling  machine  
featuring a fully  integrated  Delta(TM) CNC system sold under the  DynaPath(TM)
name and our press brake system sold with a fully integrated  Autobend CNC 
system.  Both  computerized  machine systems were released for sale in the 
second half of fiscal 1998.

The  increase  in sales of  computerized  machine  systems  was offset by a $4.8
million, or 27.4%,  decline in sales of stand-alone CNC systems.  The decline in
stand-alone  CNC  systems  was the  result  of  reduced  shipments  to  original
equipment manufacturers (OEM's) and retrofit dealers of stand-alone CNC systems,
primarily  related  to our Delta  Series CNC  systems,  as we  reposition  these
products for marketing as components of integrated machine systems.

Service income declined by approximately  $600,000, or 12.1%, as a result of our
on-going  transfer  of  customer  servicing  responsibility  to  certain  of our
distributors as well as improved quality of the computerized machine systems.

International sales, including export sales from the United States, increased to
approximately  54.5% of  consolidated  sales and  service  fees for fiscal  1998
compared to 51.4% for fiscal 1997.

Orders for the year were $92.4  million  compared to $94.8  million in the prior
year, a $2.4 million,  or 2.5%,  decrease.  Computerized  machine  system orders
increased $2.4 million,  or 4.8%, while  stand-alone CNC system orders decreased
$3.7 million, or 24.0%.  Computerized  machine system unit orders in continental
Europe (principally Germany & France) increased 23.7% while orders in the United
States and England  declined 5.8%  reflecting  weaker  demand in those  markets.
Offsetting the increase in  computerized  machine system orders was a decline in
stand-alone  CNC  system  orders  units of 26.4%.  The  decline  in  orders  for
stand-alone  CNC systems is the result of our  repositioning  these products for
marketing as components of integrated computerized machine systems.

Backlog was $7.5  million at October  31,  1998 and $7.4  million at October 31,
1997.

Gross profit margin as a percentage  of sales  increased to 29.9% in fiscal 1998
compared to 29.0% in the prior year.  The increase was  primarily  the result of
reduced  costs  of  computerized   machine  systems  produced  by  our  contract
manufacturers  in Taiwan due to the weakening of the New Taiwan dollar in fiscal
1998.  Also  contributing  to  the  improved  margin  was  an  increased  mix of
higher-margin European sales.
<PAGE>
As disclosed in Note 16 to the Consolidated Financial Statements,  we recorded a
restructuring  charge in the fourth quarter of fiscal 1998 totaling $1.2 million
related to our subsidiary  Autocon  Technologies,  Inc. (ATI).  ATI historically
marketed its Delta series of CNC systems to OEM's and through retro-fit dealers.
Throughout  fiscal  1998,  we have  been  repositioning  ATI to  market  its CNC
products as components of fully  integrated  computerized  machine systems under
the  DynaPath(TM)  brand  name.  The  first of  several  planned  models  of the
DynaPath(TM)  machine systems product line was  successfully  launched in fiscal
1998  resulting  in  sales of  $500,000.  The  decline  in OEM  controls  sales,
concurrent  with a decline in demand for  retro-fit  CNC systems  and  inventory
write-downs,  resulted in operating losses related to ATI, before  restructuring
charges, of $1.2 million for the fiscal year ended October 31, 1998.

In October  1998,  we  initiated  a more  comprehensive  restructuring  of ATI's
business to include consolidation of operations,  contract  manufacturing of CNC
systems in Taiwan,  simplification  of the CNC product offering and cancellation
of certain product development  projects, as well as rationalizing the sales and
customer service activities. This restructuring program, which is expected to be
completed  during  the first half of fiscal  1999,  resulted  in a $1.2  million
restructuring  charge.  The restructuring  charge was comprised of approximately
$600,000 of reserves  for the write down of fixed assets and $600,000 of accrued
liabilities  for  employee  severance  costs  and  obligations  under  lease  of
manufacturing and office space that will no longer be used.

Interest expense for fiscal 1998 decreased approximately $1.1 million, or 54.8%,
from the amount reported for the corresponding  period in fiscal 1997, primarily
due to debt  reduction in fiscal 1998  combined with the full year effect of the
$12.1 million debt reduction that occurred in fiscal 1997.

License fee income and litigation  settlement fees for fiscal 1998,  represented
62.3%  of  income  before  taxes  compared  to  68.1%  in  fiscal  1997  and was
attributable almost entirely to licenses entered into during the year by IMS. As
of October 31, 1998, license fees of approximately  $797,000,  net of legal fees
and  expenses,  have been  deferred  and are expected to be  recognized  through
fiscal  2001.  There are a limited  number of  remaining  CNC users that IMS has
identified as potential licensees.  Accordingly,  we believe that it is unlikely
that future  license fee income and litigation  settlement  fees will equal that
recorded  in  fiscal  1998.  For  further  information,  refer to Note 10 to the
Consolidated Financial Statements.

The  provision  for income  taxes in fiscal  1998,  consisted  of  approximately
$640,000 of foreign  withholding  taxes  resulting  from  license fee income and
litigation  settlement  fees  and  approximately  $1.2  million  related  to the
earnings  of a  foreign  subsidiary  which  no  longer  has the  benefit  of net
operating loss carryforwards to offset taxable income. The provision for foreign
income taxes in fiscal 1997  consisted  almost  entirely of foreign  withholding
taxes  resulting  from license fee income and  litigation  settlement  fees. Net
operating  loss  carryforwards  available  to  offset  pre-tax  income in future
periods are set forth in Note 6 to the Consolidated Financial Statements.

A German tax examiner has contested our transfer of net operating losses between
two of our German  subsidiaries  that merged in fiscal 1996.  The contingent tax
liability  resulting  from this issue is  approximately  $1.4  million.  We have
protested this matter and the German tax authorities are expected to rule on the
tax  examiner's  finding  in the  first  half of  fiscal  1999.  In the event an
unfavorable  ruling is received from the German tax authorities,  we will appeal
to the German  Federal Tax Court.  No  provision  for the  contingency  has been
recorded.
<PAGE>
Fiscal 1997 Compared With Fiscal 1996

Sales and service fees in fiscal 1997 decreased $3.6 million,  or 3.6%, compared
with fiscal 1996. Of the total decrease,  $2.6 million reflected the net effects
of  translating  foreign  currency  revenues  into U.S.  dollars  for  financial
reporting purposes.

Sales of  computerized  machine  systems,  which totaled $61.7 million in fiscal
1997,  were 5.9%  below the $65.5  million  recorded  during  fiscal  1996.  The
decrease occurred in the U.S. market,  with a decline of $2.4 million,  or 8.9%,
as well as in S. E. Asia, where the decline of $1.9 million,  or 69.9%, was most
pronounced  and  reflected  the  economic  turmoil  in  that  region.  Sales  of
computerized machine systems in Europe increased $523,000,  or 1.5%, in spite of
the adverse  impact of foreign  currency  translation.  The first half of fiscal
1996 was marked by an  unusually  high  level of  shipments,  as the  increasing
availability   of  products  from  our  contract   manufacturers   permitted  an
accelerated  reduction of the higher than normal backlog that existed at the end
of fiscal 1995.  Sales of CNC systems and software (which do not include systems
that are sold as an integral  part of a machine  tool)  increased  during fiscal
1997 by $974,000,  or 5.5%,  primarily due to increased shipments of Autobend(R)
control  products  in response to improved  worldwide  market  demand.  Sales of
service  parts and service  fees  decreased by  $757,000,  or 4.7%,  compared to
fiscal  1996,  which is  attributable  to  improvements  in recent  years in the
quality  of  our  products  along  with  a  transfer  of  responsibility  to our
distributors   in  the  United   States  for   certain   servicing   activities.
International  sales,  including  exports from the United  States,  increased to
approximately  51.4% of consolidated sales for fiscal 1997 compared to 44.9% for
fiscal 1996.

Worldwide new order bookings during fiscal 1997 were $94.8 million,  an increase
of 1.8%  from the  $93.1  million  reported  for  fiscal  1996,  in spite of the
unfavorable effect of weaker foreign  currencies.  New order bookings would have
been $97.4 million, an increase of 4.6% measured at average fiscal 1996 exchange
rates (constant U.S. dollars).

New orders for computerized machine systems increased 7.5% in units and 11.1% in
constant  U.S.  dollars.  Domestic  U.S.  computerized  machine  systems  orders
increased 9.3% in units and 16.1% in dollars which was attributable primarily to
demand  for our  proprietary-designed  40- inch  axis  machining  center  models
introduced  in late fiscal 1996.  Computerized  machine  system orders in Europe
increased 15.3% in units and 14.3% in constant U.S.  dollars,  due in large part
to demand for the new 40-inch axis models. These increases were partially offset
by a decline in  computerized  machine systems orders in South East Asia of $1.9
million, or 69.9%, to less than $1.0 million in fiscal 1997.

New orders for CNC systems and  software,  exclusive of CNC systems and software
sold as an integrated  component of machine  tools,  declined  $1.3 million,  or
7.1%,  due  primarily to reduced  orders for the Delta series  controls from OEM
customers.

Backlog at October 31, 1997 was $7.4 million compared to $9.0 million at October
31, 1996.

Gross profit percentage,  as a percentage of sales, increased to 29.0% in fiscal
1997, compared to 28.6% for fiscal 1996 net of currency translation effects. The
improvement in margin is  attributable  to the combined  effects of an increased
percentage  of  higher-margin  European  shipments  in the  total  sales mix and
increased domestic and European shipments of higher-margin  products  introduced
in the latter part of fiscal 1996.
<PAGE>
Selling,  general and administrative  (SG&A) expense in fiscal 1997 decreased by
approximately $300,000, or 1.4%, from fiscal 1996 and is primarily the result of
translating  operating  expenses of foreign  subsidiaries  into U.S. dollars for
financial reporting purposes.

Interest expense for fiscal 1997 decreased approximately $1.3 million, or 39.6%,
from the amount reported for the corresponding  period in fiscal 1996, primarily
due to a $12.1  million  reduction  in  outstanding  borrowings  and the payment
during fiscal 1996 of $240,000 of nonrecurring fees to our lenders.

License fee income,  net for fiscal  1997,  represented  approximately  68.1% of
income before taxes compared to 13.5% in fiscal 1996 and was attributable almost
entirely to licenses entered into during the year by IMS.

