<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549
                                    
                               FORM 10-Q/A      

                 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                    THE SECURITIES AND EXCHANGE ACT OF 1934

                  For Quarterly Period Ended October 31, 1995
                                             ----------------

      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 2-98855
                                                -------

                        PRISM ENTERTAINMENT CORPORATION
                        -------------------------------
            (Exact name of registrant as specified in its charter)

Delaware                             95-3897052
--------                             ----------
(State or other jurisdiction of      (I.R.S. Employer Identification No.)
incorporation or organization)

1888 Century Park East, Suite 350, Los Angeles, California 90067
----------------------------------------------------------------
(Address of principal executive offices)              (Zip Code)

Registrant's phone number, including area code    (310)277-3270
                                                  -------------

________________________________________________________________
Former name, former address and former fiscal year, if changed
from last report.

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

                                            YES   X    NO
                                                -----     -----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

Class              Outstanding at October 31, 1995
------             -------------------------------
Common                        2,213,000
------                        ---------
<PAGE>
 
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
 
INDEX

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<C>         <S>                                                             <C> 
PART I      FINANCIAL INFORMATION          
 
            Consolidated Balance Sheets                                     1-2 
             October 31, 1995 and January 31, 1995
 
            Consolidated Condensed Statements of Income                     3
             Three Months Ended October 31, 1995 and 1994 and
             Nine Months Ended October 31, 1995 and 1994
 
            Consolidated Condensed Statements of Cash Flows                 4
             Nine Months Ended October 31, 1995 and 1994
 
            Notes to Consolidated Condensed Financial Statements            5
 
            Management's Discussion and Analysis of the Results             6-9
             of Operations and Financial Condition
 
PART II     OTHER INFORMATION                                               10
</TABLE>
<PAGE>

PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


<TABLE> 
<CAPTION> 


ASSETS                                 October 31,         January 31,
                                          1995                1995
                                      ------------        ------------
                                        Unaudited
<S>                                   <C>                 <C> 
  Cash and cash equivalents           $   532,000         $   360,000
  Trade receivables, net                6,265,000           7,573,000
   Due from affiliate                     251,000             351,000
   Inventories                            596,000           1,243,000
   Film costs                          15,559,000          17,920,000
   Prepaid expenses                       310,000             585,000
   Furniture and equipment, net           438,000             541,000
   Debenture issue costs, net             442,000             520,000
   Other assets                           301,000             310,000
                                      -----------         -----------
TOTAL ASSETS                          $24,694,000         $29,403,000
                                      ===========         ===========

</TABLE> 

See accompanying notes to consolidated financial statements

                                      -1-
<PAGE>

PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONCLUDED

<TABLE>
<CAPTION>

LIABILITIES AND
STOCKHOLDER'S EQUITY                                       October 31,      January 31,
                                                              1995             1995
                                                         -------------     -------------
                                                           (Unaudited)
<S>                                                      <C>               <C>

   Loans and notes payable                               $ 3,905,000       $ 2,964,000
   Accounts payable                                        1,253,000         1,416,000
   Accrued expenses                                          902,000         1,135,000
   Minimum guarantees                                      4,464,000         8,576,000
   Obligations under capital leases                          216,000           262,000
   Deferred income taxes                                     633,000           914,000
   Deferred income - related party                           999,000           682,000
   Deferred income                                            79,000           821,000
                                                         -----------       -----------

         Total liabilities before convertible
           senior subordinated debentures                 12,451,000        16,770,000
                                                         -----------       -----------

CONVERTIBLE SENIOR SUBORDINATED DEBENTURES                 4,952,000         4,964,000
                                                         -----------       -----------

COMMITMENTS AND CONTINGENCIES - NOTE #4

STOCKHOLDER'S EQUITY
   Common stock $.01 par value 20,000,000 shares
     authorized, 2,213,000 issued and outstanding             22,000            22,000
   Additional paid-in capital                              4,282,000         4,282,000
   Retained earnings                                       2,987,000         3,365,000
                                                         -----------       -----------
                                                           7,291,000         7,669,000
                                                         -----------       -----------

TOTAL                                                    $24,694,000       $29,403,000
                                                         ===========       ===========
</TABLE> 


See accompanying notes to consolidated financial statements

                                      -2-
<PAGE>

PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (Unaudited)

