<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: September 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 
 incorporation or organization)                  Employer Identification Number)

             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 November 8, 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 55,836 outstanding shares of the Registrant's 14% Cumulative
Redeemable Preferred Stock ($0.01 par value).


<PAGE>   2
                          DECORATIVE HOME ACCENTS, INC.

                        QUARTER ENDED SEPTEMBER 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 September 30, 1996 (As Restated)
                           and December 31, 1995..................................................  4

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

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

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

                  Condensed Consolidated Statements of Cash Flows for the nine months
                           ended September 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.................................................................. 17
</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 SEPTEMBER 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.


<PAGE>   4



PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                          DECORATIVE HOME ACCENTS, INC.

              CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
                                   (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                        September 30,    December 31,
                                                                             1996          1995(1)
                                                                        -------------    ------------
                                                                     (Restated - Note 6)
<S>                                                                       <C>             <C>      
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                            $     957       $     169
     Investment securities                                                    1,000           1,000
     Accounts receivable - net of allowance for doubtful accounts of
        $2,143 at September 30, 1996 and $2,506 at December 31, 1995         36,844          28,982
     Income taxes receivable                                                    456           2,714
     Inventories                                                             45,148          43,713
     Deferred income taxes                                                    3,015           4,282
     Other current assets                                                     2,818             598
                                                                          ---------       ---------
        Total current assets                                                 90,238          81,458

PROPERTY, PLANT AND EQUIPMENT, NET                                           31,641          30,667
OTHER ASSETS                                                                  8,226           8,790
INTANGIBLE ASSETS, NET                                                       92,821          94,938
                                                                          ---------       ---------

TOTAL ASSETS                                                              $ 222,926       $ 215,853
                                                                          =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
     Accounts payable                                                     $  15,489       $  14,452
     Accrued liabilities                                                      6,350           9,775
     Accrued interest                                                         4,120           7,583
                                                                          ---------       ---------
        Total current liabilities                                            25,959          31,810

LONG-TERM DEBT                                                              162,734         131,452
DEFERRED INCOME TAXES                                                           263           3,348
REDEEMABLE PREFERRED STOCK                                                   47,269          41,059
REDEEMABLE COMMON STOCK                                                       2,234           1,639
STOCKHOLDERS' EQUITY (DEFICIENCY):
     Common stock                                                                 9               9
     Additional paid-in capital                                               9,301          16,107
     Reduction of certain equity interest to predecessor basis               (6,209)         (6,209)
     Accumulated deficit                                                    (18,634)         (3,362)
                                                                          ---------       ---------
        Total stockholders' equity (deficiency)                             (15,533)          6,545
                                                                          ---------       ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                   $ 222,926       $ 215,853
                                                                          =========       =========
</TABLE>

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



See notes to condensed consolidated financial statements (unaudited).



<PAGE>   5
                          DECORATIVE HOME ACCENTS, INC.

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
                                   (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                      Three Months Ended
                                                          September 30,
                                                     -----------------------
                                                       1996           1995
                                                     --------       --------
                                               (Restated - Note 6)
<S>                                                  <C>            <C>     
SALES                                                $ 47,441       $ 54,757

COST OF GOODS SOLD                                     34,830         38,036
                                                     --------       --------

GROSS PROFIT                                           12,611         16,721

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES           11,850         12,937
                                                     --------       --------

INCOME FROM OPERATIONS                                    761          3,784

INTEREST EXPENSE, NET                                  (4,962)        (4,373)
                                                     --------       --------

LOSS BEFORE PROVISION FOR INCOME TAXES                 (4,201)          (589)

PROVISION FOR INCOME TAXES                             (2,720)           (97)
                                                     --------       --------

NET LOSS BEFORE EXTRAORDINARY LOSS                     (6,921)          (686)

EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF
      DEBT, NET OF TAXES OF $469                         --             (763)
                                                     --------       --------

NET LOSS                                             $ (6,921)      $ (1,449)
                                                     ========       ========
</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>
                                                         Nine Months Ended
                                                            September 30,
                                                     -------------------------
                                                       1996             1995
                                                     ---------       ---------
                                                (Restated - Note 6)
<S>                                                  <C>             <C>      
SALES                                                $ 129,213       $  76,882

COST OF GOODS SOLD                                      95,440          49,261
                                                     ---------       ---------

GROSS PROFIT                                            33,773          27,621

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES            35,948          21,325
                                                     ---------       ---------

INCOME (LOSS) FROM OPERATIONS                           (2,175)          6,296

INTEREST EXPENSE, NET                                  (14,484)         (7,766)
                                                     ---------       ---------

LOSS BEFORE PROVISION FOR INCOME TAXES                 (16,659)         (1,470)

INCOME TAX BENEFIT                                       1,387             238
                                                     ---------       ---------

NET LOSS BEFORE EXTRAORDINARY LOSS                     (15,272)         (1,232)

EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF
      DEBT, NET OF TAXES OF $469                          --              (763)
                                                     ---------       ---------

NET LOSS                                             $ (15,272)      $  (1,995)
                                                     =========       =========
</TABLE>




See notes to condensed consolidated financial statements (unaudited).