The  provision  for  income  taxes is almost  entirely  the  result  of  foreign
withholding  taxes related to license payments  received during the fiscal year.
The income  tax  liability  incurred  in the United  States  and  certain  other
jurisdictions was offset by the reversal of valuation allowance reserves against
our net operating loss  carryforwards.  

Primarily as a result of the substantial licensing  fee income  received  
during the  period,  net income for fiscal 1997 increased by  approximately  
$9.5 million  compared to fiscal 1996. The increase also reflected the benefits 
of improved margins and the substantial reduction in interest expense.

Year 2000 Compliance

The Year 2000 Problem. Many information  technology ("IT") hardware and software
systems ("IT Systems") and Non-IT Systems containing embedded  technology,  such
as microcontrollers  and micro processors  ("Non-IT Systems"),  can only process
dates  with  six  digits  (e.g.,  06/26/98),  instead  of  eight  digits  (e.g.,
06/26/1998).  This  limitation  may  cause IT  Systems  and  Non-IT  Systems  to
experience  problems  processing  information with dates after December 31, 1999
(e.g.,  01/01/00  could be processed as 01/01/2000 or  01/01/1900) or with other
dates,  such as  September  9, 1999,  which was a date  traditionally  used as a
default date by computer  programmers.  These  problems may cause IT Systems and
Non-IT Systems to suffer  miscalculations,  malfunctions or  disruptions.  These
problems are commonly referred to as "Year 2000" or "Y2K" problems.

Our State of Readiness.  We have begun to implement a plan to ensure that the IT
Systems and material  Non-IT  Systems that we control are Y2K  compliant  before
January 1, 2000. In the first phase of the plan,  which has been  completed,  we
assessed the potential exposure of our IT Systems and material Non-IT Systems to
Y2K problems.  In the second phase, which we have also completed,  we designed a
procedure  to  remediate  our  exposure  to Y2K  problems  in the IT Systems and
material  Non-IT  Systems that we control.  We are currently in the third phase,
which involves the actual  remediation  and  enhancements  of the IT Systems and
material  Non-IT Systems that we control.  After we complete the third phase, we
will  begin  the  fourth  and  final  phase  of  testing  the   remediation  and
enhancements  to the IT Systems and material  Non-IT  Systems that we control to
ensure Y2K compliance.

We believe that we have  identified  all IT Systems and material  Non-IT Systems
that we control that may require Y2K  remediation.  We have assigned nine people
(both  employees  and outside  consultants)  to  complete  the  remediation  and
enhancements  to our IT  Systems  that  we  control.  We plan  to  complete  the
remediation, enhancements and testing by June 30, 1999.
<PAGE>
We have assigned three employees to either remediate or cause the remediation of
material  Non-IT  Systems  that  we  control  and  that we  have  identified  as
possessing a Y2K problem.  We plan to complete the  remediation  of these Non-IT
Systems by June 30, 1999. We have acquired some of these Non-IT  Systems  during
the past few years  and we  believe  that a  substantial  number of these  newer
systems do not possess a Y2K problem. In addition,  the vendors of some of these
newer Non-IT Systems have warranted them to be Y2K compliant.  We have contacted
the third  parties who control our other  material  Non-IT  Systems  (including,
without limitation,  communication systems, security systems, electrical systems
and HVAC systems) to assess  whether any of these systems  possess a Y2K problem
that could adversely  affect our operations if a malfunction  occurred.  We have
also  implemented  procedures to help ensure that any new Non-IT Systems that we
acquire or utilize are Y2K compliant.

We have  completed  Year 2000  testing  on our CNC  products  and have  prepared
technical  bulletins that describe the products  tested and the impact Year 2000
will have on those  products.  These  technical  bulletins  are  available  upon
request or can be obtained  from our web site  (Hurco.com).  We believe that our
CNC  products  will  continue  to  function  in Year 2000 with only some  models
experiencing a minor file dating issue. We are developing a policy for providing
software updates to those products that will have the dating issue.

The Costs to Address the Company's Year 2000 Issues.  Our costs through  October
31,  1998 to  identify  and  remediate  our  Year  2000  problems  have not been
material.  Our costs to complete  the Year 2000  project are not  expected to be
material either.

The Risks Associated With Our Year 2000 Issues.  Our Year 2000 compliance effort
has not  identified  any worst case  scenarios  that we believe  are  reasonably
likely to occur.  We do not expect Year 2000 issues to  interrupt  our  business
unless  disruption  occurs  as a result of year 2000  problems  involving  basic
infrastructure outside of our control.

Our computerized  machine systems are  manufactured  primarily by three contract
manufacturers   in  Taiwan.   An   interruption  in  supply  from  the  contract
manufacturer  could have a material  adverse effect on our  operations.  We have
received  assurances  from all  contract  manufacturers  that Year 2000 will not
cause delays in  production.  Although we have not  identified any specific Year
2000 issues that are reasonably  likely to impact the production of the contract
manufacturers,  because of the uncertainty of the year 2000 issue,  some risk of
disruption in production does exist.

Contingency Plan. We will continue to evaluate the impact Year 2000 will have on
our contract  manufacturers.  If Year 2000 issues are identified that we believe
could reasonably disrupt production of the contract manufacturers, we will delay
our fiscal 1999 finished goods inventory reduction program and maintain finished
goods inventory at a level to protect against anticipated  production delays. We
will continue monitoring the Year 2000 issue and will develop a contingency plan
if a reasonably likely risk is identified.
<PAGE>
EURO Currency

Many of the  countries  in which we sell our  products  and  services are Member
States of the Economic and Monetary  Union ("EMU").  Beginning  January 1, 1999,
Member States of the EMU may begin  trading in either their local  currencies or
the euro, the official currency of EMU participating Member States.  Parties are
free to choose  the unit they  prefer in  contractual  relationships  during the
transitional  period,  beginning January 1999 and ending June 2002. Our computer
system contains the functionality to process  transactions in either a country's
local currency or the euro. We do not currently  anticipate any material adverse
effects on our operations related to the EMU's conversion to the euro.  However,
there can be no assurance  that the  conversion of EMU Member States to the euro
will not have a material adverse effect on our operations.

Foreign Currency Risk Management

We manage our foreign  currency  exposure  through  the use of foreign  currency
forward exchange  contracts.  We do not speculate in the financial  markets and,
therefore,  do not enter into these  contracts  for  trading  purposes.  We also
moderate our currency  risk related to  significant  purchase  commitments  with
certain foreign vendors through price  adjustment  agreements that provide for a
sharing of, or otherwise limit,  the risk of currency  fluctuations on the costs
of purchased products.  The results of these programs achieved our objectives in
fiscal  1998  and  fiscal  1997.  See  Note  1  to  the  Consolidated  Financial
Statements.

Liquidity and Capital Resources

At October 31, 1998, we had cash and cash  equivalents of $3.3 million  compared
to $3.4 million at October 31, 1997.  Cash provided by  operations  totaled $5.9
million in fiscal 1998, compared to $16.0 million in fiscal 1997. Cash flow from
operations in fiscal 1998 was enhanced by receipts of approximately $7.0 million
of license  fees,  net of legal fees and taxes,  received  during  fiscal  1998,
compared to $9.1 million in fiscal 1997.

Working capital was $29.3 million at October 31, 1998, compared to $22.9 million
at October 31, 1997. The working capital increase is attributable to an increase
in inventory of $8.8 million and accounts receivable of $2.8 million offset by a
$6.9 increase in accounts payable.

The increase in inventories  relates primarily to finished product available for
shipment along with  components to support  current  production  schedules.  The
increase is  attributable  to planned  increases in  production  by our contract
manufacturers  for the  latter  half of fiscal  1998,  combined  with lower than
expected  demand.  We  anticipate  an  additional  increase in finished  product
inventory during the first half of fiscal 1999, which is expected to be absorbed
during the second half of the fiscal year as reduced supplier delivery schedules
take effect.

The increase in accounts  receivable is entirely  attributable  to the timing of
shipments in the fourth fiscal quarter.  Days sales  outstanding were 48 days at
October 31, 1998 and 1997.  The  increase  in  accounts  payable  relates to the
increased  shipments from contract  manufacturers  late in the fiscal year under
terms which generally range from 60 to 120 days.  Accounts  payable are expected
to  decrease  during the second half of fiscal 1999  commensurate  with  reduced
inventory purchases.
<PAGE>
Capital  investments  for the  fiscal  year ended  October  31,  1998  consisted
principally of expenditures for software  development  projects and purchases of
equipment.  Cash used for  investing  activities  during the year were funded by
cash flow from operations.

We  repurchased  254,500  shares of our common stock  through  October 31, 1998,
under our  previously  announced  stock  repurchase  program.  These  shares are
reflected as a reduction of common stock  outstanding in  calculating  basic and
diluted earnings per common share.

Total Debt at October 31, 1998 was $8.4 million,  representing 18.1% of total  
capitalization,  compared to $10.0 million, or 25.2%, of total capitalization 
at October 31, 1997.

Our bank credit agreement was amended on December 19, 1998 to permit borrowings,
at any one time  outstanding,  of up to $25.0  million  (inclusive  of letter of
credits  of $15.0  million).  All  other  terms  under  the  agreement  remained
unchanged. We were in compliance with all loan covenants at October 31, 1998. We
believe that  anticipated  cash flow from  operations  and available  borrowings
under  credit  facilities  will be  sufficient  to  meet  our  anticipated  cash
requirements in the foreseeable future.



<PAGE>




Item 7A.  Quantitative and Qualitative Disclosures About Market Risks


Interest Rate Risk

Our bank line of credit is affected by the general  level of U.S.  and  European
interest rates and/or Libor. However, we only had $2.0 million outstanding under
our bank line of credit at  October  31,  1998 and the effect of  interest  rate
changes would not be significant.


Foreign Currency Exchange Risk

A significant  portion of our product content is sourced from foreign  suppliers
or  built  to  our  specifications  by  contract  manufacturers   overseas.  Our
contractual arrangements with those suppliers typically include foreign currency
risk sharing  agreements  which reduce the effects of currency  fluctuations  on
product cost. The  predominant  portion of foreign  currency  exchange rate risk
regarding product cost relates to the New Taiwan Dollar.

