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, 1997 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, 1998 was $42,635,522.


The number of shares of the Registrant's  common stock outstanding as of January
22, 1998 was 6,559,311.


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. (the Company) is an industrial  automation  company that
designs and produces  interactive  computer  numerical control (CNC) systems and
software and interactive  CNC-operated machine tool systems for sale through its
own distribution  network to the worldwide  machine tool consuming  market.  The
Company's  proprietary CNC systems and related software products are either sold
as an  integral  component  of machine  tools  marketed  by the  Company or sold
separately  to machine tool end users and other machine tool  manufacturers  who
integrate them with their own products.

The  Company  pioneered  the  application  of   microprocessor   technology  and
conversational  programming  software to machine tool  controls  and,  since its
founding  in 1968,  has been a leader in the  introduction  of  interactive  CNC
systems  that  automate  manufacturing  processes  and improve  productivity  in
certain segments of the metalworking  industry.  The Company has 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  software  in the  Company's  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.

The Company's executive offices and principal design, engineering,  assembly and
distribution facilities are located in Indianapolis, Indiana. Additional product
design,  assembly and  warehouse  facilities  are located in  Farmington  Hills,
Michigan; and sales,  application engineering and service offices are located in
High Wycombe, England; Munich, Germany; Paris, France; and Singapore.


(b)      Financial Information About Industry Segments

The Company operates in one business segment,  which consists of CNC systems and
software and CNC-operated machine tools for cutting and forming metals.

(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 of 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
the 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
allow several different cutting tools to be used in a programmed sequence on the
same part without having to remove the part from the machine.

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 produced by the Company.

The  Company  has  pursued  a  strategy  that  is  focused  on  developing   and
distributing  to the  worldwide  machine  tool  market a  comprehensive  line of
leading-edge  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,  the Company has adopted an open systems architecture that permits its
CNC systems and software to be used with a variety of hardware platforms and has
emphasized   an   "operator    friendly"   design   that   employs   interactive
"conversational"  software.  The  Company  outsources  all of its  machine  tool
manufacturing  operations and a portion of its computer control manufacturing to
certain independent contract manufacturers and is concentrating its resources on
product research, development, design, marketing, distribution and service.


Products

The Company's  principal  products consist of CNC-operated  machine tool systems
(milling  machines and machining  centers) into which the Company's  proprietary
CNC  systems  have been  fully-integrated  as well as CNC  systems  and  related
software for both metal  cutting  machine  tools and metal forming press brakes.
The Company also produces and distributes  software  options  control  upgrades,
hardware  accessories and replacement  parts and provides  operator training and
support services to its customers.

The following table sets forth the  contribution of each of these product groups
to the Company's total revenues during each of the past three fiscal years:

                                                Year Ended October 31
(Dollars in thousands)               1997             1996               1995
                                     ----             ----               ----

CNC-Operated Machine
   Tool Systems............      $61,679 (64.4%) $65,518 (65.9%) $55,711 (62.2%)
CNC Systems and Software*.........18,801 (19.6%)  17,827 (17.9%)  19,027 (21.2%)
Service Parts......................9,612 (10.1%)  10,005 (10.0%)   9,073 (10.1%)
Service Fees.......................5,637  (5.9%)   6,001  (6.2%)   5,821 ( 6.5%)
                               -------------------------------------------------
                              $   95,729(100.0%) $99,351(100.0%) $89,632(100.0%)
                              ================== =============== ===============


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





<PAGE>


CNC-Operated Machine Tool Systems

The Company  designs and  markets  complete  stand-alone  milling  machines  and
machining centers, each of which is equipped with a fully-integrated interactive
Ultimax system. All of these machines are built to the Company's  specifications
by independent  contract  manufacturers.  The Company's  current line of machine
tools is a complete  family of products  with  different  levels of  performance
features for different market  applications and ranging in price from $39,000 to
$150,000.  Two series of  products  are offered  within the product  line -- the
Advantage Series and the Performance  Series -- each of which is marketed within
a distinct  price  range and  includes  machines  of  differing  sizes and power
levels, ranging from a five-horsepower  milling machine with an X-axis travel of
24  inches  to a  twenty-horsepower  machining  center  with 50 inches of X-axis
travel.

The Advantage  Series  products are equipped with the "Single Screen" version of
the  Ultimax CNC system and are  intended  for use by the  independent  contract
manufacturer   requiring  a  low-cost  product  with  basic  capabilities.   The
Performance  Series products employ the same machine tool frame as the Advantage
Series,  but  feature  the more  advanced  Ultimax  twin  screen  CNC system and
software  desired  by  the  precision  tool,  die  and  mold  market  and  parts
manufacturers,   where  fast   programming   of  complex   parts  is  a  key  to
competitiveness.

The  Company's  smaller  machines -- those with an X-axis travel of 30 inches or
less -- have embodied the Company's  proprietary machine tool design since their
introduction  in 1994.  In late  fiscal  1996,  the Company  introduced  two new
machining  center models with an X-axis of 40 inches that  incorporate  the same
proprietary design features.  The larger machines -- those with an X-axis travel
of 50 inches --  incorporate  a machine  tool  platform  developed by one of the
Company's contract manufacturers.  During fiscal 1997,  approximately 95% of the
machine tools sold by the Company embodied its proprietary design.

In the second  fiscal  quarter  of 1998,  the  Company  plans to  introduce  two
OEM-sourced milling machine products which will incorporate the Company's Single
Screen  Ultimax  CNC  system.  These  machines  will have an X axis travel of 30
inches and 40 inches,  respectively,  and will range in price from approximately
$35,000 to $45,000.

In the first quarter of fiscal 1998, the Company introduced several new products
which represent an expansion of the Company's strategy for the metal fabrication
market.  These products include 3 models of an OEM-sourced  press brake (bending
machine) and an OEM-sourced  combination  shear/press brake system, all of which
incorporate  the  Company's  Autobend CNC system,  and which will be sold to the
North American  market  through the Autobend  Products  division's  distribution
network.  The Company will also offer  European  precision-ground  tooling which
will be sold either in  conjunction  with a press brake or directly to end-users
of  press  brakes.  The  tooling  is  sourced  under an  exclusive  distribution
agreement with an Italian manufacturer.

CNC Systems and Software

The  Company's  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.
<PAGE>

o    Ultimax

The Company's patented Ultimax twin screen  "conversational"  CNC system,  which
incorporates  an interactive and powerful "data block"  programming  methodology
supported by extensive  geometric and process data  calculation  software tools,
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,  the  Company has added  enhancements
related to operator programming productivity, CAD compatibility, data processing
throughput  and  motion  control  speed  and  accuracy.  In  1994,  the  Company
introduced the latest  generation of the Ultimax CNC, the Ultimax 3/486,  and in
1997  began  marketing  a   Pentium*-based   version  of  the  Ultimax  CNC.  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, the Company  introduced a software option that interprets part programs
written for the worldwide  installed base of  competitors'  CNCs;  this software
option,  which provides  industry  standard data format  compatibility,  enables
end-users to use Hurco's 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 the Company's access to the contract  machining  market. In
1995, the Company 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 the Company's
milling machines and machining centers. The Ultimax CNC system is sold primarily
as a fully-integrated feature of a Hurco milling machine or machining center.

o    UltiPath

UltiPath is a new, 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  the  Company's  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 the Company's  distributors  to end-users
and to CNC control integrators and retrofitters serving the large installed base
of manual milling machines.

o    Delta Series

The Company's 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,  and are  marketed  to  original  equipment
manufacturers and retrofitters of a wide range of machine tool systems.



*    Pentium is a registered trademark of Intel Corporation.
**  Windows 95 is a registered trademark of Microsoft Corporation.
<PAGE>

In fiscal  1998,  the Company  plans to expand its  product  strategy to include
marketing 2-axis and 3-axis, OEM-sourced, milling and turning machines featuring
fully-integrated  Delta CNC systems.  These machines  systems will be sold under
the DynaPath(TM) name through the Company's  subsidiary,  Autocon  Technologies,
Inc.

o    Autobend

Autobend  CNC  systems  are  applied to press  brakes that form parts from sheet
metal and consist of a microprocessor-based  CNC and backgauge.  The Company has
manufactured and sold the Autobend product line since 1968. It currently markets
two models of its 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  will also be sold as a  fully-integrated  feature of a Hurco press brake
system.

o    CAM and Software Products

In addition to its CNC product  lines,  the  Company  offers  metal  cutting and
forming software products for programming two and three  dimensional  parts. Its
primary products are the Ultimax PC and PC+, off-line programming systems, and a
computer  aided design  (CAD)-compatible  DXF (data file  translation)  software
option. These 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.  The  Company  has  augmented  its  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, the Company's Ultimax CNC was enhanced
with  a  software   option  that   provides   industry   standard   data  format
compatibility.

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

Parts and Service

The Company's service organization provides installation,  operator training and
customer  support  for  the  Company's   products.   During  1996,  the  Company
transferred to its principal  distributors  primary  responsibility  for machine
installation  and warranty  service and support for new product sales.  Although
installation and service costs are borne by the distributor,  the Company offers
a greater price discount to those  distributors  providing  such  services.  The
Company's  own  service  organization  continues  to  service  and  support  the
installed base of discontinued models, and support its distributors with respect
to complex service operations. The Company also provides software  options, 
CNC  upgrades,  accessories  and  replacement  parts for its 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.  The Company's  after-sale  parts and service business helps
strengthen customer relationships and provides continuous information concerning
the evolving requirements of end-users.
<PAGE>

Marketing and Distribution

The end-users of the Company's 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.

The Company's  integrated  CNC-operated  milling machines and machining centers,
along with software  options and  accessories,  are sold primarily to end-users.
The Company sells its CNC systems and related products (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 1997,
no single end-user of the Company's  products  accounted for more than 5% of its
total revenues.

Sales are made  through  over 250  independent  agents  and  distributors  in 46
countries  throughout  North America,  Europe and Asia. The Company also has its
own direct sales personnel in the United States,  England,  France,  Germany and
Singapore,  which are considered to be among the world's  principal machine tool
consuming countries.  During fiscal 1997, no distributor accounted for more than
5% of total  revenues.  The Company has continuing  agreements  with each of its
distributors,  but may terminate those agreements upon prior notice ranging from
30 days to 180 days.  Approximately 80% of the worldwide demand for CNC-operated
machine tools and CNC systems comes from outside the U.S. and  accordingly,  the
Company  considers  its  international  market  presence  to be  critical to its
operations.

