<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q/A



[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the Quarterly Period Ended: June 30, 1996



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

           For the transition period from ____________ to ____________

                        Commission File Number: 33-96794

                          DECORATIVE HOME ACCENTS, INC.
             (Exact name of registrant as specified in its charter)

        Delaware                                        57-0998387
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation or organization)           

             Industrial Park Drive, Abbeville, South Carolina 29620
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (864) 446-2123


        Indicate by check mark whether the registrant 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).

                                 Yes [ ]                  No [X]

        Indicate by check mark whether the registrant has been subject to such
filing requirements for the past 90 days.





                                 Yes [X]                  No [ ]

        As of August 12, 1996, there were 1,074,838 shares outstanding of the
Registrant's Class A Common Stock ($0.01 par value), 1,756,126 shares
outstanding of the Registrant's Class B Non-Voting Common Stock ($0.01 par
value), 386,040 shares outstanding of the Registrant's Class C Common Stock
($0.01 par value), 808,333 shares outstanding of the Registrant's Class D Common
Stock ($0.01 par value), 125,000 shares outstanding of the Registrant's Class F
Common Stock and 53,820 outstanding shares of the Registrant's 14% Cumulative
Redeemable Preferred Stock ($0.01 par value).



                                       1
<PAGE>   2

                          DECORATIVE HOME ACCENTS, INC.

                           QUARTER ENDED JUNE 30, 1996

                                      INDEX

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                               No.
                                                                                               ---
<S>            <C>                                                                              <C>

PART I FINANCIAL INFORMATION

    Item 1.    Financial Statements (Unaudited)

               Condensed Consolidated Balance Sheets as of June 30, 1996
                      (As Restated) and December 31, 1995...................................... 4

               Condensed Consolidated Statements of Operations for the three
                      months ended June 30, 1996 (As Restated) and 1995.......................  5

               Condensed Consolidated Statements of Operations for the six
                      months ended June 30, 1996 (As Restated) and 1995.......................  6

               Condensed Consolidated Statement of Stockholders' Equity (Deficiency)
                      for the six months ended June 30, 1996 (As Restated) ...................  7

               Condensed Consolidated Statements of Cash Flows for the six months
                                         ended June 30, 1996 (As Restated) and 1995 ..........  8

               Notes to Condensed Consolidated Financial Statements (Unaudited)...............  9

    Item 2.    Management's Discussion and Analysis of Financial Condition
                      and Results of Operations .............................................. 11

PART II        OTHER INFORMATION


               Signature Page ................................................................ 18
</TABLE>


                                       2

<PAGE>   3

                                 AMENDMENT NO. 1

        THIS AMENDMENT NO. 1 MODIFIES THE QUARTERLY REPORT FILED ON FORM 10-Q BY
THE REGISTRANT FOR THE PERIOD ENDED JUNE 30, 1996 AS FOLLOWS: PART I, ITEM 1,
FINANCIAL STATEMENTS (UNAUDITED), AND ITEM 2, MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HAVE BEEN REPLACED IN
THEIR ENTIRETY.



                                       3

<PAGE>   4

PART I  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                                  DECORATIVE HOME ACCENTS, INC.
                       CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
                                           (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                            June 30,
                                                                              1996        December 31,
                                                                          (Unaudited)        1995 (1)
                                                                          -----------        --------
                                                                   (Restated - Note 4)
<S>                                                                             <C>            <C>  

ASSETS
CURRENT ASSETS:
        Cash and cash equivalents                                          $        -      $     169
        Investment securities                                                   1,000          1,000
        Accounts receivable - net of allowance for doubtful accounts of
          $2,112 at June 30, 1996 and $2,506 at December 31, 1995              24,026         28,982
        Income taxes receivable                                                 3,045          2,714
        Inventories                                                            45,407         43,713
        Deferred income taxes                                                   3,692          4,282
        Other current assets                                                    2,112            598
                                                                            ---------      ---------
            Total current assets                                               79,282         81,458

PROPERTY, PLANT AND EQUIPMENT, NET                                             31,692         30,667
OTHER ASSETS                                                                    9,943          8,790
INTANGIBLE ASSETS, NET                                                         94,345         94,938
                                                                            ---------      ---------