In Fiscal 1998,  approximately  54.5% of our sales and service  fees,  including
export  sales,  were derived from overseas  markets.  All  computerized  machine
systems,  CNC  systems and certain  proprietary  service  parts are sourced by a
central  engineering and  manufacturing  division of the U.S. parent company and
re-invoiced  to our foreign sales and service  subsidiaries,  primarily in their
functional  currencies.  The parent company enters into forward foreign exchange
contracts from time to time to hedge the cash flow risk related to inter-company
sales and inter-company  accounts  receivable 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 of foreign currencies as of October 31, 1998:

                     Notional Amount  Weighted Avg.                 Market Value
                      in Foreign      Forward Rate  Notional Amount  October 31,
Foreword Contracts     Currency                       in U.S. $         1998
   ---------           --------         ------           -------      ---------
Maturity Dates

Deutsche Mark         9,800,000        1.6878          5,806,420      5,924,100
Nov '98-Mar '99
French Franc         11,000,000        5.8242          1,888,200      1,983,300
Nov '98-Jan '99
Sterling              3,450,000        1.6869          5,819,510      5,706,990
Nov '98-Jan '99






<PAGE>


                                                                 
Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


             Report of Independent Public Accountants

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, 1998 and 1997,
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, 1998.  These  financial  statements  and schedule  referred to below are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  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, 1998 and 1997,  and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period  ended  October 31,  1998,  in  conformity  with  generally  accepted
accounting principles.

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 a required part of the  basic  financial  
statements.  This schedule has been subjected to the auditing  procedures  
applied in our audit 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.






                                                            ARTHUR ANDERSEN LLP


Indianapolis, Indiana
December 2, 1998.


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

                                            Year Ended October 31,
                                    1998              1997             1996
                               (Dollars in thousands, except per share amounts)

Sales and service fees.........  $ 93,422         $  95,729         $ 99,351

Cost of sales and service .....    65,483            67,956           70,930
                                  -------          ---------         --------

     Gross profit..............    27,939            27,773           28,421

Selling, general and 
administrative expenses........    21,786            21,047           21,343

Restructuring charge 
(Note 16)......................     1,162                --               --
                                 --------         ---------         --------

     Operating income .........     4,991             6,726            7,078

License fee income and 
litigation settlement fees,
net(Note 13)...................     6,974            10,095              590

Interest expense...............       876             1,938            3,211

Other income(expense),net......        99               (51)             (99)
                                  -------         ---------       -----------

     Income before income 
        taxes..................    11,188            14,832            4,358

Provision for income taxes
(Note 6).......................     1,934             1,028               94
                                  -------         ---------       -----------

Net income ....................  $  9,254          $ 13,804         $  4,264
                                 ========         =========         ========

Earnings per common share 
 - basic.......................  $   1.42         $    2.11         $    .74
                                 ========         =========         ========

Weighted average common 
shares outstanding - basic.....     6,498             6,536            5,786
                                 ========         =========        =========

Earnings per common share 
- diluted......................  $   1.39         $    2.06         $    .72
                                 ========         =========         ========

Weighted average common 
shares outstanding - diluted...     6,670             6,704            5,907
                                 ========         =========         ========

The accompanying  notes are an integral part of the
Consolidated Financial Statements.
<PAGE>
                                HURCO COMPANIES, INC.
                            CONSOLIDATED BALANCE SHEETS

ASSETS
                                                          As of October 31,
                                                        1998           1997
Current assets:                
       (Dollars in thousands, except per share amounts)
   Cash and cash equivalents......................  $   3,276      $   3,371
   Accounts receivable, less allowance 
    for doubtful accounts
    of $769 in 1998 and $757 in 1997..............     18,896         15,687
   Inventories ...................................     30,817         21,752
   Other..........................................      2,154          1,412
                                                     ---------      ---------
     Total current assets.........................     55,143         42,222
                                                     ---------      ---------
Long-term license fee receivables 
    (Note 13).....................................        797          1,178
                                                     ---------      ---------
Property and equipment:
   Land...........................................        761            761
   Building.......................................      7,067          7,067
   Machinery and equipment........................     11,184         11,463
   Leasehold improvements.........................      1,107          1,121
                                                     ---------      ---------
                                                       20,119         20,412
   Less accumulated depreciation 
   and amortization of............................    (11,037)       (11,218)
                                                     ---------       --------
                                                        9,082          9,194
                                                     ---------       --------
Software development costs, less 
accumulated amortization of $6,014
   in 1998 and $4,692 in 1997......................     4,231          4,447
Other assets.......................................     2,443          1,707
                                                     ---------       --------
                                                    $  71,696      $  58,748
                                                     ---------       --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable................................ $  13,235      $   7,448
   Accounts payable-related parties................     2,556          1,798
   Accrued expenses................................     7,157          6,886
   Accrued warranty expenses.......................     1,060          1,452
   Current portion of long-term debt...............     1,786          1,786
                                                     ---------        -------
     Total current liabilities.....................    25,794         19,370
                                                     ---------        -------
Non-current liabilities:
   Long-term debt .................................     6,572          8,257
   Deferred credits and other .....................     1,590          1,345
                                                     ---------        -------
                                                        8,162          9,602
                                                     ---------        -------
Commitments and contingencies (Notes 10, 11 and 13)

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; 6,340,111 and 
     6,544,831 shares issued and outstanding in 1998 
     and 1997, respectively.........................      634            654
   Additional paid-in capital.......................   48,662         50,349
   Accumulated deficit..............................   (7,150)       (16,404)
   Foreign currency translation adjustment..........   (4,406)        (4,823)
                                                     ---------       --------
     Total shareholders' equity.....................   37,740         29,776
                                                     ---------       --------
                                                    $  71,696      $  58,748
                                                     ========         ======
The accompanying  notes are an integral part of the Consolidated
Financial Statements.
<PAGE>                                                                  
                            HURCO COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                      Year Ended October 31,
                                                1998         1997          1996
                                                ----         ----          ----
Cash flows from operating activities:               (Dollars in thousands)
   Net income .............................. $  9,254     $ 13,804     $  4,264
   Adjustments to reconcile net income to
   net cash provided by operating activities:
     Depreciation and amortization...........   2,138        2,078        2,677
     Restructuring charge.......................1,162           --           --
     Unrealized (gain) loss on foreign currency 
          transactions...............            (219)         294          267
     Change in assets/liabilities
      (Increase) decrease in accounts receivable(2,808)      1,043          356
      (Increase) decrease in inventories........(8,775)      2,107          959
      Increase (decrease) in accounts payable....6,864      (2,096)         856
      Decrease in accrued expenses................(994)       (681)        (534)
      Other...................................... (712)       (525)        (346)
                                                -------    -------       -------
       Net cash provided by operating activities.5,910      16,024        8,499
                                                -------     ------        ------
Cash flows from investing activities:
   Proceeds from sale of equipment................. 93         126           34
   Purchase of property and equipment...........(1,013)       (640)        (561)
   Software development costs...................(1,315)     (1,595)      (1,318)
   Other .......................................  (411)       (418)        (181)
                                                -------      ------      -------
       Net cash (used for) investing 
          activities............................(2,646)     (2,527)      (2,026)
                                                -------      ------       ------
Cash flows from financing activities:
   Advances on bank credit facilities...........15,053      30,173       49,985
   Repayments of bank credit facilities....... (14,953)    (39,154)     (55,008)
   Repayments of term debt......................(1,786)     (3,036)      (6,342)
   Proceeds from exercise of common stock options  120          38           47
   Proceeds from stock rights offering, net........ --          --        4,802
   Purchase of common stock.................... (1,827)         --           --
                                         ---------------------------------------
       Net cash (used for) financing activities.(3,393)    (11,979)      (6,516)
                                               -------     -------       ------
Effect of exchange rate changes on cash.............34         (24)        (152)
                                               -------     --------     -------
       Net increase (decrease) in cash.............(95)      1,494         (195)

Cash and cash equivalents at beginning of year...3,371       1,877        2,072
                                               -------       -----        -----

Cash and cash equivalents at end of year....... $3,276  $    3,371   $    1,877
                                                 =====   =========        =====
Supplemental disclosures:
   Cash paid for:
      Interest................................$    702    $  1,828    $   2,759
      Income taxes............................$  1,818       1,234           --

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


                                                            
                    HURCO COMPANIES, INC.
    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY




                                                                       Foreign
                                   Common Stock       Additional       Currency
                             Shares Issued       Paid in Accumulated Translation
                             & Outstanding Amount Capital   Deficit   Adjustment
                                                (Dollars in thousands)
Balances, October 31, 1995...  .5,425,302  $ 543   $45,573   $(34,472)  $(4,161)


Net income.......................    --       --        --      4,264        --
Stock Rights Offering...........1,085,389    108     4,694         --        --
Translation of foreign currency financial
   statements........................--       --        --         --      (455)
Exercise of common stock options...21,180      2        45         --        --
                               ----------   -----   --------   --------   ------

Balances, October 31, 1996......6,531,871 $  653 $  50,312  $ (30,208)  $(4,616)
                               ----------   ----- --------    --------    ------


Net income............................--      --        --     13,804        --
Translation of foreign currency financial
   statements.........................--      --        --         --      (207)
Exercise of common stock options...12,960      1        37         --        --
                               -------------------------------------------------

Balances, October 31, 1997......6,544,831  $ 654 $  50,349   $(16,404)  $(4,823)
                               ---------    ----  --------    -------     ------


Net income..........................--        --        --      9,254        --
Translation of foreign currency financial
   statements.......................--        --        --         --       417
Exercise of common stock options.. 49,780      5       115         --        --
Purchase of common stock.........(254,500)   (25)   (1,802)        --        --
                                 --------   ------   ------   ---------   ------

Balances, October 31, 1998......6,340,111 $  634 $  48,662  $  (7,150)  $(4,406)
                                =========  =====  ========    ========    ======

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


<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. A 27% ownership interest in an affiliate recorded using
the equity method and a 15% ownership  interest in an affiliate recorded at cost
are included in 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.

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.  Foreign  currency  translation  adjustments  are  recorded  as a separate
component of shareholders' equity. Foreign currency transaction gains and losses
are recorded as income or expense as incurred.