                                       6
<PAGE>   7
                          DECORATIVE HOME ACCENTS, INC.

      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                                 (IN THOUSANDS)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
                                   (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                    Reduction of
                                                                                   Certain Equity                         Total
                                                                                     Interest to                       Stockholder's
                                                     Common         Additional       Predecessor      Accumulated         Equity
                                                     Stocks       Paid-in Capital        Basis         Deficiency      (Deficiency)
                                                     -------      ---------------    --------------    -----------     ------------
<S>                  <C> <C>                       <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 nine months ended September 30, 1996                                    (595)                                          (595)

Accretion of redeemable preferred stock for
  the nine months ended September 30, 1996                                    (586)                                          (586)

Preferred stock dividends paid in-kind for
  the nine months ended September 30, 1996                                  (5,625)                                        (5,625)

Net loss (Restated - Note 6)                                                                                (15,272)      (15,272)
                                                     -----------       -----------    ------------      -----------     --------- 
Balances at September 30, 1996
  (Restated - Note 6)                                $         9       $     9,301    $     (6,209)     $   (18,634)    $ (15,533)
                                                     ===========       ===========    ============      ===========     ========= 
</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>
                                                                     Nine Months Ended
                                                                        September 30,
                                                                 ------------------------- 
                                                                   1996            1995
                                                                 ---------       --------- 
                                                            (Restated - Note 6)
<S>                                                              <C>             <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                         $ (15,272)      $  (1,955)
Adjustment to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                                   7,394           4,178
     Deferred tax (benefit) provision                               (1,818)           (986)
     Changes in operating assets and liabilities:
         Accounts receivable                                        (7,862)        (21,061)
         Inventories                                                (1,435)         (1,830)
         Income tax receivable                                       2,258            --
         Other current assets                                       (2,220)            254
         Accounts payable                                            1,037          (2,321)
         Accrued liabilities                                        (3,853)            511
         Accrued interest                                           (3,464)          2,958
         Income taxes payable                                         --              (304)
                                                                 ---------       ---------
            Net cash used in operating activities                  (25,235)        (20,556)
                                                                 ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Net cash used to acquire HII                                 --           (94,578)
         Purchase of property and equipment                         (4,073)         (1,733)
         Other long-term assets                                        564          (4,250)
                                                                 ---------       ---------

            Net cash used in investing activities                   (3,509)       (100,561)
                                                                 ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Net borrowings under revolving line of credit              31,282          15,361
         Redeemable preferred stock dividends paid                  (1,750)           --
         Issuance of 13% Senior Notes due 2002 and
            Class F common stock                                      --           125,000
         Issuance of $50 million redeemable preferred stock
            and class D common stock                                  --            50,000
         Early extinguishment of debt                                 --           (66,900)
         Deferred financing costs                                     --           (10,699)
                                                                 ---------       ---------

            Net cash provided by financing activities               29,532         112,762
                                                                 ---------       ---------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       788          (8,355)

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD                       $     957       $       0
                                                                 =========       =========

SUPPLEMENTAL CASH FLOW INFORMATION
         Interest paid                                           $  14,005       $   3,790
         Income taxes paid                                       $    --         $   1,309
</TABLE>



See notes to condensed consolidated financial statements (unaudited).


                                       8
<PAGE>   9
DECORATIVE HOME ACCENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 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
         September 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>
                               September 30,     December 31,
                                   1996             1995
                               -------------     ------------
         <S>                      <C>              <C>
         Raw materials            $13,435          $24,464
         Work-in-process            3,341              973
         Finished goods            28,372           18,276
                                  -------          -------
                                  $45,148          $43,713
                                  =======          =======
</TABLE>

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

<TABLE>
<CAPTION>
                                          September 30,       December 31,
                                               1996                1995
                                          -------------       ------------
<S>                                          <C>                <C>
         Land                                $    863           $    863
         Buildings and improvements            15,617             15,384
         Furniture and fixtures                 5,059              3,184
         Machinery and equipment               16,656             14,101
                                             --------           --------
                                               38,195             33,532

         Accumulated depreciation              (6,554)            (3,375)
                                             --------           --------
                                               31,641             30,157
         Construction in progress                --                  510
                                             --------           --------
                                             $ 31,641           $ 30,667
                                             ========           ========
</TABLE>


                                       9
<PAGE>   10
DECORATIVE HOME ACCENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996 AND 1995 (CONTINUED)
--------------------------------------------------------------------------------

4.       INCOME TAXES

         The Company's income tax benefit for the nine months ended September
         30, 1996 was calculated at an effective rate of 32% before being offset
         by an increase in the tax valuation allowance of $2.4 million.
         Management of the Company currently believes that the deferred tax
         asset reported in the September 30, 1996 balance sheet will be fully
         realized.