TOTAL ASSETS                                                                $ 215,262      $ 215,853
                                                                            =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
        Accounts payable                                                    $  12,684      $  14,452
        Accrued liabilities                                                     7,176          9,775
        Accrued interest                                                        8,165          7,583
                                                                            ---------      ---------
            Total current liabilities                                          28,025         31,810
                                                                            ---------      ---------

LONG-TERM DEBT                                                                146,345        131,452
DEFERRED INCOME TAXES                                                               -          3,348
REDEEMABLE PREFERRED STOCK                                                     45,188         41,059
REDEEMABLE COMMON STOCK                                                         2,015          1,639
STOCKHOLDERS' EQUITY (DEFICIENCY):
        Common stocks                                                               9              9
        Additional paid-in capital                                             11,602         16,107
        Reduction of certain equity interest to predecessor basis              (6,209)        (6,209)
        Accumulated deficit                                                   (11,713)        (3,362)
                                                                            ---------      ---------
            Total stockholders' equity (deficiency)                            (6,311)         6,545
                                                                            ---------      ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                     $ 215,262      $ 215,853
                                                                            =========      =========

</TABLE>

(1) Derived from December 31, 1995 audited consolidated financial statements.

      See notes to condensed consolidated financial statements (unaudited).



                                       4

<PAGE>   5

                          DECORATIVE HOME ACCENTS, INC.

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
                                   (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                   Three Months Ended
                                                   ------------------
                                              June 30, 1996   June 30, 1995 
                                              -------------   ------------- 
                                           (Restated -Note 4)
<S>                                              <C>           <C>     

SALES                                            $ 42,989      $ 10,849

COST OF GOODS SOLD                                 31,774         5,406
                                                 --------      --------

GROSS PROFIT                                       11,215         5,443

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES       12,362         4,126
                                                 --------      --------

INCOME (LOSS) FROM OPERATIONS                      (1,147)        1,317
                                                 --------      --------

INTEREST INCOME (EXPENSE)
        Interest expense                           (4,925)       (1,819)
        Interest income                                 8           106
                                                 --------      --------
            Interest income (expense), net         (4,917)       (1,713)
                                                 --------      --------

LOSS BEFORE PROVISION FOR INCOME TAXES             (6,064)         (396)

INCOME TAX BENEFIT                                  2,001           151
                                                 --------      --------

NET LOSS                                         $ (4,063)     $   (245)
                                                 ========      ========

</TABLE>



      See notes to condensed consolidated financial statements (unaudited).



                                       5

<PAGE>   6

                          DECORATIVE HOME ACCENTS, INC.

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
                                   (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                   Six  Months Ended
                                                   -----------------
                                           June 30, 1996    June 30, 1995
                                           -------------    -------------
                                          (Restated -Note 4)

<S>                                              <C>           <C>     
SALES                                            $ 81,772      $ 22,125

COST OF GOODS SOLD                                 60,610        11,225
                                                 --------      --------

GROSS PROFIT                                       21,162        10,900

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES       24,098         8,387
                                                 --------      --------

INCOME (LOSS) FROM OPERATIONS                      (2,936)        2,513
                                                 --------      --------

INTEREST INCOME (EXPENSE)
        Interest expense                           (9,540)       (3,631)
        Interest income                                18           238
                                                 --------      --------
            Interest income (expense), net         (9,522)       (3,393)
                                                 --------      --------

LOSS BEFORE PROVISION FOR INCOME TAXES            (12,458)         (880)

INCOME TAX BENEFIT                                  4,107           335
                                                 --------      --------

NET LOSS                                         $ (8,351)     $   (545)
                                                 ========      ========

</TABLE>



      See notes to condensed consolidated financial statements (unaudited).



                                       6

<PAGE>   7

                         DECORATIVE HOME ACCENTS , INC.

      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
              FOR THE SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS)
                                   (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                               Reduction of
                                                                               Certain Equity
                                                                                Interest to                   Total
                                                     Common     Additional      Predecessor  Accumulated  Stockholders'
                                                     Stocks    Paid-in Capital    Basis        Deficit  Equity (Deficiency)
                                                     ------    ---------------    -----        -------  -------------------
<S>                                                 <C>           <C>           <C>           <C>           <C>     
Balances at December 31, 1995                       $      9      $ 16,107      $ (6,209)     $ (3,362)     $  6,545

Accretion of redeemable common stock for the
     six months ended June 30, 1996                                  (358)                                     (358)

Accretion of redeemable preferred stock for the
     six months ended June 30, 1996                                  (397)                                     (397)

Preferred stock dividend paid-in-kind                          (3,750)                                       (3,750)

Net loss (Restated - Note 4)                                                                   (8,351)       (8,351)
                                                    --------      --------      --------      --------      --------

Balances at June 30, 1996 (Restated - Note 4)       $      9      $ 11,602      $ (6,209)     $(11,713)     $ (6,311)
                                                    ========      ========      ========      ========      ========

</TABLE>


      See notes to condensed consolidated financial statements (unaudited).