Hedging.  We enter into foreign  currency  forward  exchange  contracts to hedge
certain firm  intercompany  sale commitments  denominated in foreign  currencies
(primarily  pound  sterling  and German  marks) for which we have firm  purchase
commitments.  The  purpose of these  instruments  is to protect us from the risk
that the U.S.  dollar net cash inflows  resulting from the sales  denominated in
foreign  currencies  will be  adversely  affected by changes in exchange  rates.
Gains and losses on these hedge  contracts  are  deferred and  recognized  as an
adjustment to the related sales transactions.

We enter into  foreign  currency  forward  exchange  contracts  periodically  to
provide  a  hedge  against  the  effect  of  foreign  currency  fluctuations  on
receivables  denominated  in foreign  currencies.  Gains and  losses  related to
contracts designated as hedges of receivables  denominated in foreign currencies
are  accrued as  exchange  rates  change  and are  recognized  as "Other  income
(expense), net" in the Consolidated Statements of Operations.

The U.S.  dollar  equivalent  notional  amount of outstanding  foreign  currency
forward  exchange  contracts was  approximately  $13.5 million as of October 31,
1998 ($8.7 million related to firm  intercompany  sales  commitments)  and $19.0
million as of October 31, 1997 ($17.8 million related to firm intercompany sales
commitments).  Deferred  losses  related to hedges of future sales  transactions
were  approximately  $434,000  and  $408,000  as of October  31,  1998 and 1997,
respectively. Contracts outstanding at October 31, 1998, mature at various times
through March,  1999. All contracts are for the sale of foreign currency.  We do
not enter into these contracts for trading purposes.

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



<PAGE>


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


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

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

License Fee Income and Litigation  Settlement  Fees, Net. From time to time, our
wholly-owned subsidiary,  IMS Technology,  Inc. (IMS) enters into agreements for
the licensing of its  interactive  computer  numerical  control  (CNC)  patents.
License fees received or receivable  under a fully  paid-up  license,  for which
there are no future  performance  requirements or  contingencies  and litigation
settlement  fees, are recognized in income,  net of legal fees and expenses,  if
any, at the time the related  agreement  is executed.  License fees  received in
periodic  installments  that are contingent  upon the  continuing  validity of a
licensed  patent are  recognized in income,  net of legal fees and expenses,  if
any, over the life of the licensed patent.

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  included  in  selling,  general  and  administrative
expenses. Expenditures and related third-party reimbursements for the last three
years were (in thousands):
                                                    Year Ended October 31,   

                                                1998         1997         1996
                                                ----         ----         ----
     Research and development expenditures    $1,959       $1,870       $1,689
     Less: amounts reimbursed by third parties    --           --           58
                                             --------      -------       ------
     Net research and development expenses    $1,959       $1,870       $1,631
                                             ========       =====        =====

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,  and
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  $1.3 million in 1998, $1.6 million in 1997 and $1.3 million in 1996
related to software development projects. Amortization expense was $1.1 million,
$940,000 and $1.0 million,  for the three years ended October 31, 1998, 1997 and
1996 respectively.
<PAGE>
Earnings Per Share. Earnings per share of common stock are based on the weighted
average  number of common  shares  outstanding,  which,  for  diluted  purposes,
includes the effects of  outstanding  stock options  computed using the treasury
method.

Income  Taxes.  We record income taxes under  Statement of Accounting  Standards
(SFAS) 109 "Accounting for Income Taxes". SFAS 109 utilizes the liability method
for  computing  deferred  income taxes and requires  that the benefit of certain
loss  carryforwards  be recorded as an asset and that a valuation  allowance  be
established  against  the asset to the extent it is "more  likely than not" that
the benefit will not be realized.



<PAGE>


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

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.

2.  BUSINESS OPERATIONS

Nature of  Business.  We design and produce  computer  numerical  control  (CNC)
systems and software and  computerized  machine systems 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  over 240  independent  agents and
distributors in 45 countries throughout North America,  Europe and Asia. We also
maintain direct sales operations in the United States, England,  France, Germany
and Singapore.

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,  and such
losses have been within our expectations.

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.

Reliance on Contract  Manufacturers.  We contract principally with three machine
tool builders located in Taiwan for the manufacture and assembly of computerized
machine systems, based on our designs and specifications,  utilizing CNC systems
provided  by us.  We also  have a  contract  manufacturing  agreement  with  two
European  machine tool  builders to  manufacture  machine tools for the European
market.  Any interruption  from these sources would restrict the availability of
our  computerized   machine  systems,   which  would  affect  operating  results
adversely.


3. INVENTORIES

Inventories as of October 31, 1998 and 1997 are summarized below (in thousands):

                                              1998           1997
                                           ----------     ----------
 Purchased parts and sub-assemblies........$   11,749     $    9,749
 Work-in-process................................1,774          1,578
 Finished goods............................... 17,294         10,425
                                            ---------         ------
                                           $   30,817     $   21,752
                                            =========         ======
<PAGE>
                             HURCO COMPANIES, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

4.  DEBT AGREEMENTS

Long-term debt as of October 31, 1998 and 1997, consisted of (in thousands):
                                                        1998           1997
                                                      --------       --------
   Bank revolving credit facilities.................$    2,000     $    1,900
   Senior Notes..........................................5,358          7,143
   Economic Development Revenue Bonds, Series 1990.......1,000          1,000
                                                       -------        -------
                                                         8,358         10,043
   Less current portion..................................1,786          1,786
                                                     ---------        -------
                                                    $    6,572     $    8,257
                                                     =========      =========

As of October 31, 1998, long-term debt was payable as follows (in thousands):

    Fiscal 1999................................1,786
    Fiscal 2000................................3,786
    Fiscal 2001 and thereafter.................2,786
                                               -----
                                          $    8,358
                                               =====
As of October 31, 1998,  we had  unutilized  credit  facilities  of $6.6 million
available for either direct  borrowings or commercial  letters of credit.  As of
October 31, 1998 and 1997, we had $11.4 million and $6.2 million,  respectively,
of  outstanding  letters of credit  issued to non-U.S.  suppliers  for inventory
purchase commitments.

As of October 31,  1998,  $2.0  million of the domestic  bank  revolving  credit
facility was payable at a prime rate of 8.0%. Interest was payable on the Senior
Notes at 10.37% at October 31, 1998 and 1997, respectively. Interest was payable
on the European credit  authorization  at rates ranging from 6.25% to 9.5% as of
October 31, 1998 and 1997.

The principal terms of the Bank Credit  Agreement and Senior Notes Agreement are
set forth below:

     a)  Bank Credit Agreement

         Our bank credit  agreement  provides for a revolving,  unsecured credit
         facility  expiring May 1, 2000,  which permits  borrowings,  at any one
         time  outstanding,  of up to  $20.0  million  as of  October  31,  1998
         (inclusive of outstanding letters of credit of up to $15.0 million). Of
         such borrowings, up to $5.0 million may be drawn in designated European
         currencies.  Interest on all outstanding  borrowings will be payable at
         LIBOR plus an amount  ranging  from .75% to 2.0% based on a  prescribed
         formula, or at our option, prime.

         The agreement requires us to maintain a specified minimum net worth and
         establishes  maximum  leverage and fixed charge coverage  ratios.  Cash
         dividends and  redemptions  of capital  stock are permitted  subject to
         certain limitations.  We are required to maintain consolidated tangible
         net worth (as  defined) of not less than $20.0  million plus (i) 50% of
         cumulative net income  subsequent to April 30, 1997 and (ii) 75% of the
         net proceeds from sales of capital stock.  Total  consolidated debt may
         not exceed 50% of  consolidated  capitalization  (defined as total debt
         plus consolidated tangible net worth).
<PAGE>


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


     b)  Senior Notes

         At October 31, 1998, we had outstanding  approximately  $5.4 million of
         unsecured  Senior Notes,  bearing an interest rate of 10.37%,  of which
         approximately  $1.8 million is due on December 1, 1998, and the balance
         is due  in  equal  annual  installments  through  2000.  The  financial
         covenants conform to those contained in our bank credit agreement.

The  Economic  Development  Revenue  Bonds  are  payable  in five  equal  annual
installments  beginning  on  September  1, 2001,  and are secured by a letter of
credit  issued in the amount of $1.1  million by the bank.  The Bonds'  interest
rates adjust weekly and, as of October 31, 1998 and 1997,  interest was accruing
at a rate of 3.4% and 3.8% respectively.


5. FINANCIAL INSTRUMENTS

The carrying amounts for trade  receivables and payables  approximate their fair
values.  At October  31,  1998,  the  carrying  amounts  and fair  values of our
financial instruments,  which includes bank revolving credit facilities,  senior
notes, and Economic Development Bonds are not materially different.

We also have  off-balance  sheet  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 and fair value
of these  contracts  were $13.5  million  and $13.6  million,  respectively,  at
October 31, 1998.  Current market prices were used to estimate the fair value of
the foreign currency forward exchange contracts.

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.  Neither the risks of
counterparty  non-performance  nor the  economic  consequences  of  counterparty
non-performance  associated  with these  contracts  are  considered  by us to be
material.


<PAGE>


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


6.  INCOME TAXES

The  provision  for income taxes in fiscal 1998 and 1997  includes  $640,000 and
$1.0  million,  respectively,  of foreign  withholding  taxes related to certain
license fee  payments  received in those  fiscal  years.  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 off-setting valuation allowance.  Our total deferred
tax assets and corresponding  valuation  allowance at October 31, 1998 and 1997,
consisted of the following (in thousands):

                                                            October 31,      
                                                          1998         1997
Tax effects of future tax deductible items related to:
     Accrued inventory reserves.....................  $    710      $   707
     Accrued warranty expenses.............................276          311
     Other accrued expenses..............................1,171          858
                                                     ---------     ---------
         Total deferred tax assets.......................2,157        1,876
                                                     ---------       -------

Tax effects of future taxable differences related to:
     Accelerated tax deduction and other tax over book
      deductions related to property, equipment and 
      software...................                       (1,883)      (1,876)
     Other............................................... (575)        (575)
                                                     ---------       --------
       Total deferred tax liabilities.................  (2,458)      (2,451)
                                                     ---------       --------

       Net tax effects of temporary differences...........(301)        (575)
                                                     ---------       --------

Tax effects of carryforward benefits:
     U.S. federal net operating loss carryforwards,
       expiring 2008-2013................................2,170        5,869
     Foreign net tax benefit carryforwards
       with various expiration years.....................1,174          941
     U.S. federal general business tax credits,
       expiring 2008-2013................................1,367        1,545
     U.S. Alternative Minimum Tax Credit with no 
       expiration..........................................412          221
                                                     ---------      ---------
         Tax effects of carryforwards .................. 5,123        8,576
                                                     ---------      ---------

         Tax effects of temporary differences and 
            carryforwards..........................      4,822        8,001
         Less valuation allowance...................... (4,410)      (7,780)
                                                    ----------      ---------
         Net deferred tax asset.....................  $    412     $    221
                                                     =========      =========

<PAGE>
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.  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 with expiration dates and is recognizing the benefits only
as  reassessment  demonstrates  they are  realizable.  Alternative  minimum  tax
credits may be carried forward  indefinitely  and as a result,  are not provided
with a  valuation  allowance.  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.



