================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             -----------------------
                                    FORM 20-F

|_|           REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) (g)
                   OF THE SECURITIES EXCHANGE ACT OF 1934 or


|X|               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended: December 31, 2002

                                       Or

|_|              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the Transition Period from to
                             -----------------------

                                     1-11854
                            (Commission file number)

                                 NATUZZI S.p.A.
             (Exact name of Registrant as specified in its charter)

                                 NATUZZI S.p.A.
                 (Translation of Registrant's name into English)

                                      Italy
                 (Jurisdiction of incorporation or organization)
                   Via Iazzitiello 47, 70029 Santeramo, Italy
                    (Address of principal executive offices)
                             -----------------------

 Securities registered or to be registered pursuant to Section 12(b) of the Act:


                                                      Name of each exchange
            Name of each class                        on which registered
          --------------------------                  -----------------------
          American Depositary Shares                  New York Stock Exchange
 Ordinary Shares with a par value of(euro)1 each      New York Stock Exchange*


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

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

     Outstanding shares of each of the issuer's classes of capital or common
stock as of December 31, 2002: 54,681,628 Ordinary Shares

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                           Yes  X    No
                                              -----    -----

     Indicate by check mark which financial statement item the registrant has
elected to follow.

                                      Item 17       Item 18 X
                                             -----        -----

*    Not for trading, but only in connection with the registration of the
     American Depositary Shares



<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

Part I
<S>     <C>                                                                                                   <C>
Item 1.  Identity of Directors, Senior Management and Advisers...................................................1

Item 2.  Offer Statistics and Expected Timetable.................................................................1

Item 3.  Key Information.........................................................................................1

          Selected Financial Data................................................................................1

          Exchange Rates.........................................................................................3

          Risk Factors...........................................................................................3

          Forward Looking Information............................................................................6

Item 4.  Information on the Company..............................................................................7

          Introduction...........................................................................................7

          Organizational Structure...............................................................................8

          Strategy...............................................................................................8

          Manufacturing.........................................................................................10

          Products and Design...................................................................................14

          Markets...............................................................................................15

          Italian Government's Investment Incentive Program.....................................................17

          Management of Exchange Rate Risk......................................................................20

          Trademarks and Patents................................................................................20

          Non-United States Regulation..........................................................................20

          Environmental Regulatory Compliance...................................................................21

          Insurance.............................................................................................21

          Description of Properties.............................................................................21

          Capital Expenditures..................................................................................22

          Recent Developments...................................................................................23

Item 5.  Operating and Financial Review and Prospects...........................................................24

          Critical Accounting Policies..........................................................................24

          Results of Operations.................................................................................25

          Liquidity and Capital Resources.......................................................................30

          Contractual Obligations and Commercial Commitments....................................................31

          Related Party Transactions............................................................................32

          Introduction of the Euro..............................................................................32

          Research and Development..............................................................................32

          New Accounting Standards under Italian and U.S. GAAP..................................................33

Item 6.  Directors, Senior Management and Employees.............................................................36

                                                            i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

         <S>                                                                                                  <C>
          Compensation of Directors and Officers................................................................42

          Share Ownership.......................................................................................42

          Statutory Auditors....................................................................................43

          External Auditors.....................................................................................43

          Employees.............................................................................................43

Item 7.  Major Shareholders and Related Party Transactions......................................................45

          Major Shareholders....................................................................................45

          Related Party Transactions............................................................................45

Item 8.  Financial Information..................................................................................46

          Consolidated Financial Statements.....................................................................46

          Export Sales..........................................................................................46

          Legal Proceedings.....................................................................................46

          Dividends.............................................................................................46

Item 9.  The Offer and Listing..................................................................................47

          Trading Markets and Share Prices......................................................................47

Item 10.  Additional Information................................................................................48

          Employee Stock Option Plan............................................................................48

          By-laws...............................................................................................48

          Certain Contracts.....................................................................................55

          Exchange Controls.....................................................................................55

          Taxation..............................................................................................56

          Documents on Display..................................................................................60

Item 11.  Quantitative and Qualitative Disclosures About Market Risk............................................61

Item 12.  Description of Securities Other than Equity Securities................................................64


Part II

Item 13.  Defaults, Dividend Arrearages and Delinquencies.......................................................64

Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds..........................64

Item 15.  Controls and Procedures...............................................................................64

Item 16.  [Reserved]............................................................................................64


Part III

Item 17.  Financial Statements..................................................................................64

Item 18.  Financial Statements..................................................................................64

Item 19.  Exhibits..............................................................................................66

                                                           ii
</TABLE>

<PAGE>



                 PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     Beginning for the fiscal year ended December 31, 2002, Natuzzi S.p.A.
("Natuzzi" or the "Company") published its audited consolidated financial
statements (the "Consolidated Financial Statements") in euro, the single
currency established for certain members of the European Union (including Italy)
upon the commencement of the third stage of the European Monetary Union (the
"EMU") on January 1, 1999. For fiscal years ending before December 31, 2002, the
Company published its audited consolidated financial statements in Italian lire,
which was legal tender in Italy prior to March 1, 2002. As of March 1, 2002, the
lira no longer exists and all transactions within the EMU are required to be
conducted in euro.

     In this annual report, references to "(euro)" or "euro" are to the euro;
references to "lira", "lire" or "Lit." are to the Italian lira (singular) or to
Italian lire (plural); and references to "U.S. dollars", "dollars", "U.S.$" or
"$" are to United States dollars.

     From January 1, 1999 to February 28, 2002 (the last day on which the lira
was legal tender in Italy), the Company carried out non-cash transactions in
euro as well as lire. For additional details regarding the euro, see Item 5,
"Operating and Financial Review and Prospects -- Introduction of the Euro". For
ease of comparison, the Company has presented in this annual report (1) its
audited financial statements for fiscal years ending before December 31, 2002,
and (2) other amounts formerly stated in Italian lire in euro and dollars, as
applicable, as follows:

-    converting the lire amounts into euro at the fixed conversion rate of Lit.
     1,936.27 per euro established in connection with the commencement of the
     third stage of the EMU; and

-    converting the euro amounts into U.S. dollars at the noon buying rate in
     New York City for cable transfers in foreign currencies as certified for
     customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
     Rate") for euro on December 31, 2002 of U.S.$ 1.0485 per euro.

     Foreign currency conversions in this annual report should not be taken as
representations that the foreign currency amounts actually represent the
equivalent U.S. dollar amounts or could be converted into U.S. dollars at the
rates indicated.

     The Company's restated euro financial information depicts the same trends
as would have been presented if it had continued to present its financial
information in lire. The Company's consolidated financial information for the
year ended December 31, 1998 (before the adoption of the euro) will, however,
not be comparable to the euro financial information of other companies that
previously reported their financial information in a currency other than lire.

     The Consolidated Financial Statements included in Item 18 of this annual
report are prepared in conformity with accounting principles established by, and
(in the absence of such established principles) accounting principles of the
International Accounting Standards Committee adopted by, the Italian accounting
profession ("Italian GAAP"). These principles vary in certain significant
respects from generally accepted accounting principles in the United States
("U.S. GAAP"). See Note 26 to the Consolidated Financial Statements included in
Item 18 of this annual report.

     In December 2001, the Company changed the par value of each of its Ordinary
Shares from Lit. 125 to (euro) 1. All share and per share information reported
in this annual report reflects the change in the per share par value from lire
to euro.

     On June 7, 2002 the Company changed its name from Industrie Natuzzi S.p.A.
to Natuzzi S.p.A.

                                      iii
<PAGE>

                                     PART I

Item 1.  Identity of Directors, Senior Management and Advisers

Not applicable.


Item 2.  Offer Statistics and Expected Timetable

Not applicable.



Item 3.  Key Information

                             Selected Financial Data

     The following table sets forth selected consolidated financial data for the
periods indicated and is qualified by reference to, and should be read in
conjunction with, the Company's Consolidated Financial Statements and the notes
thereto included in Item 18 of this annual report and the "Operating and
Financial Review and Prospects" included in Item 5 of this annual report. The
income statement and balance sheet data presented below have been derived from
the Company's Consolidated Financial Statements. The Company, together with its
subsidiaries (collectively, the "Group"), is primarily engaged in the design,
manufacture and marketing of contemporary and traditional leather- and
fabric-upholstered furniture, principally sofas, loveseats, armchairs, sectional
furniture, motion furniture and sofa beds.

     The Consolidated Financial Statements from which the selected consolidated
financial data set forth below has been derived were prepared in accordance with
Italian GAAP, which differs in certain respects from U.S. GAAP. For a discussion
of the principal differences between Italian GAAP and U.S. GAAP as they relate
to the Company's consolidated net earnings and shareholders' equity, see Note 26
to the Consolidated Financial Statements included in Item 18 of this annual
report.

                                       1
<PAGE>

<TABLE>
<CAPTION>

                                                  Year Ended December 31,

                           2002          2002          2001           2000          1999           1998
                       ---------------------------------------------------------------------------------
                       (millions of  (millions of euro, except per Ordinary Share and ADS amounts)(1)
                       dollars,
                       except
                       per Ordinary
                       Share and ADS
                       amounts)(2)
Income Statement Data:
Amounts in
 accordance with Italian
 GAAP :
<S>                        <C>         <C>          <C>            <C>            <C>         <C>
  Net sales
  Leather- and
   fabric-upholstered
   furniture              $ 770.3  (euro) 734.7   (euro) 714.0   (euro) 629.3   (euro) 524.1  (euro) 513.9
  Other(3)                   73.8          70.4           72.1           59.2         39.7            36.7
                           ------     ----------    ----------     ---------      ----------    ----------
                            844.1         805.1          786.1          688.5         563.8          550.6
  Cost of sales            (542.5)       (517.4)        (520.1)        (426.3)       (336.5)        (357.3)
  Gross profit              301.6         287.7          266.0          262.2         227.3          193.3
  Selling expenses         (152.5)       (145.4)        (134.8)        (109.0)        (85.0)         (88.5)
  General and
   administrative expenses  (42.5)        (40.5)         (33.5)         (26.7)        (22.6)         (19.6)

  Operating income          106.6         101.8           97.7          126.5         119.7           85.2

  Other income
   (expense), net(4)         15.3          14.5           (0.2)         (21.8)        (16.8)          10.7
  Earnings before taxes
   and minority interests   121.9         116.3           97.5          104.7         102.9           95.9
  Income taxes              (26.2)        (25.0)         (21.9)         (25.5)        (20.3)         (23.9)
  Earnings before
   minority interests        95.7          91.3           75.6           79.2          82.6           72.0

  Minority interests          0.1           0.1              -              -          (0.2)          (0.1)
  Net earnings               95.8          91.4           75.6           79.2          82.4           71.9
  Net earnings per
   Ordinary Share
   and ADS                   1.75          1.67           1.37           1.39          1.43           1.25

Approximate amounts in
accordance with
  U.S. GAAP :
  Net earnings               96.5          92.0           71.1           81.7          79.4           75.6
  Net earnings
   per Ordinary
   Share and ADS           $ 1.76   (euro) 1.68    (euro) 1.29    (euro) 1.43   (euro) 1.38    (euro) 1.32

  Cash dividend per
  Ordinary Share           $ 0.35   (euro) 0.33    (euro) 0.29    (euro) 0.29   (euro) 1.64    (euro) 0.83

Number of
 Ordinary Shares
 Outstanding           54,681,628    54,681,628     54,681,628     55,742,828    57,468,888     57,468,888
Balance Sheet Data
(as at December 31) :
Amounts in accordance
with Italian
GAAP :
  Current assets          $ 422.1  (euro) 402.6   (euro) 491.9   (euro) 354.2  (euro) 377.3   (euro) 348.5
  Non-current assets        285.1         271.9          224.9          151.7         106.8           61.7
  Total assets              707.2         674.5          716.8          505.9         484.1          451.5
  Current liabilities       134.9         128.7          252.5          114.0          83.3           91.5
  Long-term debt              3.8           3.6            3.3            0.2           0.6            1.2
  Minority interest           0.5           0.5            1.5            0.8           0.8            0.7
  Shareholders' equity      519.8         495.8          428.5          366.5         378.1          339.4
Approximate amounts
in accordance with
  U.S. GAAP :
  Shareholders' equity    $ 453.3  (euro) 432.3   (euro) 364.4   (euro) 321.9  (euro) 354.7   (euro) 319.1
</TABLE>

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

(1)  Amounts for 1998 (before the adoption of the euro) have been calculated
     based on the Noon Buying Rates for the lira, converted into euro at the
     official fixed conversion rate of (euro) 1= Lit. 1,936.27 and expressed in
     U.S. dollars per euro. The Company's consolidated financial statements for
     the fiscal years ending before December 31, 2002 have been restated from
     lire to euro using the exchange rate of Lit. 1,936.27 per euro established
     in connection with the commencement of the third stage of the EMU. The
     Company's consolidated financial statements reported in euro depict the
     same trends as would have been presented if the Company had continued to
     present its financial statements in lire. The Company's consolidated
     financial statements for years ended prior to December 31, 1999, will not
     be comparable to the euro financial statements of other companies that
     previously reported their financial statements in a currency other than
     lire.
(2)  Amounts are translated into U.S. dollars by converting the euro amounts
     into U.S. dollars at the Noon Buying Rate for euro on December 31, 2002 of
     U.S.$ 1.0485 per euro.
(3)  Sales included under "Other" principally consist of sales of polyurethane
     foam and leather to third parties.
(4)  Other income (expense), net is principally affected by gains and losses, as
     well as interest income and expenses, resulting from measures adopted by
     the Company in an effort to reduce its exposure to exchange rate risks. See
     Item 5, "Operating and Financial Review and Prospects -- Results of
     Operations -- 2002 Compared to 2001", Item 11, "Quantitative and
     Qualitative Disclosures about Market Risk" and Notes 3, 24 and 25 to the
     Consolidated Financial Statements included in Item 18 of this annual
     report.


                                       2
<PAGE>



                                 Exchange Rates

     Fluctuations in the exchange rates between the euro and the U.S. dollar
will affect the U.S. dollar amounts received by owners of American Depositary
Shares ("ADSs") on conversion by the Depositary (as defined below) of dividends
paid in euro on the Ordinary Shares represented by the ADSs.

     In addition, most of the Group's costs are denominated in euro, while a
substantial portion of its revenues is denominated in currencies other than the
euro, including the U.S. dollar in particular. Accordingly, in order to protect
the euro value of its foreign currency revenues, the Group engages in
transactions designed to reduce its exposure to fluctuations in the exchange
rate between the euro and such foreign currencies. See Item 5, "Operating and
Financial Review and Prospects -- Results of Operations -- 2002 Compared to
2001" and Item 11, "Quantitative and Qualitative Disclosures about Market Risk".

     The following table sets forth the Noon Buying Rate for the euro expressed
in U.S. dollars per euro, rounded to the nearest hundredth of a U.S. cent for
the periods indicated. Amounts below for 1998 (before the adoption of the euro)
have been calculated based on the Noon Buying Rates for the lira, converted into
euro at the official fixed conversion rate of (euro) 1= Lit. 1,936.27 and
expressed in U.S. dollars per euro.

<TABLE>
<CAPTION>


Year:                                                            Average(1)    At Period End
----                                                             ----------    -------------
<S>                                                                <C>           <C>
1998...........................................................     1.1147         1.1707
1999...........................................................     1.0588         1.0070
2000...........................................................     0.9207         0.9388
2001...........................................................     0.8909         0.8901
2002...........................................................     0.9495         1.0485

Month ending:                                                        High           Low
------------                                                         ----           ---
December 31, 2002.............................................      1.0485        0.9927
January 31, 2003..............................................      1.0861        1.0361
February 28, 2003.............................................      1.0875        1.0708
March 31, 2003................................................      1.1062        1.0545
April 30, 2003................................................      1.1180        1.0621
May 31, 2003..................................................      1.1853        1.1200
-----------
</TABLE>

(1)  The average of the Noon Buying Rates for the relevant period, calculated
     using the average of the Noon Buying Rates on the last business day of each
     month during the period.



The effective Noon Buying Rate on June 25, 2003 was $U.S. 1.1592 per(euro)1.00.

                                  Risk Factors

     Investing in the Company's ADSs involves certain risks. You should
carefully consider each of the following risks and all of the information
included in this annual report.

                                       3
<PAGE>

Demand for furniture is cyclical and may fall in the future

     Historically, the furniture industry has been cyclical, fluctuating with
economic cycles, and sensitive to general economic conditions, housing starts,
interest rate levels, credit availability and other factors that affect consumer
spending habits. Due to the discretionary nature of most furniture purchases and
the fact that they often represent a significant expenditure to the average
consumer, such purchases may be deferred during times of economic uncertainty.

     In 2002, the Group derived 49.9% of its leather- and fabric-upholstered
furniture net sales from the United States and the Americas. A prolonged
economic slowdown in the United States may have a material adverse effect on the
Group's results of operations.

The Group operates principally in a niche area of the furniture market

     The Group is a leader in the production of contemporary leather-upholstered
furniture. Contemporary leather-upholstered furniture is a niche area of the
furniture market. Consumers have the choice of purchasing furniture in a wide
variety of styles, including furniture upholstered in fabric and furniture that
is designed along traditional lines. For many years, an established market for
contemporary leather-upholstered furniture has existed in Europe. By contrast,
in the United States, the market for contemporary leather-upholstered furniture
has significantly expanded in recent years, although it continues to be
relatively small in comparison with that for furniture upholstered in fabric.
Consumer preferences may change, and there can be no assurance that the current
market for contemporary leather-upholstered furniture will not decrease.

The furniture market is highly competitive

     The furniture industry is highly competitive and includes a large number of
manufacturers. Competition has increased significantly over the past few years
as companies manufacturing in low-cost countries have begun to play an important
role in the upholstery industry. No single company has a dominant position in
the industry. Competition is generally based on product quality, brand name
recognition, price and service.

     The Group's principal competitors are other manufacturers of contemporary
leather-upholstered furniture and manufacturers of furniture upholstered in
fabric. In the United States, the Group competes with a number of relatively
large companies, some of which (particularly certain of those manufacturing
fabric-upholstered furniture as one of a number of diversified operations) are
larger than the Group. The leather-upholstered furniture market in Europe is
highly fragmented.

     Some of the Group's competitors have attempted to increase market share at
the expense of the Group by copying the Group's products and selling such
products at lower prices than the Group. Management believes that such attempts
to produce copies of the Group's products that are comparable in design have had
success. The Group has instituted legal proceedings to defend its competitive
position, even though such initiatives require time and resources to be
effective. No assurance can be given that the Group will be able to maintain its
competitive position.

The Group's results are subject to exchange rate risks and other risks related
to the Group's international operations

     The Group is subject to a number of risks associated with the fluctuation
in the exchange rates between the euro and other currencies, including in
particular the U.S. dollar. In 2002, a significant portion of the Group's net
sales, but only approximately 30% of its costs, was denominated in currencies
other than euro. As a result, a decline in the value of such other currencies
against the euro could have an adverse effect on the Group's results of
operations.

                                       4
<PAGE>

     In addition, the Group began manufacturing operations in China, Brazil and
Romania in 2001, which causes the Group to record costs in the currencies of
those nations. For a discussion of the evolution of the Group's exchange rate
risk management strategy, and its use of foreign currency sales contracts, see
Item 11, "Quantitative and Qualitative Disclosures about Market Risk".

     The Group faces other risks relating to its international operations,
including changes in governmental regulations, tariffs or taxes and other trade
barriers, price, wage and exchange controls, political, social and economic
stability, inflation and interest rate fluctuations.

The price of the Group's principal raw material is difficult to predict and has
been affected by sanitary problems threatening the cattle industry

     Leather is used in approximately 85% of the Group's upholstered furniture,
and the acquisition of cattle hides represents approximately 35% of total cost
of goods sold. The supply of raw cattle hides is principally dependent upon the
consumption of beef, rather than on the demand for leather. During 2000 and the
first half of 2001, the cattle industry was influenced by factors such as
foot-and-mouth disease and mad cow disease, which negatively impacted the supply
of cattle hides, resulting in a significant increase in the prices for cattle
hides in 2000 and the first half of 2001 (prices commenced to decrease in the
second half of 2001). The raw hides market's dynamics are also dependent on the
levels of worldwide slaughtering, worldwide weather conditions and on different
sectors' levels of demand: shoe manufacturers, leather automotive, furniture and
clothing. The Group's ability to increase product prices following increases in
raw material costs is limited by market forces, and therefore the Group may not
be able to maintain its margins during periods of significant increases in raw
material costs.

The Group's past results and operations have significantly benefited from
government incentive programs which may not be available in the future

     Historically, the Group has derived significant benefits from the Italian
Government's investment incentive programs for under-industrialized regions in
Italy. See Item 4, "Information on the Company - Italian Government's Investment
Incentive Program". The Group has benefited from tax benefits, subsidized loans,
and capital grants. In particular, a substantial portion of the Group's earnings
before taxes and minority interests from 1993 to 2002 was derived from companies
entitled to some extent to tax exemptions under such programs. The most
significant tax exemptions expired in 2002. There can be no assurance that
similar benefits will be available to the Group in the future.

The Group is dependent on qualified personnel

     The Group's ability to maintain its competitive position will depend to
some degree upon its ability to continue to attract and maintain highly
qualified managerial, manufacturing and sales and marketing personnel. There can
be no assurance that the Group will be able to continue to recruit and retain
such personnel. In particular, the Group has been dependent on certain key
management personnel in the past, and there can be no assurance that the loss of
key personnel would not have a material adverse effect on the Group's results of
operations.

Control of the Company

     Mr. Pasquale Natuzzi, who founded the Company and is currently Chairman of
the Board of Directors and Chief Executive Officer, owns 47.7% of the issued and
outstanding Ordinary Shares of the Company (52.8% of the Ordinary Shares if the
Ordinary Shares owned by members of Mr. Natuzzi's immediate family (the "Natuzzi
Family") are aggregated) and controls the Company, including its management and
the selection of its Board of Directors.


                                       5
<PAGE>

     In addition, the Natuzzi Family has a right of first refusal to purchase
all the rights, warrants or other instruments which The Bank of New York, as
Depositary under the Deposit Agreement dated as of May 15, 1993, as amended and
restated as of December 31, 2001 (the "Deposit Agreement"), among the Company,
The Bank of New York, as Depositary (the "Depositary"), and owners and
beneficial owners of American Depositary Receipts ("ADRs"), determines may not
lawfully or feasibly be made available to owners of ADSs in connection with each
rights offering, if any, made to holders of Ordinary Shares.

Investors may face difficulties in protecting their rights as shareholders or
holders of ADSs

     The Company is incorporated under the laws of the Republic of Italy. As a
result, the rights and obligations of its shareholders and certain rights and
obligations of holders of its ADSs are governed by Italian law and the Company's
Statuto (or By-laws). These rights and obligations are different from those that
apply to U.S. corporations. Furthermore, under Italian law, holders of ADSs have
no right to vote the shares underlying their ADSs, although under the Deposit
Agreement, ADS holders have the right to give instructions to The Bank of New
York, the ADS depositary, as to how they wish such shares to be voted. For these
reasons, the Company's ADS holders may find it more difficult to protect their
interests against actions of the Company's management, board of directors or
shareholders than they would as shareholders of a corporation incorporated in
the United States.


                           Forward Looking Information

     Natuzzi makes forward-looking statements in this annual report. Statements
that are not historical facts, including statements about the Group's beliefs
and expectations, are forward-looking statements. Words such as "believe",
"expect", "intend", "plan" and "anticipate" and similar expressions are intended
to identify forward-looking statements but are not exclusive means of
identifying such statements. These statements are based on current plans,
estimates and projections, and therefore readers should not place undue reliance
on them. Forward-looking statements speak only as of the dates they were made,
and the Company undertakes no obligation to update or revise any of them,
whether as a result of new information, future events or otherwise.

     Forward-looking statements involve inherent risks and uncertainties. The
Company cautions readers that a number of important factors could cause actual
results to differ materially from those contained in any forward-looking
statement. Such factors include, but are not limited to: effects on the Group
from competition with other furniture producers, material changes in consumer
demand or preferences, significant economic developments in the Group's primary
markets, significant changes in labor, material and other costs affecting the
construction of new plants, significant changes in the costs of principal raw
materials, significant exchange rate movements or changes in the Group's legal
and regulatory environment, including developments related to the Italian
Government's investment incentive or similar programs. Natuzzi cautions readers
that the foregoing lists of important factors are not exhaustive. When relying
on forward-looking statements to make decisions with respect to the Company,
investors and others should carefully consider the foregoing factors and other
uncertainties and events.



                                       6
<PAGE>

Item 4.  Information on the Company

                                  Introduction

     The Group is primarily engaged in the design, manufacture and marketing of
contemporary and traditional leather- and fabric-upholstered furniture,
principally sofas, loveseats, armchairs, sectional furniture, motion furniture
and sofa beds. The Group has positioned its products principally in the medium
price range and emphasizes value, quality, style, variety and service.

     The Group is the world's leader in the production of leather-upholstered
furniture and has a leading share of the market for leather-upholstered
furniture in the United States and Europe (as reported by CSIL ("CSIL"), an
Italian market research firm, with reference to market information related to
years 2001 and 2000, respectively). The Company launched a line of
fabric-upholstered furniture in 1996. In 2000, the Company launched "Italsofa",
a new promotional brand aimed at the low end of the upholstery market, while in
January 2002, the Company introduced the new logo for the "Natuzzi" brand, which
is aimed at identifying the Company's medium to high end of the market products.
The Group currently designs 100% of its products and manufactures - directly or
through third parties - approximately 85% of its products in Italy. Production
outside of Italy is solely for the Italsofa brand. Within Italy, the Group sells
its furniture principally through franchised Divani & Divani by Natuzzi
furniture stores. As at April 30, 2003, 126 Divani & Divani by Natuzzi stores
were located in Italy. Outside of Italy, the Group sells its furniture
principally on a wholesale basis to major retailers and also through 43 stores
named "Natuzzi Store" and 29 Divani & Divani by Natuzzi stores (of such 72
stores, 11 are owned by Natuzzi and the remainder franchised).

     On June 7, 2002, the Company changed its name from Industrie Natuzzi S.p.A.
to Natuzzi S.p.A. The Company, which operates under the trademark "Natuzzi", is
a societa per azioni (stock company) organized under the laws of the Republic of
Italy and was established in 1959 by Mr. Pasquale Natuzzi, who is currently
Chairman of the Board of Directors, Chief Executive Officer and controlling
shareholder of the Company. Substantially all of the Company's operations are
carried out through various subsidiaries that individually conduct a specialized
activity, such as leather processing, foam production and shaping, furniture
manufacturing, marketing or administration.

     In an effort to maximize the efficiency of the Group's organizational
structure, at an extraordinary general meeting on July 15, 2002, the Company's
shareholders approved the merger of Creazioni Ellelle S.p.A., Divani e Poltrone
Italia S.r.l., Expan Italia S.r.l., Nagest S.r.l., Softaly S.r.l., Soft Cover
S.r.l. and Spagnesi International S.r.l. into the Company (the Company owned
virtually 100% of the capital stock of all these companies prior to the merger).
The merger became effective on January 1, 2003.

     The Company's principal executive offices are located at Via Iazzitiello
47, 70029 Santeramo, Italy, which is approximately 25 miles from Bari, in
Southern Italy. The Company's telephone number is: +39 080 882 0111. The
Company's main distributors are Natuzzi Americas, Inc. ("Natuzzi Americas"),
located at 130 West Commerce Avenue, High Point, North Carolina 27261 (telephone
number +1 336 887-8300), for the U.S. market, and Natuzzi Asia Ltd., located at
Unit 2005 20th Floor, Tower 1, The Gateway, 25 Canton Road, Tsimshatsui, Kowloon
H.K. (telephone number +852 2 6224646), for Asia.



                                       7
<PAGE>



                            Organizational Structure

     At June 23, 2003, the Company's principal operating subsidiaries are:
<TABLE>
<CAPTION>

Name                                    Percentage of      Registered office                 Activity
                                        ownership
<S>                                         <C>            <C>                                 <C>
Spagnesi S.p.A.                              99.95         Quarrata, Italy                      (1)
Style and Comfort S.r.l.                    100.00         Bari, Italy                          (1)
Italsofa Bahia Ltd.                          97.99         Bahia, Brazil                        (1)
Italsofa Shanghai Co. Ltd.                  100.00         Shanghai, China                      (1)
Italsofa Romania S.r.l.                     100.00         Baia Mare, Romania                   (1)
Natco S.p.A.                                 99.99         Bari, Italy                          (2)
I.M.P.E. S.p.A.                              90.83         Qualiano, Italy                      (3)
Natuzzi Americas, Inc.                      100.00         High Point, NC, U.S.A.               (4)
Natuzzi Asia Ltd.                           100.00         Hong Kong, China                     (4)
Natuzzi Iberica S.A.                        100.00         Madrid, Spain                        (4)
Natuzzi (Switzerland) AG/SA                  80.00         Kaltbrunn, Switzerland               (4)
Natuzzi Nordic                              100.00         Copenhagen, Denmark                  (4)
Natuzzi Benelux SA/NV                       100.00         Brussels, Belgium                    (4)
Castlegate 170 Ltd.                         100.00         West Thurrock, U.K.                  (4)
Natuzzi Trade Service S.r.l.                100.00         Bari, Italy                          (5)
------------------------
</TABLE>

(1)  Manufacture and distribution
(2)  Intra-group leather dyeing and finishing
(3)  Production and distribution of polyurethane foam
(4)  Distribution
(5)  Transportation services


     See Note 1 to the Consolidated Financial Statements for further information
on the Company's subsidiaries.

                                    Strategy

     Since 1981, the Group has concentrated its efforts mainly on the production
and marketing of leather-upholstered furniture. Since 1983, when the Group first
targeted the United States market, the leather-upholstered furniture market in
the United States has expanded significantly, due in large part, in the view of
management, to the sale, marketing and quality of Natuzzi products. According to
the most recent data available referring to year 2001 (as published in 2002 by
CSIL (CSIL), an Italian market research firm) the Group is the leader in the
leather-upholstered furniture segment in the United States, with a 11.4% market
share. In the United States, the initial efforts of the Company were
concentrated on increasing the size of the leather-upholstered furniture segment
in the overall furniture market. Having accomplished that goal, and facing
increased competition at the low end of the leather furniture market, the Group
is pursuing a strategy of producing higher quality furniture, available in
different styles and coverings (leather, fabric and microfiber), at all price
points.

     Since 1988, the Group has followed a strategy of diversifying its
geographic markets through increased emphasis on sales outside the United
States, particularly in Europe. The Group has increased its market share in the
highly fragmented European market, at the expense of its smaller European
competitors, by relying on the efficiency of its manufacturing capabilities to
produce higher quality products than its competitors, at comparable price
points.


                                       8
<PAGE>

     Within Italy, the Group sells its furniture principally through franchised
Divani & Divani by Natuzzi furniture stores. As at April 30, 2003, 126 Divani &
Divani by Natuzzi stores were located in Italy. The Company also has numerous
stores in other markets outside Italy where the furniture distribution networks
are either particularly fragmented or underdeveloped, such as Spain and Greece.
Specifically, as at April 30, 2003, the Company sells its furniture outside of
Italy principally on a wholesale basis to major retailers and through 43 stores
named "Natuzzi Store" and 29 Divani & Divani by Natuzzi stores (of such 72
stores, 11 are owned by Natuzzi and the remainder franchised). In January 2002,
the franchise name "Divani & Divani" was changed to "Divani & Divani by
Natuzzi".

     The Group's current marketing strategy for its Natuzzi brand products line
is to create brand awareness around the world and to improve the quality of its
distribution.

     The Group has also taken a number of steps to broaden its product lines. In
1991, the Group introduced a line of leather-upholstered motion furniture in the
United States and Europe. With the June 1994 acquisition of a controlling
interest in Spagnesi S.p.A. ("Spagnesi"), the Company entered into the market
for traditional upholstered furniture. Finally, in 1996, the Group launched its
fabric-upholstered furniture line, known as the "soft cover collection", which
is sold primarily in Europe.

     Since 1998, the Group has focused its marketing activities on selected
distributors and retailers, thus reducing the number of customers and the amount
of models and coverings produced. Management believes that this strategy, in
time, will enable the Group to provide better customer service and improve the
quality of its products, while at the same time reduce costs.

     In 1999, the Group further broadened its product offerings by introducing a
new concept, the "Decorator", intended to add further value to its product
offerings. The Decorator concept is designed to provide customers with "room
package solutions" by helping consumers' abilities to live in tastefully
furnished homes within their economic means. The concept involves developing
these interior design solutions by coordinating the Group's armchairs and sofas
(in different styles and coverings) with matching coffee tables, lamps and rugs,
in order to develop innovative alternatives to more traditional living room
decoration schemes. The Group believes that this service simplifies the work of
the retailer, who otherwise would be required to source individual furniture
pieces from different suppliers and employ dedicated interior decorators in
order to offer similarly comprehensive decor solutions to consumers. Management
believes that this new approach will strengthen the Group's relationships with
the world's leading distribution chains. Today, an evolved version of the
Decorator concept called the "Total Look Living Room" is available through
"Natuzzi Galleries" (described below) and Natuzzi Stores.

     In October 1999, as a way of improving service through the reduction of
delivery times, the Group introduced the "SoFast Program". The SoFast Program is
a furniture collection characterized by high quality and distinctive design,
which is offered to clients at faster delivery times than the Group's other
collections.

     In October 2000, the Group launched the "Italsofa Collection", aiming to
compete in the promotional segment with a collection of lower-priced furniture
identified by a distinctive brand associated with Italian quality and style. The
production of Italsofa started in January 2001 and since then it has sold
successfully. In 2002, Italsofa represented 23.6% of total seats sold by the
Group.


                                       9
<PAGE>

     The Group's marketing and production strategy is supported by its design
capabilities, "on demand" planning system and quality control procedures.
Management believes that these elements enable the Group to provide products
that are higher in quality than those of its competitors at comparable price
points. In addition, management believes that its ability to assess and adapt
quickly to changes in consumer preferences provides the Group with a competitive
advantage. A critical element of the Group's strategy has been its ability to
increase efficiency by coordinating all aspects of the product cycle and
manufacturing process through the use of its computerized management information
system. This coordination begins with the design of new products for specific
price points based on computer analysis of market demands, as reflected in
orders from and sales to its customers and other market information provided by
the Group's worldwide network of sales agents. The Group then uses its
management information system to monitor and control the costs and prices of
each element and product, as well as supervise the receipt of orders from
customers. Furthermore, this information system also allows the Group to
administer the purchase and process of raw materials, the manufacturing of
finished products and the delivery of finished products to customers.

     In January 2002, during the Cologne Furniture Fair in Germany, the Company
launched a new "visual image" campaign to strengthen the Natuzzi name. The
campaign aims to identify the brand with the Group's goal of satisfying a broad
range of consumer lifestyles and tastes. In 2002, the Natuzzi brand represented
76.4% of total seats sold by the Group.

     In October 2002, the Group launched the "Pasquale Natuzzi Collection",
which offers customers high-range distinctive products in terms of design,
materials and project development.

     In 2002, the Company also launched a new "Natuzzi Galleries" program in
efforts to improve distribution by installing a designated Natuzzi branded space
inside prime retailer stores (this concept is also referred to as having a
"shop-in-shop"). The advertising and the internal decorations used in these
Natuzzi Galleries (also know as the "Natuzzi Display System") are the same as
those used in the Natuzzi Stores, resulting in a single visual identity for the
Natuzzi brand in both the Natuzzi Stores and the Natuzzi Galleries. Test Natuzzi
Galleries have been opened around the world and the monitoring of sales
indicates that revenues per square foot increased at these locations following
the installation of the Natuzzi Galleries.

     Since 2002, the Group's Interior Design & Engineering Retail Department has
been working with worldwide Natuzzi Stores, Natuzzi Galleries and certain other
Natuzzi projects for the purpose of achieving the careful and coherent
integration of products, styles, brand values, communication and display
elements.


                                  Manufacturing

     As at December 31, 2002, the Group manufactured its products in 15
production facilities located in Italy. Eleven of the facilities are engaged in
the cutting, sewing and assembling of semi-finished and finished products and
employ approximately 2,947 workers. Ten of these assembly facilities are located
in or within a 25 mile radius of Santeramo, where the Company has its
headquarters. In addition, Spagnesi manufactures its products in a facility
located in Quarrata, near Florence.