<TABLE> 
<CAPTION> 
                                                        Three-Month                               Nine-Month            
                                                       Periods Ended                             Periods Ended                
                                                        October 31,                               October 31,                 
                                              --------------------------------         --------------------------------       
                                                1995                 1994                  1995                  1994          
<S>                                           <C>                  <C>                  <C>                  <C>                    
NET SALES                                     $2,611,000           $3,168,000           $13,953,000          $12,091,000            
COST OF SALES                                  2,315,000            2,056,000             9,641,000            7,820,000            
                                              ----------           ----------           -----------          -----------            
GROSS MARGIN                                     296,000            1,112,000             4,312,000            4,271,000            
                                              ----------           ----------           -----------          -----------            
OTHER EXPENSES (INCOME)                                                                                                             
     Selling, general and administrative       1,315,000            1,557,000             3,805,000            5,180,000            
     Interest expense                            432,000              295,000             1,054,000              732,000            
     Interest (income)                           (20,000)              (6,000)              (23,000)             (32,000)           
     Amortization of loan costs                   29,000               26,000               105,000               90,000            
     Other expense                                     0                    0                     0               18,000            
                                              ----------           ----------           -----------          -----------            
         Total other expenses                  1,756,000            1,872,000             4,941,000            5,988,000            
                                              ----------           ----------           -----------          -----------            
(LOSS) BEFORE PROVISION                                                                                                             
   (BENEFIT) FOR INCOME TAXES                 (1,460,000)            (760,000)             (629,000)          (1,717,000)       
                                                                                                                                    
PROVISION (BENEFIT) FOR INCOME TAXES            (583,000)            (323,000)             (251,000)            (687,000)        
                                              ----------           ----------           -----------          -----------            
NET (LOSS)                                     ($877,000)           ($437,000)            ($378,000)         ($1,030,000)          
                                              ==========           ==========           ===========          ===========            
WEIGHTED AVERAGE NUMBER OF                                                                                                          
   COMMON SHARES OUTSTANDING                   2,213,000            2,213,000             2,213,000            2,213,000            
                                              ==========           ==========           ===========          ===========            
EARNINGS (LOSS) PER SHARE                         ($0.40)              ($0.20)               ($0.17)              ($0.47)      
                                              ==========           ==========           ===========          ===========         
</TABLE> 

         See accompanying notes to consolidated financial statements
                                      
                                      -3-
<PAGE>

PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
    
<TABLE> 
<CAPTION>
                                                                Nine Months Ended
                                                                   October 31,
                                                        --------------------------------
<S>                                                     <C>                   <C>
                                                           1995                  1994
                                                           ----                  ----
NET CASH PROVIDED BY OPERATING ACTIVITIES              $ 5,575,000           $ 3,106,000
                                                       -----------           -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of film rights                            (6,386,000)           (2,990,000)
     Capital Expenditures                                      ---              (203,000)
     Proceeds from affiliate note receivable               100,000                   ---
                                                       -----------           -----------
             Net cash provided by investing activities  (6,286,000)           (3,193,000)
                                                       -----------           -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings (repayments) under line of credit      941,000              (420,000)
     Repayments of capital lease obligations               (46,000)                  ---
     Redemption of convertible senior subordinated deben   (12,000)              (44,000)
                                                       -----------           -----------
             Net cash used by financing activities         883,000              (464,000)
                                                       -----------           -----------

NET INCREASE (DECREASE) IN CASH                            172,000              (551,000)

CASH, BEGINNING OF PERIOD                                  360,000               702,000
                                                       -----------           -----------

CASH, END OF PERIOD                                    $   532,000           $   151,000
                                                       ===========           ===========

SUPPLEMENTAL SCHEDULE OF NONCASH
    INVESTING AND FINANCING ACTIVITIES:

    Acquisition of licensing rights under contract     $ 4,743,000           $ 7,096,000
    Write down of investment in affiliate                      ---               200,000

</TABLE> 
     

See accompanying notes to consolidated financial statements

                                      -4-
<PAGE>
 
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    
1.  In the opinion of management, the accompanying unaudited financial
    statements contain all adjustments (consisting of normal recurring accruals)
    necessary to present fairly the financial position of the Company as of
    October 31, 1995, and the results of its operations for the three-month and
    nine month periods ended October 31, 1995 and 1994.      

2.  The results of operations for the interim periods of the Company's fiscal
    year are not necessarily indicative of the results to be expected for the
    entire year. Certain reclassifications have been made in the 1994 financial
    statements to confirm with 1995 classifications.

3.  On March 13, 1995 the Company and Imperial Bank of Los Angeles, California
    entered into an agreement for the bank to supply the Company with a
    $6,000,000 revolving line of credit secured by the assets of the Company,
    reducing to $5,000,000 on December 31, 1995 with an expiration date of June
    16, 1996. Borrowing is based upon certain percentages of acceptable
    receivables. The outstanding balance at October 31, 1995 was $3,905,000. The
    agreement contains various covenants the most restrictive of which (1)
    require a liquidity ratio of not less than .45 to 1 at any time, (2) require
    the debt to adjusted net worth to be not greater than 1.5 to 1 at any time,
    (3) require the interest coverage for any quarter to be more than 1.25 to 1.
    