The Company believes the demand for CNC systems and  CNC-operated  machine tools
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 machine tools 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 its products on a worldwide
basis, the Company attempts to reduce the potential impact on its total revenues
of adverse changes in economic conditions in any particular geographic region.

Competition

Numerous companies compete with the Company's product lines in the United States
and international markets. Many of these competitors are larger and have greater
financial resources than the Company. The Company strives to compete effectively
by  designing  into its  products  critical  proprietary  features  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 its products in a range of prices and  capabilities,  the
Company seeks to meet the needs of a broad  potential  market.  The Company also
believes that its competitiveness is aided by its reputation for reliability and
quality,  its strong  international sales and distribution  organization and its
extensive customer service organization.
<PAGE>

In the  world-wide  industrial  market,  the  Company  is a leader in  providing
interactive  CNC  machine  tools  incorporating  user-friendly,   conversational
programming  systems.  The  Company's  principal  competitors  in the CNC  metal
cutting  machine  tool  market  include  Bridgeport  Machines  Inc.,  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 the Company.

In the  worldwide  CNC  systems  market,  the  Company  is a leader in  
providing  user-friendly,  "conversational" programming  systems for CNC machine
tools,  although its 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.

The  Company  believes it is 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 the Company's  major  competitors  for
these products in the United  States.  The Company also competes with Cybelec in
Europe.

Manufacturing

The  Company  has  established  a  manufacturing  strategy  which  includes  the
development of a global network of contract  manufacturers  who  manufacture the
Company's  products to the Company's  design,  quality and cost  specifications.
This has enabled the Company to lower product costs,  lower working  capital per
sales  dollar  and  to  increase   manufacturing  capacity  without  significant
incremental investment in capital equipment or increased employment.

The Company's  CNC-operated  machine tools and milling machines are manufactured
to its specifications in Taiwan by three manufacturing contractors.  The Company
has worked  closely with its  Taiwan-based  contract  manufacturers  to increase
their  production  capacity  to meet the  rising  demand  for its  machine  tool
products and believes  that such  capacity is  sufficient  to meet the Company's
current and projected  demand.  During 1997, the Company entered into a contract
manufacturing  agreement  with a European  machine tool  builder to  manufacture
machine tools for the Company's European  subsidiaries.  Although the Company is
exploring  additional  manufacturing  sources for  certain of its  machine  tool
products,  alternative  sources are not readily  obtainable and any  significant
reduction in capacity,  or performance  capability,  on the part of its existing
machine tool  manufacturing  contractors would have a material adverse effect on
its operations.

The  Company  assembles  and  tests its CNC  systems  at its own  facilities  in
Indianapolis,  Indiana and Farmington Hills,  Michigan 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 the  Company's  specifications  by several  domestic  suppliers.  In
October 1996, the Company entered into a contract  manufacturing  agreement with
Hurco Automation Ltd. (HAL), a Taiwanese-based, affiliated company formed by the
Company and six Taiwanese investors. HAL is manufacturing certain CNC systems to
the Company's  specifications,  and is also supplying  certain  proprietary  and
standard components to be used in domestic production. The Company believes that
alternative sources for the proprietary components are readily available.
<PAGE>

Backlog

Backlog  consists of firm  orders  received  from  customers  and  distributors.
Backlog was $7.4 million, $9.0 million and $15.3 million as of October 31, 1997,
1996, and 1995, respectively. Backlog at October 31, 1995 was higher than normal
due to strong  demand  during  fiscal 1995 for the Company's new line of machine
tool  products  combined  with limited  product  availability.  The reduction of
backlog at October  31,  1996  reflects  increased  availability  of product for
shipment.  Fiscal 1997 orders were $94.8  million  compared to $93.1 million for
fiscal 1996, and $98.9 million for fiscal 1995.


Intellectual Properties

The Company  considers  certain  features of its products to be proprietary  and
owns, directly or through a subsidiary, a number of patents that are significant
to its business.  IMS Technology,  Inc. (IMS), a wholly-owned  subsidiary of the
Company,  owns domestic and foreign patents (the Interactive  Machining Patents)
covering the machining  method  practiced when a machine tool is integrated with
an  interactive  CNC. The Company also holds a  non-exclusive  license  covering
features of the automatic tool changer offered with certain of its CNC machining
centers.  In  September  1995,  the  Company  was  awarded  a new  patent  on an
object-oriented methodology (open architecture) for CNC software.

Since October 1995, IMS has initiated a number of  infringement  actions against
enterprises  that it believes are  employing  or  practicing  machining  methods
covered by one of the Interactive  Machining Patents.  These enterprises include
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). See Item 3. Legal
Proceedings.

IMS is  actively  pursuing  a  program  to  license  the use of the  Interactive
Machining Patents. During fiscal 1997 and 1996, IMS entered into agreements with
15 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. The Company recorded license fee
income of $9.1 million and $590,000,  net of legal fees and expenses,  in fiscal
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, 1997 are expected to result in additional license fee income, net of
legal  fees and  expenses,  of  approximately  $1.2  million  through  2001.  In
addition, IMS has received a royalty-free non-exclusive license (with a right of
sublicense to the Company) under six patents owned by two of the licensees.

From November 1, 1997 through January 20, 1998, IMS has entered into a number of
additional license  agreements,  including  agreements with four CNC Users which
were defendants in the infringement  actions.  These agreements provide for cash
payments,  substantially  all of which is to be received in fiscal  1998.  These
payments are expected to increase income by approximately $1.4 million,  net
of legal fees and  expenses,  in the first  quarter of fiscal 1998. In addition,
one of the  agreements  is with a  supplier  to the  Company  and  provides  for
discounts  on future  purchases of product by the Company  through  December 31,
2001. This agreement,  with respect to product discounts,  is expected to reduce
the cost of such future purchases by approximately $600,000.

Although  settlements  have been reached with a number of the  defendants in the
on-going  IMS patent  infringement  litigation  which have  resulted  in license
agreements with IMS, the remaining  defendants are continuing to contest the IMS
claims.  IMS is  continuing  to pursue  the  litigation  and is also  engaged in
licensing  discussions  with  other  CNC  Users  that  are  not  parties  to the
litigation.  There  can  be no  assurance  that  IMS  will  enter  into  license
agreements with any of the remaining defendants, or any other CNC Users, or that
the terms of any future license  agreements will be similar to those  previously
entered into.
<PAGE>

Research and Development

Research and development  expenditures for new products and significant  product
improvements  were $1.9  million,  $1.7 million and $1.4 million in fiscal 1997,
1996, and 1995, respectively.  In addition, the Company capitalized expenditures
of $1.6  million in 1997,  $1.3 million in 1996 and $1.2 million in 1995 related
to software development projects.

Employees

The Company had 326 employees at the end of fiscal 1997, none of whom is covered
by a collective-bargaining  agreement or represented by a union. The Company has
experienced no  employee-generated  work stoppages or disruptions  and considers
its employee relations to be satisfactory.

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

The  following  represents  a  breakdown  of  Company  sales  to  the  indicated
geographic regions for the past three fiscal years (in thousands):
                                              1997          1996          1995
                                            -------       -------       -------

North America.............................  $46,915       $50,398       $49,005
Europe....................................   45,725        44,014        35,434
Asia and other*...........................    3,089         4,939         5,193
                                          ---------     ---------     ---------
Total....................................$   95,729       $99,351       $89,632
                                         ==========       =======       =======

         * Sales to Asia, including exports in fiscal 1997 constituted only $2.2
million, or 2.3% of total sales.

Export  sales from the United  States  were $5.3  million in fiscal  1997,  $5.8
million in fiscal 1996 and $6.4 million in fiscal 1995.

Information  regarding Total Sales,  Operating Income and Identifiable Assets by
geographical area is shown in Note 16 to the Consolidated Financial Statements.



<PAGE>


Item 2.  PROPERTIES

The following  table sets forth the location,  size and principal use of each of
the Company's 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.

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

High Wycombe, England             45,000(2)   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
       1998.  (2)  Approximately  24,000  square  feet  have  been  sublet  to a
       subtenant since November 1995.

The Company owns the Indianapolis facility and leases the other facilities.  The
leases have terms  expiring at various dates ranging from March 1999 to February
2004. The Company  believes that all of its  facilities are well  maintained and
are adequate for its needs now and in the foreseeable  future.  The Company does
not believe that it would  experience  any  difficulty  in replacing  any of the
present facilities if any of its current leases were not renewed at expiration.

<PAGE>

Item 3.  LEGAL PROCEEDINGS

On October 10, 1995, the Company's wholly-owned subsidiary, IMS Technology, Inc.
(IMS),  commenced an action in the United States District Court for the Northern
District of Illinois against a group of end-users of interactive  CNCs,  machine
tool  manufacturers  who  incorporate  interactive  CNCs in their  products  and
manufacturers of CNCs (CNC Users) designed to permit use of interactive  methods
when coupled to machine tools. IMS alleged that the defendants infringed the IMS
United States interactive  machining patent (the Patent) and is seeking monetary
damages and an injunction  against  future  infringement.  IMS has  subsequently
entered into  settlements  with a number of the defendants and has dismissed all
claims against them.  The  defendants who have not settled are: Okuma  Machinery
Works,  Ltd.;  Okuma  American  Corporation;  Ellison  Machinery  Company of the
Midwest, Inc.; and Apollo Machine & Manufacturing Company, Inc.

On January 11, 1996, IMS commenced an action in the United States District Court
for the Eastern District of Virginia (which was subsequently  transferred to the
United States District Court for the Northern  District of Illinois) against two
CNC Users with whom IMS has subsequently  entered into  settlements.  On January
29, 1996, Mitsubishi Electric Corporation  (Mitsubishi) was added to the action.
This action alleges infringement of the Patent and seeks monetary damages and an
injunction against future infringement.

IMS and the Company are  defendants  in an action  pending in the United  States
District Court for the Northern  District of Illinois that was commenced January
29, 1996 by Mitsubishi and Mitsubishi Electric Industrial Controls.  This action
seeks  to have the  Patent  declared  invalid.  In  September  1997,  the  court
dismissed  Mitsubishi's  claims  that IMS and the Company had misused the Patent
and violated federal  antitrust  actions.  Other claims that remain at issue are
whether IMS and the Company  disparaged  Mitsubishi's  goods and business,  made
false statements  concerning the Patent,  interfered with Mitsubishi's  business
and violated state  consumer fraud  statutes.  The complaint  seeks  unspecified
damages  and  injunctive  relief.  In a  counter-claim,  IMS  alleges  that  the
plaintiffs have infringed the Patent.