     In 2001 and 2002, the Group completed construction of two new assembly
facilities in Ginosa and Laterza, Italy, adding additional capacity of
approximately 1,800 seats per day. These facilities became fully operational in
2002 and at December 31, 2002 employed approximately 580 workers.

     The assembly operations conducted in the Group's facilities involve
stretching elastic webbing onto the furniture's frames (which are constructed
either at the Group's principal assembly facility or by subcontractors),
attaching foam to the frames, and cutting and sewing the upholstery and
attaching it to the frames. These operations, which retain many characteristics
of production by hand, are coordinated at the Group's principal assembly
facilities through the use of the management information system, which
identifies by number each component of a piece of furniture -- e.g., frame,
cushions, leather -- and facilitates its automated transit and storage within
the factory, in part through a bar-coded "bin and pick" system. As part of an
effort to decrease costs through increased productivity and flexibility,
automatic guided vehicles supervised by a central computer have been installed
at two of the Group's principal assembly facilities to move products through the
production chain. In other facilities, materials are currently moved by hand or
conveyor belt, rather than on an automated basis. The production process for
Spagnesi's traditional upholstered furniture includes the additional step of
manufacturing and finishing the exposed portions of the wooden frames.
Operations at all of the Group's production facilities are normally conducted
Monday through Friday with two eight-hour shifts per day.


                                       10
<PAGE>

     One of the Group's 15 production facilities is involved in manufacturing
wooden frames. This facility employed approximately 78 workers as at December
31, 2002 and produces approximately 8% of the Company's needs for wooden frames.

     Two of the Group's production facilities are involved in the processing of
leather hides to be used as upholstery. One of the facilities is a leather
dyeing and finishing plant located near Udine that employed approximately 327
workers as at December 31, 2002. The Udine facility receives both raw and tanned
cattle hides, sends raw cattle hides to subcontractors for tanning, and then
dyes and finishes the hides. The other facility, located near Vicenza, is a
warehousing operation that receives semi-finished hides and sends them to
various subcontractors (who operate under the supervision of Natuzzi
technicians) for processing, drying and finishing, and then arranges for the
finished leather to be shipped to the Group's assembly facilities. The Vicenza
operation employed approximately 34 workers as at December 31, 2002. Hides are
tanned, dyed and finished on the basis of orders given by the Group's central
office in accordance with the Group's "on demand" planning system, as well as on
the basis of estimates of future requirements. The movement of hides through the
various stages of processing is monitored through the management information
system. See "-- `Supply-Chain Management'".

     The Group produces, directly and by subcontracting, 10 grades of leather in
approximately 36 finishes and 298 colors. The hides, after being tanned, are
split and shaved to obtain uniform thickness and separated into "top grain" and
"split". (Top grain is used, in varying quantities, in the manufacture of all
Natuzzi leather products, while split is used in addition to top grain in some
of the Group's lower price-point products.) The hides are then colored with dyes
and treated with fat liquors to soften and smoothen the leather, after which
they are dried. Finally, the semi-processed hides are treated to improve the
appearance and strength of the leather and to provide the desired finish. The
Group also purchases finished hides from third parties.

     One of the Group's production facilities, which is located near Naples and
employs approximately 57 workers, is engaged in the production of polyurethane
foam and, with production capacity in excess of the Group's needs, often sells
foam to third parties. The foam produced at the Naples facility pursuant to a
patented process results in a high quality material without using any auxiliary
blowing agent and is sold under the "Eco-FlexTM" trade name.

     The Group owns the land and buildings for its principal assembly facilities
located in Santeramo, Matera, Altamura and Quarrata, its leather dyeing and
finishing facility located near Udine, its foam-production facility located near
Naples and its facilities located in Ginosa, Laterza, Brazil and Romania, while
the land and buildings of the remaining production facilities are leased from
lessors, with several of whom the Group enjoys long-term relationships. Although
the lease terms are of varying lengths, Italian law provides that any such lease
must have a minimum term of six years. This minimum term, however, is
enforceable only by the lessee. The lease agreements provide for rents that
generally increase each year in line with inflation. Management believes that
the prospects are good for renewing the agreements on acceptable terms when they
expire. The Group owns substantially all the equipment used in its facilities.


                                       11
<PAGE>

     In 2000, the Group announced the launch of a new, low-price upholstered
furniture collection, known as Italsofa. The Company plans to manufacture the
Italsofa Collection completely outside Italy at plants located in Brazil, China
and Romania. Construction costs for the Brazil plant were (euro) 14.2 million,
while investments for the new plant in China are expected to be approximately
(euro) 15.0 million. Operations in the China plant have already begun, and the
Group plans to complete construction of the facility in 2004. The Brazil plant
focuses on sales to the North American market (particularly the East Coast) and
the China plant focuses on sales in Asia, Australia and the West Coast of the
United States. The Brazil plant has been constructed (but is not yet fully
operational) pursuant to an agreement with the State of Bahia under which the
Group will benefit from tax incentives for the construction of the plant and the
export of goods. Once they are fully operational, the Brazil plant is expected
to have a production capacity of approximately 700 seats per day, while the
China plant is expected to have a production capacity of approximately 2,000
seats per day once completed. The Company has invested approximately (euro) 33.5
million in the Romania plant in order to achieve a production capacity of 1,200
seats per day once it becomes fully operational.

     As at December 31, 2002, the Group entrusted approximately 25% of its
production needs (in particular assembly) to subcontractors, all located within
a 20-mile radius of Santeramo. The Group supplies to each subcontractor the
product design, the finished leather, the pre-cut cushions, the wooden frames
and the other assembly materials. Each subcontractor then assembles these
materials into finished products under the supervision of the Group's
technicians, who are responsible for quality control. Transportation of the
materials to, and the finished products from, each subcontractor's plant is
arranged by the Group. Each contract with a subcontractor is for an indefinite
period, subject to termination by either party with prior notice (which
generally is required to be given 4 months prior to termination), and provides
for the furniture to be assembled at a fixed cost per unit that increases
annually in line with inflation. Management believes that the prospects for
maintaining these contracts are good and that, in any case, four months' notice
prior to termination is a sufficient period of time to allow the engagement of a
replacement subcontractor on acceptable terms or to increase the Group's
in-house production capability if necessary.

     See "-- Italian Government's Investment Incentive Program" for a
description of the Company's agreement with the Italian Government with respect
to the Group's manufacturing structure.

     Raw Materials. The principal raw materials used in the manufacture of the
Group's products are raw cattle hides, polyester fiber, polyurethane foam, wood
and wood products.

     The Group purchases hides from slaughterhouses and tanneries located mainly
in Italy, Brazil, Colombia, Australia, Germany, Argentina, Sweden, the United
States, New Zealand, and Eastern Europe. The hides purchased by the Group are
divided into several categories, with hides in the lowest categories being
purchased mainly in Brazil, Colombia and Ukraine; those in the middle categories
being purchased mainly in Australia, New Zealand, Italy and the United States;
and those in the highest categories being purchased mainly in Germany and
Scandinavian countries. A significant number of hides in the lowest categories
are purchased at the "wet blue" stage -- i.e., after tanning -- while most hides
purchased in the middle and highest categories are unprocessed. The Group has
implemented a leather purchasing policy according to which a percentage of
leather is purchased at a finished or semi-finished stage. Therefore, the Group
has had a smaller inventory of "split leather" to sell to third parties.
Approximately 82% of the Group's hides are purchased from 18 suppliers, with
whom the Group enjoys long-term and stable relationships. Hides are generally
purchased from the suppliers pursuant to orders given every two/three months
specifying the number of hides, the purchase price and the delivery date. Hides
purchased from Europe are delivered directly by the suppliers to the Group's
leather facilities near Udine and Vicenza, while those purchased overseas are
delivered to an Italian port, where they are inspected by technicians of the
Group and then sent to the Udine facility and subcontractors. Management
believes that the Group is able to purchase leather hides from its suppliers at
reasonable prices as a result of the volume of its orders, and that alternative
sources of supply of hides in any category could be found quickly and at
acceptable prices if the supply of hides in such category from one or several of
the Group's current suppliers ceased to be available or was no longer available
at acceptable terms. The supply of raw cattle hides is principally dependent
upon the consumption of beef, rather than on the demand for leather.


                                       12
<PAGE>

     During 2000 and the first half of 2001, the prices for raw cattle hides
increased significantly due to diseases threatening the cattle industry, such as
foot and mouth disease and mad cow disease, which negatively impacted the supply
of cattle hides, and due to a strong demand for leather, especially from the
apparel industry. In the second half of 2001, the price of leather decreased,
partly offsetting the significant increase during the previous 18 months. In
2002, the prices for raw cattle hides decreased due to a decrease in demand for
leather resulting from the downturn in the worldwide economy. During the first
months of 2003, a relative stabilization in the prices for raw cattle hides has
been experienced.

     The Group obtains the polyester fiber filling for its polyester
fiber-filled cushions from several suppliers, located mainly in Korea, China and
Taiwan, and the chemicals required for the production of polyurethane foam from
major chemical companies located in Europe (mainly Germany, Italy and the United
Kingdom). The chemical components of polyurethane foam are petroleum-based
commodities, and the prices for such components are therefore subject to, among
other things, fluctuations in the price of crude oil. The Group obtains the wood
and wood products for its wooden frames from suppliers in Italy and Eastern
Europe, and in 2002 through its subsidiary Italsofa Romania S.r.l., the Group
began directly engaging in the cutting and transformation of wood from Romanian
forests, in accordance with the Group's quality and environmental standards.

     Since 1996, the Group has also purchased fabric for its line of
fabric-upholstered furniture, and presently purchases fabric meeting the Group's
high quality standards from manufacturers in Italy, Taiwan, Korea and Japan. Of
the fabric purchased by the Group, approximately 90% is ultramicrofibre, the
price for which decreased by more than 10% during the last months of 2002.

     With regard to the Group's collection of home furnishing accessories
(tables, lamps, carpets, home accessories in different materials), most of the
suppliers are located in Italy and other European countries. In 2002, the Group
started production in India of certain hand-made products such as carpets.

     "Supply-chain Management". The Group schedules its manufacture and supply
of raw materials and components on the basis of an "on demand" planning system.
This system allows the Group to manage a high number of product combinations (in
terms of the number of models, versions and coverings codes) offered to the
market while maintaining a high level of customer service, low inventories and
low risk of obsolescence (in spite of low product lifetime). Special programs
with short lead times are provided for a limited number of customers and
collections. All planning activities (finished goods load optimization, customer
orders acknowledgement, production and supplier's planning) are synchronized in
order to guarantee that during the production process, the correct materials are
located in the right place at the right time, thereby achieving a maximum level
of service.

     This system is used for all products and markets in which the Group sells
its goods. For example, in the case of furniture being purchased by a U.S.
customer, as soon as an order is sent to the Group's sales office in the United
States (High Point, North Carolina), the order is transmitted to the Group's
computer system at its headquarters in Santeramo, Italy and processed as
described below.

     In order to incur the lowest costs and achieve the best product quality,
the Group attains the optimum load level for shipping through the use of "tailor
made" software. Since the prices quoted to customers are based on shipments of
full containers, if a customer's order does not represent optimal use of
container space, revisions to the customer's order will be suggested. Upon
finalization of the customer's order, the computer system generates an order
proposal that is reviewed to determine feasibility in terms of the types of
products, quantity and timing.


                                       13
<PAGE>

     This planning process allows for the optimum use of the available
technology, capacity and human resources, while minimizing costs and achieving
high quality. Once production is scheduled, the Group's "Material Requirement
Planning Information System" produces a list of raw materials and components to
be ordered. This list is reviewed and incorporated with the Group's global
procurement scheduling. All purchases from suppliers are then planned.
Procurement lead times are relatively short; leather is generally available
within three weeks of ordering and certain components are supplied by a "ready
from stock" service. The Group strives to achieve optimum levels of inventories
while keeping service levels high.

     The entire process, from the receipt of a customer's order to the shipment
of the finished products from the Group's assembly facilities, on average takes
from six to seven weeks. The lead times can be different for special programs
(such as Italsofa and SoFast (described below)) or when an unusually high level
of orders is received. The time required for delivery to the customer varies
depending on where the customer is located (transport lead times vary widely
depending on the distance of the destination from the production units).

     Transportation. The Group's furniture is delivered to customers by common
carriers. Furniture destined for the United States and the Americas and other
markets outside Europe is transported by sea in 40' high cube ("hc") containers,
while furniture produced for the European market is generally delivered by truck
and, in some cases, by railway and by sea in containers. In 2002, the Group
shipped 16,557 containers (40' hc) to overseas countries and 7,414 full load
mega-trailer trucks to European destinations.

     The Group uses a computerized program that optimizes the loading of
containers and trailer trucks, thus enabling products to be shipped more
efficiently. Customers in the United States have historically purchased 40' hc
containers filled to capacity.

     The Group relies principally on several shipping and trucking companies
operating under "time-volume" service contracts to deliver its products to
customers and to transport raw materials to the Company's plants and processed
materials from one plant to another. In general, the Group prices its products
to cover its door-to-door shipping costs, including all customs duties and
insurance premiums. Most of the Group's overseas suppliers are responsible for
delivering raw materials to the port of departure, therefore transportation
costs for these materials are generally under the Group's control. The Group
also owns a small number of trucks, which are used to transport raw and
processed materials and finished products to and from subcontractors and between
the Group's facilities in the Santeramo area.

                               Products and Design

     Products. The Group manufactures a wide range of leather- and
fabric-upholstered furniture products, which are produced in four different
styles ("traditional", "transitional", "contemporary" and "modern") and fall
within five broad categories (stationary furniture (sofas, loveseats and
armchairs), sectional furniture, motion furniture, sofa beds and occasional
chairs, including recliners and body massage chairs (launched in 2001)). The
Group offers its products in 411 different models, 10 leather grades, 36 leather
finishes and 298 colors. Each of the Group's models is generally offered in
various forms (e.g., sofa, loveseat, armchair, ottoman, sectional components,
motion mechanism and body massage chairs). Each model is offered at prices that
vary depending principally on the quality and finish of the leather (including
whether it is top grain only leather or top grain with split) and the quality of
the cushions (including whether they are foam, polyester fiber or feather).


                                       14
<PAGE>

     In October 2000, the Company announced the launch of the Italsofa
Collection, with the aim of entering new markets by means of providing a
collection of a lower-priced furniture identified by a distinctive brand
associated with Italian quality and style. In 2002, the Italsofa Collection
included 33 sofa models, in a choice of 30 colors made of three categories of
leather, and in 16 colors made of two categories of microfiber.

     Design. The ability to design and offer new products on a regular basis is
an important element of the marketing strategy of the Group. The Group's
designers generally design new models to be manufactured for sale at specified
price points, on the basis of the Group's analysis of the market, and
occasionally on the basis of requests from larger customers for new models.


                                     Markets

     The Group markets its products internationally as well as in Italy. Outside
Italy, the Group sells its leather furniture principally on a wholesale basis to
major retailers and furniture stores. Since 1990, the Group has sold its
leather-upholstered products in Italy principally through franchised Divani &
Divani by Natuzzi furniture stores.

     While continuing to increase its net sales in each of the geographic
markets in which it operates, the Group has gradually achieved a more balanced
exposure to different geographic markets. Whereas in 1987, the United States and
the Americas accounted for approximately 92% of the Group's leather-upholstered
furniture net sales, in 2002 the Group derived 49.9% of its leather- and
fabric-upholstered furniture net sales from the United States and the Americas,
44.4% from Europe and 5.7% from the rest of the world (mainly Australia and
Japan). See "-- Strategy".

     The following tables show the leather- and fabric-upholstered furniture net
sales and unit sales (in seats) of the Group broken down by geographic market
for each of the years indicated:
<TABLE>
<CAPTION>

                                       Leather- and Fabric-Upholstered Furniture Net Sales
                  ----------------------------------------------------------------------------------------
                                 2002                  2001                2000               1999                 1998
                                 ----                  ----                ----               ----                 ----
                                                    (millions of euro)
<S>                        <C>    <C>             <C>    <C>         <C>    <C>          <C>    <C>            <C>    <C>
U.S. and the Americas(1 )   366.4  49.9%          356.4  49.9%        318.8  50.6%        246.0   46.9%        240.7   46.8%
Europe                      326.5  44.4%          317.9  44.5%        272.3  43.3%        238.7   45.6%        230.8   44.9%
Rest of the World            41.8   5.7%           39.7   5.6%         38.2   6.1%         39.4    7.5%         42.4    8.3%
                             ----   ---           -----   ---         -----  ----         -----   ----         -----   ----


  Total              (euro) 734.7   100%   (euro) 714.0 100.0% (euro) 629.3 100.0% (euro) 524.1  100.0% (euro) 513.9  100.0%
                          =======   ====          ===== =====         ===== =====         =====  =====         =====  =====



                                         Leather- and Fabric-Upholstered Furniture Net Sales (in seats)(2)
                   ------------------------------------------------------------------------------------------------
                               2002                   2001                2000               1999                   1998
                               ----                   ----                ----               ----                   ----
U.S. and the
 Americas(1)            1,572,879  52.0%      1,376,818  47.9%    1,229,159  47.7%    1,048,981  45.8%     1,087,076   46.6%
Europe                  1,278,296  42.2%      1,323,736  46.0%    1,188,989  46.1%    1,068,922   46.7%    1,041,598   44.7%
Rest of
 the World                176,483   5.8%        175,704   6.1%      159,175   6.2%      172,589    7.5%      203,215    8.7%
                        ---------  ----       --------- -----     --------- -----     ---------  -----     ---------  -----
    Total               3,027,658 100.0%      2,876,258 100.0%    2,577,323 100.0%    2,290,492  100.0%    2,331,889  100.0%
                        ========= =====       ========= =====     ========= =====     =========  =====     =========  =====
</TABLE>
---------

(1)  Outside the United States, the Group also sells its products to customers
     in Canada and Central and South America (collectively, the "Americas").
(2)  Includes seats produced at Group-owned facilities and by subcontractors.
     Seats are a unit measurement. A sofa is counted as three seats, a chair as
     one seat.

United States and the Americas. In 2002, net sales of leather- and
fabric-upholstered furniture in the United States and the Americas increased
2.8% to (euro) 366.4 million, compared to (euro) 356.4 million in 2001, and the
number of seats sold in the two principal markets of this region, the United
States and Canada, rose 15.7% and 0.8%, respectively.

                                       15
<PAGE>

     The Group's sales in the United States and the Americas are handled by
Natuzzi Americas, the Group's distribution subsidiary for North and Latin
America, which maintains offices in High Point, North Carolina, the heart of the
most important furniture manufacturing region in the United States. The staff at
High Point provides customer service, marketing and logistics, handles finance
and collections, and generally acts as the customers' contact for the Group. As
at December 31, 2002, the High Point operation had approximately 60 employees.

     Natuzzi Americas has 55 independent sales representatives and sub-reps in
the United States and the Americas. They are supervised by six regional sales
and marketing managers, one for each of the Northeast, South, West and Midwest
of the United States, Canada and Latin America.

     The Group's principal customers are major retailers. The Group advertises
its products to retailers and, recently, to consumers in the United States and
the Americas directly and through the use of various marketing tools. The Group
also relies on its network of sales representatives and on the furniture fairs
held at High Point each April and October to promote its products. Many of the
Group's larger customers review part of the new offering of models during an
informal "pre-market" period one month prior to each High Point fair. Since the
April 1998 International Home Furnishings Market at High Point, Natuzzi products
have been displayed in a new 110,000 square foot showroom/office complex,
constructed at a cost of approximately (euro) 20.3 million. This complex is used
as the home office of Natuzzi Americas and to display about 230 Natuzzi models
in leather and fabric.

     Europe. In 2002, net sales of leather- and fabric-upholstered furniture in
Europe (excluding Italy) increased 2.1% to (euro) 250.4 million, compared to
(euro) 245.3 million in 2001.

     Furniture retailers are generally smaller in Europe than in the United
States. In Europe (outside Italy), the Group generally deals with cooperatives
and chains representing 50 to 100 retailers, as well as with independent
retailers. While the cooperatives place the orders, thereby obtaining the
benefits of purchasing in volume, the Group delivers the products directly to
the particular members of the cooperatives on whose behalf the orders were
placed. In some cases, the Group invoices the cooperative. In others, the Group
invoices the member of the cooperative to whom the products are delivered.

     As in the United States, the Group advertises its products in Europe
(outside Italy) to consumers and to retailers directly and through the use of
various marketing tools. The Group also promotes its products in Europe through
a network of sales agents and through furniture fairs. As at December 31, 2002,
the Group had 34 sales agents and sub-agents in Europe. These sales agents are
paid on a commission basis. The principal European furniture fairs are those in
Cologne, held in January, and Milan in April.

     Outside Italy, the Company uses franchised or directly owned stores to
penetrate markets where the furniture distributors networks are either
particularly fragmented or underdeveloped. As at April 30, 2003, 50 franchised
single-brand stores were operating in Europe (outside Italy): 29 under the
Divani & Divani by Natuzzi store sign (15 in Greece, 14 in Portugal) and 21
under the Natuzzi name (12 in France, 2 in Hungary and one in each of
Switzerland, Cyprus, Slovenia, Croatia, Malta, Bosnia and Iceland). As at April
30, 2003, there were 11 directly owned stores in Europe (outside Italy): 5 in
Switzerland and 6 in Spain.

     During 2000, the Company signed an agreement with the Roche Bobois Group to
open a network of approximately 40 franchised stores in France within the
following five years. As at April 30, 2002, twelve stores have been opened. In
October 2001, the Group acquired Divania S.A. (recently renamed Natuzzi Iberica
S.A.), the exclusive dealer for the Madrid area, in order to qualify and support
the development of the Natuzzi chain in Spain. The Group's expansion plans in
the Spanish market include a goal of having a total of 25 Natuzzi Stores
throughout Spain by the end of 2003. In December 2001, the Group acquired 60% of
Sofaworld AG, the exclusive dealer for German-speaking Switzerland. As of April
30, 2003, the Group has increased its ownership of Sofaworld AG to 80%, and had
renamed it Natuzzi (Switzerland) AG/SA. The Group currently owns 5 Natuzzi
Stores in Switzerland, and plans to further develop the chain in the Swiss
market.




                                       16
<PAGE>

     Italy. In 2002, net sales of leather- and fabric-upholstered furniture in
Italy increased 4.8% to (euro) 76.1 million, compared to (euro) 72.6 million in
2001.

     Since 1990, the Group has sold its leather-upholstered products within
Italy principally through franchised Divani & Divani furniture stores (now
Divani & Divani by Natuzzi). In April 1996, the Company inaugurated the first
franchised Divani & Divani store selling both leather- and fabric-upholstered
furniture, in Perignano (Tuscany). Since 1997, all the Divani & Divani stores in
Italy have displayed both leather- and fabric-upholstered collections. As at
April 30, 2003, 126 Divani & Divani by Natuzzi stores were located in Italy.

     Asia-Pacific. Overall sales in Asia-Pacific remained stable in 2002 as
compared to 2001. In 2002 as compared to 2001, sales in the Group's main
Asia-Pacific markets, Australia and Japan, increased by 9.4% and declined by
15.6%, respectively. The former was due to the opening of new stores and
galleries, while the latter was mainly due to devaluation of the local currency.
During 2002, the Group opened three new Natuzzi Stores in Australia, bringing
the total to five stores (one in Queensland, two in New South Wales and two in
Victoria), and five Natuzzi Galleries in David Jones department stores, also
located in Australia. Sales in other strategic markets, such as Korea and New
Zealand, increased in 2002 as compared to 2001 by 38.5% and 2.7%, respectively.

     The Group manages its Asia-Pacific sales through its Hong Kong subsidiary
and through four agencies located in Australia, Japan, Korea and New Zealand.

     Customer Credit Management. The Group maintains an active credit management
program. The Group evaluates the creditworthiness of its customers on a
case-by-case basis according to each customer's credit history and information
available to the Group. Throughout the world, the Group utilizes "open terms" in
75% of its sales and obtains credit insurance for 81% of this amount; 23% of the
Group's remaining sales are commonly made to customers on a "cash against
documents" and "cash on delivery" basis; and lastly 2% of the Group's sales are
supported by a "letter of credit" or "payment in advance".

     Advertising. Advertising is made through all major media (print, radio,
television and billboards). In 2002, total advertising expenses in Italy
amounted to approximately 6% of Divani & Divani by Natuzzi's net sales to final
consumers in Italy, while in other countries advertising expenses varied
depending on the degree of market development in the country. The Company
intends to increase its investments in advertising to support the Natuzzi brand.

                Italian Government's Investment Incentive Program

     Historically, the Group has derived benefits from the Italian Government's
investment incentive program for under-industrialized regions in Southern Italy
(the "Mezzogiorno Program"), which includes the area that serves as the center
of the Group's operations. The Mezzogiorno Program provided tax benefits,
capital grants and subsidized loans. In particular, a substantial portion of the
Group's earnings before taxes and minority interest from 1993 to 2002 was
derived from companies entitled to some extent to such tax exemptions. Three tax
exemptions expired at the end of 1996, another tax exemption for a minor
subsidiary expired in July 1997 and one tax exemption expired in January 2000.
Five production subsidiaries are entitled to certain tax exemptions under the
Mezzogiorno Program; four of these tax exemptions expired on September 14, 2002
and one will expire on December 31, 2003.


                                       17
<PAGE>

     In 1992, the Italian Parliament instructed the government to replace the
Mezzogiorno Program with a new investment incentive program in favor of all
under-industrialized regions of Italy. In 1993, the government confirmed the
expiration of the Mezzogiorno Program by legislative decree and disclosed the
broad outlines of the new program, to be defined by subsequent government
resolutions. The Parliament has provided the government with certain funds to
honor existing commitments under the Mezzogiorno Program relating to capital
grants and subsidized loans. There can be no assurance, however, that the Group
will be able to obtain all the capital grant or subsidy benefits to which it may
be entitled under such Program.

     The government resolutions adopted thus far to implement the new investment
incentive program state that companies making investments in the construction,
enlargement, restructuring, conversion, reactivation or relocation of industrial
plants may receive a grant based on the total cost of the project. The grant
(calculated in terms of the Equivalente Sovvenzione Netto formula) will be
approximately 40% of the investment cost for the Mezzogiorno areas in which
Natuzzi currently operates and 10% of the investment cost for the Quarrata
(Pistoia) area where Spagnesi is located. The program also provides for research
and development benefits which may not exceed 60% of the investment cost
(calculated in terms of the Equivalente Sovvenzione Lordo formula).

     In December, 1996, the Company and the "Contract Planning Service" of the
Italian Ministry of the Budget signed a "Program Agreement" with respect to the
"Natuzzi 2000 project". In connection with this project, the Group has planned a
multi-faceted program of industrial investments for the production of
upholstered furniture. Investments are projected to amount to approximately
(euro) 232.2 million. According to the agreement, the Italian Government will
contribute (euro) 106.2 million. Receipt of the Italian Government's funds is
contingent upon, among other things, the Group constructing facilities in
accordance with certain specifications and maintaining a minimum number of
employees. During 1997 the Group received under the aforementioned project
capital grants of (euro) 27.1 million. Capital expenditures under the Natuzzi
2000 project amounted to approximately (euro) 70.8 million through December 31,
2002. The capital grants are secured by surety bonds issued by an Italian bank
in the amount of (euro) 26.0 million. These surety bonds are unsecured and will
expire when the Italian Ministry of Budget releases the final approvals of all
investments made.

     Tax Benefits. The tax benefits available to qualifying companies under the
Mezzogiorno Program are as follows:

-    Ten-Year Exemption from the Corporate Income Tax. A company formed before
     December 31, 1993 to engage in new industrial activity in the Mezzogiorno,
     and whose registered office is in that area, is exempt from the 37%
     national corporate income tax (Imposta sui Redditi delle Persone Giuridiche
     or "IRPEG") for a period of ten years from the date of its incorporation.
     For fiscal years 2001 and 2002, the Italian corporate income tax rate
     decreased to 36%. On December 27, 2002, the Italian Parliament approved law
     289 which reduces the IRPEG tax rate to 34% for fiscal years beginning on
     or after January 1, 2003.

-    Ten-Year Exemption from Local Income Tax. Profits from industrial
     facilities established in the Mezzogiorno, irrespective of the location of
     the registered office of the company owning the facilities, that became
     suitable for operation prior to December 31, 1993 are exempt from the 16.2%
     local tax (Imposta Locale sui Redditi or "ILOR") for a period of ten years
     commencing from and including the taxable year in which taxable income
     generated by the facilities is first reported. As described below, for
     fiscal years beginning on or after January 1, 1998, IRAP replaced ILOR.
     Companies which were entitled to the full exemption for ILOR are now
     partially subject to IRAP. For purposes of IRAP, the taxable base is
     reduced by the amount which would have been exempt from ILOR.


                                       18
<PAGE>

-    Exemption from Local Income Tax for Profits Reinvested in the Mezzogiorno.
     Under the Mezzogiorno Program, a company, irrespective of the location of
     its registered office, was entitled to an exemption from ILOR with respect
     to its taxable income for fiscal years ended prior to December 31, 1993
     that was reinvested in the Mezzogiorno for the purpose of construction,
     expansion or re-establishment of industrial plants in that area. The
     exemption was applicable to the lesser of the amount of the investment or
     100% of taxable income. The exemption may not be claimed on profits which
     already benefited from an exemption from ILOR. Projects were required to
     commence within one year of the date of the application for the exemption
     and to be completed within three years of such date. With respect to the
     Group, profits made and reinvested after December 31, 1992 will not be
     entitled to the exemption.

     During December 1997, the Italian Government approved two legislative
decrees which introduced two new income tax schemes, one denominated IRAP and
the other the "Dual Income Tax". The general guidelines regulating the new taxes
are the following:

(a)  For fiscal years beginning on or after January 1, 1998, IRAP replaced ILOR,
     net equity tax and other minor taxes. For the 1999 and 1998 fiscal years,
     the tax rate was 4.25%. Starting 2000, each Italian Region has the power to
     increase the rate by a maximum of 1%. In general, the taxable base is a
     form of gross profit determined by the difference between gross revenues
     (excluding interest and dividend income) and direct production costs
     (excluding labor costs, interest expenses and other financial costs);

(b)  For fiscal years beginning on or after January 1, 1997, IRPEG was modified
     to introduce a dual income tax for the purpose of encouraging companies to
     use equity rather than debt finance. A first portion of the taxpayer's
     taxable income is calculated by applying an interest rate percentage (based
     on the return on government and private sector bonds) to the net increase
     in shareholders' equity of such taxpayer, subject to certain restrictions.
     This portion is subject to IRPEG at the reduced rate of 19%. The remaining
     profit will be subject to tax at the ordinary IRPEG tax rate (36% for
     2002). The application of the provisions of the modified IRPEG had no
     significant effect on the Group's income taxes for 2002 and 2001;

(c)  Under Italian investment incentive schemes for under-industrialized
     regions, certain of the Group's operating entities are currently entitled
     to enjoy a full exemption from IRPEG and a significant part of IRAP for ten
     years. A substantial portion of the Group's earnings in 2002, 2001, 2000
     and 1999 are derived from companies entitled to some extent to the
     aforementioned exemptions, the majority of which expired in 2002.

     On December 23, 2000, the Italian Parliament approved Law 388, which
introduced a tax credit allowance equal to 35% of new investments made from 2001
to 2006 for companies operating in under-industrialized areas. The allowance
cannot be cumulated with benefits available under the Mezzogiorno Program. In
2002, two Italian companies belonging to the Group were entitled to such a tax
credit allowance for a total of (euro) 11 million, due to new investments
realized in year 2002. In 2003, the aforementioned tax credit will be equal to
85% of 35% of new investments made from 2003 to 2006.

     Capital Grants and Subsidized Loans. Under the Mezzogiorno Program, the
Group also obtained capital grants which were generally equal to a percentage of
the aggregate amount of its investment in the construction of new manufacturing
facilities, or the improvement of existing facilities, in the Mezzogiorno. The
percentage varied according to the size of the investment. In addition, the
Mezzogiorno Program provided for the subsidization by the Italian Government of
bank loans granted to the company in question to pay a portion of the interest
on the loan, with the Italian Government obliged to pay the balance. The Group's
repayment obligations under these subsidized loans have been secured by the
fixed assets in which the proceeds of such loans were invested. See "--
Description of Properties". Although the new investment program also provides
for grants based on a beneficiary's investment in the construction or
improvement of manufacturing facilities, as discussed above, there can be no
assurance that the benefits that will be available under this program will be as
favorable as those available under the Mezzogiorno Program or that the Group
will qualify for such benefits.


                                       19
<PAGE>

     In late 1996, the Italian Government entered into a "Program Agreement"
with the Company in connection with the Natuzzi 2000 project, which was
initiated in 1993 to plan for the future growth of the Group. The principal
objectives were the consolidation and logistical improvement of the Group's
manufacturing structure (which, at December 31, 2001, consisted of 41 facilities
scattered over a radius of about 25 miles), as well as the gradual increase of
the Group's production capacity to support its annual growth projections. The
plan provided for a total investment of up to (euro) 295.2 million (of which
(euro) 13.3 million were targeted to be used for research), and for an Italian
Government contribution of up to (euro) 145.4 million. The Company has reviewed
the proposed future investments to be made under the program, and submitted a
revised plan to the Italian Government for approval. The proposal contemplated
total investments of (euro) 273.4 million, reflecting the Group's intentions to
focus on quality and efficiency controls. In August 2002, the Italian Government
approved the proposal for total investments of (euro) 232.2 million, (euro)
106.2 million of which represent capital grants.

     From the initiation of the Natuzzi 2000 project through December 31, 2002,
approximately (euro) 70.8 million has been spent in constructing and equipping
new plants. Capital grants of (euro) 27.1 million were temporarily approved by
the Italian Government in 1997 in relation to this project (at December 31,
2002, the Company had received (euro) 24.2 million in grants). These grants were
paid in equal installments upon completion of each phase of the project. Payment
is subject to satisfaction of certain conditions, including the completion of
the facilities in accordance with certain specifications, as well as the
employment of a minimum number of workers. See Item 5, "Operating and Financial
Review and Prospects -- Liquidity and Capital Resources".

     In May 2003, the Italian Government nominated a Control Committee for the
purpose of verifying whether the aforesaid investments meet all of the
specifications required under the Program Agreement. The Company expects to
receive the committee's final decision by the end of 2003.

                        Management of Exchange Rate Risk

     The Group is subject to a number of risks associated with the fluctuation
in the exchange rates between the euro and other currencies, including in
particular the U.S. dollar. In 2002, a significant portion of the Group's net
sales, but only approximately 30% of its costs, was denominated in currencies
other than euro. As a result, a decline in the value of such other currencies
against the euro could have an adverse effect on the Group's results of
operations.

                             Trademarks and Patents

     The Group's products are sold under the "Natuzzi", "Softaly", "Italsofa"
and "Divani & Poltrone" names. These names and certain other trademarks, such as
Divani & Divani by Natuzzi, have been registered as such in Italy, in the United
States and elsewhere. In order to protect its investments in new product
development, the Group has also undertaken a practice of registering certain new
designs in most of the countries in which such designs are sold. The Group
currently has more than 1,000 design patents and patents pending. Applications
are made with respect to new product introductions which the Group believes will
enjoy commercial success and have a high likelihood of being copied.

                          Non-United States Regulation

     The Company is incorporated under the laws of the Republic of Italy. The
principal laws and regulations that apply to the operations of the Company --
those of Italy and the European Union -- are different from those of the United
States. Such non-United States laws and regulations may be subject to varying
interpretations or may be changed, and new laws and regulations may be adopted,
from time to time. While management believes that the Group is currently in
compliance in all material respects with such laws and regulations (including
with respect to environmental matters), there can be no assurance that any
subsequent official interpretation of such laws or regulations by the relevant
governmental authorities that differs from that of the Company, or any such
change or adoption, would not have an adverse effect on the results of
operations of the Group or the rights of holders of the Ordinary Shares or the
owners of the Company's ADSs. See "-- Environmental Regulatory Compliance", Item
10, "Additional Information -- Exchange Controls" and Item 10, "Additional
Information -- Taxation".


                                       20
<PAGE>

                       Environmental Regulatory Compliance

     The Group operates a leather dyeing and finishing facility near Udine and a
polyurethane foam production plant near Naples. The operation of each of these
facilities is subject to both Italian governmental law and European Union
regulations. The Group believes that it has operated and continues to operate
these and other facilities in compliance with all applicable laws and
regulations.