<PAGE>


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


Income (loss) before income taxes (in thousands):
                                        Year Ended October 31,
                               1998              1997             1996    
       Domestic........... $   8,809        $   10,303       $     (625)
       Foreign.................2,379             4,529            4,983
                             -------          --------          -------
                           $  11,188        $   14,832       $    4,358
                            ========         =========        =========


Differences between the effective tax rate and
U.S. federal income tax rate were (in thousands):

Tax at U.S. statutory rate.$   3,915        $    5,191       $    1,525

Foreign withholding taxes........640             1,012               --

Effect of tax rates of international jurisdictions
  in excess of U.S. statutory 
  rates..........................563               342              254

State income taxes................35                16               --

Utilization of net operating loss 
  carryforwards...............(3,219)           (5,533)          (1,685)
                             -------            ------           ------

Provision for income taxes.$   1,934        $    1,028       $       94
                            ========         =========        =========

Foreign withholding taxes are the result of withholding taxes on certain license
fee payments  received  during  fiscal 1998 and 1997.  Our  provision for income
taxes in fiscal 1998, 1997 and 1996 represents taxes currently payable.


7.  EMPLOYEE BENEFITS

We have  defined  contribution  plans that  include a majority of our  employees
worldwide, 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  $357,000,  $307,000 and $252,000 for the years ended
October 31, 1998, 1997 and 1996, respectively.

During 1996, we initiated a non-qualified deferred compensation plan for certain
of our  executives.  The purpose of this plan is to provide  executives  with an
additional  mechanism  to save  throughout  their  employment.  Our  contractual
obligations to the executives  under this plan are fully funded through separate
investment accounts.
<PAGE>
During 1997, we initiated Split-Dollar Life Insurance Agreements with certain of
our officers.  Under the terms of the agreements,  we pay all of the premiums on
behalf of the officers.  We will be repaid the premiums from the policies'  cash
surrender  value  when  the  policies  are  terminated  in  accordance  with the
provisions of the agreements.


<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  provisions of the 1997 Plan, the maximum number of shares of
common stock that my be issued is 500,000.  The total number of shares of common
stock  which may be granted to any  individual  during the term of the 1997 Plan
may not  exceed  100,000  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 (the Committee) as the Committee  determines at the time of grant. The
option  price 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, 1998,  31,000  shares had
been granted 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 may be issued  under  options and related  rights is  500,000. There is no
annual  limit on the number of such  shares  with  respect to which  options and
rights may be granted. Options granted under the 1990 Plan are exercisable for a
period up to ten years after date of grant and vest in equal installments over a
period of three to five years from the date of grant.  The option  price may 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 may be granted  under the 1990 Plan after
April 30, 2000.

A summary of the status of the options  under the 1990 and 1997 Plans as of 
October 31,  1998,  1997 and 1996 and the related  activity for the year is as 
follows:

                                               Year Ended October 31,        
                                         1998           1997            1996   
Outstanding at beginning of year.......421,860         431,620        380,700
     Granted............................26,000           5,000        104,800
     Canceled...........................(4,000)         (1,800)       (32,700)
     Expired............................    --              --             --
     Exercised.........................(49,780)        (12,960)       (21,180)
                                       -------         -------        --------
Outstanding at end of year.............394,080         421,860        431,620
                                       =======         =======        =======

Exercisable at end of year.............309,079         283,416        204,151
                                       =======         =======        =======

Available for future grants............481,814         507,814         12,814
                                       =======        ========       ========

The range of option prices per share for  outstanding  options and the prices at
which  options were  exercised  during 1998,  1997 and 1996 are summarized 
below:
                                         Year Ended October 31,
                              1998               1997              1996    
Option price.............$2.13 - $8.25       $2.13 - $7.50      $2.13-$7.50
Exercise price...........$2.13 - $5.13       $2.13 - $5.13      $2.13-$3.88
<PAGE>


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


As of October 31, 1998 and 1997, there were outstanding  options held by certain
members of the Board of Directors to purchase  75,000 shares of our common stock
at $5.13 per share and 25,000 shares at $7.00 per share. All were exercisable as
of October 31, 1998 and 1997.  The options  expire at various dates between 2002
and 2006.

In October 1995,  SFAS No. 123,  "Stock Based  Compensation,"  was issued.  This
statement  requires  the  Company to choose  between  two  different  methods of
accounting for stock options. The statement defines a fair-value-based method of
accounting  for stock  options  but  allows an entity  to  continue  to  measure
compensation  cost for stock  options  using the  accounting  prescribed  by APB
Opinion No. 25 (APB 25),  "Accounting for Stock Issued to Employees." Use of the
APB 25 accounting  method results in no  compensation  cost being  recognized if
options  are granted at an exercise  price at the  current  market  value of the
stock.  We will continue to use the method  prescribed  under APB 25, but we are
required by SFAS 123 to make proforma disclosures of net income and earnings per
share as if the fair value method had been applied, if material.  Application of
the fair value method would not have a material impact if it had been applied in
the financial statements for the year ended October 31, 1998.

9.  RELATED PARTY TRANSACTIONS

Hurco  and Air  Express  International  Corporation  (AEI) are  related  parties
because a common group of shareholders holds a substantial ownership interest in
both companies.  AEI provides freight  forwarding and shipping  services for us.
The cost of these  freight  services are  negotiated on an arms length basis and
amounted to $4.1  million,  $2.6  million  and $1.8  million for the years ended
October  31,  1998,  1997 and 1996,  respectively.  Trade  payables  to AEI were
$217,000, $30,000 and $208,000 at October 31, 1998, 1997 and 1996, respectively.

We  own  approximately  15%  of  one  of  our  Taiwanese-based  suppliers.  This
investment  is carried at cost and is included  in Other  Assets.  Purchases  of
product from this  supplier are  negotiated  on an arms length basis and totaled
$7.4  million,  $8.2  million and $8.6  million for the years ended  October 31,
1998,  1997 and 1996,  respectively.  Trade  payables to this supplier were $1.7
million,  $1.8  million,  and $1.5 million at October 31,  1998,  1997 and 1996,
respectively.

In  October  1996,  we  entered  into an  agreement  with a group  of  Taiwanese
investors for the purpose of forming a company,  Hurco  Automation,  Ltd. (HAL).
HAL's  scope  of  activities  includes  the  design,   manufacture,   sales  and
distribution  of industrial  automated  products,  software  systems and related
components, including CNC systems and components manufactured under contract for
sale  exclusively  to us. At October 31, 1998,  we had invested  $525,000 in HAL
which results in 27% ownership. We have committed to invest an additional amount
of approximately $150,000 in fiscal 1999 which will result in 35% ownership.  We
are also  committed  to  purchasing  a defined  number of CNC  systems  from HAL
between February 1, 1997 and July 31, 1999. We are accounting for the investment
using the equity  method.  The  investment  of  $575,000  at October 31, 1998 is
included in Other Assets on the Consolidated Balance Sheet. Purchases of product
from this  supplier are  negotiated on an arms length basis and amounted to $3.1
million in 1998. Trade payables to HAL were $668,000 at October 31, 1998.
<PAGE>
10.  LITIGATION AND CONTINGENCIES

As  previously  reported,  Hurco  and IMS,  have  been  parties  to a number  of
proceedings  which  involved  alleged  infringement  of one  of the  Interactive
Machining  Patents.  At the present  date,  all but one action has been  settled
through  licensing  arrangements or litigation  settlements.  The only remaining
action is described below.

On July 3, 1997, IMS commenced an action in the United States  District Court of
Virginia against Haas Automation,  Inc. and its owner  (collectively,  Haas) and
certain other end users and manufacturers of computerized  machine tool systems.
The  action  sought   monetary   damages  and  an  injunction   against   future
infringement.  IMS  subsequently  entered into  settlements  with all defendants
other than Haas and dismissed  claims against them. As previously  reported,  on
October  2,  1998 the  trial  court  granted  summary  judgment  in favor of 
Haas and dismissed the action,  finding that there was no  infringement by
Haas based on the court's claim  interpretation and its finding that a
floppy  disk is not the equal of a cassette  tape.  Haas'  affirmative  defenses
challenging the validity of the IMS patent were also dismissed. IMS subsequently
filed an appeal to the United  States Court of Appeals for the Federal  Circuit.
The  appeal  seeks  relief  from  the  trial  court's  order   regarding   claim
interpretation  of the IMS patent,  the order  granting  defendants'  motion for
summary  judgment and the final  judgment in favor of Haas.  Haas has
filed a  cross-appeal  to the same court from the trial court's order  regarding
claim  construction of the IMS patent. The appeal and cross-appeal are currently
pending.  Although management continues to believe that the IMS claims of patent
infringement have substantial merit, it is unable to predict the outcome of this
matter.

A German tax examiner has contested  our  transfer of net operating  losses
between  two  of our  German  subsidiaries  that  merged  in  fiscal  1996.  The
contingent  tax  liability  resulting  from  this  issue is  approximately  $1.4
million.  We have  protested  the  matter and the  German  tax  authorities  are
expected to rule on the tax examiner's finding in the first half of fiscal 1999.
In the event an unfavorable  ruling is received from the German tax authorities,
we will appeal to the German Federal Tax Court. No provision for the contingency
has been recorded.