The three actions described above are being coordinated under local court rules.
Discovery is currently in process.

On July 3, 1997, IMS commenced an action in the United States  District Court of
Virginia against a number of CNC Users alleging infringement of the Patent. This
action seeks monetary damages and an injunction against future infringement. IMS
has  subsequently  entered into  settlements with a number of the defendants and
has dismissed all claims against them. The only defendant who has not settled is
Haas Automation, Inc.

On September 29, 1997,  IMS  commenced an action in the United  States  District
Court  for the  Eastern  District  of  Virginia  against  a number  of CNC Users
alleging  infringement of the Patent. This action sought monetary damages and an
injunction  against  future  infringement.  All of the defendants in this action
have settled with the Company.

Although  IMS  believes  that the  Patent  is valid  and its  claims  of  patent
infringement have substantial  merit, it is unable to predict the outcome of any
of these actions.

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


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

The Company's  Common Stock is traded on the National  Market tier of 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 Stock Market.

                                  1997                            1996
                          ---------------------            --------------------
Fiscal Quarter Ended:..... High          Low                High          Low
--------------------      ---------------------            --------------------
January 31...............$ 6-1/4      $ 4-1/2             $ 7-1/4      $ 4-1/4
April 30.................  6-1/4        4-3/4               4-5/8        3-1/4
July 31..................  6-3/16       5-1/4               7            4-1/8
October 31...............  9-7/16       5-3/4               6-1/2        4-1/2


The Company does not  currently pay dividends on its Common Stock and intends to
retain earnings for working capital, capital expenditures and debt reduction.

The Company had  approximately  556 holders of record of its Common  Stock as of
January 12, 1998.

During the period  covered by this  report,  the Company 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  the
Consolidated  Financial  Statements  of the Company 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,
                                    1997      1996      1995      1994     1993
                                 -----------------------------------------------
Statement of Operations Data:   (Dollars in thousands, except per share amounts)

 Sales and service fees......... $95,729   $99,351   $89,632   $72,628  $72,230

 Gross profit................... $27,773   $28,421   $23,470   $15,565  $11,079

 Selling, general and adminis-
   tration expenses..............$21,047   $21,343   $19,002   $18,129  $22,652

 Restructuring charge............$    --   $    --   $    --   $    --  $ 6,750

 Operating income (loss).........$ 6,726   $ 7,078   $ 4,468   $(2,564)$(18,323)

 Interest expense................$ 1,938   $ 3,211   $ 4,250   $ 3,301  $ 2,828

 Net income (loss)...............$13,804   $ 4,264   $   204   $(5,791)$(21,144)

 Earnings (loss)
   per common share-primary......$  2.06   $   .72   $   .04   $ (1.07) $ (3.89)

 Weighted average common
   shares outstanding-primary......6,704     5,907     5,536     5,407    5,438


                                                As of October 31,
                                 1997       1996       1995       1994     1993
                                ------------------------------------------------
Balance Sheet Data:                           (Dollars in thousands)

   Current assets.............$42,222     $44,108   $46,356    $43,096   $49,314

   Current liabilities........$19,370     $23,336   $26,479    $16,985   $16,312

   Working capital ...........$22,852     $20,772   $19,877    $26,111   $33,002

   Current ratio..............    2.2         1.9       1.8        2.5       3.0

   Total assets...............$58,748     $59,750   $61,421    $59,558   $67,287

   Long-term obligations......$9,602     $ 20,273   $27,459    $35,245   $37,888

   Total debt.................$10,043     $22,110   $33,599    $34,813   $37,540

   Shareholders' equity.......$29,776     $16,141   $ 7,483    $ 7,328   $13,087



<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
the actual  results,  performance or  achievements of the Company 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 CNC  control  systems,  machine  tools and
software products,  (ii) changes in manufacturing  markets, (iii) innovations by
competitors,  (iv) quality and delivery  performance  by the Company's  contract
manufacturers and (v) governmental actions and initiatives.

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 revenues and the year-to-year percentage changes in the dollar amounts
of those items.

                              Percentage of Revenues       Year-to-Year % Change
                                             Increase (Decrease)
                             1997     1996      1995       97 vs. 96   96 vs. 95
                             ----    -----     -----       ---------   ---------

Sales and service fees......100.0%   100.0%    100.0%         (3.6%)      10.8%
Gross profit................ 29.0%    28.6%     26.2%         (2.3%)      21.0%
Selling, general and
  administrative expenses... 22.0%    21.5%     21.2%         (1.4%)      12.4%
Operating income............  7.0%     7.1%      5.0%         (5.0%)      58.4%
Interest expense............  2.0%     3.2%      4.8%        (39.6%)     (24.4%)
Net income.................. 14.4%     4.3%       .2%        223.7%    1,990.2%


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.
<PAGE>

Sales of CNC-operated machine tools, 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 CNC-operated machine
tools in Europe increased  $523,000,  or 1.5%, in spite of the adverse impact of
foreign currency translation.  In comparing the fiscal 1997 and 1996 results, it
also  should be  recognized  that the first half of fiscal 1996 was marked by an
unusually high level of shipments,  as the increasing  availability  of products
from the Company's 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 the  Company's
products  along  with a transfer  to the  Company's  distributors  in the United
States of responsibility for certain servicing activities.  International sales,
including  exports from the United  States,  increased to  approximately  51% of
consolidated sales for fiscal 1997 compared to 49% 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  CNC-operated  machine tools increased 7.5% in units and 11.1% in
constant U.S. dollars. Domestic U.S. machine tool orders increased 9.3% in units
and  16.1% in  dollars  which  was  attributable  primarily  to  demand  for the
Company's  proprietary-designed  40 inch axis machining center models introduced
in late fiscal 1996.  Machine tool orders in Europe increased 15.3% in units and
14.3% in constant U.S. dollars,  also due in large part to demand for the new 40
inch axis models.  These increases were partially offset by a decline in machine
tool  orders in South  East Asia of $1.9  million,  or 69.9%,  to less than $1.0
million in fiscal 1997.  The Company does not expect market  conditions in South
East Asia to improve in the near future.

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.  In fiscal 1998, the Company plans to expand its product  strategy to
include  marketing 2-axis and 3-axis,  OEM-sourced  milling and turning machines
featuring fully-integrated Delta CNC systems. These machine systems will be sold
under  the  DynaPath(TM)   name  through  the  Company's   subsidiary,   Autocon
Technologies, Inc.

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

Gross profit percentage,  as a percentage of sales, increased to 29.0% in fiscal
1997, compared to 28.6% for fiscal 1996 net 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.

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 the Company's 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 13  agreements  entered  into  during  the  year  by the  Company's
wholly-owned  subsidiary,  IMS  Technology,  Inc.  (IMS),  pursuant to which IMS
granted fully paid-up  licenses of its  interactive  CNC patents in exchange for
cash  payments  by the  licensees,  substantially  all  of  which  was  received
concurrently with the license grants.  Further, under a license agreement with a
principal  supplier  to the  Company,  approximately  $500,000 is expected to be
received in future periods in the form of discounts on purchases by the Company,
which will be  reflected  as a reduction  of the cost of such  purchases.  As of
October 31, 1997,  additional license fees of approximately $1.2 million, 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.

From November 1, 1997 through January 20, 1998, IMS has entered into a number of
additional license  agreements,  including  agreements with four CNC Users which
were defendants in the  infringement  actions brought by IMS concerning the U.S.
IMS interactive machining patent (the Patent). These agreements provide for cash
payments,  substantially  all of which is to be received in fiscal  1998.  These
payments are expected to increase income by approximately $1.4 million,  net
of legal fees and  expenses,  in the first  quarter of fiscal 1998. In addition,
one of the  agreements  is with a  supplier  to the  Company  and  provides  for
discounts  on future  purchases of product by the Company  through  December 31,
2001. This agreement,  with respect to product discounts,  is expected to reduce
the cost of such future purchases by approximately $600,000.

Excluding  those  CNC  Users  that are  defendants  in the  patent  infringement
actions,  there  are a  limited  number  of  remaining  CNC  Users  that IMS has
identified  as  potential  licensees  for the  Patent.  Accordingly,  management
believes it is unlikely that future license fee income from such other potential
licensees would equal that recorded in fiscal 1997.

For  further  information,  refer  to  Note  10 to  the  Consolidated  Financial
Statements.
<PAGE>

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
the Company's net operating loss carryforwards. Net operating loss carryforwards
available to offset  pre-tax income in future periods are set forth in Note 6 to
the Consolidated Financial Statements.

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.

Fiscal 1996 compared with Fiscal 1995

Total sales and service  fees of $99.4  million in fiscal  1996  increased  $9.7
million,  or 10.8%,  over fiscal  1995,  inclusive  of a $1.0  million  decrease
attributable to weaker European  currencies  when  converting  foreign  currency
revenues into U.S.  dollars for  financial  reporting  purposes.  On a worldwide
basis, sales of CNC-operated machine tools totaled $65.5 million, an increase of
$9.8 million,  or 17.6%, over fiscal 1995, and sales of CNC systems and software
(which  do not  include  systems  and  software  sold as an  integrated  part of
CNC-operated  machine tools) totaled $17.8 million,  a decrease of $1.2 million,
or 6.3%, from fiscal 1995. The increase in the CNC-operated machine tool product
line  reflected the  continued  strength of the world's  principal  machine tool
markets,  strong demand in Europe for the Company's  Advantage series of machine
tools,  (which  was  introduced  in  that  market  in  mid  1995)  and  enhanced
availability  of the  Company's  products  for  shipment as a result of capacity
increases on the part of its contract manufacturers. The decrease in CNC systems
and software  sales was primarily the result of decreased  shipments of Autobend
products to original equipment manufacturers,  some of whom have developed their
own CNC  systems.  Revenues  attributable  to sales of parts  and  service  fees
increased $1.1 million, or 7.5%, from fiscal 1995 levels,  primarily as a result
of increased part sales to support the increase in the installed machine base.

In the United  States,  sales and  service  fees in fiscal  1996  increased  $.6
million,  or 1.1%, over fiscal 1995 reflecting a slight increase in shipments of
machine tool products.  Increased  shipments of Delta series control systems for
metal cutting machine tools, primarily to original equipment manufacturers, were
offset  by  decreased  shipments  of  Autobend  control  products  to the  metal
fabrication equipment market.