                                       7

<PAGE>   8

                          DECORATIVE HOME ACCENTS, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                 Six months ended
                                                                     June 30
                                                               1996           1995
                                                       -------------------------------
                                                   (Restated - Note 4)
<S>                                                         <C>           <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                    $ (8,351)     $   (546)
Adjustment to reconcile net loss to net cash
   used in operating activities:
   Depreciation and amortization                               4,925         1,993
   Deferred tax (benefit) provision                           (4,107)         (463)
   Changes in operating assets and liabilities:
        Accounts receivable                                    4,956           867
        Inventories                                           (1,694)       (2,682)
        Income tax receivable                                   (331)         (833)
        Other current assets                                  (1,514)          148
        Accounts payable                                      (1,768)          804
        Accrued liabilities                                     (849)       (1,464)
        Accrued interest                                         582           275
        Income taxes payable                                       -          (567)
                                                            --------      --------
               Net cash used in operating activities          (8,151)       (2,468)
                                                            --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of property and equipment                    (1,938)         (728)
        Other long term assets                                (2,074)         (110)
                                                            --------      --------
            Net cash used in investing activities             (4,012)         (838)
                                                            --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Net borrowings under revolving line of credit         13,744             -
        Redeemable preferred stock dividends paid             (1,750)            -
                                                            --------      --------
             Net cash provided by  financing activities       11,994             -
                                                            --------      --------

DECREASE IN CASH AND CASH EQUIVALENTS                           (169)       (3,306)

CASH AND CASH EQUIVALENTS AT BEGINNING
      OF PERIOD                                                  169         8,355
                                                            --------      --------

CASH AND CASH EQUIVALENTS AT END OF                        $       -      $  5,049
                                                            --------      --------
PERIOD

SUPPLEMENTAL CASH FLOW INFORMATION
        Interest paid                                       $ 10,418  $          -
                                                            --------      --------

</TABLE>


      See notes to condensed consolidated financial statements (unaudited)



                                       8

<PAGE>   9

DECORATIVE HOME ACCENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 (AS RESTATED) AND 1995

1.      BASIS OF INTERIM PRESENTATION

        The accompanying interim unaudited condensed consolidated financial
        statements have been prepared in accordance with generally accepted
        accounting principles for interim financial information and the
        instructions of Regulation S-X. Accordingly, they do not include all the
        information and footnotes required by generally accepted accounting
        principles for complete financial statements. In the opinion of
        management, all adjustments (consisting of normal recurring adjustments)
        considered necessary for a fair presentation have been included in the
        interim financial information.

        For interim reporting, the Company's subsidiary, Home Innovations. Inc.
        ("HII") records an estimated gross profit based on information provided
        by its accounting and financial systems. At year-end, inventories of the
        Company are stated at the lower of cost, determined using the first-in,
        first-out (FIFO) method, or market.

        The Company's business is seasonal in nature, with its highest sales
        levels historically occurring in the third and fourth fiscal quarters,
        which include the holiday selling season. Therefore, the results of
        operations for the interim periods are not necessarily indicative of the
        operating results of the full year.


2.      ORGANIZATION

        The accompanying interim consolidated financial statements as of June
        30, 1996, include the accounts of Decorative Home Accents, Inc. ("DHA"
        or the "Company") and its wholly-owned subsidiaries, The Rug Barn, Inc.
        and Home Innovations, Inc. (purchased on July 13, 1995).

        All significant intercompany transactions and accounts have been
        eliminated.


