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 the past 90 days:

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The number of shares of the Registrant's common stock outstanding as of MarchJune 1, 2005 was 6,199,447.6,201,920.

The unaudited Condensed Consolidated Financial Statements include the accounts of Hurco Companies, Inc. and its consolidated subsidiaries. We design and produce computerized machine tools, interactive computer control systems and software for sale through our distribution network to the worldwide metal cutting market. We also provide software options, computer control upgrades, accessories and replacement parts for our products, as well as customer service and training support.

The condensed financial information as of January 31,April 30, 2005 and for the three and six months ended January 31,April 30, 2005 and January 31,April 30, 2004 is unaudited; however, in our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results and financial position for the interim periods. We suggest that you read these condensed consolidated financial statements in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended October 31, 2004.

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

At January 31,April 30, 2005, we had $261,000$607,000 of lossesnet gains related to cash flow hedges deferred in Accumulated Other Comprehensive Income. Of this amount, $63,000$829,000 represents unrealized gains related to future cash flow hedge instruments that remain subject to currency fluctuation risk. These deferred gains will be recorded as an adjustment to Cost of Sales in the periods through October 2006, in which the sale of the related hedged item is recognized, as described above. Net losses on cash flow hedge contractsinstruments which we reclassified from Other Comprehensive Income to Cost of Sales in the quarters ended January 31,April 30, 2005 and 2004 were $633,000$212,000 and $941,000,$598,000, respectively.

We also enter into foreign currency forward exchange contracts to protect against the effects of foreign currency fluctuations on receivables and payables denominated in foreign currencies. These derivative instruments are not designated as hedges under Statement of Financial Accounting Standards No. 133, “Accounting Standards for Derivative Instruments and Hedging Activities” (SFAS 133), and, as a result, changes in fair value are reported currently as Other Income (Expense), Net in the Consolidated Statement of Operations consistent with the transaction gain or loss on the related foreign denominated receivable or payable. Such net transaction losses were $13,000$334,000 and $148,000$21,000 for the quarters ended January 31,April 30, 2005 and 2004, respectively.

Basic and diluted earnings per common share are based on the weighted average number of our shares of common stock outstanding. Diluted earnings per common share give effect to outstanding stock options using the treasury method. The impact of stock options for the three months ended January 31,April 30, 2005 and 2004 was 199,000177,000 and 165,000,281,000, respectively.

The allowance for doubtful accounts was $751,000$755,000 as of January 31,April 30, 2005 and $723,000 as of October 31, 2004.

Inventories, priced at the lower of cost (first-in, first-out method) or market, are summarized below (in thousands):

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

On November 23, 2004, we entered into a separation and release agreement with Roger J. Wolf, who retired from his position as Senior Vice President and as Chief Financial Officer. Under the agreement, we will pay Mr. Wolf severance compensation totaling $465,000.

From time to time, our European subsidiaries guarantee third party lease financing residuals in connection with the sale of certain machines in Europe. At January 31,April 30, 2005 there were 3134 third party guarantees totaling approximately $1.8 million. A retention of title clause allows us to obtain the machine if the customer defaults on its lease. We believe that the proceeds obtained from liquidation of the machine would coverexceed our exposure.

We provide warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year for machines and shorter periods for service parts. We recognize a reserve with respect to this obligation at the time of product sale, with subsequent warranty claims recorded against the reserve. The amount of the warranty reserve is determined based on historical trend experience and any known warranty issues that could cause future warranty costs to differ from historical experience.

A reconciliation of the changes in our warranty reserve is as follows (in thousands):

The following discussion should be read in conjunction with the Condensed 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. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, changes in general economic and business conditions that affect market demand for machines tools and related computer control systems, software products, and replacement parts, changes in manufacturing markets, adverse currency movements, innovations by competitors, quality and delivery performance by our contract manufacturers and component suppliers, and governmental actions and initiatives including import and export restrictions and tariffs.

Hurco Companies, Inc. is an industrial technology company operating in a single segment.company. We design and produce computerized machine tools, featuring our proprietary computer control systems and software, for sale through our own distribution network to the worldwide metal working market. We also provide software options, control upgrades, accessories and replacement parts for our products, as well as customer service and training support.