European sales and service fees in fiscal 1996 increased $8.6 million, or 26.5%,
over fiscal 1995, inclusive of the effects of currency translation for financial
reporting  purposes.  European sales measured in local currency increased 29.4%.
The  improvement  was primarily  attributable  to an increase in unit shipments,
without a significant  change in margins or average selling  prices,  aided by a
full year of sales of the Advantage series product line,  continued  strength of
the European  machine  tool market and  increased  availability  of products for
shipment.
<PAGE>

International sales,  including export sales,  increased to approximately 49% of
total consolidated sales for fiscal 1996 compared to 45% for fiscal 1995.

Worldwide new order bookings for fiscal 1996 were $93.1  million,  a decrease of
$5.8 million,  or 5.9%, from fiscal 1995. While  international  orders increased
$2.7 million,  or 6.8%, in spite of lower foreign  currency  translation  rates,
domestic  orders  declined  $8.5  million,  or 14.5%.  The  decline in  domestic
bookings  was due almost  entirely  due to the fact that  domestic  machine tool
bookings  during the first half of fiscal 1995  reflected  unusually high demand
for the just introduced  Advantage series machine tool line fueled,  in part, by
distributor  anticipation  of  limited  product  availability.   The  increasing
availability  of  Advantage  series  products for shipment in the second half of
fiscal  1995 and first half of fiscal  1996  enabled  the  Company to assure its
domestic  customers  shorter delivery times,  which,  along with somewhat slower
machine tool demand, contributed to a decline in the order rates. Domestic order
bookings in the second half of fiscal 1996  approximated  that of the comparable
period  in  fiscal  1995 due in part to the  introduction  of new  machine  tool
products in September  1996.  Consolidated  backlog at October 31, 1996 was $9.0
million  compared to $15.3  million at October 31,  1995,  reflecting  increased
availability of products for shipment.

Gross  profit  margin as a percentage  of revenues  increased to 28.6% in fiscal
1996  from  26.2% in fiscal  1995  despite  the  unfavorable  impact of  foreign
currency  translations  for financial  reporting  purposes.  The increase is the
result of an increased  percentage of higher-margin  products in the total sales
mix along with the increase in the  percentage  of total sales  attributable  to
higher-margin international sales.

Selling,  general and  administrative  (SG&A)  expenses in fiscal 1996 increased
$2.3 million, or 12.4%, over fiscal 1995 net of unfavorable currency translation
effects.  The  increase  reflects a  $500,000  increase  in product  development
expenses,  expenditures  related to the  bi-annual  International  Manufacturing
Technology Show (IMTS) and increased selling expenses  associated with increased
unit volume.

The improvement in operating income in fiscal 1996 continues the Company's trend
of improved profitability over the past three years as a result of its completed
restructuring  program,  the introduction of new  higher-margin  products and an
improved machine tool market worldwide.

Interest  expense in fiscal 1996 decreased $1.0 million,  or 24.4%,  from fiscal
1995. The decrease is the result of a $11.5 million  reduction of debt,  reduced
interest  rates on the  Company's  variable  rate bank  borrowings,  and reduced
incremental fees paid to the Company's lenders.  The incremental fees, which are
non-recurring, amounted to $240,000 in fiscal 1996 and $400,000 in fiscal 1995.

License fee income in fiscal 1996 of $590,000,  net of legal fees and  expenses,
results from two separate  licensing  agreements  entered into by the  Company's
wholly-owned subsidiary,  IMS Technology,  Inc., with respect to its interactive
machining  patents.  Under  the  terms  of the  agreements,  additional  fees of
approximately $1.4 million,  net of legal fees and expenses,  are expected to be
received in annual  installments  through  fiscal 2001,  of which  approximately
$386,000 is expected to be included in income in fiscal 1997.

The provision for income taxes of $94,000 in fiscal 1996 relates to the earnings
of a foreign subsidiary.  The income tax liability incurred in the United States
and  certain  other  jurisdictions  was  offset  by the  reversal  of  valuation
allowance reserves against the Company's net operating loss  carryforwards.  Net
operating  loss  carryforwards  available  to  offset  pre-tax  income in future
periods are set forth in Note 6 to the Consolidated Financial Statements.
<PAGE>

Year 2000 Issue

The Company has assessed and continues to assess the impact of the Year 2000 
Issue on its reporting systems and operations.  The Year 2000 Issue exists 
because many computer systems and applications currently use two digit field
codes to designate a year.  As the century date occurs, date sensitive systems 
will recognize the year 2000 as 1900 or not at all.  An inability to recognize
or properly treat the year 2000 could cause the Company's systems or those of 
the Company's suppliers to process critical financial and operational
information incorrectly.  The Company is not aware of any Year 2000 Issue that
would have a material adverse effect on its operations. 

Foreign Currency Risk Management

The Company  manages its foreign  currency  exposure  through the use of foreign
currency  forward  exchange  contracts.  The Company  does not  speculate in the
financial  markets  and,  therefore,  does not enter  into these  contracts  for
trading  purposes.  The Company  also  moderates  its  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 management's  objectives in fiscal 1997 and fiscal 1996.
See Note 1 to the Condensed Consolidated Financial Statements.


Liquidity and Capital Resources

At October 31, 1997,  the Company had cash and cash  equivalents of $3.4 million
compared  to $1.9  million at October 31,  1996.  Cash  provided  by  operations
totaled $16.0  million in fiscal 1997,  compared to $8.5 million in fiscal 1996.
Cash  flow  from   operations  in  fiscal  1997  was  enhanced  by  receipts  of
approximately $9.1 million of license fees, net of legal fees and taxes received
during fiscal 1997, compared to $590,000 in fiscal 1996.

Working capital was $22.9 million at October 31, 1997, compared to $20.8 million
at October 31, 1996. The working capital increase is attributable to an increase
of cash of $1.5  million  along with a $1.2  million  reduction  in the  current
portion of  long-term  debt.  Accounts  receivable  decreased  $1.0 million as a
result of the  decrease  in sales and  improved  collection  efforts.  Inventory
declined $2.1 million,  primarily in purchased parts inventory and is attributed
to the Company's contract manufacturing program. The favorable impact on working
capital  resulting  from the reduction in inventory and accounts  receivable was
almost entirely offset by decreases in accounts payable and accruals.  The ratio
of  current  assets to current  liabilities  was 2.2 to 1 at  October  31,  1997
compared to 1.9 to 1 at October 31, 1996.

Capital  investments for fiscal 1997 consisted  principally of expenditures  for
property,   equipment  and  software  development  projects.  Other  investments
included $190,000 in the second fiscal quarter with respect to Hurco Automation,
Ltd.  (HAL).  As of October 31, 1997,  the Company has a commitment to invest an
additional  amount of  approximately  $370,000 in HAL through  fiscal 1999.  The
Company's investment activities were funded through cash flow from operations.
<PAGE>

Effective  September 8, 1997,  the  Company's  Bank Credit  Agreement and Senior
Notes  Agreement  were  amended  and  restated.  The  principal  terms  of those
agreements as amended and restated are set forth below:

     a)  Bank Credit Agreement

         The Company's 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 $22.5 million (inclusive of outstanding
         letters of credit of up to $12.0 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 the
         Company's option, prime.

         The agreement  requires the Company 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.  The  Company is  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).

     b)  Senior Notes

         At October 31, 1997,  the Company had  outstanding  approximately  $7.1
         million of unsecured Senior Notes,  bearing an interest rate of 10.37%,
         of which  approximately $1.8 million is due on December 1, 1997 and the
         balance is due in equal annual installments through 2000.

         Effective  September 8, 1997, the agreement  governing the Senior Notes
         was  amended  and  restated  on  an  unsecured   basis.  In  connection
         therewith,  the interest rate on the Senior Notes was reduced to 10.37%
         from  10.87% and the  financial  covenants  were  amended to conform to
         those  contained  in the  Company's  amended and  restated  bank credit
         agreement.

Outstanding  borrowings  under the Company's  bank credit  facilities and Senior
Notes were reduced by $12.1 million during fiscal 1997, primarily as a result of
repayments  made  with  cash  flow  from  operations,  including  license  fees.
Management  believes that cash flow from  operations  and  borrowings  under its
credit facilities will be sufficient to meet the Company's working capital needs
for the foreseeable future.

The Company was in compliance with all loan covenants at October 31, 1997.




<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, 1997 and 1996,
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, 1997.  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, 1997 and 1996,  and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period  ended  October 31,  1997,  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 part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.






                                                 ARTHUR ANDERSEN LLP


Indianapolis, Indiana
December 5, 1997.


<PAGE>


                                                            
                                                  HURCO COMPANIES, INC.
                                          CONSOLIDATED STATEMENTS OF OPERATIONS


                                             Year Ended October 31,
                                      1997              1996             1995
                                (Dollars in thousands, except per share amounts)


Sales and service fees..........  $ 95,729         $  99,351         $ 89,632

Cost of sales and service ......    67,956            70,930           66,162
                                    ------            ------           ------

     Gross profit...............    27,773            28,421           23,470

Selling, general and 
administrative expenses.........    21,047            21,343           19,002
                                    ------            ------           ------

     Operating income ..........     6,726             7,078            4,468

License fee income, net (Note 14)   10,095               590               --

Interest expense................     1,938             3,211            4,250

Other income (expense), net.....       (51)              (99)             (14)
                                    -------         ---------        --------

     Income before income taxes.    14,832             4,358              204

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

Net income ....................    $13,804          $  4,264         $    204
                                  ========         =========         ========


Earnings per common 
share - primary................   $   2.06         $     .72         $    .04
                                  ========         =========         ========


Weighted average common shares 
outstanding - primary..........      6,704             5,907            5,536
                                  ========         =========         ========

Earnings per common share - 
fully diluted..................   $   2.04         $     .72         $    .04
                                  ========         =========         ========

Weighted average common shares
outstanding -fully diluted......     6,776             5,907            5,582
                                  ========         =========         ========



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


<PAGE>


                                            HURCO COMPANIES, INC.
                                        CONSOLIDATED BALANCE SHEETS

ASSETS
                                                        As of October 31,
                                                       1997           1996
Current assets:                 (Dollars in thousands, except per share amounts)
   Cash and cash equivalents..................... $   3,371      $   1,877
   Accounts receivable, less 
   allowance for doubtful accounts
    of $757 in 1997 and $785 in 1996.............    15,687         17,162
   Inventories ..................................    21,752         24,215
   Other.........................................     1,412            854
                                                    -------        -------
     Total current assets........................    42,222         44,108
                                                     ------         ------

Long-term license fee
receivables (Note 14)............................     1,178          1,040
                                                    -------       --------