                                    Insurance

     The Group maintains insurance against a number of risks. The Group insures
against loss or damage to its facilities, loss or damage to its products while
in transit to customers, failure to recover receivables, certain potential
environmental liabilities and product liability claims. While the Group does not
cover 100% of these risks, management believes that the Group's present level of
insurance is adequate in light of past experience.

                            Description of Properties

     The location, approximate size and function of the principal physical
properties used by the Group as at April 30, 2003 are set forth below:
<TABLE>
<CAPTION>
                                            Size
        Location                        (approximate
        --------                        square meters)       Function
                                        --------------       --------


<S>                                       <C>        <C>
Santeramo (Bari), Italy..........           27,000    Headquarters, manufacturing of wooden frames, showroom,
                                                      sewing and product assembly (Owned)

Matera La Martella, Italy........           38,000    Fabric cutting, sewing and product assembly (Owned)

Santeramo, Iesce (Bari), Italy...           29,000    Leather cutting, sewing and product assembly (Owned)

Pozzuolo del Friuli (Udine), Italy          13,584    Leather dyeing and finishing (Owned)

Matera, Iesce, Italy.............           12,500    Leather cutting, sewing and product assembly (Owned)

Qualiano (Naples), Italy.........           10,000    Polyurethane foam production (Owned)

Quarrata (Pistoia), Italy........            8,000    Office, leather cutting, sewing and product assembly
                                                      (Owned)

Altamura (Bari), Italy...........            9,900    Leather cutting, sewing and product assembly (Owned)

Montebello (Vicenza), Italy......            5,500    Leather warehouse (Leased)

Altamura (Bari), Italy...........            5,800    Leather cutting, sewing and product assembly (Owned)
</TABLE>


                                       21
<PAGE>
<TABLE>
<CAPTION>

<S>                                        <C>       <C>
Altamura (Bari), Italy...........            2,500    Employee training facility (Owned)

Ginosa (Ta), Italy...............           14,500    Leather cutting, sewing and product assembly (Owned)

Laterza (Ta), Italy..............           10,000    Leather cutting, sewing and product assembly (Owned)

Laterza (Ta), Italy..............           10,000    Leather warehouse, leather cutting (Owned)

Laterza (Ta), Italy..............           20,000    Finished products warehouse (Owned)

High Point, North Carolina, USA..           10,000    Office and showroom for Natuzzi Americas (Owned)

Baia Mare, Romania............              59,000    Leather cutting, sewing and product assembly,
                                                      manufacturing of wooden frames, Polyurethane foam shaping,
                                                      Fiberfill and down cushion production , saw mills, other
                                                      wooden product (Owned)

Shanghai, China..................           14,000    Leather cutting, sewing and product assembly (Leased)

                                            26,000    Leather cutting, sewing and product assembly,
Salvador (Bahia), Brazil........                      manufacturing of wooden frames, Polyurethane foam shaping,
                                                      Fiberfill and down cushion production  (Owned)

</TABLE>

        The Group also currently leases six other properties. The Group believes
that its production facilities are suitable for its production needs and are
well maintained. Operations at all of the Group's production facilities are
normally conducted Monday through Friday with two eight-hour shifts per day. In
2002, the Group continued to utilize subcontractors to meet demand.


                              Capital Expenditures

     The following table sets forth the Group's capital expenditures for each
year in the three-year period ended December 31, 2002:
<TABLE>
<CAPTION>

                                                                                Year ending December 31,
                                                                                   (millions of Euro)
                                                                            2002           2001          2000
                                                                            ----           ----          ----
<S>                                                                         <C>           <C>           <C>
Land and plants.......................................................     28.6           36.1          25.6
Equipment.............................................................     18.1           16.3           1.8
Other.................................................................     24.3           15.9           2.3
</TABLE>


     Capital expenditures during the last three years were primarily made in the
areas of construction and maintenance, as well as improvements to property,
plant and equipment. In 2002, capital expenditures were primarily made to
purchase land and build new factories in Laterza (Italy) and Baia Mare
(Romania), as well as to make improvements at existing facilities in order to
increase productivity and production capacity, which included the purchase of
equipment. The increase in other expenditures was mainly due to the advance
payment of (euro) 16.6 million towards the purchase of a new aircraft which is
under construction.


                                       22
<PAGE>

                               Recent Developments

     In January 2003, the Company created a new company, Natuzzi Benelux SA/NV,
which provides sales support services for the Group in Belgium, the Netherlands
and Luxembourg.

     On May 7, 2003, the Company acquired Castlegate 170 Ltd., the ultimate
parent company of the Kingdom of Leather group ("Kingdom of Leather Ltd."), a
U.K. furniture chain specializing in upholstery. The acquisition, which included
15 stores located mainly in England, was partly designed to preserve a
historical relationship dating back to 1987.




                                       23
<PAGE>



Item 5.  Operating and Financial Review and Prospects

     The following discussion of the Group's results of operations, liquidity
and capital resources is based on information derived from the Company's audited
Consolidated Financial Statements and the notes thereto included in Item 18 of
this annual report. These financial statements have been prepared in accordance
with Italian GAAP, which differ in certain respects from U.S. GAAP. For a
discussion of the principal differences between Italian GAAP and U.S. GAAP as
they relate to the Company's consolidated net earnings and shareholders' equity,
see Note 26 to the Consolidated Financial Statements included in Item 18 of this
annual report.

                          Critical Accounting Policies

     The Group's critical accounting policies, the judgments and other
uncertainties affecting application of those policies and the sensitivity of
reported results to changes in conditions and assumptions are factors to be
considered in reviewing the Group's Consolidated Financial Statements and the
notes thereto and the discussion below in "Results of Operations". The Group's
significant accounting policies are described in Note 3 to the Consolidated
Financial Statements included in Item 18 of this annual report. The Group's
financial condition and results of operations are sensitive to accounting
methods, assumptions and estimates that underlie the preparation of the
Consolidated Financial Statements. In particular, the following policies involve
assumptions and estimates that may affect our financial condition and results of
operations.

     Forward Exchange Contracts. The Group enters into forward exchange
contracts to manage its exposure to foreign currency risks. Under Italian GAAP
the accounting for forward exchange contracts depends on their use as follows:

-    Forward exchange contracts used to hedge accounts receivable are considered
     when remeasuring the related balance sheet item at the contract rate.
     Foreign exchange gains and losses from the remeasurement of the accounts
     receivable at contract rate are recorded within other income (expense),
     net, in the consolidated statements of earnings.

-    Forward exchange contracts are used to hedge future sales if the sales are
     supported by sales orders and customer's indications of future purchases as
     of the balance sheet date which are confirmed by sales orders received
     within the earlier of four months after the year-end or the issuance of the
     consolidated financial statements. Unrealized gains and losses on these
     forward contracts are deferred.

-    Unrealized gains and losses on forward exchange contracts not hedging any
     on- or off-balance sheet items are recorded in other income (expense), net,
     in the consolidated statements of earnings.

      Under U.S. GAAP the Company is not currently qualifying for hedge criteria
under SFAS 133 (which established comprehensive accounting and reporting
standards for derivative instruments and hedging activities). In particular, the
Company does not formally document all relationships between its hedging
instruments (forward exchange contracts known in Italian financial markets as
domestic currency swaps) and its hedged items which includes linking all
derivatives that are designated as foreign-currency hedges to specific accounts
receivable on the balance sheet or to specific firm commitments or forecasted
transactions. The Company also does not formally assess, both at the hedge's
inception and on an ongoing basis, whether the derivatives that are used in
hedging its transactions are highly effective in offsetting changes in fair
values of its hedged items. As a result under U.S. GAAP, at December 31, 2002
and 2001, the Company accounted for all its derivative financial instruments at
their fair value and all its accounts receivable in foreign currency were
remeasured at year end exchange rates. Therefore, at December 31, 2002, the
Company recorded in the U.S. GAAP shareholders' equity and net earnings a gain
of (euro) 2.7 million and (euro) 3.8 million, respectively (see Note 26 (c) to
the Consolidated Financial Statements included in Item 18 of this annual
report).


                                       24
<PAGE>

     Revenue Recognition. Under Italian GAAP, the Group recognizes sales
revenue, and accrued costs associated with the sales revenue, at the time
products are shipped from its manufacturing facilities located in Italy and
abroad. Revenues are recognized when there is persuasive evidence of an
arrangement to purchase the Company's goods, the price to the buyer has been
fixed and determined, and the collection of the payment for the sale is
reasonably assured. A significant part of the products are shipped from
factories directly to customers under terms that risks and ownership are
transferred to the customer when the customer takes possession of the goods.
These terms are `delivered duty paid', `delivered duty unpaid', `delivered ex
quay' and `delivered at customer factory'. Delivery to the customer generally
occurs within one to six weeks from the time of shipment.

     Under U.S. GAAP, revenue should not be recognized until it is realized or
realizable and earned, which is generally at the time delivery to the customer
occurs and the risks of ownership pass to the customer. Accordingly, revenue
recognition under Italian GAAP is at variance with U.S. GAAP. The principal
effects of this variance is indicated in Note 26 (g) to the Consolidated
Financial Statements included in Item 18 of this annual report.

     Revenues are recorded net of returns and discounts. Sales returns and
discounts are estimated and provided for in the year of sales. Such allowances
are made based on historical trends. The Company has the ability to make
reasonable estimates of such allowances due to the large volumes of homogeneous
transactions and historical experience. However, the reader should be cautioned
that actual costs for returns and discounts may differ significantly from the
Company's estimates if factors such as economic conditions, customer preferences
or changes in product quality are different than the Company's assumptions.

     Allowance for Doubtful Accounts. Allowances for doubtful accounts are
recorded based on the use of estimates and judgments regarding risk exposure and
collectibility. The Group estimates losses for bad debt using consistent and
appropriate methods under Italian GAAP. Changes to assumptions relating to these
estimates could affect actual results. The reader should be cautioned that
actual results may differ significantly from the Group's estimates if factors
such as general economic conditions and the credit worthiness of its customers
are different from the Group's assumptions.

                              Results of Operations

         Summary

     The following table sets forth certain income statement data expressed as a
percentage of net sales for the years indicated:
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                              ---------------------------------------
                                                                                2002        2001          2000
                                                                              ----------  -----------  -------------
<S>                                                                           <C>            <C>           <C>
Net sales..................................................................     100.0%       100.0%        100.0%
Cost of sales..............................................................     64.3         66.2           61.9
Gross profit...............................................................     35.7         33.8           38.1
Selling expenses...........................................................     18.1         17.2           15.8
General and administrative expenses........................................      5.0          4.2            3.9
Operating income...........................................................     12.6         12.4           18.4
Other income (expense), net................................................      1.9          0.0           (3.1)
Income taxes...............................................................      3.1          2.8            3.7
Net earnings...............................................................     11.4          9.6           11.5
</TABLE>


                                       25
<PAGE>

     See Item 4, "Information on the Company -- Markets", for tables setting
forth the Group's net leather- and fabric-upholstered furniture sales and unit
sales, which are broken down by geographic market, for the years ended December
31, 1998 through 2002.

     2002 Compared to 2001

     Net sales for 2002, including sales of leather- and fabric-upholstered
furniture and other sales (principally polyurethane foam and leather sold to
third parties, as well as accessories), increased 2.4% to (euro) 805.1 million
compared to 2001.

     Net sales for 2002 of leather- and fabric-upholstered furniture increased
2.9% to (euro) 734.7 million compared to 2001. The increase was due to a 5.3%
increase in units sold and a 0.7% increase resulting from a change in the mix of
products sold, which more than offset a 3.1% decrease stemming from the
appreciation of the euro against the U.S. dollar.

     Net leather- and fabric-upholstered furniture sales in 2002 reflected
substantially the same geographic distribution as reported in 2001: Europe
(44.4% in 2002, compared to 44.5% in 2001); Americas (49.9% in both 2002 and
2001); and the rest of the world (5.7% in 2002, compared to 5.6% in 2001).

     Net sales for 2002 of leather-upholstered furniture decreased 0.1% to
(euro) 623.7 million compared to 2001, while net sales for 2002 of
fabric-upholstered furniture increased 23.9% to (euro) 111.0 million compared to
2001.

     In the Americas, net sales for 2002 of leather- and fabric-upholstered
furniture increased 2.8% to (euro) 366.4 million compared to 2001. In Europe,
net sales for 2002 of leather- and fabric-upholstered furniture increased 2.7%
to (euro) 326.5 million compared to 2001. In the rest of the world, net sales
for 2002 of leather- and fabric-upholstered furniture increased 5.3% to (euro)
41.8 million compared to 2001.

     Net sales for 2002 of Natuzzi-branded furniture decreased 7.2% to (euro)
609.4 million compared to 2001. During the same period, net sales of Italsofa
furniture increased 119.8% to (euro) 125.3 million compared to 2001. Total net
sales of Divani & Divani by Natuzzi and Natuzzi Stores increased 15.2% in 2002
to (euro) 96.2 million compared to 2001.

     In 2002, total seats sold increased 5.3% to 3,027,658 from 2,876,258 sold
in 2001. The increase was due to an increase of 14.2% in the Americas (1,572,879
seats) and a 0.4% increase in the rest of the world (excluding Europe) (176,483
seats), which more than offset a 3.4% decrease in Europe (1,278,296 seats).

     The performance in some European countries in 2002 was strong: France
(+19.4%), Ireland (+21.0%), Sweden (+16.3%), Greece (+9.9%) and the United
Kingdom (+5.4%). However, the performance in other countries was disappointing:
Germany (-8.8%), Belgium (-19.0%), the Netherlands (-29.6%), Austria (-21.6%)
and Portugal (-10.1%).

     Seats sold in the United States and Canada in 2002 increased 15.7% and
0.8%, respectively. Growth in the United States was mainly the result of the
growing success of the Group's promotional brand, Italsofa.


                                       26
<PAGE>

     In the rest of the world, seats sold increased from 175,704 in 2001 to
176,483 in 2002. The rise included an increase in Australia (+1.8%), Korea
(+65.3%), the United Arab Emirates (+81.7%) and Taiwan (+15.6%). This increase
was partially offset by declines in Japan (-9.0%), Israel (-7.4%), New Zealand
(-13.2%) and China (-5.6%).

     In 2002, total leather-upholstered seats sold increased 0.9% to 2,433,509
from 2,410,630 seats sold in 2001, while total fabric-upholstered seats sold
increased 27.6% to 594,149 from 465,628 seats sold in 2001.

     The Natuzzi brand sold 2,313,186 seats in 2002, 10.0% less than in 2001,
while sales of Italsofa seats increased 133.1% to 714,472 compared to 2001.

     Other net sales decreased 2.4% to (euro) 70.4 million compared to 2001.

     Cost of goods sold as a percentage of net sales decreased from 66.2% in
2001 to 64.3% in 2002. This decrease was principally due to a decrease of
approximately 14% in the cost of leather, expressed at constant exchange rates.
The prices of other principal raw materials, such as polyurethane foam,
polyester fibers and chemicals remained substantially unchanged.

     The Group's gross profit increased 8.2% in 2002 to (euro) 287.7 million
compared to 2001, as a result of the factors described above.

     Selling expenses for 2002 increased 7.9% to (euro) 145.4 million compared
to 2001, and as a percentage of net sales increased from 17.2% in 2001 to 18.1%
in 2002, mainly due to higher marketing expenses and exhibition costs. This
increase was partially offset by lower transportation costs.

     General and administrative expenses for 2002 increased 20.9% to (euro) 40.5
million compared to 2001, and as a percentage of net sales increased from 4.2%
in 2001 to 5.0% in 2002, mainly due to higher headcounts and to the Group's
expansion of activities internationally, which have required the incurrence of
greater business travel expenses.

     Operating income for 2002 increased 4.2% to (euro) 101.8 million compared
to 2001.

     Other income (expense), net increased to (euro) 14.5 million in 2002 from a
negative (euro) 0.2 million in 2001. Net interest income in 2002 was (euro) 1.5
million, compared to (euro) 2.3 million in 2001.

     Foreign exchange transactions, which are included in other income
(expense), net, resulted in a gain of (euro) 9.3 million in 2002, compared to a
loss of (euro) 6.1 million in 2001. The gain in 2002 was mainly due to the
following:

-    An actual gain of (euro) 10.9 million in 2002 (compared to a loss of (euro)
     12.2 million in 2001), due to the difference between the forward rate of
     the domestic currency swaps used to protect against any potential
     unfavorable effect of the foreign currency at which the company sets its
     price list and the spot rate at which the domestic currency swaps were
     closed;

-    An actual loss of (euro) 8.8 million in 2002 (compared to a loss of (euro)
     1.5 million in 2001), from the difference between the invoice exchange rate
     and the collection/payment exchange rate;
-    An unrealized loss of (euro) 0.6 million (compared to nil in 2001) recorded
     in the consolidated statement of earnings from the conversion of non-euro
     financial statements of the Company's subsidiaries;


                                       27
<PAGE>

-    An unrealized gain of(euro)5.8 million in 2002 (compared to an unrealized
     gain of(euro)8.5 million in 2001) on accounts receivable and payable; and
-    An unrealized gain of(euro)2.0 million in 2002 (compared to an unrealized
     loss of(euro)0.9 million in 2001), from the mark-to-market of domestic
     currency swaps.

     The Group also recorded other income in 2002 of (euro) 3.7 million compared
to (euro) 3.6 million reported in 2001.

     The Group's effective income tax rate for 2002 was 21.5%, compared to 22.5%
in 2001. The lower rate was due to a greater portion of consolidated pre-tax
earnings received from member companies that are entitled to tax exemptions.

     Net earnings increased from (euro) 75.6 million in 2001 to (euro) 91.4
million in 2002. On a per Ordinary Share, or ADS basis, net earnings increased
from (euro) 1.37 in 2001 to (euro) 1.67 in 2002. As a percentage of net sales,
net earnings increased from 9.6% in 2001 to 11.4% in 2002.

     As disclosed in Note 26 to the Consolidated Financial Statements included
in Item 18 of this annual report, established accounting principles in Italy
vary in certain significant respects from generally accepted accounting
principles in the United States. Net earnings under U.S. GAAP for the years
ended December 31, 2002, 2001 and 2000 would have been (euro) 92.0 million,
(euro) 71.1 million and (euro) 81.7 million, respectively, compared to net
earnings under Italian GAAP for the same periods of (euro) 91.4 million, (euro)
75.6 million and (euro) 79.2 million, respectively.

     2001 Compared to 2000

     Net sales for 2001, including sales of leather- and fabric-upholstered
furniture and other sales (principally polyurethane foam and leather sold to
third parties, as well as accessories), increased 14.2% to (euro) 786.1 million
compared to 2000.

     Net sales for 2001 of leather- and fabric-upholstered furniture increased
13.5% to (euro) 714.0 million compared to 2000. The increase was due to an 11.6%
increase in unit sales, a 1.2% increase stemming from the devaluation of the
euro against the U.S. dollar, and a 0.7% increase resulting from a change in the
mix of products sold.

     Net leather- and fabric-upholstered furniture sales in Europe (including
Italy) represented 44.5% of net upholstered furniture sales in 2001, compared to
43.3% in 2000; the Americas (mainly the U.S.) represented 49.9%, in 2001,
compared to 50.7% in 2000; and the rest of the world represented 5.6% in 2001,
compared to 6.1% in 2000.

     Net sales for 2001 of leather-upholstered furniture increased 11.6% to
(euro) 624.4 million compared to 2000, while net sales for 2001 of
fabric-upholstered furniture increased 28.8% to (euro) 89.6 million compared to
2000.

     In the Americas, net sales for 2001 of leather- and fabric-upholstered
furniture increased 11.8% to (euro) 356.4 million compared to 2000. In Europe,
net sales for 2001 of leather- and fabric-upholstered furniture increased 16.7%
to (euro) 317.9 million compared to 2000. In the rest of the world, net sales
for 2001 of leather- and fabric-upholstered furniture increased 3.9% to (euro)
39.7 million compared to 2000.

     In 2001, total seats sold increased 11.6% to 2,876,258 from 2,577,323 sold
in 2000. The increase was due to an increase of 12.0% in the Americas (1,376,818
seats), an 11.3% increase in Europe (1,323,736 seats) and a 10.4% increase in
the rest of the world (175,704 seats).


                                       28
<PAGE>

     The performance in some European countries in 2001 was strong: Ireland
(+142.3%), France (+50.5%), Sweden (+27.8%), Spain (+20.8%), and the United
Kingdom (+15.1%). Smaller increases were achieved in primary markets like
Germany (4.5%), Holland (+5.7%) and Italy (+1.8%). Lower sales were achieved in
Austria and Belgium. The marked revenue increase in France, one of Europe's
largest furniture markets, were due, in part, to the Company's partnership with
the Roche Bobois Group, which opened four new Natuzzi Stores during 2001.

     Seats sold in the United States and Canada in 2001 increased 7.9% and
68.5%, respectively. Growth in the United States was mainly the result of the
success of the Group's SoFast production program and the launch of the Group's
new promotional brand, Italsofa.

     In the rest of the world, seats sold increased from 159,175 in 2000 to
175,704 in 2001. The increase included an increase in Singapore (+69.7%) and New
Zealand (+48.1%). This increase was partially offset by a decline in Japan
(4.7%) .

     In 2001, total leather-upholstered seats sold increased 8.8% to 2,410,630
from 2,216,522 seats sold in 2000, while total fabric-upholstered seats sold
increased 29.1% to 465,628 from 360,801 seats sold in 2000.

     Other net sales increased 21.8% to (euro) 72.1 million compared to 2000.

     Cost of goods sold as a percentage of net sales increased from 61.9% in
2000 to 66.2% in 2001. This increase was principally due to an increase of
approximately 19.0% in the cost of leather, expressed at constant exchange
rates, as well as a general increase in other raw materials prices such as
polyurethane foam, polyester fibers and chemicals. The significant increase in
leather prices was mainly a consequence of "mad cow" disease, which resulted in
a dramatic reduction in the consumption of beef; the number of cattle
slaughtered for meat consumption dictates the availability of leather, which is
used in the production of numerous consumer goods. The rise in the Group's cost
of goods sold was also due to inefficiencies stemming from the start-up of new
plants in Brazil, China and Italy, where most of the workers were new and
inexperienced.

     The Group's gross profit increased 1.5% in 2001 to (euro) 266.0 million
compared to 2000, as a result of the factors described above.

     Selling expenses for 2001 increased 23.7% to (euro) 134.8 million compared
to 2000, and as a percentage of net sales increased from 15.8% in 2000 to 17.2%
in 2001, mainly due to higher marketing expenses and transportation costs. The
latter increase reflects principally a general rise in marine transport prices
during 2001.

     General and administrative expenses for 2001 increased 25.4% to (euro) 33.5
million compared to 2000, and as a percentage of net sales increased from 3.9%
in 2000 to 4.2% in 2001.

     Operating income for 2001 decreased 22.8% to (euro) 97.7 million compared
to 2000.

     Other income (expense), net increased to a negative (euro) 0.2 million in
2001 from a negative (euro) 21.8 million in 2000. Net interest income in 2001
was (euro) 2.3 million, compared to (euro) 6.1 million in 2000.

     Foreign exchange transactions, which are included in other income
(expense), net, resulted in a loss of (euro) 6.1 million in 2001, compared to a
loss of (euro) 28.3 million in 2000. The loss in 2001 was mainly due to the
following:

-    An actual loss of (euro) 12.2 million in 2001 (compared to a loss of (euro)
     32.2 million in 2000), due to the difference between the forward rate of
     the domestic currency swaps used to protect against any potential
     unfavorable effect of the foreign currency at which the company sets it
     price list and the spot rate at which the domestic currency swaps were
     closed;

                                       29
<PAGE>

-    An actual loss of (euro) 1.5 million in 2001 (compared to a gain of (euro)
     5.1 million in 2000), from the difference between the invoice exchange rate
     and the collection/payment exchange rate;

-    An unrealized gain of(euro)8.5 million in 2001 (compared to an unrealized
     loss of(euro)3.3 million in 2000) on accounts receivable and payable; and

-    An unrealized loss of(euro)0.9 million in 2001 (compared to an unrealized
     gain of(euro)2.1 million in 2000), from the mark-to-market of domestic
     currency swaps.


     The Group also recorded other income in 2001 of (euro) 3.6 million compared
to (euro) 0.4 million reported in 2000. This substantial increase was mainly due
to (euro) 2.3 million in employment incentives granted by regional governments
in the countries in which the Group operates. These grants were related to
hiring full-time employees and included subsidies of up to 100% of the cost of
training courses for these employees as well as temporary workers.

     The Group's effective income tax rate for 2001 was 22.5%, compared to 24.3%
in 2000. The lower rate was due to a greater portion of the consolidated pre-tax
earnings received from member companies that are entitled to tax exemptions, as
well as tax deductions related to investment incentives granted by the Italian
Government.

     Net earnings decreased from (euro) 79.2 million in 2000 to (euro) 75.6
million in 2001. On a per Ordinary Share, or ADS basis, net earnings decreased
from (euro) 1.39 in 2000 to (euro) 1.37 in 2001. As a percentage of net sales,
net earnings decreased from 11.5% in 2000 to 9.6% in 2001.

     As disclosed in Note 26 to the Consolidated Financial Statements included
in Item 18 of this annual report, established accounting principles in the Italy
vary in certain significant respects from generally accepted accounting
principles in the United States. Net earnings under U.S. GAAP for the years
ended December 31, 2001, 2000 and 1999 would have been (euro) 71.1 million,
(euro) 81.7 million and (euro) 79.4 million, respectively, compared to net
earnings under Italian GAAP for the same periods of (euro) 75.6 million, (euro)
79.2 million and 82.4 million, respectively.

     Effect of Inflation

     Management believes that the impact of inflation was not material to the
Group's net sales or operating income in the three years ended December 31,
2002.

                         Liquidity and Capital Resources

     Cash flows from operations were (euro) 97.6 million in 2002, compared to
(euro) 75.7 million in 2001. The increase resulted principally from higher net
earnings and improvements in the management of accounts payables, other assets
and inventories which more than offset the increase in receivables.

     Cash used for investing activities in 2002 totaled (euro) 58.5 million
versus (euro) 68.3 million in the previous year. Capital expenditures were
(euro) 68.7 million and (euro) 69.1 million in 2002 and 2001, respectively. In
2002, the Group received capital grants of (euro) 10.0 million through the
Italian Government's Investment Incentive Program, which provided capital grants
equal to a percentage of the aggregate investment made by the Group in the
construction of new manufacturing facilities, or in the improvement of existing
facilities, in designated areas of the country. In 2002, the Group made the
final investments in its factory in Laterza (Italy), and continued to invest in
Salvador de Bahia (Brazil) and Baia Mare (Romania). Other investments were made
to increase overall efficiency and productivity. To facilitate management's
travels, the Group made an advance payment of (euro) 16.6 million towards the
purchase of a new aircraft which is under construction.


                                       30
<PAGE>

     Cash used for financing activities in 2002 totaled (euro) 149.3 million
versus cash provided by financing activities of (euro) 105.5 million in the
previous year. In 2002 net cash from financing activities was negatively
affected by the reimbursement of short-term borrowings of (euro) 134.3 million.
Dividends paid to shareholders were (euro) 15.7 million and (euro) 15.9 million
in 2002 and 2001, respectively. In 2002, the Group did not purchase treasury
shares, while in 2001 it spent (euro) 14.6 million in connection with the
Company's repurchase program, which has now expired.

     As at December 31, 2002, the Group had available credit facilities totaling
(euro) 171.9 million. The unused portion of these facilities amounted to
approximately (euro) 171.8 million (see Note 11 to the Consolidated Financial
Statements included in Item 18 of this annual report). The Group's long-term
debt represented less than 1% of shareholders' equity at December 31, 2002 and
2001 (see Note 16 to the Consolidated Financial Statements included in Item 18
of this annual report).

     Management believes that the Group's working capital is sufficient for its
present requirements. The Company's principal source of funds is expected to be
cash flows generated from operating activities, cash on hand and amounts
available under its credit facilities. The Company's principal use of funds is
expected to be the payment of operating expenses, working capital requirements
and capital expenditures.


               Contractual Obligations and Commercial Commitments

     The following tables set forth the contractual obligations and commercial
commitments of the Group as at December 31, 2002:
<TABLE>
<CAPTION>


                                                         Payments Due by Period (in euro thousands)
                                                                 Less than                                After 5
Contractual Obligations                            Total         1 year       1-3 years     4-5 years     years
                                                   -----         ---------    ---------     ---------     --------
<S>                                                 <C>            <C>         <C>            <C>        <C>
Long-Term Debt                                     5,011          1,437         1,408           389       1,777
Capital Lease Obligations                            -              -             -             -            -
Operating Leases(1)                                7,168          5,006         1,347           624         191
Unconditional Purchase Obligations                   -              -             -             -            -
Other Long-Term Obligations                          -              -             -             -            -
                                            ------------- -------------- ------------- ------------- -----------
Total Contractual Cash Obligations                12,179          6,443         2,755         1,013       1,968

---------
(1)  The leases relate to the leasing by several companies of the Group of
     manufacturing facilities under cancelable lease agreements.
</TABLE>



                                       31
<PAGE>
<TABLE>
<CAPTION>

                                              Amount of Commitment Expiration Per Period (in euro thousands)

                                              Total      Less than                                    After
Other Commercial Commitments                 Amounts       1 year      1-3 years     4-5 years        5 years
                                            Committed
                                            ---------    ----------    ---------     ---------       --------
<S>                                            <C>           <C>           <C>          <C>           <C>
Lines of Credit                                200           200            -             -              -
Standby Letters of Credit(1)                 4,408         4,408            -             -              -
Guarantees(2)                               26,041        26,041(2)         -             -              -
Standby Repurchase Obligations                   -             -            -             -              -
Other Commercial Commitments                     -             -            -             -              -
                                          --------      ---------     --------      -------        -------
Total Commercial Commitments                30,649        30,649            -             -              -
---------
</TABLE>

(1) The letters of credit are primarily issued by the Company in support of
    purchases of materials from suppliers.

(2) The guarantees are primarily comprised of surety bonds provided by certain
    financial institutions in connection with the Natuzzi 2000 project. The
    Company, in turn, directly provides guarantees in an equivalent amount to
    such financial institutions. The surety bonds will expire when the Italian
    Ministry of Budget releases the final approvals of all investments already
    made in connection with the Natuzzi 2000 project.




                           Related Party Transactions

     Please refer to Item 7, "Major Shareholders and Related Party Transactions"
of this annual report.

                            Introduction of the Euro

     The euro was adopted in Italy and in ten other member states of the
European Union on January 1, 1999. Management believes that the introduction of
the euro has had no significant competitive impact on the Group.

     The Company used the lira and euro for non-cash transactions through
February 28, 2002 (the last day in which the lira was legal tender in Italy).
Beginning March 1, 2002, the Company has conducted all cash and non-cash
transactions in euro. The Company began preparing financial statements in euro
commencing with the financial statements for fiscal year 2002.

     The introduction of the euro has eliminated the currency risk that the
Group experienced with respect to sales in currencies of member states of the
European Union that are participating in the third stage of EMU. See Item 11,
"Quantitative and Qualitative Disclosures About Market Risk".

                            Research and Development

     Research and development is a strategic activity for the Group. The Group's
research and development efforts are concentrated on the design of new products
and on improvements to the manufacturing process. See Item 4, "Information on
the Company -- Manufacturing" and Item 4, "Information on the Company --
Products and Design". During 2002, the Group's investment in research and
development activities was approximately (euro) 8 million. Approximately 140
highly qualified people work in these activities, and more than 100 new products
are generally introduced each year.


                                       32
<PAGE>

     In September 2001, the Company opened a new design center in the province
of Milan where experienced craftsmen develop and test the highest range of
models.

     Following the "ISO 9001", in November 2001 Natuzzi obtained the "ISO 14001"
certification that underlines the Company attention towards the environment.
Natuzzi's tannery is certified as well.

              New Accounting Standards under Italian and U.S. GAAP


     Italian GAAP. In January 2002, the Italian Accounting Profession approved
an accounting standard on interim financial statements. The Company has adopted
this new standard.

     U.S. GAAP. The new accounting standards under US GAAP are outlined below:


     SFAS No. 143:

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No.
143 requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that result from
the acquisition, construction, development and/or normal use of the assets. The
Company also records a corresponding asset which is depreciated over the life of
the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash flows underlying
the obligation. The Company is required to adopt SFAS No. 143 on January 1,
2003. Application of this statement will not have a significant impact on the
consolidated financial statements of the Company.

     SFAS No. 145:

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 will not have a material effect on the
consolidated financial statements of the Company.

     SFAS No. 146:

     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS No. 146 is not expected to have a material effect on the
consolidated financial statements of the Company.


                                       33
<PAGE>

     SFAS No. 148:

     In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002. The Company does not have any
impact due to the issuance of this statement, as it does not have any stock
options outstanding as of December 31, 2002.

     SFAS No. 149:

     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. Adoption of SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. Adoption of SFAS No. 149 will not
have a material impact on the consolidated financial statements of the Company.


     SFAS No. 150:

     On May 15, 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Statements requires issuers to classify as liabilities (or assets in some
circumstance) three classes of freestanding financial instruments that embody
obligations for their issuer.

     Generally the Statement is effective for financial instruments entered into
or modified after May 31, 2003 and is otherwise effective at the beginning of
the first interim period beginning after June 15, 2003. The Company will adopt
the provisions of the Statement on July 1, 2003. The adoption of SFAS No. 150
will not have a material impact on the consolidated financial statements of the
Company.

     FASB interpretation No. 45:

     In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15, 2002 and the
adoption of No. 145 Interpretation does not have any impact on recognition of
liabilities and any material impact on the disclosures.


                                       34
<PAGE>


     FASB interpretation No. 46:

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (VIE), an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For nonpublic enterprises, such as the Company,
with a variable interest in a variable interest entity created before February
1, 2003, the Interpretation is applied to the enterprise no later than the end
of the first annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the consolidated financial statements of the Company. The Interpretation
requires certain disclosures in financial statements issued after January 31,
2003 if it is reasonably possible that the Company will consolidate or disclose
information about variable interest entities when the Interpretation becomes
effective. The Company does not believe that it has any VIE for consolidation.