Our computerized metal cutting machine tools are manufactured in Taiwan to our specifications by our wholly owned subsidiary, Hurco Manufacturing Limited (HML), and an affiliate. We sell our products through approximately 230 independent agents and distributors in approximately 50 countries throughout North America, Europe and Asia. We also have our own direct sales and service organizations in England, France, Germany, Italy, Singapore and China.

 

The machine tool industry is highly cyclical and changes in demand can occur abruptly. Beginning in the third quarter of fiscalFrom 1998 and continuing through the third quarter of fiscal 2003, we experienced the adverse effects of a significant decline in global demand. For example, our customer orders during the first quarter of fiscal 2003 were at their lowest level in ten years. During the downturn, we took actions to discontinue the production and sale of underperforming products, refocus on our core product lines and significantly reduce our operating costs. We alsohave introduced new product models beginning in late fiscal 2002 and throughout 2004, which, together with an improvement infiscal 2003 and 2004. When worldwide manufacturing activity, and a consequent improvement inalong with demand for machine tools, that beganincreased in late fiscal 2003, our sales increased significantly. Those trends were continued through the fourthsecond quarter of fiscal 2003, contributed to2005. As a significant increase inresult, we reported our highest amounts for sales throughout fiscal 2004 and into the first quarter of fiscal 2005.service fees and new order bookings.

Approximately 80% of worldwide demand for machine tools (measured in U.S. dollars) comes from outside the United States. During the second quarter of fiscal 2004,2005, approximately 69%68% of our sales and service fees were attributable to customers located abroad. Our sales to foreign customers are denominated, and payments by those customers are made, in the prevailing currencies—primarily the Euro and Pound Sterling—in the countries in which those customers are located, and our product costs are incurred and paid primarily in the New Taiwan Dollar and U.S. dollars. Changes in currency exchange rates can have a material effect on our operating results when sales made and expenses incurred in foreign currencies are translated to U.S. dollars for financial reporting purposes. For example, when a foreign currency increases in value relative to the U.S. dollar, sales made (and expenses incurred) in that currency, when translated to U.S. dollars for reporting in our financial statements, are higher than would be the case when that currency has a lower value relative to the U.S. dollar. For this reason, in our comparison of period-to-period results, we customarily set forth not only the increases or decrease in those results as reported in our financial statements (which reflect translation to U.S. dollars at actual prevailing exchange rates), but also the impact of foreign currency-denominated revenue or expense translated to U.S. dollars at the same rate of exchange in both periods.

Although our high levels of foreign manufacturing and sales also subject us to cash flow risks due to fluctuating currency exchange rates, we mitigate those risks through the use of various hedging instruments - principally foreign currency forward exchange contracts.

The volatility of demand for machine tools can significantly impact our working capital requirements and, therefore, our cash flow from operations and operating profits. Because our products are manufactured in Taiwan, manufacturing and ocean transportation lead times require that we schedule machine tool production based on forecasts of customer orders for a future period of four or five months. We monitor market and order activity levels and rebalance our future production schedules to changes in demand, butdemand. Nevertheless a significant unexpected decline in customer orders from forecasted levels canwould temporarily increase finished goods inventories and our need for working capital.

We monitor the U.S. machine tool market activity as reported by the Association of Manufacturing Technology (AMT), the primary industry group for U.S. machine tool consumption. We also monitor the PMI (formerly called the Purchasing Manager’s Index), as reported by the Institute for Supply Management. Our European and Asian subsidiaries monitor machine tool consumption through various government and trade publications.

We monitor key performance indicators such as days sales outstanding for accounts receivable and inventory turns for the trailing twelve months. We calculate net assets per dollar of revenue to assess our working capital levels. We also monitor operating income and selling, general and administrative expenses as a percentage of sales and service fees.

For the firstsecond quarter of fiscal 2005, we reported net income of $3.0$3.3 million, or $.48$.52 per share, compared to $669,000,$1.7 million, or $.12$.29 per share, for the corresponding period one year ago. We attribute our improved results to the substantial increase in our sales of computerized machine tools and, to a lesser extent, the benefits of stronger European currencies in relation to the U.S. dollar.