5.       REVOLVING CREDIT FACILITY

         On November 12, 1996, the Company and certain subsidiaries entered into
         a new Loan and Security Agreement (the "Agreement") with a new
         revolving credit facility to provide for revolving loans and letters or
         credit in an aggregate principal amount of up to $50 million for a
         three year period. The Agreement may be renewed from year to year
         thereafter at the mutual agreement of the parties. The initial
         borrowing of $35.4 million on November 12, 1996 was utilized to repay
         amounts owed the prior lender under the Company's former Revolving
         Credit Facility. Borrowings under the new $50 million Revolving Credit
         Facility bear interest, at the Company's discretion, at a rate of 5/8%
         percent per annum in excess of the Prime Rate or 3-1/4% percent per
         annum in excess of the Eurodollar Rate. The borrowings are secured by a
         first priority lien on the accounts receivable and inventories of the
         Company's subsidiaries. The Company is required to maintain a minimum
         adjusted tangible net worth, as defined, and the payment of cash
         dividends on the Company's common stock is limited in accordance with
         the Agreement. Further, there are limitations on the ability of the
         Company to incur additional indebtedness and make loans, advances and
         investments. Under the Company's borrowing formula, which is based on
         underlying collateral as described above, approximately $7.3 million
         (net of $35.4 million of outstanding borrowings) was available for
         borrowings by the Company under the new Revolving Credit Facility at
         November 12, 1996.

6.       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              NINE MONTHS ENDED
                                                SEPTEMBER 30, 1996              SEPTEMBER 30, 1996
                                           --------------------------      ---------------------------
                                               AS       AS ORIGINALLY         AS         AS ORIGINALLY
                                           RESTATED        RECORDED        RESTATED        RECORDED
                                           ---------    -------------      ---------     -------------
 
         <S>                                <C>             <C>             <C>             <C>      
         Net sales                          $  47,441       $  48,835       $ 129,213       $ 133,116
         Income (Loss) from operations      $     761       $   2,683       $  (2,175)      $   2,652
         Net Loss                           $  (6,921)      $  (4,041)      $ (15,272)      $ (10,445)
</TABLE>

<TABLE>
<CAPTION>
                                              AS OF SEPTEMBER 30, 1996
                                             ---------------------------
                                                AS         AS ORIGINALLY
                                             RESTATED        RECORDED
                                             ---------------------------

         <S>                                 <C>             <C>      
         Current assets                      $  90,238       $  95,161
         Total assets                        $ 222,926       $ 227,893
         Current liabilities                 $  25,959       $  26,099
         Total liabilities                   $ 188,956       $ 189,096
         Total shareholders' deficiency      $ (15,533)      $ (10,706)
</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 and inventory, 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 nine months ended September
                30, 1996. See Note 6 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 unaudited financial
         statements of DHA and the notes thereto included elsewhere in this Form
         10-Q. The following table includes unaudited proforma financial
         information for the nine months ended September 30, 1995, as if the
         July 1995 purchase of Home Innovations, Inc. ("HII") occurred as of
         January 1, 1995. Such adjustments to the proforma 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 for
         the nine months ended September 30, 1996, should be read using the
         proforma financial information presented below:

<TABLE>
<CAPTION>
                                                            ACTUAL        PRO FORMA
                                                                Nine Months Ended
                                                         -----------------------------
                                                         September 30,   September 30,
                                                             1996             1995
                                                         -------------   -------------

         <S>                                               <C>             <C>      
         Sales                                             $ 129,213       $ 155,038

         Cost of goods sold                                   95,440         109,977
                                                           ---------       ---------

              Gross profit                                    33,773          45,061

         Selling, general and administrative expenses         35,948          38,092
                                                           ---------       ---------

         Income from operations                               (2,175)          6,969

         Interest expense, net                               (14,484)        (13,065)
                                                           ---------       ---------

         Loss before income taxes                          $ (16,659)      $  (6,096)
                                                           =========       =========
</TABLE>