Property and equipment:
   Land..........................................       761            761
   Building......................................     7,067          7,095
   Machinery and equipment.......................    11,463         12,662
   Leasehold improvements........................     1,121          1,002
                                                    -------       --------
                                                     20,412         21,520
   Less accumulated depreciation 
   and amortization of...........................   (11,218)       (11,714)
                                                     ------         ------
                                                      9,194          9,806
                                                    -------         ------

Software development costs, 
less accumulated amortization 
of $4,692 in 1997 and $3,752 
in 1996..........................................     4,447          3,792
Other assets.....................................     1,707          1,004
                                                    -------       --------
                                                  $  58,748      $  59,750
                                                     ======         ======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable.............................. $   7,448      $   9,715
   Accounts payable-related parties..............     1,798          1,692
   Accrued expenses..............................     6,886          7,454
   Accrued warranty expenses.....................     1,452          1,425
   Current portion of long-term debt.............     1,786          3,050
                                                    -------        -------
     Total current liabilities...................    19,370         23,336
                                                     ------         ------

Non-current liabilities:
   Long-term debt ...............................     8,257         19,060
   Deferred credits and other ...................     1,345          1,213
                                                    -------       --------
                                                      9,602         20,273

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; 6,544,831 and 
   6,531,871 shares issued and
     outstanding in 1997 and 1996, respectively..       654            653
   Additional paid-in capital....................    50,349         50,312
   Accumulated deficit...........................   (16,404)       (30,208)
   Foreign currency translation adjustment.......    (4,823)        (4,616)
                                                    -------        -------
     Total shareholders' equity..................    29,776         16,141
                                                     ------        -------
                                                  $  58,748      $  59,750
                                                     ======         ======

         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,
                                                 1997         1996          1995
                                                 ----         ----          ----
Cash flows from operating activities:                (Dollars in thousands)
   Net income ...........................    $ 13,804     $  4,264     $     204
   Adjustments to reconcile net income to
   net cash provided by operating activities:
     Depreciation and amortization.......       2,078        2,677         2,861
     Unrealized (gain) loss on foreign 
     currency transactions...............        294          267           (59)
     Change in asset/liabilities
      (Increase) decrease in accounts
       receivable........................      1,043          356        (3,148)
      Decrease in inventories............      2,107          959         1,004
      Increase (decrease) in accounts payable (2,096)         856         2,118
      Increase (decrease) in accrued expenses   (681)        (534)          902
      Other..............................       (525)        (346)         (156)
                                              -------       ------        ------
         Net cash provided by operating 
         activities......................     16,024        8,499         3,726
                                             -------        -----         -----

Cash flows from investing activities:
   Proceeds from sale of equipment.......        126           34            99
   Purchase of property and equipment....       (640)        (561)         (551)
   Software development costs............     (1,595)      (1,318)       (1,066)
   Other ................................       (418)        (181)           86
                                           ---------       ------       -------
         Net cash (used for) investing 
         activities......................     (2,527)      (2,026)       (1,432)
                                             -------        -----         -----

Cash flows from financing activities:
   Advances on bank credit facilities.....    30,173       49,985        68,625
   Repayments of bank credit facilities...   (39,154)     (55,088)      (69,997)
   Repayments of term loan................    (3,036)      (6,342)           --
   Proceeds from exercise of common stock 
    options..........................             38           47            29
   Proceeds from stock rights offering, net       --        4,802            --
                                             -------       ------      --------
         Net cash (used for) financing 
         activities.......................   (11,979)      (6,516)       (1,343)
                                             -------        -----         -----

Effect of exchange rate changes on cash...       (24)        (152)           20
                                             -------     --------         -----
         Net increase (decrease) in cash..     1,494         (195)          971

Cash and cash equivalents at beginning 
        of year...........................     1,877        2,072         1,101
                                             -------        -----         -----

Cash and cash equivalents at end of year..    $3,371  $    1,877   $       2,072
                                               =====       =====           =====

Supplemental disclosures:
   Cash paid for:
      Interest............................  $  1,828     $  2,759     $   3,656
      Income taxes........................  $  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, 1994.....5,413,682   $541 $ 45,546   $(34,676)   $(4,083)


Net income.....................      --      --      --    $    204         --
Translation of foreign currency 
financial statements...........      --      --      --          --        (78)
Exercise of common stock options  11,620      2       27         --         --
                              ---------- ------ --------   --------  ----------

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)
                               =========   ====   ======     =======    ======



              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  its  wholly-owned  and
controlled  subsidiaries (the Company). A 24% 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.  The Company  considers 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.  The Company enters 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 the Company has
firm purchase  commitments.  The purpose of these  instruments is to protect the
Company 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.

The Company enters 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.  Gains and losses
related  to  contracts  designated  as  hedges  of net  investments  in  foreign
subsidiaries  are accrued as exchange  rates  change and are  recognized  in the
"Foreign currency translation adjustment" portion of shareholders' equity on the
Consolidated Balance Sheets.

The U.S.  dollar  equivalent  notional  amount of outstanding  foreign  currency
forward  exchange  contracts was  approximately  $19.0 million as of October 31,
1997 ($17.8 related to firm intercompany sales commitments) and $12.6 million as
of  October  31,  1996  ($10.1  million  related  to  firm  intercompany   sales
commitments).  Deferred  losses  related to hedges of future sales  transactions
were  approximately  $408,000  and  $61,000  as of  October  31,  1997 and 1996,
respectively. Contracts outstanding at October 31, 1997, mature at various times
through July 21, 1998.  All contracts are for the sale of currency.  The Company
does 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.  Revenue from  maintenance  contracts is
deferred and  recognized  in earnings on a pro rata basis over the period of the
agreement.  Revenue  related to software  products is recognized when shipped in
conformity  with  American  Institute  of  Certified  Accountants'  Statement of
Position 97-2 Software Revenue Recognition.

License  Fee  Income,  Net.  From  time  to  time,  the  Company's  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,  are recognized in income,
net of legal fees and  expenses,  if any, at the time the license  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,

                                                 1997         1996         1995
                                                 ----         ----         ----
Research and development expenditures.......$   1,870      $ 1,689     $  1,362
Less: amounts reimbursed by third parties...       --           58          354
                                             --------       ------       ------
     Net research and development expenses..$   1,870      $1,631      $  1,008
                                             ========       =====       =======

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. The
Company  capitalized $1.6 million in 1997, $1.3 million in 1996 and $1.2 million
in 1995  related to  software  development  projects.  Amortization  expense was
$940,000,  $1.0 million and  $864,000,  respectively,  for the three years ended
October 31, 1997.

Earnings Per Share. Earnings per share of common stock are based on the weighted
average  number of common  shares  outstanding,  which  includes  the effects of
outstanding stock options computed using the treasury method.

Income Taxes.  The Company  records  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  management  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.  The Company designs and produces computer numerical control
(CNC) systems and software and  CNC-operated  machine tools for sale through its
own distribution  system to the worldwide  machine tool industry.  The Company's
proprietary CNC systems and related software products are either integrated with
machine tools marketed by the Company, sold to machine tool end users or sold to
other machine tool manufacturers who integrate them with their own products.

The end market for the Company's  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.   The  Company's  products  are  sold  through  over  250
independent  agents and  distributors in 46 countries  throughout North America,
Europe and Asia.  The Company  also  maintains  direct sales  operations  in the
United States, England, France, Germany and Singapore.

Credit Risk.  The Company sells  products to customers  located  throughout  the
world.  The  Company  performs  ongoing  credit  evaluations  of  customers  and
generally does not require  collateral.  Allowances are maintained for potential
credit losses, and such losses have been within management's 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. The Company contracts principally with three
machine tool builders  located in Taiwan for the manufacture and assembly of CNC
machine  tool  systems,  based  on the  Company's  designs  and  specifications,
utilizing CNC systems provided by the Company.  During 1997, the Company entered
into a contract manufacturing  agreement with a European machine tool builder to
manufacture machine tools for the European subsidiaries.  Any interruption from
these sources would restrict the  availability  of the Company's  machine tools,
which would affect operating results adversely.


3. INVENTORIES

Inventories as of October 31, 1997 and 1996 are summarized below (in thousands):

                                                     1997           1996
                                                 ----------     ----------
Purchased parts and sub-assemblies............ $    9,749     $   12,354
Work-in-process...............................      1,578          1,942
Finished goods................................     10,425          9,919
                                                 ---------      ---------
                                               $   21,752     $   24,215
                                                =========      =========



<PAGE>


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


4.  DEBT AGREEMENTS


Long-term debt as of October 31, 1997 and 1996, consisted of (in thousands):
                                                          1997           1996
                                                       --------       --------
         Bank revolving credit facilities...........$    1,900     $   10,931
         Bank term loan.............................        --          1,250
         Senior Notes...............................     7,143          8,929
         Economic Development Revenue Bonds, 
         Series 1990..............................       1,000          1,000
                                                       -------        -------
                                                        10,043         22,110
         Less current portion......................      1,786          3,050
                                                     ---------        -------
                                                    $    8,257     $   19,060
                                                     =========      =========

As of October 31, 1997, long-term debt was payable as follows (in thousands):

         Fiscal 1998..............................      $1,786
         Fiscal 1999..............................       1,786
         Fiscal 2000..............................       3,686
         Fiscal 2001..............................       2,785
                                                       -------
                                                       $10,043


As of October 31, 1997,  the Company had unutilized  credit  facilities of $13.9
million available for either direct borrowings or commercial  letters of credit.
As of October 31, 1997 and 1996,  the Company had $6.2 million and $7.7 million,
respectively,  of outstanding letters of credit issued to non-U.S. suppliers for
inventory purchase commitments.

As of October 31, 1997,  $1.0 million of the domestic bank revolving  credit
facility was payable at a LIBOR  based rate of 6.8%,  and the  remaining 
portion of the domestic bank revolving credit facility was payable at 8.5%. As
of October 31, 1996,  interest was payable at 8.25% on the domestic  bank  
revolving  credit  facility and bank term loan.  Interest was payable on the 
European credit  authorization  at rates ranging from 6.25% to 9.5% as of 
October 31,  1997,  and from 6.8% to 9.8% as of October 31, 1996.  Interest was 
payable on the Senior Notes at 10.37% and 10.87%
at October 31, 1997and 1996, respectively.


Effective  September 8, 1997,  the  Company's  Bank Credit  Agreement and Senior
Notes  Agreement  were  amended  and  restated.  The  principal  terms  of those
agreements, as amended and restated, are set forth below:

     a)  Bank Credit Agreement

         The Company's 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 $22.5 million (inclusive of outstanding
         letters of credit of up to $12.0 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 the
         Company's option, prime.