                                       35
<PAGE>

Item 6.  Directors, Senior Management and Employees

     The directors, executive officers and officers of the Company at June 23,
2003 were as follows:
<TABLE>
<CAPTION>

     <S>                           <C>                   <C>    <C>
      Name                                               Age    Position with the Company
      ----                                               ---    -------------------------

      Pasquale Natuzzi                                   63     Chief Executive Officer, Chairman of the Board of Directors
      Giuseppe Desantis                                  41     General Manager*, Vice Chairman of the Board of Directors
      Giambattista Massaro                               41     General Manager of Purchasing, Logistics and Overseas
                                                                Operations*, Director on the Board of Directors
      Gianluca Monteleone                                36     Marketing Director*, Director on the Board of Directors
      Giuseppe Russo Corvace                             53     Managing Director of the Board of Directors for Accounting and
                                                                Finance
      Armando Branchini                                  58     Outside Director
      Stelio Campanale                                   41     Outside Director
      Claudio Dematte                                    60     Outside Director
      Pietro Gennaro                                     81     Outside Director
      Enrico Vitali                                      42     Outside Director
      Enrico Carta                                       55     Human Resources Director*
      Giovanni Costantino                                40     Research and Development, Industrialization and
                                                                Quality Director*
      Steve Adams                                        38     Retail Director of Kingdom of Leather Ltd.
      Steve Bailey                                       46     Marketing Manager of Natuzzi Americas
      Anna Beccari                                       47     Consumer Communication Manager
      Antonello Bracalello                               38     Southwest Europe and Asia-Pacific Sales and Marketing Director
      Amedeo Buzzacchino                                 51     Provider Planning Manager
      Giuseppe Catalano                                  36     Legal Affairs Manager
      Francesco Cornacchia                               39     Production Manager of Italsofa Bahia Ltd.
      Nicola Coropulis                                   37     Southwest Europe and Asia-Pacific Sales Operations &
                                                                Development Manager

</TABLE>

                                       36
<PAGE>
<TABLE>
<CAPTION>

     <S>                                                <C>    <C>
      Vito Dagostino                                     39     Purchasing Director
      Gaetano De Cataldo                                 39     Executive Vice President of Natuzzi Americas
      Nicola Dell'Edera                                  41     Finance Director
      Gaetano Del Re                                     56     Production Engineering Manager
      Michele D'Ercole                                   41     Managing Director of Natco
      Michele Diliberto                                  48     U.K. and Ireland Country Manager
      Luca Finzi                                         39     Retail Design and Engineering Manager
      Giuseppe Firrao                                    45     Trade Communication Manager
      Carl Grierson                                      36     General Manager for Buying, Merchandising and
                                                                Logistics for Kingdom of Leather, Ltd.
      Sylvain Grise                                      40     Spain and Portugal Country Manager
      Lars Hovang                                        36     Northeast Europe, Middle East and Africa Marketing Manager
      Cesare Laberinti                                   70     Chairman and Managing Director of I.M.P.E. S.p.A.
      Valeria Lanzilotta                                 37     Sales Manager of Asia-Pacific
      Giuseppe Nicola Lassandro                          50     Information Systems Director
      Bo Lippert-Larsen                                  41     Nordic Region Country Manager
      Stefano Lorizio                                    57     Production Director
      Guglielmo Lo Savio                                 57     Exhibition Manager
      Loredana Mariani                                   41     Southwest Europe and Asia-Pacific Marketing Manager
      Nicola Masotina                                    44     Italy Retail Country Manager
      Jan Mentens                                        36     Belgium Country Manager
      Giovanni Mercadante                                46     Accounting Director
      Ottavio Milano                                     37     Control and Internal Auditing Manager
      Anna Maria Natuzzi                                 38     Europe Product Manager
      Annunziata Natuzzi                                 39     Internal Relations and Overseas Human Resources Manager
      Filippo Vito Petrera                               39     Quality Manager
      John Phillips                                      55     Executive Vice President of Sales of Natuzzi Americas
      Salvatore Ragazzo                                  37     Managing Director of Spagnesi
      Enrico Raggi De Marini                             40     Northeast Europe, Middle East and Africa Sales and
                                                                Marketing Director
      Stefano Sette                                      35     USA Product Manager
      Giuseppe Vito Stano                                43     Sales Administration Director
      Fredrick Starr                                     71     President and Chief Executive Officer of Natuzzi Americas
      Francesco Stasolla                                 37     Managing Director of Italsofa Romania S.r.l.
      Richard Tan                                        43     Chairman and Chief Executive Officer of Italsofa
                                                                Shanghai Co. Ltd.
      Giuseppe Trevissoi                                 41     Logistics Director
      Emanuele Valente                                   53     Transportation Manager
      Giacomo Ventolone                                  36     Public Relations Manager
      Antonio Ventricelli                                49     Production Manager and Director of Italsofa Shanghai Co. Ltd.
      Fernando R. Vitale                                 37     Managing Director of Italsofa Bahia Ltd.
      Luigi Vitolo                                       57     Industrialization Manager
      Steve Winetroube                                   47     Managing Director of Kingdom of Leather Ltd.
      Rino Zinco                                         48     Switzerland Country Manager
</TABLE>


---------
     * Management serving on the Executive Committee.



     Pasquale Natuzzi, who serves as Chief Executive Officer, founded the
Company in 1959 and has since acted as its principal executive officer. Mr.
Natuzzi held the title of Sole Director of the Company from its incorporation in
1972 until 1991, when he became the Chairman of the Board of Directors.

     Giuseppe Desantis is General Manager, Vice Chairman of the Board of
Directors, and also acts the Company's principal financial officer. He became
Vice Chairman of the Company in 1991. From 1988 to 1991, he was Assistant to Mr.
Natuzzi. In 1987, he managed the Company's pricing and costing department. From
1984, when he joined the Company, to 1986 he worked in the Company's accounting
department. He was previously an accountant at Smay Srl, a children's knitwear
company.


                                       37
<PAGE>

     Giambattista Massaro is General Manager of Purchasing, Logistics and
Overseas Operations and member of the Board of Directors. From 1992 to 1993 he
was assistant to Mr. Natuzzi and from 1990 to 1992 he was Pricing and Costs
Manager. He joined the Company in 1987 as a buyer.

     Gianluca Monteleone is Marketing Director and member of the Board of
Directors. He joined the Company and became a Director in 1999. He was
previously a brand manager at Johnson & Johnson, Italy and Marketing Manager at
Sara Lee International.

     Giuseppe Russo Corvace acts as Managing Director of the Board of Directors
for Accounting and Finance. He is a partner of Vitali, Romagnoli, Piccardi e
Associati (formerly Tremonti e Associati), a law and tax consulting firm serving
the Company and other major domestic and multinational companies. He has also
served as a consultant to non-profit organizations. He serves as member of the
Board of Auditors of a number of other Italian companies. He is delegated by the
Board to supervise all activities related to domestic and international tax
issues.

     Armando Branchini has been an Outside Director of the Company since 2001.
He founded InterCorporate - Strategie e Impresa, a consultancy firm specialized
in business strategies and strategic marketing. He is a professor of Strategic
Marketing of Luxury Goods at the IULM University in Milan. From 1973 through
1987, he was responsible for establishing and implementing a marketing program
aimed at supporting the entrance and development of Italian fashion in principal
international markets.

     Stelio Campanale is an Outside Director of the Company and has been a
member of the Board of Directors since 1991. He was Legal Counsel of the Company
from 1991 to 1997, and then served as a consultant of the Company. He was
previously a senior consultant at Praxi S.p.A., a corporate consulting company,
from 1988 to 1990.

     Claudio Dematte became an Outside Director of the Company in 1998. He is a
professor at Ca' Foscari (University of Venice) and at Bocconi University of
Milan, and Chairman of SDA Bocconi, School of Management of Bocconi University.
He is Chairman of the Board of Directors of Trento and Bolzano Bank and Chairman
of the Board of Directors of Carime Bank. In addition, he is member of the
boards of Winterthur Group, Laterza, DS Data System and Art'e. From February
1998 to February 2001, he was Chairman of Ferrovie dello Stato (National
Railways) and, from July 1993 to June 1994, Chairman of RAI (the national TV and
Radio broadcasting company). He was consultant to various companies and to the
United Nations Development Program. Author of large number of publications, he
also writes on current topics in the major Italian economic journals, and he is
Publishing Director of Economia & Management, the scientific business review of
SDA Bocconi University.

     Pietro Gennaro has been an Outside Director of the Company since 1993. He
is the founder of Gennaro-Boston Associati, an Italian management consulting
firm that is a subsidiary of the Boston Consulting Group. He is currently a
professor at the University of Pavia and at ISTUD, a senior management business
school. Mr. Gennaro is also a management consultant to major companies in Italy,
serving as Chief Executive Officer of PGA - Strategia e Organizzazione, a
management consultancy. Previously, he has also served as President of Waste
Management Italia.

     Enrico Vitali has been an Outside Director of the Company since 1994. He is
a Certified Public Accountant and a partner of Vitali, Romagnoli, Piccardi e
Associati (formerly Tremonti e Associati), a law and tax consulting firm serving
the Company and other major domestic and multinational companies. Mr. Vitali
also serves as a member of the Boards of Statutory Auditors and the Boards of
Directors of a number of other Italian companies.

     Enrico Carta joined the Company in February 2002 as Human Resources
Director. He has served as a human resources manager over several years for some
of the most important Italian industrial and consulting firms.


                                       38
<PAGE>

     Giovanni Costantino has served as Research and Development,
Industrialization and Quality Director since 1999. He was previously a
consultant for furnishings and was in charge of developing the Company's
"Decorator" program.

     Steve Adams joined Kingdom of Leather Ltd. in 2001 as Retail Director, with
extensive experience in U.K. furniture retailing. He previously held senior
operational roles within major retailers such as Homestyle, Homebase and Texas
Homestyle, and also worked in retail management with MFI.

     Steve Bailey is Marketing Manager of Natuzzi Americas. He joined the
Company in October 2000. Prior to that, he was Director of Retail Advertising at
Bassett Furniture.

     Anna Beccari is Consumer Communication Manager. She joined the Company in
June 2002. She previously worked at Leo Burnett Italia for 20 years, most
recently as Client Service Director, working with clients as Coca Cola Italia,
Ariston Europe, Gordon's Gin Pampero Rum, Johnnie Walker and several banks.

     Antonello Bracalello is Southwest Europe & Asia-Pacific Sales and Marketing
Director. He joined the Company in September 2001. Previously, he was Sales
Manager for both Blu S.p.A., a telecommunications company, and Computer
Discount, a company specializing in retail PC sales in Italy.

     Amedeo Buzzacchino is Provider Planning Manager. He joined the Company in
January 1988 as an employee in the Logistics Department.

     Giuseppe Catalano is Legal Affairs Manager. He joined Natuzzi in September
2000. Previously, he worked for 4 years as a lawyer in private practice and for
5 years at Sanpaolo IMI Banking Group in Luxembourg and Milan.

     Francesco Cornacchia is Production Manager of Italsofa Bahia Ltd., the
Company's Brazilian subsidiary. He started in Natuzzi in 1992 as an employee in
the Logistics Department. In 1999, he managed the Production Administration in
one of the Italian factories.

     Nicola Coropulis is Southwest Europe & Asia-Pacific Sales Operations and
Development Manager. He joined the Company in 1992 as an employee in the Sales
Administration Department.

     Vito Dagostino is Purchasing Director. He is also Chairman of the Romanian
subsidiary, Italsofa Romania S.r.l. He joined the Company in 1988 and has
previously served as a buyer.

     Gaetano De Cataldo is Executive Vice President of Natuzzi Americas. He
previously served the Company as Sales Manager for Latin America. From 1995 to
1997, he was International Franchisee Operations Manager, and from 1993 to 1995
he was Assistant Sales Administration Manager. He joined the Company in 1990 as
a customer service representative.

     Nicola Dell'Edera is Finance Director. He joined the Company in 1999. From
1997 to 1999, he was head of the Financial Analysis Department in the New York
branch of Banca di Roma, an Italian bank. He previously worked in Banca di
Roma's branches in Rome and Bari.

     Gaetano Del Re is Production Engineering Manager. He joined the Company in
1996. From 1994 to 1995, he worked as a consultant. Prior to that, he was
General Manager of Calabrese Engineering.

     Michele D'Ercole is Managing Director of Natco, the Company's subsidiary
engaged in leather and dyeing operations. He joined the Company in 1989 and has
previously served as a buyer and later as Purchasing Director.


                                       39
<PAGE>

     Michele Diliberto has been U.K. and Ireland Country Manager since April
2003, when he joined the Group.

     Luca Finzi is Retail Design and Engineering Manager. He joined Natuzzi in
July 2002. Previously, he worked for such major Italian companies as Coin S.p.A
and Benetton S.p.A.

     Giuseppe Firrao is Trade Communication Manager. He joined the Company in
1996. From 1992 to 1996, he was Account Director at Dorland Wilkens, Italy, an
advertising agency network.

     Carl Grierson has been General Manager for Buying, Merchandising and
Logistics of Kingdom of Leather Ltd. since 1999. He joined Kingdom of Leather
Ltd. in 1992 and rapidly progressed through the company, holding management
positions in Scotland regional management, exhibition coordination and buying
and merchandising. In 2002 he was appointed to the Board of Directors of Kingdom
of Leather Ltd.

     Sylvain Grise is Spain and Portugal Country Manager. He is Director of
Natuzzi Iberica S.A., the Company's subsidiary responsible for sales operations
in Spain and Portugal. He joined the Group in May 2002. Previously, he worked
for KA International.

     Lars Hovang is Northeast Europe, Middle East and Africa Marketing Manager.
He joined the Company in January 2002, after working for Bang & Olufsen.

     Cesare Laberinti is Chairman and Managing Director of I.M.P.E. S.p.A., the
subsidiary engaged in polyurethane foam operations.

     Valeria Lanzilotta is Sales Manager of Asia-Pacific. She is Director of
Natuzzi Asia Ltd., the Company's Hong Kong subsidiary. She joined the parent
company in 1996. Prior to 1996, she held positions which involved extensive
travel throughout China. She is fluent in Mandarin.

     Giuseppe Nicola Lassandro is Information Systems Director. He joined the
Company in 1985. From 1983 to 1985 he was a software analyst programmer for
Olivetti S.p.A.

     Bo Lippert-Larsen is Nordic Region Country Manager. He is Managing Director
of Natuzzi Nordic ApS, the Copenhagen-based subsidiary of the Group. He joined
Natuzzi in December 2002.

     Stefano Lorizio is Production Director; he joined the Company in 1998. From
1987 to 1993 he was Production and Quality Manager at Fiat Avio S.p.A., an
aircraft engine manufacturing company, and from 1993 to 1997 he was Production
Manager at Agusta S.p.A., a helicopter manufacturing company.

     Guglielmo Lo Savio is Exhibition Manager. He joined the Company in 1981,
and has previously served as Sales Administration Manager. Before joining the
Company, was employed by Calcestruzzi S.p.A. for 11 years.

     Loredana Mariani is Southwest Europe and Asia-Pacific Marketing Manager.
She joined the Company in 2002. Previously, she worked for such major companies
as Estee Lauder Italia, Reckitt & Colman Italia and Alivar.

     Nicola Masotina is Italy Retail Country Manager. He joined the Company in
1994 as Sales Manager for Divani & Divani franchised stores in Italy.
Previously, he was Area Manager for Southern Italy for the franchised stores of
GIG, an Italian group which distributes toys.


                                       40
<PAGE>

     Jan Mentens has been Belgium Country Manager since April 2003. He is
Managing Director of Natuzzi Benelux SA/NV.

     Giovanni Mercadante is Accounting Director. He joined the Company in 1983.

     Ottavio Milano is Control and Internal Auditing Manager. He joined the
Company in May 1992.

     Anna Maria Natuzzi is Europe Product Manager. She joined the Company in
1982, as an employee in the Italian Sales Administration Department.

     Annunziata Natuzzi is Internal Relations and Overseas Human Resources
Manager. She joined the Company in 1981. She started working in the Production
Department and, in two years, worked briefly in all of the departments of the
Group. She has extensive experience in the Italian Sales Department and in the
International Sales Administration Department. She worked in the Personnel
Department beginning in 1990. From June 2000 to January 2002 she was Human
Resources Director.

     Filippo Petrera is Quality Manager. He joined the Group in March 1995. He
was previously in charge of the Technical Office.

     John Phillips is Executive Vice President of Sales of Natuzzi Americas,
responsible for sales strategy and planning throughout North and South America.
He was previously Vice President of the Upholstery Division at Bedford
Furniture, Canada, and then worked as Sales Manager of National Accounts for
Spring Air Canada. He joined the Company in August 1999 as Vice President of
Sales and Marketing, Canada.

     Salvatore Ragazzo is Managing Director of Spagnesi, the subsidiary engaged
in Wood Trim Products manufacturing operations. He joined the Group in 1989 as
an analyst programmer.

     Enrico Raggi De Marini is Northeast Europe, Middle East and Africa Sales
and Marketing Director. He joined the Company in March 2003. He previously
worked for Salvatore Ferragamo Italia, CISA Group and Cirio-Bertolli-De Rica.

     Stefano Sette is USA Production Manager. He joined Natuzzi in 1990,
starting in the Sales Administration and Accounting Department.

     Giuseppe Vito Stano has been Sales Administration Director of the Company
since 1991. From 1986 to 1991, he was Executive Vice President of Natuzzi
Upholstery Inc. (currently Natuzzi Americas) in the United States. Prior to
that, he was Assistant Vice President of Natuzzi Upholstery Inc. He joined the
Group in 1980, as a staff member of the Company's Export Department.

     Fredrick Starr is President and CEO of Natuzzi Americas. He joined the
Company in October 2001. Since retiring in 1998 from Thomasville Furniture
Industries, where he served as President for 16 years, he has been involved in
several business and civic efforts. Most recently, he has worked with Style
Craft Metal Beds as part owner and adviser. Additionally, he was appointed by
Governor Hunt to lead an effort to bring Major League Baseball to North
Carolina, has served as President of Piedmont Triad Partnership and is currently
on the North Carolina Environmental Management Commission.

     Francesco Stasolla is Managing Director of Italsofa Romania S.r.l.. He
started at Natuzzi in January 1988 as a buyer.

     Richard Tan is Chairman and Chief Executive Officer of Italsofa Shanghai
Co. Ltd.. He has been in the upholstery business for 17 years. In November 2000,
he begun cooperation with Natuzzi Asia Ltd. for the start-up of the Chinese
production operations. He was appointed as Chairman of Italsofa Shanghai Co.
Ltd. on October 2002.


                                       41
<PAGE>

     Giuseppe Trevissoi is Logistics Director. He joined the Company in 1999. He
previously worked in R&D at Alenia, was the Purchasing Manager at Allied Signal
and Logistics Manager at SKF and Bosch.

     Emanuele Valente is Transportation Manager. He joined the Company in 1992.
Previously, he was Manager of the Bari branch office of Merzario S.p.A., a
shipping company.

     Giacomo Ventolone is Public Relations Manager. He joined the Company in
March 1997, starting in the Corporate Press Office.

     Antonio Ventricelli is Production Manager and Director of Italsofa Shanghai
Co. Ltd. He started at Natuzzi in July 1990. He has worked as a sofa-prototyper
at the Company for ten years. He has previously worked as an upholster at other
manufacturing firms.

     Fernando R. Vitale is Managing Director of the Brazilian subsidiary
Italsofa Bahia Ltd.. Previously, he worked for 15 years at Curtume Touro Ltda.,
a Brazilian leather tannery.

     Luigi Vitolo is Industrialization Manager. He joined the Company in October
2001. Prior to that, he was a teacher in a technical school and acted as a
project consultant for industrial planning and building renovations.

     Steve Winetroube is Managing Director of Kingdom of Leather Ltd. He joined
Kingdom of Leather Ltd. in July 2002 as Commercial Director. He previously
served as Finance and Information Technology Director for several retail
companies, including Faith Shoes, a women's fashion retailer, and Charlie
Browns, an automotive parts retailer. He also held a variety of financial roles
with Kingfisher plc.

     Rino Zinco is Switzerland Country Manager. He joined the Company in 2003.
He is Director of the Swiss subsidiary Natuzzi (Switzerland) AG/SA.

     Anna Maria Natuzzi and Annunziata Natuzzi are daughters of Pasquale
Natuzzi. There are no other family relationships among the directors and
executive officers of the Company.

     Directors are elected for three-year terms. The next election of Directors
will take place in April 2004. See Item 10, "Additional Information -- By-laws
-- Board of Directors".


                     Compensation of Directors and Officers

     Aggregate compensation paid by the Group to the directors and officers
named above was approximately (euro) 7.3 million in 2002, excluding the
provision for termination indemnities required by Italian law.

                                 Share Ownership

     Mr. Pasquale Natuzzi owns 47.7% of the issued and outstanding Ordinary
Shares and each of Annunziata Natuzzi and Anna Maria Natuzzi owns 2.5% of the
issued and outstanding Ordinary Shares. None of the Company's other directors
and officers listed above owns one percent or more of the Ordinary Shares. See
Item 7, "Major Shareholders and Related Party Transactions -- Major
Shareholders".


                                       42
<PAGE>

     See Item 10, "Additional Information -- Employee Stock Option Plan" for a
description of the Company's employee stock option plan.

                               Statutory Auditors

     The following table sets forth the names of the three members of the board
of statutory auditors of the Company and the two alternate statutory auditors
and their respective positions, as of the date of this annual report. The
current board of statutory auditors was elected for a three-year term on April
30, 2001.

                               Name                 Position
                         --------------------      ----------

                         Francesco Venturelli      Chairman
                         Cataldo Sferra            Member
                         Costante Leone            Member
                         Nunzio Angiola            Alternate
                         Francesco Barletta        Alternate


     On April 30, 2003, Mr. Cataldo Sferra was elected to replace Mr. Ferdinando
Canaletti.

     During 2002, our statutory auditors received in the aggregate approximately
(euro) 36,000 in compensation for their services to the Company and its Italian
subsidiaries.

                                External Auditors

     On April 30, 2003, at the annual general shareholders' meeting, KPMG
S.p.A., with offices in Bari, Italy, was appointed as the Company's external
auditors for a three-year period.

                                    Employees

     As at December 31, 2002, the Group had 5,742 employees (4,477 in Italy and
1,265 abroad), as compared to 4,643 and 3,700 on December 31, 2001 and 2000,
respectively. As at December 31, 2002, the average age of the Group's employees
was approximately 30 years. Historically, there has been very little turnover
among the Group's employees and management believes that the Group's relations
with its workers are good. The Group maintains a company intranet and, as a
major employer in the Bari/Santeramo area, is, in the view of management, an
important participant in community life. In 2002, the Group opened its "Natuzzi
Training School" for the purpose of providing all of its employees with the
specialized skills necessary for the execution of their duties as employees of
the Group.

     Italian law provides that, upon termination of employment for whatever
reason, employees are entitled to receive certain indemnity payments based on
length of employment. As at December 31, 2002, the Company had (euro) 25.6
million reserved for such termination indemnities, such reserves being equal to
the amounts, calculated on a percentage basis, required by Italian law.

     During certain years, the Group receives benefits from the Italian
Government and from the European Union for hiring and training employees. During
2001, the Company received (euro) 2.3 million in employment incentives, while in
2002 and 2000 the Company did not receive any employment incentives.


                                       43
<PAGE>

     Under the Italian Government's youth employment program, until the end of
1997, the Group was entitled to hire workers under age 45 for its plants in the
Mezzogiorno as temporary employees under short-term contracts of 18-24 months.
Beginning in 1998, workers must be under age 32 to be eligible for such program.
This program enables Italian employers to reduce the required social security
contributions payable with respect to such employees. In addition, the Italian
Government provides for reduced social security contributions payable by
employers in the Mezzogiorno with respect to its permanent employees. Pursuant
to an agreement with the European Union in early 1995, however, such reductions
are being gradually phased out.

     Currently, most of the Group's benefits are derived from a European Union
plan providing incentives for the hiring of new permanent employees. The
European Social Fund (a European Union organization), acting through the
European regions covered by the plan, provides employment incentives in the form
of grants and subsidizes social security contributions paid for new permanent
employees hired during the last three years, upon fulfillment of the plan's
specific requirements.






                                       44
<PAGE>



Item 7.  Major Shareholders and Related Party Transactions

                               Major Shareholders

     Mr. Pasquale Natuzzi, who founded the Company and is currently Chairman of
the Board of Directors and Chief Executive Officer, owns 47.7% of the issued and
outstanding Ordinary Shares of the Company (52.8% of the Ordinary Shares if the
Ordinary Shares owned by members of Mr. Natuzzi's immediate family (the Natuzzi
Family) are aggregated) and controls the Company, including its management and
the selection of its Board of Directors.

     The following table sets forth information, as reflected in the records of
the Company as at March 31, 2003, with respect to each person who owns more than
5% of the Company's Ordinary Shares or ADSs.
<TABLE>
<CAPTION>

                                                                                     Number of       Percent
                                                                                      Shares          Owned
                                                                                       Owned
                                                                                  ----------------  ----------
<S>                                                                                 <C>             <C>
Pasquale Natuzzi(1)...............................................................  26,064,906        47.7%

Royce & Associates LLC............................................................   3,585,600        6.6%

Sprucegrove Investment Management.................................................   2,865,600        5.2%
</TABLE>

-------
(1)  If Mr. Natuzzi's Ordinary Shares are aggregated with those held by members
     of the Natuzzi Family, the amount owned would have been 28,864,906 and the
     percentage ownership of Ordinary Shares would have been 52.8%.



     In addition, the Natuzzi Family has a right of first refusal to purchase
all the rights, warrants or other instruments which The Bank of New York, as
Depositary under the Deposit Agreement, determines may not lawfully or feasibly
be made available to owners of ADSs in connection with each rights offering, if
any, made to holders of Ordinary Shares. None of the shares held by the above
shareholders have any special voting rights.

     As of May 28, 2003, 54,681,628 Ordinary Shares were outstanding. As of the
same date, there were 25,814,497 ADSs (equivalent to 25,814,497 Ordinary Shares)
outstanding, held by 48 record holders. The share equivalent to outstanding ADSs
was equal to 47.2% of the total number of outstanding Natuzzi Ordinary Shares.

     Since certain of the shares and ADSs were held by brokers or other
nominees, the number of direct record holders in the United States may not be
fully indicative of the number of direct beneficial owners in the United States
or of where the direct beneficial owners of such shares are resident.

                           Related Party Transactions

     No member of the board of directors or board of statutory auditors and no
senior officer (including close members of any such person's families) nor any
enterprise over which any such person is able to exercise a significant
influence has had any interest in any transactions that are or were unusual in
their nature or conditions or are or were material to the Company, and that were
either effected since December 31, 1999 or that were effected during an earlier
period and remain in any respect outstanding or unperformed. The Company has not
provided any loans or guarantees to or for the benefit of any such person since
December 31, 1999 or that remain outstanding or unperformed.


                                       45
<PAGE>

Item 8.  Financial Information

                        Consolidated Financial Statements

     Please refer to Item 18, "Financial Statements" of this annual report.

                                  Export Sales

     Export sales from Italy totaled approximately (euro) 659 million in 2002,
as compared with (euro) 641 million in 2001, which represented 89.7% of the
Company's 2002 net leather- and fabric-upholstered furniture sales (89.8% in
2001).

                                Legal Proceedings

     Neither the Company nor any of its subsidiaries is a party to any legal or
governmental proceeding that is pending or, to the Company's knowledge,
threatened or contemplated against Natuzzi or any such subsidiary that, if
determined adversely to Natuzzi or any such subsidiary, would have a materially
adverse effect, either individually or in the aggregate, on the business,
financial condition or results of operations of the Group.

                                    Dividends

     Payment of dividends of (euro) 0.33 per Ordinary Share in respect of the
year ended December 31, 2002 was approved at the Company's annual general
meeting held on April 30, 2003 and will be paid starting from July 14, 2003 to
the shareholders of record as of May 30, 2003. No further dividends in respect
of the year ended December 31, 2002 are expected to be approved or paid.

     The table below sets forth the cash dividends paid per Ordinary Share in
respect of each of the years indicated, and translated into dollars per ADS
(each representing one Ordinary Share) at the Noon Buying Rate on the date or
dates the respective dividends were first payable or, in the case of the
dividend in respect of the year ended December 31, 2002, the Noon Buying Rate on
December 31, 2002.
<TABLE>
<CAPTION>

                      Year ended December 31,              Dividends per Ordinary Share          Translated into
                                                                                                 dollars per ADS
                                                           ------------------------------     ----------------------
        <S>                                                            <C>    <C>                   <C>
         2002...............................................           (euro) 0.3300                 $0.35
         2001...............................................           (euro) 0.2872                 $0.26
         2000...............................................           (euro) 0.2892                 $0.25
         1999(1)............................................           (euro) 1.6351                 $1.54
         1998(2)............................................           (euro) 0.8263                 $0.85
</TABLE>

---------
(1) Includes a special dividend of (euro) 1.1155 per Ordinary Share.
(2) Includes a special dividend of (euro) 0.5722 per Ordinary Share.

     Although the Company currently expects to continue to pay an annual
year-end dividend, the payment of future dividends will depend upon the
Company's earnings and financial condition, capital requirements, governmental
regulations and policies and other factors. Accordingly, there can be no
assurance that dividends in future years will be paid at a rate similar to
dividends paid in past years.

     Dividends paid to owners of ADSs or Ordinary Shares who are United States
residents qualifying under the Income Tax Convention will generally be subject
to Italian withholding tax at a maximum rate of 15%, provided that certain
certifications are timely given. Such withholding tax will be treated as a
foreign income tax which U.S. owners may elect to deduct in computing their
taxable income, or, subject to the limitations on foreign tax credits generally,
credit against their United States federal income tax liability. See Item 10,
"Additional Information -- Taxation -- Taxation of Dividends".




                                       46
<PAGE>


Item 9.  The Offer and Listing



                        Trading Markets and Share Prices

     Natuzzi's Ordinary Shares are listed on the New York Stock Exchange (the
"NYSE") in the form of ADSs under the symbol "NTZ". Neither the Company's
Ordinary Shares nor its ADSs are listed on a securities exchange outside the
United States. The Bank of New York is the Company's Depositary for purposes of
issuing the ADRs evidencing ADSs.

     Trading in the ADSs on the NYSE commenced on May 13, 1993. The following
table sets forth, for the periods indicated, the high and low closing prices per
ADS as reported by the NYSE.(1)
<TABLE>
<CAPTION>

                                                                                         Price Range of ADSs
                                                                                     -----------------------------
                                                                                           High             Low
<S>                                                                                         <C>             <C>
1998:
      First Quarter..................................................................      27.875          19.250
      Second Quarter.................................................................      29.250          24.875
      Third Quarter..................................................................      27.375          19.000
      Fourth Quarter.................................................................      25.000          14.500
1999:
      First Quarter..................................................................      24.500          16.375
      Second Quarter.................................................................      19.875          16.625
      Third Quarter..................................................................      20.125          16.375
      Fourth Quarter.................................................................      20.000          12.500
2000:
      First Quarter..................................................................      13.000           9.688
      Second Quarter.................................................................      12.813           9.875
      Third Quarter..................................................................      12.190           9.750
      Fourth Quarter.................................................................      13.063          11.375
2001:
      First Quarter .................................................................      14.050          12.125
      Second Quarter.................................................................      14.150          11.500
      Third Quarter..................................................................      14.000          10.150
      Fourth Quarter.................................................................      14.640          10.860
2002:
      First Quarter .................................................................      15.700          13.910
      Second Quarter.................................................................      16.100          13.350
      Third Quarter..................................................................      15.040          10.920
      Fourth Quarter.................................................................      10.970           9.120
2003:
      First Quarter..................................................................      10.050           7.240
Monthly Data:
      November 2002..................................................................      10.970          10.410
      December 2002..................................................................     10.700            9.860
      January 2003...................................................................      10.050           9.200
      February 2003..................................................................       9.440           8.950
      March 2003.....................................................................       9.850           7.240
      April 2003.....................................................................       9.010           8.100
      May 2003.......................................................................       9.600           8.000
      June 2003 (through June 25)....................................................       8.560           7.990
</TABLE>

---------
 (1) Starting on January 1, 2001, the NYSE changed its practice of reporting
     stock quotes from a fractional to a decimal system. All stock quotes prior
     to this date, originally reported in fractions, were restated into decimals
     for ease of comparison.



                                       47
<PAGE>



Item 10.  Additional Information

                           Employee Stock Option Plan

     As contemplated at the time of the Company's May 1993 initial public
offering of ADSs, in February 1994 the Company approved an employee stock option
plan (the "Plan") relating to up to 1,680,000 Ordinary Shares of the Company.
Under the Plan, managers and certain key employees of the Group both in and
outside the United States were granted options to purchase Ordinary Shares from
the Company at an exercise price per share equal to 95% of the May 1993 initial
public offering price, or (euro) 5.4938 per Share. Pursuant to the Plan, in 1994
the Company granted options to 255 employees with respect to 1,458,000 Ordinary
Shares of the Company. In 1996, the Company granted options to an additional 100
employees with respect to 168,800 Ordinary Shares of the Company, and in 1998,
the Company granted options to 27 employees, as a one-time bonus, with respect
to 19,240 Ordinary Shares of the Company. No options were granted during 1999,
2000 and 2001. The Plan has expired, and the Company is currently considering
adopting a new stock option plan.

     Employees who received options under the Plan were entitled to exercise
such options over four years during exercise periods from May 15 to May 31, as
follows: (i) with respect to 25% of the options, in the year in which they were
granted; (ii) with respect to 35% of the options, in the second year thereafter;
and (iii) with respect to the remaining 40% of the options, in the fourth year
thereafter. The options granted in 1998 were exercisable in full during that
year. Following each exercise period, the Company was required to seek
shareholder approval to increase its capital and comply with certain
requirements under Italian law, after which the Ordinary Shares may be
delivered. Options with respect to 364,500, 514,300, 590,088 and 56,640 Ordinary
Shares were exercised in 1994, 1996, 1998 and 2000, respectively. The 514,300
Ordinary Shares with respect to which options were exercised in 1996 included
482,100 Ordinary Shares for the employees who received options in 1994 and
32,200 Ordinary Shares for new employees receiving options in 1996. The 590,088
Ordinary Shares with respect to which options were exercised in 1998 included
534,448 and 36,400 Ordinary Shares for the employees who received options in
1994 and 1996, respectively, as well as 19,240 Ordinary Shares in respect of
options granted as a one-time bonus in 1998. Options with respect to 56,640
Ordinary Shares were exercised in 2000 by employees who received options in
1996. No options were outstanding at December 31, 2001. See Note 18 to the
Consolidated Financial Statements included in Item 18 of this annual report. For
purposes of the reconciliation of the Company's financial statements to U.S.
GAAP, the Company did not record a charge to net earnings for the compensation
element of these stock options in 2001, but it recorded a charge of (euro)
165,780 and (euro) 158,550 for the years ended December 31, 1999 and 1998,
respectively. See Note 26 to the Consolidated Financial Statements included in
Item 18 of this annual report.

                                     By-laws

     The following is a summary of certain information concerning the Company's
shares and By-laws (Statuto) and of Italian law applicable to companies whose
shares are not listed in a regulated market in the European Union, as in effect
at the date of this annual report. The summary contains all the information that
the Company considers to be material regarding the shares but does not purport
to be complete and is qualified in its entirety by reference to the By-laws or
Italian law, as the case may be.

     In January 2003, the Italian government approved a wide-ranging reform of
the corporate law provisions of the Civil Code, which will be in effect starting
on January 1, 2004 (the so-called 2003 corporate law reform). The following
summary includes also a description of certain main provisions introduced by the
2003 corporate law reform.


                                       48
<PAGE>



General

     The issued share capital of the Company consists of 57,525,528 Ordinary
Shares, par value (euro) 1 per share. All the issued shares are fully paid,
non-assessable and in registered form.

     The Company is registered with the Companies' Registry of the Court of Bari
at n. 19551, with its registered office at 51 Corso Cavour, Bari, Italy and its
principal executive offices at 47, Via Iazzitiello, Santeramo in Colle, Italy.

     As set forth in Article 5 of the By-laws, the Company's corporate purpose
is the production, marketing and sale of sofas, armchairs, furniture in general
and raw materials used for their production. The Company is generally authorized
to take any actions necessary or useful to achieve its corporate purpose.

Authorization of Shares

     Additional shares may be authorized in connection with capital increases
approved by the Company's shareholders in an extraordinary meeting, but this
authorization would generally be given only after recommendation by the
Company's board of directors.


Form and Transfer of Shares

     Ordinary shares are transferable by endorsement of the share certificate by
or on behalf of the registered holder, with such endorsement either
authenticated by a notary in Italy or elsewhere or by a broker-dealer or a bank
in Italy. The transferee must request the Company to enter his name in the
register in order to establish his rights as a stockholder as against the
Company.

Dividend Rights

     Payment of annual dividends is proposed by the board of directors and is
subject to the approval of the shareholders at the annual shareholders' meeting,
which in accordance with Italian law must be held by April 30 of each year
(i.e., within four months from the end of the fiscal year), or by June 30 if
special reasons so require (i.e., within six months from the end of the fiscal
year). Before dividends may be paid out of the Company's declared net income of
each year, an amount equal to 5% of such net income must be allocated to the
Company's legal reserve until such reserve is at least equal to one-fifth of the
par value of the Company's issued share capital. If the Company's capital is
reduced as a result of accumulated losses, dividends may not be paid until the
capital is reconstituted or reduced by the amount of such losses. The Company
may pay dividends out of available retained earnings from prior years, provided
that after such payment, the Company will have a legal reserve at least equal to
the legally required minimum. No interim dividends may be approved or paid.

     Dividends will be paid in the manner and on the date specified in the
shareholders' resolution approving their payment (usually within 30 days of the
annual general meeting). Dividends which are not collected within five years of
the date on which they become payable are forfeited to the benefit of the
Company. Holders of ADSs will be entitled to receive payments in respect of
dividends on the underlying shares through The Bank of New York, as ADR
depositary, in accordance with the deposit agreement relating to the ADRs.


                                       49
<PAGE>



Voting Rights

     Shareholders are entitled to one vote per Ordinary Share.

     As a registered shareholder, the Depositary (or its nominee) will be
entitled to vote the Ordinary Shares underlying the ADSs. The Deposit Agreement
requires the Depositary (or its nominee) to accept voting instructions from
holders of ADSs and to execute such instructions to the extent permitted by law.
Neither Italian law nor the Company's By-laws limit the right of non-resident or
foreign owners to hold or vote the shares.