3.      BALANCE SHEET COMPONENTS

        Inventories are summarized as follows (in $000's):

<TABLE>
<CAPTION>
                                  June 30, 1996   December 31, 1995
                                  -------------   -----------------
                    <S>                 <C>                 <C>     
                    Raw materials       $21,076             $24,464 
                    Work-in-process       2,257                 973 
                    Finished goods       22,074              18,276 
                                        -------             ------- 
                                        $45,407             $43,713 
                                        =======             ======= 
</TABLE>


                                       9



<PAGE>   10

        Property, plant and equipment is summarized as follows (in $000's):

<TABLE>
<CAPTION>
                                         June 30, 1996  December 31, 1995
                                         -------------  -----------------
        <S>                                   <C>                <C>        
        Land                                  $    863           $    863   
        Buildings and improvements              15,491             15,384   
        Furniture and fixtures                   4,747              3,184   
        Machinery and equipment                 16,028             14,101   
                                              --------           --------   
                                                37,129             33,532   
                                                                            
        Accumulated depreciation                (5,437)            (3,375)  
                                              --------           --------   
                                                31,692             30,157   
        Construction in progress                     -                510   
                                              --------           --------   
                                              $ 31,692           $ 30,667   
                                              ========           ========   
                                                                 
</TABLE>


RESTATEMENT

        Subsequent to the original issuance of the Company's financial
        statements for the three months ended March 1996, the six months ended
        June 30, 1996 and the nine months ended September 30, 1996, management
        determined that certain customer chargebacks and credits had either not
        been properly recorded in the financial statements or had been recorded
        in improper accounting periods. As a result, the accompanying financial
        statements have been restated. The following is a summary of the effects
        of the restatements:

<TABLE>
<CAPTION>
                                                     Three Months Ended              Six Months Ended
                                                       June 30, 1996                   June 30, 1996
                                                 ---------------------------      -------------------------
                                                    As         As Originally         As       As Originally
                                                 Restated        Recorded         Restated      Recorded
                                                 --------      -------------      --------    -------------
<S>                                               <C>             <C>             <C>            <C>    
Net sales                                         $42,989         $44,495         $81,772        $84,281
Income (loss) from operations                     ($1,147)           $836         ($2,936)          ($31)
Net loss                                          ($4,063)        ($2,734)        ($8,351)       ($6,404)

</TABLE>

<TABLE>
<CAPTION>
                                                               As of June 30, 1996
                                                        ----------------------------------
                                                           As                As Originally
                                                        Restated                Recorded
                                                        --------                --------
<S>                                                      <C>                   <C>    
Current assets                                           $79,282               $81,251
Total assets                                            $215,262              $217,295
Current liabilities                                      $28,025               $28,165
Total liabilities                                       $174,370              $174,456
Total shareholders' deficiency                           ($6,311)              ($4,364)

</TABLE>



                                       10

<PAGE>   11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        Note: Subsequent to the original issuance of the Company's financial
              statements for the three months ended March 1996, the six months
              ended June 30, 1996 and the nine months ended September 30, 1996,
              management determined that certain customer chargebacks and
              credits had either not been properly recorded in the financial
              statements or had been recorded in improper accounting periods. As
              a result, the accompanying financial statements have been
              restated. The Company has implemented additional procedures,
              including timely reconciliation of the Company's accounts
              receivable to avoid such future errors.

              This Management's Discussion and Analysis of Financial Condition
              and Results of Operations reflects the restatement of the
              Company's unaudited condensed consolidated statements of
              operations for the three months and six months ended June 30,
              1996. See Note 4 to the Company's unaudited condensed consolidated
              financial statements.

        INTRODUCTION
        
        The following discussion provides management's assessment of the results
        of operations and liquidity and capital resources of DHA and should be
        read in conjunction with the respective financial statements of DHA and
        the notes thereto included elsewhere in this Form 10-Q. The following
        table includes unaudited pro forma financial information as if the July
        1995 purchase of Home Innovations, Inc. ("HII") occurred as of January
        1, 1995. Such adjustments to the pro forma financial information consist
        principally of the following: net adjustments to cost of goods sold and
        SG&A expenses related to adjusting depreciation expense for the new
        basis of accounting resulting from the HII acquisition; increases in
        SG&A expenses to account for the amortization of goodwill and the
        identifiable intangible assets resulting from the HII acquisition;
        increases in SG&A expenses to account for compensation expense resulting
        from granting stock options at less than fair market value; net
        adjustments to interest expense resulting from issuance of 13% Senior
        Notes due 2002 and extinguishment of prior debt, amortization of debt
        issuance costs and accretion of discount on the Senior Notes.