<PAGE>


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


         The agreement  requires the Company 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.  The  Company is  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).

     b)  Senior Notes

         At October 31, 1997,  the Company had  outstanding  approximately  $7.1
         million of unsecured Senior Notes,  bearing an interest rate of 10.37%,
         of which approximately $1.8 million is due on December 1, 1997, and the
         balance is due in equal annual installments through 2000.

         Effective  September 8, 1997, the agreement  governing the Senior Notes
         was  amended  and  restated  on  an  unsecured   basis.  In  connection
         therewith,  the interest rate on the Senior Notes was reduced to 10.37%
         from  10.87% and the  financial  covenants  were  amended to conform to
         those  contained  in the  Company's  amended and  restated  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, 1997 and 1996,  interest was accruing
at a rate of 3.8%.


5. FINANCIAL INSTRUMENTS

The carrying amounts for trade  receivables and payables  approximate their fair
values.  At October  31,  1997,  the  carrying  amounts  and fair  values of the
Company's   financial   instruments,   which  includes  bank  revolving   credit
facilities,  senior notes,  and Economic  Development  Bonds are not  materially
different.

The Company also has  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  $19.0  million  and  $20.2  million,
respectively,  at October 31, 1997.  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 the Company to
be material.


<PAGE>


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


6.  INCOME TAXES

The  provision  for income taxes in fiscal 1997 includes $1.0 million of foreign
withholding  taxes  related to certain  license fee payments  received in fiscal
1997. 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.  The Company's total deferred tax assets and corresponding  valuation
allowance  at  October  31,  1997  and  1996,  consisted  of the  following  (in
thousands):


                                                            October 31,
                                                          1997        1996
Tax effects of future tax 
deductible items related to:
     Accrued inventory reserves ......................$    707    $    715
     Accrued warranty expenses .......................     311         370
     Other accrued expenses ..........................     858         922
                                                      --------    --------
         Total deferred tax assets ...................   1,876       2,007
                                                      --------    --------

Tax effects of future taxable differences 
related to:
     Accelerated tax deduction and other 
     tax over book
       deductions related to property, 
       equipment and software ........................  (1,876)     (1,476)
     Other ...........................................    (575)       (575)
                                                       --------    --------
       Total deferred tax liabilities ................  (2,451)     (2,051)
                                                       --------    --------

       Net tax effects of temporary 
       differences ...................................    (575)        (44)
                                                       --------    --------

Tax effects of carryforward benefits:
     U.S. federal net operating loss 
       carryforwards,expiring 2008-2012 ..............   5,869       9,909
     Foreign net tax benefit carryforwards
       with various expiration years .................     941       1,862
     U.S. federal general business tax credits,
       expiring 2008-2012 ............................   1,545       1,543
     U.S. Alternative Minimum Tax Credit 
     with no expiration ..............................     221        --
                                                      --------    --------
         Tax effects of carryforwards ................   8,576      13,314
                                                      --------    --------

         Tax effects of temporary differences
         and carryforwards ...........................   8,001      13,270
         Less valuation allowance ....................  (7,780)    (13,270)
                                                      --------    --------
         Net deferred tax asset ......................$    221    $   --
                                                      ========    ========

The Company's  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, the Company has 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 the
Company's income tax expense.



<PAGE>


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


Income (loss) before income taxes (in thousands):
                                                 Year Ended October 31,
                                         1997            1996             1995
       Domestic..................... $  10,303        $  (625)      $   (1,786)
       Foreign......................     4,529          4,983            1,990
                                      --------        --------         -------
                                     $  14,832        $ 4,358       $      204
                                      ========         =========       =======


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

Tax (benefit) at U.S. Statutory 
Rate..........................     $   5,191        $    1,525      $       71

Foreign Withholding Taxes..........    1,012                --              --

Effect of International operations 
tax rates in excess of U.S. 
statutory rates....................      342               254              --

State Income Tax (benefit).........       16                --              --

Effect of losses without a current
year tax benefit...........               --                --             625

Utilization of net operating loss 
carryforwards...............          (5,533)           (1,685)           (696)
                                     -------         ---------         --------

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

Foreign withholding taxes are the result of withholding taxes on certain license
fee payments received during fiscal 1997. The Company's provision for income tax
in fiscal 1997 and 1996 represents taxes currently payable.


7.  EMPLOYEE BENEFITS

The  Company  has  defined  contribution  plans that  include a majority  of its
employees worldwide,  under which Company  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.  Company  contributions  to the plans  are based on  employee
contributions or compensation.  These Company  contributions  totaled  $307,000,
$252,000,  and $213,000 for the years ended  October 31, 1997,  1996,  and 1995,
respectively.

During 1996, the Company  initiated a non-qualified  deferred  compensation plan
for certain executives of the Company.  The purpose of this defined contribution
plan is to provide  executives  with an additional  mechanism to save throughout
their employment.  The Company has made only minor contributions to the deferred
compensation plan during fiscal 1997 and 1996.

During 1997, the Company initiated  Split-Dollar Life Insurance  Agreements with
certain officers of the Company. Under the terms of the agreements,  the Company
pays all of the premiums on behalf of the  officers.  The Company 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, the Company adopted the 1997 Stock Option and Incentive Plan (the
1997 Plan)  which  allows the  Company  to grant  awards of options to  purchase
shares of the Company's  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  excercisable for a period up to ten years after date of grant
and vest in equal annual installments as specified by the Compensation Committee
of the Company's 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,
1997, 5,000 shares had been granted under the 1997 Plan.

In 1990,  the Company  adopted the 1990 Stock  Option Plan (the 1990 Plan) which
allowed the Company to grant options to purchase shares of the Company's  common
stock and related stock  appreciation  rights and limited rights to officers and
key employees of the Company. 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,  1997,  1996 and 1995 and the  related
activity for the year is as follows:

                                               Year Ended October 31,
                                      1997           1996            1995
Outstanding at beginning of year.. 431,620         380,700        354,900
     Granted......................   5,000         104,800         62,700
     Canceled.....................  (1,800)        (32,700)       (19,080)
     Expired......................      --              --         (6,200)
     Exercised.................... (12,960)        (21,180)       (11,620)
                                   -------         -------        --------
Outstanding at end of year........ 421,860         431,620        380,700
                                   =======         =======        =======

Exercisable at end of year........ 283,416         204,151        138,600
                                   =======         =======        =======

Available for future grants....... 507,814          12,814         84,914
                                  ========        ========       ========



The range of option prices per share for outstanding  options and the prices at 
which options were exercised  during 1997, 1996
and 1995 are summarized below:

                                                Year Ended October 31,
                                   1997               1996              1995
Option price...............   $2.13 - $7.50      $2.13 - $7.50       $2.13-$7.50
Exercise price.............   $2.13 - $5.13      $2.13 - $3.88       $2.13-$2.88




<PAGE>


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


As of October 31, 1997 and 1996, there were outstanding  options held by certain
members of the Board of Directors  to purchase  75,000  shares of the  Company's
common stock at $5.13 per share and 25,000  shares at $7.00 per share.  All were
exercisable as of October 31, 1997 and 1996. 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. The Company will continue to use the method  prescribed under APB 25, but
is 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, 1997.

9.  RELATED PARTY TRANSACTIONS

The Company 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 the
Company.  The cost of these  freight  services are  negotiated on an arms length
basis and amounted to $2,554,000,  $1,773,000 and $1,438,000 for the years ended
October  31,  1997,  1996 and 1995,  respectively.  Trade  payables  to AEI were
$30,000, $208,000 and $27,000 at October 31, 1997, 1996 and 1995, respectively.

The Company  owns an  approximate  15%  interest  in one of its  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  $8,196,000,  $8,616,000  and $4,369,000 for the years ended October
31, 1997,  1996 and 1995,  respectively.  Trade  payables to this  supplier were
$1,768,000,  $1,484,000  and  $1,519,000  at October  31,  1997,  1996 and 1995,
respectively.

Refer to Note 13 for a  description  of Hurco  Automation,  Ltd.  (HAL).  
Transactions  with HAL  during  fiscal  1997 were not
material.

10.  LITIGATION AND CONTINGENCIES

On October 10, 1995, the Company's wholly-owned subsidiary, IMS Technology, Inc.
(IMS),  commenced an action in the United States District Court for the Northern
District of Illinois against a group of end-users of interactive  CNCs,  machine
tool  manufacturers  who  incorporate  interactive  CNCs in their  products  and
manufacturers of CNCs (CNC Users) designed to permit use of interactive  methods
when coupled to machine tools. IMS alleged that the defendants infringed the IMS
United States interactive  machining patent (the Patent) and is seeking monetary
damages and an injunction  against  future  infringement.  IMS has  subsequently
entered into  settlements  with a number of the defendants and has dismissed all
claims against them.  The  defendants who have not settled are: Okuma  Machinery
Works,  Ltd.;  Okuma  American  Corporation;  Ellison  Machinery  Company of the
Midwest, Inc. and Apollo Machine & Manufacturing Company, Inc.

On January 11, 1996, IMS commenced an action in the United States  District 
Court for the Eastern  District of Virginia  (which
was subsequently  transferred to the United States District Court for the 
Northern  District of Illinois) against two CNC Users
with whom IMS has subsequently entered into settlements.  On January


<PAGE>


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

29, 1996, Mitsubishi Electric Corporation  (Mitsubishi) was added to the action.
This action alleges infringement of the Patent and seeks monetary damages and an
injunction against future infringement.

IMS and the Company are  defendants  in an action  pending in the United  States
District Court for the Northern  District of Illinois that was commenced January
29, 1996 by Mitsubishi and Mitsubishi Electric Industrial Controls.  This action
seeks  to have the  Patent  declared  invalid.  In  September  1997,  the  court
dismissed  Mitsubishi's  claims  that IMS and the Company had misused the Patent
and violated federal  antitrust  actions.  Other claims that remain at issue are
whether IMS and the Company  disparaged  Mitsubishi's  goods and business,  made
false statements  concerning the Patent,  interfered with Mitsubishi's  business
and violated state  consumer fraud  statutes.  The complaint  seeks  unspecified
damages  and  injunctive  relief.  In a  counter-claim,  IMS  alleges  that  the
plaintiffs have infringed the Patent.

The three actions described above are being coordinated under local court rules.
Discovery is currently in process.

On July 3, 1997, IMS commenced an action in the United States  District Court of
Virginia against a number of CNC Users alleging infringement of the Patent. This
action seeks monetary damages and an injunction against future infringement. IMS
has  subsequently  entered into  settlements with a number of the defendants and
has dismissed all claims against them. The only defendant in this action who has
not settled is Haas Automation, Inc.