In addition, we are involved in various other claims and lawsuits arising in the
normal course of business.  None of these claims, in our opinion, are expected 
to have a material adverse effect on our consolidated financial position or 
results of operations.

11.  OPERATING LEASES

We lease  facilities and vehicles under operating  leases that expire at various
dates  through 2003.  Future  payments  required  under  operating  leases as of
October 31, 1998, are summarized as follows (in thousands):

         1999....................................$1,803
         2000.....................................1,110
         2001.......................................847
         2002.......................................477
         2003........................................38
                                                --------
         Total.................................$  4,275
                                                ========

Rental  payments for the years ended  October 31,  1998,  1997 and 1996 was $1.8
million, $1.9 million and $1.9 million, respectively.
<PAGE>


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


12.  RIGHTS OFFERING

On July 3, 1996, we issued and sold 1,085,389  shares of common stock at a price
of $4.63 per share pursuant to a subscription rights offering.  The net proceeds
of  approximately  $4.8 million were used to pay $3.1 million of installments of
our  outstanding  indebtedness  to its senior  lenders that were due on July 31,
1996. Of the amount paid,  $1.4 million  consisted of an installment  payment on
the bank  term  loan  bearing  interest  at a  variable  rate  and $1.7  million
represented an installment  payment on our Senior Notes.  The balance of the net
proceeds was used to reduce outstanding revolving credit borrowings.



13.  LICENSE FEE INCOME AND LITIGATION SETTLEMENT FEES, NET

License fee income and litigation settlement fees, net for fiscal 1998, 1997 and
1996 were attributable to agreements  entered into by IMS, pursuant to which IMS
granted fully paid-up  licenses of its  interactive  CNC patents in exchange for
cash  and  other  consideration.  Under a  license  agreement  with a  principal
supplier, approximately $534,000 is expected to be received in future periods in
the form of  discounts on  purchases,  which will be reflected as a reduction of
the cost of such purchases.  As of October 31, 1998,  additional license fees of
approximately  $797,000,  net of legal  fees and  expenses,  related  to  future
payments under completed license  agreements have been deferred and are expected
to be  recognized in income over the  four-year  remaining  life of the licensed
patent.



<PAGE>


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


14.  QUARTERLY HIGHLIGHTS (Unaudited)

1998 (In thousands, except per share data)
                               First        Second         Third        Fourth
                              Quarter      Quarter        Quarter      Quarter

Sales and service fees......$  22,120   $   21,542     $   23,444    $  26,316

Gross profit....................6,123        6,286          6,980        8,550

Gross profit margin percentage...27.7%        29.2%          29.8%       32.5%

Selling, general and administrative  
  expenses........              5,024        5,354          5,573       5,835

Restructuring charge............. --           --              --       1,162

Operating income................1,099          932          1,407       1,553

Net income .....................2,186        4,270          1,830         968

Earnings per common share - 
  basic...............       $    .33     $    .65       $    .28     $   .15

Earnings per common share - 
  diluted..................  $    .32     $    .63       $    .27     $   .15


1997 (In thousands, except per share data)
                                First       Second         Third        Fourth
                               Quarter      Quarter       Quarter      Quarter

Sales and service fees......$  22,278    $  22,580      $  24,637    $  26,234

Gross profit....................6,482        6,846          7,175        7,270

Gross profit margin percentage...29.1%        30.3%          29.1%        27.7%

Selling, general and 
  administrative  expenses......5,046        5,216          5,352        5,433

Operating income................1,436        1,630          1,823        1,837

Net income .....................1,016        6,201          2,534        4,053

Earnings per common share -
  basic......................$    .16     $    .95       $    .39     $    .62

Earnings per common share - 
  diluted..................  $    .15     $    .93       $    .38     $    .60


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


15.  BUSINESS SEGMENT AND INTERNATIONAL OPERATIONS

We operate in one business  segment  which  consists of CNC systems and software
and computerized machine systems for metal cutting and metal forming. Summarized
is  information  regarding  Total Sales and Service Fees,  Operating  Income and
Identifiable Assets by geographical areas (in thousands):

                       United States(1) Europe  Asia  Eliminations  Consolidated
1998

Sales and service fees
to unaffiliated 
customers...............$ 47,007      $ 45,729  $  686    $    --       $ 93,422

Transfers between 
geographic areas..........32,101           879      15      (32,995)        --
                       ---------     --------- --------  -----------  ----------

Total sales.............$ 79,108      $ 46,608  $  701    $ (32,995)    $ 93,422
                       =========     ========= ========  ==========   ==========

Operating income (loss) $  2,791      $  2,444  $ (244)                 $  4,991
                       =========     ========= ========               ==========

Identifiable assets as of
     October 31, 1998...$ 47,956      $ 22,703  $ 1,037                 $ 71,696
                       =========     ========= ========               ==========
1997

Sales and service fees
to unaffiliated 
customers...............$ 51,823      $ 42,910   $  996     $    --     $ 95,729

Transfers between 
geographic areas..........26,435         2,013       75      (28,523)         --
                       ---------     ---------  -------- -----------  ----------

Total sales...........  $ 78,258      $ 44,923   $1,071     $(28,523)   $ 95,729
                       =========     =========  ========  ==========  ==========

Operating income (loss) $  2,390      $  4,558   $ (222)                $  6,726
                       =========     =========  ========              ==========

Identifiable assets as of
     October 31, 1997...$ 42,525      $ 15,895   $  328                 $ 58,748
                       =========     =========  ========              ==========
1996

Sales and service fees
to unaffiliated 
customers.............. $ 54,760      $ 41,528   $3,063      $    --    $ 99,351

Transfers between 
geographic areas..........26,921         3,790       33       (30,744)       --
                       ---------     ---------  --------     ---------  --------

Total sales...........  $ 81,681      $ 45,318   $3,096      $(30,744)  $ 99,351
                       =========     =========  ========     =========  ========

Operating income        $  2,184      $  4,348   $  546                 $  7,078
                       =========     =========  ========                ========

Identifiable assets as of
     October 31, 1996.. $ 42,779      $ 14,763   $2,208                 $ 59,750
                       =========     =========  ========                ========
(1)  Includes export sales
<PAGE>


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


16.  RESTRUCTURING CHARGE

In October 1998, we initiated a restructuring of the business of our subsidiary,
Autocon  Technologies,  Inc.,  to  convert  its  operations  from  manufacturing
computer  controls to sales and service of computerized  machine  systems.  This
restructuring  program,  which is expected to be completed during the first half
of fiscal 1999,  has resulted in a special  charge to operations of $1.2 million
consisting of the following components:

         Excess building capacity                                       $500,000
         Discontinued capitalized software projects                      300,714
         Fixed asset impairments                                         170,245
         Equipment leases                                                101,187
         Severance costs                                                  89,574
                                                                     -----------
                                                                      $1,161,720


17.  NEW ACCOUNTING PROUNCEMENT

In June 1998, the FASB issued  Statement of Financial  Accounting  Standards No.
133,  Accounting  for  Derivatives  Instruments  and Hedging  Instruments.  This
statement   establishes   accounting  and  reporting  standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for hedging  activities.  The  statement  is effective in fiscal
2000. We have not yet  determined  the impact of adopting this  statement on our
financial position or results of operations.


18.  SUBSEQUENT EVENT (unaudited)

Effective  December 19, 1998,  the bank credit  agreement  was amended to permit
borrowings,  at any one time outstanding,  of up to $25.0 million  (inclusive of
outstanding letters of credit of up to $15.0 million). All other terms under the
agreement remained unchanged.



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

Not applicable.


<PAGE>
                             PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Registrant

The following information sets forth the name of each director,  his age, tenure
as a director,  principal  occupation and business  experience for the last five
years:

                                                             Served as a
Name                                    Age                 Director Since

Hendrik J. Hartong, Jr.                  59                      1986

Andrew L. Lewis IV                       42                      1988

Brian D. McLaughlin                      56                      1987

E. Keith Moore                           76                      1990

Richard T. Niner                         59                      1986

O. Curtis Noel                           63                      1993

Charles E. Mitchell Rentschler           59                      1986

Hendrik J.  Hartong,  Jr. has been a general  partner of  Brynwood  Management,
the  general  partner  of  Brynwood  Partners  Limited Partnership, since 1984.
Mr. Hartong has also served as Chairman of the Board of Air Express 
International Corporation since 1985.

Andrew L. Lewis IV has served as Chief  Executive  Officer of KRR Partners,  
L.P. since July 1993. Mr. Lewis was a consultant for USPCI of Pennsylvania, Inc.
from 1991 to 1993.  Mr. Lewis is also a director of Air Express International 
Corporation.

Brian D.  McLaughlin  has been  President and Chief  Executive  Officer of Hurco
since December, 1987.

E.  Keith  Moore  has  served  as  President  of Hurco  International,  Inc.,  a
subsidiary of Hurco,  since April 1988. Mr. Moore is also a director of Met-Coil
Systems Corporation.

Richard T. Niner has been a general partner of Brynwood  Management,  the 
general  partner of Brynwood  Partners  Limited  Partnership, since 1984.  
Mr. Niner is also a director of Air Express  International  Corporation,  
Arrow  International,  Inc. and Case,  Pomeroy & Company, Inc.

O. Curtis Noel has been an  independent  business  consultant  for more than ten
years  specializing  in market and industry  studies,  competitive  analysis and
corporate development programs with clients in the U.S. and abroad.

Charles E. Mitchell Rentschler has served as President and Chief Executive 
Officer of The Hamilton Foundry & Machine Co. since 1985.

Each director of Hurco serves for a term of one year,  which expires at the next
annual  meeting of  shareholders  of Hurco when his  successor has been elected.
There are no family  relationships  between any of the  directors  or  executive
officers of Hurco.
<PAGE>


EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information with respect to the executive officers of
Hurco as of January 5, 1999:

      Name                           Age       Position(s) with the Company

Brian D. McLaughlin                   56   President and Chief Executive Officer

Roger J. Wolf                         58   Senior Vice President, Secretary,
                                           Treasurer and Chief Financial Officer

James D. Fabris                       47   Executive Vice President - Operations

Richard Blake                         40   Vice President of the Company and
                                           President Hurco Machine Tool Products
                                           Division

David E. Platts                       46   Vice President, Research and 
                                           Development

Stephen J. Alesia                     32   Corporate Controller


Brian D.  McLaughlin  has been  President and Chief  Executive  Officer of Hurco
since December 1987. From 1982 to 1987, he was employed as President and General
Manager  of  various  divisions  of  Ransburg   Corporation,   an  international
manufacturer of factory  automation  equipment.  Previously,  he was employed in
general management and marketing management positions with Eaton Corporation.