Board of Directors

     Pursuant to the Company's By-laws, the Company's board of directors must
consist of seven to eleven individuals. The board of directors is elected at a
shareholders' meeting for three years. The directors, who may but are not
required to be shareholders of the Company, may be re-appointed for successive
terms. In accordance with the By-laws, the board of directors has complete power
of ordinary and extraordinary administration of the Company and in particular
may perform all acts it deems advisable for the achievement of the Company's
corporate purposes, except for the actions reserved by applicable law or the
By-laws to a vote of the shareholders at an ordinary or extraordinary
shareholders' meeting.

     The board of directors must appoint a chairman (presidente) and may appoint
a vice-chairman. The chairman of the board of directors and the vice-chairman
and the managing directors, if any, are severally the legal representatives of
the Company. The board of directors may delegate certain powers to one or more
managing directors (amministratori delegati), determine the nature and scope of
the delegated powers of each director and revoke such delegation at any time.
However, in accordance with Italian law and the By-laws, the board of directors
may not delegate certain responsibilities, including the preparation and
approval of the draft financial statements, the approval of increases in the
amount of the Company's share capital or the issuance of debentures (if any such
power has been delegated to the board of directors by vote of the extraordinary
shareholders' meeting) and the fulfillment of the formalities required when the
Company's capital would have to be reduced as a result of accumulated losses
that affect the Company's stated capital by more than one third. The board of
directors may also appoint a general manager (direttore generale) and one or
more senior managers (direttori) who report directly to the board and confer
powers for single acts or categories of acts to employees of the Company or
persons unaffiliated with the Company.

     Meetings of the board of directors are called seven days in advance by
registered letter or three days in advance by telegram, by the chairman on his
own initiative and must be called upon the request of any director or statutory
auditor. Meetings may be held in person, or by video-conference or
tele-conference, in any member state of the European Union, the United States,
Switzerland, Australia and Japan. The quorum for meetings of the board of
directors is a majority of the directors in office. Resolutions are adopted by
the vote of a majority of the directors present at the meeting. In case of votes
being equal, the vote of the chairman will prevail.

     Under Italian law, directors having a conflicting interest with the company
regarding a proposed resolution must inform the other directors about the
conflict and abstain from voting on the resolution. Resolutions adopted in
breach of this rule may be challenged by dissenting or absent directors or the
statutory auditors if there is a possibility of damage to the Company, and
conflicted directors may be held liable for damages to the Company resulting
from a resolution adopted in breach of this rule.

     Pursuant to the 2003 corporate law reform, with effect from January 1,
2004, directors having any interest in a proposed transaction will have to
disclose their interest to the board, even if such interest is not in conflict
with the interest of the company in the same transaction. The interested
director will not be required to abstain from voting on the resolution approving
the transaction, but the resolution must state explicitly the reasons for, and
the benefit to the company of, the approved transaction. In the event that the
approved transaction is potentially prejudicial to the company or the above
mentioned provisions are not complied with, the resolution may be challenged by
a director or by the board of statutory auditors if the transaction would not
have been approved without the vote of the interested director. A managing
director having any such interest in a proposed transaction within the scope of
his powers will have to solicit prior board approval of such transaction.
Finally, as of January 1, 2004, directors may be held liable for damages to
their company if they illicitly profit from insider information or corporate
opportunities.


                                       50
<PAGE>

     Under Italian law, directors may be removed from office at any time by the
vote of shareholders at an ordinary shareholders' meeting although, if removed
in circumstances where there was no just cause, such directors may have a claim
for indemnification against the Company. Directors may resign at any time by
written notice to the board of directors and to the chairman of the board of
statutory auditors. The board of directors must appoint substitute directors to
fill vacancies arising from removals or resignations, subject to the approval of
the board of statutory auditors, to serve until the next ordinary shareholders'
meeting. If at any time a majority of the then current members of the board of
directors resign or otherwise cease to be directors, the remaining members of
the board of directors (or the board of statutory auditors if all the members of
the board of directors have resigned or ceased to be directors) must promptly
call an ordinary shareholders' meeting to appoint the new directors.

     The remuneration of directors is determined by shareholders at ordinary
shareholders' meetings. The board of directors, after consultation with the
board of statutory auditors, may determine the remuneration of directors that
perform management or other special services for the Company, such as the
managing director. Directors are entitled to reimbursement for expenses
reasonably incurred in connection with their functions.

     With effect from January 1, 2004, an Italian stock corporation may adopt
one of two different models of corporate governance structure, as an alternative
to the current model based on a board of directors and a board of statutory
auditors. Stock corporations may opt for (i) a one-tier model with a single
board of directors, including an audit committee composed of independent
non-executive directors, or (ii) a two-tier model, including a management board,
which is entrusted with management responsibilities, and a supervisory board
which is entrusted mainly with control and supervisory responsibilities and,
among other functions, appoints and removes the members of the management board
and approves the company's annual financial statements. The adoption of one of
the new corporate governance models requires an extraordinary shareholders
meeting resolution.

Statutory Auditors

     Under Italian law, in addition to electing the board of directors, the
Company's shareholders elect a board of statutory auditors (Collegio Sindacale)
from individuals qualified to act in such capacity under Italian law. At
ordinary shareholders' meetings of the Company, the statutory auditors are
elected for a term of three years, may be re-elected for successive terms and
may be removed only for cause and with the approval of a competent court. Each
member of the board of statutory auditors must provide certain evidence that he
is in good standing and meets certain professional standards.

     The Company's By-laws currently provide that the board of statutory
auditors shall consist of three statutory auditors and two alternate statutory
auditors (who are automatically substituted for a statutory auditor who resigns
or is otherwise unable to serve).


                                       51
<PAGE>

     The Company's board of statutory auditors is required to meet at least once
each quarter. In addition, the statutory auditors of the Company must be present
at meetings of the Company's board of directors and shareholders' meetings. The
statutory auditors, whose duties are specified in article 2403 of the Italian
civil code, may decide to call a meeting of the shareholders, the board of
directors, ask information on the management of the Company to the directors,
carry out inspections and verifications at the Company and exchange information
with the Company's external auditors. Any shareholder may submit a complaint to
the board of statutory auditors regarding facts that such shareholder believes
should be subject to scrutiny by the board of statutory auditors, which must
take any complaint into account in its report to the shareholders' meeting. If
shareholders collectively representing 5% of the Company's share capital submit
such a complaint, the board of statutory auditors must promptly undertake an
investigation and present its findings and any recommendations to a
shareholders' meeting (which must be convened immediately if the complaint
appears to have a reasonable basis and there is an urgent need to take action).
Starting from January 1, 2004, the board of statutory auditors may report to the
competent court serious breaches of directors' duties.

     As mentioned in the preceding section, as of January 1, 2004, Italian stock
corporations may depart from the traditional Italian model of corporate
governance structure and opt for two alternative models, neither of which
includes a board of statutory auditors.


Meetings of Shareholders

     Shareholders are entitled to attend and vote at ordinary and extraordinary
shareholder's meetings. Votes may be cast personally or by proxy. Shareholders'
meeting may be called by the Company's board of directors (or the board of
statutory auditors) and must be called if requested by holders of at least 20%
(as of January 1, 2004, at least 10%) of the issued shares.

     To attend any meeting, shareholders must, at least five days prior to the
date fixed for the meeting, lodge their share certificates at the offices of the
Company or with such banks as may be specified in the notice of meeting, in
exchange for an admission ticket for the meetings. Pursuant to the 2003
corporate law reform, starting from January 1, 2004, the law will no longer
require that share certificates be deposited prior to the shareholders' meeting.
However, a resolution adopted by an extraordinary shareholders' meeting may
re-introduce a prior-deposit requirement in the Company's By-laws. Owners of
ADRs may make special arrangements with the Depositary for the beneficial owners
of such ADRs to attend shareholders' meetings, but not to vote at or formally
address such meetings. The procedures for making such arrangements will be
specified in the notice of such meeting to be mailed by the Depositary to the
owners of ADRs.

     The Company may hold general meetings of shareholders at its registered
office in Bari, at its executive offices in Santeramo or elsewhere within Italy
or at locations outside Italy, as specified in the By-laws (any member state of
the European Union, the United States, Switzerland, Australia and Japan)
following publication of notice of the meeting in the "Gazzetta Ufficiale della
Repubblica Italiana" at least 15 days before the date fixed for the meeting. The
Depositary will mail to all record holders of ADSs a notice containing a summary
of all information contained in any notice of a shareholders' meeting received
by the Depositary.

     The annual financial statements of the Company must be presented to the
general meeting for the approval within four months after the end of the fiscal
year or, if the board of directors determines that a delay in such presentation
is necessary, within six months after the end of such fiscal year.

     Shareholders may appoint proxies by delivering in writing an appropriate
instrument of appointment to the Company. Directors, auditors and employees of
the Company or of any of its subsidiaries may not be proxies and any one proxy
cannot represent more than 10 shareholders (20 shareholders as of January 1,
2004). A separate proxy must be provided for each meeting. Share certificates
may be retrieved following the meeting.


                                       52
<PAGE>

     The quorum for an ordinary meeting of shareholders is 50% of the Ordinary
Shares, and resolutions are carried by the majority of Ordinary Shares present
or represented. At an adjourned ordinary meeting, no quorum is required, and the
resolutions are carried by the majority of Ordinary Shares present or
represented. Certain matters, such as amendments to the By-laws, the issuance of
shares, the issuance of debentures and mergers and de-mergers may only be
effected at an Extraordinary General Meeting, at which special voting rules
apply. Resolutions at an extraordinary meeting of the Company are carried by a
majority of the Ordinary Shares. At an adjourned extraordinary meeting,
resolutions are carried by the majority of more than one-third of the Ordinary
Shares (as of January 1, 2004, an adjourned meeting will be validly held with a
quorum of one-third of the issued shares and its resolutions will be carried by
a majority of at least two-thirds of the holders of shares present or
represented at such meeting). In addition, certain matters (such as a change in
purpose or form of the company, the transfer of its registered office outside
Italy, its liquidation prior to the date set forth in its By-laws and the
issuance of preferred shares) always require the affirmative vote of the
majority of the Ordinary Shares (according to the 2003 reform, such resolutions
must be carried by the holders of more than one-third of the Ordinary Shares,
provided that there is no dissenting vote by holders of more than one-third of
the shares present and represented at such meeting).

Preemptive Rights

     Pursuant to Italian law, holders of Ordinary Shares are entitled to
subscribe for issuance of shares, debentures convertible into shares and rights
to subscribe for shares in proportion to their holdings, unless such issues are
for non cash considerations or preemptive rights are waived or limited by an
extraordinary resolution adopted by the affirmative vote of holders of more than
50% of the Ordinary Shares (whether at an extraordinary or adjourned
extraordinary meeting) and such waiver or limitation is required in the interest
of the Company. There can be no assurance that the holders of ADSs may be able
to exercise fully any preemptive rights.

Preference Shares; Other Securities

     Italian companies are permitted in accordance with Italian law to issue
preference shares with limited voting rights, if their By-laws provide for such
issuance. The Company's By-laws currently do not provide for such issuance and
would need to be amended at an extraordinary shareholders' meeting to allow us
to issue preference shares.

     Pursuant to the 2003 corporate law reform, starting in 2004, Italian
companies will be permitted to issue other classes of equity securities with
different economic and voting rights, so-called participation certificates with
limited voting rights, as well as so-called tracking stock, if their by-laws
permit such issuance.

Segregation of Assets and Proceeds

     Pursuant to the 2003 corporate law reform, starting in 2004, the board of
directors of an Italian company may resolve to segregate assets of the company
into one or more separate pools. Such pools of assets may have an aggregate
value not exceeding 10% of the shareholders' equity of the company. Each pool of
assets must be used exclusively for the carrying out of a specific business and
may not be attached by the general creditors of the company. Similarly,
creditors with respect to such specific business may only attach those assets of
the company that are included in the corresponding pool. Tort creditors, on the
other hand, may always attach any assets of the Company. The board of directors
may issue securities carrying economic and administrative rights relating to a
pool. In addition, financing agreements relating to the funding of a specific
business may provide that the proceeds of such business be used exclusively to
repay the financing. Such proceeds may be attached only by the financing party
and such financing party would have no recourse against other assets of the
company.


                                       53
<PAGE>

Liquidation Rights

     Pursuant to Italian law and subject to the satisfaction of the claims of
all other creditors, shareholders are entitled to a distribution in liquidation
that is equal to the nominal value of their shares (to the extent available out
of the net assets of the Company). Holders of preferred shares, if any such
shares are issued in the future by the Company, would be entitled to a priority
right to any such distribution from liquidation up to their par value.
Thereafter, all shareholders would rank equally in their claims to the
distribution or surplus assets, if any. Shares rank pari passu among themselves
in liquidation.

Purchase of Shares by the Company

     The Company may purchase, in the aggregate, up to 10% of its Ordinary
Shares at any time and from time to time, subject to certain conditions and
limitations provided by Italian law, including the limitation that the purchase
be approved by the shareholders' general meeting and that the Company may only
repurchase fully paid-in shares. Also, the aggregate purchase price may not
exceed the Company's declared net income and retained earnings. As long as such
shares are owned by the Company, they would not be entitled to dividends nor to
subscribe for new Ordinary Shares in the case of capital increases, and their
voting rights would be suspended. Within one year of their purchase, any
Ordinary Shares reacquired by the Company in excess of such statutory
limitations must either be resold, which requires approval by the shareholders'
general meeting or cancelled and the stated capital reduced accordingly. Until
the shares are resold by the Company, a corresponding reserve equal to the
repurchase price must be created in the Company's balance sheet. Such reserve is
not available for distribution. In July 2000, the shareholders of the Company
approved a share repurchase program to buy-back up to 4 million shares or (euro)
51.6 million during a period of up to 18 months. The Company spent (euro) 23.2
million in 2000 and (euro) 14.6 million in 2001 to repurchase shares. The
Company repurchased 1,782,700 shares in 2000 at an average cost of US$ 11.3 per
share and 1,061,200 shares in 2001 at an average cost of US$ 12.3 per share. The
repurchase program expired. The Company is currently considering adopting a new
stock option plan, and if the new plan is adopted, it intends to use the
Ordinary Shares repurchased pursuant to the authorization described above to
satisfy the exercise of options under the new stock option plan. See " --
Employee Stock Option Plan".

Notification of the Acquisition of Shares

     In accordance with Italian antitrust laws, the Italian Antitrust Authority
is required to prohibit the acquisition of control in a company which would
thereby create or strengthen a dominant position in the domestic market or a
significant part thereof and which would result in the elimination or
substantial reduction, on a lasting basis, of competition, provided that certain
turnover thresholds are exceeded. However, if the turnover of the acquiring
party and the company to be acquired exceed certain other monetary thresholds,
the antitrust review of the acquisition falls within the exclusive jurisdiction
of the European Commission.

Minority Shareholders' Rights; Withdrawal Rights

     Any shareholder may, within three months, challenge any shareholders'
resolution on which he did not vote or in respect of which he dissented on the
basis that it was not adopted in conformity with applicable law or the By-laws
of the Company. Directors and statutory auditors may also challenge
shareholders' resolutions on this basis. Pursuant to the 2003 corporate law
reform, as of January 1, 2004 resolutions which are not adopted in conformity
with applicable law or the Company's By-laws may be challenged by absent,
dissenting or abstaining shareholders representing individually or in the
aggregate at least 5% of Company's share capital (as well as by our board of
directors or our board of statutory auditors). Shareholders not reaching this
threshold or shareholders not entitled to vote at Company's meetings may only
claim damages deriving from the resolution, unless otherwise provided by the
Company's By-laws.




                                       54
<PAGE>

     In case of resolutions approving, among other things, changes in purpose or
form of the Company, dissenting shareholders may require us to buy back their
shares at a price equal to the Company's net equity per share as resulting from
the Company's most recently approved yearly financial statements. Pursuant to
the 2003 corporate law reform, as of January 1, 2004 dissenting or absent
shareholders may require the Company to buy back their shares also in other
circumstances, including, among others, as a result of shareholders' resolutions
that approve material modifications of the voting rights relating to the
Company's shares, in each case as provided for in the Company's By-laws.
According to the reform, the buy-back would occur at a price established by
directors, upon consultation with the board of statutory auditors and the
Company's external auditor, having regard to the net assets value of the
company, its prospective earnings and the market value of its shares, if any.
The 2003 reform would permit the Company's By-laws to set forth different
criteria for the consideration to be paid to dissenting shareholders in such
buy-backs.

     Each shareholder may bring to the attention of the board of statutory
auditors facts or acts which are deemed wrongful. If such shareholders represent
more than 5% of the share capital of the Company, the board of statutory
auditors must investigate without delay and report its findings and
recommendations to the shareholders' meeting. Shareholders representing more
than 10% of the Company's share capital have the right to report major
irregularities to the relevant court.

Liability for Mismanagement of Subsidiaries

     Pursuant to the 2003 corporate law reform, companies and other entities
that, acting in their own interest or the interest of third parties, mismanage a
company subject to their management and coordination powers are liable to such
company's shareholders and creditors for ensuing damages. Said liability is
excluded if (i) the ensuing damage is fully eliminated, including through
subsequent transactions, or (ii) the damage is effectively offset by the global
benefits deriving in general to the company from the continuing exercise of such
management and coordination powers. Management and coordination powers are
presumed to exist, among other things, with respect to consolidated
subsidiaries.


                                Certain Contracts

     As of December 31, 2002, the Group entrusted approximately 25% of its
production needs (in particular assembly) to various subcontractors, all located
within a 20-mile radius of Santeramo. See Item 4, "Information on the Company --
Manufacturing" for a brief description of these arrangements.

                                Exchange Controls

     Currently, there are no Italian exchange controls that would affect the
payment of dividends or other remittances to holders of the ADSs or Ordinary
Shares who reside outside Italy. The Company is not aware of any plans by the
Italian Government to institute any exchange controls that would affect the
payment of dividends or other remittances to holders of ADSs or Ordinary Shares
who reside outside Italy. Neither Italian law nor the Company's By-laws limits
the right of non-resident or foreign owners to hold or vote the Ordinary Shares
or the ADSs.


                                       55
<PAGE>

     However, Italian resident and non-resident investors who transfer, directly
or indirectly (through banks or other intermediaries) into or out of Italy,
cash, investments or other securities in excess of (euro) 12,500.00 must report
all such transfers to the Italian Exchange Office ("Ufficio Italiano Cambi" or
"UIC"). In the case of indirect transfers, banks or other intermediaries are
required to maintain records of all such transfers for five years for inspection
by Italian tax and judicial authorities. Non-compliance with these reporting and
record-keeping requirements may result in administrative fines or, in the case
of false reporting or in certain cases of incomplete reporting, criminal
penalties. The UIC is required to maintain reports for a period of ten years and
may use such reports, directly or through other government offices, to police
money laundering, tax evasion and any other crime or violation.

     Individuals, non-profit entities and partnerships that are residents of
Italy must disclose on their annual tax returns all investments and financial
assets held outside Italy, as well as the total amount of transfers to, from,
within and between countries other than Italy relating to such foreign
investments or financial assets, even if at the end of the taxable period
foreign investments or financial assets are no longer owned. No such tax
disclosure is required if: (i) the foreign investments or financial assets are
exempt from income tax; or (ii) the total value of the foreign investments or
financial assets at the end of the taxable period or the total amount of the
transfers effected during the fiscal year does not exceed (euro) 12,500.00.
Corporate residents of Italy are exempt from these tax disclosure requirements
with respect to their annual tax returns because this information is required to
be discussed in their financial statements.

     The Company cannot assure you that the present regulatory environment in or
outside Italy will continue or that particular policies presently in effect will
be maintained, although Italy is required to maintain certain regulations and
policies by virtue of its membership of the European Union and other
international organizations and its adherence to various bilateral and
multilateral international agreements.

                                    Taxation

     The following is a summary of certain U.S. federal and Italian tax matters.
The summary is not a comprehensive description of all of the tax considerations
that may be relevant to a decision to purchase or hold Ordinary Shares or ADSs.
In particular, the summary deals only with beneficial owners who will hold
Ordinary Shares or ADSs as capital assets and does not address the tax treatment
of a beneficial owner who owns 10% or more of the voting shares of the Company.
The summary does not discuss the treatment of Ordinary Shares or ADSs that are
held in connection with a permanent establishment or fixed base through which a
non-resident beneficial owner carries on business or performs personal services
in Italy.

     The summary is based upon tax laws and practice of the United States and
Italy in effect on the date of this annual report, which are subject to change.
Investors and prospective investors in Ordinary Shares or ADSs should consult
their own advisors as to the U.S., Italian or other tax consequences of the
purchase, beneficial ownership and disposition of ADSs, including, in
particular, the effect of any state or local tax laws.

     For purposes of the summary, beneficial owners of ADSs who are considered
residents of the United States for purposes of the current income tax convention
between the United States and Italy (the "Income Tax Convention"), and are not
subject to an anti-treaty shopping provision that applies in limited
circumstances, are referred to as "U.S. owners". Beneficial owners who are
citizens or residents of the United States, corporations organized under U.S.
law, and U.S. partnerships, estates or trusts (to the extent their income is
subject to U.S. tax either directly or in the hands of partners or
beneficiaries) generally will be considered to be residents of the United States
under the Income Tax Convention. Special rules apply to U.S. owners who are also
residents of Italy. A new tax treaty to replace the current Income Tax
Convention was signed on August 25, 1999, but has not yet been ratified. The new
treaty would not change significantly the provisions of the Income Tax
Convention that are discussed below (except that it would clarify the
availability of benefits to certain tax-exempt organizations). These laws are
subject to change, possibly on a retroactive basis.


                                       56
<PAGE>

     For the purpose of the Income Tax Convention and the United States Internal
Revenue Code of 1986, beneficial owners of ADRs evidencing ADSs will be treated
as the beneficial owners of the Ordinary Shares represented by those ADSs.

Taxation of Dividends

     Italian Tax Considerations

     Italian laws provide for the withholding of income tax at a 27% rate on
dividends paid by Italian companies to shareholders who are not residents of
Italy for tax purposes. Italian laws provide a mechanism under which
non-resident shareholders can claim a refund of up to four-ninths of Italian
withholding taxes on dividend income by establishing to the Italian tax
authorities that the dividend income was subject to income tax in another
jurisdiction in an amount at least equal to the total refund claimed. U.S.
owners should consult their own tax advisers concerning the possible
availability of this refund, which traditionally has been payable only after
extensive delays. Alternatively, reduced rates (normally 15%) may apply to
non-resident shareholders who are entitled to, and comply with procedures for
claiming, benefits under an income tax convention.

     Under the Income Tax Convention, dividends derived and beneficially owned
by U.S. owners are subject to an Italian withholding tax at a reduced rate of
15%. However, the amount initially made available to the Depositary for payment
to U.S. owners will reflect withholding at the 27% rate. U.S. owners who comply
with the certification procedures described below may then claim an additional
payment of 12% of the dividend (representing the difference between the 27% rate
and the 15% rate, and referred to herein as a "treaty refund"). The
certification procedure will require U.S. owners (i) to obtain from the U.S.
Internal Revenue Service a form of certification required by the Italian tax
authorities with respect to each dividend payment (Form 6166), unless a
previously filed certification will be effective on the dividend payment date
(such certificates are effective until March 31 of the year following
submission), (ii) to produce a statement whereby the U.S. owner represents to be
a U.S. owner individual or corporation and does not maintain a permanent
establishment in Italy, and (iii) to set forth other required information. The
time for processing requests for certification by the Internal Revenue Service
normally is six to eight weeks. Accordingly, in order to be eligible for the
procedure described below, U.S. owners should begin the process of obtaining
certificates as soon as possible after receiving instructions from the
Depositary on how to claim a treaty refund.

     The Depositary's instructions will specify certain deadlines for delivering
to the Depositary the documentation required to obtain a treaty refund,
including the certification that the U.S. owners must obtain from the U.S.
Internal Revenue Service. In the case of ADSs held by U.S. owners through a
broker or other financial intermediary, the required documentation should be
delivered to such financial intermediary for transmission to the Depositary. In
all other cases, the U.S. owners should deliver the required documentation
directly to the Depositary. The Company and the Depositary have agreed that if
the required documentation is received by the Depositary on or within 30 days
after the dividend payment date and, in the reasonable judgment of the Company,
such documentation satisfies the requirements for a refund by the Company of
Italian withholding tax under the Convention and applicable law, the Company
will within 45 days thereafter pay the treaty refund to the Depositary for the
benefit of the U.S. owners entitled thereto.

     If the Depositary does not receive a U.S. owner's required documentation
within 30 days after the dividend payment date, such U.S. owner may for a short
grace period (specified in the Depositary's instructions) continue to claim a
treaty refund by delivering the required documentation (either through the U.S.
owner's financial intermediary or directly, as the case may be) to the
Depositary. However, after this grace period, the treaty refund must be claimed
directly from the Italian tax authorities rather than through the Depositary.
Expenses and extensive delays have been encountered by U.S. owners seeking
refunds from the Italian tax authorities.


                                       57
<PAGE>

     Distributions of profits in kind will be subject to withholding tax. In
that case, prior to receiving the distribution, the holder will be required to
provide the Company with the funds to pay the relevant withholding tax.
Distributions of additional shares to beneficial owners with respect to their
ADSs that are made as part of a pro rata distribution to all shareholders of the
Company generally will not be subject to Italian tax. However, such additional
shares will reduce the tax basis of each single share for the calculation of the
capital gains tax.

     United States Tax Considerations

     The gross amount of any dividends (that is, the amount before reduction for
Italian withholding tax) paid to a U.S. owner generally will be subject to U.S.
federal income taxation as foreign source dividend income and will not be
eligible for the dividends-received deduction allowed to domestic corporations.
Dividends paid in euro will be includable in the income of such U.S. owners in a
dollar amount calculated by reference to the exchange rate in effect on the day
the dividends are received by the Depositary or its agent. Subject to certain
exceptions for short-term and hedged positions, the U.S. dollar amount of
dividends received by an individual in respect of the Company's shares or ADSs
after December 31, 2002 and before January 1, 2009 is subject to taxation at a
maximum rate of 15%. U.S. owners should consult their own tax adviser regarding
the availability of the reduced dividend tax rate in light of their own
particular circumstances. If the euro are converted into dollars on the day the
Depositary or its agent receives them, U.S. owners generally should not be
required to recognize foreign currency gain or loss in respect of the dividend
income. U.S. owners who receive a treaty refund may be required to recognize
foreign currency gain or loss to the extent the amount of the treaty refund (in
dollars) received by the U.S. owner differs from the U.S. dollar equivalent of
the euro amount of the treaty refund on the date the dividends were received by
the Depositary or its agent. Italian withholding tax at the 15% rate will be
treated as a foreign income tax which U.S. owners may elect to deduct in
computing their taxable income or, subject to the limitations on foreign tax
credits generally, credit against their U.S. federal income tax liability.
Dividends will generally constitute foreign-source "passive income" or
"financial services income" for U.S. tax purposes.

     Distributions of additional shares to U.S. owners with respect to their
ADSs that are made as part of a pro rata distribution to all shareholders of the
Company generally will not be subject to U.S. federal income tax.

     A beneficial owner of Ordinary Shares or ADSs who is, with respect to the
United States, a foreign corporation or a nonresident alien individual generally
will not be subject to U.S. federal income tax on dividends received on Ordinary
Shares or ADSs, unless such income is effectively connected with the conduct by
the beneficial owner of a trade or business in the United States.

Taxation of Capital Gains

     Italian Tax Considerations

     Italian capital gains tax ("CGT") normally is imposed on gains realized by
non-resident holders upon the transfer or sale of shares whether held within or
outside Italy. More specifically, a 27% CGT will be levied on gains realized on
the disposal of a "qualified" shareholding. A "qualified" shareholding is
constituted by Ordinary Shares or ADSs and/or rights representing more than five
percent of a listed company's total share capital or more than two percent of
its share capital voting in the ordinary shareholders' meeting. However, under
domestic law, an exemption applies to gains realized on the disposal of
"non-qualified" shareholdings in an Italian company the shares of which are
listed on a regulated market, such as Natuzzi, even when such shareholdings are
held in Italy. A "non-qualified" shareholding is constituted by an interest in
Natuzzi which does not reach the thresholds described above.


                                       58
<PAGE>

     Furthermore, pursuant to the Income Tax Convention, a U.S. owner will not
be subject to Italian CGT unless such U.S. owner has a permanent establishment
or fixed base in Italy to which Ordinary Shares or ADSs are effectively
connected. To this end, U.S. residents selling Ordinary Shares or ADSs and
claiming benefits under the Income Tax Convention may be required to produce
appropriate documentation establishing that the above-mentioned conditions have
been met. Other countries have executed income tax conventions with Italy
providing for similar treatment of Italian CGT. No CGT will be imposed on the
deposit or withdrawal of shares in return for ADSs.

     United States Tax Considerations

     Gain or loss realized by a U.S. owner on the sale or other disposition of
Ordinary Shares or ADSs will be subject to U.S. federal income taxation as
capital gain or loss in an amount equal to the difference between the U.S.
owner's basis in the Ordinary Shares or the ADSs and the amount realized on the
disposition (or its dollar equivalent, determined at the spot rate on the date
of disposition, if the amount realized is denominated in a foreign currency).
Such gain or loss will generally be long-term capital gain or loss if the U.S.
owner holds the Ordinary Shares or ADSs for more than one year. The net amount
of long-term capital gain recognized by a U.S. owner that is an individual
holder after May 5, 2003 and before January 1, 2009 generally is subject to
taxation at a maximum rate of 15%. The net long-term capital gain recognized by
a U.S. owner that is an individual holder before May 6, 2003 generally is
subject to taxation at a maximum rate of 20%. Deposits and withdrawals of
Ordinary Shares by U.S. owners in exchange for ADSs will not result in the
realization of gain or loss for U.S. federal income tax purposes.

     A beneficial owner of Ordinary Shares or ADSs who is, with respect to the
United States, a foreign corporation or a nonresident alien individual will not
be subject to U.S. federal income tax on gain realized on the sale of Ordinary
Shares or ADSs, unless (i) such gain is effectively connected with the conduct
by the beneficial owner of a trade or business in the United States or (ii), in
the case of gain realized by an individual beneficial owner, the beneficial
owner is present in the United States for 183 days or more in the taxable year
of the sale and certain other conditions are met.

Other Italian Taxes

     Estate and Gift Tax. As of October 25, 2001, the Italian estate and gift
tax has been abolished and consequently any transfer of shares or ADSs occurring
by reason of death or gift as of that date is no longer subject to any Italian
estate and gift tax.

     However, should a gift of ordinary shares or ADSs for a value exceeding
(euro) 180,759.91 (the "Threshold") occur and the relationship between the donor
and the beneficiary not qualify for the exemption regime applicable to gifts
made in favor of certain family members (e.g., spouse, parents, children,
grandchildren), a registration tax of (euro) 129.11 would be due insofar as the
gift agreement is either executed or registered in Italy. The materiality
threshold is increased to (euro) 516,456.91 in case the beneficiary is either
underage (i.e., younger than 18) or a person with a handicap recognized pursuant
to applicable law.

     Transfer Tax. An Italian transfer tax is normally payable on the transfer
of shares in an Italian company, unless (i) the contract is concluded on a
regulated market, or (ii) the shares are transferred to or from a non-Italian
resident, on the one hand, and banks or other investment services companies, on
the other hand. As a result, the transfer tax concluded either on a regulated
market or with the intervention of a bank or an investment service company will
not be payable with respect to any transfers of Ordinary Shares or ADSs
involving non-Italian residents.


                                       59
<PAGE>


                              Documents on Display

     The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934 applicable to foreign private issuers. In
accordance therewith, Natuzzi is required to file reports, including annual
reports on Form 20-F, and other information with the U.S. Securities and
Exchange Commission. These materials, including this annual report on Form 20-F,
are available for inspection and copying at the SEC's Public Reference Room at
450 Fifth Street N.W., Washington, D.C. 20549 and at the SEC's regional offices
at 175 West Jackson Boulevard, Suite 500, Chicago, Illinois 60604, and 233
Broadway, New York, New York 10279. Please call the Commission at 1-800-SEC-0330
for further information on the public reference rooms. The Form 20-F and reports
and other information filed by the Company with the Commission will also be
available for inspection by ADS holders at the Corporate Trust Office of The
Bank of New York at 101 Barclay Street, New York, New York 10286.













                                       60
<PAGE>

Item 11.  Quantitative and Qualitative Disclosures About Market Risk

     The following discussion of the Group's risk management activities include
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward looking
statements. See Item 3, "Key Information -- Forward Looking Information".

Market Risks

     The Group is exposed to market risk principally from fluctuations in the
exchange rates between the euro and other currencies, including in particular
the U.S. dollar. In 2002, a significant portion of the Group's net sales, but
only approximately 30% of its costs, was denominated in currencies other than
the euro. As a result, a continuing decline in the value of such other
currencies against the euro could have an adverse effect on the Group's results
of operations.

Exchange Rate Risks

     The measures adopted by the Company to mitigate its foreign currency
exchange rate risk have evolved over time. In 1992, the Group used foreign
currency sales contracts settled on a net basis in lire (such contracts are
known in the Italian financial markets as "domestic currency swaps") in order to
reduce its exposure to the risks of short-term declines in the value of its
foreign currency denominated revenues. In addition to domestic currency swaps,
from 1993 to 1995, the Group used foreign currency put options to reduce such
exposure. Under these strategies, the Group from time to time entered into
domestic currency swaps and put options with varying expiration dates (in most
cases not exceeding twelve months from the date of entry into such contracts).
The Group entered into such domestic currency swaps and option contracts solely
to protect the value of its foreign currency denominated revenues, not for
speculative purposes.

     Excluding currencies of member states of the European Union that are
participating in the third stage of EMU, the Group's foreign exchange rate risks
in 2002 arose principally in connection with U.S. dollars, British pounds,
Canadian dollars, Australian dollars, Swiss francs and Japanese yen.

     As at December 31, 2002 and 2001, the Group had outstanding trade
receivables denominated in foreign currencies totaling (euro) 78.0 million and
(euro) 80.8 million (where applicable, translated at the exchange rate of the
related domestic currency swaps), respectively, of which 76.0% and 77.9%,
respectively, were denominated in U.S. dollars. On those same dates, the Group
had (euro) 26.1 million and (euro) 20.4 million, respectively, of trade payables
denominated in foreign currencies, principally U.S. dollars. See Notes 6 and 12
to the Consolidated Financial Statements included in Item 18 of this annual
report.

     As at December 31, 2002, the Company was a party to a number of domestic
currency swap contracts designed to hedge future sales denominated in U.S.
dollars and other currencies. At such date, the contractual amounts of such
domestic currency swaps aggregated (euro) 169.9 million (compared to (euro)
171.7 million at December 31, 2001), consisting of domestic currency swap
contracts for U.S. $ 114.2 million, Canadian $ 22.5 million, Swiss francs 4.1
million, Australian $ 17.0 million, Japanese yen 320.0 million and U.K. pounds
sterling 14.5 million. Such contracts had various maturities extending through
December 2003. See Note 24 to the Consolidated Financial Statements included in
Item 18 of this annual report.

     The table below summarizes in thousands of euro equivalent the contractual
amounts of domestic currency swap contracts designed to hedge future cash flows
from accounts receivable and sales orders at December 31, 2002 and 2001:

                                       61
<PAGE>

<TABLE>
<CAPTION>

Sales                                                        2002              2001
-----                                                 ----------------- ------------------
<S>                                                       <C>               <C>
U.S. dollars.....................................          117,050            121,811
British pounds...................................           22,650            19,267
Canadian dollars.................................           14,937            17,869
Australian dollars...............................           9,579              6,714
Japanese yen.....................................           2,863              3,644
Swiss francs.....................................           2,844              2,416

Total............................................          169,923            171,721
                                                       ----------------- ------------------
</TABLE>


     At December 31, 2002, these forward exchange contracts had a net unrealized
gain of (euro) 14.3 million, of which (euro) 9.3 million related to accounts
receivable, (euro) 3.0 million related to existing sales commitments and (euro)
2.0 million related to anticipated commitments at year end. The Company recorded
these amounts within other income (expense), net in its Consolidated Financial
Statements, except for the (euro) 3.0 million related to existing sales
commitments that were deferred.