         IMPACT OF THE PURCHASE OF HOME INNOVATIONS, INC.
         On July 13, 1995, DHA acquired HII, a 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 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 $34.7
         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


                                       11
<PAGE>   12
         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

         Comparison of Three Months Ended September 30, 1996 (As Restated) with
         Three Months Ended September 30, 1995

         NET SALES

         Net sales decreased by $7.4 million, or 13.5% to $47.4 million for the
         three months ended September 30, 1996 from $54.8 million for the three
         months ended September 30, 1995. During the latter part of the third
         quarter of 1996, sales were negatively impacted by delays in deliveries
         of towel blanks used in the Company's bath business as a result of
         industry capacity shortages. Deliveries are expected to improve during
         the fourth quarter. The continued phase out of the furniture cover
         business also negatively impacted the quarter-to-quarter comparison by
         over $2 million. Down-sizing of the Company's printing operation in
         early 1996 further contributed to the 1996 sales decline. Historically,
         the Company had performed contract printing services at relatively low
         margins to supplement internal capacity demands of the printing
         operation. These sale declines were partially offset by a $1.4 million
         increase in sales of Calvin Klein Home products.

         GROSS PROFIT

         Gross profit margin decreased to 26.6% for the three months ended
         September 30, 1996, compared to 30.5% in 1995. Realized gross profit
         margins in 1996 were negatively impacted by higher customer accounts
         receivable chargebacks related to customer returns and sales
         allowances. Also, negatively impacting the 1996 period was the
         continued expansion of new product lines in the Company's giftware
         business. This strategy is intended to help maximize the Company's
         distribution strength. Products sourced through outside manufacturers
         resulted in margins below those historically achieved on cotton throws.
         The quarter-to-quarter comparison was favorably impacted by improved
         operating efficiencies in the Company's cut-and-sew plants.

         SELLING, GENERAL & ADMINISTRATIVE EXPENSES

         Selling, general and administrative ("SG&A") expenses decreased $1.0
         million, or 8.0% to $11.9 million for the three months ended September
         30, 1996 from $12.9 for the same period in 1995. Positively impacting
         the 1996 results were ongoing cost and headcount reduction programs
         resulting from the DHA's acquisition of HII. Duplicate functions are
         being eliminated and cost reductions achieved from consolidating
         certain functions and services. Management expects the cost reduction
         programs to continue to favorably impact the remainder of 1996 compared
         to 1995 expense levels. Negatively impacting the amounts of SG&A
         expenses for 1996 and 1995 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 such costs for
         the Company's more mature business. 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 the 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 13.5% to $5.0 million for the three
         months ended September 30, 1996, from $4.4 million for the three months
         ended September 30, 1995. The increase resulted from higher average
         borrowings under the Company's revolving credit facility.


         RESULTS OF OPERATIONS

         Comparison of Nine Months Ended September 30, 1996 (Actual) (As
         Restated) with Pro Forma Nine Months Ended September 30, 1995

         As described above, the results of operations for the nine months ended
         September 30, 1995 reflect proforma adjustments related to the purchase
         of HII discussed above.


                                       12
<PAGE>   13
         NET SALES

         Net sales for the nine months ended September 30, 1996, decreased $25.8
         million, or 16.6% compared to the proforma net sales for the nine
         months ended September 30, 1995. Sales for the nine months ended
         September 30, 1996 were negatively impacted by weak consumer demand and
         conservative inventory management by retailers serviced by the Company
         in the first six months of 1996. Delivery shortages for towel blanks
         used in the Company's bath business, as well as reduced capacity in the
         Company's contract printing business also negatively impacted the
         year-to-year comparison. The decline in furniture cover sales for 1996,
         resulting from the Company's decision to exit this business, was
         partially offset by growth in Calvin Klein Home sales.

         GROSS PROFIT

         Gross margin decreased to 26.1% of net sales for the nine months ended
         September 30, 1996, from a proforma of 29.1% for the nine months ended
         September 30, 1995. Realized gross profit margins in 1996 were
         negatively impacted by higher customer accounts receivable chargebacks
         related to customer returns and sales allowances. Additionally, decline
         in the 1996 results is attributable to the Company's strategy to
         broaden its giftware product offerings in order to maximize its
         distribution strength. The margins realized on certain products sourced
         through outside manufacturers are below those on items manufactured by
         the Company. Offsetting this decline were improvements in the 1996
         plant efficiencies and reduced writedowns of slow moving and obsolete
         inventory.