Roger J. Wolf has been Senior Vice  President,  Secretary,  Treasurer  and Chief
Financial  Officer  since  January 1993.  Prior to joining  Hurco,  Mr. Wolf was
Executive Vice President of a  privately-owned  investment and service  business
for over  seven  years.  Previously,  he  served  as Vice  President,  Corporate
Controller  and  Vice   President,   Treasurer  of  Ransburg   Corporation,   an
international manufacturer of factory automation equipment.

James D. Fabris was elected  Executive  Vice  President - Operations in November
1997 and Vice  President of Hurco in February  1995. Mr. Fabris was President of
Hurco  Machine Tool  Products  Division  from November 1993 to December 1997 and
previously served various operating  capacities since being employed by Hurco in
1988.

Richard Blake was named  President of Hurco  Machine Tool  Products  Division in
November 1997,  Vice President of Hurco in January 1996, and Managing  Director,
Hurco  Europe,  Ltd.,  a  subsidiary  of Hurco,  in  December  1993.  Mr.  Blake
previously served in several sales and marketing capacities since being employed
by Hurco in 1989.

David E. Platts has been  employed by Hurco  since  1982,  and was elected  Vice
President, Research and Development in 1989.

Stephen J. Alesia joined 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 Arthur Andersen LLP, an international public accounting firm.


<PAGE>


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities  Exchange Act of 1934 requires our directors and
executive  officers,  and persons who own more than 10% of our common stock,  to
file reports of  ownership  with the  Securities  and  Exchange  Commission  and
Nasdaq.  Such persons are also required to furnish us with copies of all Section
16(a) forms they file.

Based  solely on our  review  of the  copies of such  forms  received, or
written  representations  from  certain  reporting  persons  that  they were not
required to file a Form 5 to report previously  unreported  ownership or changes
in ownership,  we believe that,  during its fiscal year ending October 31, 1998,
our officers, directors and greater than 10% beneficial owners complied with all
filing requirements under Section 16(a).



<PAGE>


Item 11.  EXECUTIVE COMPENSATION

Summary Compensation 

The following table sets forth all  compensation  paid or accrued during each of
the last three fiscal years to the Chief Executive Officer and each of the other
four executive officers of Hurco (the Named Executive Officers) whose salary and
bonus exceeded $100,000 during fiscal 1998.

                                    Summary Compensation Table

                                                          Long-Term    All Other
                                    Annual Compensation Compensation     Compen-
Name and              Fiscal Salary BonusOtherAnnual SecuritiesUnderlying sation
Principal Position      Year  ($)  ($)(1)Compensation($) Options(2)    ($)   (3)
------------------     ------ ------ -----------------  ------------   ---------

Brian D. McLaughlin     1998  $258,077  $75,000   --         --         $52,206
President and CEO       1997   250,000  125,000   --         --          51,726
                        1996   238,133   80,000   --      15,000          3,325

Roger J. Wolf           1998   160,039   50,000   --         --          48,064
Sr. VP, Secretary       1997   156,000   60,000   --         --          47,086
Treasurer and CFO       1996   148,500   75,000   --       3,000          2,880

James D. Fabris         1998   156,154   65,000   --         --          24,054
Executive Vice          1997   140,000   60,000   --         --          23,504
President - Operations  1996   122,500   50,000   --      10,000          3,199

Richard Blake           1998   128,124   40,000   --         --           1,791
V.P. of the Company and 1997   108,550   41,750   --         --           4,633
President Hurco Machine 1996    87,373   46,311   --      15,000          3,841
Tool Products Division

David E. Platts         1998   104,038   10,000   --         --          15,436
Vice President of       1997   100,000   45,000   --         --          13,153
Research & Development  1996    93,917   20,000   --       5,000            --
---------------------------

(1) Represents cash bonuses earned and paid in the subsequent year.
(2)    Represents  shares of common  stock  underlying  grants of options  made
       during the year.  We have not  granted any Stock Appreciation Rights 
       (SARs).
(3)    Represents  our  contribution  to  defined  contribution  plans and split
       dollar  life  insurance  premiums.   During  fiscal  1997,  we  initiated
       Split-Dollar  Life Insurance  Agreements with certain  officers of Hurco.
       Under the terms of the  agreements,  we pay all of the premiums on behalf
       of the officers.  We will be repaid the premiums from the policies'  cash
       surrender  value when the policies are terminated in accordance  with the
       provisions of the agreements.


<PAGE>



                       Defined Contribution Plan      Company paid Split-Dollar
Name                         Company Match             Life Insurance Premiums

Brian D. McLaughlin            $4,800                          $49,406
Roger J. Wolf                   5,299                           42,765
James D. Fabris                 4,870                           19,184
Richard Blake                   1,791                              --
David E. Platts                 3,222                           12,214


Stock Options

The following table sets forth  information  related to options exercised during
fiscal 1998 and options held at fiscal year-end by the Named Executive Officers.
We do not have any outstanding SARs.

       Aggregated Option Exercises in Fiscal 1998 and Year-End Option Values

                                                                    Value of
                                             Number of             Unexercised
                    Shares              Securities Underlying      In-the-Money
                   Acquired              Unexercised Options          Options
                      on      Value         at FY-End (#)       at FY-End ($)(1)
                   Exercise Realized   Exer-         Unexer-   Exer-    Unexer-
Name                 (#)      ($)       cisable       cisable   cisable  cisable
----              --------- ---------  -------       -------   -------   -------

Brian D. McLaughlin   --       --     121,666         3,334   $277,543   $3,127
Roger J. Wolf         --       --      49,000         1,000     57,761      938
James D. Fabris       --       --      29,400        10,600     97,627   20,018
Richard Blake         --       --      13,800         7,200     30,416    7,527
David E. Platts       --       --      23,000         7,000     74,074   11,566
-----------------------------------------

(1)  Value is  calculated  based on the  closing  market  price of the common  
     stock on October 31,  1998  ($6.063)  less the option exercise price.


<PAGE>


Compensation of Directors

During 1998,  each director who is not a full-time  employee of Hurco received a
fee of $1,000 for each meeting of the Board of Directors attended, and each such
director  also  received  $5,000 per  quarter.  Directors  are also  entitled to
receive  reimbursement  for travel and other expenses incurred in attending such
meetings.  Mr. Niner received annual compensation of $72,000 for his services as
Chairman of the Executive Committee of the Board of Directors.


Employment Contracts

Brian D.  McLaughlin  entered into an employment  contract on December 14, 1987.
The  contract  term  is  month-to-month.   Mr.  McLaughlin's  salary  and  bonus
arrangements  are set annually by the Board of  Directors.  Other  compensation,
such as stock option grants,  is awarded  periodically  at the discretion of the
Board of Directors.  As part of that contract,  Mr. McLaughlin is entitled to 12
months'  salary if his  employment is terminated for any reason other than gross
misconduct.

Roger J. Wolf  entered  into an  employment  contract  on January  8, 1993.  The
contract term is unspecified.  Mr. Wolf's salary and bonus  arrangements are set
annually by the Board of  Directors.  Other  compensation,  such as stock option
grants, is awarded periodically at the discretion of the Board of Directors.  As
part of that  contract,  Mr.  Wolf  is  entitled  to 12  months'  salary  if his
employment is terminated without just cause.

James D. Fabris  entered into an employment  contract on November 18, 1997.  The
contract term is unspecified.  Mr. Fabris' salary and bonus  arrangement are set
annually by the Board of  Directors.  Other  compensation,  such as stock option
grants, is awarded periodically at the discretion of the Board of Directors.  As
part of the  contract,  Mr.  Fabris  is  entitled  to 12  months'  salary if his
employment is terminated for any reason other than gross misconduct.

Richard  Blake  entered  into an  employment  contract  on January 1, 1998.  The
contract term is thirty-six months and shall continue month-to-month thereafter.
Mr.  Blake's  salary and bonus  arrangements  are set  annually  by the Board of
Directors.  Other  compensation,   such  as  stock  option  grants,  is  awarded
periodically  at the  discretion  of the  Board  of  Directors.  As  part of the
contract,  Mr.  Blake is  entitled  to 12 months'  salary if his  employment  is
terminated for any reason other than gross misconduct.


Compensation Committee Interlocks and Insider Participation

During  fiscal 1998 the members of the  Compensation  Committee  were Hendrik 
J.  Hartong,  Jr., O. Curtis Noel and Charles E. Mitchell Rentschler.  None of 
the Committee members is a current or former officer or employee of the Company
or any of its subsidiaries.





<PAGE>
Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT

The following  table sets forth  information  as of January 25, 1999,  regarding
beneficial  ownership of our common stock by each  director and Named  Executive
Officer,  by all  directors and  executive  officers as a group,  and by certain
other  beneficial  owners of more than 5% of the common stock.  Each such person
has sole voting and investment power with respect to such securities,  except as
otherwise noted.
                                                  Shares Beneficially Owned
Name and Address                                   Number           Percent
                       Other Beneficial Owners

Wellington Management Co.                        646,900 (1)         10.9%
75 State Street
Boston, Massachusetts  02109

The Prudential Insurance Company of America      489,364              8.2%
4 Gateway Center
Newark, New Jersey 07102

The TCW Group, Inc.                              464,600              7.8%
865 South Figueroa Street
Los Angeles, California  90017

Brynwood Partners II L.P., et al                 405,715 (2)          6.5%
Two Soundview Avenue
Greenwich, Connecticut  06830

Wellington Trust Company, NA                     371,400 (3)          6.3%
75 State Street
Boston, Massachusetts  02109

FMR Corporation                                  364,028 (4)          6.1%
82 Devonshire Street
Boston, Massachusetts  02109

                   Directors and Executive Officers

Hendrik J. Hartong, Jr.                          330,913 (1,5)        5.6%

Andrew L. Lewis IV                                24,875 (5)          0.4%

Brian D. McLaughlin                              158,142 (6,7)        2.7%

E. Keith Moore                                    38,010 (8)          0.6%

Richard T. Niner                                 352,803 (1,5)        5.9%

O. Curtis Noel                                    10,000 (5)          0.2%

Charles E. Mitchell Rentschler                    35,000 (5,9)        0.6%

Roger J. Wolf                                     54,392 (10)         0.9%

James D. Fabris                                   29,900 (11)         0.5%

Richard Blake                                     13,800 (12)         0.2%

David E. Platts                                   26,700 (13)         0.5%

Executive officers and directors                 798,534 (14)        13.4%
as a group (12 persons)
<PAGE>

(1)      According to a Schedule 13G dated December 31, 1997, Wellington 
         Management Co. has shared voting power for all shares.