On September 29, 1997,  IMS  commenced an action in the United  States  District
Court  for the  Eastern  District  of  Virginia  against  a number  of CNC Users
alleging  infringement of the Patent. This action sought monetary damages and an
injunction  against  future  infringement.  All of the defendants in this action
have settled with the Company.

Although  IMS  believes  that the  Patent  is valid  and its  claims  of  patent
infringement have substantial  merit, it is unable to predict the outcome of any
of these actions.

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

11.  OPERATING LEASES

The Company leases facilities and vehicles under operating leases that expire at
various dates through 2002.  Future payments  required under operating leases as
of October 31, 1997, are summarized as follows (in thousands):

         1998.................................       $1,942
         1999.................................        1,285
         2000.................................          902
         2001.................................          696
         2002.................................          417
                                                    --------
         Total................................     $  5,242
                                                    ========

Rental  payments for the years ended  October 31,  1997,  1996 and 1995 was $1.9
million, $1.9 million, and $2.0 million, respectively.



<PAGE>


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


12.  RIGHTS OFFERING

On July 3, 1996, the Company 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 the Company's  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 the Company's  Senior
Notes. The balance of the net proceeds was used to reduce outstanding  revolving
credit borrowings.


13.  HURCO AUTOMATION, LTD.

In October  1996,  the Company  entered  into an  agreement  with six  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 the Company. At October 31, 1997, the Company had invested 
$394,000 in the HAL which results in 24% ownership. The Company has committed to
invest an  additional  amount of  approximately  $370,000 in two  installments 
through fiscal  1999 which will  result in 35%  ownership.  The Company is also
committed  to purchasing a defined number of CNC systems from HAL between 
February 1, 1997 and July 31, 1999.  The Company is accounting for the 
investment using the equity method. The  investment  of $374,000 at October 31,
1997 is included in Other  Assets on the Consolidated Balance Sheet.

14.  LICENSE FEE INCOME, NET

License fee income,  net for fiscal 1997 was attributable  almost entirely to 13
agreements   entered  into  during  the  year  by  the  Company's   wholly-owned
subsidiary,  IMS  Technology,  Inc.  (IMS),  pursuant to which IMS granted fully
paid-up licenses of its interactive CNC patents in exchange for cash payments by
the licensees,  substantially  all of which was received  concurrently  with the
license grants.  Further, under a license agreement with a principal supplier to
the Company, approximately $500,000 is expected to be received in future periods
in the form of discounts on purchases by the Company, which will be reflected as
a reduction of the cost of such  purchases.  As of October 31, 1997,  additional
license fees of  approximately  $1.2  million,  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.

Although  settlements  have been reached with a number of the  defendants in the
on-going  IMS patent  infringement  litigation  which have  resulted  in license
agreements with IMS, the remaining  defendants are continuing to contest the IMS
claims.  IMS is  continuing  to pursue  the  litigation  and is also  engaged in
licensing  discussions  with  other  CNC  Users  that  are  not  parties  to the
litigation.  There  can  be no  assurance  that  IMS  will  enter  into  license
agreements with any of the remaining defendants, or any other CNC Users, or that
the terms of any future license  agreements will be similar to those  previously
entered into.



<PAGE>


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


15.  QUARTERLY HIGHLIGHTS (Unaudited)

1997 (In thousands, except per share
 data)
                       First Quarter Second Quarter Third Quarter Fourth 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 - primary..................    $ .15      $ .93      $ .38        $ .60


1996 (In thousands, except per
share data)
                     First Quarter Second Quarter Third Quarter  Fourth Quarter

Sales and service fees...........$  23,224 $   26,095 $   23,039    $  26,993

Gross profit.....................    6,475      7,231      6,988        7,727

Gross profit margin percentage...     27.9%      27.7%      30.3%        28.6%

Selling, general and 
administrative expenses........      5,049      5,363      5,223        5,708

Operating income...............      1,426      1,868      1,765        2,019

Net income.....................        572      1,031        957        1,704

Earnings  per common 
share - primary.................    $  .10     $  .19      $ .16       $  .26



<PAGE>


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


16.  BUSINESS SEGMENT AND INTERNATIONAL OPERATIONS

The  Company  operates  in one  business  segment  which  consists  of  computer
numerical control (CNC) systems and software and CNC-operated  machine tools for
cutting and forming  metals.  Summarized is information  regarding  Total Sales,
Operating  Income  and  Identifiable  Assets by  geographical  areas (in
thousands):

                             United States Europe Asia Eliminations Consolidated
1997

Sales 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............$    2,390    $ 4,558 $(222)              $ 6,726
                             ========     ======= ======             ==========

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

1996

Sales 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
                            =========  =================            ==========

1995

Sales to unaffiliated 
customers.............     $   54,172    $ 32,881 $2,579    $   --     $89,632

Transfers between geographic 
areas..........                18,374         880     --    (19,254)        --
                             --------  -----------------   -------------------

Total sales...........     $   72,546    $ 33,761 $2,579   $(19,254)   $89,632
                           ==========   ================   ========   ========

Operating income......     $    2,570    $  1,607 $  291               $ 4,468
                            =========   ================            ==========

Identifiable assets as of
     October 31, 1995....  $   45,255    $ 15,404 $  762               $61,421
                            =========    ======== ======            ==========





<PAGE>


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


17.  NEW ACCOUNTING PRONOUNCEMENTS

In February,  1997, the Financial  Accounting Standards Board released Statement
of Accounting  Standards No. 128, "Earnings Per Share" (SFAS 128), which changes
the method of computation of earnings per share (EPS). SFAS 128 replaces Primary
EPS with Basic EPS and replaces  Fully Diluted EPS with Diluted EPS.  Basic EPS,
unlike  Primary  EPS,  does  not  consider  dilution  for  potentially  dilutive
securities. Diluted EPS uses an average share price for the period whereas Fully
Diluted EPS uses the greater of the average share price or  end-of-period  share
price.  SFAS 128 is  effective  for  fiscal  1998 and  earlier  adoption  is not
permitted.  Basic EPS  computed  under SFAS 128 for the three and twelve  months
ended  October 31, 1997 was $.62 and $2.11,  respectively.  Diluted EPS computed
under SFAS 128 for the three and twelve  months ended  October 31, 1997 was $.60
and $2.06, respectively.


18.  SUBSEQUENT EVENT (Unaudited)

From November 1, 1997 through January 20, 1998, IMS has entered into a number of
additional license  agreements,  including  agreements with four CNC Users which
were defendants in the  infringement  actions brought by IMS concerning the U.S.
IMS interactive  machining patent.  These agreements  provide for cash payments,
substantially  all of which is to be received in fiscal 1998. These payments are
expected to increase income by approximately $1.4 million, net of legal fees
and  expenses,  in the first  quarter of fiscal 1998.  In  addition,  one of the
agreements  is with a supplier to the  Company and  provides  for  discounts  on
future  purchases of product by the Company  through  December  31,  2001.  This
agreement,  with respect to product discounts, is expected to reduce the cost of
such future purchases by approximately $600,000.

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.                                    58           1986

Andrew L. Lewis IV                                         41           1988

Brian D. McLaughlin                                        55           1987

E. Keith Moore                                             75           1990

Richard T. Niner                                           58           1986

O. Curtis Noel                                             62           1993

Charles E. Mitchell Rentschler                             58           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 the
Company since December, 1987.

E.  Keith  Moore  has  served  as  President  of Hurco  International,  Inc.,  a
subsidiary  of the  Company,  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 the Company serves for a term of one year, which expires at the
next annual meeting of  shareholders  of the Company when his successor has been
elected.  There are no family  relationships  between  any of the  directors  or
executive officers of the Company.



<PAGE>


EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information with respect to the executive officers of
the Company as of January 5, 1998:

Name                           Age      Position(s) with the Company

Brian D. McLaughlin            55       President and Chief Executive Officer

Roger J. Wolf                  57       Senior Vice President, Secretary,
                                        Treasurer and Chief Financial Officer

David E. Platts                45       Vice President, Research and Development

James D. Fabris                46       Executive Vice President - Operations

Richard Blake                  39       Vice President of the Company and
                                        President Hurco Machine Tool Products
                                        Division

Stephen J. Alesia              31       Corporate Controller


Brian D.  McLaughlin  has been  President  and Chief  Executive  Officer  of the
Company 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 the Company, 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.

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

James D. Fabris was elected  Executive  Vice  President - Operations in November
1997 and Vice  President of the Company in February  1995.  Jim was President of
Hurco  Machine Tool Products  Division  from November 1993 to December  1997. He
served as President of Acroloc,  Inc.,  a subsidiary  of the Company,  from July
1991 to October 1993 and as Vice President of Operations of Hurco  Manufacturing
Company from 1988 to 1991.

Richard Blake was named  President of Hurco  Machine Tool  Products  Division in
November  1997,  Vice  President  of the Company in January  1996,  and Managing
Director,  Hurco Europe, Ltd., a subsidiary of the Company, in December 1993. He
served as U.K.  Marketing  Manager for Hurco  Europe,  Ltd. from January 1993 to
November  1993 and as a Sales  Manager  for  Hurco  Manufacturing  Company  from
September 1989 to December 1992.

Stephen J. Alesia  joined the Company in June 1996 and was elected an  executive
officer in September 1996. Prior to joining the Company, 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 the  Company's
directors  and  executive  officers,  and  persons who own more than ten percent
(10%) of the Company's  common stock,  to file initial  reports of ownership and
reports of changes in ownership of common stock and other equity  securities  of
the Company with the Securities and Exchange Commission.

To the Company's knowledge, based solely upon a review of copies of such reports
furnished to the Company  during and  pertaining to its most recent fiscal year,
and certain written representations, all Section 16(a) filings applicable to the
Company's  executive  officers,  directors  and greater  than ten percent  (10%)
beneficial  owners were made on a timely  basis  during the most  recent  fiscal
year.



<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 the Company (the Named  Executive  Officers)  whose
salary and bonus exceeded $100,000 during fiscal 1997.