        Management's discussion and analysis of the results of operations should
        be read using the proforma financial information presented below:

<TABLE>
<CAPTION>
                                         ACTUAL         PROFORMA
                                           Three Months Ended
                                         -----------------------
                                         June 30,       June 30,
                                          1996           1995
                                          ----           -----
<S>                                     <C>           <C>     

Sales                                   $ 42,989      $ 47,568
Cost of goods sold                        31,774        35,400
                                        --------      --------
     Gross profit                         11,215        12,168
Selling, general and administrative
     expenses                             12,362        13,919
                                        --------      --------
Loss from operations                      (1,147)       (1,751)

Interest expense, net                     (4,917)       (4,594)

      Gain on sale of equipment                0           175
                                        --------      --------

     Loss before income taxes           $ (6,064)     $ (6,170)
                                        ========      ========
</TABLE>

                                        ACTUAL        PROFORMA
                                           Six Months Ended
                                        ----------------------
                                        June 30,      June 30,



                                       11
<PAGE>   12

<TABLE>
<CAPTION>
                                            1996          1995
                                            ----          -----
<S>                                     <C>            <C>      

Sales                                   $  81,772      $ 100,280
Cost of goods sold                         60,610         72,931
                                        ---------      ---------
     Gross profit                          21,162         27,349
Selling, general and administrative
     expenses                              24,098         25,379
                                        ---------      ---------
Income (loss) from operations              (2,936)         1,970

Interest expense, net                      (9,522)        (8,816)

Gain on sale of equipment                       0            175

Loss before income taxes                $ (12,458)     $  (6,671)
                                        =========      =========

</TABLE>

        IMPACT OF THE PURCHASE OF HOME INNOVATIONS, INC.

        On July 13, 1995, DHA acquired HII, a leading manufacturer of niche
        oriented home accessories with the following product categories: bath
        furnishings, window and specialty products, bedding products and the
        Calvin Klein Home Collection, a new line of designer home products
        launched in September 1995 under the Calvin Klein trademark. The cash
        purchase price of HII was approximately $95.1 million, after a $6.7
        million reduction to the purchase price, including acquisition related
        costs of approximately $1.8 million and the assumption of approximately
        $32.8 million in liabilities consisting of trade payables and accruals
        and $2.3 million of junior subordinated notes. The $6.7 million
        adjustment to the purchase price was determined as a result of the level
        of net assets acquired as of the closing date and certain
        indemnifications from the sellers. The $6.7 million was received from
        the sellers in December, 1995.


        RESULTS OF OPERATIONS
        As described above, the results of operations for the three months ended
        June 30, 1995 reflect pro forma adjustments related to the merger
        agreement discussed above.

               Comparison of Results of Operations for the Three Months Ended
               June 30, 1996 (Actual) (As Restated) with the Pro forma Results
               of Operations for the Three Months Ended June 30, 1995 (with pro
               forma adjustments as discussed above).



        NET SALES

        Net sales for three months ended June 30, 1996 decreased by $4.6
        million, or 9.6% from $47.6 million of pro forma net sales for the three
        months ended June 30, 1995 to $43.0 million for the three months ended
        June 30, 1996. Weak consumer demand and conservative inventory
        management by retailers served by the Company continued to negatively
        impact the June 30, 1996 quarter. While the Company experienced some
        improvement in retail conditions compared to the fourth quarter of 1995
        and the first quarter of 1996, sales declined for the 1996 quarter
        compared to the same period in 1995. Additionally, 1996 second quarter
        sales were negatively impacted by furniture cover sales. The Company is
        significantly reducing its commitment to the furniture cover business
        because of substantial return problems generally experienced by the
        industry. Sales of Calvin Klein Home products positively impacted the
        quarter-to-quarter comparison. Sales of Calvin Klein Home products
        commenced in the third quarter of 1995. Finally, 1996 sales were
        negatively impacted by increased accounts receivable chargebacks related
        to customer returns and sales allowances.



                                       12
<PAGE>   13

        GROSS PROFIT

        The gross profit margin increased from a pro forma of 25.6% for the
        three months ended June 30, 1995 to 26.1% for the three months ended
        June 30 , 1996. The 1995 margin was negatively impacted by write-downs
        of slow moving, close-out and obsolete inventory. Plant operating
        strategies were changed in 1996 to help reduce the Company's exposure to
        inventory writedowns, particularly in the cut-and-sew and print plants.
        The new operating strategy also contributed to higher efficiencies in
        those plants. Gains from the plant operations and inventory control were
        offset somewhat by a slight decline in giftware margins resulting from a
        change in product mix. As the Company continues to broaden its giftware
        product offerings to maximize its distribution strength, the margins
        realized on certain products sourced through outside manufacturers will
        continue to put some downward pressure on margins.