     As at December 31, 2001, these forward exchange contracts had a net
unrealized loss of (euro) 1.6 million, of which (euro) 0.4 million related to
accounts receivable, (euro) 0.3 million related to existing sales commitments
and (euro) 0.9 million related to anticipated commitments at year-end. The
Company recorded all these amounts within other income (expense), net in its
Consolidated Financial Statements, except for the (euro) 0.3 million relating to
existing sales commitments that were deferred.

     The following table presents information regarding the contract amount in
thousands of euro equivalent and the estimated fair value of all of the Group's
forward exchange contracts. Contracts with unrealized gains are presented as
"assets" and contracts with unrealized losses are presented as "liabilities".
<TABLE>
<CAPTION>

                                         2002                                      2001
                          -----------------------------------    -----------------------------------------
                            Contract              Fair                Contract                Fair
                             Amount              Value                 Amount                 Value
                          --------------    -----------------    -------------------    ------------------
<S>                         <C>                   <C>                  <C>                     <C>
Assets..............         156,983             14,880                66,771                 1,450
Liabilities ........         12,940              (588)                104,950                (3,009)
Total................        169,923             14,292               171,721                (1,559)
                             =======             ======               =======                 =====
</TABLE>

     The Group's domestic currency swap contracts as at December 31, 2002 had
maturities of less than 12 months. The average contractual exchange rates for
the domestic currency swap contracts involving the sale of U.S. dollars, British
pounds and Australian dollars were (euro) 0.9192, (euro) 0.6402 and (euro)
1.7748, respectively. The potential loss in fair value of the Group's domestic
currency swap contracts at December 31, 2002 that would have resulted from a
hypothetical, instantaneous and unfavorable 10% change in currency exchange
rates would have been approximately (euro) 2.6 million. This sensitivity
analysis assumes an instantaneous unfavorable 10% fluctuation in exchange rates
affecting the foreign currencies of the Group's domestic currency swap contracts
other than currencies that have been replaced by the euro.

     For the accounting of transactions entered into in an effort to reduce the
Group's exchange rate risks, see Notes 3, 24 and 25 to the Consolidated
Financial Statements included in Item 18 of this annual report.


                                       62
<PAGE>

Interest Rate Risks

     To a significantly lesser extent, the Group is also exposed to interest
rate risk. At December 31, 2002, the Group had (euro) 5.2 million (representing
0.8% of the Group's total assets as of that date) in debt outstanding
(short-term borrowings and long-term debt, including the current portion of such
debt). Of the Group's outstanding debt as of December 31, 2002 approximately
30.8% was due within a year. See Notes 11 and 16 to the Consolidated Financial
Statements included in Item 18 of this annual report.

     In the normal course of business, the Group also faces risks that are
either non-financial or non-quantifiable. Such risks principally include country
risk, credit risk and legal risk.




                                       63
<PAGE>





Item 12.  Description of Securities Other than Equity Securities

          Not applicable.

                                     PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies

          None.

Item 14.  Material Modifications to the Rights of Security Holders and Use of
          Proceeds

          None.

Item 15.  Controls and Procedures

     Within the 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and the General
Manager, who acts as the Company's principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. There are inherent limitations to the effectiveness of any
system of disclosure controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives. Based upon and as of
the date of the Company's evaluation, the Chief Executive Officer and General
Manager concluded that the disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed in the
reports the Company files and submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported as and when required. There were
no significant changes in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.




Item 16.  [Reserved]

                                    PART III

Item 17.  Financial Statements

          Not applicable.

Item 18.  Financial Statements

          See pages F-1 through F-39, incorporated herein by reference.



                                       64
<PAGE>

<TABLE>
<CAPTION>


                  Index to Consolidated Financial Statements

                                                                                                       Page
<S>                                                                                                  <C>
Independent Auditors' Report................................................................           F-1
Consolidated Balance Sheets as of December 31, 2002 and 2001................................           F-2
Consolidated Statements of Earnings for the Years Ended December 31, 2002, 2001 and 2000....           F-3
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31,
2002, 2001 and 2000.........................................................................           F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000..           F-5
Notes to the Consolidated Financial Statements..............................................           F-7

</TABLE>




                                       65
<PAGE>



Item 19.  Exhibits

1.1  English translation of the by-laws (Statuto) of the Company, as amended and
     restated as of July 15, 2002.

2.1  Deposit Agreement dated as of May 15, 1993, as amended and restated as of
     December 31, 2001, among the Company, The Bank of New York, as Depositary,
     and owners and beneficial owners of ADRs (incorporated by reference to the
     Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange
     Commission on July 1, 2002, file number 1-11854).

8.1  List of Significant Subsidiaries.

99.1 Certifications pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
     906 of the Sarbanes-Oxley Act of 2002.



                                       66
<PAGE>


Independent Auditors' Report


To the Board of Directors
NATUZZI S.p.A.


We have audited the accompanying consolidated balance sheets of Natuzzi S.p.A.
and subsidiaries (the `Natuzzi Group') as of December 31, 2002 and 2001, and the
related consolidated statements of earnings, changes in shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2002. These consolidated financial statements are the responsibility of the
Natuzzi Group's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the Republic of Italy and in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Natuzzi Group as
of December 31, 2002 and 2001 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2002, in
conformity with established accounting principles in the Republic of Italy.

Established accounting principles in the Republic of Italy vary in certain
significant respects from generally accepted accounting principles in the United
States of America. Application of generally accepted accounting principles in
the United States of America would have affected results of operations for each
of the years in the three-year period ended December 31, 2002 and shareholders'
equity as of December 31, 2002 and 2001 to the extent summarized in Note 26 to
the consolidated financial statements.



KPMG S.p.A.
Bari, Italy
March 24, 2003



                                      F-1
<PAGE>

<TABLE>
<CAPTION>

                         Natuzzi S.p.A. and Subsidiaries
                           Consolidated Balance Sheets
                           December 31, 2002 and 2001
          (Expressed in euro thousands, except as otherwise indicated)

                                                          December 31, 2002     December 31, 2001
                                                          ------------------    -----------------
<S>                                                            <C>                   <C>
ASSETS
Current Assets:
    Cash and cash equivalents (note 4)                           96,695               208,200
    Marketable debt securities (note 5)                              26                    27
    Trade receivables, net  (note 6)                            158,398               138,208
    Other receivables (note 7)                                   58,337                54,629
    Inventories (note 8)                                         84,081                87,895
    Unrealized  foreign exchange gains (note 24)                  2,021                     -
    Prepaid expenses and accrued income                           1,240                   918
    Deferred income taxes (note 14)                               1,822                 2,018
                                                    -------------------     ------------------

              Total current assets                              402,620               491,895
                                                     -------------------   -------------------
Non current assets:
    Property plant and equipment (note 9 and 21)                310,253               250,746
    Less accumulated depreciation (note 9 and 21)              (81,361)              (67,633)
                                                     -------------------   -------------------
        Net property, plant and equipment                       228,892               183,113
    Treasury shares (note 19)                                    37,828                37,828
    Other assets (note 10)                                        5,052                 3,889
    Deferred income taxes (note 14)                                  93                    43
                                                     -------------------   -------------------
            Total assets                                        674,485               716,768
                                                     ===================   ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Short-term borrowings (note 11)                                 162               134,477
    Current portion of long-term debt (note 16)                   1,437                 1,007
    Accounts payable-trade (note 12)                             87,551                82,278
    Accounts payable-other (note 13)                             15,658                14,634
    Allowance for unrealized  foreign exchange
    losses (note 24)                                                  -                   902
    Income taxes (note 14)                                        9,195                 5,632
    Salaries, wages and related liabilities (note 15)            14,708                13,594
                                                     -------------------   -------------------
            Total current liabilities                           128,711               252,524
                                                     -------------------   -------------------
Long-term liabilities:
    Employees' termination indemnity (note 3 (n) )               25,577                22,267
    Long-term debt (note 16)                                      3,574                 3,259
    Deferred income taxes (note 14)                                 371                   116
    Deferred income for capital grants (note 3 (m))              14,229                 3,993
    Other liabilities                                             5,716                 4,692
Minority interest (note 17)                                         499                 1,455
Shareholders' equity (note 19) :
    Share capital                                                57,526                57,526
    Reserves                                                     73,071                70,357
    Additional paid-in capital                                    8,282                 8,282
    Retained earnings                                           356,929               292,297
                                                     -------------------   -------------------
            Total shareholders' equity                          495,808               428,462
                                                     -------------------   -------------------

Commitments and contingent liabilities (notes 20 and 24)              -                     -

       Total liabilities and shareholders' equity               674,485               716,768
                                                     ===================   ===================

                        See accompanying notes to consolidated financial statements

</TABLE>


                                     F-2
<PAGE>

                         Natuzzi S.p.A. and Subsidiaries
                       Consolidated Statements of Earnings
                  Years ended December 31, 2002, 2001, and 2000
              (Expressed in euro thousands except per share data)
<TABLE>
<CAPTION>

                                                     2002                 2001               2000
                                              -----------------    ----------------   -----------------
<S>                                                     <C>               <C>                 <C>
Net sales (note 21)                                    805,143             786,148             688,480
Cost of sales (note 22)                               (517,423)           (520,089)           (426,295)
                                              -----------------    ----------------   -----------------
    Gross profit                                       287,720             266,059             262,185
Selling expenses                                      (145,378)           (134,840)           (108,981)
General and administrative expenses                    (40,532)            (33,456)            (26,672)
                                              -----------------    ----------------   -----------------
    Operating income                                   101,810              97,763             126,532
Other income (expense), net (note 23)                   14,551                (225)            (21,847)
                                              -----------------    ----------------   -----------------
     Earnings before taxes and minority                116,361              97,538             104,685
     interest
Income taxes (note 14)                                 (24,997)            (21,901)            (25,484)
                                              -----------------    ----------------   -----------------
Earnings before minority interest                       91,364              75,637              79,201
Minority interest                                           74                  20                 (46)
                                              -----------------    ----------------   -----------------
    Net earnings                                        91,438              75,657              79,155
Basic and diluted
   earnings per share (note 3(u))                         1.67                1.37                1.39
                                              =================    ================   =================

                                See accompanying notes to consolidated financial statements
</TABLE>


                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                         Natuzzi S.p.A. and Subsidiaries
           Consolidated Statements of Changes in Shareholders' Equity
                  Years ended December 31, 2002, 2001 and 2000
         (Expressed in euro thousands except number of ordinary shares)

                                    Share capital
                                -----------------------
                                   Number of                                     Additional
                                   Ordinary                                      paid-in         Retained
                                   shares       Amount               Reserves    capital         earnings             Total
                                --------------  -------              --------    ---------   --------------     -------------
<S>                              <C>            <C>                    <C>            <C>           <C>                <C>
Balances at December 31, 1999      57,468,888    3,710                 32,035        7,975          334,416           378,136
Dividends distributed                       -        -                      -            -          (93,967)          (93,967)
Exercise of stock options              56,640        4                      -          307                -               311
Exchange difference on
translation
      of financial statements               -        -                      -            -            2,210             2,210
Treasury stocks acquired (note
19)                               (1,782,700)        -                 23,234            -         (23,234)                 -
Grants received net of taxes                -        -                    330            -                -               330
Revaluation of fixed assets net
of taxes                                    -        -                    277            -                -               277
Net earnings                                -        -                      -            -           79,155            79,155
Balances at December 31, 2000      55,742,828    3,714                 55,876        8,282          298,580           366,452
                                ==============  =======       ================  ===========   ==============     =============

Dividends distributed                       -        -                      -            -         (15,894)          (15,894)
Exchange difference on
translation
      of financial statements               -        -                      -            -            2,247             2,247
Treasury shares acquired (note
19)                                (1,061,200)       -                 14,594            -         (14,594)                 -
Increase of
 share capital (note 19)                    -   53,812                      -            -         (53,812)                 -

Other transfers                             -        -                   (113)           -              113                 -
Net earnings                                -        -                      -            -           75,657            75,657
Balances at December 31, 2001      54,681,628   57,526                 70,357        8,282          292,297           428,462
                                ==============  =======       ================  ===========   ==============     =============
Dividends distributed                       -        -                      -            -         (15,705)           (15,705)
Exchange difference on
translation
      of financial statements               -        -                      -            -          (8,387)            (8,387)
Transfer to legal reserve                   -        -                  2,714            -          (2,714)                 -
Net earnings                                -        -                      -            -           91,438            91,438
                                --------------  -------       ----------------  -----------   --------------     -------------
Balances at December 31, 2002      54,681,628   57,526                 73,071        8,282          356,929           495,808
                                ==============  =======       ================  ===========   ==============     =============

                See accompanying notes to consolidated financial statements

</TABLE>



                                      F-4
<PAGE>

<TABLE>
<CAPTION>
                         Natuzzi S.p.A. and Subsidiaries
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2002, 2001 and 2000
          (Expressed in euro thousands, except as otherwise indicated)

                                                              2002            2001            2000
                                                       --------------- --------------- ---------------
<S>                                                             <C>             <C>            <C>
Cash flows from operating activities:
  Net earnings                                                 91,438          75,657          79,155

  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Depreciation and amortization                              16,867          13,292          10,378
    Employees' termination indemnity                            7,091           6,293           5,357
    Deferred income taxes                                         401           (310)           1,452
    Minority interest                                            (38)            (20)              46
    (Gain) loss on disposal of assets                              30           (101)           (123)
    Change in provision for unrealized foreign
     exchange losses and gains                                (2,923)           3,003         (3,416)

  Change in assets and liabilities:
   Receivables, net                                          (23,898)        (11,538)        (23,561)
   Inventories                                                  3,814        (14,252)        (20,342)
   Prepaid expenses and accrued income                          (322)           (632)              77
   Other assets                                               (2,524)         (1,373)         (1,478)
   Accounts payable                                             5,565             893          25,284
   Income taxes                                                 3,563           1,837           2,363
   Salaries, wages and related liabilities                      1,114           2,423           2,519
   Deferred income for capital grants                             194           3,993               -
   Other liabilities                                            1,024             443           1,243
   Employees' termination indemnity                           (3,781)         (3,878)         (2,866)
                                                       --------------- --------------- ---------------
     Net cash provided by operating activities                 97,615          75,730          76,088
                                                       --------------- --------------- ---------------

Cash flows from investing activities:
 Property, plant and equipment:
   Additions                                                  (68,653)        (69,146)        (27,847)
   Disposals                                                      242             558             443
  Government grants received                                   10,042             396             379
  Marketable debt securities:
   Purchases                                                        -             (1)             (1)
   Proceeds from sales                                              1               -               -
  Purchase of business, net of cash acquired                        -            (60)           (572)
  Purchase of minority interest                                 (123)            (33)            (71)
                                                       --------------- --------------- ---------------
</TABLE>

                                      F-5
<PAGE>
<TABLE>
<CAPTION>

      <S>                                                     <C>            <C>             <C>
     Net cash used in investing activities                   (58,491)        (68,286)        (27,669)
                                                       --------------- --------------- ---------------

Cash flows from financing activities:
  Long-term debt:
     Proceeds                                                   2,166           4,022               -
     Repayments                                               (1,421)           (333)           (618)
  Short-term borrowings                                     (134,315)         131,769           2,223
  Exercise of stock options                                         -               -             311
  Treasury shares                                                   -        (14,594)        (23,234)
  Dividends paid                                             (15,705)        (15,894)        (93,967)
  Capital contribution of minority interest                         -             576               -
                                                       --------------- --------------- ---------------

    Net cash provided by (used in) financing
    activities                                              (149,275)         105,546       (115,285)
                                                       --------------- --------------- ---------------

   Effect of translation adjustments on cash                  (1,354)             609             (2)
                                                       --------------- --------------- ---------------

   Increase (decrease) in cash and cash
   equivalents                                              (111,505)         113,599        (66,868)

   Cash and cash equivalents, beginning of the
   year                                                       208,200          94,601         161,469
                                                       --------------- --------------- ---------------

   Cash and cash equivalents, end of the year                  96,695         208,200          94,601
                                                       =============== =============== ===============

Supplemental disclosure of cash flow information:

  Cash paid during the year for interest                        3,588           3,199             211
                                                       =============== =============== ===============

  Cash paid during the year for income taxes                   20,188          24,343          18,302
                                                       =============== =============== ===============

                        See accompanying notes to consolidated financial statements

</TABLE>

                                      F-6
<PAGE>



Natuzzi S.p.A. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in euro thousands except as otherwise indicated)



1.   Description of business and Group composition
     The consolidated financial statements include the accounts of Natuzzi
     S.p.A. (`Natuzzi' or the `Company') and of its subsidiaries (together with
     the Company, the `Group'). The Group's primary activity is the design,
     manufacture and marketing of contemporary and traditional leather- and
     fabric-upholstered furniture.

     The subsidiaries included in the consolidation at December 31, 2002,
     together with the related percentages of ownership, are as follows:

<TABLE>
<CAPTION>

                                                      Percent of             Registered
           Name                                       ownership              office                Activity
           ----                                       -----------            ------------          --------
           <S>                                           <C>                 <C>                     <C>
           Divani e Poltrone Italia S.r.l.               100.00                Bari, Italy            (1)
           Soft Cover S.r.l.                             100.00                Bari, Italy            (1)
           Spagnesi International S.r.l.                 100.00                Bari, Italy            (1)
           Spagnesi S.p.A.                                99.95            Quarrata, Italy            (1)
           Creazioni Ellelle S.p.A.                      100.00            Altamura, Italy            (1)
           Style and Comfort S.r.l.                      100.00                Bari, Italy            (1)
           Expan Italia S.r.l.                           100.00                Bari, Italy            (1)
           Italsofa Bahia Ltd.                            97.99              Bahia, Brazil            (1)
           Italsofa Shanghai Co. Ltd.                    100.00            Shanghai, China            (1)
           Italsofa Romania S.r.l.                       100.00         Baia Mare, Romania            (1)
           Natco S.p.A.                                   99.99                Bari, Italy            (2)
           I.M.P.E. S.p.A.                                90.83             Qualiano,Italy            (3)
           Natuzzi Americas, Inc.                        100.00        High Point, NC, USA            (4)
           Natuzzi Asia Ltd.                             100.00           Hong-Kong, China            (4)
           Natuzzi Iberica S.A.                          100.00              Madrid, Spain            (4)
           Natuzzi (Switzerland) AG/SA                    80.00     Kaltbrunn, Switzerland            (4)
           Natuzzi Nordic                                100.00        Copenhagen, Denmark            (4)
           Nagest S.r.l.                                 100.00                Bari, Italy            (5)
           Softaly S.r.l.                                100.00                Bari, Italy            (6)
           Natuzzi Netherlands Holding                   100.00         Amsterdam, Holland            (7)
           Natuzzi Trade Service S.r.l.                  100.00                Bari, Italy            (8)
           Italsofa Hong-Kong Ltd.                       100.00           Hong-Kong, China            (9)
           D.L.S. S.r.l.                                 100.00                Bari, Italy            (9)
           Natuzzi Argentina                              99.00   Buenos Aires , Argentina            (9)
           Finat Ltd.                                    100.00            Dublin, Ireland            (9)
           Natex S.r.l.                                  100.00                Bari, Italy            (9)
</TABLE>

           (1)    Manufacture and distribution
           (2)    Intragroup leather dyeing and finishing
           (3)    Production and distribution of polyurethane foam
           (4)    Distribution
           (5)    Intragroup accounting services
           (6)    Intragroup building management
           (7)    Investment holding
           (8)    Transportation services
           (9)    In liquidation


                                      F-7
<PAGE>


           During 2002, the Company set up a subsidiary in Denmark which will be
           engaged in the distribution of the Company's products in the
           Scandinavian countries.

           During 2002, the Company acquired part of minority interest (20%) of
           Natuzzi (Switzerland) AG/SA for a consideration of 123 in cash.
           Goodwill arising from that acquisition amounted to 97.

           During 2001, the Company acquired all the minority interest of Divani
           e Poltrone Italia S.r.l. (0.02%) and Expan S.r.l. (1%) for a
           consideration of 33 in cash.

           During 2001, the Company acquired 100% of Natuzzi Iberica S.A. and
           60% of Natuzzi (Switzerland) AG/SA, for cash consideration of 60. The
           acquisition was accounted for using the purchase method. The
           acquisition resulted in a goodwill of 431, which represents the
           excess of purchase price over fair value of net assets. The fair
           value of assets acquired and liabilities assumed were as follows:
<TABLE>
<CAPTION>

          <S>                                                                                        <C>
           Current assets                                                                           756
           Non current assets, other than goodwill                                                  784
           Goodwill                                                                                 431
           Current liabilities                                                                   (1,908)
           Non current liabilities                                                                   (3)
                                                                                             -----------
           Cash paid                                                                                 60
                                                                                             ==========
</TABLE>

           No pro forma information is presented as revenues and net income for
           the prior period are immaterial.

           In 2001 and 2000 the Company incorporated subsidiaries in Romania,
           Brazil and China. At December 31, 2002 these subsidiaries are engaged
           in the production of leather-upholstered furniture labelled
           "Italsofa".

           In March 2000, the Company acquired 100% of a leather- and
           fabric-upholstered furniture manufacturing business, Style and
           Comfort S.r.l., for cash consideration of 572. The acquisition
           resulted in a goodwill of 578, which represents the excess of
           purchase price over fair value of net assets.

           In addition, during 2000, the Company acquired the remaining interest
           of 1% in Creazioni Elleelle S.p.A. for a consideration of 71 in cash.

2.         Basis of preparation and principles of consolidation
           The financial statements utilized for the consolidation are the
           statutory financial statements of each Group company at December 31,
           2002, 2001 and 2000. The 2001 and 2000 financial statements have been
           approved by the respective shareholders of the relevant companies.
           The 2002 financial statements have been approved only by the
           directors of the relevant companies.


                                      F-8
<PAGE>

           The financial statements of subsidiaries are adjusted, where
           necessary, to conform to Natuzzi's accounting principles, which are
           consistent with Italian legal requirements governing financial
           statements considered in conjunction with established accounting
           principles promulgated by the Italian Accounting Profession and, in
           their absence, by the International Accounting Standards Board (IASB,
           formerly IASC). The consolidated financial statements are classified
           in accordance with the presentations generally used in international
           practice.

           Established accounting principles in the Republic of Italy vary in
           certain significant respects from generally accepted accounting
           principles in the United States of America. Application of generally
           accepted accounting principles in the United States of America would
           have affected results of operations for each of the years in the
           three-year period ended December 31, 2002 and shareholders' equity as
           of December 31, 2002 and 2001 to the extent summarized in note 26 to
           the consolidated financial statements.

           The consolidated financial statements include all affiliates and
           companies that Natuzzi directly or indirectly controls, either
           through majority ownership or otherwise. Control is presumed to exist
           where more than one-half of a subsidiary's voting power is controlled
           by the Company or the Company is able to govern the financial and
           operating policies of a subsidiary or control the removal or
           appointment of a majority of a subsidiary's board of directors. Where
           an entity either began or ceased to be controlled during the year,
           the results of operations are included only from the date control
           commenced or up to the date control ceased.

           The assets and liabilities of subsidiaries are consolidated on a
           line-by-line basis and the carrying value of intercompany investments
           held is eliminated against the related shareholder's equity accounts.
           The minority interests of consolidated subsidiaries are separately
           classified in the consolidated balance sheets and statements of
           earnings. All intercompany balances and transactions have been
           eliminated in consolidation.

           On January 1, 2002, the Company adopted the euro as its reporting
           currency and therefore the accompanying consolidated balance sheet as
           of December 31, 2002, consolidated statement of earnings,
           consolidated statements of changes in shareholders' equity and
           consolidated statement of cash flows for the year ended December 31,
           2002 are presented in euro. All consolidated financial statements for
           each period presented prior to January 1, 2002 have been restated
           into euro using the official lira-euro exchange rate fixed as of
           January 1, 1999 (euro 1 is equal to lire 1,936.27). Due to the fixed
           lira-euro exchange rate, Company's restated consolidated financial
           statements will depict the same trends as would have been presented
           if it had continued to present its consolidated financial statements
           in Italian lire. Natuzzi consolidated financial statements, however,
           will not be comparable to the euro consolidated financial statements
           of other companies that previously reported their financial
           statements in a currency other than lira because of currency
           fluctuations between lira and other currency.


                                       F-9
<PAGE>

3.   Summary of established accounting policies

     The established accounting policies followed in the preparation of the
     consolidated financial statements are outlined below.

a)   Foreign currency transactions

     Foreign currency transactions are recorded at the exchange rates applicable
     at the transaction dates. Assets and liabilities denominated in foreign
     currency are remeasured at year-end exchange rates, except for certain
     accounts receivable as discussed below. Foreign exchange gains and losses
     resulting from the remeasurement of these assets and liabilities are
     included in other income (expense), net, in the consolidated statements of
     earnings.

     Receivables being hedged by forward exchange contracts are remeasured using
     the related forward exchange rate. Foreign exchange gains and losses
     resulting from the remeasurement of hedged receivables are recognized in
     other income (expense), net, in the consolidated statements of earnings.

     In the consolidated financial statements receivables and payables
     denominated in currencies of member states of the European Union
     participating to European Monetary Union are not considered foreign.

b)   Forward exchange contracts
     The Group enters into forward exchange contracts (known in Italian
     financial markets as domestic currency swaps) to manage its exposure to
     foreign currency risks. The accounting for forward exchange contracts
     depends on their use as follows:

           |X|  Forward exchange contracts used to hedge accounts receivable are
                considered when remeasuring the related balance sheet item at
                the contract rate. Foreign exchange gains and losses from the
                remeasurement of the accounts receivable at contract rate are
                recorded within other income (expense), net, in the consolidated
                statements of earnings.

           |X|  Forward exchange contracts are used to hedge future sales if the
                sales are supported by sales orders and customer's indications
                of future purchases as of the balance sheet date which are
                confirmed by sales orders received within the earlier of four
                months after the year-end or the issuance of the consolidated
                financial statements. Unrealized gains and losses on these
                forward contracts are deferred.

           |X|  Unrealized gains and losses on forward exchange contracts not
                hedging any on-or off-balance sheet items are recorded in other
                income (expense), net, in the consolidated statements of
                earnings.

c)   Financial statements of foreign operations
     The Group's foreign subsidiaries are considered an integral part of the
     Company due to various factors including significant intercompany
     transactions, financing, and cash flow indicators. Therefore, the
     functional currency for these foreign subsidiaries is the functional
     currency of the parent, namely euro. As a result all monetary assets and
     liabilities are remeasured, at the end of each reporting period, using euro
     and the resulting gain or loss is recognized in the consolidated statements
     of earnings. For all non monetary assets and liabilities, share capital and
     retained earnings historical exchange rates are used. The average exchange
     rates during the year is used for revenues and expenses, except for those
     revenues and expenses related to assets and liabilities translated at
     historical exchange rates.


                                       F-10
<PAGE>

d)   Cash and cash equivalents

     The Company classifies as cash and cash equivalents cash on hand, amounts
     on deposit and on account in banks and cash invested temporarily in various
     instruments with maturities of three months or less at time of purchase.

e)   Marketable debt securities
     Marketable debt securities are valued at the lower of cost or market value
     determined on an individual security basis. A valuation allowance is
     established and recorded as a charge to other income (expense), net, for
     unrealized losses on securities. Unrealized gains are not recorded until
     realized. Recoveries in the value of securities are recorded as part of
     other expense, net, but only to the extent of previously recognized
     unrealized losses.

     Gains and losses realized on the sale of marketable debt securities were
     computed based on a weighted-average cost of the specific securities being
     sold.

     Realized gains and losses are charged to other income (expense), net.

f)   Accounts receivable and payable
     Receivables are stated at nominal value net of an allowance for doubtful
     accounts. Payables are stated at face value.

g)   Inventories
     Raw materials are stated at the lower of cost (determined under the
     specific cost method for leather hides and under the weighted-average
     method for other raw materials) or replacement cost. Goods in process and
     finished goods are valued at the lower of production cost or net realizable
     value.

h)   Property, plant and equipment
     Property, plant and equipment is stated at historical cost, except for
     certain buildings which were revalued in 1983, 1991 and 2000 according to
     Italian revaluation laws. Maintenance and repairs are expensed; significant
     improvements are capitalized and depreciated over the useful life of the
     related assets. The cost or valuation of fixed assets is depreciated on the
     straight-line method over the estimated useful lives of the assets (refer
     to note 9).


                                      F-11
<PAGE>

i)   Treasury shares
     Treasury shares are accounted for as a non-current assets and an amount
     equal to the cost of shares acquired is reclassified from retained earnings
     to an undistributed treasury shares reserve (see note 19). Treasury shares
     are stated at cost and when a permanent impairment loss exists at the
     balance sheet date a valuation allowance is established and recorded as a
     charge to other income (expense), net. At December 31, 2002 the management
     of the Company consider the impairment loss of treasury shares, amounting
     to 10,276, not permanent.

j)   Other assets
     Other assets in the consolidated financial statements primarily include
     trademarks and patents, goodwill and certain deferred costs. These assets
     are stated at the lower of amortized cost or recoverable amount. The
     carrying amount of other assets are reviewed to determine if they are in
     excess of their recoverable amount, based on undiscounted cash flows, at
     the consolidated balance sheet date. If the carrying amount exceeds the
     recoverable amount, the asset is written down to the recoverable amount.

     Trademarks, patents and goodwill are amortized on a straight-line basis
     over a period of five years.

k)   Impairment of Long-lived Assets and Long-lived Assets to be disposed of
     The Company reviews long-lived assets, including intangible assets, for
     impairment whenever events or changes in circumstances indicate that the
     carrying amount of an asset may not be recoverable. Recoverability of
     assets to be held and used is measured by a comparison of the carrying
     amount of an asset to future net cash flows expected to be generated by the
     asset. If such assets are considered to be impaired, the impairment to be
     recognized is measured by the amount by which the carrying amount of the
     assets exceeds the fair value of the assets. Estimated fair value is
     generally based on either appraised value or measured by discounted
     estimated future cash flows. Assets to be disposed of are reported at the
     lower of the carrying amount or fair value less costs to sell. Accordingly,
     actual results could vary significantly from such estimates.

l)   Income taxes
     Income taxes are accounted for under the asset and liability method.
     Deferred tax assets and liabilities are recognized for the future tax
     consequences attributable to differences between the financial statements
     carrying amounts of existing assets and liabilities and their respective
     tax bases and operating loss. Deferred tax assets are reduced by a
     valuation allowance to an amount that is more likely than not to be
     realized. Deferred tax assets and liabilities are measured using enacted
     tax rates expected to apply to taxable income in the years in which those
     temporary differences are expected to be recovered or settled. The effect
     on deferred tax assets and liabilities of a change in tax rates is
     recognized in income in the period that includes the enactment date.


                                      F-12
<PAGE>

m)   Government grants
     Capital grants compensate the Group for the cost of an asset and are part
     of the Italian government's investment incentive program, under which the
     Group receives amounts generally equal to a percentage of the aggregate
     investment made by the Group in the construction of new manufacturing
     facilities, or in the improvement of existing facilities, in designated
     areas of the country.

     Capital grants from government agencies are recorded when there is
     reasonable assurance that the grants will be received and that the Group
     will comply with the conditions applying to them.

     Until December 31, 2000 capital grants were recorded, net of tax, within
     reserves in shareholders' equity. As from January 1, 2001 all new capital
     grants are recorded in the consolidated balance sheet initially as deferred
     income and then recognized in the consolidated statement of earnings as
     revenue on a systematic basis over the useful life of the related asset. At
     December 31, 2002 and 2001 the deferred income for capital grants amounts
     to 14,229 and 3,993, respectively.

     Cost reimbursement grants relating to training and other personnel costs
     are credited to income when received from government agencies.

n)   Employees' termination indemnities
     Termination indemnities represent amounts accrued for each Italian employee
     that are due and payable upon termination of employment determined in
     accordance with applicable labour laws. The Group accrues the full amount
     of employees' vested benefit obligation as determined by such laws for
     termination indemnities.

     The expense recorded for termination indemnities for the years ended
     December 31, 2002, 2001 and 2000 was 7,091, 6,293 and 5,357, respectively.

     The number of workers employed by the Group totalled 5,742 and 4,643 at
     December 31, 2002 and 2001, respectively.

o)   Net sales
     The Company recognizes revenue on sales at the time products are shipped
     from the manufacturing facilities. Revenues are recognized when the
     following criteria are met: persuasive evidence of an arrangement exists;
     the price to the buyer is fixed and determinable; and collectibility of the
     sales price is reasonably assured.

     Revenues are recorded net of returns and cash and volume discounts. Sales
     returns and discounts are estimated and provided for in the year of sales.
     Such allowances are made based on historical trends. The Company has the
     ability to make a reasonable estimate of future costs for returns and cash
     and volume discounts due to large volumes of homogeneous transactions and
     historical experience.


                                     F-13
<PAGE>

p)   Shipping and handling costs
     Shipping and handling costs incurred to transport products to customers are
     included in selling expenses. Shipping and handling expenses recorded for
     the years ended December 31, 2002, 2001 and 2000 were 65,338, 66,114 and
     53,980, respectively.

q)   Advertising costs

     Advertising costs are expensed in the periods incurred. Advertising
     expenses recorded for the years ended December 31, 2002, 2001 and 2000 were
     23,578, 19,597 and 17,664, respectively.

r)   Commission expense
     Commissions payable to sales representatives and the related expenses are
     recorded at the time shipments are made by the Group to customers.
     Commissions are not paid until payment for the related sale's invoice is
     remitted to the Group by the customer.

s)   Contingencies
     Liabilities for loss contingencies are recorded when it is probable that an
     asset has been impaired or a liability has been incurred and the amount of
     the loss can be reasonably estimated.

t)   Use of estimates
     The preparation of financial statements in conformity with established
     accounting policies requires management to make estimates and assumptions
     that affect the reported amounts of assets and liabilities and disclosure
     of contingent assets and liabilities at the date of the financial
     statements and reported amounts of revenues and expenses during the
     reporting period. Actual results could differ from those estimates.

u)   Earnings per share
     Basic earnings per share is calculated by dividing net earnings
     attributable to ordinary shareholders by the weighted-average number of
     ordinary shares outstanding during the period without taking into effect
     the outstanding treasury shares. The Company does not have any diluted
     investments. Therefore, basic earnings per share is equal to diluted
     earnings per share. The following table provides the amounts used in the
     calculation of earnings per share:
<TABLE>
<CAPTION>

                                                              2002             2001             2000
                                                              ----             ----             ----
          <S>                                                  <C>             <C>               <C>
           Net earnings attributable to
                ordinary shareholders                          91,438            75,657           79,155
                                                             ========          ========         ========

           Weighted-average number of ordinary
                shares outstanding during the year         54,681,628        55,027,496       57,087,391
                                                           ==========        ==========       ==========
</TABLE>



                                      F-14
<PAGE>

<TABLE>
<CAPTION>


4.    Cash and cash equivalents
      Cash and cash equivalents are analyzed as follows:

                                                                                   2002             2001
                                                                                   ----             ----
         <S>                                                                      <C>              <C>
           Cash on hand                                                              59               35
           Bank accounts in Euro                                                 32,308          100,140
           Bank accounts in foreign currency                                     63,687           48,325
           Money market instrument                                                  641           59,700
                                                                             ----------          -------
           Total                                                                 96,695          208,200
                                                                               ========          =======
</TABLE>

           Cash equivalents consist of highly liquid money market instruments
           bought in December from various banks under the agreements to resell
           them during the following January. This short-term money market
           instrument allows the Company to invest excess of cash balances.

5.         Marketable debt securities
           Details regarding marketable debt securities are as follows:
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
          <S>                                                                        <C>              <C>
           Foreign corporate bonds                                                    6                7
           Italian government bonds                                                  20               20
                                                                                 ------            -----
           Total                                                                     26               27
                                                                                 ======            =====
</TABLE>


Further information regarding the Group's investments in marketable debt
securities is as follows:
<TABLE>
<CAPTION>

           2002                                                         Gross unrealized
           ----                                                         ----------------           Fair
                                                           Cost        Gains        Losses         value
                                                           ----        -----        ------         -----
        <S>                                                  <C>         <C>            <C>         <C>
           Foreign corporate bonds                            6            -             -             6
           Italian government bonds                          20            -             -            20
                                                         ------        -----       -------       -------
           Total                                             26            -             -            26
                                                         ======        =====       =======       =======


           2001                                                         Gross unrealized            Fair
           ----                                                         ----------------
                                                           Cost        Gains        Losses         value
                                                           ----        -----        ------         -----

           Foreign corporate bonds                            7             -            -             7
           Italian government bonds                          20             -            -            20
                                                          -----       -------      -------         -----
           Total                                             27             -            -            27
                                                          =====       =======      =======         =====

</TABLE>
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                                  ----             ----             ----
          <S>                                                      <C>                <C>             <C>
           Proceeds from sales                                      -                 -                -
           Realized gains                                           -                 -                -
           Realized losses                                          -                 -                -
</TABLE>


                                     F-15
<PAGE>

     The contractual maturity of the Group's marketable debt securities at
December 31, 2002 is between 1 - 5 years.