4.  Commitments and Contingencies

    The Company has contracted for the production of three films that require
    payment of $2,400,000 upon delivery and acceptance. One film in the amount
    of $575,000 is scheduled for delivery in May, 1996, and a second film in the
    amount of $625,000 is scheduled for delivery in June, 1996 and the third
    film in the amount of $1,200,000 is scheduled for delivery in August, 1996.
     
                                      -5-
<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Results of Operations

     The following table breaks down the Company's sales by percentage into the
markets serviced.
<TABLE> 
<CAPTION> 
                                      Three Months         Nine Months
                                         Ended                Ended
                                       October 31,          October 31,
                                     ---------------      ---------------
                                      1995      1994       1995     1994
                                     -------   -----      -------  ------
    <S>                              <C>       <C>        <C>      <C> 
    Net Sales
      Video Sales
        Domestic Rental Market       45.2%       46%      48.5%       49%
        "Sell-Through" Market         3.1         2        7.8         1
      Ancillary Sales -
        Domestic Television          51.7        21       27.5        17
      Foreign Rights                  ---        27       18.9        32
      Theatrical                      ---         4        ---         1
                                     ----      ----       ----      ----
                                      100%      100%       100%      100%
                                     ====      ====       ====      ====
</TABLE> 

For The Nine Month Period Ended October 31, 1995 and October 31, 1994

     Net sales increased $1,862,000 or 15.4% to $13,953,000 from $12,091,000.
Home video sales into the "sell-through" market increased to almost $1.1 million
compared to $238,000 last year. Sales in the domestic television market
increased by more than 50% and sales in the domestic video rental market
increased 14.5%. These increases were offset by decreases in foreign sales of
20% and there were no theatrical releases during this period. The Company does
not have any plans for theatrical releases in the near future.

     In November 1994, the Company entered into a three year exclusive domestic
distribution agreement with Turner Home Entertainment, Inc. The agreement
provides that Turner assume all domestic sales responsibility for the Company's
product in the domestic home video market, both rental and "sell-through".
    
     While there was an increase in home video rental sales for the nine months,
all of that increase occurred in the first quarter. The second and third quarter
had decreases of 7% and 23% respectively from the comparable quarters in the
last fiscal year. These decreases created a cash shortage so that the Company
could not commence and complete production of new films. The decrease in sales
for foreign rights was the result of no new films available for sale in this
third quarter.      

     Costs of sales increased $1,821,000 to $9,641,000 from $7,820,000 primarily
from an $875,000 increase in film costs and minimum guaranteed royalty payments
to acquire higher quality films with more recognizable stars and acquire broader
rights for the foreign and television markets and a $1,000,000 increase in
distribution expenses. Distribution expenses increased as a result of the fees
earned by Turner for the domestic home video sales into the rental and "sell-
through" markets.

                                      -6-


<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS (continued)

     Selling, general and administrative expenses decreased $1,375,000 from
$5,180,000 to $3,805,000. This is primarily due to a decrease in advertising. In
the July 31, 1994 quarterly report, the Company announced it had instituted cost
reductions in the areas of distribution, sales and marketing. This decrease in
advertising is part of that program. Selling activities are now the
responsibility of Turner pursuant to the distribution agreement.

     Interest expense increased $322,000, primarily due to increased borrowings
under the new Imperial Bank line of credit. (see below)

     Interest income decreased $9,000 as the Company's shortage of cash did not
allow for any short term investments compared to last year.

     Loan costs increased $15,000 as the Company begins amortization of costs
related to completing the Imperial Bank line of credit (see below) and writing
off all remaining unamortized costs relating to the Bank of America line of
credit. Loan costs include the amortization of the costs related to the
Convertible Subordinated Debentures over a 10-year period, the life of the
Debentures.

     Other expenses for the nine months ended October 31, 1994 were losses due
to currency fluctuation relating to the Company's video operations in Canada. In
January, 1994, the Company entered into an agreement with C/FP Distribution, a
Canadian company, to distribute all of its new releases and catalog to the
Canadian home video market. The Company has closed its sales office in Canada
effective April 30, 1994.

     The loss before taxes decreased by $1,088,000 due to the increase in sales
and the reduction in selling and general and administrative expenses. The income
increases were partially offset by cost of sales and interest expense increases.

For the Three Months Ended October 31, 1995 and October 31, 1994
    
     Net sales decreased $557,000 or 17.5% from $3,168,000 last year to
$2,611,000. The decrease was primarily a result of no sales for foreign rights
in this quarter since the Company was financially unable to produce any new
films for sale in this quarter. Last year's sales in the foreign marketplace for
this same quarter were $1,067,000.      