         SELLING, GENERAL & ADMINISTRATIVE EXPENSES

         SG&A expenses decreased $2.1 million, or 5.6% to $35.9 million for the
         nine months ended September 30, 1996 from $38.1 million for the
         proforma nine months ended September 30, 1995. As a percentage of
         sales, SG&A expenses increased to 27.8% for the nine months ended
         September 30, 1996 from 25.0% for the 1995 period. The year-to-year
         decline in sales volume resulted in higher relative SG&A costs
         primarily as a result of the fixed salary structure of the Company's
         sales and marketing functions. Positively impacting the 1996 results
         were ongoing cost and headcount reduction programs resulting from DHA's
         acquisition of HII. Duplicate functions are being eliminated and cost
         reductions achieved from consolidating certain functions and services.
         Management expects the cost reduction programs to continue to favorably
         impact the remainder of 1996 compared to proforma 1995 expense levels.
         Negatively impacting the amounts of SG&A expenses for 1996 and 1995
         were the costs associated with Calvin Klein Home. Advertising and
         overhead expense associated with Calvin Klein Home, as a percentage of
         sales, exceeded the level of such costs for the Company's more mature
         business. 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 the 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 10.9%, or $1.4 million to $14.5
         million for the nine months ended September 30, 1996, from $13.1
         million for the proforma nine months ended September 30, 1995. The
         increase resulted from higher average borrowings under the Company's
         revolving credit facility.

         INCOME TAXES

         The Company has recognized an income tax benefit arising from the
         year-to-date loss. The Company has provided a valuation allowance of
         $3.9 million on the related deferred tax asset. Management of the
         Company currently believes that the deferred tax asset reported in the
         September 30, 1996 balance sheet will be fully realized.

         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.

                                       13
<PAGE>   14
         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.

         In November of 1996, the Company entered into a new Loan and Security
         Agreement (the "Agreement") with a new revolving credit facility. The
         Company terminated its relationship with its previous revolving credit
         facility lenders. The Agreement will provide the Company with a $50
         million revolving line of credit. The initial term of the Agreement is
         for three years and can be renewed from year-to-year thereafter. The
         Agreement contains certain financial and other covenants with which the
         Company must comply, including a covenant requiring the Company to
         maintain a minimum adjusted tangible net worth, as defined, and
         covenant restricting the payment of cash dividends on the Company's
         common stock. 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 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. Under the Company's borrowing
         formula, which is based on underlying collateral as described above,
         approximately $7.3 million (net of $35.4 million of outstanding
         borrowings) was available for borrowings by the Company under the new
         Revolving Credit Facility at November 12, 1996.

         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 expects that the working capital requirements
         for supporting the Calvin Klein Home lines should be approximately $7
         to $9 million for the next 12 to 15 months. Management believes that
         the Company's cash flow from operations and borrowing under the new
         revolving credit facility will be sufficient to fund the Calvin Klein
         Home requirements.

         Cash flows used in operating activities were approximately $25.2
         million for the nine months ended September 30, 1996. In addition to
         the Company's net loss, cash requirements for the nine month period
         ended September 30, 1996 were driven by an increase in accounts
         receivable of $7.9 million. This increase in accounts receivable is
         primarily due to the seasonality of the business accompanied with a
         sales program extending the payment terms of sales made earlier in the
         year in an effort to accelerate the timing of customer purchases for
         the holiday season. Also, this increase in cash used for operating
         activities was due to an additional investment of $1.4 million in
         inventory. 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 $3 million from December 31, 1995 amounts.

         Capital expenditures for the nine month period ended September 30, 1996
         approximated $4.1 million. The Company currently has no material
         commitments for capital expenditures.

         Borrowings under the Company's line of credit increased by
         approximately $31.3 million during the nine months ended September 30,
         1996. Additionally, the Company paid dividends totaling $1.75 million
         on its redeemable preferred stock in January, 1996. During the balance
         of 1996, dividends will be paid in-kind rather than in cash.

         Management expects that the Company's cash flow from operations and
         borrowings under the new 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 nine months
         ended September 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


                                       14
<PAGE>   15
         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.


                                       15
<PAGE>   16
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
                  Form 8-K filed on November 6, 1996, regarding the resignation
                  of Henry E. Scharling, II and Barbara Scharling reported under
                  Item 5 of Form 8-K.




                                       16
<PAGE>   17
                                   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 September 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.


                                       17
<PAGE>   18
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>

EXHIBIT
NUMBER                     DESCRIPTION
-------                    ------------
<S>                        <C>
10.1                       Loan and Security Agreement between Decorative Home
                           Accents, Inc. and subsidiaries and Congress
                           Financial Corporation dated November 12, 1996.

27                         Financial data schedule
</TABLE>



                                       18