6.   Trade receivables, net
     Trade receivables are analyzed as follows:
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
        <S>                                                                       <C>          <C>
           North American customers                                              63,169           61,889
           Other foreign customers                                               57,854           50,213
           Domestic customers                                                    38,241           27,828
           Trade bills receivable                                                 3,861            3,747
                                                                             ----------        ---------
           Total                                                                163,125          143,677
           Allowance for doubtful accounts                                       (4,727)          (5,469)
                                                                             -----------        --------
           Total trade receivables, net                                         158,398          138,208
                                                                               ========          =======
</TABLE>

     Trade receivables are due primarily from major retailers who sell directly
to customers.

           No single customer accounted for more than 5% of the company's sales
           in 2002, 2001 and 2000 or accounts receivable at December 31, 2002
           and 2001. The Company has insured its collection risk in respect of
           approximately 80% of accounts receivable outstanding balances and,
           estimates an allowance for doubtful accounts based on insurance in
           place, the credit worthiness of its customers as well as general
           economic conditions.

           The following table provides the movements in the allowance for
           doubtful accounts:
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                                  ----             ----             ----
          <S>                                                       <C>            <C>               <C>
           Balance, beginning of year                            5,469            4,451            5,310
           Charges-bad debt expense                                 97            1,398              382
           Reductions-write off
           of uncollectible accounts                              (839)            (380)          (1,241)
                                                               --------         -------           ------
           Balance, end of year                                  4,727            5,469            4,451
                                                               =======            =====           ======
</TABLE>




                                      F-16
<PAGE>

           Trade receivables denominated in foreign currencies at December 31,
           2002 and 2001 and, where applicable, translated at the rate of the
           related domestic currency swaps, totalled 87,264 (78,013 translated
           at year-end exchange rates) and 80,440 (80,847 translated at year-end
           exchange rates), respectively. These receivables consist of the
           following:
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
        <S>                                                                         <C>           <C>
           U.S. dollars                                                          66,382           62,644
           Canadian dollars                                                       5,500            6,428
           British pounds                                                         6,563            4,151
           Australian dollars                                                     3,678            3,729
           Other currencies                                                       5,141            3,488
                                                                              ---------        ---------
           Total                                                                 87,264           80,440
                                                                                =======          =======

7.         Other receivables
           Other receivables are analyzed as follows:
</TABLE>

<TABLE>
<CAPTION>
                                                                                   2002             2001
                                                                                   ----             ----
        <S>                                                                       <C>             <C>
           VAT                                                                   35,990           34,192
           Receivable from tax authorities                                        7,951            7,725
           Government capital grants                                              8,076            7,100
           Advances to suppliers                                                  2,213            2,142
           Other                                                                  4,107             3,470
                                                                               --------           -------
           Total                                                                 58,337           54,629
                                                                                =======           ======
</TABLE>

           The VAT receivable includes value added taxes and interest thereon
           reimbursable to various companies of the Group. While currently due
           at the balance sheet date, the collection of the VAT receivable may
           extend over a maximum period of up to two years.

           The receivable from tax authorities represents taxes paid in excess
           of the amounts due and interest thereon.

8.         Inventories
           Inventories are analyzed as follows:
<TABLE>
<CAPTION>
                                                                                  2002             2001
                                                                                   ----             ----
        <S>                                                                      <C>             <C>
           Leather and other raw materials                                       59,260           59,184
           Goods in process                                                      12,714           14,350
           Finished products                                                     12,107           14,361
                                                                               --------         --------
           Total                                                                 84,081           87,895
                                                                               ========           ======
</TABLE>


                                      F-17
<PAGE>




9.        Property, plant and equipment and accumulated depreciation
          Fixed assets are listed below together with accumulated depreciation.
<TABLE>
<CAPTION>

                                                               Cost or      Accumulated   Annual rate of
           2002                                              valuation     depreciation     depreciation
           ----                                              ---------     ------------     ------------
          <S>                                               <C>                    <C>             <C>
           Land                                                14,148                 -                -
           Industrial buildings                               133,707            21,410          3 - 10%
           Machinery and equipment                             86,575            41,771       11.5 - 25%
           Office furniture and equipment                      20,132            12,444         12 - 20%
           Airplane                                            12,725             1,527               6%
           Transportation equipment                             5,003             2,879         20 - 25%
           Leasehold improvements                               4,111             1,330         10 - 20%
           Construction in progress                            16,578                 -                -
           Advances to suppliers                               17,274                 -                -
                                                             --------           -------
           Total                                              310,253            81,361
                                                             ========           =======

                                                               Cost or      Accumulated   Annual rate of
           2001                                              valuation     depreciation     depreciation
           ----                                              ---------     ------------     ------------

           Land                                                14,236                 -                -
           Industrial buildings                               119,682            17,736          3 - 10%
           Machinery and equipment                             70,515            34,733       11.5 - 25%
           Office furniture and equipment                      16,056            11,123         12 - 20%
           Airplane                                            12,725               763               6%
           Transportation equipment                             4,196             2,492         20 - 25%
           Leasehold improvements                               1,725               786         10 - 20%
           Construction in progress                             7,105                 -                -
           Advances to suppliers                                4,506                 -                -
                                                              -------            ------
           Total                                              250,746            67,633
                                                              =======            ======
</TABLE>

10.        Other assets
           Other assets consist of the following:
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
          <S>                                                                   <C>            <C>
           Trademarks and patents                                                10,744           10,660
           Goodwill                                                               1,106            1,009
           Others                                                                 8,822            6,486
                                                                              ---------          -------
           Total, gross                                                          20,672           18,155
           Less accumulated amortization                                        (15,620)         (14,266)
                                                                                --------         -------
           Total, net                                                             5,052            3,889
                                                                               ========         ========
</TABLE>

11.         Short-term borrowings
           Short-term borrowings consist of the following:
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
          <S>                                                                        <C>            <C>
           Bank borrowings                                                            -          133,873
           Bank overdrafts                                                          162              604
                                                                                -------       ----------
                                                                                    162          134,477
                                                                                =======          =======
</TABLE>

                                      F-18
<PAGE>

           While bank overdrafts are payable on demand, bank borrowings consist
           of unsecured line of credit agreements with banks with various short
           maturities.

           At December 31, 2001 the short-term borrowings included 5,808
           denominated in foreign currencies.

           The weighted average interest rates on the above-listed short-term
           borrowings at December 31, 2002 and 2001 are as follows:
                                            2002             2001
                                            ----             ----

           Bank borrowings                 3.17%            3.65%
           Bank overdrafts                 4.10%            5.60%

           Credit facilities available to the Group, including amounts
           guaranteed under surety bonds, amounted to approximately 171,880 and
           230,000 at December 31, 2002 and 2001, respectively. The unused
           portion of these facilities amounted to approximately 171,760 and
           95,545 at December 31, 2002 and 2001, respectively.

12.        Accounts payable-trade
           Accounts payable-trade totalling 87,551 and 82,278 at December 31,
           2002 and 2001, respectively, represent principally amounts payable
           for purchases of goods and services in Italy and abroad, and includes
           26,069 and 20,398 at December 31, 2002 and 2001, respectively,
           denominated in foreign currencies.

13.        Accounts payable-other
           Accounts payable-other are analyzed as follows:
<TABLE>
<CAPTION>
                                                                                   2002             2001
                                                                                   ----             ----
        <S>                                                                         <C>             <C>
           Withholding taxes on payroll and on other                              3,445            3,713
           Cooperative advertising and quantity discount                          4,041            4,064
           Provision for returns and other discounts                              4,530            4,510
           Payable to customers for returns and financial discounts               1,098            1,463
           Payable to minority interest for dividends                               732                -
           Other                                                                  1,812              884
                                                                                -------          -------
           Total                                                                 15,658           14,634
                                                                                =======           ======
</TABLE>

                                     F-19
<PAGE>

14.         Taxes on income
           Italian companies are subject to two income taxes:
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                                  ----             ----             ----
         <S>                                                 <C>                <C>             <C>
           IRPEG (state tax)                                    36.00%           36.00%           37.00%
           IRAP (regional tax)                                   4.25%            4.25%            4.25%
</TABLE>

           The IRPEG tax is a state tax and it is calculated on the taxable
           income determined on the income before taxes modified to reflect all
           temporary and permanent differences regulated by the tax law. In 1997
           dual income tax was introduced for the purpose of encouraging
           companies to use equity rather than debt finance. A first portion of
           the taxpayer's taxable income is calculated by applying an interest
           rate percentage (based on the return on government and private sector
           bonds) to the net increase in shareholders' equity of such taxpayer,
           subject to certain restrictions. This portion is subject to IRPEG at
           the reduced rate of 19.00%. The remaining profit will be subject to
           tax at the ordinary IRPEG tax rate (at present 36.00%).

           On December 27, 2002, the Italian Parliament approved law 289 which
           reduces IRPEG tax rate to 34.00% for fiscal years beginning on or
           after January 1, 2003. As a result, the Company adjusted the effect
           of changes in IRPEG tax rates on net deferred tax assets during the
           year ended December 31, 2002, as it includes the enactment date.
           These changes in tax rates resulted in a decrease of net deferred tax
           assets by 121 as of December 31, 2002.

           IRAP is a regional tax and each Italian Region has the power to
           increase the rate of 4.25% by a maximum of 1.00%. In general, the
           taxable base of IRAP is a form of gross profit determined as the
           difference between gross revenues (excluding interest and dividend
           income) and direct production costs (excluding labour costs, interest
           expenses and other financial costs).

           Under Italian investment incentive schemes for under-industrialized
           regions, certain of the Group's operating entities are currently
           entitled to enjoy a full exemption from IRPEG and a significant part
           of IRAP for ten years. A very significant portion of the Group's
           consolidated earnings before minority interest in 2002, 2001 and 2000
           is derived from companies entitled to some extent to the
           aforementioned exemptions, the most significant of which expired in
           2002. See the table below for the effect of such exemptions on the
           Group's 2002, 2001 and 2000 income tax charge.

           Approximately 88,8%, 88.7% and 99.9% respectively, of the Group's
           consolidated earnings before taxes were generated by its domestic
           Italian operations during 2002, 2001 and 2000.

           The effective income tax rates for the years ended December 31, 2002,
           2001 and 2000 were 21.5%, 22.5% and 24.3%, respectively. The actual
           income tax expense differs from the `expected' income tax expense
           (computed by applying the state tax, which is 36% for 2002 and 2001
           and 37% for 2000, to income before income taxes and minority
           interest) as follows:
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                                  ----             ----             ----
        <S>                                                      <C>              <C>             <C>
           Expected income tax charge at full tax rates        41,890            35,114           38,733
           Effects of:
           -  Tax exempt income                               (25,079)          (20,784)         (21,772)
           -   Aggregate effect of different tax
                rates in foreign jurisdictions                   (304)           (1,083)             (32)
           -  Tax effect of change in tax rates                  (121)                -              (80)
           -  Effect of net change in valuation allowance
              established against deferred tax assets             223               650             (156)
           -  Non-deductible expenses and others                1,339             1,201            1,093
           -  Italian regional tax                              7,049             6,803            7,698
                                                             --------          --------          -------
           Actual tax charge                                   24,997            21,901           25,484
                                                              =======           =======           ======
</TABLE>

                                      F-20
<PAGE>

     Total taxes for the years ended December 31, 2002, 2001 and 2000 were
allocated as follows:
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                                  ----             ----             ----
         <S>                                                      <C>           <C>               <C>
           Earnings from operations                            24,997            21,901           25,484
           Shareholders' equity, for deferred taxes on
              government grants (excluding minority
              interest)                                             -                 -               90
                                                         ------------       -----------        ---------
                                                               24,997            21,901           25,574
                                                              =======            ======           ======
</TABLE>

           Income taxes on earnings, which primarily relate to Italian
           operations, are further analyzed as follows:
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                                  ----             ----             ----
        <S>                                                  <C>                <C>               <C>
           Current taxes                                       24,596            22,211           24,032
           Deferred taxes                                         401              (310)           1,452
                                                              -------           -------           ------
           Total                                               24,997            21,901           25,484
                                                              =======           -------           ======

           Total income taxes for the years ended December 31, 2002, 2001 and
           2000 were allocated as follows:

                                                                  2002             2001             2000
                                                                  ----             ----             ----

           Italian State tax                                   15,167            11,628           17,659
           Italian Regional tax                                 7,049             6,803            7,698
           Tax of foreign subsidiaries                          2,781             3,470              127
                                                              -------          --------         --------
           Total                                               24,997            21,901           25,484
                                                               ======            ======           ======
</TABLE>

           Tax years for most of Italian companies are open from 1997 and
           subject to review pursuant to Italian tax laws.

           The tax effects of temporary differences that give rise to
           significant portions of the deferred tax assets and deferred tax
           liabilities at December 31, 2002 and 2001 are presented below:
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
            <S>                                                                   <C>              <C>
           Deferred tax assets:
           -  Allowance for doubtful accounts                                     1,621            1,980
           -  Provision for termination indemnities
              of sales representatives                                            1,175            1,102
           -  Provision for contingent liabilities                                  763              592
           -  Provision for returns and discounts                                   732              885
           -  Tax loss carryforwards                                                646              646
           -  Other temporary differences                                           635              913
                                                                               --------         --------
           Total gross deferred tax assets                                        5,572            6,118
           -  Less valuation allowance                                           (2,936)          (3,020)
                                                                                --------          -------
           Net deferred tax assets                                                2,636            3,098
                                                                                =======          =======

           Deferred tax liabilities:
           -  Government grants related to
              capital expenditures                                                 (894)            (941)
           -  Other temporary differences                                          (198)            (212)
                                                                               ---------         --------
           Total deferred tax liabilities                                        (1,092)          (1,153)
                                                                                --------          -------
           Net deferred tax assets                                                1,544            1,945
                                                                                =======          =======
</TABLE>



                                      F-21
<PAGE>

           A valuation allowance has been established principally for the tax
           loss carryforwards, allowance for doubtful accounts, provision for
           termination indemnities of sales representatives and for
           contingencies of certain subsidiaries.

           The valuation allowance for deferred tax assets as of December 31,
           2002 and 2001 was 2,936 and 3,020, respectively. The net change in
           the total valuation allowance for the years ended December 31, 2002
           and 2001 was a decrease of 84 and an increase of 669, respectively.
           In assessing the realizability of deferred tax assets, management
           considers whether it is more likely than not that some portion or all
           of the deferred tax assets will not be realized. The ultimate
           realization of deferred tax assets is dependent upon the generation
           of future taxable income during the periods in which those temporary
           differences become deductible. Management considers the scheduled
           reversal of deferred tax liabilities, projected future taxable
           income, and the tax planning strategies in making this assessment.
           Based upon the level of historical taxable income and projections for
           future taxable income over the periods during which the deferred tax
           assets are deductible, management believes it is more likely than not
           that the Company will realize the benefits of these deductible
           differences, net of the existing valuation allowances at December 31,
           2002. The amount of the deferred tax asset considered realizable,
           however, could be reduced in the near term if estimates of future
           taxable income during the carryforward period are reduced.

           Net deferred income tax assets is included in the consolidated
           balance sheets as follows:
<TABLE>
<CAPTION>


           2002                                                Current      Non current            Total
           ----                                                -------      -----------            -----
                <S>                                              <C>              <C>            <C>
           Gross deferred tax assets                            3,238             2,334            5,572
           Valuation allowance                                 (1,382)           (1,554)          (2,936)
                                                             ---------         ---------        ---------
           Net deferred tax assets                              1,856               780            2,636
           Deferred tax liabilities                               (34)           (1,058)          (1,092)
                                                           -----------         ---------        ---------
           Net deferred tax assets (liabilities)                1,822              (278)           1,544
                                                             ========         ==========       =========


           2001                                                Current      Non current            Total
           ----                                                -------      -----------            -----

           Gross deferred tax assets                            3,888             2,230            6,118
           Valuation allowance                                 (1,727)           (1,293)          (3,020)
                                                               ------            ------           ------
           Net deferred tax assets                              2,161               937            3,098
           Deferred tax liabilities                              (143)           (1,010)          (1,153)
                                                              --------           -------         --------
           Net deferred tax assets (liabilities)                2,018               (73)           1,945
                                                              =======         ==========         =======
</TABLE>

                                      F-22
<PAGE>
<TABLE>
<CAPTION>

           The tax loss carryforwards of the Group total 1,899 and expire as
           follows:
                <S>                                                                                  <C>
                2003                                                                                  81
                2004                                                                                  31
                2005                                                                                 537
                2006                                                                                 734
                2007                                                                                 516
                                                                                                 -------
                Total                                                                              1,899
                                                                                                  ======

</TABLE>

           Losses may be carried forward for five years from the year of
           declaration for offset against IRPEG taxes only.

15.        Salaries, wages and related liabilities
           Salaries, wages and related liabilities are analyzed as follows:
<TABLE>
<CAPTION>
                                                                                   2002             2001
                                                                                   ----             ----
                <S>                                                                  <C>           <C>
           Salaries and wages                                                     7,641            6,289
           Social security contributions                                          5,352            5,822
           Vacation accrual                                                       1,715            1,483
                                                                               --------          -------
           Total                                                                 14,708           13,594
                                                                                =======           ======

16.        Long-term debt
           Long-term debt is secured by mortages on the Group's properties for a
           total of 2,169 (2,169 at December 31, 2001). Long-term debt at
           December 31, 2002 and 2001 consists of the following:

                                                                                   2002             2001
                                                                                   ----             ----

           3.5% long-term debt payable in semi-annual
           installments with final payment due August 24, 2004                    2,762            4,022

           3.7% long-term debt payable in semi-annual
           installments with final payment due June 30, 2003                         83              244

           2.25% long-term debt payable in annual installments
           with final payment due May 30, 2015                                    2,166                -
                                                                                -------       ----------
           Total long-term debt                                                   5,011            4,266
           Less current installments                                             (1,437)          (1,007)
                                                                               ---------         -------
           Long-term debt, excluding current installments                         3,574            3,259
                                                                                =======          =======

</TABLE>
<TABLE>
<CAPTION>
           Loan maturities after 2003 are summarized below:
        <S>                                                        <C>
           2004                                                 1,408
           2005                                                     -
           2006                                                   192
           2007                                                   197
           Thereafter                                           1,777
                                                              -------
           Total                                                3,574
                                                              =======
</TABLE>

                                     F-23
<PAGE>

           At December 31, 2002 long-term debt denominated in foreign currencies
           amounts to 2,762 (4,022 at December 31, 2001).

           Interest expenses related to long-term debt for the years ended
           December 31, 2002, 2001 and 2000 were 202, 162 and 41 respectively.

17.        Minority interest
           Minority interest shown in the accompanying consolidated balance
           sheet at December 31, 2002 of 499 (1,455 at December 31, 2001).

18.        Employee stock option plan
           In February 1994 the Company adopted an employee stock option plan
           (the "Plan") pursuant to which managers and certain key employees of
           the Group may be granted options to purchase an aggregate of up to
           1,680,000 ordinary shares from the Company at an exercise price per
           share equal to 95% of the May 1993 initial public offering price, or
           euro 5,49 per share (US$ 5,75 at December 31, 2002 exchange rate).
           Employees receiving options may exercise such options over four years
           during exercise periods from May 15 to May 31, as follows: (i) with
           respect to 25% of the options, in the year in which they were
           granted; (ii) with respect to 35% of the options, in the second year
           thereafter; and (iii) with respect to the remaining 40% of the
           options, in the fourth year thereafter. Following each exercise
           period, the Company must seek shareholder approval, of at least 50%
           plus one share of outstanding shares, to increase its capital and to
           comply with certain requirements of Italian law, after which the
           ordinary shares may be delivered. The shareholder approval is
           considered perfunctory as Mr. Natuzzi and his family own more than
           50% of the outstanding shares.

           A summary of the status of the Plan as of December 31, 2000 and
           changes during the year ended on this date is presented below:
<TABLE>
<CAPTION>

                                                                                                Exercise
                                                                                    Shares      price
                                                                                  ----------   ---------
         <S>                                                                      <C>              <C>
           Outstanding at the beginning of the year                                 56,640          5,49
           Granted                                                                       -             -
           Exercised                                                               (56,640)         5,49
           Forfeited                                                                     -             -
                                                                                ------------
           Outstanding at the end of the year                                            -
                                                                                ============
           No option are outstanding or exercitable at December 31, 2002 or 2001.
</TABLE>

19.        Shareholders' equity
           The share capital is owned as follows:



                                     F-24
<PAGE>
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
         <S>                                                                      <C>               <C>
           Mr. Pasquale Natuzzi                                                   45.3%            45.3%
           Miss Anna Maria Natuzzi                                                 2.4%             2.4%
           Mrs. Annunziata Natuzzi                                                 2.4%             2.4%
           Public investors                                                       45.0%            45.0%
           Treasury shares                                                         4.9%             4.9%
                                                                                -------         --------
                                                                                   100%           100.0%
                                                                                 ======           ======

           An analysis of the reserves follows:

                                                                                   2002             2001
                                                                                   ----             ----

           Treasury shares reserve                                               37,828           37,828
           Legal reserve                                                          3,824            1,110
           Monetary revaluation reserve                                           1,344            1,344
           Government capital grants reserve                                     30,075           30,075
                                                                               --------         --------
           Total                                                                 73,071           70,357
                                                                                =======           ======
</TABLE>

           On December 18, 2001 the shareholders of the Company approved a
           capital increase from 3,714 to 57,526 through the utilization of
           retained earnings. As a consequence, the par value of the ordinary
           share changed from lire 125 to lire 1,936.27 or euro 1. This change
           did not affect the number of ordinary shares issued at December 31,
           2001 (57,525,528).

           In July 2000, the shareholders of the Company approved a share
           repurchase program to buy-back up to 4 million shares or 51,646. The
           Company spent 23,234 in 2000 and 14,594 in 2001 to repurchase shares.
           The Company repurchased 1,782,700 shares in 2000 at an average cost
           of US$ 11.3 per share and 1,061,200 shares in 2001 at an average cost
           of US$ 12.3 per share. As of December 31, 2002 the repurchase program
           is expired. Under Italian GAAP, the purchase of shares was accounted
           for as a non-current assets and an amount equal to the cost of shares
           acquired was reclassified from retained earnings to an undistributed
           treasury shares reserve.

           Italian law requires that 5% of net income of the parent company and
           each of its consolidated subsidiaries be retained as a legal reserve,
           until this reserve is equal to 20% of the issued share capital of
           each relevant company. The legal reserve may be utilized to cover
           losses and the portion which exceeds 20% of the issued share capital
           is distributable as dividends. The combined legal reserves totalled
           6,737 and 3,834 at December 31, 2002 and 2001, respectively.

           As of December 31, 2002, taxes that would be due on distribution of
           the portion of shareholders' equity equal to unremitted earnings of
           foreign subsidiaries is approximately 450 (310 at December 31, 2001).
           The Group has not provided for such taxes as the likelihood of
           distribution is remote and such earnings are deemed to be permanently
           reinvested.

           As of December 31, 2002, there are no taxes due on distribution of
           the portion of shareholders' equity equal to retained earnings and
           government capital grants reserve.


                                     F-25
<PAGE>

20.        Commitments and contingent liabilities
           Several companies of the Group lease manufacturing facilities under
           non-cancellable lease agreements with expiration dates through 2007.
           Rental expense recorded for the years ended December 31, 2002, 2001
           and 2000 was 2,384, 2,057 and 1,031, respectively. As of December 31,
           2001, minimum annual rental commitments are as follows:

           2003                                           5,006
           2004                                             881
           2005                                             466
           2006                                             375
           2007                                             249
           Thereafter                                       191
                                                          -----
           Total                                          7,168
                                                          =====

           Some banks have provided guarantees at December 31, 2002 to secure
           payments to several suppliers of leather and fabric hides amounting
           to 4,408 (4,407 at December 31, 2001). These guarantees are unsecured
           and have various maturities extending through December 2003.

           VAT reimbursed by tax authorities during 2002 and in prior years is
           secured by surety bonds for 117 (173 at December 31, 2001) from
           certain financial institutions. These surety bonds are unsecured and
           will expire after a maximum period of up to two years or when the tax
           authorities perform the final review of VAT claim requests.

           In December, 1996, the Company and the `Contract Planning Service' of
           the Italian Ministry of the Budget signed a `Program Agreement' with
           respect to the `Natuzzi 2000 project'. In connection with this
           project, the Natuzzi Group has planned a multi-faceted program of
           industrial investments for the production of upholstered furniture.
           Investments are projected to total approximately 232,160. According
           to the agreement, the Italian government will contribute 106,227.
           Receipt of the Italian governments funds is based upon, among other
           things, the Group constructing facilities in accordance with certain
           specifications and maintaining a minimum number of employees.

           During 1997 the Group received under the aforementioned project
           capital grants for 27,139. Capital expenditures under the Natuzzi
           2000 project amounted to approximately 70,755 at December 31, 2002
           (70,755 at December 31, 2001). The capital grants are secured by
           surety bonds for 26,041 from a bank. These surety bonds are unsecured
           and will expire when the Italian Ministry of Budget releases the
           final approvals of all investments made.

           The Group is also involved in a number of claims (including tax
           claims) and legal actions arising in the ordinary course of business.
           In the opinion of management, the ultimate disposition of these
           matters, after considering amounts accrued, will not have a material
           adverse effect on the Group's consolidated financial position or
           results of operations.


                                      F-26
<PAGE>

21.        Segmental and geographical information
           The Group operates in a single industry segment, that is, the design,
           manufacture and marketing of contemporary and traditional leather-
           and fabric-upholstered furniture. It offers a wide range of
           upholstered furniture for sale, manufactured in production facilities
           located in Italy.

           Net sales of upholstered furniture analyzed by coverings are as
           follows:
<TABLE>
<CAPTION>

                                                                  2002             2001             2000
                                                                  ----             ----             ----
          <S>                                                 <C>              <C>              <C>
           Leather-upholstered furniture                      623,755           624,411          559,720
           Fabric-upholstered furniture                       110,997            89,628           69,582
                                                            ---------         ---------        ---------
           Total                                              734,752           714,039          629,302
                                                            =========           =======          =======

</TABLE>
           Within leather- and fabric-upholstered furniture, the Company offers
           furniture in the following categories: stationary furniture (sofas,
           loveseats and armchairs), sectional furniture, motion furniture, sofa
           beds and occasional chairs, including recliners and massage chairs.

           The following tables provide information about net sales of
           upholstered furniture and of long-lived assets by geographical
           location. Net sales are attributed to countries based on the location
           of customers. Long-lived assets consist of property, plant and
           equipment.
<TABLE>
<CAPTION>

           Sales of upholstered furniture                         2002             2001             2000
                                                                  ----             ----             ----
          <S>                                               <C>                  <C>              <C>
           United States                                      330,575           317,927          294,250
           Italy                                               76,145            72,623           69,074
           England                                             56,196            51,457           43,140
           Germany                                             37,936            39,985           36,149
           Canada                                              32,586            35,581           21,483
           France                                              24,370            19,077           11,275
           Belgium                                             17,354            21,060           21,708
           Holland                                             16,858            23,294           21,164
           Ireland                                             16,816            11,509            4,855
           Norway                                              13,281            12,048           11,878
           Australia                                           13,186            12,054           12,700
           Other countries (none greater than 2%)              99,449            97,424           81,626
                                                            ---------         ---------        ---------
                                                              734,752           714,039          629,302
                                                             ========         =========          =======



           Long lived assets                                                       2002             2001
                                                                                   ----             ----

           Italy                                                                164,042          129,998
           United States of America                                              22,576           29,270
           Romania                                                               21,159            5,352
           Brazil                                                                12,380           11,433
           China                                                                  6,348            6,379
           Spain                                                                  1,214               25
           Other countries                                                        1,173              656
                                                                             ----------       ----------
           Total                                                                228,892          183,113
                                                                               ========          =======
</TABLE>

                                     F-27
<PAGE>

           In addition, the Group also sells minor amounts of excess
           polyurethane foam, leather by-products and some furniture pieces
           (coffee table, lamps and rugs) which, for 2002, 2001 and 2000 totaled
           70,391, 72,109 and 59,178, respectively.

           No single customer accounted for more than 5% of net sales in 2002,
           2001 or 2000.

22.        Cost of sales
           Cost of sales is analyzed as follows:
<TABLE>
<CAPTION>
                                                                  2002             2001             2000
                                                                  ----             ----             ----
        <S>                                                   <C>             <C>               <C>
           Opening inventories                                 87,895            73,644           53,301
           Purchases                                          338,484           366,398          303,775
           Labor                                              106,954            98,102           87,595
           Third party manufacturers                           38,572            44,656           35,932
           Other manufacturing costs                           29,599            25,184           19,336
           Closing inventories                                (84,081)          (87,895)         (73,644)
                                                             --------          --------         --------
           Total                                              517,423           520,089          426,295
                                                             ========          ========         ========
23.        Other income (expense), net
           Other income (expense), net is analyzed as follows:

                                                                  2002             2001             2000
                                                                  ----             ----             ----

           Interest income                                      5,423             5,987            6,585
           Interest expense and bank commissions               (3,870)           (3,701)            (598)
                                                             --------          --------         --------
           Interest income, net                                 1,553             2,286            5,987
                                                             --------          --------         --------

           Gains (losses) on foreign exchange, net              7,254            (5,311)         (30,359)
           Unrealized exchange
              gains (losses) on domestic currency swaps         2,021              (902)           2,101
                                                             --------          --------         --------
           Gains (losses) on foreign exchange                   9,275            (6,213)         (28,258)
                                                             --------          --------         --------
           Gains on securities, net                                 -                79                -
           Other, net                                           3,723             3,623              424
                                                             --------          --------         --------
           Total                                               14,551              (225)         (21,847)
                                                              =======         =========          ========

           Gains (losses) on foreign exchange are related to the following:

                                                                  2002             2001             2000
                                                                  ----             ----             ----

           Net realized gains (losses) on
                domestic currency swaps                        10,930           (12,239)         (32,154)
           Net realized gains (losses) on accounts
                receivable and payables                        (8,835)           (1,545)           5,071
           Net unrealized gains (losses) on
                accounts receivable and payable                 5,796             8,473           (3,276)
           Exchange difference loss on translation
                of foreign financial statements                  (637)                -                -
                                                             --------          --------         --------
           Total                                                7,254            (5,311)         (30,359)
                                                              =======          ========         ========

           Other, net consists of the following:

                                                                  2002             2001             2000
                                                                  ----             ----             ----

           Tax liabilities settlements                           (481)                -                -
           Tax refund                                           1,314                 -                -
           Employment incentive grants                              -             2,259                -
           Other, net                                           2,890             1,364              424
                                                             --------          --------         --------
           Total                                                3,723             3,623              424
                                                              =======             =====            =====
</TABLE>


                                      F-28
<PAGE>


           Tax liabilities settlement
           During 2002 the Group settled certain of its tax claims.


           Tax refund
           During 2002, the Company obtained from tax authorities a refund of
           1,314 for taxes not due on a portion of income related to 1993, as
           these amounts were never recorded as a receivable, the Company
           recorded such amounts in the statement of earnings.


           Employment incentive grants
           The Company and certain subsidiaries, on the basis of regional laws,
           received from the regional agencies employment incentives in the form
           of grants for new permanent employees and subsidies of up to 100% of
           the cost of training courses for permanent and temporary employees.
           The incentives received were related to prior years. For the year
           ended December 31, 2001 these incentives amounted to 2,259.

24.        Financial instruments and risk management
           A significant portion of the Group's net sales, but only
           approximately 30% of its costs, are denominated in currencies other
           than the euro, in particular the U.S. dollar. The remaining costs of
           the Group are denominated principally in euro. Consequently, a
           significant portion of the Group's net revenues are exposed to
           fluctuations in the exchange rates between the euro and such other
           currencies. The Group uses forward exchange contracts (known in Italy
           as domestic currency swaps) to reduce its exposure to the risks of
           short-term declines in the value of its foreign currency-denominated
           revenues. The Group uses such domestic currency swaps to protect the
           value of its foreign-currency denominated revenues, and not for
           speculative or trading purposes.

           The Group is exposed to credit risk in the event that the counter
           parties to the domestic currency swaps fail to perform according to
           the terms of the contracts. The contract amounts of the domestic
           currency swaps described below do not represent amounts exchanged by
           the parties and, thus, are not a measure of the exposure of the Group
           through its use of those financial instruments. The amounts exchanged
           are calculated on the basis of the contract amounts and the terms of
           the financial instruments, which relate primarily to exchange rates.
           The immediate credit risk of the Group's domestic currency swaps is
           represented by the unrealized gains on the contracts. Management of
           the Group enters into contracts with creditworthy counter-parties and
           believes that the risk of material loss from such credit risk to be
           remote. The table below summarizes in euro equivalent the contractual
           amounts of forward exchange contracts used to hedge principally
           future cash flows from accounts receivable and sales orders at
           December 31, 2002 and 2001:


                                      F-29
<PAGE>
<TABLE>
<CAPTION>

                                                                                   2002             2001
                                                                                   ----             ----
            <S>                                                                 <C>              <C>
           U.S. dollars                                                         117,050          121,811
           British pounds                                                        22,650           19,267
           Canadian dollars                                                      14,937           17,869
           Australian dollars                                                     9,579            6,714
           Japanese yen                                                           2,863            3,644
           Swiss francs                                                           2,844            2,416
                                                                                -------          -------
           Total                                                                169,923          171,721
                                                                                =======          =======

</TABLE>
           The following table presents information regarding the contract
           amount in euro equivalent amounts and the estimated fair value of all
           of the Group's forward exchange contracts. Contracts with unrealized
           gains are presented as `assets' and contracts with unrealized losses
           are presented as `liabilities'.



                                     F-30
<PAGE>
<TABLE>
<CAPTION>
                                                      2002                              2001
                                            Contract       Unrealized          Contract       Unrealized
                                            amount         gains (losses)      amount         gains (losses)
                                            --------       -------------        ---------     -------------
         <S>                                <C>               <C>               <C>              <C>
           Assets                            156,983           14,880            66,771            1,450
           Liabilities                        12,940             (588)          104,950           (3,009)
                                            --------          -------           -------           ------
                                             169,923           14,292           171,721           (1,559)
                                             =======          =======           =======         ========
</TABLE>

           At December 31, 2002, these forward exchange contracts had a net
           unrealized gain of 14,292, of which 9,251 related to accounts
           receivable, 3,020 related to existing sales commitments and 2,021
           related to anticipated commitments at year-end. The Company recorded
           all these amounts, except for 3,020 relating to existing sales
           commitments.

           At December 31, 2001, the forward exchange contracts had a net
           unrealized loss of 1,559, of which 407 related to accounts
           receivable, 250 related to existing sales commitments and 902 related
           to anticipated commitments at year-end. The Company recorded all
           these amounts, except for 250 relating to existing sales commitments.

           The carrying value of forward exchange contracts is determined based
           on the unrealized loss and gain of such contracts recorded in the
           consolidated financial statements. Unrealized gains (losses) on
           forward exchange contracts is determined by using residual maturity
           rate.

25.        Fair value of financial instruments
           The following table summarizes the carrying value and the estimated
           fair value of the Group's other financial instruments:
<TABLE>
<CAPTION>

                                                       2002                                2001
                                              ------------------------           -----------------------------
                                              Carrying          Fair             Carrying          Fair
                                              value             value             value            value
                                              -----             -----             -----            -----
         <S>                                 <C>                 <C>               <C>            <C>
           Assets:
           -    Marketable debts securities       26               26                27               27
           -    Treasury shares               37,828           27,552            37,828           47,242
           Liabilities:
           -    Long-term debt                 5,011            4,100             4,266            3,942
</TABLE>

           Cash and cash equivalents, receivables, payables and short-term
           borrowings approximate fair value because of the short maturity of
           these instruments.