        SELLING, GENERAL & ADMINISTRATIVE EXPENSES

        SG&A expenses decreased $1.6 million or 11.2% from a pro forma of $13.9
        million for the three months ended June 30, 1995 to $12.4 million for
        the three months ended June 30, 1996. As a percentage of sales, SG&A
        expenses decreased from a pro forma of 29.3% for the three months ended
        June 30, 1995 to 28.8% for the same period of 1996. The 1995 amount was
        negatively impacted by significant charges recorded related to customer
        chargebacks and claims. Positively impacting the 1996 results were the
        ongoing cost and headcount reduction programs resulting from the July
        1995 merger. Duplicate functions are being eliminated and cost
        reductions achieved from consolidating certain functions and services.
        Management of the Company expects the cost reduction programs to
        continue to favorably impact the second half of 1996 compared to 1995
        expense levels. Negatively impacting the amounts of SG&A expenses for
        1995 and 1996 were the costs associated with Calvin Klein Home.
        Advertising and overhead expenses associated with Calvin Klein Home, as
        a percentage of sales, exceeded the level of the Company's mature
        businesses. This investment in the growth of the Calvin Klein Home Line
        is part of the Company's long-term plan and management of the Company
        expects that SG&A expenses as a percentage of sales will continue to
        exceed its other mature businesses for the next 12-24 months.


        INTEREST EXPENSE, NET

        Interest expense, net increased from a proforma of $4.6 million for the
        three months ended June 30, 1995 to $4.9 million for the three months
        ended June 30, 1996. This increase was principally due to increased
        borrowings under the Company's revolving line of credit during the
        second quarter of 1996.



        RESULTS OF OPERATIONS

        As described above, the results of operations for the six months ended
        June 30, 1995 reflect proforma adjustments related to the merger
        agreement discussed above.

               Comparison of Results of Operations for the Six Months Ended June
               30, 1996 (Actual) (As Restated) with the Proforma Results of
               Operations for the Six Months Ended June 30, 1995 (with proforma
               adjustments as discussed above).

        NET SALES

        Net sales for six months ended June 30, 1996 decreased by $18.5 million,
        or 18.5% from $100.3 million of pro forma net sales for the six months
        ended June 30, 1995 to $81.8 million for the six months ended June 



                                       13
<PAGE>   14

        30, 1996. A soft retail climate continued to negatively impact sales.
        While the most significant decline was in furniture cover sales, all
        product lines and distribution channels served by the Company were
        impacted. A modest improvement in retail conditions was experienced by
        the Company in the second quarter ended June 30, 1996 compared to the
        fourth quarter of 1995 and the first quarter of 1996. However, the
        improvement did not completely offset the negative impact of the weak
        retail environment on 1996 sales. The decrease in furniture cover sales
        was offset by sales of Calvin Klein Home products. Finally, 1996 sales
        were negatively impacted by increased accounts receivable chargebacks
        related to customer returns and sales allowances. Currently, management
        of the Company expects full year sales for 1996 to be below 1995 levels
        as a result of the difficult retail climate.

        GROSS PROFIT

        The gross profit margin decreases from a pro forma of 27.3% for the six
        months ended June 30, 1995 to 25.9% for the six months ended June 30 ,
        1996. Gross margins for the six months ended June 30, 1996 were
        negatively impacted by some declines in the giftware trade margins. As
        the Company continues to broaden its giftware product offerings to
        maximize its distribution strength, the margins realized on certain
        products sourced through outside manufacturers will continue to put some
        downward pressure on margins. Additionally, plant efficiency losses in
        the Company's printing and cut-and-sew plants negatively impacted 1996
        margins. The losses resulted from unabsorbed fixed overhead due to
        temporary plant curtailments.