                                 Summary Compensation Table

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

Brian D. McLaughlin        1997   $250,000 $125,000    --     --        $51,726
President and CEO          1996    238,133   80,000    --   15,000        3,325
                           1995    226,936   75,000    --   10,000        3,234

Roger J. Wolf              1997    156,000   60,000    --     --         47,086
Sr. VP, Secretary          1996    148,500   75,000    --    3,000        2,880
Treasurer and CFO          1995    139,731   45,000    --   15,000        3,063

James D. Fabris            1997    140,000   60,000    --     --         23,504
Executive Vice             1996    122,500   50,000    --   10,000        3,199
President - Operations     1995    107,885   45,000    --    5,000        2,210

David E. Platts            1997    100,000   45,000    --     --         13,153
Vice President             1996     93,917   20,000    --    5,000          --
Research&Development       1995     87,834   15,000    --   10,000          --

Richard Blake              1997    108,550   41,750    --     --          4,633
V.P. of the Company and    1996     87,373   46,311    --   15,000        3,841
President Hurco Machine    1995     61,932   39,700    --     --          2,699
Tool Products Division
---------------------------

(1)      Represents cash bonuses earned and paid in the subsequent year.
(2)      Represents  options  granted under the stock option plan related to the
         prior year's  performance,  other than specified below. The Company has
         not granted any Stock Appreciation Rights (SARs).
(3)      Represents the Company's contribution to defined contribution plans and
         split dollar life insurance  premiums.  During fiscal 1997, the Company
         initiated  Split-Dollar Life Insurance Agreements with certain officers
         of the Company. Under the terms of the agreements, the Company pays all
         of the premiums on behalf of the  officers.  The Company 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
Named Officer           Company Match                  Life Insurance Premiums

Brian D. McLaughlin      $4,320                                     $47,406
Roger J. Wolf             4,320                                      42,766
James D. Fabris           4,320                                      19,184
David E. Platts             938                                      12,215
Richard Blake             4,633                                          --


Stock Options

The following table sets forth  information  related to options exercised during
fiscal 1997 and options held at fiscal year-end by the Named Executive Officers.
The Company does not have any outstanding SARs.

       Aggregated Option Exercises in Fiscal 1997and 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    --        --   114,999      10,001   $482,704   $36,671
Roger J. Wolf          --        --    37,998      12,002    $86,121   $22,505
James D. Fabris        --        --    22,300      17,700   $127,200   $72,925
David E. Platts        --        --    20,000      10,000   $115,000   $40,000
Richard Blake          --        --     5,600      15,400    $28,899   $59,596
-----------------------------------------

(1)      Value is  calculated  based on the closing  market  price of the common
         stock on October 31, 1997  ($8.375)  less the
         option exercise price.


<PAGE>


Compensation of Directors

Each director who is not a full-time  employee of the Company  receives a fee of
$1,000  for each  meeting  of the  Board of  Directors  attended,  and each such
director  also  receives  $4,000 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 1997 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.  Mr. Hartong is a director of AEI. Mr.  
Hartong is also a general  partner of Brynwood  Management,  which is the
general  partner of Brynwood  Partners  Limited  Partnership,  which has  
substantial  ownership  interest in AEI. AEI provides freight  forwarding  and  
shipping  services  for the  Company.  The  cost of  these  freight  services  
are  negotiated  on an
arms-length  basis and amounted to  $2,554,000  for the fiscal year ended 
October 31, 1997.  None of the Committee  members are involved in any other 
relationships requiring disclosure as an interlocking officer / director.





<PAGE>


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT

The  following  table sets forth  information  as of January 5, 1998,  regarding
beneficial  ownership of the  Company's  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

Brynwood Partners Limited Partnership              1,390,001             21.2%
Two Soundview Avenue
Greenwich, Connecticut  06830

Wellington Management Co.                            646,900 (1)          9.9%
75 State Street
Boston, Massachusetts  02109

The TCW Group, Inc.                                  464,600              7.1%
865 South Figueroa Street
Los Angeles, California  90017

Fidelity Management & Research Co.                   359,028(2)           5.5%
One Federal Street
Boston, Massachusetts  02109

                            Directors and Executive Officers

Hendrik J. Hartong, Jr.                            1,695,492 (3,4)       25.9%

Andrew L. Lewis IV                                    24,000 (4)          0.4%

Brian D. McLaughlin                                  151,475 (5,6)        2.3%

E. Keith Moore                                        48,010 (7)          0.7%

Richard T. Niner                                   1,707,362 (3,4)       26.0%

O. Curtis Noel                                        15,000 (4)          0.2%

Charles E. Mitchell Rentschler                        40,000 (4,8)        0.6%

Roger J. Wolf                                         43,390 (9)          0.7%

James D. Fabris                                       22,800 (10)         0.4%

David E. Platts                                       21,700 (11)         0.3%

Richard Blake                                          5,600 (12)         0.1%

Executive officers and directors                   2,107,827 (3,13)      32.1%
as a group (12 persons)


<PAGE>



(1)      Wellington  Management Co. (WMC), a registered  investment  advisor, is
         deemed to have beneficial  ownership of 646,900 shares of the Company's
         common stock,  which is owned by various  advisory  clients of WMC. WMC
         has shared  voting  power for 371,400  shares and sole voting power for
         275,500 shares.

(2)      Fidelity Management and Research Co. has no voting power for any of the
         shares.

(3)      Includes   1,390,001   shares  owned  by  Brynwood   Partners   Limited
         Partnership  and 278,001  shares  owned by Brynwood  Partners  II, L.P.
         Brynwood  Management  is the  general  partner  of each  entity and Mr.
         Hartong and Mr. Niner are general partners of Brynwood  Management and,
         accordingly,  may be  deemed  to have  beneficial  ownership  of  these
         shares.

(4)      Includes 1,500 shares subject to options that are exercisable within 60
         days.

(5)      Includes 114,999 subject to options held by Mr. McLaughlin that are
         exercisable within 60 days.

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

(7)      Includes 21,000 shares subject to options that are exercisable within 
         60 days.

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

(9)      Includes 37,998 shares subject to options that are exercisable within 
         60 days.

(10)     Includes 22,300 shares subject to options that are exercisable within 
         60 days.

(11)     Includes 20,000 shares subject to options that are exercisable within
         60 days.

(12)     Includes 5,600 shares subject to options that are exercisable within
         60 days.

(13)     Includes 296,897 shares subject to options that are exercisable within 
         60 days.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company  and Air Express  International  (AEI) are related  parties  because
Brynwood Partners Limited Partnership holds a substantial  ownership interest in
both  companies.  Two of the Company's  directors,  Hendrik J. Hartong,  Jr. and
Richard T. Niner,  are general  partners  of Brynwood  Management,  which is the
general partner of Brynwood Partners Limited  Partnership.  AEI provides freight
forwarding  and shipping  services for the  Company.  The cost of these  freight
services  are  negotiated  on an arms length  basis and  amounted to  $2,554,000
during fiscal 1997.




<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.......................................21
Consolidated Statements of Operations - years
  ended October 31, 1997, 1996 and 1995..................................22
Consolidated Balance Sheets - as of October 31, 1997 and 1996............23
Consolidated Statements of Cash Flows - years
  ended October 31, 1997, 1996 and 1995..................................24
Consolidated Statements of Changes in Shareholders' Equity -
  years ended October 31, 1997, 1996 and 1995............................25
Notes to Consolidated Financial Statements...............................26

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

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


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

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the three months ended October 31,
1997.

(c)  Exhibits

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





<PAGE>


                  Schedule II - Valuation and Qualifying Accounts and Reserves
                      for the years ended October 31, 1997, 1996 and 1995
                                 (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, 1997    $     785   $     74    $     --  $     101 3  $     757
                        ========    =======     =======   ========     ========

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

   October 31, 1995    $   1,046   $     31    $     --  $       7 2  $   1,070
                        ========    =======     =======   ========     ========




Accrued warranty 
expenses for the year 
ended:
   October 31, 1997    $   1,425   $  1,321   $      -   $   1,294    $   1,452
                        ========    =======    =======    ========     ========

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

   October 31, 1995    $   1,170   $  1,541   $     --   $   1,320    $   1,391
                        ========    =======    =======    ========     ========






1  Receivable  write-offs  of  $228,000,  net of  cash  recoveries  on  accounts
previously  written off of $6,000.  2 Receivable  write-offs of $42,000,  net of
cash  recoveries  on accounts  previously  written off of $35,000.  3 Receivable
write-offs of $106,000,  net of cash recoveries on accounts  previously  written
off of $5,000.



<PAGE>


                                                        EXHIBITS INDEX


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,  incorporated  
              by reference to Exhibit 3.2, to the  Registrant's
              Annual Report on Form 10-K for the year ended October 31, 1990.

3.3           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.
<PAGE>

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

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

10.9          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.

10.11         Second  Amended and  Restated  Senior Note  Agreement  between the
              Registrant and Principal Mutual Life Insurance  Company  effective
              September 8, 1997.

10.12         Letter  Agreement  (European  Facility)  dated  September 8, 1997,
              between  Registrant's  subsidiaries and The First National Bank of
              Chicago.

10.13         Guaranty Agreement dated September 8, 1997, between the Registrant
              and The First National Bank of Chicago.

10.14         Guaranty Agreement dated September 8, 1997, between Autocon 
              Technologies, Inc. and The First National Bank of
              Chicago.

11            Statement re: computation of per share earnings.

21            Subsidiaries of the Registrant.

23            Consent of Independent Public Accountants - Arthur Andersen LLP.

27            Financial Data Schedule (electronic filing only).




<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 26th day of January,
1998.

                                      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 26, 1998
----------------------------------
Brian D. McLaughlin, Director,
President and Chief Executive Officer
of Hurco Companies, Inc.
(Principal Executive Officer)


/s/ ROGER J. WOLF                                             January 26, 1998
-------------------------------------------
Roger J. Wolf
Senior Vice-President,
Secretary, Treasurer and
Chief Financial Officer
of Hurco Companies, Inc.
(Principal Financial Officer)


/s/ STEPHEN J. ALESIA                                         January 26, 1998
---------------------------------------
Stephen J. Alesia
Corporate Controller
of Hurco Companies, Inc.
(Principal Accounting Officer)



<PAGE>





/s/ HENDRIK J. HARTONG, JR.                                   January 26, 1998
----------------------------------
Hendrik J. Hartong, Jr., Director


/s/ ANDREW L. LEWIS IV                                        January 26, 1998
--------------------------------------
Andrew L. Lewis, IV, Director


/s/ E. KEITH MOORE                                            January 26, 1998
------------------------------------------
E. Keith Moore, Director


/s/ RICHARD T. NINER                                          January 26, 1998
-----------------------------------------
Richard T. Niner, Director


/s/ O. CURTIS NOEL                                            January 26, 1998
----------------------------------------------
O. Curtis Noel, Director


/s/ CHARLES E. M. RENTSCHLER                                  January 26, 1998
---------------------------------
Charles E.M. Rentschler, Director