           Market value for quoted marketable debt securities is represented by
           the securities exchange prices at year-end. Market value for unquoted
           securities is represented by the prices of comparable securities,
           taking into consideration interest rates, duration and credit
           standing of the issuer.

           Fair value of the long-term debt is estimated based on cash flows
           discounted using current rates available to the Company for
           borrowings with similar maturities.

                                      F-31
<PAGE>

26.        Application of generally accepted accounting principles in the
           United States of America
           The established accounting policies followed in the preparation of
           the consolidated financial statements (Italian GAAP) vary in certain
           significant respects from those generally accepted in the United
           States of America (US GAAP).

           Those differences which have a material effect on net earnings and/or
          shareholders' equity are as follows:

           (a)  Certain property, plant and equipment have been revalued in
                accordance with Italian laws. The revalued amounts are
                depreciated for Italian GAAP purposes. US GAAP does not allow
                for such revaluations, and depreciation is based on historical
                costs. The revaluation primarily relates to industrial
                buildings.

           (b)  The Company in connection with its hedging activities employing
                forward exchange contracts defers net unrealized foreign
                exchange gains and losses related to future sales for which
                commitments are received at the balance sheet date. The Company
                defines such commitments for Italian GAAP purposes as sales
                orders on hand and customers' indications of future purchases as
                of the balance sheet date which are confirmed by sales orders
                within a designated time period subsequent to year end.
                Unrealized gains and losses on forward exchange contracts not
                designated to cover accounts receivable or future sales
                commitments are recognized in the consolidated statement of
                earnings. See notes 3 (a) and (b) for the Group's accounting
                policy.

                Until December 31, 2000 under US GAAP, generally both unrealized
                foreign exchange gains and losses from foreign currency
                transactions were recognized in the consolidated statement of
                earnings unless prescriptive hedging criteria were met. Until
                December 31, 2000 the Company's accounting policy for US GAAP
                purposes was that unrealized gains and losses on forward
                exchange contracts were deferred only for such contracts
                designated to cover firmly committed transactions supported by
                sales orders on hand as of the balance sheet date. Accordingly,
                under US GAAP, unrealized gains and losses on forward exchange
                contracts designated to cover anticipated future sales which are
                not supported by sales orders on hand as of the balance sheet
                date were credited or charged to the consolidated statement of
                earnings.

           (c)  Under US GAAP, SFAS 133 established comprehensive accounting and
                reporting standards for derivative instruments and hedging
                activities. SFAS 133 requires that an entity record all
                derivatives, freestanding and certain embedded derivatives, as
                either assets or liabilities in the statement of financial
                position. This statement also defines and allows companies to
                apply hedge accounting to its designated derivatives under
                certain instances, provided an entity meets the strict
                documentation criteria of SFAS 133. It also requires that all
                derivatives be marked to market on an ongoing basis. Along with
                the derivatives, in the case of qualifying hedges, the
                underlying hedges items, are also to be marked to market. These
                market value adjustments are to be included either in the income
                statement or other comprehensive income, depending on the nature
                of the hedged transaction.


                                      F-32
<PAGE>

                The Company is not currently qualifying for hedge criteria under
                SFAS 133. In particular, the Company does not formally document
                all relationships between its hedging instruments (forward
                exchange contracts known in Italian financial markets as
                domestic currency swaps) and its hedged items which includes
                linking all derivatives that are designated as foreign-currency
                hedges to specific accounts receivable on the balance sheet or
                to specific firm committents or forecasted transactions. The
                Company also does not formally assess, both at the hedge's
                inception and on an ongoing basis, whether the derivatives that
                are used in hedging its transactions are highly effective in
                offsetting changes in fair values of its hedged items. As a
                result under US GAAP, at December 31, 2002 and 2001 the Company
                accounted all its derivative financial instruments at their fair
                value and all its accounts receivable in foreign currency were
                remeasured at year end exchange rates. Therefore, at December
                31, 2002 the Company recorded in the US GAAP shareholders'
                equity and net earnings a gain of 2,713 and 3,783, respectively.

           (d)  Until December 31, 2000 government grants related to capital
                expenditures were recorded, net of tax, within reserves in
                shareholders' equity (see note 3 (m)). For US GAAP purposes,
                such grants would be classified either as a reduction of the
                cost of the related fixed asset or as a deferred credit and
                amortized to income over the estimated useful lives of the
                assets. The adjustments to net income represent the annual
                amortization of the capital grants based on the estimated useful
                life of the related fixed assets. The adjustments to
                shareholders' equity are to reverse the amounts of capital
                grants credited directly to equity for Italian GAAP purposes,
                net of the amounts of amortization of such grants for US GAAP
                purposes. In 1995 and 1997, the Group received certain grants
                relating to fixed assets acquired between 1989 and 1997 with
                various useful lives. For US GAAP purposes, the Group is
                amortizing such grants over the remaining useful lives of the
                assets to which the grants relate.

           (e)  The Company does not record the compensation cost resulting from
                the granting of share options. For US GAAP purposes, this
                intrinsic value (resulting from the excess of the market price
                of the underlying shares at the date of grant over the exercise
                price) is being recognized as compensation cost in the
                consolidated statement of earnings over the vesting period of
                the options. For US GAAP purposes, in 2000 the Company recorded
                a charge of 166. No expense was recorded in 2001 and 2002.

           (f)  As indicated in note 19, during 2001 and 2000 the Company
                repurchased its common shares for a cash consideration of
                37,828. Under Italian GAAP, the purchase of these shares was
                accounted for as non-current assets and under US GAAP, the cost
                of the acquired shares is reflected as a reduction from
                shareholders' equity.

           (g)  Under Italian GAAP the Group recognizes sales revenue, and
                accrued costs associated with the sales revenue, at the time
                products are shipped from its manufacturing facilities located
                in Italy and abroad. A significant part of the products are
                shipped from factories directly to customers under terms that
                risks and ownership are transferred to the customer when the
                customer takes possession of the goods. These terms are
                `delivered duty paid', `delivered duty unpaid', `delivered ex
                quay' and `delivered at customer factory'. Delivery to the
                customer generally occurs within one to six weeks from the time
                of shipment.


                                      F-33
<PAGE>

                Accounting principles generally accepted in the United States of
                America (US GAAP) state that revenue should not be recognized
                until it is realized or realizable and earned, which is
                generally at the time delivery to the customer occurs and the
                risks of ownership pass to the customer. Accordingly, the
                Italian GAAP for revenue recognition is at variance with US
                GAAP. As a consequence, the principal effects of this variance
                on the accompanying consolidated balance sheet as of December
                31, 2002 and 2001 and related consolidated statement of earnings
                for each of the years in the two-year period ended December 31,
                2002 are indicated below:
<TABLE>
<CAPTION>
                                                                 2002              2001        Variation
                                                              Effects           Effects          Effects
                                                             Increase          Increase         Increase
                Consolidated balance sheet                 (Decrease)        (Decrease)       (Decrease)
                                                           ----------        -----------      ----------
                <S>                                         <C>                  <C>              <C>
                Trade receivables, net                        (48,004)          (34,457)         (13,547)
                Inventories                                    30,867            22,810            8,057
                                                            ---------          --------        ---------
                Total effect on current assets (a)            (17,137)          (11,647)          (5,490)
                                                            ==========          =======        =========

                Accounts payable-trade                         (6,240)           (4,615)          (1,625)
                Income taxes                                   (2,288)           (1,547)            (741)
                                                            ----------         ---------       ----------
                Total effect on current liabilities (b)         (8,528)          (6,162)          (2,366)
                                                             ==========        =========        =========

                Total effect on shareholders' equity (a-b)     (8,609)           (5,485)          (3,124)
                                                             =========         ========         =========



                                                           2002              2001
                                                           Effects           Effects
                                                           Increase          Increase
                                                           (Decrease)        (Decrease)
                                                           -----------       -----------
                Consolidated statement of earnings
                Net sales                                     (13,547)          (34,457)
                Cost of sales                                   8,057            22,810
                Gross profit                                   (5,490)          (11,647)
                Selling expenses                               (1,625)           (4,615)
                Operating income                               (3,865)           (7,032)
                Income taxes                                     (741)           (1,547)
                Total effect on net earnings                   (3,124)           (5,485)
                                                              ========          ========
</TABLE>

           (h)  In 2001, the Company translated the financial statement of a
                foreign subsidiary which operates in a highly inflationary
                economy at (i) year-end exchange rate for assets and
                liabilities, (ii) historical exchange rates for share capital
                and retained earnings, and (iii) average exchange rates during
                the year for statements of earnings. The resulting exchange
                differences on translation were recorded as a direct adjustment
                to shareholders' equity. A highly inflationary economy is one
                that has cumulative inflation of approximately 100 percent or
                more over a 3-year period. Under US GAAP the financial
                statements of this subsidiary should be translated at (a)
                year-end exchange rate for monetary assets and liabilities (b)
                historical exchange rates for non monetary assets and
                liabilities (for example fixed assets or long term debt) as well
                as for share capital, reserves and retained earnings (c) average
                exchange rates during the year for revenues and expenses
                recorded in the statement of earnings. The resulting exchange
                differences on translation adjustment should be recorded in the
                statement of earnings. Therefore for US GAAP purposes, in 2001
                the Company recorded a net gain of 307.

                                      F-34
<PAGE>

           (i)  Under Italian GAAP the Company amortizes the goodwill, included
                the one resulted from the business acquisition completed after
                July 1, 2001, on a straight-line basis over a period of five
                years. US GAAP state that goodwill acquired in a purchase
                business combination completed after July 1, 2001 has an
                indefinite useful life and therefore it is no longer amortized,
                but instead tested for impairment at least annually in
                accordance with provisions of SFAS N. 142. For US GAAP purposes,
                in 2002 and 2001 the Company recorded in net earnings 105 and
                86, respectively, to eliminate the goodwill amortization
                recorded under Italian GAAP. For US GAAP purposes as of December
                31, 2002 the Company has 528 of goodwill which will no longer be
                depreciated. Reported net earnings and basic and diluted
                earnings per share excluding the impact of amortization of
                goodwill, for all periods presented would have been as follows:
<TABLE>
<CAPTION>


                Net Earnings                                           2002         2001           2000
                ------------                                           ----         ----           ----
                <S>                                                <C>            <C>            <C>
                Net earnings under US GAAP, as reported              91,994        71,057         81,740
                Add. Amortization of goodwill                           116           116            286
                                                                        ---           ---            ---
                Net earnings under US GAAP, adjusted                 92,110         71,173        82,026
                                                                     ======         ======        ======
                Basic and diluted earning per share
                Net earnings under US GAAP, as reported        (euro) 1,680  (euro) 1,290   (euro) 1,430
                Add. Amortization of goodwill                  (euro) 0,002  (euro) 0,001   (euro) 0,001
                                                               ------------  ------------   ------------
                Net earnings under US GAAP, adjusted            (euro)1,682  (euro) 1,291   (euro) 1,431
                                                                ===========  ============   ============
</TABLE>


         The calculation of net earnings and shareholders' equity substantially
         in conformity with U.S. GAAP is as follows:


                                      F-35
<PAGE>

<TABLE>
<CAPTION>


           Reconciliation of net earnings:
                                                                  2002             2001             2000
                                                                  ----             ----             ----
        <S>                                                 <C>                 <C>               <C>
           Net earnings under Italian GAAP                     91,438            75,657           79,155
           Adjustments to reported income:
           (a) Revaluation of property,
                plant and equipment                                44                53               53
           (b) Unrealized gains on foreign exchange                 -               123            2,204
           (c) Derivative and hedging activities                3,783            (1,070)               -
           (d) Government grants                                1,269             1,269            1,546
           (e) Employee share option
                compensation                                        -                 -             (166)
           (g) Revenue recognition                             (3,865)           (7,032)               -
           (h) Highly inflationary economy                          -               307                -
           (i) Goodwill                                           105                86                -
           Effect of minority interests on
                US GAAP adjustments                                 -                (2)              (1)
           Tax effect of US GAAP adjustments                     (780)            1,666           (1,051)
                                                              --------         --------         --------
           Approximate net earnings in
                conformity with US GAAP                        91,994            71,057           81,740
                                                               ======            ======           ======
           Basic and diluted earnings per share in
                conformity with US GAAP                   (euro) 1,68       (euro) 1,29      (euro) 1,43
                                                          ===========       ===========      ===========

           Reconciliation of shareholders' equity:

                                                                                   2002             2001
                                                                                   ----             ----

           Shareholders' equity under Italian GAAP                              495,808          428,462
           (a) Revaluation of property, plant and equipment                        (698)            (742)
           (c) Derivative and hedging activities                                  2,713           (1,070)
           (d) Government grants                                                (19,893)         (21,162)
           (f) Treasury shares                                                  (37,828)         (37,828)
           (g) Revenue recognition                                              (10,897)          (7,032)
           (i) Goodwill                                                             191               86
           Tax effect of US GAAP adjustments                                      2,919            3,699
                                                                               --------        ---------
           Approximate shareholders' equity
           in conformity with US GAAP                                           432,315          364,413
                                                                                =======          =======
</TABLE>

           Accounting for Stock-Based Compensation

           The Company has elected to continue to apply the provisions of
           Accounting Principles Board (`APB') Opinion No. 25, Accounting for
           Stock Issued to Employees, and provide the pro forma disclosure
           provisions of SFAS No. 123, Accounting for Stock-Based Compensation.
           The weighted-average fair value of each option granted by the Company
           during 1996 was estimated on the grant date at euro 32.28 using the
           Black-Scholes option pricing model with the following
           weighted-average assumptions: dividend yield of 0.6%; expected
           volatility of 25%; risk-free interest rate of 7.29%; and expected
           lives of 2.55 years. Had compensation cost for the Company's Plan,
           for US GAAP purposes, been determined consistent with SFAS No. 123,
           the Company's US GAAP net earnings and earnings per share for the
           year ended December 31, 2000 would materially approximate the actual
           amounts presented in the reconciliation.

                                     F-36
<PAGE>

           Comprehensive Income

           The Company has adopted SFAS No. 130, Reporting Comprehensive Income,
           which established standards for the reporting and presentation of
           comprehensive income and its components in a full set of financial
           statements. Comprehensive income/(loss) generally encompasses all
           changes in shareholders' equity (except those arising from
           transactions with owners). The Company's comprehensive income does
           not differ from net income.

           Goodwill and Other Intangible Assets

           Goodwill represents the excess of costs over fair value of assets of
           businesses acquired. The Company adopted the provisions of SFAS No.
           142, Goodwill and Other Intangible Assets, as of January 1, 2002.
           Goodwill and intangible assets acquired in a purchase business
           combination and determined to have an indefinite useful life are not
           amortized, but instead tested for impairment at least annually in
           accordance with the provisions of SFAS No. 142. SFAS No. 142 also
           requires that intangible assets with estimable useful lives be
           amortized over their respective estimated useful lives to their
           estimated residual values, and reviewed for impairment in accordance
           with SFAS No. 144, Accounting for Impairment or Disposal of
           Long-Lived Assets.

           In connection with SFAS No. 142's transitional goodwill impairment
           evaluation, the Statement required the Company to perform an
           assessment of whether there was an indication that goodwill is
           impaired as of the date of adoption. To accomplish this, the Company
           was required to identify its reporting units and determine the
           carrying value of each reporting unit by assigning the assets and
           liabilities, including the existing goodwill and intangible assets,
           to those reporting units as of January 1, 2002. The Company was
           required to determine the fair value of each reporting unit and
           compare it to the carrying amount of the reporting unit within six
           months of January 1, 2002. To the extent the carrying amount of a
           reporting unit exceeded the fair value of the reporting unit, the
           Company would be required to perform the second step of the
           transitional impairment test, as this is an indication that the
           reporting unit goodwill may be impaired. The second step was required
           for one reporting unit. In this step, the Company compared the
           implied fair value of the reporting unit goodwill with the carrying
           amount of the reporting unit goodwill, both of which were measured as
           of the date of adoption. The implied fair value of goodwill was
           determined by allocating the fair value of the reporting unit to all
           of the assets (recognized and unrecognized) and liabilities of the
           reporting unit in a manner similar to a purchase price allocation, in
           accordance with SFAS No. 141, Business Combinations. The residual
           fair value after this allocation was the implied fair value of the
           reporting unit goodwill. The implied fair value of this reporting
           unit exceeded its carrying amount and the Company was not required to
           recognize an impairment loss.

           Prior to the adoption of SFAS No. 142, goodwill was amortized on a
           straight-line basis over the expected periods to be benefited,
           generally 5 years, and assessed for recoverability by determining
           whether the amortization of the goodwill balance over its remaining
           life could be recovered through undiscounted future operating cash
           flows of the acquired operation. All other intangible assets were
           amortized on a straight-line basis over a period of 5 years. The
           amount of goodwill and other intangible asset impairment, if any, was
           measured based on projected discounted future operating cash flows
           using a discount rate reflecting the Company's average cost of funds.

                                      F-37
<PAGE>

           SFAS No. 143:

           In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
           Retirement Obligations (SFAS No. 143). SFAS No. 143 requires the
           Company to record the fair value of an asset retirement obligation as
           a liability in the period in which it incurs a legal obligation
           associated with the retirement of tangible long-lived assets that
           result from the acquisition, construction, development and/or normal
           use of the assets. The Company also records a corresponding asset
           which is depreciated over the life of the asset. Subsequent to the
           initial measurement of the asset retirement obligation, the
           obligation will be adjusted at the end of each period to reflect the
           passage of time and changes in the estimated future cash flows
           underlying the obligation. The Company is required to adopt SFAS No.
           143 on January 1, 2003. Application of this statement will not have a
           significant impact on the consolidated financial statements of the
           Company.

           SFAS No. 145:

           In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
           Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
           Technical Corrections. SFAS No. 145 amends existing guidance on
           reporting gains and losses on the extinguishment of debt to prohibit
           the classification of the gain or loss as extraordinary, as the use
           of such extinguishments have become part of the risk management
           strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
           require sale-leaseback accounting for certain lease modifications
           that have economic effects similar to sale-leaseback transactions.
           The provisions of the Statement related to the rescission of
           Statement No. 4 is applied in fiscal years beginning after May 15,
           2002. Earlier application of these provisions is encouraged. The
           provisions of the Statement related to Statement No. 13 were
           effective for transactions occurring after May 15, 2002, with early
           application encouraged. The adoption of SFAS No. 145 will not have a
           material effect on the consolidated financial statements of the
           Company.

           SFAS No. 146:

           In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
           Associated with Exit or Disposal Activities. SFAS No. 146 addresses
           financial accounting and reporting for costs associated with exit or
           disposal activities and nullifies Emerging Issues Task Force (EITF)
           Issue 94-3, Liability Recognition for Certain Employee Termination
           Benefits and Other Costs to Exit an Activity. The provisions of this
           Statement are effective for exit or disposal activities that are
           initiated after December 31, 2002, with early application encouraged.
           The adoption of SFAS No. 146 is not expected to have a material
           effect on the consolidated financial statements of the Company.

           SFAS No. 148:

           In December 2002, the FASB issued SFAS No. 148, Accounting for
           Stock-Based Compensation - Transition and Disclosure, an amendment of
           FASB Statement No. 123. This Statement amends FASB Statement No. 123,
           Accounting for Stock-Based Compensation, to provide alternative
           methods of transition for a voluntary change to the fair value method
           of accounting for stock-based employee compensation. In addition,
           this Statement amends the disclosure requirements of Statement No.
           123 to require prominent disclosures in both annual and interim
           financial statements. Certain of the disclosure modifications are
           required for fiscal years ending after December 15, 2002. The Company
           does not have any impact due to the issuance of this statement, as it
           does not have any stock options outstanding as of December 31, 2002.


                                      F-38
<PAGE>

           FASB interpretation No. 45:

           In November 2002, the FASB issued Interpretation No. 45, Guarantor's
           Accounting and Disclosure Requirements for Guarantees, Including
           Indirect Guarantees of Indebtedness to Others, an interpretation of
           FASB Statements No. 5, 57 and 107 and a rescission of FASB
           Interpretation No. 34. This Interpretation elaborates on the
           disclosures to be made by a guarantor in its interim and annual
           financial statements about its obligations under guarantees issued.
           The Interpretation also clarifies that a guarantor is required to
           recognize, at inception of a guarantee, a liability for the fair
           value of the obligation undertaken. The initial recognition and
           measurement provisions of the Interpretation are applicable to
           guarantees issued or modified after December 31, 2002 and are not
           expected to have a material effect on the Company's financial
           statements. The disclosure requirements are effective for financial
           statements of interim or annual periods ending after December 15,
           2002 and the adoption of No. 145 Interpretation does not have any
           impact on recognition of liabilities and any material impact on the
           disclosures.

           FASB interpretation No. 46:

           In January 2003, the FASB issued Interpretation No. 46, Consolidation
           of Variable Interest Entities (VIE), an interpretation of ARB No. 51.
           This Interpretation addresses the consolidation by business
           enterprises of variable interest entities as defined in the
           Interpretation. The Interpretation applies immediately to variable
           interests in variable interest entities created after January 31,
           2003, and to variable interests in variable interest entities
           obtained after January 31, 2003. For nonpublic enterprises, such as
           the Company, with a variable interest in a variable interest entity
           created before February 1, 2003, the Interpretation is applied to the
           enterprise no later than the end of the first annual reporting period
           beginning after June 15, 2003. The application of this Interpretation
           is not expected to have a material effect on the consolidated
           financial statements of the Company. The Interpretation requires
           certain disclosures in financial statements issued after January 31,
           2003 if it is reasonably possible that the Company will consolidate
           or disclose information about variable interest entities when the
           Interpretation becomes effective. The Company does not believe that
           it has any VIE for consolidation.


                                      F-39
<PAGE>


                                   SIGNATURES

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

                                                   Natuzzi S.P.A.
                                                   (Registrant)




                                         By  /s/ Pasquale Natuzzi
                                            -----------------------------------
                                             Pasquale Natuzzi
                                             Chairman of the Board of Directors
                                             and Chief Executive Officer
           Date: June 30, 2003






<PAGE>

CERTIFICATIONS


I, Pasquale Natuzzi, certify that:

1.   I have reviewed this annual report on Form 20-F of Natuzzi S.p.A.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weakness in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


 /s/ Pasquale Natuzzi
---------------------------
Pasquale Natuzzi
Chief Executive Officer
June 30, 2003

<PAGE>


I, Giuseppe Desantis, certify that:

1.   I have reviewed this annual report on Form 20-F of Natuzzi S.p.A.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weakness in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



 /s/ Giuseppe Desantis
----------------------------
Giuseppe Desantis
General Manager (principal financial officer)
June 30, 2003


<PAGE>



Exhibit Index

1.1  English translation of the by-laws (Statuto) of the Company, as amended and
     restated as of July 15, 2002.

2.1  Deposit Agreement dated as of May 15, 1993, as amended and restated as of
     December 31, 2001, among the Company, The Bank of New York, as Depositary,
     and owners and beneficial owners of ADRs (incorporated by reference to the
     Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange
     Commission on July 1, 2002, file number 1-11854).

8.1  List of Significant Subsidiaries.

99.1 Certifications pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
     906 of the  Sarbanes-Oxley Act of 2002.



<PAGE>

                                                              Exhibit 1.1


                                                     Informal Translation
                                                            June 23, 2003




                  BY LAWS OF THE STOCK COMPANY "NATUZZI S.p.A."

                  INCORPORATION - PLACE OF BUSINESS - DURATION

                                    ARTICLE 1
                                    ---------

     Incorporated hereby is a stock company having the name "NATUZZI S.p.A."


                                    ARTICLE 2
                                    ---------

     The company has its legal headquarters in Bari, Corso Cavour No. 51.
Secondary headquarters may be established or eliminated at other locations in
Italy or abroad, pursuant to resolutions adopted at extraordinary meetings of
the shareholders.

                                    ARTICLE 3
                                    ---------

     The domicile of the shareholders insofar as it concerns their relations
with the Company shall be determined by the shareholders' record.

                                    ARTICLE 4
                                    ---------

     The duration of the Company lasts until December 31, 2050 and may be
lengthened or shortened pursuant to resolutions of an extraordinary meeting of
the shareholders.

                                    PURPOSES

                                    ARTICLE 5
                                    ---------

     The Company has as its purpose the production and marketing of sofas, arm
chairs, furniture in general and decorative goods, as well as the production,
processing and marketing of raw materials and semi-finished goods used therefor.
The Company also has, as non-prevalent purposes and with regard to the companies
constituting part of the group, the following activities:

-    management of the Group's information technology, administrative and
     commercial systems;
-    production of hardware and software;
-    consultation and implementation of issues related to management, research
     and development, marketing, commercial penetration, import-export
     activities and other business related matters;
-    professional training services addressed to executives, managers, employees
     and workers;
-    planning and realization of industrial prototypes, trademark and patents,
     graphics and advertising;
-    the granting of financing in any form;
-    foreign exchange transactions;
-    the collection, payment and transfer of funds;
-    financial coordination; budgetary, strategic and administrative planning;
     coordination of purchases, product engineering and development and
     marketing;
-    the construction, purchase, management, licensing and leasing of
     industrial, commercial and production premises; and


<PAGE>


-    the purchase, management, licensing and leasing of machinery, equipment and
     other tools.

Absolutely excluded are the following:

-    reserved professional activities;
-    engaging in reserved activities under Law No. 1 of 1991;
-    engaging with the public in the activities referred to in article 4,
     paragraph 2, of Law No. 197/91; and
-    granting of consumer credit, even if with shareholders, including grants in
     conformity with the provisions of the Ministry of the Treasury set forth in
     the Decree of September 27, 1991, published in the "Official Gazette" No.
     227;

     The Company may exercise, solely within the boundaries of the Natuzzi
S.p.A. Group, any activity in connection with the installation, maintenance and
servicing of technical facilities and in connection with mechanical, hydraulic,
thermal and electrical units, with telephone and electrical network units and
with lines and transport units.

     In addition, the Company may acquire participations and interests in other
companies or enterprises of any kind, in Italy or abroad, as an investment and
not for trading, and may undertake all operations that the administrative body
deems necessary or useful to the attainment of the purposes of the Company,
including the grant of suretyships and other guaranties.

                                  SHARE CAPITAL

                                    ARTICLE 6
                                    ---------

     The Company's share capital is fifty-seven million, five hundred twenty
five thousand and two hundred and fifty-eight Euros (e 57,525,528) and is
divided into fifty-seven million, five hundred twenty five thousand and two
hundred and fifty-eight (57,525,528) shares, each with a nominal value of one
Euro (e 1.00).

                                    ARTICLE 7
                                    ---------

     Payments for the shares shall be requested by the administrative body under
the terms and conditions that it deems appropriate.


                                    ARTICLE 8
                                    ---------

         The shareholders' meeting may resolve to reduce the share capital,
including by assignment of corporate activities to individual shareholders who
request such assignment.

                             SHAREHOLDERS' MEETINGS

                                    ARTICLE 9
                                    ---------

         The shareholders' meeting represents all of the shareholders, and its
resolutions, taken pursuant to the law and these By-Laws, bind all of the
shareholders, including absent and dissenting shareholders.

<PAGE>


     The shareholders' meeting must be called at least once a year, and may be
held outside of the legal headquarters including abroad in the countries of the
EEC, Switzerland, Austria, the United States, Australia and Japan, within four
months of the closing of the fiscal year or within six months therefrom if
special reasons so require.

                                    ARTICLE 10
                                    ----------

     Each shareholder has the right to one vote per share.

                                    ARTICLE 11
                                    ----------

     The shareholders' meeting is called by the administrative body pursuant to
article 2366 of the Civil Code.

     Shareholders' meetings at which are present the entire capital of the
Company, the Directors and the Statutory Auditors are validly constituted even
if the meetings have not been previously called.

                                    ARTICLE 12
                                    ----------

     All those whose names are inscribed in the record book of shareholders at
least five days before the date fixed for the meeting may attend the
shareholders' meeting. Each shareholder may appoint proxies, by means of a
written proxy, as prescribed by the law.

                                    ARTICLE 13
                                    ----------

     The shareholders' meeting is presided over by the Chairman or the Vice
Chairman of the Board of Directors, or, in their absence, by another person
designated by the shareholders' meeting.

     The President, with agreement of the meeting, nominates a Secretary. The
resolutions of the shareholders' meetings are recorded in minutes signed by the
President and by the Secretary. Where required by law or when the President
deems it appropriate, the minutes shall be recorded by a notary public.


                                    ARTICLE 14
                                    ----------

     Ordinary and extraordinary shareholders' meetings shall deliberate with the
quorums and majorities prescribed by the law.


                               BOARD OF DIRECTORS

                                    ARTICLE 15
                                    ----------

     The Company is managed by a Board of Directors composed of seven to eleven
members, who are elected at the shareholders' meeting. Directors may be elected
also among non-shareholders. The Directors remain in office for three years.
Directors' terms expire and they may be replaced, in accordance with the law.
The shareholders' meeting that elects the Directors also establishes their
number and their compensation for the entire duration of their mandate.

<PAGE>

                                    ARTICLE 16
                                    ----------

     The Board of Directors elects, from among its members, its Chairman, if the
shareholders' meeting has not already provided therefor, and, if it deems
appropriate, its Vice Chairman. The Board of Directors may delegate all or part
of its powers, subject to the provisions of article 2381 of the Civil Code, to
one or more of its members, who assume in such case the title of Managing
Directors, and fix their powers. The Board of Directors, in addition, may
nominate managers and special attorneys-in-fact. The Chairman or, in his
absence, the Vice Chairman, convenes and presides over the meetings of the
Board.

                                    ARTICLE 17
                                    ----------

     The Board of Directors is vested with the widest powers for the ordinary
and extraordinary management of the Company, without exception whatsoever, and
has the power to carry out all of acts that it deems appropriate for the
performance and the achievement of the purposes of the Company, excluding,
however, those powers that are explicitly reserved by law to the shareholders'
meeting.

     The Board of Directors therefore has the power, among others, to acquire,
sell and exchange real property, to confer such property to other companies,
both established and being established, to acquire participations and interests,
to approve mortgage registrations, cancellations and annotations, to relinquish
legal mortgages and discharge the Registrar of Real Property from liability, to
settle and initiate legal proceedings, even informal mediation, in cases not
forbidden by law, to authorize and to carry out transactions with banks,
financial institutions and other public and private entities.

                                    ARTICLE 18
                                    ----------

     The Board of Directors meets any time that the Chairman, or who acts in his
place, judges it necessary, at the legal headquarters or elsewhere, in Italy or
abroad in the countries of the EEC, Switzerland, Austria, the United States,
Australia or Japan.

     The Chairman also convenes the Board upon the request of at least one
Director or of one regular member of the Board of Statutory Auditors. The
convocation must be made by registered letter sent at least seven days prior to
the day of the meeting and, in case of emergency, by a telegram sent at least
three days before such date, to the domicile of each Director.

     In the absence of the foregoing formalities, the Board of Directors is
otherwise deemed to be validly constituted if all of the Directors in office and
the Board of Statutory Auditors are present. For the validity of the decisions
of the Board of Directors, a favorable vote of the majority of the Directors
present is required.

     If the number of the members of the Board is even, the Chairman's vote
shall prevail in case of deadlock.

     It is permissible to hold meetings of the Board by phone or video
conference, so long as all participants may be identified and are allowed to
hear and participate in the discussions. Such requirements shall be verified.
The meeting shall be deemed to have taken place in the place where the Chairman
is located. The secretary of the meeting shall be present at the same place as
the President, where it is possible to redact and sign the minutes of the
meeting on the appropriate corporate book.

<PAGE>

                                    ARTICLE 19
                                    ----------

     To the Chairman of the Board of Directors or, if the Chairman is absent or
unable to fulfill his duties, to the Vice Chairman, if named, and to the
Managing Director, within the powers to him conferred, is assigned the power to
bind and represent the Company including in court, with the power to bring and
file legal and administrative actions and petitions at each level of
jurisdiction, including petitions for revocation and remand.

                           BOARD OF STATUTORY AUDITORS

                                   ARTICLE 20
                                   ----------

     The management of the Company shall be reviewed by a Board of Statutory
Auditors composed of three regular members and two alternate members.

     Statutory Auditors remain in office for three years and may be reelected
for additional terms.

     The shareholders' meeting that nominates the Statutory Auditors shall
determine their compensation.

                                    FINANCING

                                    ARTICLE 21
                                    ----------

     Any advancements or financings that shareholders extend to the Company,
proportionally to the shares registered to their respective names, shall be
considered, for all legal and fiscal purposes, exclusively gratuitous.

                        FINANCIAL STATEMENTS AND PROFITS

                                    ARTICLE 22
                                    ----------

     The fiscal year ends on December 31 of each year. At the end of each fiscal
year, the administrative board prepares the financial statements to be submitted
to the shareholders' meeting.

                                    ARTICLE 23
                                    ----------


     Net income, less an amount equal to 5% thereof to be allocated to the legal
reserve, shall be distributed among the shareholders, unless the shareholders'
meeting decides to reserve it or to carry it over, in whole or in part, to
subsequent fiscal years.


                                    ARTICLE 24
                                    ----------

     The payment of dividends is to be effected pursuant to the terms prescribed
by the shareholders' meeting.
<PAGE>


                           DISSOLUTION AND LIQUIDATION

                                    ARTICLE 25
                                    ----------

     Upon the occurrence, at any time and for any reason, of the dissolution of
the Company, the shareholders' meeting shall establish the formalities of
liquidation, nominate one or more liquidators, and determine the powers and
compensation of the liquidators.

                               GENERAL PROVISIONS

                                    ARTICLE 26
                                    ----------

     For any matters not provided for in these By-Laws, reference shall be made
to the outstanding provisions of applicable law.




<PAGE>
                                                                   Exhibit 8.1
<TABLE>
<CAPTION>

List of Significant Subsidiaries:



                                        Percentage of
Name                                    ownership         Registered office                 Activity
----                                    --------------    -----------------                 --------
<S>                                          <C>           <C>                                  <C>
Spagnesi S.p.A.                              99.95         Quarrata, Italy                      (1)
Style and Comfort S.r.l.                    100.00         Bari, Italy                          (1)
Italsofa Bahia Ltd.                          97.99         Bahia, Brazil                        (1)
Italsofa Shanghai Co. Ltd.                  100.00         Shanghai, China                      (1)
Italsofa Romania S.r.l.                     100.00         Baia Mare, Romania                   (1)
Natco S.p.A.                                 99.99         Bari, Italy                          (2)
I.M.P.E. S.p.A.                              90.83         Qualiano, Italy                      (3)
Natuzzi Americas, Inc.                      100.00         High Point, NC, U.S.A.               (4)
Natuzzi Asia Ltd.                           100.00         Hong Kong, China                     (4)
Natuzzi Iberica S.A.                        100.00         Madrid, Spain                        (4)
Natuzzi (Switzerland) AG/SA                  80.00         Kaltbrunn, Switzerland               (4)
Natuzzi Nordic                              100.00         Copenhagen, Denmark                  (4)
Natuzzi Benelux SA/NV                       100.00         Brussels, Belgium                    (4)
Castlegate 170 Ltd.                         100.00         West Thurrock, U.K.                  (4)
Natuzzi Trade Service S.r.l.                100.00         Bari, Italy                          (5)
------------------------
</TABLE>

(1)  Manufacture and distribution
(2)  Intra-group leather dyeing and finishing
(3)  Production and distribution of polyurethane foam
(4)  Distribution
(5)  Transportation services



<PAGE>
                                                                Exhibit 99.1


     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


     Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of
the undersigned officers of Natuzzi S.p.A. (the "Company"), does hereby certify,
to such officer's knowledge, that:

     The Annual Report on Form 20-F for the fiscal year ended December 31, 2002
of the Company fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and information contained in the Form 20-F
fairly presents, in all material respects, the financial condition and results
of operations of the Company.

Dated: June 30, 2003


                                            /s/ Pasquale Natuzzi
                                           ----------------------------
                                     Name:  Pasquale Natuzzi
                                     Title: Chief Executive Officer
Dated: June 30, 2003


                                            /s/ Giuseppe Desantis
                                           ----------------------------
                                     Name:  Giuseppe Desantis
                                     Title: General Manager
                                            (principal financial officer)

A signed original of this written statement required by Section 906 has been
provided to Natuzzi S.p.A. and will be retained by Natuzzi S.p.A. and furnished
to the Securities and Exchange Commission or its staff upon request.

<PAGE>