        SELLING, GENERAL & ADMINISTRATIVE EXPENSES

        SG&A expenses decreased $1.3 million or 5.1% from a pro forma of $25.4
        million for the six months ended June 30, 1995 to $24.1 million for the
        six months ended June 30, 1996. As a percentage of sales, SG&A expenses
        increased to 29.5% for the six months ended June 30, 1996 from a pro
        forma of 25.3% for the same period of 1995. The increase in SG&A
        expenses, as a percentage of sales, resulted from the fixed nature of
        many of the Company's SG&A costs, particularly salaries and benefits and
        the reduced sales for six months ending June 30, 1996. From an absolute
        dollar standpoint, the 1995 results were negatively impacted by
        uncollectible accounts charges resulting from customer chargebacks and
        claims. Additionally, substantial expenditures related to the September,
        1995 launch of the Calvin Klein Home Line negatively impacted SG&A
        expenses for the first half of 1995. The negative impact on SG&A
        expenses continued, to a lesser extent, as advertising and overhead
        expenses related to the new Calvin Klein Home Line continued in 1996. As
        a percentage of sales, the SG&A expenses associated with the Calvin
        Klein Home Line exceeded those of the Company's mature businesses. This
        investment in the growth of the Calvin Klein Home is part of the
        Company's long-term plan and management of the Company expects that SG&A
        expense as a percentage of sales will continue to exceed its other
        mature businesses for the next 12-24 months. Favorably impacting the
        1996 results was the on-going cost and headcount reduction programs
        resulting from the July, 1995 acquisition of Home Innovations.
        Integration of certain overhead functions as well as the elimination of
        duplicative headcount began to positively impact the Company's result
        for the second quarter of 1996. Management of the Company expects that
        SG&A expenses will continue to be favorably impacted from these programs
        for the balance of 1996.

        INTEREST EXPENSE, NET

        Interest expense, net increased from a pro forma of $8.8 million for the
        six months ended June 30, 1995 to $9.6 million for the six months ended
        June 30, 1996. This increase was principally due to increased borrowings
        under the Company's revolving line of credit during the first six months
        of 1996.


        INCOME TAXES

        The Company has recognized an income tax benefit arising from the
        year-to-date loss. The Company has not provided a valuation allowance on
        the related deferred tax asset. Management of the Company currently



                                       14
<PAGE>   15

        believes that the deferred tax asset reported in the June 30, 1996
        Balance Sheet will be fully realized in the foreseeable future.


        SEASONALITY

        The Company's business is seasonal in nature with its highest sales
        levels historically occurring during the third and fourth fiscal
        quarters, which includes the holiday selling season.


        LIQUIDITY AND CAPITAL RESOURCES

        The Company's primary sources of liquidity for operations and expansion
        have historically been funds generated internally and borrowings under
        the Company's $50.0 million revolving credit facility. Available
        borrowings under the credit facility are based on specified levels of
        underlying collateral. As of June 30, 1996, the Company had
        approximately $10.9 million available under the revolving credit
        facility described above (net of $18.7 million of outstanding borrowings
        and $2.6 million in outstanding letters of credit). The Company intends
        to utilize borrowings under the revolving credit facility to meet
        seasonal fluctuations in the Company's working capital requirements,
        typically peaking in early October, and to fund the anticipated build up
        of inventory relating to the continuing rollout of the Calvin Klein Home
        line of products. Management believes the Calvin Klein Home line of
        products have increased the Company's working capital needs in 1996 by
        approximately $8 to $12 million from 1995 levels. Management believes
        that the working capital requirements related to Calvin Klein in 1996
        peaked in April 1996. Management believes that the Company's cash flow
        from operations and borrowing under the revolving credit facility will
        be sufficient to fund the Calvin Klein Home requirements. The
        obligations under the revolving credit facility are secured by a first
        lien on the inventory and receivables of The Rug Barn, Inc. and Home
        Innovations, Inc. and its subsidiaries. The revolving credit facility
        contains certain financial and other covenants with which the Company
        must comply, including, but not limited to a requirement to maintain
        certain financial ratios and limitations on the ability of Rug Barn and
        Home Innovations to incur additional indebtedness and pay dividends. The
        Company was in compliance with the loan covenants, as amended, at June
        30, 1996.

        Cash flows used in operating activities were approximately $8.2 million
        for the six months ended June 30, 1996. In addition to the Company's net
        loss, cash used for the six month period ended June 30, 1996 was driven
        by an additional investment of $1.7 million in inventory as well as
        reductions in trade payables and accruals totaling $2.0 million.
        Additionally, other current assets increased by approximately $1.5
        million primarily as a result of prepaid catalog costs associated with
        new product roll-outs. The incremental inventory investment related
        almost entirely to the new Calvin Klein Home Line. Excluding investment
        made in Calvin Klein inventory, the Company's inventory investment
        decreased by approximately $6 million or 14%, from December 31, 1995
        amounts. The Company's cash from operations for the six months ended
        June 30, 1996 was positively impacted by a $5.0 million reduction in
        receivables resulting from increased emphasis on collections.