(2)      According to an amended  Schedule 13D dated January 25, 1999,  Brynwood
         Partners  II  L.P.  ("Brynwood  II"),  its  general  partner,  Brynwood
         Management  II, L.P.  ("Brynwood  Management  II"), and the partners of
         Brynwood Management,  Hendrik J. Hartong, Jr., and Richard T. Niner are
         the beneficial  owners of the shares  indicated in the table.  Brynwood
         Management  II has shared  voting and  dispositive  power over  278,001
         shares;  Mr. Hartong has sole voting and dispositive  power over 52,912
         shares and shared voting and dispositive power over 278,001 shares; Mr.
         Niner has sole  voting and  dispositive  power over  74,802  shares and
         shared voting and dispositive power over 278,001 shares.

(3)      According to a Schedule 13G dated December 31, 1997, Wellington Trust 
         Company has shared voting power for all shares.

(4)      According to a Schedule 13G dated December 31, 1997, FMR Corporation 
         has no voting power for any of the shares.

(5)      Includes 10,000 shares subject to options that are exercisable within 
         60 days.

(6)      Includes 121,666 subject to options held by Mr. McLaughlin that are 
         exercisable within 60 days.

(7)      Includes  10,876  shares  owned by Mr.  McLaughlin's  wife and  
         children,  as to which  he may be  deemed  to have  beneficial
         ownership.

(8)      Includes 11,000 shares subject to options that are exercisable within 
         60 days.

(9)      Includes 6,000 shares owned by Mr. Rentschler's wife, as to which he 
         may be deemed to have beneficial ownership.

(10)     Includes 49,000 shares subject to options that are exercisable within 
         60 days.

(11)     Includes 29,400 shares subject to options that are exercisable within 
         60 days.

(12)     Includes 13,800 shares subject to options that are exercisable within 
         60 days.

(13)     Includes 25,000 shares subject to options that are exercisable within 
         60 days.

(14)     Includes 296,186 shares subject to options that are exercisable within
         60 days.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Hurco and Air Express  International  (AEI) are related parties because a common
group of shareholders  held a substantial  ownership  interest in both companies
during fiscal 1998. AEI provides  freight  forwarding and shipping  services for
us. The cost of these  freight  services are  negotiated on an arms length basis
and amounted to $4.1 million during fiscal 1998.
<PAGE>



                                PART IV

Item 14.  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................................23
         Consolidated Statements of Operations - years
           ended October 31, 1998, 1997 and 1996...........................24
         Consolidated Balance Sheets - as of October 31, 1998 and 1997.....25
         Consolidated Statements of Cash Flows - years
           ended October 31, 1998, 1997 and 1996...........................26
         Consolidated Statements of Changes in Shareholders' Equity -
           years ended October 31, 1998, 1997 and 1996.....................27
         Notes to Consolidated Financial Statements........................28

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

                                                                         Page
         Schedule II - Valuation and Qualifying
           Accounts and Reserves...........................................51


     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

     No reports on Form 8-K were filed during the three months ended October 31,
1998.

(c)  Exhibits

     Exhibits are filed with this Form 10-K or incorporated  herein by reference
as listed on Pages 52-53.





<PAGE>


              Schedule II - Valuation and Qualifying Accounts and Reserves
                 for the years ended October 31, 1998, 1997 and 1996
                               (Dollars in thousands)


                         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
   October 31, 1998     $     757    $    280   $    --   $     268 3  $     769
                         ========     =======    =======   ========    ========

   October 31, 1997     $     785    $     73   $    --  $     101 2  $     757
                         ========     =======    =======   ========    ========

   October 31, 1996     $   1,070    $    (63)  $    --  $     222 1  $     785
                         ========     =======    =======   ========    ========




Accrued warranty expenses for the year ended:
   October 31, 1998     $   1,452    $    503   $    --   $     895   $  1,060
                         ========     =======    =======   ========    ========

   October 31, 1997     $   1,425    $  1,321   $    --   $   1,294   $  1,452
                         ========     =======    =======   ========    ========

   October 31, 1996     $   1,391    $  1,544   $    --   $   1,510   $  1,425
                         ========     =======    =======   ========    ========




Accrued restructuring expenses for the year ended
   October 31, 1998     $      --    $  1,162   $    471   $      --   $    691
                         ========     =======    =======    ========   ========





1  Receivable  write-offs  of  $228,000,  net of  cash  recoveries  on  accounts
previously  written off of $6,000. 2 Receivable  write-offs of $106,000,  net of
cash  recoveries  on accounts  previously  written off of $5,000.  3  Receivable
write-offs of $280,000,  net of cash recoveries on accounts  previously  written
off of $12,000.



<PAGE>
                           EXHIBITS INDEX

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

10.17         The first amendment to the amended and restated  credit  agreement
              and amendment to  reimbursement  agreement  between the Registrant
              and NBD Bank N.A. dated September 29, 1998.

11            Statement re: computation of per share earnings

21            Subsidiaries of the Registrant

23            Consent of the Independent Public Accountants - Arthur Andersen 
              LLP.

27            Financial Data Schedule (electronic filing only)

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 Quarterly Report on Form 10-Q for the quarter ended 
              July 31, 1997.

3.2           Amended and Restated  By-Laws of the Registrant  dated  
              September 12, 1995,  incorporated by reference to Exhibit 3.3, to
              the Registrant's Quarterly Report on Form 10-Q for the quarter 
              ended January 31, 1996.

10.1          The Underlease  between  Dikappa  (Number 220) Limited and 
              Northern & London  Investment  Trust Limited dated December 2,
              1982,  incorporated by reference to Exhibit 10.13, to its 
              Registration  Statement on Form S-1,  No.2-82804 dated April 1,
              1983.

10.2          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  Annual Report on Form 10-K for
              the year ended October 31, 1993.

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

10.4          Non-qualified  Stock  Option  Agreement  between the  Registrant 
              and Hendrik J.  Hartong,  Jr.,  effective  July 8, 1996
              incorporated by reference to Exhibit 10.47 to the Registrant's 
              Report on Form 10-K for the year ended October 31, 1996.

10.5          Non-qualified  Stock Option  Agreement  between the Registrant and
              Andrew  L.  Lewis  IV,  effective  July 8,  1996  incorporated  by
              reference to Exhibit 10.48 to the Registrant's Report on Form 10-K
              for the year ended October 31, 1996.

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.

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          1997 Stock Option and Incentive  Plan,  effective May 29, 1997,  
              incorporated  by reference to Exhibit 10.52 in Form 10-Q for the 
              quarter ended July 31, 1997.

10.10         Amended  and   Restated   Credit   Agreement   and   Amendment  to
              Reimbursement  Agreement,  effective September 8, 1997 between the
              Registrant  and NBD  Bank,  N.A.  and  NBD  Bank  incorporated  by
              reference to Exhibit 10.10 in Form 10-K for the year ended October
              31, 1997.

10.11         Second  Amended and  Restated  Senior Note  Agreement  between the
              Registrant and Principal Mutual Life Insurance  Company  effective
              September 8, 1997  incorporated  by reference to Exhibit  10.11 in
              Form 10-K for the year ended October 31, 1997.

10.12         Letter  Agreement  (European  Facility)  dated  September 8, 1997,
              between  Registrant's  subsidiaries and The First National Bank of
              Chicago  incorporated  by reference to Exhibit  10.12 in Form 10-K
              for the year ended October 31, 1997.

10.13         Guaranty Agreement dated September 8, 1997, between the Registrant
              and The First National Bank of Chicago  incorporated  by reference
              to Exhibit 10.13 in Form 10-K for the year ended October 31, 1997.

10.14         Guaranty  Agreement  dated  September  8,  1997,  between  Autocon
              Technologies,   Inc.  and  The  First  National  Bank  of  Chicago
              incorporated  by reference  to Exhibit  10.14 in Form 10-K for the
              year ended October 31, 1997.

10.15         Employment  agreement  between the  Registrant and James D. Fabris
              dated  November  18,  1997,  incorporated  by reference as exhibit
              10.15 to the  Registrant's  Quarterly  Report of Form 10-Q for the
              quarter ended January 31, 1998.

10.16         Employment  agreement  between the  Registrant  and Richard  Blake
              dated January 1, 1998,  incorporated by reference as exhibit 10.16
              to the Registrant's  Quarterly Report of Form 10-Q for the quarter
              ended January 31, 1998.
<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 27th day of January,
1999.

                          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/ BRIAN D. McLAUGHLIN                              January 27, 1999
----------------------------------
Brian D. McLaughlin, Director,
President and Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)


/s/ ROGER J. WOLF                                    January 27, 1999
-------------------------------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer)


/s/ STEPHEN J. ALESIA                                 January 27, 1999
---------------------------------------
Stephen J. Alesia
Corporate Controller
of Hurco Companies, Inc.
(Principal Accounting Officer)



<PAGE>





/s/ HENDRIK J. HARTONG, JR.                          January 27, 1999
----------------------------------
Hendrik J. Hartong, Jr., Director


/s/ ANDREW L. LEWIS IV                               January 27, 1999
--------------------------------------
Andrew L. Lewis, IV, Director


/s/ E. KEITH MOORE                                   January 27, 1999
------------------------------------------
E. Keith Moore, Director


/s/ RICHARD T. NINER                                 January 27, 1999
-----------------------------------------
Richard T. Niner, Director


/s/ O. CURTIS NOEL                                   January 27, 1999
----------------------------------------------
O. Curtis Noel, Director


/s/ CHARLES E. M. RENTSCHLER                         January 27, 1999
Charles E. M. Rentschler, Director