     There was a decrease in domestic home video sales of 23% as the Company
released only two films into that market as opposed to its normal three films,
one each month. These decreases were offset by an increase of more than $850,000
in sale of rights to the domestic television market.
    
     Cost of sales increased $259,000. This increase is primarily a write down
of approximately $400,000 of the Company's video finished goods inventory to
realizable cash value, offset by reductions in production of artwork and
trailers cost reduction program.      

     Selling, general and administrative expenses decreased $242,000. This is
due primarily to a decrease in advertising and selling expenses since these
activities are now the responsibility of Turner pursuant to the distribution
agreement.

     Interest expense increased $137,000 due to increased borrowings under the
Imperial Loan Agreement and payment schedules negotiated with several creditors
requiring interest payments.

                                      -7-
<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS  (continued)

Liquidity and Capital Resources

     The Company finances its activities from cash flow and borrowing from banks
and other financial institutions and from the public debt market.

     On March 13, 1995, the Company and Imperial Bank of Los Angeles, California
entered into an agreement for the bank to supply the Company with a $6,000,000
revolving line of credit secured by the assets of the Company, reducing to
$5,000,000 on December 31, 1995 with an expiration date of June 16, 1996. This
replaces the Company's previous $5,000,000 line of credit with Bank of America
NT & SA.
    
     The Company had fully utilized its available line of credit at July 31,
1995 and had to rely on its current cash flow to meets its future obligations.
The Company has incurred a substantial loss in this third quarter of 1995
creating a significant working capital shortfall and is unable to meet its
current obligations to its creditors. Therefore, on December 1, 1995 the Company
filed a petition for reorganization under Chapter 11 of the Bankruptcy Code.
(see subsequent events)      

     Cash flow from operating activities was $5,575,000 and was primarly the
result of a $1,308,000 decrease in accounts receivable, and film cost
amortization of $4,635,000. These amounts were partially offset by decreases in
accounts payable and accrued expenses.

     Cash used in investing activities was $6,286,000 and was the result of
$6,386,000 in payments for the purchase of film rights offset by cash received
from a note receivable.

     Cash received from financing activities was $883,000 and was mainly
atributable to the borrowings by the Company on its new line of credit with the
Imperial Bank.

                           Seasonality

     Industry statistics and the Company's operating history indicate there is a
summer sales decline.

                           Inflation

     Management believes that inflation is not a material factor in the
operation of its business at this time.

                           Subsequent Events

    
     As a result of the third quarter loss, the Company has experienced a
significant working capital shortfall as its credit line has been fully
utilized. On December 1, 1995, the Company filed a petition for reorganization
under Chapter 11 of the Bankruptcy Code. The Company is presently engaged in
discussions with its lender regarding the use of cash collateral during the
bankruptcy proceeding.      

                                      -8-

<PAGE>
 
Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS (continued)

                           Subsequent Events (continued)
    
     Turner Home Entertainment will continue to distribute the Company's films
into the domestic video market. The three films to be distributed in the
Company's fourth quarter include a sequel to its best selling series, "Night
Eyes". However, the Company does not have sufficient capital to fully complete
its calendar 1996 production and release schedule, nor to satisfy, in a timely
fashion, its monetary obligations to certain of its larger creditors.      
    
     The Company does not satisfy all of the guidelines for the continued
listing of the Company's common stock on the American Stock Exchange.
Accordingly, there can be no assurances that the Company's stock will continue
to be listed. The American Stock Exchange has advised the Company that the
existing trading halt will not be lifted until the Exchange has reviewed the
Company's continued listing eligibility and its plan of reorganization.      

     Ron Berger, Wirt Walker and Mishal Al Sabah have resigned from the Board of
Directors. Peter Graham and Barry Collier will continue as directors, and Mr.
Collier will continue to serve as President, Chief Executive Officer and Chief
Operating Office of the Company. The Company has also retained an investment
banking firm to find a strategic partner and/or acquisition.

                                      -9-

<PAGE>
 
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES


PART II      Other Information
             -----------------

ITEM 6(B)    Report on Form 8-K
             None



                                  SIGNATURES
                                  ----------

             Pursuant to the requirements of the Securities Exchange Act of
             1934, the Registrant has duly caused this report to be signed on
             its behalf by the undersigned thereunto duly authorized.

 
                                            PRISM ENTERTAINMENT CORPORATION
                                            AND SUBSIDIARIES (Registrant)


 
             December 19, 1995              /s/ Barry L. Collier
                                            ---------------------------------
                                            President


             December 19, 1995              /s/ Earl Rosenstein
                                            ---------------------------------
                                            Senior Vice President and
                                            Chief Financial Officer

                                     -10-