As noted below, approximately 62% of our sales and service fees in the second quarter of fiscal 2005 were derived from the European markets. The weighted average exchange rate between the Euro and the U.S. dollar during the firstsecond quarter of fiscal 2005 was $1.32$1.30 per €1.00, as compared to $1.22 per €1.00 for the firstsecond quarter of fiscal 2004, an increase of 8%7%. Approximately $1.5$1.2 million or 20%,(18%) of the increase in total sales and service fees in the 2005 period was attributable to changes in foreign currency exchange rates.rates when sales denominated in foreign currencies are translated to U.S. dollars for financial reporting purposes.

The following tables set forth net sales (in thousands)and service fees by geographic region and product category for the firstsecond quarter of 2005 and 2004:

The 27% increase is attributable to the currency benefit discussed abovein sales and a 13%service fees in Europe reflected an 18% increase in unit shipments.sales and the previously discussed impact of stronger European currencies relative to the U.S. Approximately $1.4$1.1 million or 34%(27%) of the increase in European sales and service fees was dueattributable to changes in currency exchange rates. The unit increase was consistent among all of our geographic regions in Europe.

Approximately 62% of our sales and service fees in the first half of fiscal 2005 were derived from European markets. The weighted average exchange rate between the Euro and the U.S. dollar during the first half of fiscal 2005 was $1.31 per €1.00, as compared to $1.22 per €1.00 for the first half of fiscal 2004, an increase of 7%. Approximately $2.7 million (19%) of the increase in sales and service fees was attributable to changes in currency exchange rates.

LIQUIDITY AND CAPITAL RESOURCES

At January 31,April 30, 2005, we had cash and cash equivalents of $11.3$11.7 million compared to $8.5 million at October 31, 2004. Cash generated from operations totaled $2.9$3.6 million for the quarter ended January 31,first half of fiscal 2005, compared to $3.5$3.8 million in the prior year period.

Working capital, excluding short-term debt, was $31.8$35.5 million at January 31,April 30, 2005 compared to $26.7 million at October 31, 2004. During the first quarterhalf of fiscal 2005, cash flow from operations was unfavorably affectedeffected by a $1.5$3.9 million increase in inventory, which was partially offset by an approximate $900,000 decrease$800,000 increase in accounts receivable.payable. The increase in inventory was the result of an increase in production at our principal manufacturing facility in Taiwan, which was disproportionate to the increase in our machine sales. We have moderately reduced our machine production and expect inventory levels to decline in the third quarterlast half of fiscal 2005. Accounts receivable decreased, despitepayable increased as the result of the increase in sales, due to sales occurring fairly evenly throughout the first quarter of fiscal 2005 compared to a greater percentage of sales occurring in the final month of the fourth quarter of 2004.inventory. We expect our working capital requirements to continue to increase in fiscal 2005, as our sales increase.

Capital investments during the first quarterhalf included approximately $350,000 for enterprise resource planning software in the United States and normal expenditures for software development projects and purchases of equipment. We funded these expenditures withfrom operating cash flow from operations.flow.

Total debt at January 31,April 30, 2005 was $4.4 million, representing 9%8% of capitalization, which totaled $48.5$52.6 million, compared to $4.6 million, or 11% of capitalization, at October 31, 2004. Total debt primarily consists of the outstanding balance of a term loan secured by our Indianapolis facility. We were in compliance with all loan covenants and had unused credit availability of $11.3$11.0 million at January 31,April 30, 2005. We believe that cash flow from operations and borrowings available to us under our credit facilities will be sufficient to meet our anticipated cash requirements for the balance of fiscal 2005.

CRITICAL ACCOUNTING POLICIES

Our accounting policies, which are described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2004, require our management to make significant estimates and assumptions using information available at the time the estimates are made. These estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenues and expenses. If our future experience differs materially from these estimates and assumptions, our results of operations and financial condition could be affected. There were no material changes to our critical accounting policies during the firstsecond quarter of 2005.

OFF BALANCE SHEET ARRANGEMENTS

From time to time, our German subsidiary guarantees third party lease financing residuals in connection with the sale of certain machines in Europe. At January 31,April 30, 2005, there were 3134 third party guarantees totaling approximately $1.8 million. A retention of title clause allows thisour German subsidiary to recoverobtain the machine if the customer defaults on its lease. We believe that the proceeds availableobtained from liquidation of the machine would cover any payments required under the guarantee.