        Capital expenditures for the six month period ended June 30, 1996
        approximated $1.9 million. The Company currently has no material
        commitments for capital expenditures.

        Borrowings under the Company's line of credit increased by approximately
        $13.7 million during the six months ended June 30, 1996. Additionally,
        the Company paid dividends totaling $1.75 million on its redeemable
        preferred stock in January, 1996. During the balance of 1996, the
        Company expects that dividends will be paid in kind rather than in cash.



                                       15
<PAGE>   16

        Management expects that the Company's cash flow from operations and
        borrowings under the revolving credit facility, as required, will be
        adequate to finance anticipated operation needs, planned capital
        expenditures and to meet its debt service obligations in 1996.


        INFLATION

        Although the operations of the Company are generally influenced by
        economic conditions, the Company does not believe that inflation had a
        material effect on the results of operations during the six months ended
        June 30, 1996 and 1995. The Company has been historically able to
        mitigate the impact of the increases in the spot market prices of cotton
        through fixed price purchase contracts.


        EFFECT OF COMPLIANCE WITH ENVIRONMENTAL PROTECTION PROVISIONS

        Compliance with Federal, State and local provisions that have been
        enacted or adopted regulating the discharge of materials in the
        environment, or otherwise relating to protection of the environment, has
        not had, and is not expected to have, a material adverse effect on the
        capital expenditures, net income or competitive position of the Company.


        PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

        The statements contained in this Item 2 (Management's Discussion and
        Analysis of Financial Condition and Results of Operations) that are not
        historical facts are forward-looking statements subject to the safe
        harbor created by the Private Securities Litigation Reform Act of 1995.
        The Company cautions readers of this Quarterly Report on Form 10-Q that
        a number of important factors could cause the Company's actual results
        in 1996 and beyond to differ materially from those expressed in any such
        forward-looking statements. These factors include, without limitation,
        the general economic and business conditions affecting the retail
        industry, the Company's ability to meet its debt service obligations,
        contractual restrictions on HII's and the Rug Barn's ability to pay
        dividends to the Company, competition from a variety of firms ranging
        from small manufacturers to large textile mills, the seasonality of the
        Company's sales, the volatility of the Company's raw material cost, the
        Company's dependence on key personnel and the risk of loss of a material
        customer or a significant license. These and other factors are more
        fully described in the Company's previous filings with the Securities
        and Exchange Commission including, without limitation, the Company's
        Prospectus dated November 10, 1995.




                                       16
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PART II OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

The Company is involved in various routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse impact on the financial condition or
results of operations of the Company.

ITEM 2.  CHANGES IN SECURITIES                                             None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                   None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS               None

ITEM 5.  OTHER INFORMATION                                                 None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

        (a)  EXHIBITS
               SEE EXHIBIT INDEX.

        (b)  REPORTS ON FORM 8-K
                                                    NONE


                                       17
<PAGE>   18

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q/A (Amendment No. 1 to its quarterly
report on Form 10-Q for the quarter ended June 30, 1996) to be signed on its
behalf by the undersigned thereunto duly authorized.


                                            Decorative Home Accents, Inc.
                                          ------------------------------------
                                                    (Registrant)

Date:  August 1, 1997                            /s/ Jay N. Baker
      ----------------------------        ------------------------------------
                                                   Jay N. Baker*
                                              Chief Financial Officer


*Duly authorized to sign on behalf of the Registrant.



                                       18
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                                  EXHIBIT INDEX

EXHIBIT
NUMBER  DESCRIPTION

27      Financial data schedule

4.6     Form of Fourth Amendment to the Amended and Restated Credit Agreement,
        dated as of July 13, 1995, by among LaSalle National Bank, as co-agent
        and lender, General Electric Capital Corporation, as co-agent and
        lender, the Rug Barn, Inc., Home Innovations, Inc., Home Curtain Corp.,
        Calvin Klein Home, Inc., Draymore Mfg. Corp. and R.A. Briggs and
        Company, as amended by the First Amendment, dated as of November 17,
        1995, by the Second Amendment, dated as of December 31, 1995 and by the
        Third Amendment dated as of March 31, 1996.



                                       19